Economic Crime and Corporate Transparency Bill (Ninth sitting)

Baroness Hodge of Barking Excerpts

Committee stage
Tuesday 8th November 2022 Public Bill Committees

[Seema Malhotra]

I thank the Minister for his intervention. The issue is not what we assume and hope might happen, but having some checks and balances on the use of powers. It is part of our responsibility on the Committee to think that through.

[Dame Margaret Hodge (Barking) (Lab)]

That is always the case. Perhaps the Minister will reflect that Usmanov was a case in point. He exploited an exemption to hide some of the information around his ownership. It is worth all of us reflecting on that. Obviously the provision has to be there for good people, but it may become yet another opportunity for bad people. The Usmanov case was a classic one. I think Fedotov was another, if my memory serves me right. Apologies if I have this wrong, but Fedotov was another one who managed to get an exemption in some way. If these things are not done properly, and are not then properly monitored, they can go wrong.

[Seema Malhotra]

I thank my right hon. Friend for highlighting an important case in point.

[Seema Malhotra]

I thank the Minister for his intervention.

[Dame Margaret Hodge]

I think the Minister is right about Usmanov, but on Fedotov I think it was something different. I cannot quite remember the details, but he managed to use an exemption to hide his identity. We raised it last week, and I think that officials were going to come back with a response. They may not have had time to read the letter yet, but that is more the case that one would think of.

[The Chair]

Order. For the benefit of those following our proceedings, I remind Members of the flow of debate: the Minister will respond to the shadow spokesperson, and the right hon. Member for Barking will have an opportunity to intervene on him then.

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[Kevin Hollinrake]

I think that we are trying to achieve the same thing, just in different ways. We discussed this issue at length in previous sittings. Companies House is already actively working on unique identifiers. It is not credible to think that, having legislated for them, we will not implement them. A basic principle of the Bill is to be able properly to link individuals on the Companies House register, so that company directors have a better experience and so that it is easier for the public to identify the connection between directors, including persons of significant control, and companies.

[Dame Margaret Hodge]

I accept that great progress has been made in the Bill, but addresses and personal details are also important. We know the way in which addresses are exploited: people put 3,000 companies into one address. That is relevant information that Companies House needs to have.

[Kevin Hollinrake]

Addresses are not covered by the amendment, although we discussed the verification of addresses at length the other day. We think we have struck a fair balance in terms of a company address. The shadow Minister seems to be saying that she wants the unique identifier to be searchable; we think that the person’s name should be public and searchable. I did not quite understand her point about people hiding their email addresses or names, and searching by unique identifier, rather than the other way around. We think that the searchable entity should be the person’s name, and the Bill would then make it easier to see the connections between a director’s name and the different companies with which that person is connected.

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[Kevin Hollinrake]

I think I have understood the hon. Lady’s question. Clearly, all directors and company service providers need to have their identity verified too. If that is what the hon. Lady is referring to, that is absolutely contained in the provisions of the Bill.

[Dame Margaret Hodge]

I was very interested in what the Minister said about ensuring that the authorised company service providers should be checked and supervised properly. It is really important to ensure that all the details of the individuals on the register can be found with certainty. However, we are all struggling with how to do that in quickest, most cost-efficient and effective way. Does the Minister agree that a suitable mechanism should be presented on Report—unless he would like to suggest one now—that does not waste time, keeps within the timeframe, does not require massive additional resources and enables swift action to be taken? I love the Treasury, but we should do this without having to wait for a Treasury review or reorganisation. Does he accept that that might be a way forward? We all want the same thing, and if we do not get this right there could be a huge flaw in the system we are establishing.

[Kevin Hollinrake]

We are on the same page about ensuring that the system is fit for purpose. It is difficult for me to do a review when the Treasury itself is doing one and is probably better placed than I am to do it, given its wider understanding of the system.

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[Kevin Hollinrake]

Clauses 76 to 79 support the Bill’s overarching ambition to broaden the powers of the registrar to maintain the integrity of the register. Clause 76 provides a new power to reject documents for discrepancies. Currently, the registrar must accept documents if they have been properly delivered—that is, they meet the requirements as to their contents, form, authentication and manner of delivery, and the other requirements listed in section 1072 of the Companies Act 2006.

Documents containing information that is at odds with information that the registrar holds may none the less meet “proper delivery” requirements in their own right. If so, they must be placed on the register despite the apparent inconsistency. This clause cures that problem by enabling the registrar to reject a document if it appears to be inconsistent with other information that is held by or available to the registrar. The power is available if, due to the inconsistency, the registrar has reasonable grounds to doubt whether the document complies with the requirements as to its contents.

