Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Johnson of Lainston (Con)]

My Lords, before we turn to the amendments tabled by my noble friend Lord Agnew of Oulton and the noble Lord, Lord Vaux of Harrowden, I shall briefly outline government Amendments 12, 13, 14 and 15 in this group. Clause 46(4) amends Section 113 of the Companies Act 2006, including by inserting new subsection (6A). This will require all companies to retain information about a member in their register of members where it changes, and to note the date on which the information changed and was entered into the register by the company. The requirements apply only prospectively, not retrospectively. The government amendments target the scope of this requirement, so it applies only to non-traded companies, to ensure that excessive burdens on traded companies with large numbers of shareholders are avoided.

However, these amendments do include a power for the Secretary of State to make regulations which allow for a full or partial reversal of this scope restriction, allowing this requirement to retain old information and note the dates of changes to also be applied in future to traded companies, should it be judged to be useful and proportionate. In considering all the amendments in this group, I remind noble Lords that the UK already has one of the most open and accessible shareholder registers in the world. Disclosure of shareholder information is far from a global norm. In fact, the UK is one of relatively few international countries to have any publicly available shareholder information for companies not listed on its stock exchange. Noble Lords will know that many countries do not even disclose major shareholders or beneficial owners publicly.

The UK led by example with its public register of PSCs. We were the first G20 nation to institute such a register, back in 2016, and we have been a strong voice ever since in promoting the importance of collecting and sharing beneficial ownership information. Numerous jurisdictions, including the EU, the US and Australia, have been influenced by our approach. But a responsible Government must weigh carefully the benefits of further transparency regulations, and the inevitable rules, forms and penalties that would follow, against the costs and impact. The Government support the publication of accurate and useful shareholder information and we are one of the most open countries in the world in this respect—but do we need to go further, and if so how far? What really are we seeking to achieve?

There are over 10 million shareholders of UK companies. At a time when this Government are looking to reduce regulatory constraints on business, even small cost changes to shareholder obligations could very quickly add up to a large drag on our economy. I ask noble Lords to reflect carefully on the value of the amendments we are about to discuss. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I shall speak to the amendments in this group in my name, Amendments 16 and 17. I should remind the House of my interest in the register as a non-practising member of the Institute of Chartered Accountants in England and Wales. I also take the opportunity, since it is the first time I have spoken so far, to thank the various Ministers and their officials, and indeed the registrar and her staff, for their constructive engagement and the generosity they have shown with their time. The engagement process on the Bill has been exemplary. We are helped by the fact that this is generally agreed to be a fundamentally good Bill: we are all on the same side here, just trying to ensure that it is as good as it can be.

These two amendments are designed to improve the transparency of ownership of our companies, to ensure we know who really owns or controls them. I remind the House of the words of the Minister at Second Reading:

“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”.—[Official Report, 8/2/23; col. 1250.]


I think we all agree with that.

One of the classic ways to hide the real ownership of a company is through the use of undisclosed nominee arrangements, where a shareholder is named on the register but is in fact holding the shares on behalf of another person. At present, while the company must try to identify any persons with significant control, or PSCs, according to the guidance, all it really needs to do is look at its shareholder register: if there is no shareholder with 25% or over, it can reasonably conclude that there is no person of significant control. For example, if a company has five shareholders, each with 20%, the company can reasonably conclude that there is no person with significant control that needs to be named or verified.

However, what if those five shareholders were in fact holding the shares on behalf of a single third party? That third party would then control 100%. There is an obligation under the PSC rules for that third party to tell the company, but a dishonest actor probably would not do so. The problem is that there is no obligation for the person who is acting as the nominee to disclose that fact, which makes it far too easy for a dishonest actor to hide their identity. The company has the right to ask the nominees, but, remember, the company in my example is controlled by the dishonest actor—so it will not do that. If it is asked, it can point to the fact that it has followed the guidance, having checked its register and not found anyone with a share of 25% of more. In fact, all the dishonest actor has to do to hide their ownership is find five willing people who are prepared to have their name on the shareholder register and hold the shares on behalf of the dishonest actor. There is no comeback for these nominees. They have no obligation to disclose.

