Economic Crime and Corporate Transparency Bill

Richard Fuller Excerpts

Consideration of Lords amendments
Monday 4th September 2023 Commons Chamber

[Kevin Hollinrake]

I thank my right hon. and learned Friend for his point and his work in this area. I will come on to that amendment, if I may, later in my remarks. He makes a valid point, and we want to ensure there are no loopholes while at the same time maintaining the position that the Bill does not put new burdens on businesses that are not likely to have a systemic effect on economic crime.

[Richard Fuller (North East Bedfordshire) (Con)]

I interrupt my hon. Friend to pick up the intervention he received from my right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright). I warn those on the Front Bench about what he just said. Leaving the burdens on business to the courts or whichever procedures to define is not a reasonable protection for small businesses. They need the protection that the Minister outlines, because in such circumstances people will go to the most conservative position they can. Although my right hon. and learned Friend suggested that that would provide significant and effective protection, it will not do so in practice as behaviour will change and burdens will increase. I think the Minister is getting the right balance on this.

--- Later in debate ---

The Government have tabled amendment (a) to the new clause entitled “Failure to prevent fraud” in Lord Garnier’s amendment 151. As we have said, we welcome the steps taken by the Government on failure to prevent fraud, but there are two problems with the current offence, about which the Minister has already heard during the debate: first, it applies only to large organisations as defined in the Companies Act 2006, and secondly, it does not cover money laundering. Government amendment 151, which introduced a failure to prevent fraud offence, was amended in the other place to remove the planned exemption for all organisations that do not qualify as “'large organisations”. If it is left as it is, the introduction of a “failure to prevent fraud” offence will apply to just 0.5% of all businesses in the UK. As Lord Gamier pointed out so aptly in the other place, with 99.5% of businesses being exempt, that would be the equivalent of only prosecuting murderers over the height of 6 feet 6 inches.

[Richard Fuller]

The hon. Lady is making some excellent points on her side of the argument, but I think that the 0.5% figure misses the fact that that probably covers a substantially larger proportion of economic activity in the country.

What intrigues me is this. There is a balance to be struck here. I think the hon. Lady will go on to ask the Government not to press their amendment, or to else to oppose Lords amendment 159; but what, in practice, will this mean for smaller businesses if they are to be held to the responsibility to prevent fraud? Is it a certificate on the wall? Is it an annual process that they will need to go through? How much is it going to cost? Ultimately, who will give a guarantee to all the small business owners around the country who are worried about this new responsibility? How will they know that they have taken the actions under prevention procedures to ensure that they will not be subject to legal prosecution?

[Seema Malhotra]

I think that that will be covered in the points I am going to make, including around the steps that the Government need to take further.

--- Later in debate ---

[Alison Thewliss]

I thank the Minister for that point, but the number of incorporations is massive and the resource to Companies House is not keeping pace to check on each and every company that is going. I direct him to the tweet from Graham Barrow highlighting some of these issues, because there are so many companies and we need as many eyes as possible on this data. Companies House does not have the resource to do this and neither does law enforcement. Allowing those researchers who have the time, expertise and patience to tease out this data to do this and do it well is important. They must be allowed to do this.

Let me turn to the amendment on failure to prevent fraud, from Lord Garnier. I recall the Minister being keen on such an amendment beforehand and there is an awful lot more the Government could be doing on this. As other Members have said, if this can be done for bribery and tax evasion, there is no reason why doing it for fraud should present an additional burden. As the Minister himself pointed out, 99% of businesses are not in scope under what is being proposed here—again, that is ludicrous.

There is also an effect on small and medium-sized businesses to consider, because they also stand to lose money through fraud. They stand to be targeted by those who want to commit this fraud. So those businesses that are perhaps more exposed—those local businesses that do not have the power to stand up to those who would bully them to engage in such activity—are put at risk and should be better protected by this legislation, were they to be kept in line with it.

[Richard Fuller]

The hon. Lady has made a point, which the shadow spokesperson also made, about harms being done to small businesses by businesses that are committing fraud against them. But there is already a law against committing fraud, so why does the additional law about not taking any actions to prevent fraud help in those circumstances?

[Alison Thewliss]

Because such a law has helped in the case of the Health and Safety Executive. The Minister used to talk about how when the health and safety legislation came in, the number of deaths at work dropped dramatically, because the measure was a preventive one, whereby one had to prevent people from being injured and killed at work. This works the same way for bribery and tax evasion, so why would it not also work for fraud?

[Richard Fuller]

rose—

[Alison Thewliss]

I will not give way, as I am conscious of the amount of time for this debate. As I was saying, it is important that we recognise the significance of this to small businesses—this is there to help them, not hinder them.

