Draft Economic Crime and Corporate Transparency Act 2023 (Consequential, Supplementary and Incidental Provisions) Regulations 2024 Draft Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024

Peter Grant Excerpts

Thursday 14th March 2024 General Committees

[Peter Grant (Glenrothes) (SNP)]

I will also be supporting these regulations. The Minister and I have often worked together trying to deal with a great deal of the wreckage that has been caused in the past by either inadequate legislation or, all too often, inadequate or non-existent enforcement. I look forward to these and other new regulations’ having the very quick impact they are designed to.

I am pleased to hear the Minister mention that one batch of fraudulent filings has been cut off very quickly under Companies House’s new powers. I do not know if he is allowed to tell us whether any criminal action is being considered, because it is a criminal offence to submit false information to the register of companies. It raises the question, again, about how we implement these measures if the documents have been filed online from overseas, often from a country that is not particularly friendly to the UK and is quite happy to see the UK’s business environment corrupted.

While we celebrate that success, the Minister may be aware that the wonderful Graham Barrow has identified within the last couple of days that a domestic address in South Lanarkshire is a company director and a sole shareholder of a company. Clearly, there is something false in that filing but, again, it got on to the Companies House register. I hope it will be reviewed quite quickly. Given that it was filed electronically, it should not be too hard to identify who was responsible for that particular piece of false filing.

I welcome the financial penalties regulations, but I have some concerns that this might become a “get out of jail cheap” card for persistent offenders. I hope that, when Companies House publishes the guidance for how it will use these new powers, it recognises that there will be times when financial penalties are appropriate and also times when it is clearly more appropriate to go through the longer and more costly process of criminal prosecutions.

Are there implications for the resourcing of the Courts and Tribunals Service, for appeals, for example? It is under pressure just now. I expect that the resource implications for Companies House have already been identified, because I know there has been an increase in its resources recently.

I have some questions about the penalty notices. Will the Minister explain why he referred to them as civil rather than criminal penalties? There is precedent in, for example, road traffic offences and some public order offences, in respect of which a criminal fixed penalty is applied and that can appear on somebody’s criminal record. If a number of the penalties are applied to somebody, first, is a formal totting-up process specified, so that at some point, as a matter of law rather than the judgment of Companies House, that person can no longer go down that road and will be prosecuted? Secondly, will the penalties appear on a person’s criminal record, so that, if need be, that shows up if they go into sensitive employment? I think the Minister mentioned something about the relevance to possible director disqualification proceedings, but will he confirm that the penalties will be a relevant factor in considering whether a director is fit to continue in post?

I have a few questions about the provisions on offences concerned with the audit of a company. The Minister will know that some of the companies that I have been most concerned about have, by various means, managed to avoid having to produce audited sets of accounts. For example, if the whole Blackmore Bond group had had to be audited to professional standards, the problems would have been identified several years earlier. There are massive questions about the one part of the group that was supposed to get audited. There were glaring mis-statements in some of the accounts that the auditors signed off on. We cannot allow that to happen. One of Blackmore Bond’s annual reports almost said, in so many words, “We are a Ponzi scheme,” but neither Companies House nor the auditors seemed to pick that up.

All that is relevant, of course, only if a company is required to publish detailed accounts and certainly have them audited, which does not usually include companies that are regarded as small companies for the purposes of the legislation, but which also have the capacity, and occasionally the willingness, to take substantial amounts of money, often running into the tens of millions of pounds, from innocent members of the public. Are there any plans to allow the registrar, in exceptional circumstances, to require, in the public interest, an audit, or the publication, of full sets of accounts for companies for which that otherwise would not be required? For example, we sometimes see whole sets of associated companies that are incorporated, trade for a few years and are wound up, never having produced a set of accounts, and everything then transfers to a different company that trades for a few years. It is possible for rogue directors to run a business empire for 10 or 15 years without ever having to submit a set of audited accounts. Are there any plans for legislation to close that loophole? Again, a provision of that kind would have stopped a lot of the Blackmore Bonds of this world. It would not have stopped Blackmore Bond completely, but it would have identified it sooner and at least restricted the damage inflicted on all our constituents.

As with another statutory instrument on economic crime that we debated not so long ago, I welcome these regulations. The Minister will know that I did not think the economic crime Act itself went far enough, and I hope that action will be taken soon to strengthen it. I am always impatient about action to clamp down on economic crime, because too many people have been getting away with it for far too long. One thing I like about the provisions is that they allow rogue directors and their companies to take a financial hit much more quickly. Most of the enforcement action available up until now has been long-winded and can be very expensive, and it is quite possible for the villains to delay it so much that, in effect, when justice is delayed, it is seen to be completely denied.

I welcome the change and, as I said, will certainly support the two sets of regulations. I look forward to an opportunity for either me or one of my colleagues to consider a number of the other statutory instruments that the Minister is working hard to bring before us.

[Kevin Hollinrake]

I thank Committee members for their valuable contributions to the debate. The shadow Minister asked about resources; the Government provided £63 million to start the work at Companies House on the change from having a dumb register to having a proactive registrar who maintains the integrity of the register. Also, £20 million was provided last year through the economic crime levy, which will be one of the future sources of funding. The key area for funding is the uplift in the registration fees and annual filing fees at Companies House. It used to be £12 to register a company; it is now £50. It used to be £13 to lodge an annual return; it is now £34. We think that provides Companies House and the Insolvency Service, which is the enforcement body for such matters, with the extra resources needed, and hundreds more people will come as a result. It will also fund things such as the intelligence hub, which is hugely important.

The hon. Member for Glenrothes might want to alert Companies House about the address that has been used improperly. Companies House should then deal with that, and can do so much more quickly as a result of the new powers.

[Peter Grant]

I am sure it will come as no surprise to the Minister to hear that Mr Barrow has already done that. We look forward to that company being removed from the register quite soon. One of the things that I found interesting is that the address used is not the company’s registered address.

[Kevin Hollinrake]

I am happy to talk to the hon. Gentleman offline about that particular case, but any Member of this House or member of the public can alert Companies House about incorrect filings. As I say, as a result of what we have already done, that can be acted on much more quickly.

The hon. Gentleman talked about disqualification, and yes, absolutely, penalties can, as I said in my opening speech, contribute to a decision on disqualification. The penalties are civil penalties, but where the registrar feels that the conduct or offences are sufficiently serious, they can pass that on to the relevant prosecution body —the Insolvency Service, the police, the National Crime Agency or others. That is the kind of approach that Companies House typically takes.

The hon. Gentleman raised Blackmore Bond again, and has done a fantastic job of raising that on so many occasions. We have finally seen the FCA actually do something about it, as a result of much work. I remind the hon. Gentleman that what underpins the whole regime is the recognition that it is impossible, given the number of records, for Companies House to be a policeman of every single record and everything that happens. Five million companies are on the register, and 800,000 were registered last year alone, so it is not practical to look at every single one, but there are serious consequences if people improperly or falsely file information, particularly if they do so maliciously. They can be sentenced to up to two years in prison. That underpins the regime as well.

I thank you, Ms Vaz. The debate has highlighted the need for a robust financial penalty regime at Companies House, as well as consistency in the law that governs business entities. I commend both sets of draft regulations to the Committee.

Question put and agreed to.

Draft Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024

Resolved,

That the Committee has considered the draft Economic Crime and Corporate Transparency Act 2023 (Financial Penalty) Regulations 2024.—(Kevin Hollinrake.)