Economic Crime and Corporate Transparency Bill

Roger Gale Excerpts

Report stage
Wednesday 25th January 2023 Commons Chamber

[The Minister for Security (Tom Tugendhat)]

I beg to move, That the clause be read a Second time.

[Mr Deputy Speaker (Sir Roger Gale)]

With this it will be convenient to discuss the following:

New clause 1—Disclosure of information in the public interest likely to be relevant to the investigation of economic crime—

‘(1) It is a defence to an action based on the disclosure or publication of information for the defendant to show that—

(a) the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, and

(b) the defendant reasonably believed that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime.

(2) Subject to subsection (3), in determining whether the defendant has shown the matters mentioned in subsection (1), the court must have regard to all the circumstances of the case.

(3) In determining whether it was reasonable for the defendant to believe that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, the court must make such allowance for editorial judgement as it considers appropriate.

(4) For the avoidance of doubt, the defence under this section may be relied upon irrespective of whether the statement complained of is a statement of fact or a statement of opinion.”

New clause 2—Economic crime: power to strike out statement of case for abuse of process—

The court may strike out the whole or part of any statement of case which can be reasonably understood as having the purpose of concealing, or preventing disclosure or publication of, any information likely to be relevant to the investigation of an economic crime.”

New clause 3—Home Office review of the Tier 1 (Investor) visa scheme: publication—

Within a day of the passage of this Act, the Secretary of State must publish in full the findings of the Home Office review of the Tier 1 (Investor) visa scheme which relate to economic crime.”

New clause 4—Offence of failure to prevent fraud, false accounting or money laundering—

‘(1) A relevant commercial organisation (“C”) is guilty of an offence under this section where—

(a) a person (“A”) associated with C commits a fraud, false accounting or an act of money laundering, or aids and abets a fraud, false accounting or act of money laundering, intending—

(i) to confer a business advantage on C, or

(ii) to confer a benefit on a person to whom A provides services on behalf of C, and

(b) fails to prevent the activity set out in paragraph (a).

(2) C does not commit an offence where C can prove that the conduct detailed in subsection (1)(a) was intended to cause harm to C.

(3) It is a defence for C to prove that, at the relevant time, C had in place procedures that were reasonable in all the circumstances and which were designed to prevent persons associated with C from undertaking the conduct detailed in subsection (1)(a).

(4) For the purposes of this section “relevant commercial organisation” means—

(a) for the offence as it relates to false accounting and fraud, “relevant commercial organisations” are defined as—

(i) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),

(ii) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,

(iii) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or

(iv) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom, and

(v) for the purposes of this section, a trade or profession is a business;

(b) for the offence as it relates to money laundering, “relevant commercial organisations” are defined as—

(i) credit institutions;

(ii) financial institutions;

(iii) auditors, insolvency practitioners, external accountants and tax advisers;

(iv) independent legal professionals;

(v) trust or company service providers;

(vi) estate agents and letting agents;

(vii) high value dealers;

(viii) casinos;

(ix) art market participants;

(x) cryptoasset exchange providers;

(xi) custodian wallet providers.”

This new clause introduces a new criminal corporate offence for failure to prevent fraud, false accounting and money laundering, by aligning it with other corporate criminal offences.

New clause 5—Identification doctrine—

‘(1) A body corporate commits an offence of fraud, money laundering, false accounting, bribery and tax evasion where the offence is committed with the consent, connivance or neglect of a senior manager.

(2) An individual is a “senior manager” of an entity if the individual—

(a) plays a significant role in—

(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or

(ii) the managing or organising of the entity’s relevant activities, or

(b) is the Chief Executive or Chief Financial Officer of the body corporate.

(3) A body corporate also commits an offence if, acting within the scope of their authority—

(a) one or more senior managers engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and

(b) the senior manager who is responsible for the aspect of the organization’s activities that is relevant to the offence — or the senior managers collectively — fail to take all reasonable steps to prevent that offence being committed.”

