Criminal Finances Bill

Lord Naseby Excerpts

Committee: 2nd sitting (Hansard): House of Lords
Monday 3rd April 2017 Lords Chamber

[Lord Eatwell (Non-Afl)]

My Lords, I regret that I did not have the opportunity to participate in the Second Reading debate on this Bill as I was abroad. I have, however, read with care the record in Hansard, in particular those speeches by noble Lords who referred to the matters under consideration in this group of amendments. I wish to speak to Amendment 169 and do so because I have a particular interest to declare. I am the chairman of the Jersey Financial Services Commission. The company register in Jersey, which maintains the register of beneficial ownership, is a division of the Financial Services Commission and hence Amendment 169 refers to matters which are my direct personal responsibility.

I should say at the outset that I will not comment on the main issue of this debate, which is whether a register should be publicly available, other than to comment on the claims by Her Majesty’s Government that link public availability to effective verification. The issue of public availability is a political matter. The JFSC is an independent regulator; that is, it is independent of the political authorities in Jersey and hence the question of public availability is not a matter for me. What is a matter for me is subsection (4) of the proposed new clause in this amendment which states that,

“‘a publicly accessible register of the beneficial ownership of companies’ means a register which, in the opinion of the Secretary of State, provides information broadly equivalent to that available in accordance with the provisions of Part 21A of the Companies Act 2006”.

It is of course this information that forms the basis of the register at Companies House. I regret that this subsection reflects a serious lack of relevant understanding of the issue of reliability both of the Jersey register of beneficial ownership and of the Companies House register of People with Significant Control. Reliability depends upon verification, whether the information is true or false. The Panama papers were so successful in revealing ill-doing because they happened to contain information that was broadly true. I am afraid that this is not the case in the Companies House register.

Jersey has maintained a register of beneficial ownership since 1989. Initially, the legal requirement was for a statement of beneficial ownership when a company was first registered. That statement had to be updated when there was a change in circumstances amounting to a 25% change in ownership. Today, the requirement is for regular updating. At this very moment a detailed survey of beneficial ownership is under way to provide a complete picture of the state of affairs on 30 June this year. Thereafter, it will become a requirement to update information in Jersey on a 21-day limit when information is available.

This information is subject to detailed supervision and verification. For example, trust companies are required under the money laundering order to obtain and maintain beneficial ownership information. Client files are checked on supervisory visits to ensure that they have done so. Record-keeping failures are subject to enforcement action with failures resulting in individuals being banned from the industry and firms being subject to significant remediation. As was noted earlier, the Jersey register is available to all relevant authorities, including the National Crime Agency’s financial intelligence unit, and in the next year or so will be available in real time. In addition to current procedures, an annual validation process on beneficial ownership and control is to be introduced in 2019 to replace annual company returns.

Jersey not only maintains a detailed register of beneficial ownership, but subjects that register to detailed supervision and verification. Compare this state of affairs with the UK’s register of People with Significant Control. Almost all UK companies are required to maintain registers of people with significant control, known as PSCs. This information is maintained on the Companies House register and is available publicly through the Companies House website. But note: Companies House carries out no noticeable verification of the information provided. It certainly does not in terms of annual returns or regular confirmation. Companies House has always seen itself as a repository of information—a library, if you like, but not a regulator. Of course, company formation agents are often used in the UK and they are subject to anti-money laundering supervision by Her Majesty’s Revenue & Customs. However, I understand it is standard practice for such agents to argue that setting up a company is a one-off transaction and thus exempt from anti-money laundering requirements. So HMRC does not verify either.

Just as in Jersey, it is of course an offence to submit false information to Companies House and a company will commit an offence if it does not declare its beneficial ownership information accurately. But I am afraid that enforcement of this offence is akin to the enforcement of the offence of not putting the ball in straight at a rugby scrum. The consequences for the UK register are well known. For example, an investigation in November last year by the organisation Global Witness noted that with respect to the UK register there were,

“2,160 beneficial owners born in 2016. Now either these are a very precocious bunch of toddlers or the data has been entered incorrectly”—

there is no verification. It continued:

“We also had people who listed 9988 as their year of birth—clearly a visitor from the future”.


It will not surprise noble Lords that the UK register has been the subject of some criticism, notably in the recent consultation on the fourth money laundering directive. Referring to such criticism in the consultation, Her Majesty’s Treasury argued:

“Some responses argued that consideration should be given to the accuracy of data on the PSC register, and the benefit of introducing verification measures in the incorporation process conducted by Companies House. The government is confident that maintaining one of the most open and extensively accessed registers in the world is a powerful tool in identifying false, inaccurate, or possibly fraudulent information. With many eyes viewing the data, errors, omissions or worse can be identified and reported. This means that the information held on the register can be policed on a significant scale by a variety of users. Ongoing consideration is being given as to whether this could be complemented by any additional measures”.


