Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[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.

[Lord Vaux of Harrowden (CB)]

My Lords, I shall speak to Amendments 7, 8, 32 and 33 in my name. Before I start, I hope the Committee will not mind if I point out that my name is pronounced “Vawks”. It is astonishing how many different pronunciations of a four-letter word it is possible to come up with. I should also remind the Committee of my interest in the register as a non-practising chartered accountant.

I thank the Minister for arranging to meet me to discuss the various amendments that I have tabled and for his engagement so far. Like, I think, everyone in the Room, I support everything that the Government are trying to achieve with this Bill. My amendments to the Companies House section try to make it more effective in achieving the Government’s stated aim, which the Minister explained at Second Reading is to

“bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide”.

He went on to say that:

“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business.”


I think we all agree with that, but the Bill remains weak in improving transparency.

At Second Reading the noble Lord also said that the Bill would be

“helping to ensure that we know the real people acting for, and benefiting from, companies.”

The Bill makes some improvements in that respect, but it is pretty thin gruel and is not likely to make any real practical difference unless it is strengthened. That is what I am trying to do with these amendments, which I have tabled as amendments to the government amendments.

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[Lord Leigh of Hurley (Con)]

As a fellow chartered accountant, can I ask the noble Lord how his amendment would work in respect of trust? Does it mean that trustees are disclosed or that beneficiaries are disclosed? Clearly, one would want to have beneficiaries disclosed, and I am not sure that this achieves that.

[Lord Vaux of Harrowden (CB)]

The noble Lord is quite right. What we are really trying to get to here is the ultimate beneficial owner, which is a problem that sits throughout this and the overseas property register. Neither of them really gets to that point. The wording requires refinement, but that is what I was trying to get to—that the ultimate beneficial owner, the directing mind behind the shareholding, is disclosed.

[Lord Faulks (Non-Afl)]

Does the noble Lord think this goes far enough? I chaired the Joint Committee on the Draft Registration of Overseas Entities Bill, and one of our recommendations was that there should be improved verification procedures for Companies House. We also thought it was well worth considering ensuring that regulated professionals acting should also provide statements, which would concentrate the minds of those advising who are responsible for providing this information.

[Lord Vaux of Harrowden (CB)]

I made exactly the same argument during the passage of what we used to call ECB 1—the first economic crime Bill. I entirely agree, and noble Lords will see that I have a number of later amendments dealing with those issues of the verification statements and the authorised corporate service providers being named publicly as opposed to—as is proposed at the moment—not being named on the register. That is really important. I agree that this probably does not go far enough. I am mindful of the Minister’s comments about not making this overly burdensome—if we do, it will not work—but we need to find a way to make sure that we understand who owns the shares.

[Lord Wallace of Saltaire (LD)]

My Lords, I am here as an international policy wonk, and I am very conscious that, in economic crime, a great deal goes on cross-border and outside the jurisdiction of the UK. I have therefore tabled two later amendments: one concerns the Crown dependencies and the overseas territories and the other concerns the levels of international co-operation that will be desirable and necessary if we are to crack some of these problems.

I strongly support what the noble Lord, Lord Faulks, has said about the requirements for those agents—or enablers, if you like—in setting up what are very often cascades of companies that disappear outside the jurisdiction of the United Kingdom to our various overseas territories or beyond. The question, therefore, is how we ensure the maximum amount of transparency and make the risk of crime as minimal as possible by putting heavily on those who are engaged in setting up these trust companies and further arrangements the responsibility of declaring clearly that these are legitimate and sound.

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[Lord Johnson of Lainston (Con)]

I thank noble Lords for their amendments. The Government appreciate their intent but consider that we already have the powers we need in the Bill to address the substance of these concerns. Following on from comments from my noble friend Lord Faulks and the noble Lord, Lord Clement-Jones, we are not discussing the verification of corporate providers. I think there is a significant amount of discussion to be had on that a bit later.

