Economic Crime and Corporate Transparency Bill (Nineteenth sitting)

Seema Malhotra Excerpts

Committee stage
Tuesday 29th November 2022 Public Bill Committees

[Gavin Newlands (Paisley and Renfrewshire North) (SNP)]

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

It is a pleasure to serve under your chairmanship, Mr Robertson, and it is fantastic to rise to do something more worthy in Committee than pour water for my hon. Friend the Member for Glasgow Central.

I accept completely that, as has been said many times, the Bill is excellent and we just need to tighten it up, and that it contains provisions, including on unique identifiers, that will help to block some of the more obvious means of carrying out the practice of phoenixing, which has been discussed both when we took oral evidence and throughout line-by-line scrutiny. However, it is my view, and that of many others, that we are missing a golden opportunity to fully address phoenixing with the Bill and to tighten up all parts of the regulations relating to Companies House.

The genesis behind new clauses 69 and 70 is a specific directorate and company the businesses of which have unfortunately harmed my constituents and many others across Scotland and throughout the UK. New clause 69 would stop those who burn through multiple limited companies leaving a train of destruction in their wake, with little or no recourse for the authorities. It would not prevent those who have no nefarious or ill intent but find that their company is unsuccessful, even on more than one occasion. It would not apply automatically to any individual who hits the three winding-ups limit; it would only allow the registrar to act if there were grounds to do so.

Around 10 years, a company called HELMS—Home Energy and Lifestyle Management Systems—controlled and operated by a man named Robert Skillen, went door to door in my constituency offering solar panels and home insulation as part of the now-scrapped UK Government green deal scheme. You will be pleased to know, Mr Robertson, that I do not intend to go over the whole story; suffice it to say that hundreds of my constituents and thousands of people across Scotland are still paying the price to the tune of thousands of pounds each.

Skillen was able to wind up HELMS, move on to his latest venture with millions in his back pocket and face no consequences for his personal actions. He is an individual—there will be thousands like him—with a long track record of extracting maximum value from his scams via limited companies and then setting up shop for a new crack at it, having defrauded thousands of people. He even had the cheek to set up a company to assist those who had been defrauded by his previous company to receive compensation from which he would receive a cut. That type of individual is currently beyond the reach of the law; hopefully, provisions such as the new clause would assist with that.

Mr Skillen was fined £200,000 by the Information Commissioner’s Office and £10,500 by the Department of Energy and Climate Change, as it was at the time, but the fact is that of that £200,000 he paid only £10,000 before winding the company up. That led the ICO to lobby the Government to enable it to fine individuals such as Robert Skillen up to £500,000.

In respect of cases such as those of Mr Skillen and many others who make sharp practice look easy and do so without any care or remorse, the new clause would act as a deterrent to the manipulation of company registration for personal gain and enrichment and prevent those who have used multiple company identities for malfeasance or sinister purposes from continuing that pattern of behaviour ad nauseum. I stress that the point of the new clause is not to prevent those who have had genuinely unsuccessful businesses from starting afresh. The registrar should be able to separate those cases from those of people with evil intent.

Companies House already has the power to disqualify directors and the new clause would simply allow it to consider slightly wider grounds on which such a disqualification could rest. It would help to put an end to the cases that every Committee member will have encountered in their constituencies of companies taking payment for goods and services, shutting up shop with the cash pocketed and then popping up again under a different name but carrying out exactly the same work. The purpose of the new clause is to tease out from the Minister the Government’s approach to phoenixing. With that, I rest.

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

It is a pleasure to serve under your chairship, Mr Robertson, and to follow the hon. Member for Paisley and Renfrewshire North, who made a very important speech. New clause 69 would introduce new provisions to prevent the continued trading of companies repeatedly declared insolvent and the practice of phoenixing, which the hon. Member outlined. It states:

“A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar of companies, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding ten years.”

A company may be “substantially similar” to previous companies in terms of its name, registered office, proposed officers and so on. This would mean that there is more scrutiny, and questions are raised about whether a company should be able to continue trading.

