Economic Crime and Corporate Transparency Bill

Lord Sikka Excerpts

2nd reading
Wednesday 8th February 2023 Lords Chamber

[Lord Sikka (Lab)]

My Lords, it is a pleasure to join the debate. This is the second instalment of the economic crime Bill; we had one earlier that created the register of overseas entities and required disclosure of beneficial owners of UK properties. As was pointed out during debates, that Bill—now an Act—was deficient because it made no reference to property ownership through trusts, even though it was pointed out to the Government that this was a deficiency. Also, the definition of beneficial ownership is incredibly malleable. Those caught by disclosures this time can easily rearrange the ownership structure to make sure that they do not have to disclose it next time. So I hope the Minister will revisit that and bring forward amendments. In my view, anyone who has a beneficial interest—it does not have to be 25%, 20%, 10% or 5%—needs to be identified, because they could well be dabbling in dirty money.

As has been pointed out, the BBC and Transparency International recently reported that almost half the firms required to disclose beneficial ownership of foreign property have failed to do so. Some 18,000 offshore companies, which between them hold more than 50,000 properties in England and Wales, have either ignored the law altogether or filed information in such a way that it remains impossible for the public to find out who the beneficial owners of those properties are. I hope the Minister will reflect on that. The promise in the Act was that those who do not comply with the law—and that deadline has passed—will receive a fine of £500 per day or a prison sentence of up to five years. I hope the Minister will tell us what preparations are being made to implement that kind of retribution against those who have failed to comply with the law.

The Bill claims all over the place that it is trying to tackle crime and fraud, yet there is no reflection on whether we have the institutional architecture for dealing with that. I raised this during a debate on the Financial Services and Markets Bill. Our police forces are regional, whether in the City of London, Reading, Bristol or somewhere else. There is no national police force, and forces do not co-operate. If you find that somebody involved in an alleged crime is in another district, you have to seek the co-operation of the police force there. That force may be willing to co-operate with you, or it may not because it simply does not have the funds or personnel. That kind of issue has been recurring for the last 40 or 50 years, yet it is not really addressed.

A classic example is the HBOS frauds. Two police forces looked at the issues, found that it was too expensive to pursue bankers from HBOS for fraud and simply did not wish to proceed. The Thames Valley police and crime commissioner decided that he would pursue them—and he did. He eventually secured convictions and just under 50 years of prison sentences for a few people, but he had to spend £7 million of his own budget. He did not get a single penny from central government for securing convictions. After the event, the FCA decided that it now needed to show a brave face because it had done nothing for years. It fined Lloyds Bank £45 million—all of which went to the Treasury. When the police and crime commissioner for Thames Valley requested reimbursement from that, the Government said no. He appealed to then Prime Minister Theresa May, and the Cabinet Secretary agreed to arrange a meeting with him. He then provided more details and mentioned the names of banks—especially Lloyds Bank—that was involved in this, but mysteriously, a couple of weeks later, the invitation to meet was withdrawn. It disappeared; nobody wanted to see him about it.

So I hope the Minister will tell us what kind of institutional architecture there is. We just do not have any, which is why these things do not get prosecuted. We need resources, and the resources are there. They can simply be levied on the institutions engaged in fraud. If the Minister thinks that corruption and fraud are not rife in the City of London, perhaps he would care to name a pristine bank. Just one example of a major bank will do—I will accept his word for it. If he cannot, he knows that plenty of resources can be raised to clean up the world of finance.

I agree with the possibility of new checks at Companies House on company formation, but I totally oppose the idea that those checks are to be outsourced. There are too many conflicts of interest, as has been pointed out. Outsourcing is a bad practice. It means that you do not build in-house knowledge and you do not have an institutional memory of what happens, has happened or could happen. Therefore, regulation is poorly designed and poorly enforced and there are simply too many exceptions.

The Bill is fairly vague on what kinds of checks will actually be made on company formation. I point out to the Minister that it is not just checks at company formation; they need to be continuous. Companies’ directors, secretaries, addresses and many other details, including persons with significant control, change, so these checks are not going to be a one-off; that simply will not work.

In some of the examples of fraudulent practices I have come across—over the last couple of years I have referred many of them to the government department through Written Questions, and I will come back to one or two of those—individuals have used a variety of names as company directors. Imagine if somebody’s name was John Brian Smith. They might call themselves John Smith, Brian Smith, J Smith, JB Smith and numerous other names. This way, they get around the issues when they are disqualified. They keep appearing again and again, in many other guises. In some cases, individuals have changed their name by deed poll so that they can become a company director.