Where does one find five such willing people? I suggest that noble Lords would find it interesting to google “nominee shareholders”. They will find pages and pages of businesses that will do this, with few questions asked, for around £200 to £300 a year. They advertise specifically that the nominee service is for the purpose of hiding the true identity of the shareholder. In passing, it is worth saying that many of the people offering such services are the same people who will be the authorised corporate service providers and will carry out the ID verification under this Bill. That introduces an interesting conflict, but I stress: under the current proposals, these people will be doing nothing wrong.

Amendment 16 aims to close this loophole by making it a requirement for shareholders to state, as well as their name and address, whether they are—or, importantly, are not—acting as a nominee. If they are acting as a nominee, they would have to provide the name and address of the person on whose behalf they are holding the shares. I said that it was important that they should state that they are not holding the shares on behalf of someone else; that is because they would then have to lie actively if they are a nominee but do not disclose it. I believe that there is a real difference between lying actively and just keeping quiet passively—that is, turning a blind eye, as has happened all too often in the past.

This simple step of making people declare whether they are a nominee should make it much more difficult for dishonest actors to find people willing to act as nominees. They will need to find someone who is willing actually to lie on the record rather than just to keep quiet. Having this information will make it much easier for companies to identify hidden PSCs. Knowing which shares are held by nominees will also assist Companies House and organisations such as Transparency International to focus their attention where the risk is greatest.

We have heard the Minister telling us that we have to be careful not to create too great a burden on legitimate businesses. I agree with him, but I do not think that this would do that. Shareholders already have to provide their name and address. I struggle to understand why it would add any material extra burden to have to make a simple declaration—perhaps even as simple as ticking a box—and to provide the details of the actual beneficial owner. I really do not see that as adding any significant additional effort. In any event, there are significant benefits that arise from a company structure; it really cannot be too much to ask that the beneficial owner of the shares is disclosed in return for having those benefits.

I turn now to my second amendment in this group, Amendment 17. The Bill introduces a welcome identity verification requirement for persons with significant control, but that applies only to shareholders who own 25% or more. I should say that I know the Minister will correct me on that point, because it also applies to those who might have below 25% of the shares but otherwise exert control. He would be right, but in practice the 25% level is the driver. As my previous example shows, it is quite easy to structure a company so that there is no apparent 25% shareholder. There is certainly a legitimate debate to be had over where the correct level to trigger identity verification should lie, but I do not hear many people arguing that it should be as high as 25%.

Amendment 17 would reduce the level to require identity verification from 25% to 5%. Why 5%? There are a number of precedents. For UK listed companies, 3% shareholdings must be disclosed, with an exemption for fund managers, who must disclose at 5%, so 5% is deemed of sufficient importance for all listed companies to disclose. The rules around entrepreneur relief, which gives a reduction in capital gains tax payable on a disposal, state:

“A company is your personal company if you hold at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in the company”.


So tax rules consider that 5% gives sufficient influence for the company to be treated as your personal company, and there is a high degree of consistency supporting a 5% level. As I say, though, there is potentially a debate to be had about that level.

Again, I am sure we will hear that we should not create an undue burden on innocent parties, so let us consider the impact of that. I understand that the average number of shareholders for UK companies is two, so for the average company the amendment would create no additional burden; they already have to verify the identity of their shareholders. It would apply only where a more complex shareholder structure has been created with a greater number of shareholders. Yes, it would create a little more work for them, but in fact it would only increase the maximum number of ID verifications required by a company from a maximum of four to a maximum of 20, which should be easily manageable. We are not talking about companies having to verify hundreds of IDs.

Both these amendments would make a significant difference to the transparency of the register, helping to ensure—to get back to the Minister’s words that I referred to earlier—that we make it more difficult for criminals to use anonymous or fraudulent shell companies. I will listen carefully to what he has to say in response, but I give notice that I intend to divide the House on at least Amendment 16 unless he is able to provide very strong assurances.

[Lord Agnew of Oulton (Con)]

My Lords, I support Amendments 16 and 17 from the noble Lord, Lord Vaux. I shall also speak to my Amendment 19.

I do not want to repeat everything that the noble Lord has said, but I received a letter from my noble friend the Minister yesterday on this subject that included the subheading, “Transparency over shareholders and nominees”, and one of the arguments that the Government are making is that this could cause a significant cost to the economy. We have just heard from the noble Lord, Lord Vaux, that that is, frankly, a fantasy; if the average number of shareholders per company is two—perhaps the Minister could confirm that, but it is certainly my instinctive understanding—then what is the cost?