[Dame Margaret Hodge]

This is a question to aid understanding. This provision sets out the duties of the registrar in relation to documents, but the documents will actually be checked by the company service providers, will they not? That will be outsourced to those providers. I might be wrong—the Minister is looking puzzled—but that is the case if I read the situation correctly. Therefore, is this provision suggesting that there will be a check at Companies House on the work that the company service providers do? Perhaps the Minister can say a little about how that will be implemented. I thought that all that was to be pushed out to the company service providers.

[Kevin Hollinrake]

Not at all—quite the opposite. Companies House has a requirement to oversee the integrity of the register, and the clause states exactly that. If the registrar feels there is an error that she is not happy with in the document, or it is inconsistent, she can reject the document whether it is filed by a company service provider or by a director of the company.

[Dame Margaret Hodge]

For complete clarity, there will be a risk-based system of checks on documents provided as a mechanism for ensuring the accuracy of the documents that are submitted.

[Kevin Hollinrake]

Absolutely. That is exactly how we expect it to operate.

Once the registrar refuses the document, it will be treated as not having been delivered. Under clause 77, the Companies Act 2006 allows the registrar, upon receipt of an instruction from someone else and only with the relevant company’s or other body’s consent, to correct a document at the pre-registration stage if it appears to be incomplete or internally inconsistent. That power was useful when more companies filed on paper, as informally correcting material was easier than rejecting a document and waiting for it to be refiled. However, in the digital world, filings can now be rejected, returned to the filer and then refiled within minutes. There is no longer a need to informally correct a document pre-registration. Clause 77 therefore removes that power, which also encourages accuracy in filing by removing the expectation that a document can be informally corrected.

Clause 78 reduces the period of time for which the registrar must keep originals of documents that have been delivered in hard copy from three years to two years. Once that period has passed, the original documents can be destroyed as long as the information they contain has been recorded. The retention period that was previously reviewed was reduced from 10 years to three years when the Companies Act 2006 replaced the 1989 Act. The number of requests for the retrieval of filings has decreased further and steadily since then due to declining paper filings, improved image capture processes and increased confidence in digital records. It is therefore right to reduce the retention period again. The information in the documents will still of course be available electronically to users as appropriate.

Clause 79 amends the period for which the registrars in each UK jurisdiction must maintain certain records available for public inspection. The records in view are those concerning dissolved companies, including certain information regarding PSCs of dissolved companies, overseas companies that have ceased to have any UK connection, and overseas credit and financial institutions that have ceased to be required to file accounts with the registrar. The clause provides that those records can be moved to the Public Record Office two years after the relevant date of dissolution or cessation.

[Dame Margaret Hodge]

May I ask a question on that? It is relevant to later amendments. I do not know whether the Minister or his officials can help, but can Companies House stop a request for dissolution?

[Kevin Hollinrake]

In what circumstances?

[Dame Margaret Hodge]

I think it can. I have tried to find its powers and cannot find them. The great example is the Savaro one. It was the UK-based company that owned the warehouse where the fire took place in Lebanon. It tried to dissolve the company, but I think the Minister intervened. I have looked up Savaro and it does still exist. It is quite important if we have a dirty company that wants to rush away. Do we have powers to dissolve it?

[Kevin Hollinrake]

I am happy to raise that with officials and come back to the right hon. Lady. [Interruption.] There is some flapping about right there, as I speak.

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[Kevin Hollinrake]

Very kind.

[Dame Margaret Hodge]

The answer is yes, is it?

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[Kevin Hollinrake]

These amendments relate to the register of overseas entities introduced by virtue of part 1 of the Economic Crime (Transparency and Enforcement) Act 2022. The new clauses mirror equivalent sections in the Companies Act 2006 as amended by part 1 of the Bill, which we have already debated. They will ensure consistency between the two Acts.

The amendments will ensure that the public register contains only information that it is necessary to display, and that certain information including email addresses is not made publicly available, because of the risk that that could facilitate identity theft or other fraud. New clause 16 will ensure that personal information supplied in connection with the verification process for the register of overseas entities can be appropriately protected from public inspection. It is right to ensure that certain personal information, including email addresses, is not made publicly available because of the risk that that could facilitate identity theft or other fraud.

[Dame Margaret Hodge]

Again, I am really asking for information. It would be interesting to learn whether the Minister knows how many overseas entities have been registered since the enactment of the 2022 Act. It could still end up being unclear who the real beneficial owner was of an overseas entity. If someone went to an overseas entity to find out who owns One Hyde Park, and it said that the owner was a British Virgin Islands company, would the owner of that company be shown?

