Economic Crime and Corporate Transparency Bill

Lord Sharpe of Epsom Excerpts

2nd reading
Wednesday 8th February 2023 Lords Chamber

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

My Lords, I start by thanking all noble Lords for the constructive engagement throughout today’s debate. I welcome the support for the Bill from across the House. The comments made across the House demonstrate not only the strength of feeling on the importance of tackling economic crime, but a broad consensus that the measures in this Bill are an important step forward. I agree with my noble friend Lord Agnew that we have heard considerable expertise in this debate. Given the size and complexity of the Bill already, I am pleased that noble Lords agree that this is a substantial package of measures that will make a real difference. I will aim to address as many points as possible during the time available to me and I look forward to further debate as the Bill moves into Committee. Obviously, if I miss anything, I will write.

I thank the noble Lords, Lord Fox, Lord Vaux of Harrowden and Lord Faulks, for raising the important topic of the register of overseas entities, to which a number of other noble Lords also referred. I am also grateful for the support of the whole House for the expedited passage of the Economic Crime (Transparency and Enforcement) Act last year. As has been noted, the register launched in August 2022 and the deadline for registrations closed on 31 January.

As of today, 23,118 overseas entities are registered with Companies House. An additional 2,876 applications are currently being processed, so it is likely that we will have some 26,000 registrations very soon. We estimated the population of entities in scope to be around 31,000, but some 10% of those may have been dissolved or struck off. As such, the Government’s view is that we have achieved a very good rate of initial compliance. Companies House has worked strenuously to communicate the requirements to those affected, including working with registries overseas and issuing some 80,000 letters. About 30 staff are currently working on the register and they will be actively pursuing those who fail to register by the deadline. All non-compliant companies will have restrictions placed on their land with immediate effect.

In addition, last week the Government announced that £20 million of funds allocated to economic crime will be invested to create new anti-money laundering teams across Companies House and the Insolvency Service. I can reassure the noble Lord, Lord Sikka, who I note is not in his place but it is important to mention this, that the register does require information on trusts to be provided to Companies House. Though this information is not publicly available, it is already proving to be a rich source of data for tax law enforcement agencies. While there are legitimate circumstances in which a company might genuinely have no beneficial owners, in those situations it must supply details of its managing officers.

The register of overseas entities is a key new source of information. It is early days, but the signs are that it is working. The noble Lord, Lord Stevens of Birmingham, mentioned Transparency International’s research. I have to say that, without the register, I am not sure it could have actually conducted that research.

[Lord Wallace of Saltaire (LD)]

Just on the register of overseas entities, the noble Lord, Lord Agnew, talked about following all the way down the chain to discover whether there is another company based in another offshore financial centre which says it is the beneficial owner and then chasing them back to, I think he said, the Marshall Islands, if necessary. That is not at all easy. Have the Government engaged with that? Can he perhaps brief us before Committee as to how difficult that is and how hard the Government are going to try?

[Lord Sharpe of Epsom (Con)]

My Lords, I just referred to the extensive investment that the Government are making in investigative capacity within this space, so I think the answer is yes, we will obviously be pursuing that and I will be more than happy to engage going forward—but I cannot give him specific answers at this moment.

I thank the noble Lord, Lord Ponsonby of Shulbrede, for raising the importance of the effective implementation of Companies House reform. I cannot commit to a precise timetable today, but I can confirm that investment in new capabilities—I have already alluded to some—systems and people is already under way. That is funded by an additional £63 million allocated across the spending review period.

The noble Lord, Lord Fox, and my noble friend Lord Gold asked about reporting to Parliament on the implementation of the reforms. On Report in the other place, the Government brought forward an amendment that will require the Government to produce an annual report for Parliament until 2030 on the implementation and operation of Parts 1 to 3 of the Bill. This will ensure that Parliament is provided with reassurance on the further work that will be required after Royal Assent, such as the laying of secondary legislation or the developing of IT during the implementation period. Companies House is an executive agency of my noble friend the Minister’s department, and there are various governance mechanisms to hold the agency to account on these important reforms.

The noble Lord, Lord Fox, asked about Companies House identity verification. The Bill will introduce robust identity verification checks for people who manage, own and control companies and other registered entities. Again, I am going to refer to some remarks from the noble Lord, Lord Sikka.

[Noble Lords]

He is not here.

[Lord Sharpe of Epsom (Con)]

But it is important, so I am going to do it. A significant proportion of the first 106 clauses are given over to verification and related matters. Companies House will be using leading technology and will meet current ID verification industry standards on how to prove and verify someone’s identity. More information was set out in the Government’s White Paper last year and we will be happy to say more in Committee.

[Lord Fox (LD)]

The Minister does not have to answer the noble Lord, Lord Sikka, on this one, because I raised the issue of outsourcing and insourcing verification.

