Economic Crime and Corporate Transparency Bill

Robert Buckland Excerpts

Consideration of Lords amendments
Monday 4th September 2023 Commons Chamber

[Kevin Hollinrake]

I thank my hon. Friend for all his work in this area. He makes the point very well. We need to ensure that when we bring forward these measures, they are properly considered and do not result in unintended consequences. He may want to raise those points as part of that consultation when we launch it.

The Government firmly believe that their own amendment and their commitment to consult better achieve the aim of improving trusts’ transparency, as intended by Lords amendment 117, while ensuring that we have time to analyse and stress test the risks in greater depth, including legal risks. We therefore do not support the amendment.

Lords amendment 151, in effect, removes the threshold, as right hon. and hon. Members have already raised, that the Government introduced as part of the failure to prevent offence, which exempts small and medium-sized entities. As I have set out, the Government are extremely mindful of the significant pressures that small companies are under, and do not want to place unnecessary and duplicative burdens on legitimate businesses.

[Sir Robert Buckland (South Swindon) (Con)]

I agree that we have made huge progress on the Bill, but why is the threshold on small businesses not present in the failure to prevent bribery and tax evasion offences? They are alike offences that have caused a regulatory burden to already exist. What difference will the Bill really make? Why are we not giving it the full fat treatment?

[Kevin Hollinrake]

I think there is a difference in the regulatory burden of failure to prevent fraud versus failure to prevent bribery and tax evasion. It is more complicated to do it, so it would have a much greater impact on SMEs than bribery and tax evasion. It is a balance of risk and benefits when making sure where those regulatory burdens sit.

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[Kevin Hollinrake]

I do not accept that. It would be extraordinary if someone set up a business just for the purpose of keeping turnover below £36 million. Besides, it is already much easier to pinpoint fraud in small organisations than larger organisations. That is already the case. It is easier to take forward those kinds of prosecutions on that basis.

[Sir Robert Buckland]

My hon. Friend is being very generous. I have two points on that. First, I take the point that the Government amendments have already mitigated the issue about parent companies and the division into subsidiaries—that is welcome. But the threshold has been taken from modern day slavery legislation. What is the separate rationale for that threshold in the context of economic crimes? I have not heard any.

Secondly, money laundering is already a criminal offence under the Proceeds of Crime Act 2002, just like fraud, false accounting and theft. Why on earth are we conflating the regulations that are all about neglect, which are used by the FCA admittedly on some major cases, but not that often, with what is already a criminal offence? Why can we not just extend money laundering, which already is part of the regulatory burden of businesses in any event?

[Kevin Hollinrake]

I will come to the point about money laundering and broadening the sectors that money laundering regulation applies to, but, on SMEs, in my experience, in the work I did as a Back Bencher and in the work others have done, every case of fraud or money laundering I have seen has been by larger companies, not small companies. A number of cases the Serious Fraud Office has tried to take forward have been against larger companies, which is where the failure to prevent requirement comes in. It is much easier to take forward—

[Sir Robert Buckland]

rose—

[Kevin Hollinrake]

I will just finish my point.

It is much easier to take that forward where the failure to prevent offence comes in, of course. The act of money laundering is a criminal offence—of course it is—and the act of fraud is a criminal offence. This is about a failure to prevent those activities and imposing that would, in our view, impose a significant regulatory burden on businesses.

[Sir Robert Buckland]

I am grateful. The Minister is right to cite the SFO, but he knows that the threshold the SFO applies is very high. It will only prosecute high-value, complex or novel cases. It does not deal with the warp and woof of fraud in this country. He is right to say that the majority of this fraud is committed by byzantine, large organisations, but I have to ask him again: what is the regulatory burden? We know that companies already have to face regulations anyway. We have failure to prevent offences. Why is it—I suspect it is the hand of the Treasury, with respect to him—that the Treasury is trying to hold things back on this offence?

[Kevin Hollinrake]

My right hon. and learned Friend says it is the Treasury. Actually, I am responsible for the business framework and I am concerned about putting £4 billion of regulatory burdens on businesses. That burden has been calculated in the same way that we calculated the burden for bribery, so I think it is a figure we can rely on. Our natural position is that we do not regulate businesses that would find it more difficult to deal with that regulation. That tends to be SMEs. They might find it more difficult to deal with regulation, rather than larger companies, where it is easier to put those controls in place.

We have heard arguments that the threshold means 99% of companies will not be in scope, but we do not think the number of companies is the right metric by which to assess the effect of the new offence. We believe economic activity is more appropriate. I can assure the House that 50% of economic activity would be covered by the organisations in scope of this new offence with the threshold in place. It is, of course, already easier for law enforcement to prosecute fraud in smaller organisations that fall below the threshold. Given those factors, the Government cannot support the amendment.

