Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

Moved by

[Lord Ponsonby of Shulbrede]

5: Clause 2, page 2, line 15, at end insert—
“(2A) After subsection 1, insert—“(1A) The memorandum must also state—(a) the nationality of the each subscriber, and(b) the country in which each subscriber is ordinarily resident.””Member’s explanatory statement
The amendment would require a memorandum of association on the formation of a company to include the nationality and country of ordinary residence of each initial shareholder alongside their name.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, this is a wide-ranging group of amendments which focuses mostly on the amount of information given about subscribers, founding shareholders and limited companies when registering a company and ongoing shareholders. The amendments in the names of the noble Lords, Lord Vaux and Lord Agnew, are aimed at making it transparent whether subscribers and shareholders are holding shares on their own behalf or on behalf of others.

Currently, information about subscribers is very limited. The amendment in my noble friend’s name, and other Back-Bench amendments, are aimed at helping provide more information. The amendment would require the nationality and country of residence of subscribers. There has been a huge increase in the number of shell companies with directors based abroad. This is one step we can take to increase transparency and fight against the UK’s reputation for tolerating dirty money. The theme of this group as a whole is increasing transparency; there are various specific amendments with that aim in mind. I beg to move.

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord for accommodating this intervention. I thought it would aid noble Lords in having a productive debate if I set out up front the intention of the government amendments in this group, given that it contains a significant number and, as I understand it, the amendments in the name of the noble Lord, Lord Vaux of Harrowden, seek to build on them.

The government amendments seek to further strengthen transparency of shareholder data on the company register. I hope they will reassure noble Lords that the Government take this topic very seriously. A core purpose of the register of companies is to provide details of company ownership. However, users of the register have reported some problems with the way in which company ownership data is recorded. That is why the Bill contains measures to increase the usefulness of the information held on the shareholders, subscribers and guarantors—also known as members—of companies.

The Government appreciate the concerns expressed during the passage of the Bill by expert witnesses and parliamentarians about member information. However, I stress that we are also mindful of stakeholder concerns about imposing disproportionate burdens on businesses. The 2019 corporate transparency and register reform consultation proposed that non-traded companies, such as companies that are not listed on any regulated market, be required to collect the usual residential address and date of birth of their members. Consultation responses were mixed, and the Government concluded that the case had not adequately been made for the collection of the information, given the potential burden on businesses.

The Government consider that the approach taken with these amendments balances competing stakeholder concerns proportionately. The amendments will help to ensure that the policy intent of provisions in the Bill and the Companies Act 2006 are met without imposing undue burdens on business before further consultation is carried out.

Amendment 31 inserts a new clause into the Bill, which will amend the Companies Act 2006 to create an express requirement that old information must be retained where it changes. So, if a member’s name, address or shareholding changes, that old information must be retained for as long as the Companies Act 2006 allows. That is currently implied by other sections of the Companies Act 2006, but the law is unclear. For example, Section 121 states that an “entry” relating to a former member of a company may be removed from the register after the expiration of 10 years from the date on which he ceased to be a member. The retention of old information should already be current practice as it is in a company’s own interests to retain such information for audit purposes. Retrospective disputes relating to votes, dividends, and tax could all hinge on who owned shares at a point in time.

The new clause inserted into the Bill by Amendment 31 will also amend the Companies Act 2006 to provide powers to companies to ensure that member information is provided and kept up to date. The amendments also provide duties for members to provide their information and keep it up to date. There are offences for companies and members failing to comply with the new requirements without a reasonable excuse. That will ensure that the requirements are taken seriously by both companies and members and will enable more effective enforcement activity.

Amendments 6, 31, 34, 59 and 66 restructure existing provisions in the Bill that in turn amend the Companies Act 2006. They also provide powers to strengthen the regime by regulations. The powers allow regulations to require more information to be provided and to ensure that any new personal information is protected as appropriate. That would allow the Government to act swiftly to require more information to be provided if it is deemed proportionate to do so—again, following further consultation. Equally, law enforcement agencies may identify additional types of information that the registrar could require the collection of, which would help them in the prevention and detection of crime.

If new information is later required, it may not be appropriate for it to be made available for public inspection or disclosed except in specified circumstances—for example, if regulations later require a person’s personal email address to be provided, as that could have unintended consequences with spam mail and so on. These amendments ensure that personal information can be protected where appropriate, applying the principles from similar provisions in the Companies Act 2006 and this Bill to these measures.

I want to highlight that the power in new Section 113C could be used to limit any additional information requirements to companies that are not traded on any listed market, as those companies are already subject to similar disclosure requirements. That would reduce the burden on business, in line with the proposals in the 2019 consultation.

These amendments set up the framework for the policy intent to be met and leave the heavy lifting to regulations, once consultation has been carried out. The Government consider that to be an appropriate balance, as all regulations will be subject to the affirmative resolution procedure such that Parliament will have its say when those regulations are made.

The Government intends to remove Clauses 2, 4, 46 and 47 from the Bill because the provisions of those clauses are amended and/ or incorporated into the new clauses that I have described. Amendments 35 to 38, 60 to 62 and 67 allow the provisions to be sequenced more coherently and make consequential drafting tweaks.

I hope that noble Lords will support the amendments, and I look forward to the rest of this debate.

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[Lord Johnson of Lainston (Con)]

I appreciate the noble Lord’s intervention. I expect some of this comes down to nominee companies and the roles that they perform on shareholder registers, but I am happy to look in more detail at this point. We had the good fortune to have a conversation about this some days ago and came to the conclusion that it was certainly worth further investigation to ensure that anyone who puts information on to the Companies House website has to ascertain whether they are acting on behalf of other people. However, I believe, and very much hope, that the answer will lie in the depths of the legislation.

My noble friend Lord Agnew’s amendment is very similar. I hope I have covered this point, particularly in relation to the PSC framework already in place.

I turn to Amendment 5, and thank the noble Lord, Lord Ponsonby, for his helpful replacement of the noble Lord, Lord Coaker, in speaking to it. The amendment would require a memorandum of association to include the nationality and country of ordinary residence of each subscriber. A memorandum of association is a memorandum stating that the subscribers wish to form a company, and they agree to become members of that company. Their names are then entered into the company’s register of members.

This amendment, if I may be so bold, would not require the same information to be provided by persons who later become members. Frankly, it is considered that that would create inconsistency between the information requirements of members who were subscribers and other members. The Government consider that any new information requirements should be consistent between the two.

The Government appreciate the intent behind the amendment, but we consider that this would be better addressed by consulting stakeholders about what additional information, if any, it would be proportionate to require every company to provide about all its members, rather than just subscribers who are individuals. To reinforce that point, we would look to consult stakeholders about what additional information it would be proportionate to require.

This Bill, and government amendments to it, provide the powers to require additional information to be provided via regulations. This discussion can happen on an ongoing basis, and we welcome that. The government amendments that I outlined earlier signal our willingness to review the position on this issue, albeit having first consulted stakeholders, given the potential burdens involved. I know we all agree about the importance of keeping the legislation sensible so that it does not impinge on our entrepreneurial spirit and the creation of companies in this country. That is absolutely right, and noble Lords would expect the Government to consult in ensuring that we get the right information registered in the right way. I hope this reassures the noble Lord and that he will withdraw his amendment.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I thank all noble Lords who have spoken in this relatively short but important debate. I make it clear to the Minister that I do not think anyone contributing to this discussion was questioning the underlying philosophy of the Bill. Indeed, we were trying to enhance its underlying philosophy, which is to provide greater transparency about who the ultimate beneficial owners of all these companies are.