--- Later in debate ---

[Lord Sharpe of Epsom (Con)]

My Lords, on the subject of authorised corporate service providers and in relation to comments made by the noble Lord, Lord Fox, I can confirm that the Government are committed to ensuring that the checks carried out by authorised corporate service providers—I shall call them ACSPs from now on—are robust. ACSPs will be required to carry out checks to at least the same standard as the registrar, who will be able to query any suspicious information on the register, including that which is submitted by an ACSP. The registrar will establish a robust scrutiny process with anti-money laundering supervisors for onboarding ACSPs. They will need to prove that they are registered with an anti-money laundering supervisor before they will be permitted to undertake ACSP activity. Furthermore, if necessary, the registrar can suspend or de-authorise an ACSP, excluding it from forming companies or filing for them.

My noble friend Lord Clarke of Nottingham asked about Companies House’s role in investigating fraudulent addresses. The Bill’s new definition of what constitutes an appropriate address for the purposes of a company’s registered office address is a significant improvement. It requires, in effect, that the company must have authority to use that address on pain of criminal sanction.

I thank my noble friend Lord Leigh of Hurley for raising the point of accounts tagging. The Bill will lay the foundations for the registrar to require company accounts to be filed with it in a digital format known as iXBRL, which will allow much better analysis by users of the companies register.

I agree with noble Lords, including my noble friends Lord Agnew of Oulton, Lord Clarke of Nottingham, Lord Young of Cookham, Lady Morgan of Cotes and Lord Gold and the noble Baroness, Lady Bowles of Berkhamsted, that it is critical that the registrar of companies is sufficiently funded to carry out her new duties under this Bill. The Bill will give the Government more flexibility to increase the fees that Companies House charges by broadening the range of functions that can be funded through these fees, to investigation and enforcement activity in particular.

I assure noble Lords, including the noble Lords, Lord Ponsonby of Shulbrede, Lord Fox, Lord McDonald of Salford, Lord Stevens of Birmingham and Lord Wallace of Saltaire, and my noble friend Lord Clarke of Nottingham, that the Government are committed to working with overseas territories and crown dependencies towards transparency of control and ownership of companies. All inhabited overseas territories have already committed to introduce publicly accessible registers of company beneficial ownership, and the Government have stated that they expect these to be in place by the end of this year.

I agree with the noble Lord, Lord Fox, my noble friend Lord Agnew of Oulton and the noble Baroness, Lady Blake, that an effective whistleblowing framework is an important part of the UK’s ability to tackle corruption and all forms of economic crime and illicit finance. The Government remain committed to reviewing the whistleblowing framework. My honourable friend the Minister for Enterprise, Markets and Small Business set out in the other place that this issue was within his ministerial portfolio and he was personally determined to take this review forward as quickly as possible. I understand that we can expect developments soon.

I assure the noble Lords, Lord Fox and Lord Faulks, and my noble friend Lord Agnew of Oulton that the Government take economic crime extremely 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, and this “loser pays” principle is a fundamental pillar on which the whole basis of civil litigation operates. While important, civil recovery proceedings brought by enforcement agencies are not so exceptional as to warrant undermining that principle.

On corporate criminal liability, I thank my noble friends Lord Young of Cookham, Lady Morgan of Cotes and Lord Clarke of Nottingham, my noble and learned friend Lord Garnier and the noble Baroness, Lady Bowles of Berkhamsted, and many other noble Lords for raising this issue. My right honourable friend the Minister of State for Security stated in the other place that the Government are committed to addressing the need for a new “failure to prevent” offence through this Bill and we intend to bring forward amendments to this House in Committee. Of course, I will share those as soon as I can.

It is vital to get this right so that these reforms can be utilised by law enforcement, do not duplicate what already exists and avoid placing unnecessary burdens on legitimate businesses. We are working in collaboration with prosecutors and other stakeholders to prepare these measures and, as I have said, we will set out further detail in due course in order to enable full and proper scrutiny.

I agree with my noble friend Lord Young of Cookham and the noble Baroness, Lady Bowles of Berkhamsted, about the reforms required to the identification doctrine. However, reform cannot be limited only to economic crime offences. The fullest and most appropriate reform is, I am afraid, out of scope—I am particularly sorry to disappoint my noble and learned friend Lord Garnier on this. I can assure the House that the Government are exploring other avenues for introducing appropriate and effective legislation on the identification doctrine.