It is very important, for the reasons we have outlined in Committee, to seek to protect the public and other businesses from unscrupulous operators effectively carrying on their business activity and going through the same cycle of building up debts, which leads to consumer issues, and simply disappearing and starting again. We must deal with that behaviour, which is a route through which economic crime takes place, and that is why we support the new clause. We will listen closely to the Minister’s response on how the Government propose to tackle the issue of phoenixing.

I note the similarity between the intentions of this new clause and new clauses 28 and 46, tabled by my hon. Friend the Member for Aberavon and I, which we have discussed. In different ways, all those new clauses would tighten up glaring loopholes around strike-off, insolvency and phoenixing that enable those who are participating in economic crime to avoid scrutiny. We welcome the new clause, and we look forward to the Minister’s response.

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

It is a pleasure to serve with you in the Chair, Mr Robertson. I appreciate the spirit of the amendment, and I also appreciate the hon. Member for Paisley and Renfrewshire North describing this as an excellent Bill—a very constructive point—but one that needs tightening up; I understand his points and applaud the efforts made by him and other Opposition Members to do so.

I am fully aware of the devastating consequences that such issues have on businesses, suppliers, supply chains and our constituents. I have a case of a gentleman called Scott Robinson who repeatedly closed his investment business down. It was called TBO Investments at one point and then became Mount Sterling Wealth. He effectively took his clients with him, and people lost huge amounts of money. They had provided money for him to invest based on supposedly low-risk investments, but he was actually gambling that money in very high-risk investments, and he did that time and again. I really sympathise with the spirit of the amendment, and I am keen to look at not just phoenixing but other types of situation where people deliberately take risks like that that have devastating consequences for consumers and businesses in our constituencies.

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[Gavin Newlands]

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

It is like London buses—I am back. I do not propose to take as long to speak to new clause 70, which proposes to turn off the tap of public funding to those who have failed to discharge their duties under the Companies Act or who have failed to discharge their duties to their company’s staff. I mentioned Mr Skillen previously, and his local constituency got in touch with me to tell me that he is back in business and that his company had been in receipt of public funds. The aforementioned Mr Skillen is currently a director of four limited companies, each one coming after the winding up of HELMS. Those companies are interlinked via control and ownership structures. Through that, Government loan funding was applied for and granted just before Mr Skillen became a director and owner of a large chunk of the new enterprise.

My new clause is very simple and would prevent those who fail to discharge their duties from receiving public money or support for any company for which they are listed as a director. Mr Skillen’s modus operandi was to misuse and mis-sell under the Government’s green deal scheme, but he popped up a few years later at a company benefiting from taxpayer funding and is involved in the energy business as well. It is simply not good enough that policy interventions intended to promote a wider economic strategy, be it local or national, are manipulated and used by spivs who are able to hide behind company registration and face no barriers to their actions from the registrar, short of the nuclear option of being barred from acting as a director.

We have seen a number of cases over recent years of multinational companies, such as P&O Ferries and, not quite to the same extent, British Airways, breaching their duties as employers and breaching employment law. Indeed, the chief executive of the former happily admitted breaking the law while appearing before the Transport Committee’s joint session with the Business, Energy and Industrial Strategy Committee. Such blatant and open law breaking cannot be rewarded with taxpayer support, and the new clause would ensure that those breaching laws that are meant to protect workers cannot then dip into the same workers’ pockets for financial support. It would not impact on workers, because any funding, such as for a furlough scheme, would not be affected by the new clause.

[Seema Malhotra]

This is a useful new clause, in the spirit of some of the new clauses that we have tabled on what should and should not be available to directors who are in breach of their duties, disqualified and so on. The new clause, tabled by our colleagues from the SNP, would introduce new provisions that bar directors who are in breach of their duties from receiving public funds. Under the new clause, a company with a director or directors who are in breach of the general duties outlined in the Companies Act 2006, or who have been found to have committed statutory breaches of employment law, should not receive Government-provided funds or financial support unless it is solely and specifically for the purpose of directly benefiting the company’s employees.

This is an important debate, and I would be interested in the Minister’s response. When taxpayers find out that their money goes towards effectively supporting or enriching directors who are in breach of the Companies Act, there will be a real question about what the Government can do to further disincentivise and not reward those who are in breach of employment law or other areas of legislation. We support the sentiments behind the new clause and the arguments being made, and I look forward to the Minister’s response.