I move on to the cost protection for civil recovery cases. Again, this is incredibly important, because the balance we have is not right. Those who can pay—the enablers, the lawyers, the sharp accountants—have a huge advantage over law enforcement agencies, which do not have significant resource and expertise to do this. As Bill Browder said when he gave evidence to the Bill Committee in October 2022:

“What has to happen here—this is plain as day—is that you have to get rid of this adverse costs issue in a civil case brought by the Government… If you make that point, it will change the whole dynamic—the whole risk-reward—for these people.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 66, Q140.]

On adverse costs, the Government are saying that they are sympathetic to this, and they are going to consult and do some other things later on, but by not putting this measure in this Bill, they are allowing this uneven playing field to continue and be perpetuated. Because the law enforcement agencies know that it is going to cost them an absolute fortune, which they do not have, these cases go unpunished and those who perpetrate all of this money laundering, with all this money washing through the UK financial system, will see this continue, because people can afford to get away with it. The Government should be deeply concerned about that.

Let me recommend to the Minister Bill Browder’s latest book—if he has not already read it. It exposes the capture of all of these enablers, from lawyers to everybody else; we need to be looking to close the door on that in this Bill. The Government have an important opportunity here. This important situation does not come along very often and we do not know when we will pass this way again. We have a Bill in front of us. The Government could go for accuracy and for transparency in the register. They could close the door, fix the loopholes and do all of these things that they must do. They could accept these Lords amendments tonight. They could fix this Bill and do it right, and we would not have to come back here to legislate again.

[Sir Robert Buckland]

It is a pleasure to follow the hon. Member for Glasgow Central (Alison Thewliss). She said that we might not pass this way again. Indeed, this has been a very long way for me and for many others in this House who have been making the case for a failure to prevent offence for many years, both in office and as Back Benchers. I am delighted that the Under-Secretary of State for Business and Trade, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) is in his place, because he is a true believer as well.

I hoped that tonight could have been a Simeon moment—I could have sung my Nunc Dimittis and departed in peace—but no, I am afraid that, as a result of the welcome but somewhat limited amendments made by the Government in the Lords, I am reduced to the role of Moses; I can see the promised land but I am not, it seems, according to the Government, destined to get there. Therefore my exhortation to my good friend the Minister is, “You can be Joshua. You can knock the walls of Jericho down. You can go the extra mile and finish the job.”

We have heard a lot about this failure to prevent offence, and the word “fraud” has been bandied about as if we were dealing with fraud in general. May I, perhaps uncharacteristically for some hon. Members, draw the attention of the House to the Lords amendments themselves, because they are what we are considering?

I, like you, Madam Deputy Speaker, am a stickler for ensuring that we stick to the point, so I turn to page 46 of the bundle and, in particular, amendment 151, which is the proposed new clause “Failure to prevent fraud”. It ain’t any old fraud; it is fraud intending to benefit “the relevant body”. That is not a fraud in general, about loss to the taxpayer or the company—in fact, there is a specific defence on that basis that says if the fraud causes loss to the company, it is not a criminal offence—but a very targeted type of fraud that is about benefit to the company.

As a lawyer, Madam Deputy Speaker, you know that we have something called the criminal standard of proof. This is not any old regulatory device; this is a criminal offence. The threshold and standards that have to be applied by the police, the investigating authorities and the prosecutors are high. As my right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright) said, the defence set out in clause 4, about reasonable prevention proceedings, is crucial. When I hear people talk about regulatory burden, I have to say, in all candour, that that is a misplaced understanding of what this rather limited offence will achieve.

[Richard Fuller]

rose—

[Sir Robert Buckland]

I will give way to my hon. Friend and then explain why he is wrong.

[Richard Fuller]

I thank my right hon. and learned Friend. He seems to have some mixed views on the point of regulatory burden, particularly on this measure. He makes the point about fraud being a crime, but this legislation is about actions to prevent fraud, as he knows. What do I tell the good, upstanding owners and managers of small businesses in my constituency that they are doing wrong about fraud today? How are they letting him down because they are not taking the actions to prevent fraud that he thinks they should be taking?

[Sir Robert Buckland]

Tell them that this offence is about fraud intended to benefit themselves, not about a fraud that causes them loss. This is a limited offence. It is the misunderstanding of the term “fraud” in the clause that is so important to the debate; we have to focus, laser-like, on that.