This new clause reforms the “identification doctrine”, so that a body corporate commits an economic crime offence where the offence is committed with the consent, connivance or neglect of a senior manager or senior managers.

New clause 6—Failure to prevent fraud, false accounting or money laundering: individual liability—

‘(1) A person (“S”) commits an offence if—

(a) at a time when S is a senior manager or corporate officer of a corporate body (“C”), S—

(i) takes, or agrees to the taking of, a decision by or on behalf of the corporate body as to the way in which the business of the corporate body is conducted, and

(ii) fails to take any steps that S could take to prevent such a decision being taken;

(b) at the time of the decision, S is aware of a risk that the implementation of the decision may lead to the commission of an offence of money laundering, fraud, false accounting, bribery or tax evasion; and

(c) the implementation of the decision causes C to commit such an offence.

(2) For the purposes of this section—

(a) an individual is a “senior manager” of a corporate body if the individual plays a significant role in—

(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or

(ii) the actual managing or organising of the entity’s relevant activities;

(b) “officer”, in relation to a body corporate, means—

(i) a director, manager, associate, secretary or other similar officer, or

(ii) a person purporting to act in any such capacity;

(c) in paragraph (b)(i) “director”, in relation to a body corporate whose affairs are managed by its members, means a member of the body corporate.

(3) A person guilty of an offence under this section is liable—

(a) on summary conviction—

(i) in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;

(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;

(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;

(b) on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or both.”

This new clause introduces direct criminal liability for corporate officers who take a decision, or fail to take a decision, that knowingly results in an offence being committed.

New clause 7—Whistleblowing: economic crime—

‘(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—

(a) has occurred,

(b) is occurring, or

(c) is likely to occur.

(2) The Secretary of State must, within twelve months of the date of Royal Assent to this Act, set up an office to receive reports of whistleblowing as defined in subsection (1) to be known as the Office for Whistleblowers.

(3) The Office for Whistleblowers must—

(a) protect whistleblowers from detriment resulting from their whistleblowing,

(b) ensure that disclosures by whistleblowers are investigated, and

(c) escalate information and evidence of wrongdoing outside of its remit to another appropriate authority.

(4) The objectives of the Office for Whistleblowers are—

(a) to encourage and support whistleblowers to make whistleblowing reports,

(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,

(c) to provide information and advice on whistleblowing, and

(d) to act on evidence of detriment to the whistleblower in line with guidance set out by the Secretary of State in regulations.

(5) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.”

New clause 21—Civil recovery: costs of proceedings—

After section 313 of the Proceeds of Crime Act 2002 insert—

“313A    Costs orders

(1) This section applies to proceedings brought by an enforcement authority under part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.

(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—

(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate, or

(b) the authority acted dishonestly or improperly in the course of the proceedings.”

This new clause extends the cap on adverse costs introduced by the first Economic Crime Act (Transparency and Enforcement) 2022 for Unexplained Wealth Orders, to all civil recovery orders.

New clause 23—Review of measures to prevent proceeds of economic crime entering the UK economy—

Within six months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of what further regulatory measures could be taken to prevent the circulation in the UK economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions.”

This new clause creates an obligation for the Secretary of State to report to Parliament on the merits of further regulatory measures for preventing the circulation in the economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions.

New clause 25—Report into effectiveness of Act in addressing economic crime involving sanctioned individuals—

‘(1) The Secretary of State must, within six months of this Act being passed, lay before Parliament a report of a review into the effectiveness of the measures in this Act in addressing economic crime involving designated persons.

(2) The report must consider the case for further legislation to make provision for the seizing of assets of a designated person where there is evidence that the designated person has been involved in economic crime.

(3) In this section, “designated persons” has the meaning given in section 9 of the Sanctions and Anti-Money Laundering Act 2018.”

New clause 27—Compensation for Victims of Economic Crime—

‘(1) The Secretary of State must, no later than 90 days from the date on which this Act comes into force, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.

