Small Business, Enterprise and Employment Bill

Lord Watson of Invergowrie Excerpts

Monday 19th January 2015 Grand Committee

[Lord Flight]

It depends on whether a shell company falls within the Companies Act definition, so it will depend on what funds there are—what the shell company is capitalised at—and the other issues in the Companies Act that determine what is a small business. There is not necessarily a black-and-white answer, but I would have thought that if the Government graciously accepted my amendment they could add to it significantly by carving out that shell companies are not excluded.

[Lord Watson of Invergowrie (Lab)]

My Lords, I am rather puzzled by one of the arguments that the noble Lord, Lord Flight, has advanced in favour of his amendment. As the noble Lord, Lord Phillips, has just said, it appears that the noble Lord, Lord Flight, has not read the impact assessment on this Bill. It was highlighted in the impact assessment that the majority of shell companies, which are often the vehicles of choice for money laundering and other criminality, would be classified as small businesses. To exclude them would, as the noble Lord, Lord Phillips, said, leave the door wide open and not solve one of the major problems that this legislation is looking to solve.

The noble Lord, Lord Flight, mentioned burdens on small companies. Of course I do not want to create burdens on any kind of company, but I believe that when a law is justified and has been implemented, small companies have a duty to keep on top of that legislation and make sure that they are not caught out by having failed to identify their person of significant control. As the noble Lord, Lord Flight, said, the vast majority of the companies are small companies owned by the people that run them, so they will have nothing to declare; they will have simply to say that the managing director or the chief executive is the person of significant control and that will be the end of it. The burdens on small companies, I suggest, are actually very slight and for that reason I would argue against this amendment and hope it will not be proceeded with.

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Moved by

[Lord Watson of Invergowrie]

37: After Clause 78, insert the following new Clause—
“Duty to keep register updated
(1) The Secretary of State may by regulations make provision prescribing the steps to be taken by the registrar of companies to ensure that the information on PSC registers or as the case may be the central register is as accurate, reliable and up to date as possible.
(2) Regulations under this section are subject to the affirmative resolution procedure.”

[Lord Watson of Invergowrie]

I start by echoing the comments of my noble friend Lord Mitchell that the Government are to be commended on making the UK the first country to introduce a register of people with significant control. I said that at Second Reading and am pleased that, although it is happening slower than I would like, developments are taking place in other countries. Significant work needs to be undertaken to make sure that that progress continues and speeds up.

I welcome the fact that the Minister recognised that much of the effect of shell companies and their activities impacts on developing countries. In fact, a staggering amount does so. It has been estimated that more than a quarter of the financial assets held in tax havens are in some way taken from developing countries—which lose far more in this way than the total global aid budget. That is a very worrying statistic.

The role of the British Overseas Territories and Crown dependencies is in some ways complicit in this. I use the example of the British Virgin Islands and the purchase of mining concessions in the Democratic Republic of Congo, which cost the DRC $1.36 billion—around twice that country’s annual education and health budget combined. That is an example of the extent of the problem. It is disappointing that, since the Prime Minister made his announcement at the summit in 2013, the Government have not yet followed through decisively enough. I was pleased to see that the shadow Chancellor gave a commitment that a Labour Government would require Overseas Territories and Crown dependencies to publish the names of beneficial owners of companies. That is very much to be welcomed.

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[Baroness Neville-Rolfe]

My Lords, I am grateful for that clarification. I was hypothecating the use of third parties to verify data before the data went to Companies House. It seems there is agreement that this would not be desirable for the reasons I have stated.

I have listened carefully to the arguments on the benefits of requiring up-to-date information to be filed at Companies House and the Government have listened to similar arguments during the negotiations we have been having on the fourth money laundering directive. Noble Lords may, however, not be aware that we already have the power we need in the Bill to allow us to increase the frequency with which information is filed at Companies House. This was inserted in the event that the statutory review mandated by Clause 79 demonstrated a need for more up-to-date information. I will, however, in the light of the conversations we have had today, reflect further on whether there is a case to use that power once the register goes live and the new system has bedded in.

Turning to Amendments 37A, 39, 41 and 43, I understand the desire for more information on every layer of the ownership chain. However, we must keep in mind our fundamental objective, which is to know who ultimately owns and controls our companies. Requiring additional information risks confusing companies and users of the register. There will also be cost implications in asking a company to hold and keep up-to-date information on every company or individual in its ownership chain. We believe we will have the information we need for investigation and prosecution.

More importantly, this is not a requirement of international standards or the soon-to-be-adopted fourth money laundering directive, which I am glad will bring the major benefits of these reforms to other member states. Noble Lords will, I am sure, share my concern to avoid gold-plating.