In any case, that should be put against the cost to the economy of the fraud and economic crime that is happening at the moment at an increasing rate. We have endlessly reminded ourselves that 40% of all crime in this country is now economic crime. I know from my time in government that the loss to fraud in government alone each year—this is the bottom-end estimate by the NAO—is £30 billion, and a lot of that is facilitated through the holes in the Companies House structure. I urge the Minister to think hard about this because it is a great opportunity, at minimal cost to the economy or to business, to make a substantial change.

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Moved by

[Lord Vaux of Harrowden]

16: Clause 46, page 36, line 14, at end insert—
“113BA Required information about members: nomineesThe required information about a member includes a statement by the individual, or where the member is a body corporate, or a firm that is a legal person under the law by which it is governed, by an officer of that body corporate or firm, as to whether or not they are holding the shares on behalf of, or subject to the direction of, another person or persons, and if they are—(a) where any such person is an individual, the information required by section 113A in relation to that individual;(b) where any such person is a body corporate or firm that is a legal person under the law by which it is governed, the information required by section 113B in relation to that body corporate or firm.”Member’s explanatory statement
This amendment would require a person or firm holding shares as a nominee to declare whether or not that is the case, and to provide the details of the person or persons on whose behalf, or under whose control the shares are held. This would assist the company in identifying Persons of Significant Control, and would introduce an offence for a nominee who did not declare themselves as such.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank the Minister for his response and for his undertakings to bring further amendments at Third Reading. I will make just a few comments. First, in terms of Amendment 17, which I do not intend to move, I find the concept that it is going to cost £150 million a year frankly unbelievable. A small number of companies—as the Minister pointed out—verifying up to a maximum of an additional 16 shareholders, and in most cases fewer, cannot possibly come to £150 million a year. I am afraid I find that unrealistic.

To move to Amendment 16, I want to correct something that the noble Lord was saying about nominees having to declare that they are nominees. That is not actually correct. What has to happen is that the company has to look at its shareholder base and see whether it has anybody who is a PSC—a person with significant control. If it has no shareholders over 25%, it can conclude that it does not have any. If there is a PSC behind that, the PSC has to declare it, but if that is a bad actor, they are hiding and will not declare it. The nominees need to declare they are nominees only if the company seeks out and asks them. We are talking about a situation where a bad actor controls the company—so guess what? It will not. There is nothing there at the moment that makes nominees have to disclose the fact that they are nominees. I think the idea that disclosing nominees would create too much noise for Companies House is ridiculous. It does the opposite. It identifies where the risk lies.

We have heard from the noble Lord, Lord Agnew, about requiring risk assessments and a risk-based approach. This allows us to see which companies are most at risk of having bad actors who are hiding behind nominees, by ensuring that they are disclosed. The point here is to make it more difficult for bad actors. You make it much more difficult for bad actors if people are unwilling to be nominees. At the moment, there is no downside, so there is a huge industry of people who are prepared to do it for almost nothing—there is no risk to them. If we put a risk on those people and make them have to lie actively and on the record to say that they are not a nominee when they are, you will get many fewer people who are prepared to do it. That will make life a lot more difficult for the bad actors, and the nominee industry will have to clean up its act. So I am afraid that I have not heard anything that changes my mind, so I wish to test the opinion of the House.

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[Lord Leigh of Hurley (Con)]

My Lords, we have discussed this concept of disclosure at earlier stages. Of course, if a person does not want anything disclosed, they could become a sole trader or a limited liability partnership or a partnership, in which case very little, if anything, needs to be disclosed. My question and concern is just to understand the approach that government will take to this. Is it the intention just to give a blanket exemption for, perhaps, companies in defence or companies with complicated IP or companies in sensitive sectors? Is it to respond to those who make the request generally in the affirmative or to ask further questions to determine why a company should be exempted from disclosure? If a company simply asks to be exempted because it does not want its competitors to know, will that open the floodgate to everybody to do the same? I am not sure that “because we don’t want our competitors to know” is a particularly good reason, to be honest. I am therefore a little nervous about this clause, particularly because it is a bit vague. It just talks about regulations, and Section 1292 of the Companies Act 2006 is just an empowering section on regulations. We are opening the door very wide, and I hope that the Minister, in due course, will be able to give us some very clear guidance on what the Government have in mind.

