Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Naseby (Con)]

My Lords, I apologise for not taking part at Second Reading due to other parliamentary commitments. I have a couple of small questions, but one of them is quite important.

First, if we are dealing with micro-companies, they are not likely to have substantial staff. There must be some safeguard so that the authorities do not change the requirements for reporting and leave these poor micro-entities with perhaps two or three months to totally amend their software. That has happened in certain other areas, so there must be some requirement that, while it is quite right that the registrar’s requests should be met, there must be some safeguards and those having to do the returns must be given adequate time to do them.

Secondly, I have one small point in relation to new Section 443A(2) inserted by Clause 54. At the end, it says, “(and any directors’ report”). I assume the directors’ report refers to the accounts, but that is not totally clear.

[Lord Vaux of Harrowden (CB)]

My Lords, in the light of what we have just heard, I want to touch on the micro-company side of things. Micro-companies may be small but they are not unimportant. They are probably the single biggest sort of company used for VAT fraud, for example. There has been a lot of publicity recently about some poor chap in Cardiff. Several hundred companies were registered at his address, then he started receiving large bills from HMRC. It is precisely this sort of company that is used for that; we should not be too generous to these companies in relation to reporting requirements.

[Lord Browne of Ladyton (Lab)]

My Lords, I rise to speak to the amendments in the name of the noble Lord, Lord Leigh of Hurley, together with the notice given by the noble Lord, Lord Sarfraz, that he intends to oppose the Question that Clause 54 stand part of the Bill; I suspect that in his absence this will not be part of the process but I will cover the issues that are raised.

I will confine myself to a few observations. First, no one wishes to stifle micro-enterprises with too onerous a set of reporting duties but, in a Bill that has the word “transparency” in its very name, it is surely important that micro-entities are not exempted from such a reporting duty. That small businesses are not merely the flywheel but the very motor of the UK economy is well known and constantly rehearsed. I have no need to go through all that but flourishing surely cannot come at the price of opacity when that opacity will be exploited in the way in which the noble Lord, Lord Vaux, suggests it has been in the past and we know is a problem.

The amendments from the noble Lord, Lord Leigh, do not merely serve as a symbolic recognition of this fact but serve a useful practical purpose, which I will turn to. It is the stated aim of the Government for Companies House to be a fully digital organisation by 2025. The amendments under discussion ensure that electronic documents submitted to the registrar not only conform with its standard electronic format but ensure that they meet standards of accuracy, completeness and consistency. Surely, each of these measures is desirable and, taken together, they are more desirable still.

If the Government are not minded to accept the noble Lord’s amendments, it would be useful to know which of these requirements they regard as superfluous. It would also be helpful to know how the Government feel that these amendments fail to assist Companies House in meeting its own target of becoming fully digital in the next two years, which seems a very challenging target.

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Moved by

[Lord Vaux of Harrowden]

48: Clause 64, page 48, line 8, at end insert “and included in the register, including the name of the authorised corporate service provider who has made the verification statement”
Member’s explanatory statement
This amendment is intended to ensure that the identity of the authorised corporate service provider who makes the verification statement is included in the verification statement and on the register.

[Lord Vaux of Harrowden (CB)]

My Lords, in moving this amendment I will speak also to my Amendment 54. Given that these amendments relate to authorised corporate service providers, some of which will be regulated by accountancy bodies, I should remind the Committee that I am a non-practising member of the Institute of Chartered Accountants in England and Wales.

I thank the Minister for his opening comments and his generosity in his willingness to meet with us. In particular, I thank him for arranging a meeting yesterday with the officials. I also thank the officials very much for their generosity with their time yesterday, as that meeting rather overran.

This group relates to the role of authorised corporate service providers, or ACSPs. This is an important subject because the Bill, to a very large extent, effectively outsources much of the verification work to these ACSPs. To be authorised to carry out verification, they must be regulated in accordance with the money laundering regulations. At the moment, that is the only qualification required. The Secretary of State may add other requirements by regulation. I would be grateful if the Minister told us what plans the Government have in that respect.

These ACSPs are the very same people or entities that have been responsible for much of the company creation of the past. I think we can all agree that our system has not exactly been a beacon of transparency or probity. It is not for nothing that London became the preferred location for Russian oligarchs and kleptocrats and became known as the London laundromat or Londonistan—something, frankly, that we should all be ashamed of. That is why we had last year’s emergency legislation, the Economic Crime (Transparency and Enforcement) Act, which introduced the overseas entities register, which is why we now have this Bill to try to clean that up.