My noble friend Lord Gold brought up the subject of confidence in the SFO. The Serious Fraud Office investigates and prosecutes the most complex cases of fraud, bribery and corruption, and against this challenging remit it has delivered some outstanding incomes in this financial year. My noble and learned friend Lord Garnier also referenced this. I reassure my noble friend Lord Gold that the SFO has used Section 7 of the Bribery Act for nine of the 12 deferred prosecution agreements. On prosecutions, two of the seven counts of bribery for which Glencore Energy UK was convicted in November were Section 7 offences. Last year, the SFO prosecuted Petrofac for Section 7 offences, which resulted in a £22 million confiscation order and a £47 million fine.

The noble Lord, Lord Fox, was right to raise the recovery of crypto assets hosted overseas. The Government are aware that many crypto asset exchanges and custodian wallet providers have a digital-only presence or are domiciled outside of the UK. The Bill contains novel measures to capture as many entities as possible with a UK footprint which service UK customers, but I have no doubt that we will come back to this subject.

I think pretty much every speaker brought up the subject of SLAPPs, so I ask noble Lords to forgive me for not naming everybody who mentioned this, although I will pick out a few: the noble and learned Lord, Lord Brown of Eaton-under-Heywood, my noble friends Lady Stowell of Beeston and Lord Young of Cookham, the noble Lords, Lord Thomas of Gresford, Lord Cromwell and Lord Trevethin and Oaksey, and many others. The Government are committed to tackling SLAPPs, but as the first country to pursue national legislation on such a complex issue, it is right that we take the necessary time to consider this carefully and make sure we get it right. We will introduce primary legislation to tackle SLAPPs—this is where I am going to upset all noble Lords—as soon as parliamentary time allows.

SLAPPs are not simply an issue of economic crime, as the noble Lord, Lord Faulks, noted. They are about freedom of speech and the rule of law. As such, SLAPPs, in attacking public interest reporting, should be looked at more as an offence against matters that are fundamental to a democratic society, rather than as something particular to a specific type of crime. We are in the process of ensuring that we have anti-SLAPPs legislation which properly and comprehensively addresses the problem. Targeted reforms will include a statutory definition of SLAPPs cases and—in answer to the noble Lord, Lord Cromwell—an early dismissal mechanism. We will introduce a cost protection scheme for defendants via secondary legislation.

The noble Lords, Lord Ponsonby of Shulbrede and Lord Wallace of Saltaire, raised the issue of so-called professional enablers. The Government have made several improvements over recent years, but we know that there is more to do, and the threat is constantly evolving. That is why we have committed to formal consultation on options for reform to ensure the effective supervision across the regulated sector. Furthermore, the clauses in Part 5 of the Bill will strengthen legal sector regulators in tackling economic crime, and the reforms to Companies House will both ensure company agents are properly supervised and help strengthen that supervision.

I thank the noble Lords, Lord Browne of Ladyton, Lord Ponsonby of Shulbrede and Lord Vaux of Harrowden, and the noble Baroness, Lady Blake of Leeds, for raising the importance of tackling fraud, and the report of the Fraud Act 2006 and Digital Fraud Committee chaired by my noble friend Lady Morgan of Cotes. I agree with my noble and learned friend Lord Garnier—as backed up by the noble Baroness, Lady Blake of Leeds—that we must focus on the victims. We very much welcome the recommendations that the committee made. We are still considering our response but hope to publish this shortly. Your Lordships will see from the recent commitment to introduce the “failure to prevent” provision in the Lords that we agree with points the committee made.

The subject of the fraud strategy also came up. The noble Lords, Lord Vaux of Harrowden and Lord Browne of Ladyton, highlighted that tackling fraud requires a unified and co-ordinated response from government, law enforcement and the private sector to better protect the public and businesses from fraud, reduce the impact of fraud on victims and increase the disruption and prosecution of fraudsters. That is why we will shortly publish a new strategy to address the threat of fraud. The fraud strategy will set out our approach and should address the NAO’s concerns.

As for the specific point on data, the Government and law enforcement gather fraud data from multiple sources—

[Lord Vaux of Harrowden (CB)]

The question that was asked on the response to the fraud inquiry and the national fraud strategy was whether we would get one before Committee.

[Lord Sharpe of Epsom (Con)]

I am afraid that I genuinely do not know the answer to that, but I will come back to the noble Lord. I would certainly hope so.

The Government and law enforcement gather fraud data from multiple sources but we recognise that there is more to be done to understand the threat, which we intend to address through the strategy. I can confirm that the new strategy will include updated statistics on the social and economic costs of fraud.

The noble Lord, Lord Ponsonby of Shulbrede, the noble and learned Lord, Lord Brown of Eaton-under-Heywood, and the noble Lord, Lord McDonald of Salford, asked about the Government’s plans on asset seizure. I assure them that nothing is off the table. His Majesty’s Government continue actively to explore options to enable permanent deprivation of assets associated with designated persons which are currently frozen, including jointly with international partners. That includes actively considering potential routes to mirror the EU’s directive on mandatory disclosure in UK legislation. In the meantime, government authorities have the powers to utilise various enforcement tools to freeze assets and in criminal cases confiscate relevant assets, including those associated with Russian designated persons.