[Kevin Hollinrake]

I thank the hon. Member for Paisley and Renfrewshire North for his new clause; again, I support the motivation behind it. Clearly, there are restrictions already. Where a director has failed to observe a specific duty under the Companies Act 2006, they will potentially find themselves liable to criminal sanction and disqualification. I accept the fact that we have not focused too much on that area in the past, but that is exactly why we are legislating in the Bill to make the registrar far more proactive in her work. Where an employer has committed a breach of employment law, the relevant statute will generally provide appropriate remedies either by way of a right of action for the worker—normally in an employment tribunal or the courts—or by way of state enforcement, or sometimes both.

The new clause seeks to isolate only two triggers for denying access to financial support. Although they may have merit as triggers, who is to say that there are no other matters of conduct on the part of either a company or its directors that might lead one to question the wisdom of awarding it taxpayers’ money? Obviously, that should be determined within the scheme rules. The hon. Gentleman pointed to a case in which a director was interlinked with four other companies. There are already restrictions on Government loans—covid loans, for example—which must be taken into account where there are interlinked schemes, and he is probably aware of that.

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[Dame Margaret Hodge (Barking) (Lab)]

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

I will be on my feet for a bit, so I will try to be succinct—I know that Members have other things to do this afternoon. [Laughter.] It may be impossible for me. I want to say quite a lot about this new clause.

New clause 71 is about reforming of the suspicious activity reports regime. Ministers will accept that the SARs regime is a central tool in our defence against money laundering, but I hope they also accept that the current system is broken—it is not working. The new clause would introduce a new risk rating system, which would transform the efficacy and efficiency of the current regime.

SARs are very valuable and a vital source of intelligence. They are made mainly by financial institutions, but also by solicitors, accountants or estate agents, and they report suspicious activity. They have been absolutely instrumental in a range of successful actions against criminal activities, locating sex offenders, tracing murder suspects and identifying those involved in online child abuse, and they have shown how young women are trafficked into the UK. They have also been instrumental in closing down fraud and money laundering.

To give one example of a successful case involving fraud, a vulnerable elderly man in his 80s was the victim of a fraudster who had gained his personal details through a cloned website, when the elderly man believed that he was making a genuine investment. The reporter who saw the transaction going through was suspicious when the fraudster tried to impersonate the victim and access his main funds. He reported the transaction, and the UK Financial Intelligence Unit, which operates the SARs regime, received that report. The unit immediately passed it on to the enforcement agency—I wish this happened every time—which visited the victim in his house. The agency was then able to quickly contact the institution where the transaction was supposed to take place. It reported that the suspicious activity was wrong and confirmed the real identity and bank details of the elderly man, which all prevented him from losing in excess of £80,000.

This scheme is therefore important, and it is successful when it works well. However, at present, the sheer volume of SARs and the limited resources available mean that the information is not analysed and often simply not used. In evidence to the Treasury Committee, Mark Steward, the director of enforcement at the Financial Conduct Authority, said:

“More needs to be done in order to get more out of the valuable data that is in there. Otherwise, it just sits there.”

Graeme Biggar, also giving evidence to the Treasury Committee, as director general of the National Economic Crime Centre, said:

“Twenty years ago, we got 20,000 suspicious activity reports in, largely from banks. This year, we would not be surprised if we got three quarters of a million, and the number of defence against money laundering SARs, where we are told in advance and given the option to refuse permission to proceed, is going to double, we think, this year. The sheer volume coming through is really significant and very hard to deal with.”

According to research from Spotlight on Corruption, only 118 people handle the SARs. That is one employee to 4,250 SARs. The Australians, who have a similar enforcement regime, and who have also experienced an explosion in SARs, have a staff complement of one to 1,400—three times better than our own. The Committee has often talked about the relative budgets for enforcement of the UK and the USA. The USA has increased funding of the Financial Crimes Enforcement Network by 30%, and its staffing by 50%. The Minister should recognise that the Federal Bureau of Investigation’s budget is now 15 times larger than the National Crime Agency, although our population is only five times smaller than America’s.

