Economic Crime and Corporate Transparency Bill (First sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (First sitting)
Stephen Kinnock ExcerptsTuesday 25th October 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 October 2022 - (25 Oct 2022)
Liam Byrne
Q
Nick Van Benschoten: I think they could be improved, yes.
Stephen Kinnock (Aberavon) (Lab)
Q
Nick Van Benschoten: Are you addressing the question to me?
Stephen Kinnock
To both of you, if you do not mind. It would be good to hear from both of you on both questions.
Nick Van Benschoten: My view is that, in terms of resourcing, there is a lot of new technology. Companies House is quite lucky that it can leapfrog using best practice. We have had a number of meetings with it. I think you may be hearing evidence from Graham Barrow later; we had a roundtable with Graham Barrow, Companies House and some other providers to try to explore this issue. Companies House is quite lucky in that it does not need to be a manual exercise: the goal is to get very much a minority manual review by humans, with the majority being technology and machine learning and so on.
That said, we also did a webinar with a number of data providers, including well-known companies that are looking at the size of the challenge and the opportunities. There is a big difference between quick wins and longer-term investment. Companies House already has a risk engine; it has data analytics already. It is just that its enforcement people, working as hard as they can, have their hands tied behind their back. I think there will be a lot of policy development, and work to implement not just the technology but the way that it interacts with the regime that it wants to set up. It is a challenge, because the short term is a burning platform.
Known patterns of abuse are identified every day. Also, a number of companies may be about to walk off with a lot of stolen public money through bounce back loan scheme fraud, and that is an area where Companies House may or may not have powers. Whatever powers the Bill gives need to be operated at speed. Sorry, that was a roundabout way to get to your question. There are short-term things it can do now, and there is a long-term thing; but it must make sure that it is dealing with the urgent as well as the transformative. We understand that the transformative exercise will take a long time, but there is also need for it to apply more tactical focus around the risks, especially in the short term. What was your second question? Sorry, I forgot it in my enthusiasm.
Stephen Kinnock
On data sharing.
Nick Van Benschoten: Each country has its own threats and problems. Singapore’s COSMIC database addresses particular exposures and problems that it has with trade-based money laundering. The UK is in a different place in that market, but we have our own problems. In terms of data-sharing, one of the key things we would like is for Companies House to enable permissioned access to the regulated sector. We have a lot of problems that are not so much in high-end corporate, but in the retail customer base. We have money mules for fraud, we have a lot of spoof companies enabling purchase and investment scams. Trying to work out where exactly the needle is in the haystack is difficult when we do not all have access to the same data.
Companies House seems to be facing a binary choice: either it is public, or it is only for the public sector. There does not seem to be a middle ground that works on a need-to-know basis, where you have an obligation to apply money laundering checks and to have careful, need-to-know handling procedures and anti-tipping off and so on, and where that information is available for the purposes of safeguarding your customer and maintaining the integrity of the market. From a UK perspective, that is definitely something that we would support. We also think it might allow us to develop something equivalent for our own risks, as the Singaporeans and other countries have done.
Gurpreet Manku: We have focused on the limited partnerships provisions in the Bill, but in principle we would support Companies House being appropriately resourced to implement all these changes effectively. I have no objections to data-sharing with relevant authorities. Our investment community operates across the globe, so we are used to this type of activity in other jurisdictions.
Dame Margaret Hodge
Q
Nigel Kirby: Respectfully, I think that is a different question.
You asked me to put my other hat on, Dame Margaret. Looking at the scale of fraud—you know, you have got it here; you are familiar with it—and the number of victims and the cost to the UK, it is time for the UK and those with the power to do so to either think about fraud as a strategic policing requirement or, going even further, ask whether it is now a national security threat. I do not just mean with that label—that is really important. You can put a label on these things, but if it could be classed as a national security threat and have the available resources brought together from our national agencies and national policing, that might have a greater impact for the public.
Stephen Kinnock
Q
I have two questions. First, I am trying to understand why you have this sense of optimism, because it looks like a pretty dire situation to me. Our enforcement agencies have been starved of the resources and capabilities they need. Secondly, you have had a long career in the NCA and in enforcement; I am sure you are still in touch with some of your former colleagues. If you had to define the resources they need, what extra would they need to be able to turn this situation around? It would be great to hear from you on that.
Nigel Kirby: For clarity, I used “world-leading” specifically in reference to private-public partnerships and what we are doing for voluntary information sharing. Look at the joint money laundering intelligence taskforce and the facts in that space: it has supported 950 investigations that have led directly to 280 arrests, with £86 million secured. There are some hard figures around here that are different. When I was in law enforcement, we had law enforcement from other countries coming to ask how we did it, including Singapore and Holland. I am in the private sector now, and we have private sector colleagues coming to ask us how do we do that part. That is just a part of the ecosystem that is important—
Stephen Kinnock
Point taken.
Nigel Kirby: If I misled you or you took it that way, that was not intended.
On your question about if I were still there, I am sure that Graeme Biggar, the DG of NCA, will have plans for what that could look like. When I was there, we certainly put forward evidence-based propositions such as, “If there were x amount of funding, these are the extra capabilities we could bring and this is the impact we believe it could have.” I am afraid my contacts are not close enough now to know the detail of that.
Stephen Kinnock
Q
Nigel Kirby: I fully agree that we need enforcement to be properly resourced with the right capabilities to be able to deliver what it is asked to do.
Liam Byrne
Q
Nigel Kirby: Well, it does not stop that in the UK because our financial system launderers are in there, but what we can do is to prevent them from continuing to abuse the financial system. Take the example I gave with the five other banks—four were sending money—that were involved with Lloyds. The Bill will allow us to have a conversation with the four banks that were sending money into our companies, and to say “In relation to our responsibility for understanding due diligence, money laundering and so on, can we share information on those four companies so we can better understand those flows from those companies?” That is important, because some of them may have been legitimate and some may have been illegitimate, but that will help us to define the good from the bad in that particular space. It will also act as an alert trigger for those other four banks to have a look if they have not done so already.
An intelligence-led approach would say, “Lloyds has a concern about these four companies” and it could look further into the matter and do an investigation into its own relationship with its customer. The other element on all that money that came through to us—it was in the millions—that went out to a fifth bank, which I will call bank F, is that we could alert that bank about our money laundering concerns, provided we had exited those three companies, which we did. If that bank had not already picked it up with its transaction monitoring, it would have an intelligence-led trigger to be able to do its own investigations, and to stop that and report it to the authorities.
The final and important part of this is the indirect part—we call it the utility. The ability to better share this information for others is important because. If all those companies were exited out of the financial system by the five banks involved, it is highly likely that they would go on and open up accounts with other banks. This Bill gives us the opportunity to be alerted to that and to take the appropriate action and due diligence that we need.
Stephen Kinnock
Q
Andy Gould: Sure. Fraud is not really my area of responsibility—I am focused very much on computer misuse act offending—but yes. I know there has been significant additional resource put into the ROCUs for fraud in the last couple of years. Is there enough capacity to meet the demand? Probably not. What policing probably needs to do is take a slightly different approach. Rather than trying to investigate those volume crime offences, it should focus more on those organised crime groups or individuals that are doing the most harm. That is the kind of pivot that policing is trying to make, in terms of being more proactive. I know Commander Adams is giving evidence this afternoon, and he will be able to tell you more about that.
Stephen Kinnock
Q
Andy Gould: Yes, I do. I think we have got the capability, but what we lack is capacity. The capability we have got today does not necessarily mean we will be able to maintain that capability tomorrow. We have invested, through the national cyber-security strategy and the programme through Government. We have got about an extra £100 million that has been invested over the last four years or so, building capability across policing. Some of that money we have effectively taken into crypto, so that cyber money is being used to cross-subsidise wider policing. We have created what we describe as cryptocurrency tactical advisers across the whole of policing. There are now officers in every force and every regional organised crime unit who are trained and equipped to do that. We have nationally procured the investigative tools to enable them to progress the investigations, and we have a national storage platform to store that once we have seized it.
We are in a position where we have actually seized hundreds of millions of pounds worth of cryptocurrency assets within the last year or so. The challenge we have is that it is getting harder and harder to do. The assets themselves are becoming more diverse and more technically complex, so our officers are in a bit of an arms race trying to keep up.
On the tools that we use, you might have one supplier that is brilliant on Bitcoin but not so good on another asset class, so we need more than one investigative tool to be able to investigate effectively. That is very expensive. One of the providers is currently quoting $60,000 to $80,000 per licence. That is unachievable, or unsustainable, for policing. We need to procure nationally for everybody, so we have an 80% discount on our current investigative tool, taking that approach.
The big worry for me at the moment is not just the technology changes and whether we will be able to maintain that level of resourcing and expand the capacity across policing; we have created a real staff retention problem. Because crypto is an emerging market, some of the best expertise and understanding of crypto in the UK sits within policing. We have been investigating cryptocurrency since 2015 or 2016. One of my sergeants has just been offered 200 grand to go to the private sector. We cannot compete with that. That is probably the biggest risk that we face within this area at the moment.
Stephen Kinnock
Q
Arianna Trozze: I would echo Andy’s point about the difficulty of tracing certain cryptoassets and investigating certain chains and things like that, and how this is evolving rapidly in competition with the existing providers and the blockchain services themselves. It gets more and more difficult to investigate as time goes on. You need more and more capacity building and investigative tools. At the same time, the crypto companies and the blockchain companies are seeking to develop their technologies in ways that will evade that detection, so it is a constant race between the two sides to be able to effectively investigate and prosecute these crimes.
Alison Thewliss
Q
Arianna Trozze: One of the key ways that legislation can future-proof itself in the face of this rapidly developing technology is via the definitions. I think that the definition of cryptoasset in the Economic Crime and Corporate Transparency Bill is sufficient to do that. Probably most importantly, the inclusion of cryptographically secured contractual rights means that the definition will cover smart contracts, which is really the technology that underpins all the major advances in the space of, for example, decentralised finance and non-fungible tokens that have taken place, and that we expect to continue to develop in the coming years. Furthermore, the ability to amend those definitions via secondary legislation is clearly a positive, because in the event that something slips through the cracks and develops in a way that we cannot anticipate, it will make it more efficient to change them.
Jane Hunt (Loughborough) (Con)
Q
Andy Gould: Yes, definitely. That is a huge benefit of the Bill; it is one of the provisions that we have been asking for. Imagine a scenario where you execute a search warrant on criminal premises: you go in and you can see stolen property, but at the moment, if they are not there, they are not under arrest and there is no existing investigation. You then have no power to take that crypto under the Proceeds of Crime Act 2002. So yes, that is a big step forward for us.
Stephen Kinnock
Q
Andy Gould: No.
Stephen Kinnock
Q
Arianna Trozze: I need to think for a moment.
Andy Gould: We are generally very happy with the provisions of the Bill. One area that we might want to look at is storage of the assets. Imagine you have £100 million- worth of cryptocurrency. That is really expensive to store, and there is always a security risk around where it is stored. If we were able to turn that into cash straight away at the point we get the restraint from the magistrates court, and that that was a standard power, a lot of that cost and security concern would be taken away. That would be one area where we could improve.
There is an existing power under POCA, where you can go to the Crown court and make that application, but that can be contested by the defendant. There is a cost associated with that. If we had a standard power to do that, I think we would be a bit happier, but we are generally very happy with the provisions in the Bill.
Arianna Trozze: I would echo that I generally think the Bill goes far enough—as far as is technologically possible at this time. I do not think there is anything that I personally would amend at this time.
Stephen Kinnock
Q
Arianna Trozze: I see both sides of that argument. Obviously, if assets are transferred into cash and then the original assets significantly gain value, and if the person with the assets were then found not to be a person of crime, the Government would be on the hook for the change in value of those assets. There are two sides to the argument but, as Andy mentioned, the storage is quite risky and very expensive. I ultimately agree, but I see both sides of the argument.
Alison Thewliss
Q
Andy Gould: It is quite commercially sensitive, but it could be a large sum—we are talking hundreds of thousands of pounds.
Dame Margaret Hodge
Q
Jonathan Hall: The funny thing is that there is a principle in law that, if someone is giving advice to someone in order to commit a crime, legal professional privilege does not apply. It is quite hard to find examples of cases in which that doctrine has been applied, so I do not know whether it is about law enforcement having the confidence, when they have a lawyer who is deeply engaged in advising someone to break the law, to say, “We don’t care that you are saying this is privilege because we are going to run the case and say it is for a criminal purpose”. Beyond that, I do not know. I am a lawyer and I completely support maintaining access to justice—of course I do. But you are also completely right that lawyers and trust companies are at the heart of this issue, and I am afraid there are professional enablers.
Stephen Kinnock
Q
Jonathan Hall: I have not got an answer beyond the one I gave before, I am afraid. I am sorry; I have not thought of a positive thing. I would just remove that subsection (b) from the definition of UK-connected cryptoasset service provider.
Stephen Kinnock
Q
Jonathan Hall: It is quite a bit step to convert it to fiat currency, or pounds, because you are then interfering with the bet that person has placed on the value of the currency going up. I do not know what the figure is in terms of storage. I am interested, too, in the question of potential police liability. I am thinking about the Sanctions and Anti-Money Laundering Act 2018. As you know, before the Government brought in the suite of changes that allowed urgent sanctions, they were very careful to narrow down the potential liability that the Government might have in relation to sanctions, if they were challenged. I have not given it attention, but maybe it is worth having a look at whether there are equivalent protections for the police. The seizures can be very high in this field—they can measure many millions—so the potential liability of the police could be quite high. We would not want the police to be too disincentivised by the risk that they would be on the hook for damages, if everything goes wrong.
In terms of the balance, it may be that ultimately one or other party—the person from whom the assets are seized, or the police—is going to suffer some sort of loss. The key thing is to make sure that people have access to the courts. The courts will have to generate their own sort of expertise and case law over when you should convert a currency. I can imagine that someone will come to the magistrates court saying, “My assets have been frozen. Now is the time for converting them from Bitcoin into Ethereum”, and the court says, “What? How do I determine that?” There will need to be a body of expertise. This is a minor point, but it is something that I support: one of the intentions is to allow quite a wide range of law enforcement personnel to be responsible for the court proceedings, precisely so that you can develop a cadre of people who have got that sort of expertise.
Alison Thewliss
Q
Jonathan Hall: I do not want to say. The key thing is that I am not a Scottish lawyer, and I am not going to try and opine on whether there is a legitimate use of them. The key thing is basic enforcement. You made the point that there are zombie companies. Well, someone in Companies House needs to follow these things up. I am sure they will, but the resourcing of Companies House is where I would put my money.
Economic Crime and Corporate Transparency Bill (Second sitting) Debate
Full Debate: Read Full DebateStephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Economic Crime and Corporate Transparency Bill (Second sitting)
Stephen Kinnock ExcerptsTuesday 25th October 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 25 October 2022 - (25 Oct 2022)
Stephen Kinnock (Aberavon) (Lab)
Q
Martin Swain: I do not think we would have the capacity to do ID verification internally, certainly not within the timescale that we are looking at bringing it in. I go back to my point—and I will pick up the point with UK Finance—that we will be operating ID verification to standards that are appropriate across sectors that use ID verification. With any aspect of these reforms, there is potential for gaps in the system. What we are trying to do is design out gaps in the system. However, I think we know from the current companies framework that there are gaps in the system, and even where you plug those gaps, others will appear.
The Chair
Thank you very much indeed to both of you for your evidence. It has been very helpful. We now move on to the next panel.
Examination of Witnesses
Commander Nik Adams, Simon Welch and Michelle Crotty gave evidence.
The Chair
Good afternoon. We now have Commander Nik Adams from the City of London police, Simon Welch representing the National Police Chiefs’ Council, and Michelle Crotty from the Serious Fraud Office. May I ask each of you to introduce yourselves briefly, please?
Commander Adams: Good afternoon. I am Nik Adams, commander in the City of London police and the current lead on economic and cyber-crime.
Simon Welch: Good afternoon. I am Simon Welch, the national co-ordinator for the National Police Chiefs’ Council on the economic crime portfolio.
Michelle Crotty: I am Michelle Crotty, chief capability officer at the Serious Fraud Office.
Stephen Kinnock
Q
Commander Adams: Shall I start, as the City of London senior rep? I have the advantage and the disadvantage of having been in this job only since April, so I can give you a view of where I think things have got to. I obviously was not part of the network when that report was written. I think it reflected an approach to economic crime that has been very much built bottom up historically, which led to the assessment that policing was fairly fragmented, with different levels of investment and different prioritisation across forces.
As long as economic crime and fraud, in particular, are not part of the strategic policing requirement, it is difficult to really get police forces to galvanise that response. We have seen, however, some fantastic work by the Association of Police and Crime Commissioners to get fraud and economic crime into police and crime plans. We have seen through the support that the City of London police has provided, as the co-ordinating force, a great deal of consistency starting to layer on in local forces. In this year alone, we have visited 29 out of all 43 forces to look at their delivery of the economic crime response and of shared good practice across the country. That bottom-up has given us those improved levels of consistency.