The noble Lords, Lord Watson, Lord Mitchell and others, asked why we are not including the overseas territories and Crown dependencies in this legislation. The Prime Minister made clear that he would like a publicly accessible central registry of company beneficial ownership information to be the new international standard. We would therefore like the overseas territories and Crown dependencies to match our policy. We respect, however, the fact that the overseas territories and Crown dependencies are separate jurisdictions with their own elected Governments, under which they are responsible for fiscal matters. We are working closely with the overseas territories and Crown dependencies and keeping them informed of our policy as it develops so that our decisions can feed into their policy thinking. At the Joint Ministerial Council in December last year, the UK and territory leaders agreed to work together on raising international standards and to meet ahead of the G20 meeting of finance Ministers and central bank governors this February to agree a way forward on implementation of the G20 principles.

I hope my noble friend and other noble Lords have found some reassurance from my response and that the noble Lord will agree to withdraw the amendment.

[Lord Watson of Invergowrie]

I thank the noble Baroness for her response. I think it is fair to say that we are not a million miles apart on most of the issues covered by the amendments. However, in her response, the Minister mentioned Clause 79, inasmuch as the Government would have the power to increase the frequency of the updating of the register—I cannot quickly find the wording that refers to that—and it would be helpful if she could give me something in writing on that.

The amendment states that,

“the central register is as accurate, reliable and up to date as possible”.

I think that everybody would like that to be the case. As the noble Lord, Lord Phillips of Sudbury, said, we are not suggesting that every company should constantly be involved in that and it should not be updated more than once a year. I liked the analogy with our own register given by my noble friend Lord Mitchell. It is important that information is as current as we can possibly make it. However, I noted the Minister’s response and I think we will return to this matter on Report.

I mentioned earlier that the shadow Chancellor said that a Labour Government would require the Overseas Territories and Crown dependencies to produce a register. I do not know what the legal requirements are. I know the difference between the Crown dependencies and the Overseas Territories, but there must be a means of doing that and I hope that the Government will at least bring to bear whatever pressure they can behind the scenes on these dependencies and territories to move in this very important area.

We have covered some important issues in this debate and we may well return to some of them on Report. I welcome what the Minister has said on most of the points and I beg leave to withdraw the amendment.

Amendment 37 withdrawn.

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I am deeply disappointed that a Conservative-led coalition Government should have put forward such ineffective and often wasteful legislation. The objective is clearly to please a particular lobby and to give the impression that the Government are doing something bold and imaginative here. I regret not just that many members of the public from the NGO lobby have been given that wrong impression but that it seems that many Members of your Lordships’ House have as well. If this legislation goes ahead, it will be avoided very easily and will not meet its objectives. It will just be another regulatory burden on the innocent.

[Lord Watson of Invergowrie]

My Lords, I rise to give a rather more upbeat reason for supporting Amendments 44 and 47. We have just heard the noble Lord, Lord Flight, in respect of his amendments. I open by saying that I am quite astonished to hear him say that public access is open to abuse. The whole thrust of this legislation is to deal with abuse of a very serious nature by companies in all sorts of activities. The number of such companies is small, certainly; none the less, it is a very important number and some of them are very influential.

Although I shall have something to say later specifically on the amendments tabled by the noble Lord, Lord Flight, I want to speak particularly to Amendments 44 and 47 because, the noble Lord, Lord Flight, notwithstanding, most people would agree that members of the public should be able to view and share information from a company’s PSC register. As the Minister said in another place, a principle of this legislation is that information should be publicly available so that businesses can identify who really owns the companies with which they do business. It is right that businesses should know whom they are dealing with and that civil society and the wider public can hold our companies to account. If the central register is to be updated only annually—or perhaps more frequently; we will see—it becomes important that people can access and share information from businesses’ registers as well.

The part of the legislation which concerns me—and which Amendment 44 would remove—requires people or organisations who intend sharing information from a company’s PSC register to say whom they would share it with, to give their names and addresses, and to state the purpose of sharing it. How can those questions, which appear in subsection (4)(d), be answered in advance? I do not believe it is possible. How would the person requesting the information know the individual or organisation to whom they might at some indeterminate point in the future wish to divulge any of the information that they receive? You would need to be a clairvoyant to know these answers.

The effect will be that the person requesting and subsequently receiving the information will be prevented from ever passing it on to anyone else. That will have a significant effect on the abilities of journalists and well respected organisations—such as Christian Aid and Global Witness, which have been assiduous in campaigning in this important area—to carry out the work that they do, including investigations, checking on company activities and publishing information about it. I do not quite sign up to the idea that if you have nothing to hide you have nothing to fear, because there can be cases where information can certainly be misappropriated, not least online. However, it is important that companies should be willing to defend what they do, and to do so as publicly as they reasonably can. However, I defend the concept of commercial confidentiality, although it should not be used as a cloak to enable companies to hide some of their activities, presumably those that they genuinely do not want aired publicly.