My hon. Friend the Member for North East Bedfordshire (Richard Fuller) is well experienced in business, over many years in financial services, and I bow to the expertise and experience that he has brought to the House, and indeed to ministerial office—all too briefly, which was a shame. He will understand the law of corporate liability in the United States—a vigorous free market economy, the biggest economy in the world, where people go to invest and grow businesses. I can tell him that corporate criminal liability in the United States is pretty draconian, because companies there are liable, even if their employees go off on a frolic of their own and defraud to their hearts’ content, yet corporate criminal liability there will bite upon United States entities. That is far more draconian that anything we have in this jurisdiction and far more onerous, potentially, when it comes to regulatory burden, yet my hon. Friend cannot argue with me that the United States is anything other than a vigorous free market economy.

[Richard Fuller]

I do not want to argue about that point, but the United States is also an incredibly litigious society. The main beneficiaries of much of this are the legal community, with which my right hon. and learned Friend will be particularly familiar. As a result of the clause applying to smaller businesses in my constituency, can he tell me specifically what they will need to do differently that they do not do today?

[Sir Robert Buckland]

They will have in place reasonable procedures to prevent people from acting on their behalf and unjustly benefiting their own companies and entities. Let us not forget it is a partnership offence as well. I do not see that as some sort of general exhortation to small and medium-sized businesses to suddenly put in place measures to prevent fraud in general—that is not what the offence says.

--- Later in debate ---

[Mr Deputy Speaker (Mr Nigel Evans)]

I think you have already done it—thank you very much.

[Richard Fuller]

The Economic Crime and Corporate Transparency Bill is an important Bill that has cross-party support. I do not know whether it is appropriate to say that the right hon. Member for Barking (Dame Margaret Hodge) is in many ways its godmother, but she is certainly one of the key drivers of this important legislation. Whether it is perfect in her regard or nearly perfect in her regard, I would like to put on record that for all of us her efforts have been to the benefit of the country as a whole.

It is with some temerity that I wish to make a few points perhaps not in accordance with some of the comments made particularly by my right hon. and learned Friends the Members for Kenilworth and Southam (Sir Jeremy Wright) and for South Swindon (Sir Robert Buckland), who make the case for extending the failure to prevent fraud provisions to smaller businesses. I must say that they have not convinced me of the merits of their argument at this stage, and I think on balance I am with the Minister on this.

I am a Conservative and therefore change is perhaps always difficult for me, but I think particularly of what the implications may be for smaller businesses. I have not been persuaded by the other examples put forward of health and safety or bribery; I think there will be quite a chilling effect if the responsibilities for preventing fraud are extended to small business owners. I think it is appropriate and prudent that we build the measures, as the Minister has said, in his amendment (a) to Lords amendment 151. That is all I will say on Lords amendment 151,

However, I want to talk about another amendment that affects small businesses, which no other hon. Member has referred to in this debate: Lords amendment 30 regarding the disclosure of profit and loss accounts for certain companies, which the Bill will require of small businesses and microbusinesses that had previously been exempt. It potentially causes considerable concerns for owners of very small businesses if they are to have their profit and loss and their balance sheets publicly declared through Companies House reporting.

I ask hon. Members to imagine, if they will, that in a town or a community there are two or three competing laundries or plumbers, all of them maybe husband and wife, father and son or whatever—concentrating on what I want to say of a small business—or just sole proprietors, competing with each other in a small market. If their profit and loss statements were to be a matter of public knowledge, that would have very serious implications for local understanding of that person’s or that family’s personal wealth. It would have significant implications for local competition. The provisions that were in place in the Bill originally provided no protection for people in those circumstances. Yes, they will still provide the information, but surely it makes sense for companies in those circumstances not to have all their very specific financial information in the public domain.

I believe Lords amendment 30—the Minister might refer to this if he has time—seeks to provide a mechanism for a restriction on that disclosure of such personal information. The amendment lays out in proposed new subsections 468A(1) and (2) of the Companies Act 2006 that the Secretary of State

“may by regulations make provision requiring the registrar, on application or otherwise”,

and goes on further to say that regulations

“which provide for the making of an application may make provision”

as to who may make an application, the grounds on which an application can be made, the information to be included in it, the notice to be given, how an application is to be done and so on. My concern here is that Lords amendment 30, in seeking to correct the over-disclosure of public information, has put in its place quite a complicated application procedure.

Therefore, it would be helpful if the Minister could say what he has or what the Government have in mind about that application process. It would be ideal if that process were just a tick box. It would be ideal if that information could be communicated to accountants across this country who regularly have to file accounts on behalf of very small businesses, and it would be helpful if the Minister could advise that it is the Government’s intent that very small businesses in the circumstances I have outlined will not have very private personal financial information put in the public domain, although their information will still be required by Companies House and therefore placed under the protection that the Bill seeks to address.

[Liam Byrne]

I rise to endorse 100% the brilliant speech by my right hon. Friend the Member for Barking (Dame Margaret Hodge). Let me take this moment to pay tribute to her stalwart leadership of this agenda over a long time. Our country is a better and fairer place thanks to her extraordinary work.