Through the spending review and the police uplift programme, we are seeing significant investment at both a regional and a national level to help us to build some of those capabilities. By the end of this year, we will have proactive economic crime teams built around a consistent model in every single regional organised crime unit. With the anticipated investment from the economic crime levy, we will see the growth of regional economic crime teams—proactive financial investigation at a regional level—and, with our support, the continued network of those teams across the country, which will give us a growing and more consistent approach as we go forward.
Stephen Kinnock
Q
Dame Margaret Hodge
I will read out the two figures. The number of crimes under investigation has halved in the past three years, and convictions for fraud offences, according to national crime statistics, have decreased by 67% since 2011. What you are talking about is theoretical; it is not what is happening. At the same time, fraud is going up and up.
Stephen Kinnock
Will you say a word about why that is? The system seems not to be working, so what do we need to do to fix it?
Commander Adams: I will start and then bring in Simon, who is an expert on money laundering. The first thing to say is that fraud is getting increasingly complex. About 70% of all fraud emanates from overseas and, as Adrian touched on, it is very difficult for us to obtain prosecutions and convictions across jurisdictions. That is a real challenge for us, as are the growth in technology, the way in which fraudsters are now exploiting people and the changes in tactics.
Fraudsters are moving away from unauthorised payment fraud, where people’s details are stolen and used fraudulently—banks are now preventing somewhere in the region of 65p in every pound of that type of activity—and we are now seeing much more sophisticated frauds, where people are socially engineered, or manipulated, into physically approving transactions. That of course is much harder for technological solutions to prevent, when the target is a human being.
Of course, all that complexity requires a much more complex and sophisticated policing response. As I described, the growth that is coming down the line—in particular the proactive growth—will not start landing until the end of this year and then, of course, we are several years before we have fully experienced and really competent and effective investigators working on those crimes. All those things will layer on over a period. We anticipate that the technological advances will continue, both in support of us and in challenging us in how we can investigate and progress these crimes. Simon, do you want to comment specifically on money laundering?
Simon Welch: On money laundering, the amount of offences—detected offences—is going down. Criminals are getting a lot more savvy about our tactics and things like that, so we find that they are not having assets in their own names so much—vehicles, houses, things like that—and our opportunities for confiscation are probably going down a bit. However, what you can see from the seizure figures is that the cash value is up, but the volume is down. We are targeting and getting good results from the cases, but it is a smaller number of cases. In reality, POCA is now quite old, and people are used to us going after the money, so they take far more steps to protect that money from us being able to confiscate it.
Jackie Doyle-Price
Q
Michelle Crotty: At the moment, we have those pre-investigation powers for overseas bribery and corruption. They allow us to investigate earlier, in particular to identify banking evidence earlier, and to see whether there is a case to pursue. By extending that to fraud and domestic-based issues, we are enabled to do that in those cases. At the moment, we have to take on a case formally and to commit resource in order to exercise the powers. To some extent, we can negotiate on occasion with companies to get that material, but if we have the power of compulsion, it would make it quicker and easier to get the material and so identify whether there is a case there.
Economic Crime and Corporate Transparency Bill (Sixth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (Sixth sitting)
Stephen Kinnock ExcerptsTuesday 1st November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)
Stephen Kinnock (Aberavon) (Lab)
I beg to move amendment 87, in clause 14, page 8, line 11, leave out “at least” and insert “no more than”.
This amendment, and Amendments 88 to 93 would require that, when a company is ordered to change its name under the provisions of this Bill (including in cases where the name is considered misleading or it may facilitate criminal activity) the company must comply with the order within 28 days. This requirement would replace the Bill’s provision to provide the company with a potentially unlimited period of time to comply with the order.
The Chair
With this it will be convenient to discuss the following:
Amendment 72, in clause 14, page 8, line 16, at end insert—
“(2C) The Secretary of State must publish the use of any such direction as set out in subsection (2B) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance set out in subsection (2B) on the Companies House website.
Amendment 88, in clause 14, page 8, line 19, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 89, in clause 14, page 8, line 23, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 90, in clause 14, page 8, line 29, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 73, in clause 14, page 8, line 34, at end insert—
“(3B) The Secretary of State must publish the use of any such direction as set out in subsection (5)(a)(3) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance set out in subsection (5) on the Companies House website.
Clauses 14 to 16 stand part.
Amendment 91, in clause 17, page 10, line 5, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 74, in clause 17, page 10, line 10, at end insert—
“(The Secretary of State must publish the use of any such direction as set out in subsection (4) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance set out in subsection (3) on the Companies House website.
Clause 17 stand part.
Amendment 92, in clause 18, page 11, line 13, leave out “at least” and insert “no more than”.
This amendment is linked to Amendment 87.
Amendment 75, in clause 18, page 11, line 18, at end insert—
“(4A) The Secretary of State must publish the use of any such direction as set out in subsection (4) on the registrar’s website.”
This amendment would add a requirement for the Secretary of State to publish any extension of the period of compliance on the Companies House website.
Clauses 18 to 26 stand part.
Amendment 76, in clause 27, page 16, line 19, after “person” insert—
“and published on the registrar’s website”.
This amendment would add a requirement for the Secretary of State to publish any written notice of exception based on the national security etc. on the Companies House website.
Clause 27 stand part.
Stephen Kinnock
It is a pleasure to serve under your chairship, Ms Bardell.
I add to the comments of my right hon. and hon. Friends in welcoming the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Thirsk and Malton, to his place. Over the past few weeks and months, it has been a bit difficult to keep track of who is going where and of the blizzard of appointments. His appointment in particular stood out as a very wise decision by the Prime Minister. We very much look forward to working with the Minister on the Bill and on other issues.
I must add that I am looking forward to working with my colleague the shadow Minister, my hon. Friend the Member for Feltham and Heston. We will work together on the Bill, but I represent the shadow Home Affairs team, looking at the issues through the lens of security, which is so important to our country and is very much the other side of the coin from the economic resilience issue that we are also exploring.
I will speak to clauses 14 to 28 and the amendments to them. Economic crime has a devastating impact on an individual level for our constituents and businesses, and at a national level for our national security and economic resilience.
The Chair
Order. May I say that clause 28 stand part will be a separate debate? I remind the hon. Gentleman that in this group, we are debating up to clause 27 stand part.
Stephen Kinnock
Up to and including clause 27, finishing, and then moving on to clause 28. Thank you for that clarification, Ms Bardell.
The National Crime Agency estimates that £100 billion of dirty money flows through the UK every year and that fraud is causing £190 billion of damage to our economy. According to PwC, 64% of businesses have experienced fraud, corruption, or other economic or financial crime within the past two years, which is up from 50% only four years ago.
The Labour party believes in stronger action to defend our national interest, our economy and our national security from the organised criminals, fraudsters, corrupt oligarchs and kleptocrats. Indeed, as the shadow Home Secretary, the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper), said on Second Reading:
“Ours is a country that has long prided itself on the rule of law and on strong economic institutions, which is what traditionally made it a good place in which to invest, but that is being undermined by economic crime”.—[Official Report, 13 October 2022; Vol. 720, c. 291.]
It is also being undermined by the illicit money flowing through what many call “Londongrad”. As much as that brings shame, it should also bring pride that we are coming together as parliamentarians to debate and scrutinise this important Bill.
We support the Bill, but the devil is in the detail. With 250 pages, a huge amount of detail needs extensive discussion. Part 1 is critical, because it aims to get to the crux of one of the major barriers to tackling economic crime. That problem is the underfunding, lack of regulation and lack of teeth at the heart of Companies House.
Clauses 9 to 22 cover legislation on changes to company names. I have moved amendment 87 and tabled amendments 72, 88 to 90, and 73 to clause 14, as well as amendment 91 to clause 17 and amendment 92 to clause 18. We are surprised that the Bill states that when a company is directed to change its name under the Companies Act 2006, including in cases where the name is considered misleading or might facilitate criminal activity, that company must comply with the direction in “at least 28 days”. That requirement would replace the provision to provide the company with a potentially unlimited period of time to comply with the order. In a moment, I will pause to allow the Minister to clarify whether that provision is deliberate, because it appears to be both rather confusing and rather too generous. Surely, it should say that the company must comply with the order within 28 days. That is what the amendment seeks to achieve—as opposed to “at least” 28 days, it must be within 28 days.
The Bill includes lengthy provisions on company names, and sets out how and for what reason a company may be required to change its registered name. The aim of those provisions is to enable companies’ names to be prohibited in cases where they may be intended to facilitate dishonesty, deception or another criminal offence. Although that aim is laudable, there appears to be a disconnect between the seriousness of the offences that the Government are seeking to prevent, and the lengthy periods of time that Ministers are prepared to allow for a company to comply with an order to change its name.
Given that such an order will generally be made only when a Minister has identified a clear risk of harm in relation to a company’s name—including a risk of fraudulent or other serious criminal activity—it is hard to understand why a company would then be given potentially limitless timeframes to comply with that order. The Opposition believe there should be, at the very least, a time limit on orders to change a name believed to be intended to deceive the public of the company’s true purpose. Companies that fail to comply with such an order within a reasonable period of time, and a 28-day limit seems reasonable to us, should also be penalised if they cannot provide a good reason for any delay or refusal to comply. I am happy to pause here if there is anything that the Minister would like to clarify.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I am happy to do that. The issue is in the drafting. I had to read this on a number of occasions and speak to officials before I got my head around it, but the provision achieves the purpose that the hon. Gentleman sets out. Clause 14(5)(2) states:
“The direction must be in writing and must specify the period within which the company is to change its name.”
It is a fixed period of time. It sets out the ability to give a company more time in certain circumstances, but the intention is to do exactly as the hon. Gentleman wants: a company has 28 days to comply. It will be told how long it has to comply, and that may well be 28 days.
Stephen Kinnock
I thank the Minister for that response. As he pointed out, he had to read the provision several times in order to be clear on the drafting. Clause 14 (5)(3) says:
“The period must be a period of at least 28 days”.
Our intention is to make it clear that it has to happen within 28 days. There is a clear difference between “at least” and “within”. “At least” gives the impression that a company could have an unlimited period of time beyond those 28 days, whereas if we clearly state that it must happen within 28 days, then there is no room for doubt whatsoever. Would the Minister like to come back to me on that?
Kevin Hollinrake
Again, if the hon. Gentleman reads that in the context of clause 14(5)(2), he will understand that it is a fixed period of time. That is what companies will be given.
Stephen Kinnock
Maybe the Minister and I are just not seeing it through the same lens. I agree that there should be a fixed period, but I think it should be clearly defined that the fixed period must be a maximum of 28 days. Does the Minister think that the Bill as drafted makes that clear?
Kevin Hollinrake
The point is there may well be valid circumstances where a company might take longer than 28 days, for example if it needs to seek a resolution from its shareholders or directors. In those cases, a company might then apply to Companies House or the Secretary of State to extend that time period. That is where the “at least” comes in, and it must be seen in the context of the “within”. Listen, I am not a lawyer. I do not think the hon. Gentleman is a lawyer. The lawyers have chosen to draft the legislation in this way. I do think it serves the purpose, but I can understand why the hon. Gentleman is seeking clarification.
Stephen Kinnock
You are absolutely right to keep us in line, Ms Bardell. We need to ensure we can operationalise the Bill in the clearest and most succinct way that leaves absolutely no room for doubt. The Bill is designed to regulate a sector of the economy that is like water; if it can find cracks to slip through, it will find them. We are trying to close those loopholes.
Dame Margaret Hodge
I am bewildered. The Minister may be too. Proposed new subsection (4A) in clause 14(5)(b) sets out that an application must be made “within the period of three weeks”. Obviously the lawyers do not think it is bad to put “within a period of three weeks” in that particular context. If someone says “at least”, that is a minimum, not a maximum. At least is a minimum. I cannot think that a lawyer would not have common sense about it. Perhaps the Minister wants to go away, reflect on this and move an amendment later. I do not believe lawyers are quite that removed from reality and common sense. It literally says in that clause “made within”. The lawyers do not mind using that term sometimes, so why can they not use it always?
Stephen Kinnock
My right hon. Friend has hit the nail on the head. I hope the Minister will reflect on that.
Moving on to clauses 15 to 22, we are content with clause 15, which would allow for objections based on the company name being misleading outside the UK and for the shareholders and directors of said company to be joined as respondents or defenders in the claim. In their February 2022 White Paper, the Government explained the rationale for expanding the grounds for objections to be made to a company’s name. It was broadly accepted that the current restrictions, for instance on names that imply a link to the UK Government, were too narrowly drawn.
Responses to the consultation reflected widespread concern about the impact company names that are clearly deliberately misleading might have on legitimate businesses in cases where rogue companies try to suggest they have a connection to a well-known business and thus benefit from wider public recognition of, and perhaps even loyalty to, an established brand. Such appropriation of company names is now understood as a means of scamming would-be investors out of their money. Earlier this year, for example, there were high-profile reports of a scam involving a company calling itself Diageo Partners Ltd. It attempted to solicit an investment by presenting itself as an arm of the well-known drinks company of that name. Another case flagged by the Financial Conduct Authority in January involved similar attempts by scammers to link themselves with the financial institution Wells Fargo.
Clause 15 is a welcome recognition of those issues and should go some way toward addressing them. However, many legitimate companies that raise objections via the Company Names Tribunal are currently facing delays of three months or more before they can get a decision. I wonder whether the Minister could explain what steps the Government will take to help speed up the Company Names Tribunal process and ensure that fraudulent company names are corrected as quickly as possible.
Kevin Hollinrake
I will address the hon. Gentleman’s points in my full response. There are some amendments we have tabled that address his exact points, and I would like to speak to those in detail.
Stephen Kinnock
Excellent.
We support clause 16, which gives extra powers to the Secretary of State to direct a company to change its name only if he or she deems it to be as little as “a risk of harm” and makes it clear that harm can apply outside the UK. However, in clauses 15 and 16, the Bill seeks to broaden the scope of misleading or otherwise harmful effect, which can be used as grounds to require a change of name. The provisions cover the potential for a misleading company name to cause harm in any part of the world, not just in the UK, and that is surely welcome recognition of the reality of today’s landscape of online fraud. Clearly, scammers and fraudsters have no respect for national borders and it is right that a UK company that is causing or attempting to cause harm in another country should be subject to enforcement actions requiring it to stop. The wording used in clause 16 and elsewhere, referring to actions that pose a risk of harm to the public, is exceptionally broad. Will the Minister expand on how that definition might be given greater clarity and, indeed, clearer definition? Will he provide some practical examples of how those powers might be used? I look forward to his insights.
Clause 18 introduces a procedure that allows the Secretary of State to direct a company to change its name where the name breaches the requirements of the Companies Act 2006, including as amended by the Bill. Failure to comply would be a criminal offence by the company and all responsible officers. The provisions in clause 20 would empower the registrar forcibly to change the name of the company if the company does not do so. That all sounds eminently sensible and we support the measures.
We support clause 21, which makes consequential amendments to the new powers to change a company name under the Bill, for example, because it contains computer code. That requires the registrar to replace the old name with the new one on the register. We also support clause 22, which provides for the Secretary of State to allow company names that are otherwise prohibited where considered necessary for national security or to prevent or detect serious crime.
While the previous clauses refer to company names, clauses 23 to 27 refer to a company’s trading name or business name, which can be different from the company name registered with Companies House. Business or trading names do not need to be registered with Companies House, but they need to adhere to the general restrictions listed in part 41 of the Companies Act 2006.
Clauses 23, 24 and 27 make similar changes to trading names as clauses 10, 16 and 22 in respect of company names. We have no objections there, although my hon. Friend the Member for Feltham and Heston might wish to speak to her amendment to clause 27 shortly. Clause 25 prohibits a company from using a business or trading name that is the same as a company name that it has been ordered to change. Continuing to use a trading name in such circumstances amounts to a criminal offence by the company and every responsible officer. Clause 26 states that where a company has been ordered to change its name, it is a criminal offence for an officer or shareholder of that company, with some exceptions, to use that company’s name as the business name for another company. We recognise the sound reasoning behind each of those clauses.
Kevin Hollinrake
I apologise. I will not do it again.
Clause 15 makes a set of changes in how objections to a company name are to be considered by the company names adjudicator, established under section 70 of the Companies Act 2006. In cases brought before the adjudicator under section 69 of the Act, the company complaining over another’s misuse of a name is known as the applicant, and the counterparty to that complaint is the respondent. Clause 15 amends section 69 in several ways. First, in recognising that the activities of companies registered in the UK are not constrained by our borders, it removes the geographic scope of complaints that the adjudicator can consider. That allows the adjudicator to consider the ability of a company name to mislead members of the public in jurisdictions other than the UK.