The Minister’s response to the various amendments was about disproportionality. He said that they would put disproportional burdens on smaller companies, that personal information may be made available, and that people should be protected from spam, promoters and so on. I do not think anyone is questioning that. Various amendments put forward by various noble Lords try to increase transparency and to stop people being able to hide behind layers and layers of nominee companies.

I was drawn to what the noble Lord, Lord Vaux, said: “Having to lie in public is very different from just keeping quiet”. That is a very sound principle to operate on. He also made the point that identifying shareholders should be the same as identifying directors or people with significant control. That is a second principle behind his amendments.

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[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I echo what the noble Lord, Lord Clement-Jones, said. When the noble Lord, Lord Agnew, moved Amendment 39, which places a duty to register on those owning 5% or more of shares, and he spoke to his Amendment 43, which creates an obligation for the registrar to examine the statements attesting to the identity of the person, by his tone he made it crystal clear that that was not the last word on the subject. In fact, he threw down a challenge to the Minister in introducing that group and saying, “If not this, then what? What will be the strategy to combat the bad actors?”

As he said, the problems lie in the undergrowth. There are shareholders with smaller shareholdings, and maybe there are multiple companies owning small shareholdings; there are many ways of hiding things and many who will facilitate those who want to hide their wealth. The whole theme of this group is a challenge to the Minister; it is not about the detail of the amendments themselves. I look forward to what he has to say.

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[Lord Browne of Ladyton (Lab)]

My Lords, I am fully in favour of this matter being taken away and simplified, if it can be. I just take advantage of this opportunity to do something I probably do not do very often, which is to support the existence of the words “reasonable excuse” as a defence in this strict liability clause. It is a long time since I practised law, but I am certain that there are lots of regulatory and other offences out there that have this defence of reasonable excuse. I am absolutely certain that the statutory provision that makes it a strict liability offence to carry an offensive weapon allows, in its drafting, a defence if you are doing it with reasonable excuse. I do not think that these two things are inconsistent, but this is not clear.

[Lord Ponsonby of Shulbrede (Lab)]

This has been an interesting debate—and a very lawyer-heavy debate —on the juxtaposition of “strict liability” with “reasonable excuse”. I can claim some knowledge here as a sitting magistrate in that I deal with those sorts of things quite regularly, frequently with respect to knife crime and traffic matters. It is a conundrum; it is worth examining further and I hope the Minister will take it further.

The noble Lord, Lord Clement-Jones described this as above his legal pay grade. Talking as a magistrate, I am an unpaid legal practitioner. Nevertheless, the Minister should take up the invitation of members of the Committee to look at this further. I can see that it is open to confusion, and I also take the point made by the noble Baroness, Lady Bowles, about putting other officers in default. I hope that the Minister will take these comments in the spirit in which they were made and that there may be further opportunity for discussion on the points raised.

[Lord Johnson of Lainston (Con)]

I greatly appreciate the input from noble Lords. Knowing my record over the last hour, I will probably vote against this in any event.

I shall just explain this in my own words, if noble Lords will tolerate my lack of legal expertise. The point was that, until this amendment, you had to prove—I welcome interventions from noble Lords if they feel that I am straying into their legal territory—either dishonesty or recklessness, rather than simply misfiling, in order for there to be a prosecution, which set a very high bar for prosecution. As I understand it, a number of important prosecutions—which is the whole principle for us being here—failed because they were unable to prove that exceptionally high bar.

This therefore makes it an offence to misfile which, as has been rightly pointed out, is a statutory event. However, it would seem to be unreasonable that, if you accidentally put your address down as “46B” when it should be “46C”, you then receive a two-year prison sentence or indeed a significant fine. It is right in this instance that “reasonable excuse” is brought to bear.

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[Lord Clement-Jones (LD)]

My Lords, the procedure in Grand Committee is quite clear: there has to be unanimity for an amendment to proceed.

[Lord Ponsonby of Shulbrede (Lab)]

We are not against the Minister’s amendment; we just think it needs clarity. The Labour Party would not object if the Committee agreed the amendment. If appropriate, we will come back to it at a later stage.

[Lord Clement-Jones (LD)]

The appropriate procedure would be for the Minister to withdraw it, and then move an amendment on Report. We would be very happy if the Minister came back on Report.

Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Fox (LD)]

There appears to be a chorus of agreement, so I will not add terribly to its length. This is just to thank the noble Lord, Lord Leigh, from whose knowledge of this area we benefit. We should be in a position to listen.

We had a meeting with officials yesterday, and my read-out is that the reason for the government resistance to the previous versions of these amendments referred to by the noble Lord, Lord Leigh, was, in a sense, practical. The accounts are signed off by the board and auditors, and something needs to be done thereafter to tag them. The departmental team seemed worried that something might go wrong in that tagging process, so we should not go down this route.

Having prepared more than 20 company accounts—I concede that they were largely for large businesses—this always happens. The board signs off a set of accounts and then prepares to communicate it in a number of different media. The accounts are put in an annual report, a Stock Exchange announcement system and a website. In each case, there is a process to make sure that the read-across is performed correctly. I suggest that the practical constraint that somebody might do something wrong does not outweigh the benefit of mandating this tagging process across the board.

I agree with the noble Lord, Lord Leigh, and others that micro-companies should still be included in this process.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I think the consensus continues. I thank the noble Lord, Lord Leigh, for introducing this group. As he said, this set of amendments really repeats those spoken to earlier, but in this case concerns micro-entities. He made the points about either accidentally or deliberately tagging wrongly, and that not seeming a substantial argument against increasing its use. As the noble Lord, Lord Fox, said, companies are well used to producing and presenting accounts in different media and ensuring that they are presented consistently across them. This tool should extend their use.

I also agree with the noble Lord, Lord Leigh, and others that the Clause 54 stand part debate in the name of the noble Lord, Lord Sarfraz, is not appropriate for the Bill. As others have said, micro-companies are not actually that small. Some numbers have been presented, but the figure I have is that 1.3 million micro-entity accounts were filed in 2019-20, the largest proportion of accounts filed with Companies House. The figures I have are of a turnover of less than £632,000 on a balance sheet of £316,000 with 10 or fewer employees. Over the years, I have been involved in a number of businesses of that sort of size, but they can and do sometimes grow into much larger businesses. There needs to be consistent tracking of these companies to see where they have come from and make predictions about where they might go, so I agree with the point on that made by the noble Lord, Lord Leigh.

Other noble Lords agreed with this point, so I hope that the Minister will resist the argument that Clause 54 should not stand part, if the noble Lord, Lord Sarfraz, chooses to speak to it, and is sympathetic to the amendments from the noble Lord, Lord Leigh.

[The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)]

My Lords, I draw attention to my interests as set out in the register of interests, including as a director and person with significant control at AMP Ventures and as a shareholder of several other businesses and companies. I do not believe I have any personal conflicts represented today.

I also thank all Members of the Committee who participated in our useful and instructive discussions over the past month or so. I am sorry that the Easter break we enjoyed sort of broke our continual discussions, but I hope that we will reinstigate them in the near future. I am fully available over the next few days, particularly before the next series of Committee amendments and over this process, to make sure that the House collaborates together to reform Companies House for the first time in nearly 100 years, and that we bring to bear the crucial reforms that will enable us to have a transparent business environment that allows businesses to flourish and the data that they provide to Companies House to be used more effectively to create greater wealth and private enterprise in this country. I hope that, in my actions, noble Lords see my desire to collaborate very closely with all your Lordships to ensure that we all reach the same end.