The Minister is not too bad, either. I think that he has done a Herculean job over quite a long time, and he has sought to do the right thing with the Bill. Crucially, he took the time to reach out and listen to members of the Committee and Members across the House to ensure that we were up to speed with where he was going and what he was trying to achieve. The result is a better piece of legislation. However, it is not yet perfect, and we are here tonight to encourage him, having gone so far, just to go those final few yards and give us a Bill that will truly be a legacy to his work here in Parliament.

Mine is a starting point that we have not yet talked about in this debate: the terrible state of wealth inequality in this country. It is so bad because economic crime is so bad. Since 2010, the wealth of the top 1% in this country has multiplied by 31 times that of the rest of us. That is, in part, because of the problem of economic crime. It is a problem that our country is a global capital of money laundering and fraud reckoned to be worth some £350 billion a year—that is a mark of national shame. It is a problem that we potentially allow the ownership of more than 100,000 of our most prestigious and expensive properties by names we just do not know. It is a problem that, last year alone, nearly £7 billion of property was bought with what Transparency International calls “suspicious wealth”.

What unites us all in this debate—indeed, what unites us all in this House—is that we know that, if we want to be a country of free trade, we have to be a country of fair trade. But if we are to be a country of fair trade, we need to be a country of clean trade, and that is why the Bill, and getting it right, is so important. When we leave holes, gaps and spaces in our defences, dirty money floods through and pollutes both our economy and our democracy. We have already passed an Elections Act that did not put in place tough enough safeguards on the kind of money that could be used to elect people to this House. We risked an Elections Act too weak to protect our democracy from dirty money, and tonight we risk compounding the error by failing to ensure that we have an Economic Crime and Corporate Transparency Bill strong, tough and robust enough to stop our economy being polluted by dirty money.

The Bill is welcome, and the Minister has done a good job. He has taken forward many of the ideas that have been discussed for a long time on all sides of the House. I am particularly grateful to him for the way in which he has used the Bill, in the SLAPP clauses, to put in place protections for truth-tellers. We know that it is not yet job done and that there is further to go, but free speech will be freer because of the provisions in the Bill. We need now to work together to finish a job that is almost complete; we need to ensure that, for once and for all, we end the ludicrous secrecy around trusts; we need to strengthen the declarations of nominees so that we truly know who owns what; we need to ensure that failure to prevent fraud is something that bites on 100% of companies and does not provide carte blanche for 99% of companies to behave without that obligation; and we need to defend our law enforcers and equip them with the tools that they need to police the legislation that we plan on passing tonight and in the days and weeks to come.

I will underline three points very quickly, Mr Deputy Speaker. The first is about secrecy. The London School of Economics report from Andy Summers, Arun Advani and their colleagues is compelling reading, and I am interested in the Minister’s take on it. The report states that we are missing information about more than 70% of the 152,000 properties that are owned by trusts standing behind overseas entities, which means that

“even law enforcement agencies do not know the true identities of the beneficial owners.”

That is of real concern, especially when we know how many billions in wealth are owned in this country by people who are bad actors and who made their money by, frankly, stealing it from people abroad. If we have learned anything from tackling economic crime, passing tougher sanctions legislation and voting for new budgets for our law enforcers, we surely have to recognise the reality that we cannot have a situation where we do not know who owns what.

Economic Crime and Corporate Transparency Bill

Richard Fuller Excerpts

Consideration of Lords message
Wednesday 13th September 2023 Commons Chamber

[Kevin Hollinrake]

I do agree. I listened closely to my right hon. Friend’s remarks. He said he might be the only small business owner currently in the Chamber, but he is talking to one. I have owned a business for 30 years, growing it from a small business to a larger one, and I absolutely agree that it is not just the legislation itself but its implementation and the requirement to implement prevention procedures. As he puts it, that would almost create a new industry of advisers to advise on what needs to be done, be they accountants or third parties. He is right to raise those concerns on behalf of small and medium-sized enterprises.

My hon. Friend the Member for Bromley and Chislehurst asked about setting the threshold at a different level, the small company threshold rather than the current micro company threshold. The small company threshold is 50 employers, £10.2 million of turnover and a £5.1 million balance sheet, according to Companies House, whereas we think a 250-employee threshold would be more appropriate. That is where we differ, but I am happy to continue that conversation.

[Richard Fuller (North East Bedfordshire) (Con)]

I want to ask a question that I do not think was addressed last time we debated Lords amendments, and that I do not think the Government have addressed today. What are the implications if there is an explicit threshold? What further thought have the Government given to the implications of putting in a threshold? Are they satisfied that some of the concerns raised by Opposition Members and Conservative Back Benchers have been taken into account?