Secondly, the clause plugs a loophole in the existing legislation that allows directors of respondent companies to resign their position to avoid being joined alongside the company itself in the adjudication proceedings. Finally, at present it is the case that unless it can be demonstrated that the respondent registered a name in order to obtain money from the applicant, an application must be dismissed if the respondent has begun trading under the name or has incurred substantial start-up costs. That defence will no longer be available.
Clause 16 amends the Companies Act to lower the bar in terms of the harm test. Currently, section 76 of the Act allows the Secretary of State to direct a company to change its name if, in his opinion, the name gives such a misleading indication of its activities that it is likely to cause harm to members of the public. In future, the Secretary of State will form a view on the basis of whether the name poses a risk of harm, instead of considering whether the name is likely to cause harm, thus giving the Secretary of State greater discretion in the exercise of that power. The clause also clarifies that the potential harm at issue need not manifest itself in the UK alone, but might do so anywhere in the world.
Stephen Kinnock
The Minister is being very generous in giving way. The issue with clause 16 is the term
“pose a risk of harm to the public”,
which seems to be very broad. Can he expand on how that risk might be more clearly defined? Can he give a practical example of how the proposed powers might be used?
Kevin Hollinrake
If I may, I will come back to the hon. Gentleman on that point once I have some information on it from my officials.
Clause 17 will give the Secretary of State the ability to direct a change of a company name where, in his view, it has been used, or is intended to be used, to facilitate the commission of an offence involving dishonesty or deception, such as fraud.
Stephen Kinnock
Briefly on clause 17, I would just like to mark the card because, again, there is an issue with the use of the phrase:
“The period must be a period of at least 28 days”
in proposed new section 76A(3) of the Companies Act. I suggest that that phrase should be replaced with “This period must be a period of no more than 28 days, beginning with the date of direction”, because I think it would be so much clearer and tighter.
Kevin Hollinrake
I will come to that, but the hon. Gentleman’s solution to that does not give any discretion should a company need more time. [Interruption.]
Kevin Hollinrake
That is the reason why the clause is drafted in that way, but I will come back to the hon. Gentleman’s point before the end of my remarks.
The ability to direct a change of a company name recognises that there may already be some companies, among the 4.5 million or so companies already on the register, with names that are facilitating criminal conduct or have the ability to do so. In order to address those instances that may come to the Secretary of State’s attention, the clause will give him the ability to direct a company to change its name. The clause also sets time frames for compliance, penalties and methods of appeal.
I turn now to clause 18, which gives the Secretary of State the ability to direct the change of any company name already on the register of companies that appears to them to contravene any requirement of part 5 of the Companies Act 2006. The Secretary of State can also direct a change of name if, at the time of registration, they had proper grounds for forming an opinion on whether the name was in itself an offence or was offensive, being used for criminal purposes or contained computer code. Without the ability to take action to address such names once incorporated, undesirable impacts can go unchecked. A consequential amendment applies this section to provision on overseas companies.
Clause 19 complements clause 11 of the Bill. Clause 11 makes it unlawful for a company to be registered with a name that contains or comprises computer code. Clause 19 addresses the possibility that computer code lurks among the names of the 4.5 million or so companies already on the register, empowering the registrar to determine a new name.
Clause 20 provides the registrar with the power, by her own action, to change a company’s name where it has not followed a direction to do that itself. Where she does so, she must inform the company and annotate the register accordingly.
Clause 21 makes a consequential amendment related to the administrative aspects of the company name-changing powers contained within the Bill, specifically the duty of the registrar to issue a new certificate of incorporation following a change of a company’s name.
Clause 22 introduces a section into part 5 of the Companies Act that gives the Secretary of State discretion to disapply any prohibition on naming a company or operating under a company name where, in his view, that is justified in the interests of national security or for the purposes of preventing serious crime. On the point about the exercise of national security, commitments to transparency on security exemptions might well by their nature defeat the purpose of the exemption’s use.
I turn now to amendments 87 to 92, tabled by the hon. Members for Aberavon and for Feltham and Heston. The amendments concern clauses 14, 17 and 18, which I have just taken Members through. I thank the hon. Members for the amendments, as they have helpfully highlighted a gap in the Bill. We acted on that yesterday by tabling amendments that address the issue and, I hope, resolve it, albeit in a different way. I refer hon. Members to new clause 34, which effectively allows the registrar to instantly suspend the material on the register referring to the name. In that way, the Bill gives the Secretary of State a new range of powers to direct companies to change their names that supplement and strengthen the existing powers under the Companies Act. [Interruption.] That is on page 65 of today’s amendment paper.
In respect of the existing provisions, it is at the Secretary of State’s discretion to determine the period within which a company must comply with directions. Clause 14 of the Bill seeks to regularise that period across both existing and new direction provisions in part 5 of the Companies Act. That period would be a minimum of 28 days from the date of direction. These amendments seek to make the period no more than 28 days.
I have sympathy with the view that companies should not be afforded longer than necessary to take the steps to comply with a direction. I would, however, draw hon. Members’ attention to the fact that, in respect of the new classes of prohibited name, the Bill is drafted to provide the registrar with the discretion to remove the name of the subject of the direction from the publicly accessible register where a direction has been issued. I assure hon. Members that where there is potential for harm to be caused, the registrar will exercise that discretion and, therefore, the harm will cease at the point the direction is issued, regardless of the length of the compliance period.
Where a name is removed from the register, it would normally be replaced with a company registration number. I anticipate that we will legislate in secondary legislation for the registrar to annotate the register, explaining that the name had been changed because it was the subject of a direction. The Opposition’s amendments have highlighted that the suppression capability is not at present available to the registrar in all circumstances where a direction might have been issued. The Government amendments will ensure that in future it will be. Members can see those amendments in the amendment paper and will have the chance to debate them in a future sitting.
Clauses 23 to 27 comprise a chapter on business names. Clause 23 mimics clause 10, which I explained earlier, in the context of the use of business names in the UK. It builds on existing safeguards in part 41 of the Companies Act 2006, which makes it an offence for a person to carry on business that gives the impression of a connection with the UK Government and public authorities. The clause supports that framework by making an amendment to the 2006 Act that provides safeguards in the international sphere. The clause also contains the same safeguards for those conducting business with legitimate connections.
Clause 24 amends section 1198 of the 2006 Act to lower the threshold for the likelihood of harm required to satisfy the legal test. Currently, it is an offence for a person to carry on business in the UK under a name that gives such a misleading indication of activities that it is likely to cause harm to members of the public. In future, the offence will be based on whether the name poses a risk of harm to the public.
Clause 25 closes a loophole in existing legislation. At present, there is nothing to prevent a company that is the subject of a direction or order from carrying on business in the name that it has been directed or ordered to change. The clause makes it an offence to do so. There are exceptions to that where the period for complying with the direction or order has not passed, where the company has since been registered with the name following approval under proposed new section 57B of the 2006 Act, or where the direction or order was given before the clause commences.
Clause 26 introduces a proposed new section in the 2006 Act and builds on what is done in clause 25. Clause 26 makes it an offence for a company to carry on business in the UK under a name that another company has been directed or ordered to change where both companies share, or have shared, the same officers or shareholders.
Clause 27, the final clause in the group, introduces a proposed new section in the 2006 Act and gives the Secretary of State discretion to disapply any restriction or prohibition on carrying on business under a name, if it is in the interests of national security or for the purposes of preventing or detecting serious crime. Where such discretion is exercised, the Secretary of State must give written notice of confirmation to any relevant person. It is necessary that sufficient flexibilities exist in all areas to take the steps most appropriate to safeguard security and target serious crime.
Amendments 72 to 76 would impose a duty on the Secretary of State to publish details of instances where he had extended the deadline for companies to comply with directions that he had issued to them to change their company name. I am not sure, however, that it would achieve what the Opposition really intend it to. It is of course always dangerous to make assumptions, but I suspect that what those who have tabled the amendment really want is for information to be published about each and every direction that the Secretary of State has issued, and that is not what it would do. I reassure hon. Members that we will consider how that information might best be made available—potentially, for example, through annotations of the companies register, which would of course be available to view through the Companies House online service.
I thank Members for their patience. I have taken them through a technical but important part of the Bill. I hope that they will appreciate that their amendments perhaps do not have the desired effect, particularly taking into account the Government amendments that have been tabled.
Stephen Kinnock
I thank the Minister for coming back in such detail on our points. We certainly look forward to studying new clause 34. We have not really had an opportunity to look at it yet, but it is great to see that the Minister and his team have taken our amendments on board and come up with something that will hopefully enable us to find common ground.
I want to make two additional points. The first goes back over the ground of “at least” versus “within” debate. I spoke earlier about proposed new section 76A(3), on page 10, as introduced by clause 17(4), which says that the period must be a period of “at least” 28 days; our amendment suggests that it should be “no more than” 28 days. The Minister said that making that change would give no leeway to the Secretary of State to be able to override in certain cases. We accept that there are certain cases where further direction is required to extend the period; there may well be extenuating circumstances, and we certainly do not want to create a straitjacket for businesses—we take that point. However, proposed new subsection (4) does precisely that. That is why we should lay out in proposed new subsection (3) that the basic principle is “no more than” 28 days. We have no desire to change the provisions of proposed new subsection (4)—with extenuating circumstances, the Secretary of State should be able to extend the period.
We would be more than happy with that change. It only requires the insertion of “no more than” in proposed new subsection (3), and no change to proposed new subsection (4). That would give the right balance between the need for a basic, tightly defined standard and still having the ability for the Secretary of State to extend the period where required.
Kevin Hollinrake
As I said before, I think the Bill achieves the same objective; it might not be with the words of the hon. Gentleman’s choosing, but I think the objective is served by the drafting we have. It may well also be served by the drafting he suggests, but I do not see the point of changing the wording when it already does the same thing.
Stephen Kinnock
I thank the Minister for that response.
My second point is on clause 15, which considers changing names. As we have said, the clause is a welcome recognition of the issues around name changes and companies using names for fraudulent purposes—trying to give themselves connections to well-known brands and so on. Many legitimate companies that raise objections via the company names tribunal are facing delays of three months or more before they get a decision. I asked whether the Minister could assure us that the Government are alive to the issue. What steps might they be taking to speed that process up?
Kevin Hollinrake
I am happy to. I think we would all acknowledge that, due to various reasons beyond any of our controls, tribunals have fallen behind in the cases they are hearing. I am very happy to look at the timeframes that the hon. Gentleman refers to, as I was not aware of specific issues. The important principle behind the clauses is that they allow the Secretary of State, via Companies House, to bear down very quickly when there is the risk of harm to individuals, companies or others.
Stephen Kinnock
In the light of the fact that new clause 34 has been tabled, which we have not yet had the opportunity to study, we will not press the amendment. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Chair
Does the hon. Member for Feltham and Heston wish to move any of the other amendments?
Stephen Kinnock
I beg to move amendment 86, in clause 28, page 17, line 14, at end insert—
“(2A) An address is not an ‘appropriate address’ if—
(a) it is not a place where the business of the company is regularly carried out;
(b) the registrar, upon inspection, has reasonable grounds to suspect that the company does not have permission to use the address; or
(c) it is a PO Box address.
(2B) The Secretary of State may by regulations make provision—
(a) for exceptions to subsection (2A) above; and
(b) for the registrar to exercise discretion to disapply subsection (2A) in exceptional cases.”
This amendment seeks to clarify the Bill’s definition of an “appropriate address” for a company’s registration.
The Chair
With this it will be convenient to discuss the following:
Amendment 94, in clause 28, page 17, line 32, at end insert—
“(4A) After section 87, insert—
‘87A Duty of the registrar to verify appropriateness of address of registered office
(1) This section applies where the registrar has received—
(a) a statement of the intended address of a company’s registered office (under section 9(5)(a)), or
(b) notice of change of address of a registered office of a company (under section 87(1)).
(2) The registrar must assess the risk that the company is involved in economic crime.
(3) If following the assessment required by subsection (2) the registrar considers that there is a real risk that the company is involved in economic crime, the registrar must—
(a) take steps to determine whether the address which has been supplied is an appropriate address within the meaning of section 86(2), and
(b) refer the matter to the relevant law enforcement agency.’”
Clause 28 stand part.
Clause 29 stand part.
Stephen Kinnock
This important amendment seeks to clarify the Bill’s definition of an appropriate address for a company’s registration. We have talked many times, both in this Committee and elsewhere, about red flags in company formation and registration. It must be an overriding aim of the Bill to ensure that any indicators of suspicious activity can be swiftly and easily identified in order to ensure that the appropriate investigations and, where necessary, enforcement actions are carried out at the earliest possible opportunity.
One thing is glaringly obvious from the many recent reports on how criminals are able to exploit weaknesses in the company registration system. The widespread, unchecked use of false addresses for criminal purposes is surely one of the most urgent problems for the Bill to address. In evidence to the Committee last week, there was a high degree of consensus from all our witnesses that the fraudulent use of addresses is among the most serious problem within the current register.
Bill Browder provided a cogent summary of the issue. I will not quote him in his New York accent, but I am sure you can imagine it. He said,
“This whole post-box idea just lends itself to anonymity and so on. Why do people not just register their companies at their own home or their own business address if there is a legit company? What is this business with 2,000 companies in one strange industrial park in Glasgow?”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q152.]
Though all due respect to SNP colleagues—I am quoting, Ms Bardell, please don’t shoot the messenger!
It is now a well-established fact that there can be hundreds, perhaps even thousands, of different companies registered to a single address. It is hard to think of a more obvious red flag. Ensuring that Companies House can more quickly and easily identify and investigate specific addresses used illegitimately by multiple companies is a vital prerequisite for better enforcement of laws on economic crime.
There are other fairly basic steps that the Government could take to tighten up rules on the kinds of addresses companies can provide as part of the registration process. Amendment 86 provides some specific examples of how that could be done. We hope that the amendment can serve as a starting point for efforts to ensure a much more rigorous set of registration requirements than those currently in place. An obvious place to start is to tackle the apparent overuse of PO box addresses. They have been linked with fraud and other criminal activity in several high-profile cases highlighted in recent media reports.
The FinCEN files also provide evidence of the scale of the problem in the UK. In its February 2022 report on economic crime, the Treasury Committee also described how PO boxes provide many criminal enterprises with a highly convenient way to establish a front for illicit activities while making detection and tracing of those involved much more of a challenge for law enforcement. Amendment 86 would seek to tackle the issue by establishing a general presumption against allowing companies to designate PO box addresses when registering, while leaving open the possibility for exceptions to be made in some cases where there may be legitimate reasons to do so.
Our amendment also goes further by introducing a general requirement for companies to provide a UK address where it actually conducts its business on a regular basis. The absence of such a requirement under the current rules makes it much easier to obscure the true purpose of a company and much harder for law enforcement to trace that and control it.
In part 2 of the Bill, the Government are seeking to strengthen requirements for limited partnerships to provide an address that is its principal place of business in the UK. The Opposition welcome that approach and believe that it could and should be applied more broadly. Therefore, amendment 86 proposes that the address requirement for all companies should be brought closer in line with those of limited partnerships under part 2, as proposed by the Government.
The amendments are all designed with our shared aims and values at heart. I hope that the Minister will take time to reflect and consider their worth.
Alison Thewliss (Glasgow Central) (SNP)
I support the amendment tabled by the hon. Member for Aberavon, and that tabled by the right hon. Member for Barking, because a lot more needs to be done to regulate what is an appropriate address and to verify it in the real world.
In his evidence, Graham Barrow mentioned a 92-year-old gentleman whose name has just been used by scammers for a second time. People fraudulently use names and addresses that belong to real people to set up companies and those people have no idea that their names have been abused. Graham Barrow also highlighted a piece on “You and Yours” on Radio 4 where a lady who had had Asda Limited registered to her terraced house in Huddersfield received 7 kg of post, and all kinds of other threats from bailiffs and others who turned up at her door. That goes to show how the current system is not working. I seek to be reassured by the Minister that the proposed clauses will be sufficient to deal with the problem.
Over many years I have been familiar with problems associated with Scottish limited partnerships—SLPs. The Ferret reported in October 2021 about a company named The Edinburgh Office—a company formation, agent-type of business—which had registered 2,000 companies at their registered address of 101 Rose Street South Lane in Edinburgh—there are no such things in Glasgow, obviously, but these things happen in Edinburgh. Perhaps they do not happen in Aberavon, but they happen in many, many places around the country. Such companies hide behind mailbox addresses. Many of them were at best iffy, others involved outright criminality and all kinds of nefarious activities.
There was a photograph in The Ferret article—I cannot pass it on to include in Hansard—which showed a boarded-up building. That should be a red flag: 2,000 companies registered to a boarded-up building that does not look like a working building at all, but those companies were allowed to carry on their business. I do not know whether the clauses will make a real difference and people will be empowered to check whether those addresses exist in the real world and are being used.