With all due respect, this is just wishful thinking. It amounts to saying that it is the responsibility of civil society to find out for itself what the structure of beneficial ownership might be, because our register is unreliable. Unearthing the reality of beneficial ownership requires the advanced skills of a financial services supervisor or, as I have learned, a forensic accountant. The deliberate provision of false, inaccurate or possibly fraudulent information is to deceive the authorities and civil society. We are not talking about simple mis-registration of a date of birth; it is false information which is the key. It is fanciful to suppose that many untutored eyes will identify clever fraud. I regret to say that, as a regulator, it is my personal opinion that Her Majesty’s Government’s unwillingness to verify the register of PSCs is a dereliction of regulatory duty.

Indeed, it is evident that, in reality, Her Majesty’s Treasury has no confidence in the Companies House register. In the draft regulations published by Her Majesty’s Treasury for the implementation of the fourth money laundering directive, Regulation 28 sets out the requirements for a firm to carry out due diligence on its customers. In doing so, Regulation 28(9) states that firms,

“do not satisfy their requirements … by relying only on the information … contained in … the register of people with significant control kept by a company under section 790M of the Companies Act 2006”.

In other words, Her Majesty’s Treasury will not accept information taken from the register at Companies House as fulfilling any due diligence responsibility. It does not believe the register.

Given that Her Majesty’s Treasury clearly regards the Companies House register as inadequate, I would be grateful if the Minister would tell the House what are the current conclusions of Her Majesty’s Government’s “considerations” as to whether the Companies House register will be verified. When will the UK produce a register that can be believed in?

To return to the main point, I hope that it is now clear that proposed new subsection (4) in Amendment 169, which calls for information in Crown dependency registers to be “broadly equivalent” to the Companies House register, would result in a major deterioration in the quality of the Jersey register. The amendment calls for the replacement of information that is subject to detailed and regular supervisory scrutiny with information that is not verified at all. I hope that, on this basis, noble Lords will not press their amendment, having been made aware of the damage that it would do to the cause of the availability of accurate and verified information on beneficial ownership.

[Lord Naseby (Con)]

My Lords, it is always a pleasure to follow the noble Lord, Lord Eatwell. I apologise to the noble Baroness for not hearing the totality of her speech.

I shall not repeat what the noble Lord has just said. He cited in particular Jersey. I declare an interest as vice-chairman of the All-Party Group for the Cayman Islands, and I necessarily had some discussions about this Bill. I also have a member of my family working in the Cayman Islands. As to verifying beneficial ownership, which is what we are primarily talking about here, the situation in the Cayman Islands is that it has been a legal requirement there for 10 years now, and the authorities do verify the accuracy of the information that is given, in contrast to what the noble Lord rightly says about UK Companies House, which is basically a self-registration system. That is clearly nowhere near comparable to the norm in the best of the overseas territories.

Criminal Finances Bill

Lord Naseby Excerpts

3rd reading (Hansard): House of Lords & Report stage (Hansard): House of Lords
Tuesday 25th April 2017 Lords Chamber

[Lord Naseby (Con)]

My Lords, the Minister rightly wishes the United Kingdom to be ahead of the curve. In relation to Amendment 8, which is the principal amendment that we are considering, she is absolutely right. If she is saying that the objective is co-operation on beneficial ownership information in order to deal with tax evasion and stamp out corruption, money laundering and terrorist finance, that is greatly to be welcomed and is welcomed, as far as I can see, by those in the overseas territories. I will come back to this in a minute, but the amendment will mean that the overseas territories have, as I understand it, committed themselves to provide real-time, 24-hour information in response to requests from the legal authorities in the United Kingdom. That is a massive step forward in this area of great difficulty and challenges and is to be welcomed.

However, I too am concerned about some of the detail of this new clause. It is unfortunate that a clause of this importance has appeared in the Marshalled List so late in the process. Of course, I recognise that my noble friend on the Front Bench is in some difficulty in that this is a major Bill and here we are at the 11th hour having to look at an absolutely vital amendment, and one has to make some allowance for that. But I share the view of the noble Lord, Lord Eatwell, about exactly what information is going to come from the UK and who on earth will verify that information. The overseas territories have every right to be told exactly what the information is and how it has been verified. In addition, there seems to be a great rush to have this work done in the next period so that it will all be based on one year’s experience. This is a major step forward and I wonder whether 12 months is enough. We have heard this evening from my noble friend that the Turks and Caicos Islands are hoping to get started soon, but one year is really asking an awful lot, and not many statisticians would work on the basis of one year’s information. Nevertheless, we are where we are.