Lords amendment 158 seeks to introduce a failure to prevent money laundering offence. The UK already has a strong anti-money laundering regime which requires the regulatory sector to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellations of registration and criminal prosecution if they fail to take those measures. The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would be hugely duplicative of the existing regime. In our conversations with industry, it has been very clear that that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should be supporting legitimate businesses, rather than hampering them with overlapping regimes. The Government therefore do not support the amendment.

Lords amendment 160 would prevent enforcement authorities from having to pay legal costs in unsuccessful civil recovery proceedings, subject to certain intended safeguards. This type of amendment would be a significant departure from the loser pays principle and therefore not something we should rush into without careful consideration. The risk of paying substantial legal costs is just one of a multitude of factors that inform an operational decision to pursue an asset recovery case.

Several hon. Members and noble Lords have pointed to the similar changes made to the unexplained wealth order regime by the first economic crime Act, the Economic Crime (Transparency and Enforcement) Act 2022. The key difference is that UWOs are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas civil recovery cases covered by the amendment could do so. There could, therefore, be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. However, we recognise the strength of feeling on the issue and the potential merits of reform. We have therefore tabled an amendment in lieu which imposes a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on its findings before Parliament within 12 months.

I hope the House is assured that the amendments the Government have laid are minor but sensible tweaks to the Bill. As I have set out, the Government have listened and made substantial important amendments to the Bill throughout its passage, significantly improving and strengthening the package where we recognise improvements could be made and where it makes sense for businesses. We must now, however, stand firm where we believe the amendments will not work or will place disproportionate burdens on businesses. I very much hope Members will support our position today and that the other place will note the Government’s movement on cost protection and reconsider its position on the six amendments when the Bill returns there. We must get on with implementing the vital measures in the Bill without further delay.

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[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.

[Sir Jeremy Wright]

Does my right hon. and learned Friend agree that part of the answer to the point made by our hon. Friend the Member for North East Bedfordshire (Richard Fuller) is that the vast majority of businesses will not need to do anything differently, because what they do now is perfectly reasonable. If what they are doing is reasonable, they will be perfectly safe from this legislation. This legislation is intended to catch those who do not behave reasonably and those who behave dishonestly, which will be a tiny minority. We accept that the legislation will not lead to a huge number of prosecutions or convictions; it is supposed to lead to a change in behaviour where that is needed.

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[Sir Robert Buckland]

Exactly, and that is the point. What the Government have done is set up a legislative Aunt Sally. I welcome their putting in place mitigating measures to deal with parent companies and subsidiaries—Lord Bellamy explained that very well indeed—but the threshold they have set is entirely unnecessary. It does not reflect what the Law Commission said in its report. When I was in office, I was delighted to ask the Law Commission to do the work on failure to prevent fraud. It did the work and, hey presto, it produced proposals that had nothing about thresholds in them, so where on earth has that come from?

I am sorry if I might have inadvertently upset my hon. Friend the Minister by mentioning His Majesty’s Treasury, but I detect the hand of my friends in Parliament Street. I know their view about failure to prevent fraud; they do not like the offence and never have done. They have always put up arguments against it. Perhaps it is their role to do that—I do not know—but I detect their hand in this. That is an unfortunate coda to what would have been a magnificent symphony, had my hon. Friend the Minister stuck to the line and done what I thought he was going to do.

To return to the point made by my hon. Friend the Member for North East Bedfordshire, I agree that the United States is a litigious society. We, in the United Kingdom, do not necessarily want to go down that road when it comes to civil litigation, but what the United States does well is prosecution of fraud. It regularly and rigorously enforces the criminal law of fraud, particularly in the jurisdiction of New York and in other major financial centres, which enhances the reputation of that jurisdiction as a safe place to do business.

Here is the argument that you, Mr Deputy Speaker, do not hear, in contradistinction to the argument about the regulatory burden. Where there is a criminal legal framework that is clear, certain and stable, that can only encourage investment into the United Kingdom, not discourage it. A jurisdiction with a robust and independent judiciary and a fine legal tradition, which rigorously polices the law of corporate criminal liability, is one that investors can have the greatest confidence about investing in. What on earth is happening here to undermine that very powerful argument?

Prosecutors, including the Crown Prosecution Service and the Serious Fraud Office, have made the case consistently that a “failure to prevent” offence of this nature would help them in the important work they do in bringing wrongdoers to book. We do not want to be a jurisdiction where it is too easy to commit fraud that benefits corporates. We do not want to be that sort of place—that is not a healthy place within which we should be operating. If we are truly committed to a vigorous free market economy, then, in the traditions of Adam Smith, we should be absolutely committed to its policing and its boundaries. I sound a bit evangelical about this—a bit biblical, a bit Old Testament—because it is important that we get this right at this last stage of the Bill.