There is also the issue of companies abusing actual companies’ real addresses too. David Leask and Richard Smith, who have been excellent investigative journalists, taking Scottish limited partnerships to task for many years, reported in The Times back in April this year that an SLP in the name of Alexey Krapivin called Clover Consulting Partners gave its listed address as that of the Edinburgh legal firm Burness Paull. Burness Paull said that it knew nothing about it. Clearly, it had been receiving mail, so I do not know the extent to which it checks such things, after receiving mail for a company that does not exist. In any event, it ceased to offer services for company formation to companies of that kind back in 2018.
This company had been using Burness Paull’s address with absolute impunity, and it was not new to dodging the Companies House rules. The company was formed in 2005 and made no meaningful filings to Companies House until it was forced to register a person of significant control in 2017. That was 12 years of non-compliance with the existing Companies House rules, yet there was no comeback on that. I seek from the Minister provisions in the clauses around enforcement, which is not happening under the current rules. I need to be convinced by him that it will happen under the rules that he is laying out.
The clauses talk about fines on a standard scale, and all those kinds of things. Those fines are not even being issued. I have asked parliamentary questions about that. Since the rules came into force only one Scottish limited partnership has been fined for failing to register a person of significant control, and that fine was £210—nothing, in the scheme of things. I ask the Minister whether the rules will be enforced. Will addresses be checked, to ensure that they are real businesses, carrying out real work, with real companies and real people? If not, will he accept the amendment, which goes some way to ensuring that the companies exist at the addresses that they say they do. Without boots on the ground to check such things, it does not matter whether we set it up in Aberavon, Glasgow or Edinburgh; nobody will know that it is not true.
Kevin Hollinrake
The right hon. Gentleman may think a duty to check 4.5 million addresses is proportionate. I think it would be disproportionate. The vast majority of those addresses are bona fide addresses of bona fide companies. We have to take a risk-based approach; I think we would both agree on that.
The right hon. Gentleman returns to resources. We have already had a long debate on resources. He knows that I agree that the registrar, and the law enforcement agencies for that matter, must have sufficient resources to ensure that the registration of persons of significant control is undertaken. That body of work is ongoing now with Companies House.
Stephen Kinnock
Would the Minister consider a PO box address to be an appropriate address—yes or no?
Kevin Hollinrake
No, and I will come to that point shortly.
Clause 29 provides an important new power for the registrar to deal effectively with those abusing our systems. As we have discussed and all agree, for too long criminals have acted with impunity, providing fraudulent addresses for companies set up deliberately to scam people, many of them vulnerable. We know the distress and inconvenience that can cause to many constituents, including when bailiffs arrive at the door in connection with a matter with which that person has no connection.
Dame Margaret Hodge
I am very happy to do that. I think we all want the same thing. All we are trying to do is find the best way of doing it. I will be pressing this amendment to a vote, I am afraid. My warning to the Minister is that if he does not do the work in this area, he will find that he has left a very wide loophole, which will be exploited by those who want to use us as a destination for illicit finance.
Stephen Kinnock
It is difficult for me to match what my right hon. Friend the Member for Barking has so eloquently said and what other colleagues have said. I think we need to reinforce the point that we need somewhere in the Bill a very clear indication that it is the duty of the registrar to conduct risk-based assessments. If not, the Bill will leave a loophole, and we should not allow that to happen. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 94, in clause 28, page 17, line 32, at end insert—
‘(4A) After section 87, insert—
“87A Duty of the registrar to verify appropriateness of address of registered office
(1) This section applies where the registrar has received—
(a) a statement of the intended address of a company’s registered office (under section 9(5)(a)), or
(b) notice of change of address of a registered office of a company (under section 87(1)).
(2) The registrar must assess the risk that the company is involved in economic crime.
(3) If following the assessment required by subsection (2) the registrar considers that there is a real risk that the company is involved in economic crime, the registrar must—
(a) take steps to determine whether the address which has been supplied is an appropriate address within the meaning of section 86(2), and
(b) refer the matter to the relevant law enforcement agency.”’—(Dame Margaret Hodge.)
Economic Crime and Corporate Transparency Bill (Seventh sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (Seventh sitting)
Stephen Kinnock ExcerptsThursday 3rd November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 3 November 2022 - (3 Nov 2022)
Kevin Hollinrake
It is a pleasure to see you in the Chair, Ms Elliott.
Government amendment 1 is one of six amendments that the Government have tabled to clauses 32 and 34. Before I discuss the Government amendments and those tabled by the Opposition, it is worth explaining what clause 32 does in order to understand better the purpose of the Government amendments.
Currently, individuals subject to an asset freeze—designated persons under the regulations that contain prohibitions or requirements of the sort referred to in section 3(1)(a) of the Sanctions and Anti-Money Laundering Act 2018—can continue acting as a director. They can also be involved, directly or indirectly, in the promotion, formation and/or management of a company. It is not appropriate for asset-frozen individuals to be company directors. It would be perverse for a person who is forbidden from dealing with their own funds or economic resources none the less to be free to direct a company.
Clause 32 prohibits individuals subject to an asset freeze from acting as directors, and does so by amending the Company Directors Disqualification Act 1986 to prohibit individuals subject to an asset freeze on or after the day the provision comes into force from acting as directors of companies or directly or indirectly taking part in or being concerned in the promotion, formation or management of a company. Such individuals will only be permitted to take part in such activities with the leave of the court.
An individual in breach of that prohibition will be committing an offence, the maximum penalty for which will be two years’ imprisonment or a fine, or both. It will be a defence for the person if they did not know and could not reasonably have known that they were subject to an asset freeze at the time that they acted as a director or were involved in a promotion, formation or management of a company. The provision will take effect in England and Wales, and Scotland; clause 34 makes the equivalent provision for Northern Ireland.
Government amendments 1 to 6 all work to the same purpose. Collectively, they will ensure that new director disqualification measures impact those who should be prevented for public policy reasons from acting as directors, namely individuals who are subject to an asset freeze. The amendments will also ensure that we do not disproportionately and unnecessarily extend measures to categories of people whose sanction status has no bearing on whether they are fit to act as company directors. The narrower definition introduced via the amendments includes only designated persons subject to asset-freeze measures of the sort described in section 3(1) (a) of SAMLA.
Stephen Kinnock (Aberavon) (Lab)
Could I trouble the Minister to explain a little more about what categories of people who are sanctioned should therefore allowed to be designated as unqualified as directors under the legislation? He has said that amendments are an attempt to narrow the definition to assets-based, but is he therefore saying that someone who is sanctioned for human rights abuses should nevertheless be able to be qualified as a GB director?
Kevin Hollinrake
I will go on to describe the categories. As the hon. Gentleman knows, an assets freeze is a type of financial sanction. Only those sanctions are relevant to someone’s ability to manage, form or promote a company. Non-asset freeze financial sanctions, such as securities and money market instrument prohibitions, can apply to a broader category of person beyond designated persons, for example, all persons connected to a particular country. To subject entire populations of countries to the directorship ban is grossly disproportionate. It would also be operationally unenforceable, as only designated people appear in published sanctions lists.
Stephen Kinnock
On the point about the FCDO not sanctioning anything apart from asset freezes, does it not impose travel bans? Is a travel ban not a non-asset freeze type of sanction?
Kevin Hollinrake
Yes, that is right. What we are focusing on in the Bill is people who are subject to asset freezes, not travel bans. Hon. Members can argue that other people should be banned from being the director of a company, but we do not think this is the appropriate place to make that restriction.
Stephen Kinnock
Are the Government saying that if somebody has been sanctioned and given a travel ban but not an asset freeze, they are still a fit and proper person to be a director of a British company?
Kevin Hollinrake
The point is that they may be or they may not be. Putting a broad ban in the Bill just because somebody is subject to a travel ban is not the appropriate way to do it, in terms of whether they are a fit and proper person to run a company.
Stephen Kinnock
Are the Government seriously arguing that somebody who has been sanctioned by the FCDO and given a travel ban but not an asset freeze is still a fit and proper person to be a GB director? If the Minister is saying that the Bill is not the proper place to deal with that issue, where in our legislative framework will it be made clear that somebody who has a travel ban under FCDO sanctions is not a fit and proper person to be director of a British company?
Kevin Hollinrake
What we are talking about here is financial sanctions. These matters relate to companies and financial sanctions, not to travel sanctions.
Let me explain these points further. Not automatically imposing these measures on potential future scenarios will give the Foreign, Commonwealth and Development Office the flexibility it needs to impose the most appropriate and meaningful conditions on people designated for financial sanctions beyond asset freezes. Without these amendments, director disqualification measures introduced by the Bill would automatically apply to anyone against whom the designation power under section 9 of SAMLA 2018 is utilised—for example, transport or immigration sanctions, or any future measures that His Majesty’s Government choose to design. Although those are extremely serious matters, such sanctions ought not by necessity impact on the person’s ability to act as a company director. Furthermore, should there be a future need to extend director disqualification measures to people subject to those broader sanctions, that can be done via future legislation as and when the need arises.
Kevin Hollinrake
That is a fair point and it is covered in the Bill, which seeks to make it easier for Companies House to share information proactively with other organisations or, indeed, commercial organisations and vice versa. Here, we are talking about specifying the exact circumstances in which that should happen, which we think is the wrong approach.
I now turn to amendment 93, which seeks to expand the criteria for disqualifying individuals from being company directors to include people suspected of facilitating evasion of UK sanctions by sanctioned individuals, in addition to the sanctioned individuals themselves. Any person enabling or facilitating the evasion of certain sanctions would already be committing an offence, for example, under regulation 19 of the Russia (Sanctions) (EU Exit) Regulations 2019. The maximum penalty on indictment is seven years in prison or a fine. Those are already dissuasive measures to ensure compliance with sanctions.
It is not appropriate and proportionate to apply director disqualification and offences to an individual who is only suspected of facilitating the evasion of sanctions. It is not clear what would constitute such suspicion and at what point a person would be prohibited to act. That could mean exposing an individual to criminal liability in circumstances reliant on suspicion alone, which I am sure the right hon. Member for Barking would not want to see. The uncertainty of what would constitute the criminal offence and potential interference with presumption of innocence has implications for the rule of law. I therefore ask hon. Members not to press their amendment.
I will now speak to clause 33. New section 11A of the Company Directors Disqualification Act 1986, introduced by the Bill, prohibits individuals subject to relevant financial sanctions, such as asset freezes, from acting as directors of companies. The clause limits the scope that prohibition by disapplying it for building societies, incorporated friendly societies, NHS foundation trusts, registered societies, charitable incorporated organisations, further education bodies and protected cell companies. The Secretary of State may, by regulations, repeal any of the subsections in the section, therefore applying the prohibition on individuals subject to an asset freeze from acting as directors in any of the organisation types in the clause. That allows the Secretary of State to apply those measures only to company directors in line with the policy focus of the measures in the Bill, without that unnecessarily applying to other entities currently not in scope. That will take effect in England and Wales and Scotland. Clause 35 makes equivalent provision for Northern Ireland.
Stephen Kinnock
Clause 32 raises important questions about who we should and should not allow to hold positions of power and responsibility in UK companies.
Currently, under the 1986 Act, the circumstances in which a disqualification order can be imposed are strictly limited. For the most part, they involve individuals with a criminal record for breaches of company legislation involving UK companies. Clause 32 expands the disqualification criteria to provide an explicit prohibition on any sanctioned individual serving as a company director. That is entirely proper, but the Opposition’s question is: why are the Government not going any further? They have considered who should be banned from serving as a company director, but the decision to add only those specifically designated under UK sanctions legislation feels like a missed opportunity.
We tabled amendment 93 to better understand and probe the Government’s thinking and to explore how additional changes could contribute to the Bill’s aims. The amendment is largely self-explanatory: it would add to the criteria those who aid and abet sanctioned individuals, or so-called “enablers” who help sanctioned individuals to evade our laws. The Minister will be aware of the army of lawyers, accountants and other so-called service providers who are in many ways doing Putin’s dirty work in London. In our view, it is crucial that they are caught in the net that the Bill seeks to cast.
Kevin Hollinrake
I totally agree with the hon. Gentleman that we need to clamp down on the enablers of dirty money, but does he understand the point behind the provisions? There are serious penalties for somebody convicted of breaking sanctions—up to seven years in jail—but his amendment seeks to penalise somebody who is not convicted but merely suspected of facilitating that kind of activity. Does he understand why that is a difficultly for the Government?
Stephen Kinnock
I do understand that; the Minister makes a valid point. As I was saying, this is what one might describe as a probing amendment to try to get from him a sense of the proactive action the Government are going to take to go after those enablers.
Dame Margaret Hodge
The Minister is quite right to say that the powers are there, but I hope he agrees that a way to facilitate this would be to introduce a new criminal offence of failure to prevent economic crime. In that case, the enablers to whom my hon. Friend refers could be caught and rightly punished for their role in colluding or facilitating economic crime.
Stephen Kinnock
I thank my right hon. Friend for that extremely useful and eloquent intervention. That is absolutely the case, because the enablers are, by definition, experts in knowing how to play and game the system. We know it is going on, but they are notoriously difficult to track down. If we put the onus on industries to act proactively to prevent this sort of activity, that changes the game and makes prevention much more of a duty. I agree with the Minister that we cannot punish people if they are only suspected, but we can have a proactive ex ante approach. I would be grateful to hear his thoughts on that. In many ways, the amendment was designed to illicit a response from the Minister on what my right. hon Friend has just so rightly described.
The Minister has already pointed out that specifically designated individuals represent just the tip of the iceberg in terms of the scale of economic crime in the United Kingdom. There are any number of others who seek to exploit weaknesses in our laws and our ability to enforce them—for example, by creating opaque corporate structures to hide kleptocrats’ assets. Adding to the criteria those who help to facilitate the evasion of sanctions by designated individuals—not necessarily as our amendment suggests, but through a more root-and-branch, proactive ex ante approach—is one way the Government could really improve the Bill. I would appreciate the Minister’s thoughts on that. Restrictions on company directorships, as envisaged by amendment 93, should go much further.
Clause 33 extends the provisions of clause 32 to sectors other than companies—for example, building societies—and clauses 34 and 35 extend the same provisions to Northern Ireland. We support those clauses and, of course, amendment 83, which was tabled by my right hon. Friend the Member for Barking.
At various points in recent years Ministers have outlined a number of specific proposals, which now appear to have fallen by the wayside. It seems reasonable to expect that all companies should have at least one director who is an actual human being. We do not have to be experts to intuit how easy it is to abuse the existing system, which allows a company to name another company as its director provided that at least one human being is on its board. In the Government’s own words in a 2021 consultation paper:
“Evidence suggests that the use of corporate directors can muddy the waters around ownership and provide a screen behind which to conduct illicit activity…More generally the opacity they create can weaken corporate governance by preventing individual accountability.”
The Government even went so far as legislating in the Small Business, Enterprise and Employment Act 2015 to enable the Secretary of State to impose a ban on corporate directors. After more than seven years, however, regulations to implement that have yet to be published. In fact, clause 37—on which my hon. Friend the Member for Feltham and Heston will speak shortly—makes some changes to the relevant section of the 2015 Act. The apparent intent of the changes, which is to make it easier for corporate directors to be held to account for their action, is certainly welcome, but what is not clear to Opposition Members is why the Government have decided to amend the primary legislation—namely, the 2015 Act—when, as we understand it, the secondary legislation to implement the ban on corporate directorships under that Act has still to be introduced. Perhaps the Minister will shed some light on that.
Another glaring omission is the issue of nominee directorships. As long ago as 2013, the Government raised that as an issue that company law reform should deal with. Again, the Government’s own words provide us with a useful summary of the problem:
“Where a company is being used to facilitate criminal activity, the individuals who really control the way that the company is run will likely want to avoid making this information public. They may use ‘nominee directors’ to do this. Nominee directors are individuals who go on the public record as the director of the company to be, effectively, a ‘straw man’ or ‘front man’ for the company. The beneficial owner ‘stands behind’ the nominee and controls the way that the company is run”,
de facto. The failure to address that in legislation remains a cause for serious concern.
Kevin Hollinrake
I am not sure I understand the hon. Gentleman’s point. Irrespective of who the directors are, if people of significant control are exerting such influence, they will have to be named and have their ID verified under the Bill.
Stephen Kinnock
My understanding is that the regulations under the 2015 Act have not yet been put in place. Our question is: why are the Government not implementing those regulations but instead seeking to introduce the provisions in the Bill? That is simply a point for clarification and explanation. We welcome the fact that ID verification is provided for, but we are trying to get to the bottom of who a nominee director is and who actually controls a company. It would be useful to understand what happened between 2015 and 2022 to prevent the implementation of the regulations.
