Economic Crime and Corporate Transparency Bill

Lord Leigh of Hurley Excerpts

2nd reading
Wednesday 8th February 2023 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, likewise I welcome the Bill, which addresses a major issue for this country. I refer your Lordships to the register of interests, where I am listed as an employee of finnCap Group plc, chairman of the aforementioned Manolete Partners plc and of course a chartered accountant, as a number of others are as well.

We have an enormous issue here, as my noble friend Lady Morgan explained. The University of Portsmouth estimated that the cost of economic crime is some £350 billion—indeed, some 40% of all crime is economic crime. Your Lordships’ House would not be the right place to unnecessarily knock our financial services industry, but once again the City of London was ranked last year by the Z/Yen index as second in the world, second only to New York and ahead of every other European city, due in no small part to the regulatory regime we have. But there is room for improvement and Companies House is an area where improvement is needed.

There was a documented instance in the Times recently, by Ali Hussain, of a road in a Herefordshire market town where 100 companies have been set up by nationals from one country in south-east Asia, not one of whom actually lived in that market town. In that same town, 30 businesses were registered to 30 different people in one flat, and none of those people live there. It looks like some 2,200 new companies per day are being set up, 17,000 a year by Chinese individuals and 500 a year by Russian individuals, without any checks to see whether these people are sanctioned. So-called “burner” companies and of course bounce-back loan applicants, and more than 160 companies self-defining as banks have been started, many with addresses in Eaton Square, Belgravia—which seems unlikely—and as my noble friend Lord Clarke pointed out, this was without the knowledge or consent of the residents.

I know that this Bill has long been sought by many. As the noble Lord, Lord Browne of Ladyton, pointed out, the debate in the other House was exemplary. I was struck by a few things: first, the lavish praise from all sides of the House for the Minister, Kevin Hollinrake, who has long championed this issue; secondly, the constructive amendments which were debated and, it seems to me, the willingness of the Government to listen. I note that another Minister on this Bill, Tom Tugendhat, pledged that His Majesty’s Government will introduce amendments through this House, so, like all of us, I look forward to seeing them as soon as possible, with as much notice as possible before Committee. In particular, Mr Tugendhat pledged to look at the concept of “failure to prevent”, and I am indebted to the indefatigable Dame Margaret Hodge for sharing her thoughts with me—unusually, I find myself persuaded by a Labour MP, albeit an exceptional one—and of course to Sir Robert Buckland, so there must be hope that we can all work together in this House on this Bill.

To date, on this Bill and related matters, in the former BEIS we have had, in the noble Lord, Lord Callanan, an experienced and knowledgeable Minister in this and other BEIS areas. I use this opportunity to pay tribute to all he has done in BEIS, particularly on Companies Act matters. His expertise will be missed enormously, but I am really pleased to welcome my noble friend Lord Johnson of Lainston to the Front Bench.

The issue of failure to prevent will be tricky for draftsmen and for us, but I hope that reforming the ID principle and direct liability for corporate officers will make it easier. My noble friend Lord Young of Cookham was kind enough to refer to Select Committees, so I will bring up the fact that I recently chaired the Finance Bill Sub-Committee which looked at R&D tax credits, where fraud is estimated to be some £400 million a year. Interestingly, HMRC is now requiring a senior corporate officer to personally sign off the application for the R&D tax credit, so we can move, and are moving, in the right direction.

The noble and learned Lord, Lord Brown of Eaton-under-Heywood, claimed to have limited legal knowledge on this matter. That puts me at a distinct disadvantage, as my legal knowledge was mostly gained from watching “Rumpole of the Bailey” as a child, and not much more, but I cannot help observing that the Bill does not expand the scope of conduct that constitutes sanctions evasion, so undisclosed frozen assets could potentially be recoverable as the proceeds of crime. There are other potential amendments floating around in addition to those the noble and learned Lord mentioned, and I look forward to seeing them in subsequent debates.

I also expect to see amendments that look to toughen up Companies House, which is the focus of the Bill: specifically, to ensure that beneficial ownership can be challenged and checked more rigorously, possibly on a risk-based approach, checking the status of persons with significant control and, in particular, identifying and verifying shareholder information.