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The role of ACSPs is so central to the success of the Bill that we must do everything reasonable to make sure that they do their job honestly and diligently. At the very least, it makes sense to make sure that their activities are transparent, so that we can see how well they are carrying out their roles. Amendments 48 and 54 would add no additional burden or cost; they simply allow a little daylight to be shone on the activities of ACSPs and would bring the companies register in line with the overseas entities register. I therefore urge the Minister to accept them. I beg to move.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I will speak to the amendments in this group in my name and those of my noble friends. In opening, I agree with everything that was said by the noble Lord, Lord Vaux. It was a compelling speech and I will listen to the Minister’s response to it with great interest. In fact, I will go further: in these amendments are the types of issues that may well be voted on, on Report. Of course, this is not up to me, but I can talk with confidence about my party’s point of view.

Amendment 48A in my name would provide an extra layer of protection when it comes to unique IDs. It would ensure that a proposed director would sign a document to state whether or not they had a unique ID, even under a different name. In the event of an individual giving fraudulent details, this provides another piece of evidence so that even if names, details or passports had changed, there would be a way of retrieving the identity of the original person.

Amendment 50B was provided to me by Westminster City Council. It would strengthen the Bill to ensure that third-party agents provide an annual risk assessment and summary of fees charged, which will help the registrar identify questionable practices. The purpose of this is to raise a red flag if fees are either too high or too low. This may help the people who need to pursue enforcement procedures in identifying businesses that are not set up for the purposes they are claiming. That would help enforcement agencies based in local authorities, and others.

Amendment 51A would allow the Secretary of State to create, in essence, a dodgy business list. It requires the identification of a legally liable individual, so that local authorities and HMRC know who to pursue for taxes, business rates, et cetera. Westminster City Council, for example, would like to see included things such as the American candy stores, vape stores, souvenir shops and car washes that are likely to be involved in fraudulent businesses.

Amendment 52 centres on the ability of ACSPs, foreign ACSPs in particular, to undertake identity verification procedures on behalf of the registrar. Using ACSPs will work only if they are effectively regulated and trusted. This amendment would first ask the Secretary of State to list the number of foreign corporate service providers, as the regulations allow for service providers outside the UK to undertake verification checks and to incorporate a company in the UK.

Secondly, Clause 64 creates the ability of the Secretary of State to allow someone to register as a foreign ACSP, even if the person is not a relevant person as defined by Regulation 8(1) of the money laundering regulations. This mechanism is allowed if the Secretary of State believes that the regulatory regime governing the person in their own territory has similar objectives to the regulatory regime under the money laundering regulations.

This amendment would ask the Government to list the number of foreign ACSPs approved through this mechanism and in which countries they are based. It is absolutely right that the Government are specific about which regulatory regimes they believe meet the standard of our own regime. Additionally, we believe that the language is woolly when it says that similar objectives do not take into account the effectiveness of that regulatory regime.

My amendments, together with the others in this group, try to enhance the role of the ACSPs to use this tool to crack down on businesses, both large and small, involved in illegal behaviour—to stop people taking advantage of the opportunities available in our country through Companies House and the facilities available in the City of London. I hope that the Minister will consider these amendments in a positive light and seek to enhance the protections we can get for our businesses, which we have an opportunity to do in this Bill.

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Moved by

[Lord Ponsonby of Shulbrede]

50: Clause 64, page 48, line 13, at end insert—
“(2A) The Secretary of State must by regulations make provision for the evidence required to verify an individual’s identity for the purposes of subsection (2)(a) to include—(a) an identity document with a photograph of the individual’s face, and(b) an identity document issued by a recognised official authority.(2B) In subsection (2A)(b), “recognised official authority” includes—(a) a department or agency of UK government;(b) a department or agency of any of the devolved nations;(c) a department or agency of the government of another country.”

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, this will be a much briefer group. The purpose of Amendment 50 is to ensure that

“an identity document with a photograph of the individual’s face, and … an identity document issued by a recognised official authority”

form part of the registrar’s identity verification procedure. The amendment would specifically allow for two separate documents to be used to identify people rather than just limiting it to, for example, a passport or a driving licence.

An identity verification procedure that involves photographic ID is explicitly committed to on page 43 of the corporate transparency White Paper and reflects international best practice guidelines. What reasoning do the Government have for weakening this aspect of the verification process? They clearly believe that, in the case of voting in local elections, there should be photographic ID. Why not make it explicitly part of the process here? I beg to move.

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[Lord Johnson of Lainston (Con)]

I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for Amendment 50. As has been discussed, it seeks to require that the new identity verification process includes the use of photographic ID issued by a recognised authority. Although I welcome our shared ambition to ensure that identity verification will be a robust process, I am concerned about noble Lords’ proposed approach to limit the acceptable documents in primary legislation. Under Clause 64 of the Bill, the procedure for identity verification, including what evidence will be required, will be set out in secondary legislation.

I apologise, as always, for not answering noble Lords’ questions. The noble Lord, Lord Vaux, raised how I dodged his question the first time. I hope I am not dodging it a second time but I would be delighted to write to noble Lords with some further information on the specific detail that is required for identity verification. Let me be very clear: we assume that it will include a photograph. However, I will come on to explain why that may not necessarily be the case in every instance.

Setting this out in secondary legislation will allow for flexibility and ensure that the technical detail of the identity verification process can be adapted to meet evolving industry standards and technological developments. Parliament will have the opportunity to scrutinise these regulations via the affirmative procedure. I assure noble Lords that, for the majority of individuals, photographic ID will be used. The primary identity verification route will be via the so-called “selfie verification” method, which will involve the person providing documents such as a passport or driving licence. The person undergoing identity verification will take a photograph or scan of their face—my noble and learned friend Lord Garnier may be pleased by this specificity—and the identifying document. The two will be compared using likeness-matching technology, and the identity verified.

However, I am concerned that the proposed amendment would exclude individuals who do not have photographic ID. Restricting the acceptable documents could inadvertently discriminate against a number of people and raises equality concerns. For example, would it be fair for the law to prevent individuals setting up a company simply because they do not have a passport or a driving licence? Should an individual who has owned the freehold of their home for decades via a company now be forced to apply for photographic ID despite there being no other statutory requirement to have one? This is why, for individuals who cannot provide such documentation, there will be alternative options available. I assure the Committee that these will be robust and proportionate.

Most importantly, all providers will conduct checks in line with the cross-government identity proofing framework—the GPG 45—which will be comparable to verification checks conducted elsewhere in government. Under the GPG 45 framework, a combination of non-photographic documents, including government, financial and social history documents, can be accepted to achieve a good-level assurance of identity. ID documentation from an authoritative source such as the financial sector or local authorities is also recognised under the cross-government identity proofing framework and is routinely used to build a picture of identity.

For the reasons I have set out, I hope that noble Lords will understand the philosophy of my approach and agree that requiring in primary legislation that an individual provide official photographic ID to verify their identity would be unnecessarily restrictive and potentially unfair. I am afraid that I must therefore ask the noble Lord to withdraw his amendment.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I thank the Minister for that serious answer to the amendment that I have just moved. I am also grateful that he has said that the Government’s intention is to harmonise the identity-checking methods across a number of different parts of the government process, if I can put it like that. I acknowledge that the technology for identifying individuals is evolving and that photography itself is not the end of the story; that part of the identification process is evolving as well. I will reflect on the Minister’s answer to that point. I need to look at other pieces of legislation and see whether the way in which identity is going to be checked is explicitly put on the face of the Bill in other Bills. Nevertheless, as I have said, I thank the Minister for the serious way in which he has answered the points that I have raised. I beg leave to withdraw my amendment.