Kevin Hollinrake
Two separate things are going on. The Bill enables regulations to ban corporate directorships unless the corporation itself has all its directors named and they are all actual persons and ID-verified. It will do exactly that. The other point that I think the hon. Gentleman is talking about is people who sit behind companies and influence them but might not be named in those companies. If people do that, they are persons of significant control; under the definitions in the Bill, someone does not have to own 25% of the shares of a company to be a person of significant control, but they have to be named and ID-verified.
Dame Margaret Hodge
As I understand it, if the owner of a company is an opaque company in the British Virgin Islands or another one of our tax havens, the ability to get behind that and see the person of significant control is pretty nigh impossible, so there is still a mechanism there. People could intentionally set up a company in the UK that is totally owned by a company established in the BVI. That information is not currently on the public register, although we are anxiously waiting for it to be so in 2023. There is no way of getting the persons of significant control verified, because it is outside our control.
Kevin Hollinrake
There are two separate things going on here: ownership and directors. We were talking about directors, and the right hon. Lady is now talking about ownership, which is a slightly different thing, but we will talk later about ownership and how that information has to be made public under this legislation.
Stephen Kinnock
I thank the Minister; I think he has just provided clarification that he is confident that there is now a ban on the use of nominee directors as a front to obscure true beneficial ownership. We are grateful for that absolute reassurance. There was perhaps a misunderstanding on our side of some of the technicalities in the Bill that I am seeking to probe, so I am grateful to the Minister for that clarification.
It is worth noting that the World Bank published a report just a few months ago that explained how, under current UK law, nominee directors of UK companies can neglect their duties by failing to submit accounts and certify companies as dormant, even though tens of millions of pounds are passing through those accounts. A crucial point is that the impunity of delinquent nominee directors is especially pronounced if such nominees are not UK residents. On the rare occasions that they are questioned, such directors tend to make the legally false argument that because they are only nominees they have no responsibility to know anything about the company, let alone control its actions.
The lack of progress on this issue—certainly until the Bill’s introduction—has raised concerns with us. Again, perhaps the Minister will say a little more about the Government’s thinking. What does he think has been the impact of not implementing the regulations from the 2015 Act? Can he reassure us with absolute confidence that the issue of delinquent nominee directors will be eradicated by the passing of the Bill?
Alison Thewliss (Glasgow Central) (SNP)
The hon. Gentleman is making a really important point about nominee directors. Is he aware of a “File on 4” programme —I believe it was aired last year—about nominee directors being recruited via Facebook groups and paid to take on that role? Is he concerned that it may still be possible to do that? Does the Bill need to do more to clamp down on the recruitment of nominee directors who get some money for taking on that role?
Stephen Kinnock
The hon. Lady raises an extremely important point and illustrates the absurdity of the situation we have got into. There seems to be a “wild west” approach to running corporate affairs in the UK and it is simply not acceptable. I thank her for that intervention and reiterate my hope that the Minister can give us an absolute reassurance that the issue of nominee directorships will be dealt with firmly and clearly in the Bill, without any loopholes. I also hope he will share any other thoughts he may have on the matter.
Liam Byrne
It is a pleasure to serve under your chairmanship, Ms Elliott. I am sorry that I have not checked the sartorial guidance for the Committee, but I assume it is okay for me to speak without a jacket on. I defer to the Chair if she wants me to clothe myself more adequately.
Seema Malhotra
I thank the Minister for giving way. I do not think this is a case of micromanagement, and nor are we asking for hundreds of things. We are making a specific request, based on specific research. I think an automatic alert could be triggered, and perhaps the Minister—
Seema Malhotra
I will just finish my point. Should the registrar be watching this debate and decide that an automatic alert is a good idea, does the Minister agree that the power of information sharing would enable the registrar to consult the Office of Financial Sanctions Implementation and the National Crime Agency should a relevant change have occurred in the previous three months?
Kevin Hollinrake
As I have already said, such information-sharing is exactly what the Bill facilitates. It may well be that Companies House decides that that is exactly the right trigger to share information with the OFSI. Our view is that we should not direct Companies House in that level of detail as to how the registrar should perform her wider duty. We will continue to disagree on that point if the hon. Lady presses her amendment.
Stephen Kinnock
I thank the Minister for allowing me to intervene where I should have done in the first place. On the quantum that we are considering, as my right hon. Friend the Member for Birmingham, Hodge Hill has just said, 1,200 individuals and 120 businesses have been sanctioned since Putin’s illegal invasion of Ukraine. We are not talking about a huge number. Perhaps the terms of the amendment tabled by my right hon. Friend the Member for Barking could be more tightly drawn to make it clear that it is not about every movement of assets and everything a company has done, but simply designed to ensure that if there was a change of director or change of address, the registrar should share that information with the other relevant agencies. The quantum is quite small, so would the Minister consider that proposal?
Kevin Hollinrake
I think we need to move on, and I think the hon. Gentleman is missing the point as well. This is not about my deciding whether the proposal is right or wrong, or whether Companies House has or has not got the resources. For me, it should have the resources that it needs. However, it is for the organisation itself to determine the best way to alert other authorities to the risk. That is the principle at issue here, and it is one to which I will strongly adhere.
The argument about enablers has been well made, and we have referred to corporate criminal liability and the failure to prevent that. As the Committee is aware, I have been a key advocate in introducing such liability for fraud and other offences. Members may have noted the details of a case this morning, in which the current offence of failing to prevent bribery was a key element in the case against Glencore, which has pleaded guilty to that offence. The Serious Fraud Office launched a successful prosecution against Glencore and, although the number of times it has proceeded against a company is far too few, that prosecution shows that the current legislation can be effective. I am keen to discuss that further in our proceedings.
On travel bans and securities, Committee members might find it useful to sit down with officials to discuss those measures, so that they then understand why those things might not mean that a person is not a fit and proper individual to be a director of a company. I would be happy to extend that opportunity to members of the Committee.
The hon. Member for Glasgow Central spoke about nominee directors and associated abuses. Under the terms of the Bill, any director, nominee or otherwise, who acts outside the terms of the legislation and is subject to the control of another undisclosed person could be put in jail for two years. That is exactly what we are seeking to do and to clamp down on such inappropriate use of companies.
In terms of what the hon. Member for Birmingham, Hodge Hill said—is it right hon. or hon?
Economic Crime and Corporate Transparency Bill (Eighth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (Eighth sitting)
Stephen Kinnock ExcerptsThursday 3rd November 2022
(2 years ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 3 November 2022 - (3 Nov 2022)
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Mr Robertson. I think it is safe to say that we are coming to one of the most significant and consequential aspects of the Bill.
Clauses 61 to 67 take up a full 15 pages and provide a framework for the verification of the identities of individuals listed on the register of people with significant control, whom I will henceforth refer to as PSCs. Since its launch in 2016, the PSC register—more colloquially described as the register of beneficial owners of UK companies—has made important progress towards corporate transparency, but it remains very much a work in progress.
Much of this Bill is rightly concerned with closing loopholes in existing legislation and, as it stands, the PSC system has loopholes that are big enough to drive a coach and horses through. Even if we could rely on the good faith of all those who register, we would still be stuck with the fundamental problem of the 25% ownership threshold. The ease with which that can be used to circumvent the registration requirement—for instance, simply by splitting ownership shares between four people, who may all be family members—has been extensively discussed and is well documented.
During last week’s evidence sessions, my right hon. Friend the Member for Barking rightly drew attention to the case for a threshold set much lower than 25%. In response, Professor Elspeth Berry argued that although the threshold should certainly be lowered, even
“a zero percentage could be considered.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 103, Q194.]
That is the case, given how many different and probably more relevant ways there are of measuring corporate control in the modern business environment.
The Government will likely argue that 25% is a widely used international standard, but we should be clear about what that means. Nowhere is it suggested in any of the international frameworks to which the UK is a party that 25% ownership is anything more than an example of how a country might seek to define beneficial ownership. In fact, many jurisdictions set ownership thresholds much lower than that. Some jurisdictions—including Belize and Jersey, which are not exactly known as paragons of corporate transparency—use a 10% threshold. The Government’s failure to take the opportunity provided by the Bill to revisit the definition of beneficial ownership is, to put it mildly, a disappointment.
I will now look more specifically at ID verification. Clause 61 is the first of a series of clauses in which the Government enable new powers to be introduced to ensure that information on PSCs can be verified. Subsequent clauses stipulate that full details of the verification regime will be set out in regulations at a later date.
The Opposition find the absence of substantial details on verification procedures in the Bill perplexing. It is now more than three years since the Government launched the first of what turned out to be no fewer than four separate consultations on proposed reforms to Companies House, which included proposed ID verification powers. It is not at all clear why, after all this apparent effort, Ministers are still unable to set out specific plans in legislation. Perhaps the reason is that they have been struggling to make a decision and stick to it.
In the first consultation document back in May 2019, the Government stated fairly unambiguously that they believed that Companies House should be given responsibilities for ID checks. That view was reiterated in subsequent consultation documents published in February 2021, which seemed to indicate that the Business Department is better at flogging a dead horse than at drafting legislation. More than a year passed before the Government finally published a White Paper. By that time, Ministers appeared to have gone lukewarm on handing responsibility for ID checks to Companies House, with a shift in emphasis towards outsourcing the checks to third parties that are collectively known as trust or company service providers. Somewhat confusingly, they are now referred to in the Bill as “authorised corporate service providers”, or ACSPs.
That is extremely problematic, for a whole range of reasons. First and foremost, TCSPs represent a highly fragmented sector, making supervision of their activities very difficult indeed. Some may be supervised by professional bodies—for example, if they provide accountancy or legal services—while others may be supervised by HMRC. In some cases, there is no supervision at all, leading RUSI’s Helena Wood to compare the sector to the wild west. Ministers now propose to place an enormous amount of trust, faith and responsibility on the shoulders of TCSPs, about which they know very little.
Speaking to the Treasury Committee earlier this year, Graeme Biggar, the then director-general of the National Economic Crime Centre, said:
“We are developing a plan with HMRC and the Treasury to have both more supervision of, and more enforcement against, company formation agents. We are on it, but it is not the most developed of our plans. We have really got to do more work on that.”
It would be excellent if the Minister could give us an update on the progress of the work that Mr Biggar referred to in that evidence.
As things stand, it is hard to imagine what the Government were thinking with the proposals in these clauses. This is not just a case of sharing responsibilities for supervision between the public and private sectors, as is already the case in the legal, accountancy and some other sectors; this is about outsourcing a set of tasks to the least regulated, least understood and potentially least reliable part of the entire financial services industry. The Government’s own assessment in their national risk assessment was that TCSPs pose a high risk of being used for money laundering purposes. A previous risk assessment said:
“Ineffective AML supervision leads to inadequate compliance with the rules, and low and poor quality reporting of suspicious activity”.
For at least the past seven or eight years, official reports and media coverage have documented the involvement of UK-based TCSPs in the efforts of oligarchs, many of whom are Russian, to conceal their wealth in opaque webs of corporate structures. It should be clear by now that the Opposition have serious concerns about the proposal to outsource ID checks to the sector. We have therefore tabled new clause 27, which would require annual reporting on the progress towards establishing verification procedures, in order to probe the Government’s rationale for the policy. I hope that the Minister will take seriously the concerns I have just outlined, and that due consideration will be given to whether the policy is really in the interests of tackling economic crime and improving corporate transparency.
May I just ask you for clarification, Mr Robertson? Do you wish me to stop there or—
Stephen Kinnock
I would be very happy to pause and provide the Minister with an opportunity to respond, if he wishes to do so, on clause 61.
The Chair
As you wish. I will bring Alison Thewliss in next, but we can come back to you, Mr Kinnock.
Alison Thewliss
I wholeheartedly support Labour’s new clause. There is an awful lot more that needs to be done to tighten up the measure on verification. Nick Van Benschoten, in his evidence, said:
“On the verification measures, one of the key points is that they fall short of minimum industry standards. Verification of identity is necessary but not sufficient. A key thing we have noted is that the Bill does not provide for order-making powers to allow Companies House to verify the status of directors or beneficial owners, and for that sort of requirement on company information agents and so on. That seems an odd gap.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 7, Q3.]
I wholeheartedly agree with that. It is the key part of the Bill. If we are not going to verify people on the register, there is almost no point in having the legislation. It is the verification that is crucial.
Hand in hand with that are the fines for not complying with the verification. I draw the Minister’s attention, again, to the people with significant control over Scottish limited partnerships. There has been one fine of £210 since the rules came into place. That is no kind of deterrent whatsoever. The rules need to be here, the verification needs to be right, and the sanctions for not complying must be enforced. I would say that even the sanctions are far too low.
Leaving trust and company service providers to verify identity leaves the door wide open to abuse. There is already abuse, and the Government’s position in the Bill is to continue to allow that to happen. As the hon. Member for Aberavon said, trust and company service providers have been identified in numerous Government documents as being the gap that allows money laundering and international crime. That cannot be allowed to continue in the Bill. If the Government leave the door open for the trust and company service providers, they will continue to abuse the system and the register will continue to be full of absolute guff.
I raised the issue of verification in the House, albeit, I appreciate, with a different Minister, the hon. Member for Torbay (Kevin Foster). He suggested that a decision had not yet been made on how the verification system would work. My suggestion was that it go through the UK Government’s existing verification scheme, which is used for passports, driving licences and tax returns, because that system is already up and running. The response suggested that that had not yet been decided.
However, it was drawn to my attention today that Companies House has already put out a tender for a verification system. A tender went out on 10 October and closed on 24 October for an “authentication digital delivery partner”, looking for people to come and work on this system. I am curious to know why, when we have not yet got this legislation in place, the Government have tendered the contract and closed the application process for the company to build the system.
I would be grateful for some clarification from the Minister on exactly what the status is of that £3.7 million contract, which Companies House has already put out to tender. Why has it gone out before the Bill has concluded if Companies House does not know what it is building yet, and when amendments are still being tabled? I appreciate that the Government want to move at speed, but putting the cart before the horse in this way seems quite wrong.
We would like the verification to be strengthened, but if the Government have already instructed a contractor on what it will build, why are we even here this afternoon?
The Chair
For clarification, we will not vote on new clause 27 until later in the proceedings, and probably not today. We are discussing it now. In view of the fact that new clause 27 has already been raised, would you like to speak to it now, Mr Kinnock?
Dame Margaret Hodge
I am grateful to the Minister for saying that he will return to Parliament, but new clause 27 is designed to ensure that there is an annual report to Parliament. That means that our successors—certainly mine—will be able to hold Companies House to account over time. He knows that accountability is absolutely vital to ensuring the integrity of the system.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clause 62
Procedure etc for verifying identity
Stephen Kinnock
I beg to move amendment 108, in clause 62, page 47, leave out lines 14 and 15.
The Chair
With this it will be convenient to discuss the following:
Amendment 109, in clause 62, page 47, leave out lines 18 to 20.
Amendment 78, in clause 62, page 47, line 20, at end insert—
‘(2A) No verification statement may be made by an authorised corporate service provider until the Treasury has laid before Parliament a report confirming that the Treasury’s review of the UK’s anti-money laundering and countering the financing of terrorism regulatory and supervisory regime has been completed.’
This amendment prevents an authorised corporate service provider from making a verification statement prior to the completion of the Treasury’s review of the UK’s anti-money laundering regime.
Amendment 107, in clause 62, page 47, line 20, at end insert—
‘(2A) The regulations must make provision for the evidence required to verify an individual’s identity for the purposes of subsection (2)(a) to include—
(a) an identity document with a photograph of the individual’s face; and
(b) an identity document issued by a recognised official authority.
(2B) For the purposes of subsection (2A)(b) above, “a recognised official authority” includes—
(a) a department or agency of the UK government;
(b) a department or agency of any of the devolved nations;
(c) a department or agency of the government of another country;’.
Amendment 110, in clause 62, page 47, leave out lines 34 to 37.
Amendment 111, in clause 62, page 47, line 43, leave out from “registrar” to the end of line 44.
Amendment 112, in clause 62, page 48, leave out lines 4 to 26.
Clause stand part.
Stephen Kinnock
I have spoken at some length about the Opposition’s concerns about the provisions in clauses 62 and 63 to authorise third-party trust or corporate service providers—or authorised corporate service providers, as they are described in the Bill—to carry out ID checks on the Government’s behalf. Amendments 108, 109 and 110 to 112 would simply remove those provisions from the Bill in the hope of prompting a rethink by the Government.
I should like to explain the thinking behind the amendments tabled by me and my hon. Friend the Member for Feltham and Heston. The purpose of amendment 107 goes back to what I have said about the surprising lack of specific details on the proposed verification process. As I have said, it is not as though the Government have not had enough time to think through what procedures might be necessary; four consultations have already taken place on the topic. Amendment 107 would incorporate into the Bill requirements for some form of official identification, including photo ID, to be submitted to the registrar. That should not be controversial. In fact, the amendment would merely reflect international best practice guidelines, including those published by the Financial Action Task Force, the IMF and the World Bank, among others, and the commitments made in the Government’s own White Paper.