I am reluctant to put more burdens on companies. Noble Lords will have seen the Quoted Companies Alliance report last week, which showed us that the published accounts for a quoted company contain on average 95,000 words; that is more than in George Orwell’s Nineteen Eighty-Four. We do not want to increase companies’ accounts; the work has to stay in Companies House. I am not persuaded by the arguments for a fixed incorporation fee to be in the Bill, at a level of £100 or whatever. My understanding is that at the moment the registrar can fix the fee herself through statutory instruments. That works, so she does not need extra power, and clearly she needs to address the ridiculously low £12 for incorporation. The primary issue for Companies House is not money but lack of powers to insist on high-quality, accurate filings.

Some say that Companies House in Cardiff is not as productive as we would like. According to the independent adjudicators of Companies House, who reported in June 2022, some 44,665 appeals against late filing penalties were still awaiting attention. I know that number is coming down, but that is what it was in June 2022. Just last week, noble Lords will be interested to know, I saw a job advertised—in the Guardian, of course—for the chief data officer at Companies House at a salary of £118,000. Fair enough, but the advert for the job offered the applicant the opportunity of a hybrid role and suggested home working. Is that going to solve the problem? Is the issue the location? Maybe we should be encouraging Companies House to outsource, despite the criticisms levelled by the noble Lord, Lord Sikka. More of its work could be outsourced and I am not convinced it has the capacity to accommodate all the changes in this Bill.

Finally, if you will forgive me, I have an important piece of detail. Company accounts, which used to be provided on paper or in a PDF, which is essentially a paper form, are now filed using digital formats which “tag” each item with a label so that it can be recognised by downstream processing systems. Unfortunately, there is no requirement in this Bill for internal consistency, so tagging errors will not be picked up, and that is needed to ensure that none of the data is self-contradictory or that it matches other data such as the previous year’s accounts, or tags internally to the document. This is perhaps best explained by way of an example. A director’s statement in Companies House may make some very upbeat statements about the condition of the company, but if you look in the actual accounts, it could be on the verge of collapse. However, the register is not able to reject those accounts because they are only internally inconsistent, not externally inconsistent. Perhaps we could have some amendments to change that.

If the accounts are properly tagged, it will be possible for SMART—automated, computer-based analysis—to identify both the financial condition of the company and any inappropriate statements made by the directors. With good quality tagging, this kind of analysis can be done quickly and accurately across the entire register; we are talking about 10 million to 20 million sets of financial statements.

I very much look forward to working with the Minister and colleagues on this very important Bill.

--- Later in debate ---

[Baroness Blake of Leeds (Lab)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Wallace, one of my fellow Yorkshire advocates; we have done a lot of work together in that part of the country. I add my thanks to the Minister, the noble Lord, Lord Sharpe of Epsom, and his team for meeting us earlier this week. I also welcome the new Minister, the noble Lord, Lord Johnson of Lainston, to his place, and very much look forward to continuing to work with both in a constructive way.

I am very heartened by the debate, as there was so much consensus from all Benches; many have remarked on the universal welcome for the Bill. Both Ministers must be aware of the grit and determination to make sure that something comes from this that is meaningful, challenging and effective. I have a sense that there will be several Committee days where we will look at the detail in so many of the areas we have covered tonight but with which we cannot deal in the few minutes we have left. As well as that consensus, we have also heard concerns in the incredibly well-informed contributions across the House about the time taken to bring in the legislation and the gaps that remain within it.

There are some interesting questions that I would like some answers to from the comments that have been made. For example, where is the register of overseas properties? The noble Lord, Lord Vaux, made a couple of interesting comments that have not been picked up, and asked a very simple question. What have the Government learned so far from attempts that have been made to bring legislation forward?

I was very struck by the comments of the noble and learned Lord, Lord Garnier, about the victims of fraud. We should, as my noble friend Lord Sikka, said, look at the police response in this case.

[Lord Leigh of Hurley (Con)]

I do not think that the House needs to be detained by references to the noble Lord, Lord Sikka, as he is not in his usual place. This is the second time in a debate that he has not been in his usual place, and therefore we need not spend time analysing and commenting on his remarks.