I have one other concern. Proposed new subsection (2) states:

“The report must include an assessment of the effectiveness of those arrangements, having regard to such international standards as appear to the relevant Minister to be relevant”.


We do not know who the Minister may be in the next Government or what international standards are to be used. I do not blame my noble friend for this, but I suggest to her that when the report comes forward, we shall want to have great clarity about what international standards are being used and whether they are being consistently used in the analysis of implementation that flows from the new clause in Amendment 8. However, the basic point is that there must be great joy both in the overseas territories and in the law enforcement agencies of the United Kingdom that they are now going to get a first-class service which ought to have a major impact on the areas that I have described.

I have had the privilege of working overseas in Pakistan, India and Sri Lanka, and I spent part of my national service in Canada. Certainly when I was in commerce, with the Reckitt & Colman Overseas group, one of the bugbears about international trade—I am talking about several decades ago, but I am afraid it has not changed—is that it is not a level playing field. Here we are, approaching Brexit and hoping to trade internationally, but the tragedy of the situation is that somehow neither we in the United Kingdom nor other countries have ever managed to persuade the United States, Hong Kong and Singapore to have a central, non-public register. We have not even got that far. Even on the basis of what we are doing now, we have rivals. Make no mistake about it: most of our overseas territories are in the Caribbean, their main competitor is the United States and they do not even have a central beneficial ownership register. Not only will they lose business if we go too far but if the other parties, particularly the US, Singapore and Hong Kong, take business from our overseas territories, the net result will be that where we are getting information out of our overseas territories, if the business goes elsewhere then the co-operation that the UK gets from those territories—which is good and is going to be even better—will be totally undermined. Frankly, we will not get any information from the US, Hong Kong or Singapore.

On Amendment 14, which keeps reappearing, I certainly do not think that Her Majesty’s Government are committed to producing anything on a public register at the end of the review on beneficial ownership. The review should be solely on that subject, and there may well need to be further amendments or extensions to that situation. I remind noble Lords that neither the law enforcement agencies nor the tax authorities support public registers. UK intelligent law enforcement is a key part of our foreign policy, and we look for co-operation from friendly countries across the world. That will be jeopardised still further if there are these public registers.

So I say to my noble friend on the Front Bench that I support very much what she has done on the Bill and the way that she has pushed forward progress with the overseas territories. However, let us be quite clear: beneficial ownership is one thing, and it is very important, but in my view public registers are totally à décours.

[Lord Luce (CB)]

My Lords, I support government Amendment 8. I apologise to the House for the fact that I have not been here for the earlier proceedings because, among other things, I have been visiting one of the overseas territories, Gibraltar, as I am chancellor of the new university there. As a former Governor of Gibraltar I am probably the only person in the Chamber who has been a governor of an overseas territory, so I thought I ought to say something in this very important debate.

The noble Baroness, Lady Stern, and all those who have added their names to the amendment have done a service to the House in ensuring that we debate the vital issue of standards of regulation in overseas territories. After all, at the end of the day it is our Government who are ultimately accountable to Parliament for the performance in our overseas territories. Therefore the Government must satisfy themselves that the standards both in this country and in the overseas territories meet those required by the OECD and elsewhere, so I congratulate my noble friend on the leadership that she has shown in ensuring that we debate this issue.

However, there is a delicate balance to be struck—from listening to the debate, I think the House understands that—because we are now in a non-colonial era. I remember that after I became Governor of Gibraltar, the late Robin Cook became Foreign Secretary two or three months later and one of the first things he did, very sensibly, was to drop the term “colonial” from our overseas territories so that we have the title we use at present, “British Overseas Territories”. We have to approach these issues in a very non-paternalistic and non-colonial fashion. To my mind, that is essential. The danger with the devolved powers that we have in these overseas territories—quite rightly, in my view—is that if we try to impose in a paternalistic fashion our views and policies upon them, we will be doing them a great disservice. Above all, we want to avoid having to impose direct rule, which could be the implication of taking some of these measures. At the same time, we have to ensure that there is a level playing field, which includes us as well, and that in making progress on this we do not do so at the expense of the overseas territories.

The Government have shown tremendous initiative in responding to the amendment from the noble Baroness, Lady Stern, with their Amendment 8 because it provides a framework with which we can move forward in negotiation and dialogue with the overseas territories over the next two or three years to try to move the whole issue forward. Many of the overseas territories, as we have already heard today, have made good progress. I congratulate the Government on this and strongly support their amendment.