Dame Margaret Hodge
It is a pleasure to rise to speak under your chairmanship, Mr Robertson, and I do so to speak to amendment 78. The amendment is part of a batch of amendments that we will get to later. I hope that hon. Members will bear with me if I speak longer on amendment 78, so that amendments 79, 82 and 83 will not require a long explanation.
This is one of the most important series of amendments that we have placed before the Committee. The purpose is to ensure that we close any loopholes, so that we do not find ourselves back in debate in a couple of years’ time, bemoaning the fact that we failed to create watertight legislation and that we do not have the information and data that we need to hold businesses to account.
I stress that our aim is not to be bureaucratic. The last thing anybody wants is bureaucratic regulation. However, if we do not have effective, smart regulation, we will not achieve the objective, which is shared across the House, of bearing down on illicit finance and on the abuse of our corporate structure system by ne’er-do-wells. Today, we are paying the price of those who came before us, from both political parties, who thought that by simply deregulating the whole of the financial services sector, they would encourage growth in the economy. They did encourage growth, but they also made us a destination of choice for too much illicit finance. That has come into focus with the war in Ukraine and the role of Russians in bringing their financing here. That money is used to fund Putin and his allies in the attack on Ukraine.
The Government have decided to outsource responsibility for checking the unique identification of beneficial owners. I can see why they have done so. It is quicker to do it that way than to build up the necessary resources in Companies House. Like my hon. Friend the Member for Aberavon, I would have had more confidence if we had done it in house, but that was the Government’s decision. The purpose of my amendment is not to challenge that decision. However, we need to trust the corporate service providers. We need to trust both the professionals and the others involved, whether they are lawyers or accountants, to do the job properly and honestly. At present, confidence and trust are not there.
I thought that the Government were on the same page on this issue. From all the leaks, and from all the information and intelligence about how illicit wealth from all the kleptocracies has reached our shores, I thought that they understood the role played by the TCSPs. I thought they understood the role that the TCSPs play, and therefore shared our concern that we need to get that regulatory framework right before we unleash a new system that, if it is not right, could lead to us peopling the new Companies House register with dud information that we do not want.
Kevin Hollinrake
The hon. Lady is mixing up two different things. I am not saying that some company formation agents are not shady—I have just said that. However, not all service providers are company formation agents. Many are bona fide solicitors or accountants that are household names. I think we need to keep this in perspective. The hon. Lady cites statistics on the capability of some of the sector in terms of proper supervision. According to OPBAS, 50% of professional body supervisors were “fully effective”. I think that figure should be much higher, but in its opinion 50% are fully effective, so it is not as if there are not some actors in this area that are doing the job absolutely right.
Many company directors and people with significant control that are currently registered at Companies House, all of whom will need to verify their identity under the transitional provisions post enactment, would prefer to do so by using their professional adviser. They will suddenly find that their long-established legal adviser is deemed fit by the Government to verify their identity for money laundering purposes, but unfit to report that to Companies House. The amendment would therefore create considerable inconvenience to individuals, as well as to corporate service providers.
I can assure the right hon. Member for Barking and the Committee that I will urge my counterparts at the Treasury to bring forward their consultation as quickly as officials can ready it. I also point to the powers in the Bill that will enable the registrar to keep an audit trail of the activity of agents to support the work of supervisors both immediately and following any changes from the Treasury’s review. I hope my explanation has provided reassurance.
Let me touch on one or two of the right hon. Lady’s other comments. On the light-touch financial services regulation that I think she was suggesting was responsible for the global financial crisis, this is not deregulation. This is the opposite of deregulation; we are making regulations about the verification of ID. I would also point to the penalties for wrongdoing. In certain circumstances, if someone is found guilty of the aggravated offence of false filing under these rules—I think some of the examples she gave would constitute that—the sanction would be two years in jail. That is not for fraud, but for the false filing. There are real teeth to this legislation, which will reduce the likelihood of this stuff happening in future.
The right hon. Lady’s amendment would effectively delay the whole regime we are talking about. She talks about Transparency International. As I said earlier, TI welcomes the reforms to the operation of Companies House that will effectively help to prevent money launderers from abusing the UK’s system. We need to ensure that this happens as effectively as possible. I agree with many of the concerns that she raises, but it is wrong to delay implementation as she suggests.
I turn to amendments 107 to 112. I thank hon. Members for their contributions. The procedure for ID verification, including the evidence required, will be set out in secondary legislation under the powers in new section 1110B of the Companies Act 2006 inserted by clause 62 of the Bill. The regulations will set out the technical detail of ID verification procedures, which will reflect evolving industry standards and technological developments. The regulations can specify the process of ID verification and the evidence of identity that individuals will be required to provide when verifying their identity with the registrar. The amendments, particularly amendment 107, would limit the documents acceptable for the purposes of ID verification to photographic IDs issued by Government agencies and identity documents issued by a recognised official authority. That would exclude individuals who do not have a photo ID, such as a passport, from verifying their identity.
Stephen Kinnock
It is absolutely clear that our amendment 107 uses the words “to include”. We are not limiting anything. The amendment sets out what the minimum should be. Surely the Minister agrees that an identity document with a photograph of the individual’s face and an identity document issued by a recognised official authority should be the bare minimum we would want in the Bill.
Kevin Hollinrake
Under the cross-Government identity proving framework in “Good Practice Guide 45”—GPG 45—a combination of non-photographic documents, including Government, financial and social history documents, can be accepted to achieve a medium-level assurance of identity. That includes birth certificates, marriage certificates and recent utility bills. The framework, which also recognises ID documentation from authoritative sources, such as the financial sector or local authorities, is routinely used to build a picture of identity. Restricting that process by defining a recognised authority as a Department or agency could therefore inadvertently disenfranchise individuals from meeting ID verification requirements. I take the hon. Member’s point that the amendment seeks to include certain forms of ID, but it might not serve the purpose that he thinks it would.
Stephen Kinnock
No. I have made clear to the Minister that we are deeply unhappy, particularly with the failure to take on board the recommendations under amendment 107 and the very important points my right hon. Friend the Member for Barking made.
Dame Margaret Hodge
Similarly, I will take the matter up elsewhere during the course of the Bill.
Stephen Kinnock
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 62 ordered to stand part of the Bill.
Clause 63
Authorisation of corporate service providers
Dame Margaret Hodge
I beg to move amendment 81, in clause 63, page 49, line 38, at end insert—
“(3A) When an application is made under this section, the registrar may request evidence from HMRC that a fit and proper person test has been carried out on the applicant.”
This amendment allows the registrar to request evidence from HMRC that a fit and proper person test has been carried out on a person applying to be an authorised corporate service provider.
Dame Margaret Hodge
I will look in detail later to ensure that what I asked for is there, but I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 8, in clause 63, page 50, line 23, leave out “registered or”.—(Kevin Hollinrake.)
This amendment would mean that a firm applying to become an authorised corporate service provider would always have to state its principal office, rather than having the option of stating its registered office.
Stephen Kinnock
I beg to move amendment 98, in clause 63, page 53, leave out from line 29 to line 5 on page 54.
This amendment removes the provision enabling the authorisation of foreign corporate service providers.
The Chair
With this it will be convenient to discuss the following:
Amendment 99, in clause 63, page 53, line 37, leave out from “that” to “similar” and insert,
“has been assessed by the National Crime agency as having”.
This amendment would ensure that the judgement as to whether foreign jurisdictions have similar regulatory regimes would be in the remit of the National Crime Agency, rather than in the view of the Secretary of State.
Amendment 100, in clause 63, page 53, line 40, at end insert—
“(2A) No person who is subject to a relevant regulatory regime under the law of a territory outside the United Kingdom may become an authorised corporate service provider if there is evidence that they have been disqualified from acting as a corporate service provider in any other jurisdiction”.
This amendment ensures no corporate service provider based outside the United Kingdom can become an Authorised Corporate Service Provider if there is evidence that they have been disqualified from acting as a corporate service provider abroad.
Stephen Kinnock
Once again, I find myself somewhat baffled by what the Government are trying to get into the Bill. The provisions set out under clause 63 in proposed new section 1098I of the Companies Act 2006 would enable the Secretary of State to allow foreign corporate service providers to operate in the UK, outside the scope of the UK’s money laundering regulations. There has been such extensive coverage in recent years of the risks that that would entail that I am really quite amazed that this needs to be reiterated yet again, but, in a nutshell, any UK laws attempting to regulate the activities of company formation agents, some of which have been responsible for the most flagrant examples of money laundering and sanctions evasion according to recent reports, could well be rendered essentially meaningless by these few clauses.
I say that because, if enacted as drafted, the clauses would appear to hand the Secretary of State a blanket power to disapply the money laundering regulations to foreign agents, on no one’s authority but his or her own. We need not look too far for examples of how profoundly damaging that could be to our own laws, given how significant the divergences often are between anti-money laundering regimes in countries such as the UK, and those in overseas jurisdictions better known for their corporate secrecy than anything else. In fact, we need look no further than the UK’s own overseas territories and Crown dependencies.
Any Member who is either unaware of or in denial about the scale of the problem would be well advised to read an enlightening, although also alarming, article published by Forbes on 9 March 2022. It had the somewhat provocative title of “Evading Sanctions: A How-To Guide For Russian Billionaires”. The piece documented the use of opaque offshore corporate structures to launder literally billions-worth of assets held by Russian oligarchs in the last few months and years. What is most troubling about the account is that most of the jurisdictions that it specifically mentions as hotbeds of money laundering and sanctions evasion are UK-linked territories. It will surprise nobody that the list includes the Isle of Man, the British Virgin Islands and the Cayman Islands—in other words, the usual suspects.
I do not wish to dwell too long on the overseas territories, because I am sure there will be further discussions in the Committee when we come to debate later sections of the Bill. The point the Opposition are trying to make is simply that if we are going to allow businesses of any kind to operate in the UK, we should expect them to abide by our laws. If we start letting them off the hook, for reasons that Ministers have entirely failed to make clear, we are complicit in their actions. In short, the proposed new section 1098I would have us trust in the infinite wisdom of the Secretary of State to allow corporate service providers to operate outside the law, on the basis that those powers would be used only in cases where the relevant overseas jurisdiction has a regulatory framework with “similar objectives” to the UK’s own rules.
I frankly do not trust the wisdom of the Secretary of State to use those powers for good. I do not believe that it is at all appropriate for such sweeping, ill-defined powers to be conferred on the present or any other Secretary of State. Although amendments 99 and 100 are probing amendments that give us the opportunity to seek answers from the Minister on these extraordinary provisions, amendment 98 is intended quite simply to remove the powers from the Bill.
Kevin Hollinrake
Once more, I am sympathetic to the aims of the amendments. They are driven by concerns that AML supervisory regimes outside the UK may not be robust. That is why the Government are specifying that authorised corporate service providers must be subject to the UK’s AML regime. Nevertheless, it is possible that in the future the UK may become a party to an agreement—a trade agreement, for example—that would require it to accept applications from abroad where that regime is equivalent to that of the UK. I do not think the example the hon. Gentleman gave of Russia would qualify in that regard.
The power in the Bill would facilitate such an agreement and remove the need for primary legislation to implement it. I draw Members’ attention to the wording already in the Bill, in proposed new section 1098I(2), introduced by clause 63. The UK would only become a party to an agreement if it could be assured that the regime was no less effective than its own. To be confident of that parity, the Secretary of State would need to establish that a regime was the equivalent of the UK’s by considering evidence and advice from a range of sources, including the National Crime Agency. That would include the consideration for whether prospective authorised corporate service providers are disqualified under the relevant legislation.
As the legislation makes clear, the power would be subject to the affirmative resolution procedure and parliamentary scrutiny. While I understand any concerns expressed, I hope that Members will withdraw the amendment.
Stephen Kinnock
I thank the Minister for his response. As with the previous debate, I am not particularly happy with the position, and we will look for opportunities to return to the issue during the further passage of the Bill. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 63, as amended, ordered to stand part of the Bill.
Clause 64
General exemptions from identity verification: supplementary
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
We debated the clause at length in the previous groupings. I do not propose to repeat the arguments, and I hope the Committee agree with the Government’s position.
Stephen Kinnock
We have no further comments to add on clause 64.
Question put and agreed to.
Clause 64 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Ninth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (Ninth sitting)
Stephen Kinnock ExcerptsTuesday 8th November 2022
(1 year, 12 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
Kevin Hollinrake
Clause 68 amends section 1025 of the Companies Act 2006 to require that outstanding fines or financial penalties must have been paid for a company that has been previously struck off to be restored to the register. I thank the hon. Members for Feltham and Heston and for Aberavon for new clauses 45 and 46.
First, new clause 45 seeks to ensure that before striking off a company, the registrar must check whether the named directors have had their identities verified or do not need to do so because are they are exempt. Secondly, there are two routes by which a dissolved company can be restored to the register: one is an administrative process involving application to the registrar; the other involves applying to the court to order restoration. New clause 46 would expand the categories of persons who can use the administrative route by allowing former creditors and former liquidators to apply to the registrar for a dissolved company to be restored to the register. At present, only former directors or members of the company can apply to the registrar. Creditors of the company at the time of its striking off or dissolution and former liquidators currently have access to the court application route under section 1029 of the Companies Act 2006.
While I appreciate that in comparison to the administrative route, the court route is more cumbersome and potentially costly, it exists for a reason. Where a creditor seeks restoration in an effort to prove a debt outstanding from a company, the court is best placed to determine the validity of the case. Opening the administrative restoration route to creditors would place the registrar in the position of having to judge the legitimacy of a creditor’s interest in a company. That is not and should not be the role of a registrar.
However, liquidators are a matter of public record and in many cases might be the official receiver. I appreciate that there may be instances where their interests in restoring a company might be in the wider interest of others, including potential creditors, and that there may be a case for giving them access to the less cumbersome administrative process. On the basis of our undertaking to consider the matter further, I shall be grateful if hon. Members do not press the new clause.
Although driven by good intentions, we believe that new clause 45 is unnecessary. As the Committee has heard, ID verification requirements will apply to all new and existing registered company directors, as well as to people with significant control and those delivering documents to the registrar. That means that directors and beneficial owners already on the register prior to the reforms coming into force will be covered by the ID verification requirements, although they will have a transition period within which to become compliant.
Directors of companies applying for strike-off under section 1003 of the Companies Act 2006 will therefore not evade verifying their identity before their company is struck off without exposing themselves to criminal liability. Crucially, anyone delivering an application to strike off a company to the registrar will also have to verify their identity. I hope that that explanation is appropriate, and provides such reassurance that hon. Members will consider not pressing the new clauses.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Ms Bardell.
Clause 68 makes welcome changes to the Companies Act and should make it easier to enforce penalties imposed in response to criminal breaches under it. The circumstances under which an application can be made for a company struck off the register to be restored to it are set out in section 1025 of the Companies Act. Clause 68 amends section 1025 to make it clear that, as a prerequisite for any such application, any outstanding fines imposed on the applicant and relevant company directors in relation to a criminal offence under the Companies Act must be paid in full. That is a positive step toward increasing levels of compliance with companies legislation in the UK.
The Minister may wish to clarify one point in relation to company directors convicted of criminal offences. In previous sittings, the Committee discussed the grounds on which someone can be disqualified from serving as a company director under the Company Directors Disqualification Act 1986 and subsequent amendments. They include the disqualification of individuals guilty of persistent breaches of companies legislation. That appears to leave the door open for someone to serve as a director, even if they have committed a criminal breach of the legislation, provided they have not done so on multiple separate occasions.
Will the Minister tell us whether the Government considered extending the criteria so that anyone with even a single criminal conviction related to companies legislation would be prohibited from serving as a director again? Does he believe that it might send a stronger message were the Government to adopt a zero-tolerance approach to these kinds of crimes? I hope that he will come back on that point. It has some relation to new clauses 45 and 46, and I look forward to the remarks of my hon. Friend the Member for Feltham and Heston on them.
Clause 69 establishes—
The Chair
Order. We are not there yet. The hon. Member is getting a little ahead of himself.
Stephen Kinnock
I am getting a bit excited. Sorry, Ms Bardell. I will leave it at that.
Seema Malhotra
I am grateful for the opportunity to speak to new clauses 45 and 46, following the remarks of my hon. Friend the Member for Aberavon. He and the Minister highlighted how clause 68 amends the Companies Act and provides that outstanding penalties will need to be paid by applicants or directors for a full strike-off. If I am correct, section 1025, which the clause amends, is about applications for administrative restoration by a former director or member—a shareholder—whereas a creditor would use a separate process under section 1029 to restore a company to the register. That is not being amended by the Bill and does not require payment of outstanding fines.
Kevin Hollinrake
The clause introduces identity verification requirements for individuals delivering documents to the registrar. It also requires that when an individual acts on behalf of another, they must confirm that they have the authority to do so. That will enable the registrar to reject documents unless they are accompanied by a true statement that the identity of the individual filing the document is verified and that the person filing the document is authorised to file.