I totally agree about the importance of the transparency of the records and understanding who the beneficial owners of companies are—that is the whole point of much of the work we are undertaking today. On the comments of the noble Lord, Lord Vaux, about the ownership level of 25%, in a private company you have to have your identity verified if you are a director, own 25% or more of the company or are a person with significant control. To clarify, the 25% level does not denote a person with significant control. Somebody who has one share can be a person with significant control, and it is the company’s duty to report who they are. It is extremely important to make that clear in this discussion.

I was not in this great House for the previous piece of legislation, the debate on which has resulted in this new piece of legislation, but I am very aware of the importance of understanding who stands behind the companies—as has rightly been said, to quote myself, the people acting for and benefiting from companies. The 25% level does not denote a person with significant control, and companies suffer significant penalties—the penalty regime, which I am happy to share with noble Lords, is substantial and at the very core of this process.

[Lord Vaux of Harrowden (CB)]

The noble Lord is quite right: there is the question of being able to influence or control the company other than through shareholdings, but he referred to penalties and so on. How many times has anyone been penalised for failing to provide information about being a person with significant control when they did not hold 25%?

[Lord Johnson of Lainston (Con)]

That is exactly the sort of question that should be asked; I look forward to returning to this Committee with the answer, as I unfortunately do not have it at my fingertips. However, I know that Companies House continues to do a great deal of investigation into these matters, even before this Act has come into place.

The noble Lord, Lord Vaux, also raised an important point in saying that it is too easy and cheap to create a company and that the 1855 principles around the corporate veil are a privilege. At the time, they were considered a great risk to the economy, abrogating people of their personal responsibilities and liabilities to the debts of their businesses. It caused great debate, as noble Lords may remember—looking around the Room, not all noble Lords will, but some may. It is important to understand that it comes with privileges and obligations.

Having done a great deal of investigation into this Act, of the 4.8 million companies on the register, I would have thought that many should not be limited companies; it is not necessary for a sole trader or a small partnership to have a company, so I have a degree of sympathy for upgrading the entire concept of what a limited company is and what sort of information should be provided. It may be important, philosophically, to look at it in that way, rather than simply saying, “Here are a very large number of companies; if we impose undue obligations on them, that will be unfair or overly burdensome to businesses.” It is not unreasonable to look at the picture in the round.

Having said that, we undertook a variety of consultations and feel that the way this Bill has been drafted gives us the security to understand who the beneficiaries of companies are and the requirements of companies to record that information and link those individuals across the information processes and systems in Companies House to ensure that we have integrity of data. To require all shareholders to verify their identity would be unnecessarily burdensome for many thousands of companies and, potentially, millions of small shareholders who are simply passive holders of a business.

I would not like my comments to be taken in the wrong way—perhaps in the way that “minimise” has been taken—but we are making a significant change to the way that companies are established in this country and to the sorts of information levels that we require from businesses to ensure the integrity of data at Companies House, in what both individual directors, persons with significant control or corporate service providers and companies have to provide. It is very important that we do not lose sight of the fact that this country is one of the easiest places to do business in the world. Our wealth comes from our entrepreneurial nature and the importance of having a company structure, system and process that does not place unnecessary burdens where they will not necessarily add value.

I am, however, very open to further conversations to ensure that the philosophy presented here matches our ambition, which is to ensure that we understand who benefits from companies and who is behind them.

[Lord Vaux of Harrowden (CB)]

The noble Lord has explained the onerous nature of verifying the identity of every shareholder, which I accepted in part when I spoke. We will come back to that issue on Amendments 39 and 43. However, he has not talked about whether and why a shareholder making a simple statement as to whether they are holding the shares on their own behalf—and if they are not, on whose behalf they are—is particularly onerous. I am afraid that I do not see why it should be.