Many—probably most—of these ACSPs are honest and diligent, but it must be the case that too many have not historically been as honest or diligent as they should or could have been. They have allowed, or dare I say enabled, the creation of the London laundromat. At best, a blind eye has been turned; at worst, there has been a more active enabling of the bad actors. Transparency International’s evidence to the Committee on this Bill in the other place stated:

“Investigations by civil society organizations and journalists have demonstrated that time and again UK TCSPs”—


trust and corporate service providers, which will now become these ACSPs—

“have been responsible for building and maintaining secretive networks built from thousands of shell companies, used to launder billions of pounds in illicit funds over the years”.

So I and, I believe, many others have many concerns about the level of reliance the Bill has on the ACSPs for the verification of the identity of directors and, in particular, the identity of persons with significant control. As I said, these ACSPs will include the very same people who have historically advised on how best to disguise ownership and control, and who have created the structures to do that.

If we are to rely on these ACSPs, as the Bill intends, we need to ensure that they carry out their roles properly and that they are incentivised to do the right thing, rather than remaining enablers for the kleptocrats, criminals and terrorists the Minister referred to at Second Reading. Just relying on the fact that they are regulated under the money laundering regulations, which is what the Bill currently proposes, is not enough. It has not worked until now and I can see no reason why that will change unless we strengthen the rules. The whole money laundering regime is hugely overdue for reform, which is the subject of Amendment 49 from the noble Lord, Lord Agnew.

The Bill provides for two ways in which the verification of the identity of directors and PSCs can be carried out. Either the identity can be verified by the registrar or a verification statement made by an ACSP can be delivered to the registrar. How that verification is carried out and the records that must be kept in either case will be set out in regulations to be made by the Secretary of State. We do not yet know what those will be. Perhaps the Minister can provide some information as to what he expects those regulations to contain. Amendment 50 in the next group, in the name of the noble Lord, Lord Coaker, makes some useful suggestions in that respect.

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[Lord Vaux of Harrowden (CB)]

I am grateful to the Minister for his qualified support. I would be interested to understand why the Government decided to go along with this recommendation for the overseas entities register and are resisting it, at least to some extent, for the domestic Companies House. I am not sure that I understand why the two things should be different at all.

[Lord Johnson of Lainston (Con)]

I am always grateful to the noble Lord, Lord Vaux, for his interventions. As I said, we are looking forward to having a full discussion about this issue in our proceedings over the next few weeks. From my personal point of view, it is right that there is a higher degree of transparency and it is absolutely right that we should look closely at trying to ensure that the identity of the verifier is also linked to the verification of the identity.

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[Lord Johnson of Lainston (Con)]

I appreciate my noble friend’s mixed metaphors. I hope I have been clear that the process of making sure that the ACSPs operate in an environment that is trusted and clear is at the root of much of the activity we are discussing today. I will certainly make myself available for further inquiry but, as I hope I have made clear, ACSPs are regulated by the money laundering supervisory authorities and a review of that important process will begin in the summer.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank all noble Lords who have spoken in this fairly long debate for their support. Once again, consensus seems to have broken out in the Committee, which must be a good thing.

The noble Lord, Lord Agnew, dramatically set out the scale of this problem. We all stand around it. Like him and the noble Lord, Lord Fox, I must confess that I thought the Minister was rather complacent in his views on the efficacy of the anti-money laundering regulations as they stand. The Treasury review is welcome; it has been hanging around and talked about for quite a long time now. The fact that it is only starting in the summer is somewhat alarming. We need to fix what is a broken system. In talking to the Institute of Chartered Accountants, it surprised me by telling me that the vast majority of accountancy firms are not regulated by it. This is not consistent and really does not work well; it is an area that we have to improve.

At the outset of today’s debate, the Minister said that he is open to constructive and practical suggestions for improvement. We are all grateful for that. In this group, we have a number of simple suggestions that would add little or no burden on either the registrar or business and could make a genuine practical difference. The Minister was quite right when he said that the vast majority of ACSPs are diligent and honest, and that it is an important industry. It is worth repeating that. I am sure that that vast majority would like to see the poor minority driven out of the business so that it stops giving it a bad name.