Amendment 50 withdrawn.

Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Committee stage
Thursday 20th April 2023 Grand Committee

[Lord Fox (LD)]

Perhaps the noble Lord, Lord Leigh, can confirm this at the end of the debate, but it is not clear to me whether losing your auditor before you appoint another would be reportable within the subject of his amendment. That is a key diagnostic, which he did not mention, of trouble afoot within an organisation. One of the benefits that we would have seen if the fourth member of the Vaux/Fox/Faulks/Foulkes group—the noble Lord, Lord Foulkes—had been here is that he would have emphasised very fully that had we seen the loss of an auditor in a particular case, we would have known that there was trouble. So, there is another element to the argument made by the noble Lord, Lord Leigh, that, in a sense, this is a very good diagnostic.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I agree with everything that has been said. I too was going to allude to the case of the SNP and to make the point about auditors resigning before they are replaced. That is obviously a warning sign. I am intrigued to hear the Minister’s response. It seems such a practical suggestion. I will leave it at that, because the ball is in his court.

[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.

Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Committee stage
Tuesday 25th April 2023 Grand Committee

[Lord Fox (LD)]

My Lords, I will speak to Amendment 78 in my name and also more generally. I thank the team sitting behind the Minister who met me last week to try to see through this. I was somewhat reassured by what they had to say, but a couple of points hinge around the words “UK-connected” in describing crypto assets.

What we know about crypto is that it is connected nowhere. A number of crypto concerns are now administered under UK financial administration, but a whole lot more are not. Clearly, if the authorities were able to seize a crypto wallet, that would perhaps offer a greater opportunity for confiscating assets than having to go through the courts with these crypto-asset services. This may have limited application in the real world, when we get there. I do not think it is a bad thing and it is not a problem, but I do not think we should raise our expectations particularly high when it comes to being able to confiscate these sorts of assets.

To some extent, that is what sits behind my modest amendment, which seeks to require the Secretary of State to review the adequacy of the definitions of crypto assets and, by definition, how they can be confiscated under the Bill. The Secretary of State would have to lay a report before Parliament within 18 months. Because everything is changing so quickly in this sphere, it does not seem unreasonable to ask the Government to come back to Parliament and tell us how it is going. It is quite clear that new crypto assets are popping up every day. Who would have thought of NFTs as being crypto assets at all even a couple of years ago? Are they included in this? I assume that they are.

New digital assets will emerge over the next 18 months and beyond and it is sensible for the Government to keep Parliament in touch with what they are trying to do to bring these assets to book when appropriate. We welcome the changes in so far as they go. I do not think we should get too excited about them, but we should ask that the Government and the Secretary of State keep Parliament in touch with the changes that are going on all the time.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, this is a slightly unusual debate, in that we have a lot of very specific amendments tabled by the Government. The noble Lord, Lord Fox, has opened the debate by talking about how fluid the situation is when dealing with cryptocurrency and crypto assets as a whole, and other amendments in subsequent groups will deal with particular aspects.

Just by chance, yesterday evening I bumped into a former magistrate colleague of mine, John Glen, previously the Economic Secretary to the Treasury, who told me about a speech that he gave on 4 April last year in which he set out the Government’s approach to crypto assets and the whole issue of trying to manage that approach in this fast-evolving world. I agree with the first point made by the noble Lord, Lord Fox. We all acknowledge that this is fast-moving and the Government are doing their best to position themselves to be at the centre of developments and well-connected worldwide, as the understanding of the practical input and use of crypto assets is properly assessed, while also trying to bear down on the criminal activity that is undoubtedly prevalent within these assets.

Having read John Glen’s speech, in which he outlined the Government’s detailed plan, I will just mention some of the key points that he made, and perhaps the Minister can then say something about the Government’s approach to dealing with this fluid situation. John Glen’s first point was about stablecoins, which are a way of trying to harness technologies such as blockchain for the benefit of government by, for example, tying the pound to some form of cryptocurrency. That was being looked into and it would be interesting to know how that is going.

Another element of the plan outlined in John Glen’s speech was to ask the Law Commission to look at decentralised autonomous organisations, which are basically the groups that will run these crypto assets and the like. If there is any progress report on the work of that task force, that would be very interesting.

John Glen also talked about a sandbox, to be run by the Bank of England and the FCA, which will look at ways to manage the evolutionary process of regulation. I absolutely understand that is a difficult thing to do. Finally, he announced with some fanfare that the Royal Mint will create its own non-fungible token, or NFT. I do not know how that is going, but I would be interested to hear what the Minister has to say about that—

[Lord Fox (LD)]

I think that was cancelled.

[Lord Ponsonby of Shulbrede (Lab)]

Well, it is indeed a fast-moving world.

We support the amendments in this group, but I would be interested to hear if the Minister could say something about the wider strategy in trying to make sure that the British Government are part of the development of these technologies, while bearing down on sources of fraud and money laundering.

[Baroness Altmann (Con)]

My Lords, I rise to express my concerns. It is not that I do not support the amendments or the comments made by other noble Lords, but calling these things crypto assets in an economic crime Bill, when we know that their origin seems to have been organised crime finding a way to money launder its ill-gotten rewards I find deeply troubling. A number of leading bankers, with whom I agree, have suggested that these things have no value. I urge the Government to be very alert to the potential risk of trying to make cryptocurrency—I am not talking about blockchain technology—and these so-called assets, which actually do not exist, appear to be reasonable things for British citizens to put their money into.

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[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I support the comments that have already been made. As the noble Lord, Lord Agnew, has said, he is really asking the Government to triage the SARs, for some way of managing the overwhelming amount of data which is reported. The only little glimpse of this I have in my other role as a magistrate is that we deal with proceeds of crime applications at magistrates’ court level, and it is not that unusual—I have dealt with it myself—where you are talking about potentially billions of pounds. But we are just seeing one very small snapshot of that in the particular application that we see in the magistrates’ courts. I am very well aware that these are immensely complicated situations to deal with, but just from listening to the speech of the noble Lord, Lord Agnew, I think he is, as he said, really just pushing the Government to try and get on with their own plan. It would be very useful for this Committee to hear what the Government are planning to do and to come up with a timetable to try and impact on this problem. Other than that, I support the amendments.

[Lord Sharpe of Epsom (Con)]

My Lords, I once again thank noble Lords who have spoken in this debate. I have listened with considerable interest to the points that have been raised. I am particularly grateful to the noble Lord, Lord Fox, for going against his natural instinct and supporting the Government.

I thank my noble friend Lord Agnew of Oulton for his Amendment 86, which would create a requirement for risk rating for submissions of suspicious activity reports, known as SARs. As my noble friend acknowledges, SARs intelligence is a critical tool in our ability to identify, disrupt and recover the hundreds of millions of pounds which underpin the most serious and organised crime in the UK. However, it is often not possible for reporters of SARs to assess the level of risk related to a SAR, or the underlying offence associated with the report, when it is submitted to the National Crime Agency. That is because the reporter may not have a complete picture of information on which to make such a rating. This could lead to potentially inaccurate information being submitted to the NCA if this were a requirement, as well as additional burdens on reporters that would distract resources from tackling economic crime.

Furthermore, the NCA already has procedures in place to enable reporters to alert specific concerns. It has issued an online guidance of glossary codes to reporters, which can be included in their reports and which allow them to label a SAR with a specific concern. These glossary codes can, for example, relate to suspicions of vulnerable children, human trafficking, or firearms offences, and enable the National Crime Agency to triage the reports so they can be allocated appropriately.