[Lord Johnson of Lainston (Con)]

The company is obliged to register if there is a person with significant control or someone with more than 25%. If it is not truthful in that registration, it will be committing an offence.

[Lord Vaux of Harrowden (CB)]

But that is different from any shareholder having to make the positive statement: “I am”—or “I am not”—“holding the shares on my own behalf”. It is very different from, “I’ve got 25% and therefore I have to make some disclosures”. Why is it a problem for an individual shareholder to say, “I’m holding these shares on my own behalf”, or “I’m holding them on behalf of somebody else”? I am sorry, but I really do not see why that is difficult or onerous. It is a very different thing from the 25% threshold that the Minister just mentioned.

[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.

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[Lord Vaux of Harrowden (CB)]

My Lords, I have two very short points on this. First, I agree with the noble Lord, Lord Leigh of Hurley. I do not think paragraph (a) in the amendment works: the registered address does not have to be the place of business, it often is not and there are often perfectly good reasons for that; but paragraph (b) is incredibly important, concerning this use of people’s addresses for, effectively, fraudulent purposes. Often, the first thing the person whose address it is knows about it is a letter from HMRC with a massive VAT demand: this is particularly used for VAT fraud. It is really important that Companies House works closely—a point discussed on a previous group—with other agencies, particularly HMRC, to make sure that this sort of thing is knocked on the head.

[Lord Thomas of Gresford (LD)]

My Lords, the Companies Act says at Section 9(5) that an application

“must contain a statement of the intended address of the company’s registered office”.

That is all on registration. That opens up the sort of abuses that we have heard from the noble Baroness and the two noble Lords who have already spoken. I tend to agree with the two noble Lords, having been a solicitor myself, that it is perfectly responsible for a solicitor’s or accountant’s office to be used as a registered office, but nevertheless, the way in which the Government have attacked it does not cover the whole ground. It is very sensible, in addition to the way the Government have put it, to define an appropriate office in the negative sense. That would not include the solicitor’s or accountant’s office, for the reasons given.

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[Lord Faulks (Non-Afl)]

I am not wholly convinced that what you would be required to do under this amendment is very onerous. I remember looking at this when we were examining the desirability of transparency in relation to ownership of shares. Presuming bad actors—although this is, I hope, infrequently the case—it is very easy for someone to, as it were, redistribute their shares to smaller packages if they wanted to conceal their identity. I am not saying that that is what people do most of the time, but it would be more difficult if there were an obligation to disclose of the sort contained in this amendment.

[Lord Vaux of Harrowden (CB)]

My Lords, very quickly, I will not repeat what we said on an earlier group, but these two amendments cover very much the same sort of areas of transparency. I ask the Minister—probably as a matter of relative urgency, given the discussions we have had—whether he could facilitate a meeting of the various interested parties so that we can try to thrash out where we want to start to coalesce around these issues, as that would be helpful.

[Lord Cromwell (CB)]

I declare that I am a shareholder in an SME. We need to be aware that there are various classes of shares. You could be a 5% shareholder in terms of owning the company, but an 80% shareholder in the voting shares. Whatever the outcome of these discussions, we need to be very clear which type of shares we are talking about.

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[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.

[Lord Vaux of Harrowden (CB)]

Unfortunately, I do not think that is a “reasonable excuse”; that would not be a “material particular”.

[Lord Johnson of Lainston (Con)]

I am delighted that the noble Lord pointed that out; that is certainly true. I think noble Lords understand the direction of travel in the intent of this amendment. It is important; it is not simply tidying up. There are some elements of making sure that penalties relating to overseas entities relate to companies registered in the United Kingdom, but, following consultation with department officials, it seems to me that this is a very important part of the Bill. I do not support dropping it at this stage, but I am very comfortable having further conversations about it. I would be grateful if the Committee gave me a few moments to consult my team on the specifics about how to proceed. I want to make sure that we have a sensible and reasoned debate but that I do not get the process wrong regarding amendments to the Bill.