An individual who delivers a document to the registrar on their own behalf must have their identity verified, and the document must be accompanied by a statement confirming their verified status. If an individual is exempt from identity verification requirements under the clause, they must provide a statement to that effect when delivering a document. Documents delivered on behalf of another person must be accompanied by a statement that the filer is authorised to do so. A document delivered by an employee of an authorised corporate service provider must additionally confirm that they are acting in the course of their employment.
Ensuring that individuals are identity verified before they can deliver documents to the registrar and that they are permitted to do so provides greater accountability because the documents will be traceable back to a verified identity.
Clause 70 creates a prohibition on delivery of documents to the registrar by disqualified persons. Clause 71 enables the registrar to reject documents that have been delivered by people who are not within the categories permitted to file documents under clauses 69 and 70.
Stephen Kinnock
Clause 69 establishes a requirement for anyone delivering documents to the registrar to have their identity verified, subject to certain exemptions, which may be set out in secondary legislation. However, it is not clear in what circumstances the Government might consider an exemption appropriate. The requirement for any exemption to be set out in secondary legislation subject to the affirmative procedure is welcome, because it enables the relevant changes to be scrutinised by Parliament. Nevertheless, it would be helpful if the Minister could provide an indication of what sort of exemptions might be expected.
Clauses 70 and 71 relate to the delivery of documents to the registrar. Clause 70 stipulates that disqualified individuals may not deliver documents on either their own or someone else’s behalf. As set out in the clauses, individuals delivering documents to the registrar will be required to make a series of statements confirming that they are not subject to any disqualification under companies legislation.
Kevin Hollinrake
The hon. Gentleman asked me for examples of exemptions. We expect exemptions to be used rarely, but examples might include Government Departments, local authorities and international organisations where the identity and accountability of the organisation delivering the information carries little risk.
Stephen Kinnock
I thank the Minister for that clarification. Assessing the meaning of “carrying little risk” is a subjective thought process, but he is right that not everything can be micromanaged in this process. We will probably never get absolute clarity on these issues, but it will be important that Parliament scrutinises the way in which exemptions are implemented so that we get to know what “little risk” means through their implementation. It will also be important for Ministers to keep a close eye on the risk management processes that need to be implemented. As the Minister rightly said, legislation without good implementation is not worth the paper it is written on.
In previous debates, this Committee has discussed issues involving the verification of information provided to Companies House and the enforcement of criminal penalties for those who fail to comply with requirements to provide truthful information. These clauses raise similar questions. For instance, could the Minister explain what actions the registrar will be able to take to verify that, if somebody delivering documents states that they are not acting on behalf of a disqualified individual, that is a true and accurate statement?
The clauses also relate to issues discussed by the Committee on authorised corporate service providers. We all want this Bill to make it much more difficult for the people who own or control companies to hide their identities behind layers of secrecy, which often take the form of corporate service providers or other individuals acting on behalf of those in control. It would be helpful if the Minister could provide more detail about how the Government plan to protect the system against abuse, particularly by third parties acting on behalf of criminal clients. Could he tell us, for instance, whether the Government have considered introducing a more proactive licensing system for corporate service providers—as is used by some other jurisdictions, including Jersey—and what assessment the Government have made of whether the Bill provides adequate safeguards against the submission of false statements to the registrar?
Kevin Hollinrake
I think the hon. Gentleman asked me to address two points. First, he asked how we will ensure that the documents filed are accurate. That goes back to the risk-based approach that the registrar should take on potential red flags and other such matters. Obviously, that role fits into the registrar’s wider objectives of ensuring that the information is accurate and minimising unlawful activity. It is a red-flag approach in terms of systemised and human intervention.
The hon. Gentleman’s second, wider point was on the penalties for false filing, which are up to two years in jail. I think most people will consider that to be a decent deterrent against abuse of the system.
Stephen Kinnock
I thank the Minister for that clarification. Does he have a view on the question of a more proactive licensing system for corporate service providers, along the lines of what is done in Jersey? Have the Government made any assessment of whether the Bill provides adequate safeguards against the submission of false statements to the registrar, particularly by corporate service providers?
Kevin Hollinrake
I fully recognise the concerns expressed across the Committee about our oversight of corporate service providers. As I say, we should not mix up the many bone fide companies and household name accountants and lawyers, but clearly there are concerns, for example about some company formation agents. We need to ensure that the system that supervises money laundering is much more effective—we know there are deficiencies. The Treasury is looking at that right now. It will report and say exactly what it will do to beef up the system and make sure it is more fit for purpose. I am taking a keen interest in that. I am just as keen as the hon. Gentleman and other Members that the system properly identifies people with shortcomings and identifies wrongdoing, and that we build a much better system of money laundering supervision.
The hon. Gentleman mentioned licensing. Let us see what the Treasury review says and then we can make judgment. In terms of oversight of the money laundering supervision system, I am as concerned as he is and as keen to make sure that that system is fit for purpose.
Stephen Kinnock
I thank the Minister for that clarification. Will he assure us that he will encourage his colleagues at the Treasury to consider the option of a licensing system within the terms of reference of the review?
Kevin Hollinrake
I am keen to make sure that the system works, whether by licensing or by some other means. There are lots of different options for what might be described as a system that is fit for purpose. Of course, in common with all Members of this House, we are keen to avoid unnecessary bureaucracy, but nevertheless we want a system that works and that we have faith in, so, in my view, all options should be on the table.
Kevin Hollinrake
I hope that the clauses are pretty uncontroversial, but let us see. Companies House systems are already enabled to receive digital account submissions. The clauses will help Companies House to become a fully digital organisation by 2025.
Clause 72 transfers the power to require delivery by electronic means from the Secretary of State to the registrar. Filing information digitally is easier, quicker and more secure for filers. The information can be more easily checked for accuracy and compliance, and is less likely to be rejected for basic errors or omissions. That increases transparency. Suspicious activity can be better identified, contributing to our efforts to detect and prevent economic crime.
Clause 73 will require companies to deliver to the registrar a copy of a court order confirming their share capital reduction, rather than the original document itself. Clause 74 does the same in respect of a declaration of solvency. Clause 75 gives the registrar an administrative power to specify, in registrar’s rules, where documents must be delivered together.
Requiring companies to file component parts together will make it easier for Companies House to check that companies are meeting their filing obligations. It will also reduce unnecessary errors. Where filings are made that do not meet the requirements, they can be rejected, helping to improve the integrity of information on the register.
Stephen Kinnock
The main purpose of clause 72 is to make it easier for future changes to registrar’s rules to be made by the registrar directly, rather than through the Secretary of State. The Government’s intention is to facilitate the electronic delivery of documents. Using quicker, more efficient electronic systems for delivery should play an important role in wider plans for the transformation of Companies House and the service it provides.
With that in mind, could the Minister say a bit more about how the provisions fit into the ongoing Companies House transformation programme, particularly in relation to the planned new IT system? When might the fully electronic system for the submission and processing of documents submitted to the registrar be in place? We would be grateful for the Minister’s comments, particularly about timing.
Economic Crime and Corporate Transparency Bill (Eleventh sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (Eleventh sitting)
Stephen Kinnock ExcerptsTuesday 15th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2022 - (15 Nov 2022)
Kevin Hollinrake
It is a pleasure to speak with you in the Chair, Mr Robertson. The Bill seeks to ensure that companies and other entities benefiting from incorporated status directly contribute to maintaining the integrity of the company register. We will do that by including investigation and enforcement costs in Companies House fees. We will debate those issues shortly, but first, I hope that Members will agree that it is right that the costs incurred through pursuing enforcement activity in Northern Ireland should also be included in the Secretary of State’s decision making when setting Companies House fees, which is the effect of these amendments.
Amendment 14 agreed to.
Amendments made: 15, in clause 89, page 68, line 36, at end insert—
“(ba) any function of a Northern Ireland department under or in connection with the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), so far as relating to bodies corporate or other firms;”.
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect costs or likely costs of a Northern Ireland department under the insolvency legislation.
Amendment 16, in clause 89, page 68, line 40, at end insert—
“(d) any function carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department in connection with the detection, investigation or prosecution of offences, or the recovery of the proceeds of crime, so far as relating to bodies corporate or other firms.”.—(Kevin Hollinrake.)
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect costs or likely costs of the Insolvency Service in Northern Ireland in connection with enforcement.
Stephen Kinnock (Aberavon) (Lab)
I beg to move amendment 115, in clause 89, page 68, line 40, at end insert—
“(3B) Prior to making any changes to the level of fees payable to the registrar, the Secretary of State must—
(a) consult with the registrar on the proposed changes; and
(b) set out in writing what the basis is for the proposed changes, with reference to subsection (2) above.”.
The Chair
With this it will be convenient to discuss the following:
New clause 25—Fee for registering a company—
“(1) The Companies Act 2006 is amended as follows.
(2) In section 1063, after subsection (3), insert—
‘(3A) Regulations under this section must set a fee of at least £50 for the incorporation of a company.’”.
New clause 33—Fees—
“(1) Section 1063 (Fees payable to registrar) of the Companies Act 2006 is amended as follows.
(2) Before subsection (1) insert—
‘(A1) The registrar must charge a fee of £100 for the incorporation of a company.
(B1) The Secretary of State must once a year amend the fee in subsection (A1) to reflect inflation.
(3) In subsection (1)—
(a) after “fees” insert “other than the fee in subsection (A1)”
(b) in paragraph (a) after “functions” insert “other than the incorporation of a company’.
(4) In subsection (5), in paragraphs (a) and (b) after ‘regulations’ insert ‘or subsection (A1)’.”.
This new clause requires Companies House to charge a fee of £100 for the incorporation of a company. It gives the Secretary of State the power to amend this fee once a year to reflect inflation.
New clause 40—Retention of fees by Companies House—
“(1) The Secretary of State must report to Parliament on the case for incorporation fees for companies being retained by the registrar.
(2) The report must be laid before Parliament within three months of this Act being passed.”.
Stephen Kinnock
It is a pleasure to serve under your chairship, Mr Robertson. I rise to introduce amendment 115. When considering any piece of legislation that creates new criminal offences, one of the most important questions we have to ask is how confident we can be that the offences will be adequately policed and enforced. The question is particularly relevant in our deliberations on this Bill, because there is such a wealth of evidence that the laws we already have on economic crime are not being enforced as rigorously as we would hope. The reason is clear: the chronic under-resourcing of the various law enforcement bodies in recent years—or, to put it another way, under this Government.
I am sure that the Minister needs no convincing on this point. In fact, some of the most compelling arguments for greater resourcing for economic crime enforcement have been made by the Minister himself. Just over four months ago, he joined my right hon. Friend the Member for Barking in leading a debate on this issue. The motion for that debate pointed out that
“law enforcement agencies are significantly under-resourced to deal with the scale of the problem”.
In speaking to the motion, the Minister pointed out:
“We know that roughly 40% of our crime is economic crime, yet only 0.8% of our resources in man hours are dedicated to tackling economic crime, so there is a huge disparity.”—[Official Report, 7 July 2022; Vol. 717, c. 1042.]
Those figures are striking, and it should alarm Committee members that the Bill is likely to widen that disparity even further. The reforms to Companies House set out in part 1 of the Bill represent
“its biggest upgrade in 170 years”.
Again, I am quoting the Government’s own words. It is still the case today that if someone goes to the official Companies House website to search the register, they find a disclaimer stating:
“Companies House does not verify the accuracy of the information filed”.
Of course, one of the most important goals of the Bill is to change that, through new requirements on Companies House to verify the accuracy of new filings, and to continuously monitor and update records; but despite that fundamental shift in the scale and scope of its responsibilities, there is nothing in the most recent corporate plan for Companies House, published in July this year, on increasing either its budget or workforce in the light of those changes.
Not only is there unlikely to be additional Treasury funding for Companies House, but it appears there may even be cuts. Given the repeated warnings from the Chancellor to expect “eye-watering” decisions on public spending in this week’s fiscal statement, it seems unlikely, to say the least, that Companies House can expect a financial settlement that is even remotely commensurate with its obligations under the Bill. If the Minister could provide any reassurance to the contrary, it would certainly be welcomed by the Opposition—but we are not holding our breath.
In the absence of more resources from the Treasury, we are left with just one option, which is for Companies House to generate more income from registration fees. The case for higher fees is compelling. Not only is there the increased workload that the Bill will create for Companies House, but it has been abundantly clear for some time that the fees charged for registration are ludicrously low. The Minister is aware that it is undeniably too cheap, quick and easy to form a new company in the UK; there is minimal to non-existent verification or oversight.
For evidence of what appears to be emerging cross-party consensus on the necessity for higher fees, we need look no further than the exceptionally thoughtful and balanced report on economic crime published by the Treasury Committee in February this year, which stated:
“The low costs of company formation, and of other Companies House fees (such as filing fees), present little barrier to those who wish to set up large numbers of companies for dubious purposes…The Government should…review…Companies House fees to bring them closer to international standards.”
As a member of the Treasury Committee at the time of the report’s publication, the Minister presumably agreed with that statement back in February. I see no good reason why the position would have changed since then.
It is striking that the Bill does not address the question of fees payable to Companies House until clause 89. Even then, the clause sets out what costs may be taken into account in setting future fees, but avoids the next logical question of what an appropriate fee might be. Like so many fundamental details of how the legislation will work when in force, that has been left up to regulations that will be made at some indeterminate point in the future. It does not seem unreasonable to expect, or at least hope for, more detailed provisions on the subject in the Bill.
Clause 89 refers to the need for future regulations setting new fee levels to reflect the expanded responsibilities of Companies House under the Bill and other recent legislation. That is welcome as far as it goes, but unfortunately it does not go far enough. Through amendment 115, the Opposition seek to fill some of the gaps left open by the Bill by introducing an explicit requirement for the Secretary of State to consult with the registrar before changing fees. It would also require the Secretary of State to set out explicitly in writing the justification for any changes to the functions and workload of Companies House.
The amendment would provide a stronger statement of the necessity of setting fees at a level commensurate with the actual day-to-day needs of Companies House in carrying out its responsibilities under this and other relevant legislation. It should go without saying that fees should not be set at such low rates that we become a magnet for dodgy business dealings by criminals in search of the weakest possible regulatory environment; but it is not by any means clear that we can trust the Government’s wisdom in determining appropriate fees. A clearer, stronger set of criteria for such decisions should be incorporated into the Bill. Amendment 115 provides what we hope is a useful way forward.
Turning to new clauses 25, 33 and 40, there are strong arguments in favour of setting a specific level of fee as a baseline for any future changes. We should all be in agreement by now that the current fee—it is just £12 to register a company—is far lower than it should be. Certainly, that was the message from the many expert witnesses who gave evidence to the Committee last month. I recall in particular the testimony of Nick Van Benschoten of UK Finance, who pointed out that the UK’s £12 fee puts it in closer alignment with countries such as Benin and Turkmenistan than with comparably well-developed economies in Europe and North America, where fees roughly in the range of £50 to £100 are the general rule.
New clause 25, tabled by Scottish National party Members, suggests a minimum fee of £50. That would certainly be a good start, but the Bill could and should go further. New clause 33, tabled by my right hon. Friend the Member for Barking, would require a fee of at least £100 to be charged for company formation, with annual increases based on inflation. On behalf of the official Opposition, my hon. Friend the Member for Feltham and Heston and I are pleased to add our names to the proposed new clause, which we believe is a necessary and proportionate solution to the problem at hand.
It should be pointed out that the figure of £100 has not been plucked out of thin air. It is useful to return to the report that I mentioned by the Treasury Committee, of which the Minister was a member at the time. It concluded that a £100 fee for company formation would not deter genuine entrepreneurs, and would raise significant additional funding for Companies House and the fight against economic crime. It would be helpful if the Minister could confirm whether that remains his view. If he has changed his mind, he may wish to say a little about the basis on which he has done so.
New clause 40, also tabled by my right hon. Friend the Member for Barking, would add a further requirement on the Government to review and report on the case for measures to ensure that any future revenue from fees can be retained by Companies House for reinvestment in its work to police and enforce our laws against economic crime, under its remit as set out in the Bill and elsewhere. Again, this is a common-sense proposal that we should all welcome. It should not continue to be the default position that either all or a large part of any fees payable to Companies House go straight to the Treasury, with no guarantee that there will be any reinvestment into efforts to tackle economic crime. New clause 40 would make an important contribution by addressing that problem. I look forward to hearing the Minister’s response.
Alison Thewliss (Glasgow Central) (SNP)
New clause 25 is a probing amendment. I am minded to have a higher fee than £50, but what does the Minister think the baseline ought to be? Is it £100 or £50, or is he not prepared to put a number on the minimum price for registering a company? By way of contrast, a provisional driving licence fee application is £34, a passport is £75.50, and citizenship is £1,330 pounds. The Government are prepared to levy a whole range of fees for a whole range of privileges to do with living in this country; £12 to register a company seems miraculously low in comparison to all the other fees that the Government are willing to charge. In all those cases, I am sure that the Government would say that they are trying to recover costs, but they are not prepared to say how much it would cost to run Companies House in such a way that it can prevent economic crime, although that is pretty crucial to the whole endeavour.