In addition, the SARs reform programme is delivering major reforms to the legacy SARs IT, to enable better analysis and exploitation of SARs intelligence to deliver law enforcement outcomes to disrupt criminals. As my noble friend has gone into more detail on this subject, I will answer in more detail generally about resource allocation and what have you.

We are increasing capacity within law enforcement to analyse and act on SARs intelligence. This will include 75 additional officers in the NCA, which will almost double capacity. Some 45 of these officers are already in post, and the milestone for recruiting the remaining 30 is the end of this financial year 2022-23. The programme has also provided more than 20 new financial investigators in the regional organised crime units dedicated to SARs analysis. These new staff are already delivering operational results from SARs intelligence, including the recovery of criminal assets—£380,000 to date this year, with approximately another £1 million frozen; I will come back on to some numbers in a second—and also identification and arrest of previously unknown organised crime group members.

In terms of the IT systems, a new SARs digital service, including data analytics, which will replace legacy IT implemented more than 20 years ago, is on its way. The first elements of the new SARs IT systems, which are for bulk reporter submission, were delivered in early 2021, to enable organisations to submit large volumes of SARs—bulk reporters—to begin testing the new systems. To ensure consistency of service, de-risk delivery and ensure the protection of the public, the end-to-end SARs digital service will be delivered in stages. The new SARs online portal and bulk submission system is shortly due to go live. This will be followed by further releases, which will replace the current SARs IT used by the UK Financial Intelligence Unit, law enforcement agencies and other government departments. My noble friend was quite right to bring up the subject, and I hope that provides some clarity as to what is being planned.

The noble Lord, Lord Vaux, asked about the additional number of SARs. The NCA received and processed 573,085 SARs in 2019-20. The number of SARs submitted increases significantly every year. Action taken as a result of these SARs saw £191,637,824 denied to criminals in 2019-20, which is an increase of about 46% on the previous year’s figure. SARs are analysed by the NCA for priority risks and then actioned accordingly. The majority of the reports are also made available to more than 75 law enforcement agencies and used in a variety of ways. This was recognised in the Financial Action Task Force’s mutual evaluation of the UK in 2018. We recognise that we could do more and are committed to the SARs reform programme, which aims to improve our ability to analyse SARs and for law enforcement to take action on them when appropriate.

The noble Lord, Lord Vaux, also asked why Amendment 78E is being tabled now. The original draft used a definition of money laundering based on a global standard from FATF—the Financial Action Task Force. The new definition ensures that the definition of money laundering is consistent with the rest of POCA. A predicate offence in the context of money laundering is an offence that leads to proceeds of crime being generated which then become the subject of a money laundering offence. The inclusion of these offences in the definition of money laundering in this clause would effectively include any criminal activity, thereby broadening the scope of the clause beyond its intended purpose. The exclusion of predicate offences from the definition does not affect law enforcement’s ability to investigate or pursue cases of money laundering.

I believe that I have answered all the specific questions. Once again, I thank all noble Lords who participated in this short debate. I ask my noble friend Lord Agnew not to press his amendment.

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[Lord Fox (LD)]

My Lords, it is true that the Minister is being asked to take on Treasury functions—having first talked about cryptocurrency, we are now dealing with this issue—and I look forward to his response. I, too, support the noble Lord, Lord Agnew, who has been consistent in his theme that, without due, proper and improved enforcement, the Bill that we are spending all these hours debating will have very little effect on the outside world. This is one element of the enforcement story.

The noble Lord’s point is bang on: where there is a finite resource—which, of course, there always is—HMRC will target what it believes benefits the country most. As the noble Lord pointed out, that tends to be tax generation rather than AML functions. For this Bill to be successful, something needs to change to refocus the Treasury on AML issues, as we have heard. If that is not to be the noble Lord’s amendment, what will it be?

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I agree with all the points that have been made by noble Lords. When on the previous group the Minister read out the figures recovered, they were derisory compared to the amount of dirty money that it is speculated is washing around the systems for which we are responsible. The whole thing is extremely important. The noble Lord, Lord Agnew, speaks with great authority on this matter. He is an insider and, as the noble Lords, Lord Fox and Lord Vaux, said, this is a way of getting proper enforcement into the Bill so it has proper teeth and so that HMRC can reprioritise not just tax generation but its work against money laundering. We support the amendment.

[Lord Sharpe of Epsom (Con)]

My Lords, once again I thank all noble Lords who have spoken, and I particularly thank my noble friend Lord Agnew for his amendment. While the Government agree whole- heartedly on the critical role that supervision must play in tackling economic crime, we cannot support the proposed new clause. HMRC already has an anti-money laundering supervisory function, and it takes its responsibilities very seriously. HMRC supervises nine sectors and is already the default supervisor for trust or company service providers when they are not already subject to supervision by the Financial Conduct Authority or one of the 22 professional body supervisors. The proposed amendment would duplicate these provisions and to that extent it is unnecessary. Furthermore, it could make HMRC responsible for all anti-money laundering supervision, potentially cutting across existing regulatory relationships, such as that between the major banks and the FCA. HMRC takes its money laundering supervisory responsibilities very seriously.

My noble friend raised a number of issues regarding face-to-face compliance and so on. He said that the number of face-to-face compliance visits dropped from 1,265 in 2018-19 to just 289 in 2021-22, but these figures are misleading because the overall number of interventions was greater, with the total number increasing from 1,396 in 2018-19 to 3,725 in 2021-22. Although these figures include a mass-targeted exercise checking for business risk assessments and other key documents in 2021-22, the total would still have increased from 1,396 to 2,329 without that. A range of factors caused the variation in face-to-face intervention levels from 2018-19 levels including, as my noble friend noted, pandemic issues, the impact of recruiting and training —I will come on to that in a second—with a large number of new officers and differing resource levels needed to support different types of interventions. In 2022-23, HMRC carried out more than 3,000 interventions, of which more than 900 were face-to-face. It also issued more than 750 penalties to non-compliant businesses and refused more than 400 applications to register. HMRC’s anti-money laundering function is carried out by its fraud investigation service and works alongside other teams in this section and across government and law enforcement to maximise its impact.

My noble friend asked whether it is true that HMRC is failing to meet a legal requirement to register businesses within 45 days of application, with a reduction from 78% to 70% meaning that nearly one-third are operating outside the scope of supervision. Nearly one-third of applicants are outside the scope of supervision while their applications are being determined. Businesses are under supervisory scrutiny during the application process, and HMRC’s risk-based approach means that businesses from the highest risk sectors are prioritised. The highest-risk sectors are money services businesses and TCSPs, which cannot begin carrying out relevant activity until HMRC has determined that they are fit and proper. There are some cases where it is not possible to process an application within 45 days, for example, if waiting for important information from an overseas agency. However, there have been particular challenges that caused delays that HMRC regrets, including issues with its computer system, but I understand that significant progress has been made recently and that HMRC is now much closer to achieving the 45-day turnaround for all but the most tricky cases.

The Government are clear that further reform of the anti-money laundering supervision system is needed, but the best scale and type of reform to improve effectiveness and solve the problems that have been identified is not yet clear. His Majesty’s Treasury will issue a formal consultation on the possible options by the end of June 2023. Implementation timelines will depend on the outcome of this consultation.