(2) The strategy may include provisions on the management and disposal of any assets realised by the government, or any body with law enforcement responsibilities in relation to economic crime, under relevant UK legislation.”

This new clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime.

New clause 30—Assets of Iranian officials obtained through economic crime—

Within six months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of regulatory measures to prevent the circulation in the UK economy of assets of Iranian officials which have been obtained through economic crime.”

New clause 31—Fund for the purposes of tackling economic crime—

In the Companies Act 2006, after Part 29 insert—

Part 29A

Economic Crime

993A Fund for the purposes of tackling economic crime

‘(1) The Secretary of State must by regulations establish a fund for the purposes of tackling economic crime.

(2) The regulations must specify the purposes for which the fund may be used, including funding the activities of law enforcement agencies in tackling economic crime.””

New clause 32—Review of definition of cryptoassets—

Within 18 months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of the adequacy of the definitions of cryptoassets contained in this Act.”

New clause 33—Economic Crime Committee of Parliament—

‘(1) The Secretary of State must by regulations establish a body to be known as the Economic Crime Committee of Parliament (in this section referred to as “the ECC”).

(2) The ECC will consist of nine members who are to be drawn both from the members of the House of Commons and from the members of the House of Lords.

(3) Each member of the ECC is to be appointed by the House of Parliament from which the member is to be drawn.

(4) The ECC will have the power to meet confidentially.

(5) The ECC may examine or otherwise oversee any regulatory, enforcement or supervision agencies involved in work related, but not limited to—

(a) tax avoidance and evasion by corporations;

(b) illicit finance;

(c) anti-money laundering supervision;

(d) tackling fraud;

(e) kleptocracy and corruption; and

(f) whistleblower protection.”

This new clause would oblige the Secretary of State to establish an Economic Crime Committee of parliament to examine and oversee regulatory, enforcement and supervisory action against economic crime.

New clause 39—Duty to report on economic crime resourcing and performance—

‘(1) The Director General of the National Crime Agency must—

(a) prepare a report on the resourcing and staffing of its work to counter economic crime, and its performance tackling economic crime, and

(b) send it to the Secretary of State as soon as practicable after this section comes into force.

(2) The Director General must prepare and send to the Secretary of State further reports on these topics annually.

(3) Each report must include, in particular—

(a) a report of the total annual budget and number of staff allocated to economic crime for each unit within the National Crime Agency,

(b) a report of the number of investigations, arrests, prosecutions and convictions relating to economic crime for each unit within the National Crime Agency, and

(c) a report of other relevant data including, but not limited to, cases per year broken down by both type and outcome; number of restraint or confiscation orders obtained; and value of assets confiscated.

(4) Reporting under subsection (3) must provide a breakdown between domestic economic crime and international economic crime. Reporting on international economic crime under subsections (3)(b) and (3)(c) must provide a breakdown by the income classification of the countries affected.

(5) The Director General must publish every report under this section—

(a) as soon as practicable after they send it to the Secretary of State, and

(b) in such manner as they consider appropriate.”

Section 6 of the Crime and Courts Act 2006 currently places a duty on the Director General of the National Crime Agency to make arrangements for publishing information about the exercise of NCA functions and other matters relating to the NCA, and publish information in accordance with those arrangements. This new clause inserts a new section that places a specific duty on the Director General to prepare an annual report on the NCA’s resourcing and performance relating to economic crime. The section stipulates the minimum information that the Director General must include in the report.

New clause 40—Report into options for corporate liability for economic crime—

‘(1) The Secretary of State must produce a report on corporate criminal liability for economic crime offences.

(2) The report must consider the merits of different models for corporate liability in respect of economic crime, including but not limited to—

(a) the respondeat superior model; and

(b) the failure to prevent model, insofar as it has not already been introduced by the enactment of this Act.

(3) The report must be laid before Parliament within six months of this Act being passed.