[Lord Fox (LD)]

A number of noble Lords mentioned the Private Member’s Bill that was introduced yesterday, I think. We asked for some sense of the Government’s view on that and whether it could be helpful in the whole seizure debate.

[Lord Sharpe of Epsom (Con)]

I will come back to the noble Lord on that in writing.

To respond to the point raised by the noble and learned Lord, Lord Etherton, the inclusion of an explicit regulatory objective will put it beyond doubt that it is the front-line regulators’ duty to promote adherence to the economic crime rules set out in the relevant guidance and legislation, and that they may carry out such regulatory action as appropriate to carry out this objective. That should avoid unnecessary challenge in relation to regulators’ compliance activity, which can make monitoring and enforcement costly. These types of activities could include, for example, the imposition of financial penalties, requesting information—the type of information will obviously differ on a case-by-case basis—awareness-raising and all other supervisory monitoring work that regulators may carry out in promoting the regulatory objectives.

I thank my noble friend Lady Stowell of Beeston for raising the issue of regulation of the legal and accountancy sector. The money laundering regulations 2017 ensure that key professionals identify their customers and understand the purpose behind transactions, including the source of funds. While regulated businesses have legal requirements under the MLRs to implement robust anti-money laundering policies, controls and procedures and to identify and verify the identity of their customer, any money laundering is a criminal offence under the prevention of organised crime Act, and businesses outside the regulated sector may still choose to implement AML controls. Measures in this Bill will aid legal services regulators in upholding the economic crime rules, including for money laundering, and remove the cap on SRA fines for breaches of these rules.

As already acknowledged by my noble friend and colleague Lord Johnson, the Bill forms a key part of the wider government approach to tackling economic crime, sitting alongside the national security Bill, the Online Safety Bill, the Data Protection and Digital Information Bill, and the forthcoming economic crime plan 2 and fraud strategy. The Online Safety Bill is ambitious and forward-looking legislation that will tackle online harms, including fraud and fraudulent advertising. It will bring fraudulent user-generated content and fraudulent online advertising within scope of the online safety regulatory framework in order to increase people’s protection from the devastating impact of scams posted across the biggest websites; that will include social media apps and dating sites. Also included are romance scams, which can cause devastating psychological harm and are estimated to cost £60 million a year.

[Lord Davies of Brixton (Lab)]

My Lords, this has been an interesting debate. Can we have just a couple of words about co-ordination of government policy across these different Bills?

[Lord Sharpe of Epsom (Con)]

I can reassure the noble Lord that there is co-ordination across government departments; we are in conversation with each other about these various Bills.

My noble friend Lady Morgan of Cotes raised the information-sharing clauses and how they work in tandem with the provisions in the data protection Bill. Historically, businesses have faced two challenges in sharing data for the purposes of combating economic crime: the duty of confidentiality that they owe to their customers, which is also known as the Tournier rule, and data protection requirements. The ECCT Bill addresses the first of these, the data protection Bill the second. As the noble Lord, Lord Davies of Brixton, asked, we are in continuous conversation with other relevant government departments to bring a co-ordinated response across all these Bills.

I have endeavoured to address all the contributions made by noble Lords today. I look forward to further debate and discussion—

[Baroness Bennett of Manor Castle (GP)]

My Lords, can the Minister briefly address my central point, that the Financial Services and Markets Bill, with its deregulatory direction, goes in the opposite direction to the Government’s stated aim in this Bill?

[Lord Sharpe of Epsom (Con)]

Yes, I can. I do not think that deregulating legitimate financial operations and going after economic crime deserve to be talked about in the same sentence. They are very different things.

I have endeavoured to address all the contributions made by noble Lords today. I look forward to further debate and discussion in Committee as the Bill continues its passage. I very much welcome the grit and determination of the noble Baroness, Lady Blake, and am very happy to continue engagement as we go forward.

[Baroness Stowell of Beeston (Con)]

My Lords, may I just take this opportunity briefly to ask the noble Lord, Lord Ponsonby, to relay to his noble friend Lord Sikka the House’s displeasure at his discourtesy, particularly if, as my noble friend Lord Leigh said, this is not the first time that he has not stayed until the end of a debate, and since his was the longest of the Back-Bench speeches in this debate? He took advantage of a full 15 minutes.

[Lord Ponsonby of Shulbrede (Lab)]

I assure the noble Baroness that I will refer the matter to our Chief Whip.

[Lord Sharpe of Epsom (Con)]

My Lords, I beg to move.

Bill read a second time.