My noble friend Lord Agnew and the noble Lord, Lord Vaux, asked about HMRC’s performance as a supervisor. A senior manager independent of the supervision team carries out a robust annual assessment of HMRC’s supervision against OPBAS standards. The process currently under way to deliver the next self-assessment has also involved an assurance team from HMRC’s customer compliance group to add a further layer of scrutiny and independence to the process. This assessment must necessarily highlight any problems and areas where HMRC can improve its supervision. Those issues include needing to recruit and train large numbers of new officers—again, to address the question from my noble friend—and some inconsistencies in performance across the unit. However, the 2021-22 assessment judged that HMRC is effective and compliant in its obligations under the money laundering regulations and as set out in the OPBAS sourcebook, driving up performance despite the pandemic. The assessment also highlighted numerous strengths, including well-structured risk assessments, use of multiple supervisory tools in a risk-based approach and a robust registration process. On recruitment, HMRC’s supervision team is larger than it has ever been now, totalling more than 400 staff.

All this will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model of supervision. Pre-empting this through an amendment of this type risks generating exactly the type of confusion over responsibilities that I think my noble friend seeks to avoid. I therefore hope that he is able to withdraw his amendment.

Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Committee stage
Tuesday 9th May 2023 Grand Committee

[Lord Faulks (Non-Afl)]

My Lords, of course, I echo the concern that has been expressed in the speeches so far about international corruption on an enormous scale.

In our debates, we have very much focused on what happens here in the United Kingdom. In our attack on the Government, it is worth bearing in mind that, in 2016, this Government hosted an international corruption summit; it was hosted by the then Prime Minister David Cameron, so many Prime Ministers ago. It was partly as a result of that that we had the then Criminal Finances Bill and there was an impetus—a very slow one, sadly—to set up a register of overseas entities. It was felt that, at least in this country, we should do all we could not to allow our properties and companies to be infected by corruption. Indeed, this Bill seeks to improve what has already been achieved although, in many ways, it has not gone far enough.

I respectfully submit that what is contained in this amendment is pretty aspirational stuff. There is nothing wrong with being aspirational. The International Criminal Court—I have been to conferences there—has had some success, but it must be remembered that Russia is not a party to the ICC and nor is the United States. It is one thing to say that it is relatively easy to set up a court, but you must have the proper means to enforce it and you have to invest huge sums of money in infrastructure. There has to be a degree of realism about this. Surely we should sort out matters at home as best we can first of all; that in itself will contribute to reducing international corruption. Putting on the statute book an obligation to set up an international court of this sort, which is what this amendment suggests, is premature at this stage, although one can do nothing but applaud the sentiments that lie behind it.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, this has been a very interesting debate; it is the first debate in which we have spoken on a more international level. As we heard in our earlier debates, a large proportion of the quantity of money involved in fraud—well over 90%; probably 99%—has an international element; that is at the core of so much of the fraud with which we are dealing.

I congratulate the noble Lord, Lord Oates, on the way in which he introduced this group. I found his introduction rich and compelling. He set out things very fully. The other noble Lords who have spoken have talked about the aspirational nature of this amendment. I do not think that that is a criticism. It is good to hear about the other countries that are already taking a lead in trying to get the IACC set up.

From the Labour Party’s point of view, I have looked at what David Lammy has said on this matter. He has spoken about working internationally—I know that my noble friend Lord Hain led the work on that when he was a Foreign Office Minister—and promised that an incoming Labour Government would fight against dirty money in the UK by creating a transatlantic anti-corruption council alongside the US, EU and other allies. That is a different model from the one proposed in these amendments.

I do not want to stand here as an opposition spokesman saying that we are against what the noble Lord, Lord Oates, and the noble Baroness, Lady Bennett, are proposing but there are other potential models for bearing down on corruption. I listened with some interest to what the noble Lord, Lord Faulks, said about the practicalities of doing this and using legislation such as this to do everything we can on a domestic level, and internationally where we already have direct interest, to bear down on this huge level of corruption. Nevertheless, I thank the noble Lord for introducing this amendment.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank the noble Lord, Lord Hain, and the noble Baroness, Lady Bennett, for their amendments in this group. I also thank all noble Lords for speaking in this debate.

I turn first to Amendment 103, which was tabled by the noble Lord, Lord Hain, but spoken to by the noble Lord, Lord Oates. If I may, I associate myself with the remarks of the noble Lord, Lord Ponsonby: the noble Lord, Lord Oates, made an incredibly powerful and eloquent case in moving this amendment 103, which also spoken to by the noble Baronesses, Lady Bennett and Lady Wheatcroft. Ensuring that those who are responsible for the most egregious acts of corruption are held to account is obviously vital. There should be no tolerance towards those who steal from the public to satisfy personal greed. The Government wholeheartedly endorse the premise that this amendment seeks to advance. The international community can and must do more to deter and punish acts of corruption.

The Government are taking robust action to ensure that the UK leads by example. That is why, in March, we published the second public-private economic crime plan, to which I referred in our debate on the previous group of amendments, which outlines ambitious actions to prevent the UK’s open economy being exploited by criminals and corrupt actors. The Government are also developing a new UK anti-corruption strategy to build on the progress made by the previous strategy and outline a refreshed approach to tackling corruption and illicit finance both in the UK and internationally.

The recently published fraud strategy also sets out the Government’s commitment to raise the priority of fraud on the international stage. We will drive forward global action through developing stronger relationships with international partners, culminating in a global fraud summit chaired by the Home Secretary and held in the UK next year. The summit will bring together leaders from Governments, law enforcement and the private sector to announce the ambition to deliver a comprehensive and co-ordinated approach to tackling fraud over the next five years.

The Government have consistently invested in efforts to bring those responsible for corruption to justice. The international corruption unit in the National Crime Agency is a specialist capability that investigates corruption cases with UK links.

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[Lord Trevethin and Oaksey (CB)]

My Lords, I will say a few brief words in support of this amendment and place it in its proper legal context. When it was mentioned at Second Reading, the Government’s response was simply to say that the principle that the loser pays the costs of unsuccessful litigation or an unsuccessful application was regarded as a valuable principle and that they did not see sufficient reason to move away from it in this field. It is a salutary principle and it operates in civil litigation for the most part, but there are exceptions. There are already statutory precedents for a regime of the type that this amendment seeks to create, namely a regime in which the enforcement agency will not invariably have to pay the costs if an application is unsuccessful.

I will say a few words about a different, but quite closely related, area of law in which a regime of the type that this amendment contemplates has been created by the judges. In the field of professional discipline and professional regulation, there has been for some time a well-established principle that the regulator will not automatically have to pay costs merely because the application or prosecution that it has commenced has proved to be unsuccessful. It is known as the Baxendale-Walker principle and works perfectly well in practice.

I shall explain shortly how it works in practice. The proceedings are initiated and the respondent, being a professional person, is expected to engage properly and conscientiously with the regulator and to respond candidly, or with a reasonable degree of candour, to the points being made against him or it. If the regulator then continues unreasonably with the prosecution or disciplinary action and fails, it will be made to pay the costs of the matter. However, if the regulator at all times acts reasonably, the presumption will be that it will not be made to pay the costs of the matter.

The reason why the law has created that regime is precisely the reason that is contemplated by this amendment—namely, that it is strongly in the public interest that regulators and enforcement agencies should not be deterred from bringing proper proceedings by the risk of paying exorbitant costs bills to respondents who manage to successfully resist the application in question.

I think I have said enough to convey the point. I really do not understand why the Government are so reluctant to consider introducing a regime of this sort more widely across the field of economic crime. It already exists in relation to certain types of economic crime, and it works well in the field that I have mentioned. I would be very interested to hear the Minister’s response.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I support this amendment. As the noble Lord, Lord Agnew, said when he introduced it, cost exposure for prosecuting authorities can pose a real hurdle to their pursuing those prosecutions. As he also said, the Rubicon has been crossed in allowing cost capping, which the Government did in March 2022. This amendment has real legs—if I can use that phrase—and I hope the noble Lord presses the matter further, perhaps at later stages of the Bill.