(4) In this section—

“the respondeat superior model” means a model for corporate criminal liability in which an entity is guilty of an offence if an employee or agent commits an economic crime offence—

(a) in the course of their employment or agency, or

(b) with an intent to benefit that entity;

“the failure to prevent model” means a model for corporate criminal liability in which an entity is guilty of an offence if a person associated with that entity commits an economic crime offence, intending—

(a) to confer a business advantage on that entity, or

(b) to confer a benefit on a person or other entity to whom the associated person provides services on behalf of the entity with which it is associated, except that the entity shall not be liable where the conduct was intended to cause harm to that entity,

unless the entity can prove that it had in place such prevention procedures as were reasonable in the circumstances, or that it was reasonable not to have any such procedures in place;

a person is “associated with” an entity if they are a person who performs services for or on behalf of that entity, including in, but not limited to, the capacity of an employee, agent or subsidiary.”

Government amendments 44 to 49, 57 and 58 to 100.

[Tom Tugendhat]

It is a pleasure to see you in your place, Mr Deputy Speaker, and it is the first time I have had the privilege of speaking under your chairmanship on these matters. It is also a pleasure to see so many of the usual faces on this matter. Many of us have gone over these questions in Committee and, actually, in the many years beforehand in various different ways, so it is an enormous privilege to be here. It is particularly a privilege to be speaking after the Minister my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) did such a brilliant job yesterday. I am only picking up where he left off, so I am afraid the second act will not be nearly as compelling as the first.

All those who participated in the Bill Committee gave enormous insights into various different perceptions of how we should be thinking about economic crime and corporate transparency. We have had many interesting debates, and I thank enormously those who have taken part in the various different ways. The fact that we have a two-day debate on Report speaks pretty clearly about the significant size and complexity of this Bill.

Yesterday, we debated parts 1 to 3, which cover Companies House reform and corporate transparency. Today, we turn our attention to parts 4 to 6. The clauses in part 4 create new powers that allow law enforcement to more quickly and easily seize and recover cryptoassets. The creation of the civil forfeiture power for cryptoassets will mitigate the risk posed by those who cannot be criminally prosecuted, but who use their funds to further criminality or for terrorist purposes. This did not prove to be particularly contentious in Committee.

In part 5 of the Bill, we are making it easier for businesses to share information more effectively with each other and with law enforcement to prevent and detect economic crime. We are also creating new exemptions to reduce unnecessary reporting by businesses carrying out transactions on behalf of their customers. We are also giving frontline legal services regulators enhanced enforcement powers to support them as they uphold the economic crime agenda within their regulated community.

I will briefly summarise the amendments we have tabled relating to parts 4, 5 and 6 of the Bill. Many of them address the debate that took place in Committee and will ensure that the Bill works as intended. I should acknowledge that the amendments are perhaps slightly greater in number than we would have liked. The vast majority—amendments 51 and 57 to 100—are minor technical or consequential amendments to ensure that the detail of the cryptoasset measures will work effectively and can be used as soon as possible. That reflects the technical detail of the subject area and the need to make the changes work for each of the jurisdictions of England and Wales, Scotland and Northern Ireland that are covered by the Proceeds of Crime Act 2002.

I now turn to the more substantive Government amendments. New clause 14 allows the Solicitors Regulation Authority to proactively request information from its regulated community for the purpose of monitoring compliance with the economic crime regime. It will enable the SRA to monitor and detect breaches of the rules and legislation related to economic crime, including offences related to money laundering, terrorist financing and sanctions.

Government amendments 44 to 47 to clauses 171 and 172 concern information orders. They seek to clarify the cases in which the information order power can be used and to provide clarity to operational partners about how they should be used. They will ensure that the power can be used only for the criminal intelligence functions of the National Crime Agency, and that when assessing a request for information from a foreign intelligence unit, the NCA must be satisfied that the information would support the FIU’s intelligence function.