Economic Crime and Corporate Transparency Bill (Eleventh sitting)

Seema Malhotra Excerpts

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[Kevin Hollinrake]

As I have just set out to the Committee, clause 89, as amended, will enable Companies House fees to be used to fund enforcement and prosecution action against companies and other entities. As we increase the powers of the registrar and expand the role that Companies House and the Insolvency Service play in tackling economic crime, we need to make sure that they are appropriately resourced to carry out that activity. The clause is therefore vital in ensuring that Companies House can do that.

Question put and agreed to.

Clause 89, as amended, accordingly ordered to stand part of the Bill.

Clause 90

Disclosure of information

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I beg to move amendment 105, in clause 90, page 69, line 24, at end insert

“and,

(c) to an insolvency practitioner appointed over a corporate who has requested information not publicly available on the register about to a corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed, from the Registrar.”

This amendment would enable the Registrar to share non-public information on the register upon request by insolvency practitioners, in relation to the corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed.

It is a pleasure to serve under your chairship, Mr Robertson. Clause 90 amends the Companies Act 2006, inserting proposed new sections that allow any person and the registrar to disclose information to each other, and help the registrar to perform its functions. It is an important clause that effectively widens disclosure provisions, allowing the registrar to disclose any information held, and to do so proactively where that disclosure enables the exercise of the registrar’s functions. I am concerned that it perhaps does not go far enough. We heard in evidence about the importance of clarity around information sharing, what is and is not permitted, and what can be disclosed.

It is in this light that I speak to amendment 105, in my name and that of my hon. Friend the Member for Aberavon, which would enable the registrar to share non-public information on the register on request by insolvency practitioners in relation to a corporate over which they have been appointed, or any other corporates linked to the entity to which they have been appointed. In short, the amendment would ensure that, where the registrar holds non-public information that could aid insolvency practitioners in carrying out their duties in investigating a corporate that they have been appointed to investigate, the registrar can, on request, share that information with the insolvency practitioners.

As R3, the insolvency practitioners group, laid out in its evidence to the Committee, insolvency practitioners, when appointed over corporate entities, are required by law

“to investigate a company’s affairs and director conduct…in order to discharge their duties.”

The group recommends

“that insolvency practitioners be able to request access to Companies House’s non-public information pertaining to any other corporates linked to that of the entity to which they have been appointed.”

This is a simple but quite important amendment, which would ensure that, where economic crime could have taken place in a dissolved company, insolvency practitioners can proactively request all the non-public information held by the registrar on the register that would help in either preventing or detecting the possible economic crime. It is not about a fishing expedition, or anything like that: it is about giving, in specific circumstances, insolvency practitioners the further tools that they have said are important to help them to do their incredibly important job.

I ask the Minister to give the amendment serious consideration. We are not necessarily planning to press it to a vote, because this is an area where he will probably see the merits of the argument. He may want to come back to it later, perhaps with a Government proposal, or we may pick it up again. It seems to plug an important gap in a part of the legislation that concerns the disclosure of information. The legislation is proactive, from the point of view of the registrar being able to share information; if, however, the registrar does not know where it might be needed, insolvency practitioners, who have duties under the law, should have the opportunity to request information that can provide evidence for economic crime or give insight into a company, so that potential economic crimes do not go undetected and unpunished.

[Kevin Hollinrake]

I thank the hon. Members for the amendment.. The registrar is already permitted to share information with insolvency practitioners for purposes connected with her own functions—clearly now expanded, given this legislation. However, we acknowledge that there may be other specific circumstances in which she wishes to share information, so I sympathise with the tabling of the amendment.

As drafted, the amendment is too wide, in our view. It would allow the registrar to share any information about a corporate over which an insolvency practitioner has been appointed for any purpose, regardless of what that purpose is. I ask the hon. Member for Feltham and Heston to withdraw the amendment, but I agree that we should consider this issue further to see what might be done to help insolvency practitioners access information, perhaps in a narrower set of circumstances.