I too was at the briefing with Bill Browder. I am currently reading his second book, having read his first, and it is compelling reading. He is a very brave man. I also agree with the comments made by the noble Baroness, Lady Bowles. I think she said: the precedent and the need are there, and the solution is here. I agree with those sentiments.

Finally, I thank the noble Lord, Lord Trevethin and Oaksey, who set out, interestingly, that some judges in the civil courts have developed their own law on this matter regarding the enforcement agencies not necessarily having to bear all their costs. He gave an interesting example of a further precedent, if you like. I too will be interested to hear the Minister’s response to that. The matter will be considered very carefully with regard to the later stages of the Bill.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank my noble friend Lord Agnew for tabling this amendment and all noble Lords for the points they have raised in this debate. Again, I reassure the Committee that the Government take economic crime very seriously and are taking the necessary steps to ensure that enforcement agencies can tackle illicit financial activities while upholding the fundamental principles that govern our entire civil justice system.

In civil legal proceedings the loser generally pays the legal costs of the winning party, as has been acknowledged. The “loser pays” principle is a fundamental pillar on which the whole basis of civil litigation operates. It helps to ensure that only stronger cases are brought and that the winning party is able to recover reasonable costs of vindicating their case, save for in exceptional circumstances, to ensure access to justice for individuals with very limited resources. While important, civil recovery proceedings brought by enforcement agencies are not so exceptional as to warrant undermining the “loser pays” principle.

Several noble Lords have raised with me, and during this debate, the changes made to the unexplained wealth order regime by the Economic Crime (Transparency and Enforcement) Act 2022. These amended provisions in the Proceeds of Crime Act—POCA—introduce “costs protection” for enforcement agencies in cases of UWOs, unless they act unreasonably. This aimed to remove barriers to the use of UWO powers by relevant law enforcement teams. This was done on the basis that they were exceptional and likely to be low in volume in comparison to other types of civil recovery and, furthermore, that the relevant cost rules would be positioned as a novel and unique proposal, thereby maintaining the overall integrity of the “loser pays” principle in all other civil recovery proceedings. In the last five years, agencies with civil recovery powers—the Crown Prosecution Service, the National Crime Agency, the Serious Fraud Office, the Financial Conduct Authority and HM Revenue and Customs—have not paid any adverse costs for civil recovery proceedings.

There is also no guarantee that the introduction of further costs protection would lead to enforcement agencies pursuing more cases, as they report that each case must be assessed on its own merits considering numerous factors independent of costs liability, including gathering sufficient evidence to pursue a case and internal resourcing capability.

It is also worth bearing in mind that the Civil Procedure Rules, which guide the courts in procedural matters—I think this goes some way to answering the points raised by the noble Lord, Lord Oates—

Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Fox (LD)]

My Lords, again this is a group of amendments with which we can thoroughly agree, which is a nice position to be in. Government Amendments 5 to 11 speak for themselves in the sense of tidying up the situation in Northern Ireland. The one amendment that is worth dwelling on a little bit is government Amendment 50, which gets to the point around resources and having sufficient resources for Companies House to be able to do what it needs to do.

There is a certain irony that, if the Companies House team is successful, there will be fewer companies on the register. So one of the things they will need to consider about fees is that they will be reducing the number of companies or the amount of income that will come per company. One of the issues in setting them is that, if estimates of 5% of companies being fraudulent are right, there will be 5% fewer companies paying the annual renewal. Some people, and some organisations, put that number much higher, so I suggest that the Government think about the success that Companies House will hopefully have in order to set a fee that does not become self-defeating if it removes companies.

The more companies the team removes from the register, the less money Companies House receives in annual renewal. That is the point I am making. I am assuming that this number will come quite soon after this Bill becomes an Act, and it would be useful for the Minister to update us on when we think the secondary legislation will come, because, clearly, Companies House and others will rely on this money for planning ahead. I am assuming the money goes to Companies House and not the Treasury, but perhaps the Minister could confirm that.

If the Minister could say a little around the operation of Amendment 50, that would be helpful—so that I understand it even if everybody else already does. He could say a little about how much money and how changeable it will be in the event that more money is needed to support the drive to remove criminality from our companies. I think that everything else is broadly very welcome.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, we agree with all the amendments in this group. This group is all government amendments which make minor changes to ensure that penalties align with previous legislation, that they are taken into account when setting fees and that penalties do not stop criminal proceedings, as the noble Lord explained introducing the amendments.

I take the point the noble Lord, Lord Fox, made about Amendment 50. I presume fees can be updated as the situation evolves regarding the number of companies on the register. Nevertheless, we support this group of amendments and look forward to the Minister’s response to the questions asked by the noble Lord, Lord Fox.

[Lord Johnson of Lainston (Con)]

As always, I am extremely grateful to noble Lords for their interventions and the points raised in debate.

I turn to government Amendment 50. It is not a technical point, but it would not, in my view, be a point of significant consequence. It is just to ensure that when the Secretary of State has a licensing regime for directors who have been disqualified but whom she may require to perform a director’s duties, such as winding up a business—it is practical to allow disqualified directors in some instances to perform certain functions—the cost for administering that process is met by the fees. I do not imagine that would be a significant component of the Companies House fees. This is a tidying-up point more than anything else. It just means that the taxpayer does not have to pay the bill. If I am wrong in my expectations, I will certainly correct that for the House, but I do not think that is the case. It is a technical point.

We have discussed at great length what we feel the Companies House fees should be. I do not think there is a single similar opinion; every noble Lord in this House has a different view on the exact amount to the nearest 50p it should cost to register a company and to reregister it or confirm the registration each year. The fact is that Companies House now has a licence to propose its budget, which must be agreed. That budget will be met through the fees charged to companies using its services.

The noble Lord, Lord Fox, raised a good point. It is anticipated that some companies will leave the register. I hope that there will not be a significant number of companies forced to leave the register because they are not legitimate companies, but it is right that this investigative power will encourage those companies that should not be on the register to leave. The quantum of the number of companies—I think there are nearly 5 million companies—at any reasonable fee rate, which the discussions established is between £50 and £100, would allow there to be ample funding for Companies House.

To answer the question the noble Lord, Lord Fox, asked about what happens to any excess money raised by fees, there is only one place excess money raised by anything in this great nation of ours goes: His Majesty’s Treasury. We would clearly wish to avoid that. We would rather make sure that the fees were set at the right level.

To end on a serious note, we are not looking to have a fee rate. This is why the Government have been careful not to hypothecate fees for Companies House activity with other activities. It is not right, in our view, to charge legitimate businesses excess amounts of money to cover other things unrelated to their Companies House registration. We have tried to set this in the right fashion. I think this will result in the right outcome. I hope very much that the House will support what are seen as largely technical amendments.

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[Lord Wallace of Saltaire (LD)]

My Lords, I am neither a lawyer nor a company formation specialist although, in a career as an international policy researcher, I have not only dealt with the Crown dependencies and some of the overseas territories but also spent some time in conferences with senior Swiss bankers, from which I benefited both from learning an enormous amount about their charm and discretion and from eating a number of wonderful meals.

In opening, the Minister said there will be nowhere to hide; the noble Lord, Lord Vaux, has said there will be always somewhere else to hide. At present we are engaged in doing our best to make it more difficult, and as difficult as possible, to hide who owns what, particularly when they are overseas, in the expectation that we will never succeed entirely in catching everyone because the cascade abilities of trusts in one place, partly owned by trusts in somewhere else, will always defeat us in some instances. We on these Benches will support Amendment 72 and Amendment 89 if it is pressed.