I do not see anything in the Bill that tells me what exactly is going to happen and what kind of checks there will be. Those kinds of things really need to be debated and discussed, rather than the Government saying that later on there will be some kind of magic formula developed by somebody. What kind of evidence will be sought to authenticate the names, addresses and any other details?

I have given Ministers numerous examples of companies which have never traded, have been used as fronts for crime and have filed false information. Will Companies House be authenticating financial numbers in any way? I shall give one example. There was a company, which I have referred to in my Written Question, called Aflak Traveling Abroad Ltd. It was dormant, had never traded and had no employees but, according to the accounts, its share capital was £1.46 trillion, and Companies House happily accepted that. Someone filed those accounts so that they could impress people: “Look, chaps, I run a company in London and the British Government have given me a certificate of incorporation, which is vital. There you are, you can do business with me.” The British state is then complicit in facilitating these frauds. Will Companies House be checking for those kinds of numbers? That is not an isolated example.

Currently, anyone from anywhere in the world can set up a company in this country, using any name and address. I see nothing in the Bill that would prevent someone living in Latvia, Timbuktu or anywhere else forming a company in the UK. How will we authenticate their details? What language will the information be in? How will we know it is genuine? Would it not be better if every company registered at Companies House was required by law to have at least one UK resident director, so that we would know where the buck stopped, who was actually responsible and who we could go after if things went wrong?

Companies have used very strange names for their directors that have been easily accepted. Companies House has been accepting names and details in other languages. A head of the mafia filed accounts in Italian that contained a lot of information. Companies House did not translate it; if it had bothered, it would have found that the translation in English was that the director’s name was “The Chicken Thief”, occupation “Fraudster”, living at “Street of the 40 Thieves” in the town of “Ali Baba” in Italy. Companies House happily accepted that filing for years.

In other companies, some directors’ names have been given as “Mr Adolf Tooth Fairy Hitler”, “Lord Truman Hell Christ”, “Judas Superadio Iskariot” and “Victor Les-Appy Hugo”. Another director was called “James Bond” and his occupation was “security controller”. Another had a director named “Joseph Smith Jr”, whose occupations were listed as “Steward of the Ring of Mormon”, “Profit and Ringwatcher” and “Guardian Angel of the Ring of Mormon”. Another was “Lord Truman Michael Spypriest”, whose occupations were given as “Secret Espionage Service”, “War Lord”, and “Weapons System and Tuba (Latin)”.

How can we stop this? I see nothing about it in the Bill, especially given that we are allowing foreign residents to register companies in the UK. I think the House has a flavour of some of the practical issues here. There are numerous examples of companies being registered with false addresses. I shall explain what I mean by that. The miscreants use a genuine address but without the knowledge or permission of the genuine owners of the property. Those owners become aware that their address has been used only when threatening letters from various people arrive on their doormat. They go to Companies House and say, “We’re nothing to do with this company”, but Companies House says, “No, we can’t remove that address unless you get a court order.” Innocent people have to incur legal costs of thousands of pounds to remove their address, which has been fraudulently used, and I can see no remedy in the Bill for that. What are those people to do? I hope the Minister will explain that.

Individuals from sanctioned countries such as Russia can easily form a company. Do government departments talk to each other? Should it be possible that those companies can be used as fronts for sanction busting? That is not explained either.

We have heard that the Government are going to introduce an offence of failure to prevent fraud. I welcome that but I look forward to hearing the details, specifically about the regulatory architecture for that, especially as the Government are not doing anything to reform accounting, auditing, insolvency or corporate governance.

The Bill has “corporate transparency” in its title but I do not see much about that. For example, there is no proposal to require rich people to make their tax returns publicly available. As the Prime Minister would testify, if he had known about the tax returns of a certain former Chancellor, he might have made a different ministerial appointment. Why is that missing? Why are large corporations not required to publish their tax returns?

Throughout this Bill, the previous Bill and company law, we are constantly redrawing the boundaries between what is public and what is private; they are always shifting. Why does the Bill not really demand transparency of tax returns? That is one way of dealing with a large part of economic crime. Up to £1.5 trillion of taxes has not been collected since 2010. That is a hell of a lot of money. HMRC admits to only £400 billion but its estimate is wrong, and we can have a debate about that another day.

I hope the Minister will bring forward some amendments to require greater transparency of everyone’s tax returns or, if not, then at least of wealthy individuals and large corporations. I look forward to the Minister’s response.