[Seema Malhotra]

I thank the Minister for his remarks. That is a constructive step forward. I would be very happy to meet the Minister, whether before Committee stage concludes or soon after at Report stage. It feels quite an important space. We would be prepared to look at rewording the amendment or to work with the Government on one to see if it needs to be narrower but still serve the purpose. That makes for better legislation and we would be very happy to look at it. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to consider the following:

That schedule 3 be the Third schedule to the Bill.

Clause 91 to 93 stand part.

New clause 36—Disclosure of PSC information to local authorities—

‘(1) The Companies Act 2006 is amended as follows.

(2) After section 790ZH (inserted by section 92 of this Act) insert—

790Z1 Disclosure of PSC information to local authorities

‘(1) The Secretary of State may by regulations make provision to facilitate the release of information held by companies on people of significant control to any relevant local authority which may request such information for the purposes of—

(a) tackling economic crime; and

(b) recovering a relevant unpaid debt;

(2) For the purposes of subsection (4A)(a) above, “tackling economic crime” includes any reasonable steps which the local authority may see fit to take as part of an investigation into a company which the authority has reasonable grounds to suspect may be involved in the commission of a relevant offence.

(4) For the purposes of subsection (4B) above, a “relevant offence” includes an offence under—

(a) the Proceeds of Crime Act 2002; and

(b) the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended.

(5) For the purposes of subsection (4A)(b) above, a “relevant unpaid debt” includes unpaid business rates subject to recovery by the local authority under the Local Government Finance Act 1988.’

This new clause makes specific provision for relevant information to be disclosed, upon request, to a relevant local authority in connection with any effort by such an authority to investigate suspected economic crime, or to collect outstanding debts from companies which have not paid business rates.

[Kevin Hollinrake]

Currently, the registrar is restricted in what information she can share, which can be done only on a reactive basis. Clause 90 enhances the data sharing powers of the registrar so that she can proactively share information. Sharing will be allowed for the purposes of the registrar’s own functions or where she is sharing with a public authority for the purposes of their function.

Schedule 3 makes consequential amendments to the Companies Act 2006 and the Economic Crime (Transparency and Enforcement) Act 2002 resulting from clause 90. Clauses 91 to 93 make further amendments to the Companies Act to improve the registrar’s information sharing capabilities, ensure that the necessary safeguards are in place and improve the integrity of the register. Clause 91 closes a gap by making it an offence for a company to use or disclose protected information in contravention of section 241 of the Companies Act.

Clause 92 confers a power on the registrar on application to make an order requiring a company not to use or disclose relevant people with significant control particulars. Currently, the registrar can use directors’ residential addresses only for the purpose of communicating with the director. Clause 93 will remove the restriction on the use of protected information, specifically directors’ residential addresses. That means that the registrar will be able to use residential address information for alternative purposes such as cross-checking the accuracy of information on the register. That will help to improve the integrity of the register.

I thank hon. Members for new clause 36. Its effect would be to give the Secretary of State a power to make regulations to facilitate the release of people of significant control information from companies to local authorities for the purposes of tackling economic crime and recovering a relevant unpaid debt. We do not believe that the amendment is necessary. Clause 92 already provides a power for the Secretary of State to make regulations that specify the circumstances in which a company may disclose relevant PSC particulars.

Furthermore, the Government consider that it would be more appropriate for the registrar to have the power to disclose such information to local authorities, rather than the company, given the closeness of the relationship between a company and its people of significant control, and the risk of tipping off. A company may have only one director, person of significant control and shareholder. Such person could, in effect, be disclosing self-incriminating information about themselves.

Committee members can rest assured that under the new powers given to the registrar in clause 90, they can disclose information to a public authority for purposes connected with that public authority’s functions. That includes local authorities. The registrar may also disclose information to any persons for purposes connected with its own functions, such as for the purposes of crime prevention and detection. Clause 90 already provides a route for local authorities to access PSC information for the purposes of tackling crime and recovering relevant unpaid debt. I hope that provides reassurance to hon. Members.

[Seema Malhotra]

It is a pleasure to speak in this stand part debate. I will defer to my hon. Friend the Member for Aberavon to speak to new clause 36.