[Baroness Blake of Leeds (Lab)]

I apologise and accept the noble Lord’s point entirely—forgive my lack of experience in these matters.

On the experience of cyber mentioned by my noble friend Lord Davies, and to pick up on the point made by the noble Baroness, Lady Morgan, I have received a text telling me that my parcel has not been delivered. I can tell noble Lords that I do not do ordering online for parcels. My kids do—they have them piling up by the door—but I do not. That is exactly what we are all subject to. One momentary loss of concentration and we go down a terrible pathway that is very difficult to get out of.

I am also interested in alternative ways in which to pursue litigation, raised by the noble Lord, Lord Faulks. We do not do enough in this area; there is too much of a confrontational approach, which perhaps holds us back. We have to be honest that the delay between 2016, when the Government first promised reform, and today, has seen years of economic crime coming through and affecting so many people. As we heard earlier in the debate, we have also seen a significant increase in the scale of the issue in recent years. As the noble Lord, Lord Clarke of Nottingham, said, this is the money laundering capital of the world. What a terrible state of affairs.

My noble friend Lord Ponsonby gave us detailed statistics that I shall not go through again. I think that we all know the scale of the problem that we are facing. What we do know is that economic crime has far-reaching consequences for individuals, businesses, our broader economy and our national security. My noble friend Lord Browne gave such a brilliant and passionate exposure of the impact across such a wide piece. He described it as being on an extraordinary scale—the noble Baroness, Lady Morgan, called it “prolific”. We should remember the extent of what we are talking about here.

I am not sure that we have paid due attention to the huge damage that this does to our national finances, and we should look through the prism of that. The numbers quoted by different organisations are extraordinary. The National Crime Agency estimated £100 billion annually, and Spotlight on Corruption estimated £190 billion annually. These are extraordinary numbers that we cannot afford. Of course, what we know is that we have to follow the money. Where does this money actually go and what is it then used for, in the hands of criminals and corrupt Governments, with economic crime funding other serious organised crime such as people trafficking, drug smuggling, arms dealing and fraud? As we have heard from many contributions, it also helps those in power abroad looking to silence whistleblowers, muzzling democratic opposition and, as we know, waging war against other nations.

Britain’s reputation as an excellent place to do business and a supporter of the rule of law and democracy worldwide risks being eroded further if we continue to allow criminals and oligarchs to use London as a safe haven for their ill-gotten gains and to use the law to silence whistleblowers. And what a day to talk about this, when we have had the enormous privilege of President Zelensky coming to address both Houses.

As we have heard, there is much to welcome in the Bill, but much more work is needed to achieve the necessary improvements. I am pleased, as others have expressed, that the Government have responded to concerns from the other place relating to corporate criminal liability, recognising the significance of failure to prevent, to disclose in order to prevent, detect or investigate economic crime. We will be examining the wording from the Government on this issue closely. They must be strong enough to effectively tackle fraud at the scale at which British people and businesses are exposed to it, as we have heard expressed so eloquently this evening.

We have heard a lot of contributions on the provisions on the reform of Companies House. I do not want to dwell on that here; we will obviously come back to it. I will just say that I believe that the changes that are being proposed are root-and-branch changes and should be welcomed. But, as so many have expressed, it remains questionable whether the scale of the problems has been fully taken into account and whether enough resource and, importantly, capacity are on hand to deal with the massive task before us.

The Bill also misses the opportunity to strengthen labour market enforcement, including infringements of national minimum wage law. As we have heard, the loopholes in the overseas register need to be looked at again, as does the strategy for recouping assets seized during economic crime enforcement and, again, ensuring that they reach the victims. Businesses will be looking to the proposed legislation to provide long-overdue consistency and clarity and—above all—transparency in proceedings. Achieving adequate accountability and the ability to close loopholes will remain priorities in the next stages of the Bill.

As I have said, this Bill is welcome, but it is certainly not finished. The speeches across the House today pay testament to that and demonstrate the House’s desire to get this legislation right. There is an expectation of movement from the Government. I look forward to working with both Ministers to make sure that we get the legislation to the place it needs to be.