I am disappointed that the Minister cannot accept some or all of these amendments today, I must say, but I am grateful for his confirmation that he will consider them seriously. I look forward to the promised discussions that he has agreed to have. On that basis, for now—although I am absolutely certain that we will come back to this issue on Report—I beg leave to withdraw my amendment.

Amendment 48 withdrawn.

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[Lord Vaux of Harrowden (CB)]

In our debate on the previous group, I asked the Minister what regulation the Government were intending on ID verification. The Bill allows the Secretary of State to create regulations on what the ID verification process will be. The Minister did not answer that question then, so this seems like a convenient moment for him to do so.

[Lord Fox (LD)]

The noble Lord just said exactly what I was going to say. If it is not this, what is the process to identify people and what documentation is required? It will be interesting to hear the Minister’s response to the challenge from the noble Lord, Lord Ponsonby: if it is good enough for voters in local elections, why is it not good enough for multi-million-pound companies?

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Moved by

[Lord Vaux of Harrowden]

53: Clause 67, page 56, line 12, leave out subsection (3)
Member’s explanatory statement
Clause 67(3) would make any statements of a person’s unique identifier (or that they have not been allocated one) unavailable for public inspection. This amendment would reverse that so that the numbers are available for public inspection.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to move Amendment 53; I hope to be fairly brief. It is related, in a way, to Amendment 48A in the name of the noble Lord, Lord Coaker, which we spoke about earlier. In effect, it attacks the issue of unique identifiers from the opposite direction.

Clause 67(3) ensures that the unique identifiers allocated to companies and others, including ACSPs, are not available on the public register. I was rather surprised to find this. My amendment is really a probing amendment to find out the rationale for hiding unique identifiers and discuss whether that is the right thing to do. It seems to me that the unique identifier would be a helpful tool to assist civil society organisations, journalists, analysts and, indeed, AML regulators to discover trends and connections in the information held on companies on the register.

One person can easily have a number of versions of their name—A Jones, Andrew Jones, AJ Jones and so on. It is not necessarily dishonest. I have two names myself: my title and my real name. I hope that that is not dishonest. My amendment would make it much easier to search using the unique identifier and would avoid the problems of potentially having multiple names or versions of names and people being missed off. It would allow an AML regulator quickly to search for all situations where a particular ACSP has acted, or a journalist to identify ACSPs that act regularly for companies in particular industries, and to be sure that they have caught all the instances.

When I met the Minister previously, for which I thank him again, he explained that the unique identifier is used as the login for the relevant entity. If that is the case, I understand why it should not be public, but I strongly question whether that is sensible. Very few organisations would use a number such as a unique identifier for login purposes; it would go against commonly accepted security practices. The Government do not do it in other systems, as far as I am aware. Would it not make more sense for the unique identifier to be public, and therefore useful, to allow the greatest transparency that I have described and to have a more secure method of logging into Companies House accounts? I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

I will speak briefly on this amendment because key to it is: what is the purpose of the unique identifier? Perhaps like the noble Lord, Lord Vaux, I thought that it was like the resource identifier that you use for searching. I know that if you search on my name, you do not find all my directorships. I keep amending my name to try to make sure that they are all the same, but you still cannot find them in Companies House, so I was thinking that it was a better way than names of finding out all the companies that people were involved in, and so on.

I can see that, if it is more of a login approach, that might be different, but that then begs the question: is there not a better way of identifying companies and individuals that works on the searches? If you are searching to see whether somebody is doing something in a different company, or how many directorships they have, simply going by name means that too often there are minor variations, and it will not flag up what you are looking for. Like the noble Lord, Lord Vaux, I am curious about what the purpose of this identifier is, and therefore why it is confidential.

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I hope that this provides reassurance and that the noble Lord, Lord Vaux, will kindly withdraw his amendment.

[Lord Vaux of Harrowden (CB)]

I thank the Minister for that helpful answer. I am somewhat reassured; the “behind the scenes” use of the unique identifier to make sure of the connections between different names—and, now, all the names to be displayed if you are searching for one person—will be important. We will see how well it works in practice. From what I understand from what the Minister said, the Secretary of State will have the power to make changes to this by regulation if it does not work properly. On that basis, I beg leave to withdraw my amendment.

Amendment 53 withdrawn.