I have referenced some points on clause 90 and its importance. I will make a couple of other remarks on that more generally. It widens disclosure provisions, and the registrar will proactively disclose information held where that disclosure enables the exercise of her functions. I have a question for the Minister on subsections (5) and (6), where offences and defences are set out. That is obviously important, but I have a concern about the disclosure or data sharing provisions.

The fear of being on the wrong side of the law can sometimes deter the use of those powers. It is a question about whether there has been any discussion with the registrar, for example, about the interpretation of the wording; being as clear as possible about what is permissible within the law and where the offences might be, and the possible defence for a person who could be charged with an offence under subsection (5). So often we say, “There are powers to do X” or “The police have a power”, but there are concerns about the use of that power and how someone could be accused of not using that power within the law, so we might end up having a challenge. Someone could go through a process to clear their name or to say that their actions were within the scope of the law. We just need to be clear to reduce the challenges that can come later.

Perhaps the Minister will respond today or clarify in discussions with the registrar on this very important clause that it is as clearly worded as it could be, with less room to be challenged where that power is used as intended by Parliament.

Schedule 3 makes consequential amendments to clause 90 and amends the Companies Act to enable the registrar to disclose usual residential addresses. It states that where additional trust information is protected from disclosure to the public, regulations made under section 25 may not require the registrar to refrain from disclosing that information under proposed new section 1110E. Will the Minister explain that aspect a little further? Broadly, we welcome the schedule as a necessary provision in expanding the information sharing aspect.

Clause 91 highlights an offence that can be committed by a company and every officer who is in default. Clause 92 confers a power on the Secretary of State, on application, to make regulations requiring the registrar to make an order requiring a company not to use or disclose relevant information regarding persons of significant control. The Minister has spoken to this point briefly, but could he expand a little more on the introduction of this clause, and can he provide any examples of instances in which—as per clause 92—the Secretary of State might require a company not to disclose PSC information? We would welcome that clarity.

I have no further comments on clause 93, which restricts the registrar from using directors’ residential addresses for anything other than communicating with the director. I would welcome the Minister’s clarification of the points I have raised.

[Stephen Kinnock]

I rise to speak in support of new clause 36. In considering the Bill’s provisions on information sharing, we should ask ourselves two main questions. First, do the clauses strike the right balance between protecting individuals’ privacy on the one hand, and making as much information as possible available to members of the public on the other? Secondly, does the Bill make adequate provision for information to be shared between organisations in order to facilitate the robust enforcement of these laws? It is the second of those questions that new clause 36 seeks to address.

On a number of issues, the Committee has been able to find an encouraging degree of cross-party consensus on the actions we need to take against economic crime. I think we can all agree that the existing frameworks for law enforcement are not currently up to the task. It has been widely acknowledged for some time now that the diffuse nature of enforcement responsibilities across so many different government agencies, police forces and private sector institutions often acts as a hindrance to efforts to achieve a comprehensive, strategic approach across all sectors involved. Alongside the Economic Crime (Transparency and Enforcement) Act 2022, which came into force earlier this year, the Bill seeks to reduce barriers to information sharing in order to facilitate more timely and effective enforcement action where it is needed. However, the information-sharing provisions that we are currently discussing leave some important issues unresolved.

With new clause 36 we have sought to address one of the most troubling gaps in the Bill as currently drafted: the absence of any specific measures to facilitate information sharing with local authorities. That is a serious weakness that, if left unaddressed, could pose a serious challenge to efforts to ensure a strong, unified, cross-government approach to law enforcement, in terms not only of Whitehall but the vertical relationship between national Government and local government. Many local authorities, particularly in London, are at the coalface when it comes to dealing with some of the most pernicious effects of money laundering and other forms of economic crime. It is disappointing that the Committee was not able to hear from any local government representatives during our evidence sessions. I would be grateful if the Minister could set out what steps, if any, the Government took to consult local authorities during the process of drafting the Bill.