[Kevin Hollinrake]

That does not directly relate to this amendment, but I will get back to the right hon. Lady on that point in a separate conversation. Details such as the name and company of the person verifying the information submitted by an overseas entity to the register will continue to be publicly visible; it is not our intention to change that.

New clause 17 replaces sections 22 to 24 of the ECTE Act with proposed new sections 22 and 23. As with new clause 16, new clause 17 adds to the list of information that the registrar must not make available for public inspection, to help prevent the abuse of such information. That includes categories of information that were never intended to be made available for public inspection, but were missed during the expedited passage of the ECTE Act through Parliament, such as the email address of an overseas entity. New clause 17 also includes new categories of information that an overseas entity will be required to provide as a result of other amendments that are being introduced by the Bill, including the title number of land that an overseas entity owns, and documents provided to the registrar under her new power to require further information. New clause 17’s insertion of new section 23 also means that the registrar can disclose protected information about trusts, date of birth and residential address only in two scenarios.

Amendments 12, 39, 40 and 49 are consequential on new clause 17. Under the amendments, the registrar need not retain material that must not be made available for public inspection longer than appears reasonably necessary to her for the purposes for which the material was delivered to her.

I will say to the right hon. Member for Barking that there have been over 3,000 registrations on the register of overseas entities since it was established on 1 August 2022. It is right to ensure that the public register of material concerning overseas entities contains only information that is necessary to display, and that certain information, including email addresses, is not made publicly available for the reasons that I have stated. It is also right to amend the Companies Act 2006 in a way that mirrors amendments made in the Bill, so that there is consistency between the two Acts.

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[Seema Malhotra]

That would be welcome. New clause 18 grants the Secretary of State the power to make regulations as they see fit, in order to protect material on the register. Further scrutiny will be required on what could happen in future, and the circumstances in which that power might be needed.

The perception may have been that we had opposing positions on some aspects of the Secretary of State’s powers, but we now find ourselves coming a little closer together. We are debating the Bill, which largely has cross-party support, in good faith, but there are many little ways in which things could get changed, without those changes being subject to full debate in the House. It is important that we debate that further during proceedings on the Bill. I repeat that I want to ensure that there is no devil in the detail. I appreciate the Minister committing to return to the issue in part 3, when we will have a chance to look at the matter in slightly more detail.

[Dame Margaret Hodge]

There was a report in The Guardian yesterday on an organisation called Wealth Chain Project. Its analysis showed that 138,000 residential and commercial properties in England and Wales are owned by offshore companies. We have managed to get 3,000 so far, so there is a heck of a lot—

[Kevin Hollinrake]

There is not a direct correlation between the two, because one overseas entity might own many UK properties.

[Dame Margaret Hodge]

Ah, that is a valid point, and I think the article deals with it. Some entities will own more than a few properties, but—sorry, I am just looking to see whether the article does make that point. The article demonstrates the enormous importance of Executive action. That is why the Opposition feel strongly that action should take place; there is no point in just putting legislation in place. There is a desire to monitor that action, and toughen up the provision to ensure that the action happens. I hope that the Minister bears that in mind. No matter how many entities own more than one property, 3,000 is still a long way from the 138,000, assuming that figure is accurate.

I am getting muddled by all these amendments. Will the Minister or his officials provide us with a list of what information will be on the register? What will we see? If we had that, we could take a view on whether that information is sufficient for all our purposes.

[Liam Byrne]

It is a pleasure to see you in the Chair, Ms Bardell. I fully appreciate the Government’s need to table amendments—the grind of Committee exposes all kinds of opportunities to improve and strengthen legislation—but this is a good example of the kind of measure that it would have been helpful to see at the beginning of the process, not halfway through, not least because we are all worried about Companies House and its capacity to hunt and root out badness. All of us have in our time, and in our own way, relied on journalists’ investigative capacity to flag bad activity. It is important to the Opposition and, I am sure, the Government, to hear from journalists and investigators on whether the measures that the Minister is introducing jeopardise or constrain their ability to conduct the investigations that they have carried out so admirably over the last few years.

I hope that the Minister will take up the suggestion of my right hon. Friend the Member for Barking and set out very clearly for us what information will be available. The whole Committee would be interested to hear, perhaps informally, from journalists on whether that information will constrain their ability to investigate; we can then decide whether to come back to this issue on Report.