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[Lord Faulks (Non-Afl)]

My Lords, in terms of timing, it is important to bear in mind that the genesis of much of this legislation can be found as long ago as 2015. It has taken a long time for anything to happen in response to what was then identified as a major threat—the corruption which has permeated our society. Eventually we got the Criminal Finances Act, then there were many promises of legislation, which did not materialise, then we had the Sanctions and Anti-Money Laundering Act, which dealt with some aspects of this, and then it took the invasion of Ukraine before we had the last piece of legislation. Now, eight years after the initiative of 2015, we have this legislation, which may or may not be the final chance. So, with respect, keeping the Government up to the mark with an annual report and not having a sunset clause is something we should learn from the very chronology that I have just described.

[Lord Vaux of Harrowden (CB)]

My Lords, I intended to sign Amendment 72, but I was beaten in the stampede to support it, which must in itself say something about the quality of the amendment. Amendment 64 in the name of the noble Lord, Lord Coaker, is very similar. Like others, I think that both include important elements and it would be great to try to combine the best of both when we get to Report.

I shall not repeat what has already been said, but it does seem that adding this level of transparency into the system must help in ensuring that we have got this right. During the debates on ECB 1, the previous economic crime Bill, the noble Lord, Lord Callanan said:

“When we introduced the provisions on PSCs—persons with significant control—in relation to UK companies, we had to make some iterative changes to that, as it became evident over time that aspects were not working as effectively as we had hoped”.—[Official Report, 14/3/22; col. 44.]


The best way to see if things are not working as effectively as we had hoped is transparency and reporting, so I hope the Minister can accept this very simple and sensible amendment to promote that level of transparency.

With permission, I will make one addition to the list of items to report on set out in the amendment. Given the importance of the ACSPs to the process, as we discussed in the previous group, I think it would be useful to include some statistics on the number of ACSPs that have approved, both UK and foreign, who they are regulated by and the number which are suspended. With that addition, I add my support to these amendments.

[Lord Johnson of Lainston (Con)]

As always, I offer my thanks to noble Lords for their participation and to the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 64. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier and the noble Lord, Lord Cromwell, as well as the noble Baroness, Lady Bowles, for their Amendment 72—if I have got that correct. These amendments address reporting requirements in similar ways and are very relevant and important.

I agree that it is important that Parliament is informed about the implementation and delivery of these reforms. That is why the other place agreed to add an amendment to this effect on Report, which noble Lords have discussed. Companies House already reports on many of the items set out in these new amendments and, in many cases, actually goes much further, either through its annual report or via quarterly and annual statistical releases. Legislating to duplicate this, given the new reporting duty at Clause 187, seems unnecessary.

It is important that any report is holistic and of use to Parliament and the wider public. It should provide the necessary context to facilitate an informed view of performance, which would be difficult based solely on the raw data that these amendments propose. However, I agree that some of the new items of data identified in these amendments could be of interest. The noble Lord, Lord Vaux, raised some specific points, which I believe are already covered in part in some of the quarterly filings. In any event, if they are not, they are certainly worthy of discussion. I am happy to explore with Companies House officials how they might incorporate these into their reporting without the need for this statutory requirement.

It may be worth returning to some of the comments from the noble Lord, Lord Coaker, to cover some of the key points raised. Under Amendment 72, each report must

“provide annual data on … the number of cases referred by the registrar to law enforcement bodies and anti-money-laundering supervisors”.

As I understand it, this is already enabled via the Commons amendment and is expected to be included. Also in Amendment 72, each report must provide annual data on

“the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar”.

These incorporations are published quarterly via the statistical release. The amendment says that each report must

“detail all instances in which exemption powers have been used by the Secretary of State”—

which is also covered by the government amendment—and

“confirm that the registrar has sufficient financial resources to meet its objectives”.

The registrar’s resources will continue to come from fees, which will be set according to how much activity Ministers want to be undertaken. Also, each report must

“provide annual data on … the number of companies that have been struck off by the registrar”

and

“the number and value of fines”.

Removals from the register are already reported on quarterly. The number and value of late-filing penalties are published in annual management information tables.

That just gives the Committee reassurance that there is already a great deal of detail published, and we will be looking to publish more. I look forward to a discussion with noble Lords on specific areas that we can cover; I am sure that my officials are looking forward to those discussions. This is all about the sort of data we provide that allows us to run an effective and transparent company system in this country. But I am very reluctant to legislate specifically, according to these amendments, given what I have said and our commitment to making sure that we are publishing useful information.

