Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

2nd reading
Wednesday 8th February 2023 Lords Chamber

[Lord Vaux of Harrowden (CB)]

My Lords, I remind the House of my interest as a non-practising member of the Institute of Chartered Accountants in England and Wales. I hesitate to do that, given the comments that I am sure will follow about enabling, but there we go.

Like, I suspect, everybody else, I welcome the Bill, which is an important step towards cleaning up the high levels of economic crime that have been allowed to build up in this country for far too long. However, like other noble Lords who have already spoken, I share the concerns that it does not go far enough; it is not strong enough at the moment.

I too welcome the Minister to his new role. I am going to be slightly unfair to him by referring to what his predecessor said during the passage of the first economic crime Bill, which was rushed through last year as emergency legislation. The then Minister was clear that the introduction of this second Bill would be an opportunity to revisit the first one. Accordingly, I start by asking the Minister, as the noble Lord, Lord Fox, has already done, to update us on progress with the register of overseas property. Has anything been learned from that process so far that might be of relevance to the Bill before us?

This is a good moment to look back, because the initial deadline for filing for the register of overseas properties was last week: 31 January. Transparency International issued a report yesterday on the progress made. It highlights that the register is starting to serve its purpose and that it reveals the names of many individuals who control overseas companies that own UK property; so far, so good. However, of the estimated 32,000 companies that are required to declare their ownership, nearly half had not yet filed; more than 3,000 listed anonymous companies as the beneficial owners; more than 4,000 indicated that they are held by trust arrangements; and 12% of all the companies that have filed claimed to have no beneficial owner. Therefore, while, to be fair, it is early days, it would be hard to claim that the register of overseas entities has so far been a resounding success. It is clear that those who wish to hide their identity are still managing to do so.

The Transparency International report highlights five methods people are already using to hide their beneficial ownership: simply failing to submit information or filing non-compliant information, listing opaque companies as beneficial owners, trust companies hiding the real owners, companies claiming to have no beneficial owner, and naming service providers as beneficial owners. I would be interested to understand what the Government are now doing to follow up on these, and in particular what action is being taken to identify regulated entities which have verified the information and remind them of their liability, as well as reporting them to their regulators. It would be interesting to know whether there are any trends in particular verifiers or types of verifiers using any of those methods to hide identity. All these things have obvious implications and lessons for this Bill, as well as highlighting the need to continue to strengthen the last one. Therefore, again, what have the Government learned from the experience so far?

The Bill’s main purpose is to strengthen Companies House and enable it to ensure that it can verify the information provided to it. That is extremely welcome, if very long overdue—did the noble Lord say 150 years? The importance of Companies House cannot be overstated. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, met a number of fraud victims as part of our inquiry. One thing that stood out was that in all cases where the fraud was carried out involving an apparent business, the victims we heard about had checked that the company existed with Companies House before parting with their money. The fact that the company was registered actually helped the fraudster. The Bill is therefore essential, but there are areas where it could be improved.

The success or otherwise of the Bill is extremely heavily dependent on how well the authorised corporate service providers, or ACSPs, carry out their verification responsibilities. Let us be honest: history is not terribly encouraging in that respect, especially regarding trust or company service providers. The proliferation of regulatory bodies is a major issue—there are 13 alone for the accountancy profession. In particular, there is nothing in the current supervisory regime that obliges the supervisors to check the verification standards of the entities they supervise. I know the Treasury is looking into reforming the supervisory regime—that cannot come quickly enough—but in the meantime, it is essential that Companies House is proactive in its oversight of the ACSPs and that it has an obligation to check that they are carrying out the required verification properly. It should not just rely on the fact that ACSPs will be regulated, as is currently proposed.

More generally, will ACSPs be publicly identified for each filing, in the same way that now happens with the register of overseas properties? Identifying them publicly would make them much more likely to take verification seriously and would enable public analysis of which ACSPs are verifying the more dubious-looking companies. If they will not be publicly identified, why not?

As we have heard, none of this will work if Companies House is not sufficiently resourced. At the moment, the fee for creating a company is the laughably low £12, which is among the lowest fees in the world and nowhere near enough to cover the costs we are asking Companies House to incur in strengthening the regime. Indeed, it could be argued that the very cheapness and ease of creating companies may actually encourage wrongdoing. The EU average is about €300, and in the US it ranges from $570 to $1,400. An increase to, say, £100 will not disincentivise legitimate companies but would greatly increase the resource available to Companies House without increasing government funding. What consideration are the Government are giving to that?

Moving on briefly to other economic crime, and specifically fraud, I mentioned earlier the inquiry carried out by the Fraud Act 2006 and Digital Fraud Committee, which was expertly chaired by the noble Baroness, Lady Morgan of Cotes, who we will hear from later. That report made many recommendations on how we might break the fraud chain and start to reduce the 42%—I stress, 42%—of all crime against the individual that fraud now represents. In passing, I note that the Government’s response to that report is now nearly a month overdue and that the long-awaited national fraud strategy was also expected before Christmas. Both those documents would be extremely helpful in our deliberations on the Bill, so can the Minister please commit that we will see these well in advance of Committee?

One of the key recommendations in our report was the introduction of a new corporate offence of failure to prevent fraud. The report concluded:

“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act.”


To be effective, the offence needs to cover the whole range of fraud enablers. It must cover, for example, a telecoms company failing to take reasonable steps to stop fraudsters using its network to contact victims, and social media and other platforms failing to take reasonable steps to prevent fraudsters using their platforms to carry out fraud. I understand that the Government intend to introduce a “failure to prevent” amendment. To follow up the comment of the noble Lord, Lord Fox, when might we see that amendment, and will it cover the area I have described, especially telecoms and social media platforms? I understand that that might not be the case, because the Government intend that the offence will depend on the company itself having benefited from the fraud. That would not cover—or it would be difficult to make it cover—a social media company failing to take reasonable steps to prevent its platform being used by fraudsters, for example. This is not a small issue: according to TSB, 70% of all investment frauds originated on Meta platforms, and Action Fraud tells us that 80% of all fraud is cyber-enabled. Do the Government really not intend to put a stop to that?

One could say an awful lot more about the Bill but I am conscious of time, so I will wind it up there. However, I welcome the Bill and look forward to working with the Minister and others around the House to strengthen it and make it better.

--- 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.