That brings me to my noble Friend Lord Garnier’s amendment about money laundering. He made the argument very well and, having read his entry in Lords Hansard, I will adopt it. I am in danger of sounding like a broken record, but I make no apology for that. Money laundering is already a criminal offence. The regulatory argument does not cover the full gamut of what we are dealing with, and Lord Garnier’s amendment is a sensible reflection of the importance of ensuring we cover offences of money laundering. Remember again that this is about benefiting the company; it is not money laundering in general, but a targeted offence, with the same caveats and qualifications that I mentioned in the context of the “failing to prevent fraud” offence. So I say to my hon. Friend, “Repent!”. He should follow the true path and come back and finish the job. We can all then take equal pride in the work that he and others have done to make sure that this jurisdiction is a fairer and better place in which to do business.

Let me end on this note. I will not dwell too much on the rather milquetoast amendment about the capping of cost orders for proceedings for civil recovery. We know that it is a problem. We know that it is a disincentive to the bringing of civil proceedings under the Proceeds of Crime Act 2002. We should just get on with it. The particular rules and proposals about costs are well reflected in other parts of legal procedure and other types of proceedings, so this is nothing new. I think that it is time that we grasped the nettle rather than having yet another report.

Finally, Lord Agnew made a very powerful point: just a few words is all it takes to make a difference when it comes to trusts and the arguments that have been very cogently made about that by others. Only a few small steps need to be taken by my hon. Friend and His Majesty’s Government to allow us to reach that promised land. I urge him to take us there and then we can all celebrate in a land of milk and honey.

[Dame Margaret Hodge]

I shall start where that brilliant speech by the right hon. and learned Member for South Swindon (Sir Robert Buckland) ended. I would also say to the Minister, and also to the Minister for Security, the right hon. Member for Tonbridge and Malling (Tom Tugendhat) were he still in his place, that they have shown from their time as Back Benchers a real understanding of all the issues around economic crime. They knew what needed to be done. They helped to develop the agenda that would work through smart regulation, transparency, tough enforcement and proper accountability. When the Bill arrived in the House, it was, I hope the Minister will agree, a bit half-baked. I am not blaming the civil servants in the box, but it was a bit half-baked. It was full of loopholes and serious omissions. But in this year that we have been considering the legislation, it has gone through tremendous transformations, so I salute the Minister for what he has done, but urge him to go that step further. I thank the Labour Front-Bench team for their assiduous and detailed work on this, but I particularly salute the Back Benchers—Back Benchers from all parts of this House who have joined together to bring forward a set of pragmatic, practical amendments that really will make this Bill fit for purpose. I also thank those in the House of Lords who have worked across parties, with the Cross Benchers, to ensure that we have some serious amendments that will give us a good framework to start the eradication of the malignant infection that we have with dirty money.

I say to the Minister: do not undo that good work; do not emasculate what has happened and where we have got to; and do not give into the voices of enablers who want to make a fortune on the back of dirty money. I wonder, as the right hon. and learned Member for South Swindon has wondered, why on earth is the Minister not listening to what we are saying. Everybody in Parliament wants this. Everybody in the country wants this. Nobody supports dirty money. As I have said time and again, the country will not sustain economic prosperity and wealth on the back of dirty money. There is no future in that. I give the Minister another commitment, which I really regret having to say. I will not be here, but I want a future Labour Government to commit to never having a system that allows any political party to exist on the back of donations of dirty money. I say: do not let this opportunity go. Do not betray the principles and do not cave into the lobbying. The Government should look at the excellent amendments and please go forward.

I wish to focus on some new points. Lord Agnew’s excellent amendment in relation to trusts needs to be considered. The Minister said that he did not accept the research that was published today by really respected academics. These are people I have worked with over the years in whose work I have total and utter confidence. I challenge the Minister to bring them in and talk to them and then see if he comes to the view that what they are saying is not true. What they are saying is that we do not know the beneficial owner of 70% of the properties identified as owned by an overseas entity. And we do not know the beneficial owner of two thirds of that 70% because there is a trust that hides the real beneficial ownership. The Minister should have regard to what they say, as they are distinguished. I urge him to talk to them. I am happy to join in a meeting with them. In 87% of cases where information is either missing or inaccessible, it is because of Government choices in the design of the scheme. It is not because people are not obeying the law. It is because the Government have chosen to design the scheme in that way.

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[Mr Deputy Speaker (Mr Nigel Evans)]

Thank you for the way that you conducted your speech. I saw what you were doing, and thank you very much for helping.

[Sir Robert Buckland]

On a point of order, Mr Deputy Speaker, I seek your guidance on how I can put on the record that I refer hon. Members to my entry in the Register of Members’ Financial Interests.

[Mr Deputy Speaker (Mr Nigel Evans)]

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