I will cover the comments from some of your Lordships relating to the supposed sunsetting of requirements to report. As I understand it—I may have misunderstood, but I hope I have not—the purpose of the clauses on six-month and annual reporting relates to the implementation of changes in Companies House that will bring it up to the standards at which we wish to see it operating. At that point, the reports will be included in annual and/or regular reports. It is not that reporting ends, but that it becomes commonplace to report on the data rather than necessarily on the changes that we are instigating to Companies House. I am happy to clarify that further, if my description was not accurate enough.

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[Lord Faulks (Non-Afl)]

My Lords, to take up the noble Baroness’s final point on technology, in the very helpful session we had yesterday—unfortunately the Minister could not be there—we were provided with some written information about the use of technology that was going to develop. I asked about artificial intelligence. Either in the course of answering these amendments or generally, could the Minister assist us as to how, with this increasing amount of information that Companies House will now have, artificial intelligence will allow it and the prosecuting authorities to have a great deal more information to put two and two together, which will assist with this legislation’s overall objectives?

[Lord Vaux of Harrowden (CB)]

My Lords, this discussion about how we fight economic crime would be an awful lot easier and better informed if we had seen the Government’s national fraud strategy, which I believe was supposed to be with us at the back end of last year. Perhaps the Minister might like to find out when we might finally see it.

[Lord Johnson of Lainston (Con)]

My Lords, I thank your Lordships, as always, for this very passionate debate. I am struck, after however many pleasant hours we have been together debating in Committee, by the convinced passion and determination of Peers on all sides. An Economic Crime and Corporate Transparency Bill might be considered a dry, technical matter for specific and weighty thought, but the reality is that this is an emotive subject. It is important for all noble Lords to know the Government’s shared passion for stamping out illegal activity and economic crime in this country. From my point of view, it is extremely costly to the economy to enable financial crime to be enacted in the UK. It is not invisible, and every crime has a victim. I hope all noble Lords understand that my personal passion and that of the Government are allied in trying to make a Bill that is practical, will achieve its goals and will allow businesses to flourish.

I would also like to apologise. The noble Lord, Lord Faulks, mentioned the meeting which many officials here attended yesterday. I was unable to attend that meeting, for which I sent my apologies. That was the only morning that I have been away in the past six months. I hope all noble Lords will feel comfortable in contacting me directly to arrange further formal or informal meetings.

I now turn to the amendments. I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 65 on fees and penalties. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier, the noble Lord, Lord Cromwell, and the noble Baroness, Baroness Bowles, for their Amendments 69, 70, 71, which address the economic crime fund and the retention of fees by economic crime enforcement agencies. I also thank my noble friend Lady Altmann for her Amendment 106E on fees and an economic crime fund.

I shall attend initially to the fees and penalties element. The level of Companies House fees has been the subject of much speculation, and I know from our conversations and the amendments in this group that noble Lords have a significant interest in this. At no point do the Government believe, or could anyone in all seriousness believe, that £12 is a reasonable amount for setting up a company. People have suggested that if a commercial organisation cannot afford whatever arbitrary figure one may wish to pick—it could be £50, £100, £150 or £500—for the creation of a limited liability company, it should question whether a limited liability company is the right structure in which to operate.

However, it is very important that fees are set via regulations and that the Government have flexibly over the right level of fee, which has not yet been established. I was grateful to my noble and learned friend Lord Garnier for confirming his view that that is the most appropriate way to set fees. The fee will be determined following an analysis and appraisal of the volume of investigation and enforcement activity to be undertaken, the associated cost base, the timelines for recruitment and systems development and other factors which we have raised in this important debate. We are currently finalising our modelling but are increasingly confident that we can fully fund the reforms, including creating around 400 new roles at Companies House, while keeping fees low. Current estimates from Companies House suggest fees of no more than around £50.

I draw noble Lords’ attention to the annual administration fee. There is an establishment fee for setting up a company and then there is an annual fee, which is currently £13—it is more expensive to register your firm annually than it is to set it up in the first place. I am not entirely sure how we reached those figures, but we are not looking to enshrine a minimum level of fee in primary legislation because to do so would severely restrict flexibility which may be required at a future date. Fees will continue to be reviewed on a regular basis to ensure that they are providing the level of funding that Companies House needs. Companies House is able to retain incorporation fee income under current arrangements between it and HM Treasury, with the arrangement reviewed periodically. That is important. The current intention is that the fees will be used to pay for Companies House, so a raised fee is absolutely right. It is estimated to be used for the functioning of Companies House.