When I raised the issue at Second Reading, I was pleased that the Minister gave me an assurance that legitimate access to company registers would not be prevented. However, she did not say anything about publishing details from the companies register. I have been through the comments of her ministerial colleague in Committee in another place and, in my view, she justified paragraphs (a), (b) and (c) of new Clause 790O(4) on page 162 perfectly well. However, at no stage did she justify paragraph (d), and nor did our Minister at Second Reading. As my noble friend Lord Mitchell said, it requires to be justified because, unless lines 32 to 40 are removed from the Bill, reputable organisations will be prevented from exposing and potentially rooting out corruption through carrying out and sharing investigations properly. Without doubt the measure would be used by companies to prevent publication of parts of their registers, which surely goes against the spirit of the legislation. Therefore, in addition to the question that my noble friend Lord Mitchell asked of the Minister, I simply ask her whether she can reveal what she believes subsection (4)(d) adds to the Bill.

Amendment 47 tackles the issue of exemptions. As with the point I made in my remarks on Amendments 39, 41 and 43 in relation to corporate directors, we await the outcome of a government consultation on the question of exemptions. As the Minister said to me that she hoped to write to me before Report in respect of the other consultation, and given that the one on exemptions concluded a month ago, I hope she will be able to do the same with that. It is important that we should be aware of the outcome of the consultation before the Bill completes its passage in this House.

At Second Reading I was pleased to receive from the Minister an assurance that exemptions to publishing information in the register would be given only in exceptional circumstances, which is as it should be. I should like to probe a little with this amendment because exemptions should be open to challenge. The amendment would ensure that it was possible for a decision to grant or refuse a protection provision to be challenged and that it was clear on the register that a protection provision had been granted.

A similar amendment was tabled by the honourable Member for Hartlepool in Committee in another place, and the Minister’s argument there was that the court was not the best authority to determine the applications in the first instance. She argued that the registrar was best placed to do so. Therefore, Amendment 47 provides for the registrar to make that decision. I believe that a fundamental principle is at stake here. The public interest test must always enable an exemption to be challenged when new evidence comes to light. The decision to exempt an individual may be determined in a different way by the registrar on the presentation of new evidence specific to the company on why the public interest demands disclosure.

I hope that the Minister will accept this amendment, given that it appears that it complies with what her colleague said in another place. If not, I ask her to outline how she will ensure that exemptions can be challenged in the public interest when new information comes to light. It would also be useful if the Minister could outline the broad categories under which exemptions must be given.

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[Lord Watson of Invergowrie]

I do not see why the information might be inaccurate if the companies themselves provide it. Surely, they will provide accurate information.

[Lord Leigh of Hurley]

That is an important point. We are here worried about rogue companies. We are not worried about companies that are abiding by the law or those that inadvertently make mistakes. Here, we are trying to pursue rogue companies that attempt to mislead. That was my point.

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[Lord Watson of Invergowrie]

Are not those precisely the companies that we need to catch with legislation like this?

[Lord Leigh of Hurley]

Indeed, that is my point. If we are going to do it, we should follow the recommendations of the Financial Action Task Force and have that information verified. However, it does not mean that the register needs to be public. The tax and law authorities not just must but should have all this necessary information to deter misuse. I am not clear why it should necessarily be public. The noble Lord, Lord Watson of Invergowrie, referred to the G7, I think, but the document containing the G20 high-level principles of beneficial ownership transparency, which was published after the meeting in Sydney last year, makes no requirement for any public transparency. It makes a requirement for beneficial ownership to be on a register but, in its carefully worded 10 points, it does not suggest that it should be made public. We are in danger of becoming the only country in the whole of the G20 to insist on public disclosure—and one has to ask why on earth we would do that.

Would not it therefore be advisable to defer the requirement to make the information public until after the report required from the Secretary of State in the Bill? That might permit a better assessment of the quality of data being submitted through the self-reporting mechanism and an assessment of the competitive implications for UK businesses once other countries have had an opportunity to decide how they are going to address their compliance with the G20 report.

It is clear, thanks to the long-term economic plan and the success of the coalition Government’s policies, that the UK is an extremely attractive country to invest in. I declare an interest in my professional capacity. I talk to overseas investors all the time who seek to acquire and invest in UK companies. There is unparalleled interest in seeking to invest in the UK. Likewise, I declare that I went on the UKTI trade trip with the Prime Minister to China, where there is an enormous amount of interest from Chinese companies that wish to invest in the UK. We seem to be obsessing over disclosure of their potential investment in UK companies when, should they choose to invest in a limited partnership or directly into real estate, there will not be any disclosure. These investors will simply be deterred from investing in the UK because this transparency of ownership is an alien culture to them. I wonder whether the concerns over privacy will leave them not just dissuaded but unhappy with the actual cost and regulation that it will require, which is not the case for Delaware companies, for example. I fail to understand why a company should have to bear the onus of a request that might be flippant or irrelevant or just unnecessarily nosy.