[Lord Vaux of Harrowden (CB)]

My Lords, may I very briefly support what the noble Lord, Lord Leigh, has just said? This amendment troubles me a little bit. The Companies House information is important for people who are dealing with those companies, be they suppliers or customers. When we were doing the inquiry into digital fraud for the committee on digital fraud, we met a range of fraud victims. For those where it was relevant, what was interesting was that every single one of the people whom we met, before they parted with their money, had gone to Companies House and had a look at the company. They took comfort from that and lost their money. The information there is important, and reducing the amount of information on it should be done only with real thought and consideration.

I get it that in certain circumstances it makes sense for companies to be able to apply that certain information should not be made available—there are plenty of situations where one could think that makes sense. However, this amendment goes a lot further than that. It gives the Government the power to make regulations to allow micro and small companies to make all or parts of their accounts public on application or otherwise. In theory, therefore, those regulations could simply say that no micro or small entity needs to publish anything. That would be going far too far, so it would be good to understand from the Minister what is actually intended here.

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[Lord Agnew of Oulton (Con)]

My Lords, I thank the Minister for a very comprehensive set of government amendments. He has completely revolutionised the impact of the Bill in relation to ACSPs. I congratulate him and his staff on that. It is important to remind noble Lords about why this is so important. Around half of all company formations occur through the offices of an ACSP. Frankly, it has been a cowboy environment. At the moment, they are not even required to be approved under the fourth anti-money laundering directive. So at one stroke with this Bill we will see a much cleaner field and a proper alignment of interests in that it will be in their interest to behave with integrity if they are to remain in business. I will not go through the comprehensive package, but my noble friend should be congratulated. This is probably the single biggest improvement to the Bill in the Companies House section.

[Lord Vaux of Harrowden (CB)]

My Lords, I also thank the Minister for having listened to the points that were made in our previous debates about the importance of ACSPs’ verification statements being made publicly available and for making this comprehensive suite of amendments. Indeed, I think he has gone further than my original amendments on the subject and the Bill is considerably strengthened as a result. I am extremely grateful.

Perhaps I may add one quick word in support of Amendment 93 from the noble Lord, Lord Agnew. A very high number of the ACSPs are going to be authorised and regulated by HMRC, and it is an unfortunate truth that such regulation is not the principal function of HMRC. Accordingly, that regulation has been somewhat light-touch. I ask the Minister to reassure us that considering how HMRC carries out this role will be an important part of the forthcoming consultation on AML regulation? The only requirement to become an ACSP is to be regulated for AML, so we need to make sure that regulation is robust and that only genuine, suitable persons are therefore authorised.

[Baroness Altmann (Con)]

My Lords, I thank the Minister and congratulate him on this suite of amendments. I know that my noble friend is keen that this should be a really landmark Bill and that he has worked really hard to listen carefully and ensure that it is as robust as it can be. I know his dedication to this matter, and I thank him for it.

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[Lord Johnson of Lainston (Con)]

My Lords, as noble Lords well know, the Economic Crime (Transparency and Enforcement) Act 2022 created a new register of overseas entities, requiring overseas companies owning or buying property in the UK to give information about their beneficial owners to Companies House. The register launched successfully on 1 August 2022, and companies in scope that already owned property had until 31 January 2023 to apply for registration. As of 18 June, more than 28,000 entities out of some 30,000 had registered, which represents a very good rate of initial compliance. Since 1 February, all non-compliant companies have been restricted in their ability to sell, lease or raise finance over their land; this remains the case until they comply. Companies House is beginning the process of assessing cases for additional action. This second economic crime Bill we are debating today makes a number of changes to further strengthen the register.

I will speak first to Amendment 85, a fairly minor amendment that the Government have tabled to strengthen the register. Schedule 6, which was inserted into this Bill in Committee, sets out the anti-avoidance measures that we debated a few weeks ago. These measures require that beneficial owners must report every change in beneficiary for the relevant period to Companies House. The anti-avoidance measures are effectively time limited because they impose a requirement on overseas entities to make a one-off submission to Companies House as part of their annual update. The Government have decided that it is therefore appropriate to limit the time within which the power related to them can be exercised; this demonstrates the Government’s intention to use the power only for the purposes that I described during our previous debate. The measures include a power to exclude descriptions of beneficial owners from the requirement to comply with Schedule 6. As I set out in Committee, this power will be used to exclude structures such as large pension trusts, where this requirement would be disproportionately burdensome.