The statement that the Government will consult further on how to ensure that these measures can be used to maximise transparency is encouraging, but I share the limited scepticism expressed by the noble Lord, Lord Agnew, of how far that will take us when we are involved in this rather important Bill. We are in support of the maximum possible transparency. We know that the purpose of a great many overseas trusts is precisely to conceal, and we wish to extend that transparency as far as possible. Therefore, we on these Benches will support these amendments.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, we too will support the amendments if they are pressed by both noble Lords in due course.

The government amendments in this group are technical in nature and address the issues to do with overseas trusts, trust transparency and various anti-avoidance mechanisms.

I am glad to hear about the wonderful meals that the noble Lord, Lord Wallace, has had in Switzerland over the years, but I am sure that you learn a lot from those sorts of experiences about the sophistication of the types of arrangements which we are talking about.

As usual, the noble Lord, Lord Vaux, has done the House a favour, and we will support Amendment 72 if he presses it to a vote. He is proposing a practical solution to a current anomaly in the register, which he explained very fully. I know that the noble Lord, Lord Agnew, has been working tirelessly on the issues to which he just spoke, and if he indeed chooses to press his Amendment 73A to a vote, we will support him there as well.

[Lord Johnson of Lainston (Con)]

I thank noble Lords for their input to this important debate and, as always, I thank the noble Lord, Lord Vaux, and my noble friend Lord Agnew.

I will first attend to the matter of information transparency in respect of trusts on the register. It is important to clarify a few points. First, this information is being recorded at Companies House, so at no point are trusts or individuals able to conceal the information from law enforcement authorities or from the registrar, and that is an incredibly important point that noble Lords made. We are not discussing here about not collecting information or about not enforcing the collection of information—the liabilities and penalties that go with non-application of the information. We are talking about the publication of information, and it is important that we make that clear.

Secondly, we have listened carefully to all sides of this House and have introduced an additional amendment to enable interested or relevant parties to access the information held at Companies House on these trusts. This was not initially in the Bill either in the other place or here but, after very sensible discussions with myself—I hope noble Lords will agree that they were sensible—it is absolutely right that there is an opportunity for people to access the register. That is an important point again; I would not like this debate to be one-sided. This is not a situation where a Government are somehow trying to protect people or to allow them to obscure their assets or to commit crimes through opacity. This is about a workable system that allows our economy to function but at the same time provides essential safeguards that no Member of this House would like to see derogated. We have introduced a public interest access amendment, which will enable investigative journalists and other specific entities to access and make inquiries as to the beneficial ownership of trusts.

My noble friend Lord Agnew made an inquiry as to the use of the word “may” in giving permissions. As I understand it, that is simply the legal term that is used in these cases. I am happy to seek further advice around that but I do not think that necessarily changing one word would make the difference that my noble friend seeks. The important point is that we have made this commitment. This is a dramatic change from two months ago, when we started having these conversations. The Government as a whole, and many individuals within that Government, are extremely keen to see transparency brought to bear on this register and to enable people access to trust beneficiaries. There has been a fruitful and deep debate about it.

Economic Crime and Corporate Transparency Bill

Lord Ponsonby of Shulbrede Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, I reiterate what the noble Baroness, Lady Altmann, and the noble Lord, Lord Fox, have said: there has been a co-operative approach to this Bill, which I think will make it a better Bill. I was going to make exactly the points that the noble Lord, Lord Fox, has just made about the need to build in a way of feeding back to Parliament, particularly given that crypto assets are a very turbulent technology; it is a very turbulent industry. We know about the criminality endemic within these types of so-called assets. The point has been made by the noble Lord, Lord Fox, that Parliament needs to find a way, through flexibility and feedback, to make sure that the appropriate regulations are kept in place.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all noble Lords for their brief points in this debate. Broadly speaking, I agree with all the points that have been made. It is important to maintain a high level of flexibility, because this is a very fast-moving space technologically as well as with regard to the use of these assets in the broader economy and for other purposes. I agree with everything that has been said. Obviously, these amendments allow us to maintain a high degree of flexibility, so I ask noble Lords to support them. There is not much point in saying anything else at this point.

--- Later in debate ---

[Lord Faulks (Non-Afl)]

My Lords, I rise briefly to support the noble Lord. Two key themes emerged from our lengthy debates on the Bill. The first was that the scale of economic crime is a major threat to the prosperity of the country. The second was that there is a significant inequality of arms between the enforcement authorities and the perpetrators of economic crimes. I could weary the House at length but I will not do so. This is an attempt to redress that inequality and not provide a disincentive for the authorities to pursue the perpetrators of economic crime.

[Lord Ponsonby of Shulbrede (Lab)]

My Lords, if the noble Lord chooses to move to a vote, we will support him. This amendment would build on last year’s Bill, which introduced similar changes to unexplained wealth orders. It is a welcome development, and I hope that the noble Lord presses his amendment to a vote.

[Lord Bellamy (Con)]

My Lords, unfortunately, the Government are not able to accept this amendment, although we are sympathetic to the points made by my noble friend Lord Agnew. The amendment is designed to protect public authorities from having costs awarded against them if they fail to recover the proceeds of economic crime under the Proceeds of Crime Act.

First, the Government are not persuaded that public authorities that lose their case should be protected in this way. Secondly, this is a major breach of the general principle applied in civil litigation in the High Court that the loser pays.

Thirdly, it is a major interference with the discretion of the court on the question of costs. Fourthly, if such a change were to be contemplated, it should be a matter for the Civil Procedure Rules and not something inserted without detailed reflection on Report in your Lordships’ House. Fifthly, it would produce even more inconsistency than allegedly we have already. I do not accept that there is material inconsistency, but you would have one rule for some POCA cases and another rule for other POCA cases, because not all POCA cases are economic crime cases.

However, the Government are prepared actively to consider a consultation to properly consider this matter and the evidence with a view to ensuring that there is a correct balance of justice and the proper consideration of the pros and cons. That, very briefly, is the Government’s position.

I will briefly deal with one or two points. This is not like unexplained wealth orders, which have been mentioned. Those are an investigative procedure and not determinative of civil rights and obligations. In some respects, the UWO procedure is closer to a search warrant than to a recovery of money in civil litigation. It does not provide an analogy to the present case.

It is true that there are various costs regimes in various cases. It is probably not useful to weary your Lordships with particular decisions, but it is not without interest that in the case of Pfizer and Flynn, which involved the Competition and Markets Authority, the authority lost at first instance and was ordered to pay some of the costs. The Court of Appeal overturned that on the basis that it did not want to have the “chilling effect” of public authorities having to pay the costs when they lose litigation. However, the Supreme Court restored the original judgment and said, “This so-called chilling effect is only one factor”. In other words, it is not decisive. You must consider in that jurisdiction all the factors. The Government draw from that case that the so-called chilling effect is not necessarily decisive, and that one must have a regime that enables the court to balance all the relevant effects.

With all respect for the motives behind it and the concerns that have been expressed, this amendment is too blunt an instrument to be a proper exercise of primary legislation in an area which very much calls for balanced consideration under the Civil Procedure Rules. As I said at the outset, the Government are perfectly prepared actively to consider reform of the Civil Procedure Rules with that aim in mind.

I hope that I have persuaded your Lordships that this is not an occasion to make an exception to the well-established rule that has stood for hundreds of years, whether it applies to HMRC, the National Crime Agency or the FCA. If they make a complete Horlicks of a case, there is no reason to let them off the costs. That is the Government’s position.