The Financial Action Task Force review in 2018 said SARs should be reformed, and SARs were criticised by the FATF. The Treasury Committee report in 2019 talked about SARs reform. In 2017, the Government had announced a reform programme for SARs, led by the Home Office together with the NCA. That reform programme constituted action 30 in the economic crime plan. The intent was to have an IT transformation, better analytical resources and capabilities, and an improvement in SARs processes. That SARs programme was reviewed by the Government’s Infrastructure and Projects Authority, and was given an amber rating in 2021. So reform started in 2017, the programme was given an amber rating in 2021, and today, in 2022, it is not complete and there is no timetable from the Home Office—maybe the Minister can help with that—or a target date for completion, which was a criticism the Treasury Committee made of the programme. Delivery was originally promised by December 2020, but we are two years on from that and we are a long way from seeing SARs completed.

In that context, new clause 71 introduces a risk-rating regime. I do not think anybody thinks that is a crazy idea, and I hope the Minister will—just for once—adopt one of the suggestions that the Opposition have made in Committee. I hope he will not say that we do not need the legislation. We are nearly six years on from when the reform programme was announced, and reform has not happened. The Government cannot, despite the best efforts of right hon. Member for Uxbridge and South Ruislip (Boris Johnson), ignore legislation, although they seem to be ignoring the desire to reform the SARs programme.

If Ministers want action, which they have consistently said they seek with the Bill, they should accept new clause 71. If they simply see this measure as party political, they should not. We do not deal with the funding issue in the new clause, but we will ensure that the focus is on the most significant SARs. That will lead to more enforcement. I urge the Minister to adopt our new clause.

[Seema Malhotra]

It is a pleasure to speak briefly in support of the new clause tabled by my right hon. Friend the Member for Barking. It would amend the Proceeds of Crime Act 2002 such that any disclosure made as part of the suspicious activity reporting regime must include a risk rating. My right hon. Friend outlined very effectively the reasons why the new clause is important. Much of the evidence in our meetings at the outset of the Bill, which set out the context and stakeholder views, it was clear that the SARs regime was failing. The databases of referrals were going unreviewed and unlooked at, because the resources were not there. There was no effective means that we could see of prioritising SARs fed into the NCA.

SARs is an essential tool in our defence against money laundering, but if the system is not working, something needs to happen. Having an extra step in the process to help with prioritisation, look at risks and deal with those identified as higher risk would help, as my right hon. Friend outlined, to bring in quality, at a time when we know that quantity is the new battle. She said that the current estimate is three quarters of a million referrals, which is extraordinary. Given the scale and types of economic crime, the number of referrals is likely to get worse, not better. That is a good thing if we are starting to highlight and refer more cases as we start to clean up our systems. However, we then need to deliver on that; otherwise, the downside is that we will reduce confidence among those doing the referrals that anything will actually happen.

Nigel Kirby of Lloyds Bank said in his evidence to the Committee:

“I think the SARs regime and the Proceeds of Crime Act 2002 itself actually need—well, not necessarily to be turned upside down, but to be looked at as a whole.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 19, Q26.]

I think we have some agreement that the system itself is important, essential and necessary but that it needs wholesale reform to make it more efficient and effective and to ensure that it does what we ask of it.

[The Minister for Security (Tom Tugendhat)]

I thank the right hon. Member for Barking for the new clause. I will slightly gloss over one element and focus on something she mentioned several times—I always listen carefully to what she says—about the comparison between the FBI and the NCA. I take the comparison, but the NCA is not a direct comparator for the FBI. After all, the FBI includes the equivalent to MI5. It also includes counter-terrorism police and a lot of what we call regional organised crime units. It includes a lot of other areas of policing that simply do not come under the NCA’s budget, so the comparison of budgets is not apples and oranges; it is more like apples and cider—the bulk of one and the punch of the other are not quite the same. I hope the right hon. Lady will forgive me for saying that that is not entirely a fair comparison.

That said, the NCA does an enormous amount of good work and uses SARs in many different ways. I have the figure here: the UKFIU received and processed nearly 600,000 SARs in 2019-20. That has increased significantly every year. The action taken has resulted in about £192 million being denied to criminals in 2019-20, up 46% on the previous year. So this is something that we are already using heavily.