Furthermore, turning to Amendment 86, because regulations made using this power may engage issues of devolved competence in Scotland, we have inserted a mechanism to ensure that Scottish Ministers must be consulted before regulations are made, if those regulations would be within Scottish legislative competence. These minor changes to the power will have no impact on the effectiveness of the anti-avoidance measures. I hope noble Lords will agree that they are appropriate.

During the passage of this Bill many concerns have been expressed about the use of trusts. I note that my noble friend Lord Agnew of Oulton has tabled Amendment 89, which would require Companies House to publish information about trusts that is obtained for the register of overseas entities but that is not available for scrutiny. The Government have tabled a number of amendments that are intended to address concerns in this area.

Amendment 71 will strengthen the reporting requirements and close a potential gap in the information provided to Companies House. Overseas entities registered on the register of overseas entities are required to update annually the information that they have provided to Companies House. They must provide an update that includes all in-year changes to the entity’s beneficial owners. Where the entity is associated with a trust, only a snapshot of the trust information is currently required to be provided with the annual update. This leaves a small risk that a beneficiary determined not to be registered might use convoluted means to ensure that they are not a beneficiary at the time of the update but become so immediately afterwards.

We have discussed this issue at length, and I hope noble Lords are pleased with the amendment that we are bringing forward at this time. It will ensure that in-year changes to beneficiaries must be reported to Companies House in the same way as is required for beneficial owners. There is nowhere to hide. Information supplied to Companies House via this amendment will be required to be verified along with all the other information that is being provided.

The amendment also includes a power for the Secretary of State to make exceptions to the duty to provide the in-year beneficiary information. This power will be used to exempt structures such as large pension fund trusts, where it would be disproportionate to expect them to provide every change that occurs in a given period. A number of multinational corporations use trust structures for their pension funds. One example we are aware of, which is a British multinational, is a fund registered on the register of overseas entities with over 8,000 beneficiaries. There are numerous and regular changes to the beneficiaries in circumstances such as this and the Government consider it unreasonable to expect such structures to deliver the new information that will be required.

Before regulations under this power are made, the Secretary of State must consult the Scottish Ministers and Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence. A number of consequential amendments, Amendment 76, 77 and 84, are also required so that the new provisions work as intended.

I turn to government Amendment 78. We have listened to the strength of feeling among parliamentarians, on all sides and in both Houses, that information about trusts supplied to Companies House as part of the registration of an overseas entity should not be withheld from public inspection. I stress that all the information held by Companies House about trusts is available to HMRC and law enforcement bodies. While the Government remain of the view that, in most circumstances, it is appropriate to withhold information about trusts, good arguments have been made that more transparency is required. In particular, it would seem appropriate to allow certain people, such as investigative journalists, to access the information under certain circumstances.

That is why we are tabling an amendment to create a regulation-making power by which the Secretary of State can set out details of who may apply to access trust information, how to apply and the circumstances in which an application can be made. To achieve this, we will also need to widen the scope of the protection regime in Section 25 of the Economic Crime (Transparency and Enforcement) Act to allow for people who are involved in trust arrangements—settlors, beneficiaries et cetera—to make an application. This does not require an amendment to this Bill as it can be achieved via regulations using the Section 25 power.

The Government intend to use this new power to provide a mechanism for access that is as straightforward as possible. My officials will work with Transparency International and other stakeholders and prepare regulations as soon as possible. I am happy to commit to keeping interested Peers informed and involved. Minister Hollinrake and I will keep a close eye to ensure that the processes Companies House put in place off the back of these regulations are indeed straightforward.

There will be some information that will not be appropriate for release, such as the day of date of birth of a person or their usual residential address. These will remain protected. In addition, given that most trusts are family affairs, and many are set up for minors or other vulnerable people, there may be other reasons why a given piece of information may not be suitable for release.

Before regulations under this power are made, the Secretary of State must consult with the Scottish Ministers and the Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence.