In the meantime, I would like to share some of the points raised with me recently by members and officers from Westminster City Council. It should come as no surprise to Committee members that the effects of money laundering and other criminal activity, particularly in relation to property ownership, can be seen more acutely in Westminster than probably anywhere else in the country. As we should have the opportunity to discuss issues related to property ownership when we debate part 3 of the Bill, at this point I want to provide an example that illustrates the need for measures that specifically address the need for more information sharing with local authorities.

In Westminster, the council is trying to deal with a range of problems caused by the huge and growing presence of so-called American-style candy stores and souvenir shops across central London, with 21 such stores in the Oxford Street area alone. Extensive investigations by council officers, together with raids that have led to the seizure of more than £650,000-worth of counterfeit goods, provide an important evidence base that indicates the scale of the problem. Among the goods seized in those raids were thousands of disposable vapes that are in breach of UK standards on nicotine levels. That suggests that these stores may pose risks to public health, in addition to their apparent role in illicit financial activity. In Westminster alone, unpaid business rates from the stores amount to some £8 million.

--- Later in debate ---

[Kevin Hollinrake]

This is a very simple measure. The Government are seeking to tackle the misuse of limited partnerships while modernising the law governing them. The clause clarifies the meaning of the term “limited partnership”. The revised wording removes ambiguity and sets out that it is possible to be a limited partnership only by virtue of being registered as a limited partnership under the Limited Partnerships Act 1907. Furthermore, the Companies Act 2006 provision relating to the index of company names is amended to refer to limited partnerships registered under the Limited Partnerships Act. That allows the registrar to remove firms from the index of company names if they are dissolved, cease to be registered under the Limited Partnerships Act, or both.

[Seema Malhotra]

The clause inserts the definition of limited partnership into the Bill and makes clear that the registrar is obliged to maintain only those limited partnerships registered under the 1907 Act within the registrar’s index of names.

Limited partnerships are a specific type of business structure in UK law that confer limited liability on some partners and therefore have to be registered with Companies House in line with the Limited Partnerships Act 1907 and the Partnership Act 1890, but numerous reports and consultations by the Government have identified the risk of economic crime through limited partnerships and Scottish limited partnerships. As I know the Minister will be well aware, the consultation in 2018 also emphasised the apparent attractiveness of such partnerships as vehicles for organised crime, and I am sure we will come back to that when we consider amendments to this part of the Bill. The consultation noted specifically that the National Crime Agency reported a high volume of suspected criminal activity involving Scottish limited partnerships. It also referred to claims made in an investigation that 113 SLPs were involved in a much larger money laundering scheme that transferred more than $20 billion out of Russia between 2010 and 2014.

Limited partnerships and Scottish limited partnerships have been identified by the Government for some time as high-risk corporate structures when it comes to facilitating and enabling economic crime. It is positive that we have reached this point, but it is disappointing how long it has taken. The clause is important, as it ensures that the registrar is obliged to maintain those limited partnerships that are registered as such, thereby ensuring that the registrar is not under any obligation to maintain names of defunct limited partnerships.

[Alison Thewliss]

My views on the abuse of Scottish limited partnerships are on the record, and the Minister is well aware of them. Anything that will help to tighten up protection against that abuse is welcome, but again, a lot of this goes to enforcement. It is not good enough just to legislate. There has to be enforcement, and the current enforcement has been absolutely woeful, with just one fine for failing to register a person with significant control. When the legislation started in January 2018, 7,078 people were not registered as they should have been as persons with significant control. That now stands at 201, but 201 is still too many, and the Government are still not issuing any fines for not complying with the obligations under that law. As with all the measures within this part of the Bill, my concern is about enforcement and making sure that everything is absolutely watertight, because if there is no consequence—at the moment, there is no consequence for non-compliance—people will continue to abuse the systems.

I caution the Minister also that when the rules around Scottish limited partnerships were tightened, people just moved to the next structure, and the next structure was limited partnerships in Ireland. Ireland has seen a huge surge in people abusing its corporate structures, which are similar to ours for historical reasons, but nobody warned the Irish that this was coming. I would be interested to know how the Government intend to monitor the tightening up of this legislation so that we are not just pushing down the bubble in the wallpaper for it to come up somewhere else.