Finally, this group contains minor and technical Amendments 87 and 88. I hope that these amendments, in addition to the mechanisms already in place on the register of overseas entities, will provide sufficient reassurance to noble Lords and I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I have submitted Amendments 72 and 73 in this group.

Amendment 72 is designed to close an anomaly that arose in part because of the rushed nature of the emergency first Economic Crime Act. Unlike any other corporate register that I can think of, the register of overseas entities is required to be updated only annually. In contrast, the register of persons with significant control of UK Companies must be updated within 14 days of the company becoming aware of the change. This does matter. It means that the register can be as much as a year out of date, with changes potentially made to who owns or controls the overseas entity in the meantime.

The purpose of the register is to ensure that we know who owns UK property, so this anomaly creates a very real gap. There is a risk, for example, that an innocent third party could unknowingly find themselves buying a property from a sanctioned individual, thus allowing that sanctioned individual to realise and export the value of the property. By the time the register is updated, perhaps many months later, the money will be long gone.

There was a rather technical reason why we could not close this anomaly at the time of the first Act. The main penalty for failing to update the register is that property transactions cannot be registered. That would create a risk for an innocent buyer, if the register had to be updated within 14 days, because the innocent buyer could not know whether or not the company was in breach, and therefore the innocent party might not be able to register the transaction.

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[Lord Vaux of Harrowden (CB)]

It is not trusts.

[Lord Johnson of Lainston (Con)]

My apologies, it is the register of overseas entities. I thank the noble Lord for the correction.

I can see where the noble Lord is coming from here, but I think we have to be quite careful. Perhaps I might be allowed to go through some specific points which may help this House come to a better conclusion, and then the final point is relatively brief.

It remains the case that the Government do not believe that these amendments will achieve their aim without causing additional burdens on both overseas entities and third parties, or without adding a further layer of risk and complexity for third parties transacting with the entity. Again, I stress my significant sympathy with the noble Lord for this amendment and with the people who support this amendment. Personally, I am extremely desirous of making sure that we have timely information that could be presented, but there are specific technical reasons why we would resist this. However, we would be delighted to have further conversations. It is important that the Government get the balance right between ensuring that we know who the beneficial owners of these entities are and continuing to provide a welcoming investment environment. I would not underestimate the need for a simple structure that enables people to use our systems as company structures in order to do business here and in the rest of the world.

In England and Wales, the Land Registry estimates that it receives around 3,000 applications each month affecting titles registered to overseas entities. Around two-thirds of these are registrations of leases, transfers or charges. Each of these transactions would trigger the proposed requirements. This is the point of having to register at each transaction. Even if the update is simply a statement confirming that there are no changes to report, the statement must be verified each time, filed at the right time and repeated if the completion date of the transaction changes. That is important to note, because anyone who has been involved in a property transaction knows that the transaction date can change regularly and I do not think it is necessarily proportionate for these entities, particularly when we have made it very clear—and this is thanks to the interventions of noble Lords on all sides of the House—that we are ensuring that the history of activity in these trusts is properly recorded, so there is, as I believe the noble Lord, Lord Fox, said, nowhere to hide. Also, 14 days is considered to be a challenging timeframe within which to require an update, especially given that it is required to be verified before submission to Companies House. Again, I sympathise with the concept, but the practicalities and mechanics of this are believed to be highly impractical.

As I have mentioned, some overseas entities would have to make many updates each year. Any noble Lords who have bought a property will know that completion dates can change, which can be very frustrating. Every time they change you would be required to provide the register with further information no more than 14 days before the new completion date and have that information verified. This would be burdensome.

My officials have also informed me that, in discussions on this amendment, while the Law Society understood the purpose of the amendment, it also highlighted how onerous it could be in least some situations. It expressed serious concerns about the drafting of the amendment relating to the provision of a statement no more than 14 days before the completion date of a transaction. The Law Society of Scotland, in discussion with my officials, also expressed reservations—so we have the Law Society and the Law Society of Scotland expressing significant reservations. I do not think any noble Lord in this House would want to go against the significant reservations of either the Law Society or the Law Society of Scotland, which have significant concerns about the potential negative impact on the Land Register of Scotland and people transacting with overseas entities.

I believe that this amendment would be disproportionate. We have made significant changes to how activities are reported, so that no one can hide in the accounts of these entities, which previously they could, by selling and buying during the process of the annual update. I ask the noble Lord, Lord Vaux, not to move his amendment.

I thank the noble Lord, Lord Vaux, for tabling Amendment 73. It relates to scenarios in which land is held by an overseas entity under a nominee arrangement. For example, a trust can instruct a law firm to act on its behalf as a nominee and the law firm therefore appears on the register in its capacity as the registered beneficial owner of the overseas entity holding the land. The overseas entity is required to provide information about its beneficial owners to Companies House. However, in this case, because the law firm nominee is not a trustee of the trust that has instructed it, no information about the trust is required to be provided.

We agree that this gap in the requirements should be closed. I thank the noble Lord for his input and, along with Transparency International, for bringing it to our attention. However, the drafting of the amendment is not quite right, so I cannot accept it today. Instead, the Government will undertake to table an amendment to address this gap at Third Reading. I trust this will satisfy the noble Lord. and respectfully ask him not to move his amendment.

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Moved by

[Lord Vaux of Harrowden]

72: After Clause 160, insert the following new Clause—
“Updating the register of overseas entities
(1) The Economic Crime (Transparency and Enforcement) Act 2002 is amended as follows.(2) In section 7, after subsection (8) insert—“(8A) A registered overseas entity must, as soon as reasonably possible and in any event within 14 days of becoming aware of any change, deliver to the registrar details of any change to the information that has been previously provided to the registrar in accordance with section 4 or, if information has been previously delivered to the registrar under this section, any change to the latest information provided under this section, including the date such change occurred. (8B) A registered overseas entity must deliver to the registrar the information required in accordance with subsection (8A), or deliver to the registrar a statement that there has been no change to the information currently held on the register, no more than 14 days prior to the acquisition or disposal of any qualifying estate in the United Kingdom.(8C) For the purposes of this section, “qualifying estate” has the meaning given by paragraph 1 of Schedule 4A to the Land Registration Act 2002.”(3) In section 8, at the end of subsection (3) omit “(1)”.”Member’s explanatory statement
This amendment would require that changes be notified to the registrar within 14 days of becoming aware of such change, bringing the register into line with the rules that apply to Persons with Significant Control under the Companies Act 2006, and adds an obligation to update the register immediately prior to property transactions in order to protect innocent counterparties.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank all noble Lords who have taken part in this short debate. I thank the Minister for engaging on the subject as he has done. He used the words “jaded” and “cynical” earlier, and I hope he does not think they apply. In most cases, our engagement on all this has been extremely constructive, and I thank him, in particular, for what he has just said on Amendment 73. We will wait with interest to see the amendment, but I am glad that the Government recognise that there is a real problem.

In respect of Amendment 72, the Minister made a few points. First, he suggested that it would introduce a further layer of cost and risk. As I said before, I fundamentally disagree with that. The costs are pretty small. All we are asking is that, in the same way the PSC register is updated, it is updated on a timely basis within 14 days of any change, and that it is updated 14 days before a transaction. Yes, there is a small cost there, but, in most cases, because the register is updated regularly anyway, all that would be required is a confirmation that it is up to date. There are lots of papers and documents and things that are brought into a property acquisition—the usual searches, et cetera—and this would just be another one. It would not add a significant cost, in my view. It would actually reduce the risk to the innocent party because the innocent party would now know who they were dealing with. If we do not do this, they will not know that, because it could have changed any time in the last 12 months. To be clear, we are not talking about trusts here; we are talking about overseas entities.

Another comment is that 14 days is too difficult. I do not understand that. It is apparently because it has to be verified. It is exactly the same requirement as it is for persons with significant control, who also will need to be verified. There is no difference. If it is too difficult for this, it must be too difficult for that, or, if it is okay for persons of significant control, it is okay for this. I reject the concept that it is too difficult.

The Minister mentioned significant reservations from the Law Society. I think that was the meeting that I was at. I know first hand that it had significant reservations about my initial drafting of the amendment, which is why, as I explained earlier, the amendment changed to meet those reservations. My understanding when I left that meeting was that, while it did not necessarily like this concept—to be honest, it would not, would it?—I think it was relatively comfortable that it now worked. We are getting into he-said-she-said territory here.

I did not hear anything that changed my view that we needed to change this anomaly. It is not acceptable that innocent parties can end up accidently enriching a sanctioned individual, for example. I would like to test the opinion of the House.