I agree with everything the hon. Member for Aberavon has said, and I support the amendments from the right hon. Member for Barking, who is, I am sure, absolutely correct in everything she is about to say; I often agree with everything she says. I draw the Government’s attention again to the written evidence from UK Finance, which says:
“Clause 89 should be amended to ensure an initial increase in registration fees within six months of commencement, and to ensure annual reporting on planned investment, fee increases and scheduled implementation of new powers.”
If we set a minimum in legislation and do not update it, the problem is that often prices increase—mostly artificially, but also through factors such as the runaway inflation that we see in the UK at the moment. It is important to commit to an annual increase and annual reporting to ensure that fees keep pace with changes in a way that is considered reasonable.
Twelve pounds to register a company is really nothing in the grand scheme of things. I ask the Minister to consider how we can better ensure that the Companies House registration scheme forms part of the deterrent. Rather than allowing the bulk creation of lots of small companies at £12 a pop, we can ensure that people say, “This is a real company. There is a real financial commitment to it.” I do not think that any company will be deterred by a fee of £100 rather than £12.
Stephen Kinnock
No. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 17, in clause 89, page 69, line 5, at end insert—
“(b) the reference in subsection (3A)(d) to functions carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department, so long as the functions referred to are functions of a Northern Ireland department that are of a similar nature.”—(Kevin Hollinrake.)
The amendment allows the reference to functions carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department to be amended in the event that, in future, the functions are exercised otherwise than by the Insolvency Service in Northern Ireland.
Question proposed, That the clause, as amended, stand part of the Bill.
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
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.
Kevin Hollinrake
I shall respond briefly to the queries raised. All the information must be handled in accordance with the Data Protection Act 2018. The way the Bill operates is consistent with similar legislation that deals with data sharing.
The hon. Member for Feltham and Heston raised the issue of the protection of information. The provision applies in a situation of risk of harm or serious risk of violence or intimidation—for example, in respect of domestic abuse victims.
Data sharing was raised by both shadow Ministers—the hon. Members for Feltham and Heston and for Aberavon. It is permitted to assist public authorities when they exercise public functions, such as confirming the accuracy of data or providing intelligence to law enforcement agencies.
Stephen Kinnock
Does the Minister have any comments on the points about local authorities?
Kevin Hollinrake
Data sharing is permitted to assist public authorities when they exercise their public functions. For example, they could ask the registrar to confirm the accuracy of data that is held, which may lead to information being shared for intelligence purposes with enforcement agencies.
Kevin Hollinrake
Local authorities are a subset of public authorities.
Question put and agreed to.
Clause 90 accordingly ordered to stand part of the Bill.
Schedule 3
Disclosure of information: consequential amendments
Amendment made: 49, in schedule 3, page 162, line 5, leave out paragraphs 5 to 7.—(Kevin Hollinrake.)
This amendment is consequential on NC17 and NC18.
Schedule 3, as amended, agreed to.
Clauses 91 to 93 ordered to stand part of the Bill.
Clause 94
General false statement Offences
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 94 amends the general false statement offence in section 1112 of the Companies Act 2006 to create two separate offences: a basic offence and an aggravated offence. The Bill also amends section 32 of the Economic Crime (Transparency and Enforcement) Act 2022 to make a mirror-image, two-tier approach. The existing false statement offence under the Companies Act requires a document or a false, misleading or deceptive statement to have been delivered or caused to be delivered knowingly or recklessly to the registrar. Clause 94 substitutes that existing offence for two new offences with commensurate penalties.
The basic offence is committed when the false statement is made without reasonable excuse. The aggravated offence is committed when the false statement is knowingly made. It is worth noting that that refines the amendments made by the Government during the passage of the 2022 Act in response to parliamentary scrutiny. When either offence is committed by a firm, every officer of the firm that is in default also commits the offence. The structure of the new sections maintains consistency with amendments to the 2022 Act, the Limited Partnerships Act 1907 and the Reports on Payments to Governments Regulations 2014, as amended by the Bill.
On clause 95, we have already discussed many of the new powers that we are providing to the registrar and how they are intended to work. In exceptional circumstances, it may be necessary for the Secretary of State to allow material that would otherwise be treated as false, misleading or deceptive to be deliberately provided to the registrar to protect our nation’s interests or to assist in the prevention or detection of serious crime. The clause ensures that when such action is taken, the Secretary of State can issue a certificate that ensures that the person to whom it is issued is not liable for the commission of acts that might otherwise amount to a false filing offence.
Clearly, the work of our law enforcement and intelligence agencies must be able to be carried out without fear of prosecution when they are acting in our interests. The certificate that may be issued provides an exemption for those purposes. The Secretary of State must be satisfied about the reason why a certificate has been sought and may issue one only if to do so is in the interest of national security or for the prevention or detection of serious crime. The certificate can be revoked at any time.
To further limit the circumstances in which a certificate can be issued, serious crime is defined in the clause, providing further assurance about the need for such a certificate. The definition of serious crime aligns with that used in section 18 of the 2022 Act, which allows the Secretary of State to exempt a person from the requirements of the register of overseas entities for the same reasons. The Government listened to the concerns expressed about such exceptions and exemptions during the expedited passage of the 2022 Act; the clause is therefore carefully constructed so as to be as narrow as possible.
Stephen Kinnock
One of the key problems the Bill seeks to address is the difficulty that arises when enforcing laws for which the burden of proof is exceptionally high. In that regard, the Opposition welcome the changes set out in clause 94. The current requirement to prove that somebody who has delivered false or misleading information or documents to Companies House did so knowingly and recklessly seems to set the bar so high as to act, in effect, as a hindrance to successful prosecution. It is a sensible change to replace the current requirement with language that enables a defence on grounds of a reasonable excuse, especially in the context of the related provision in the clause to prosecute those who can be shown deliberately to have provided false information for an aggravated offence that is subject to imprisonment for up to two years.
Clause 95, however, raises some questions that I hope the Minister will clarify. It will amend the Companies Act to allow the Secretary of State to issue any individual with a certificate that, it would seem, could provide blanket immunity from prosecution for any offence related to the delivery to the registrar or the making of a statement that is misleading, false or deceptive. This power is potentially very broad and, beyond a couple of lines stating that a certificate could be issued for reasons of national security or to assist in the prevention or detection of serious crime, there is little clarity as to how it might be used. I am sure the Committee would be grateful if the Minister could provide any further detail on how frequently and in what kinds of circumstances the power might be used. Perhaps the Minister could also set out in a bit more detail what safeguards, if any, might be put into place to ensure that the power is used only in cases in which there is a compelling need to do so.
Dame Margaret Hodge
The Minister knows that that is not necessarily to fight economic crime, but to fight other crimes. I was talking about the economic crime levy and those are the figures that I have.
It is irritating but understandable that the enforcement agencies prioritise other crimes in their day-to-day work; they do not prioritise economic crime. Despite the lack of funding, a lot of money is brought in by the enforcement agencies. Between 2018 and 2021, £3.9 billion was brought in in fines, confiscation and forfeiture. If all of that had been reinvested, all of the agencies would have had an extra £748 million to fight economic crime over that period. That would have had a fantastic impact on our ability to fight, detect and prevent economic crime.
It has been said in previous debates that money from fines cannot be hypothecated in that way, but I draw the Minister’s attention to three precedents that negate that claim. In June 2022, the Information Commissioner announced a new arrangement allowing the office to keep some of the proceeds of its civil penalties to fund its work with the big tech companies. In 2019, Ofwat kept the proceeds of penalties it had raised on Southern Water to pay out to and reimburse customers. The Gambling Commission can also require payments rather than penalties to compensate victims or make payments to charities. Those are three precedents on which the Minister could build the argument that it would be perfectly appropriate for the proceeds of fines to be kept in order to resource the fight against economic crime.
I also draw the Minister’s attention to a report on fraud published by the House of Lords last week, which states:
“To support the forthcoming fraud strategy”,
which is only a part of addressing economic crime,
“with adequate resources, the Government must commit to a long-term funding strategy with an increased offer for law enforcement agencies”—
and this is the important bit—
“focussed primarily on recycling revenue collected by law enforcement agencies back into law enforcement activity.”
The House of Lords has, therefore, come to the same conclusion as we have in tabling this amendment.
The UK’s asset recovery incentivisation scheme ensures that some assets are recycled. Most of them go to the Treasury. Of the £354 million recovered in 2021-22 from confiscation orders, forfeiture orders and civil recovery orders, only 40% went back into fighting crime. If we compare ourselves with the Americans, we will see that all of their forfeiture proceeds go back into enforcement.
Under our proposal, money would be ring-fenced and it would be a cross-Government fund to finance enforcement against fraud and dirty money. The Minister knows that if the UK is to tackle economic crime effectively, far greater ambition is needed on the scale of public investment, and establishing an economic crime fund is the radical response that we need.
Stephen Kinnock
I would like to add some comments to the eloquent remarks of my right hon. Friend the Member for Barking.
In clause 96, the Government provide a framework for the registrar, within parameters to be set out by the Secretary of State in regulations, to impose direct financial penalties for many offences without the need for lengthy and often costly court proceedings. That is surely a welcome development, at least in so far as it should enable the registrar to take swifter action to deal with any offences involving false representations made to Companies House.
Of course, we will need to look closely at the details of how that will work in practice. In that respect, it is right that the Bill provides for parliamentary scrutiny of the relevant regulations via the affirmative resolution procedure. If the Minister could give a rough indication of when we can expect those regulations to be published, I am sure that the Committee would be grateful.
One thing that clause 96 makes clear is that any civil penalties imposed by the registrar will not exceed £10,000. I would be grateful for an explanation from the Minister about how that figure was arrived at, and whether he is confident that the power to impose a fine at that level will act as a deterrent to would-be offenders. Given the profit margins involved in some of the most serious crimes, we must ensure that the threat of civil penalties is both real and sufficient in terms of its potential to take a meaningful chunk out of criminals’ assets. I am not entirely convinced that the threat of a £10,000 fine will be taken all that seriously by some of the intended targets, but if the Minister is aware of any convincing evidence to the contrary, I would be glad to hear it.
Even if we assume that the Government make rapid progress with the regulations enabling the registrar to impose civil penalties, we must then address—not for the first time in Committee—what happens to any funds raised from civil penalties. In amendments 84 and 80 and new clause 29, my right hon. Friend the Member for Barking has once again provided the Committee with an eminently reasonable and sensible answer to that question. Taken together, these amendments would require any fines paid to the registrar to be specifically designated and ring-fenced for the purposes of tackling economic crime.
The asset recovery incentivisation scheme, introduced by the previous Labour Government, provides a template of sorts, but given the scale of the threat that we now face from economic crime, we need to go further. It is surely a no-brainer that any fees paid to the registrar, together with penalties for those who break the rules, should be reinvested in broader cross-Government efforts to tackle economic crime. That would provide a stronger incentive for tougher enforcement and a more sustainable long-term funding model for Companies House and other enforcement bodies at no additional cost to the taxpayer. Opposition Front Benchers therefore fully support these amendments. We hope that Members on the Government Benches will do the same.
Kevin Hollinrake
I am very sympathetic to the points raised by contributors to this debate, and I am fully signed up to making sure that our law enforcement agencies have a long-term funding solution. As the right hon. Member for Barking knows, I am very sympathetic to the need to properly resource enforcement agencies, and, indeed, to the need for clarity on what funding is in place, right across the piece. We could have various different debates about what level that should be and on whether it should be £30 million a year. It is an awful lot more than that, but I accept that there should be more clarity. Wherever we can, we should seek to raise the moneys that the enforcement agencies need to do their job properly.
We are developing a new funding model for Companies House, which demonstrates our commitment to tackling economic crime. The combination of last year’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. That applies to the AML regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24. There will be a wide-ranging review three years later to provide transparency on how the levy is performing against its original purpose, including how the money is being spent.
In addition, as the right hon. Member for Barking set out, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability under the asset recovery incentivisation scheme. The figures that she quotes are interesting, because according to my note here, the receipts paid should be split 50:50 between the Home Office and the Treasury and operational partners, which should be the enforcement agencies. It should be an equal split. I do not know about the numbers that she gives regarding the situation in the US, but I am happy to look at that in further detail. I am very keen to make sure that resources are made available.
There is probably a difference here in relation to fines. The right hon. Lady acknowledges that POCA offences have been subject to the oversight of our courts. In terms of fines and civil penalties, however, there are strict guidelines on how that money can be spent. It is interesting to look at the examples she quotes, but I think that two of them concern reimbursement of victims rather than further resourcing of the relevant agencies. I also slightly worry about the unintended consequences of allowing the regulator to simply issue fines and keep them. Many of those fines may be issued not because of transgressions related to economic crime; they may be related to other offences and other things.
The shadow Minister, the hon. Member for Aberavon, raised the issue of whether the level of £10,000 was appropriate. It is quite a lot of money, of course. The vast majority of businesses registered with Companies House are smaller companies. For a smaller company, £10,000 is an awful lot of money. It is, of course, an option. It is not that the registrar cannot refer this to law enforcement agencies. She can determine whether to impose a civil penalty or refer the matter to a law enforcement agency if it is serious enough. We felt that £10,000 was a reasonable compromise. On that basis, I hope that the right hon. Member for Barking will withdraw the amendment.
Kevin Hollinrake
I think that is a very sensible suggestion and I am happy to take that away. I would like to see a number of things in that report that are currently not there. If we look at the most recent report, we see a number of references to this particular legislation. It welcomes this legislation, and I think it is important that the body reports publicly and to Parliament, as would be the case with the measures that the right hon. Lady mentions.
Similarly, there may be reason to review the appropriate financial penalty amount, and interest or late payment amount, to deter misconduct against the register as effectively as possible. The regulations will be subject to the affirmative procedure, which will provide the appropriate amount of parliamentary scrutiny of any proposed further changes.
Clause 97 will strengthen the link between civil sanctions and director disqualification by amending section 3 of the Company Directors Disqualification Act 1986, which states that the court may make
“a disqualification order against a person where it appears to it that he has been persistently in default in relation to provisions of the companies legislation”,
and that
“the fact that a person has been persistently in default…may…be conclusively proved by showing that”,
in the previous five years,
“he has been adjudged guilty…of three or more defaults”.
Under proposed new section 1132A of the Companies Act 2006, the registrar will be able to impose a financial penalty on a person, if she is satisfied beyond reasonable doubt that the person has engaged in conduct amounting to an offence.
Section 3 of the CDDA will be amended so that the imposition of a financial penalty can count as a default. That will provide a greater deterrent to those who seek to circumvent legislative requirements. Not only will individuals face the risk of a financial penalty but the risk of being disqualified will become more likely when a financial penalty has been imposed. Clause 98 mirrors the provisions in clause 97 so that they apply in Northern Ireland, amending the current provision in article 6 of the Company Directors Disqualification (Northern Ireland) Order 2002.
Stephen Kinnock
We are disappointed that clause 96 will go forward unamended, because we feel that there are real risks in not directly linking the moneys raised with reinvestment specifically into economic crime. It is important to put that disappointment on the record.
Kevin Hollinrake
Of course, there is a link in the average scheme. I think £1.3 billion has been raised from asset recovery for law enforcement agencies since 2007, so there is a link. The point that we disagree on is fines.
Stephen Kinnock
I thank the Minister for that intervention. The amendments were trying to require any fines paid to the registrar to be specifically designated and ringfenced for the purposes of tackling economic crime. It is the lack of a specific designation and ringfencing that is disappointing, but we are where we are, and we move forward.
I will comment briefly on the final two clauses in the group. They are largely supplementary to the provisions that we have already discussed, but are nevertheless important. I particularly welcome the clarification in clause 97 that individuals subject to civil penalties under the preceding clauses will be treated in a similar way to those with a criminal conviction for the purposes of determining whether they meet the criteria for disqualification from serving as company directors. Making it clear that the same standards of conduct apply to those with a record of civil or criminal penalties should buttress the new system for civil enforcement fines, and will hopefully increase compliance.
The provisions of clause 97 that apply within Britain would be extended to Northern Ireland under clause 98. As I have said before, ensuring that a common set of rules and regulations is applied across the UK as a whole can only be a good thing.
Question put and agreed to.
Clause 96 accordingly ordered to stand part of the Bill.
Clauses 97 and 98 ordered to stand part of the Bill.
Clause 99
Meaning of “limited partnership”
Question proposed, That the clause stand part of the Bill.
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.
Economic Crime and Corporate Transparency Bill (Twelfth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
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Economic Crime and Corporate Transparency Bill (Twelfth sitting)
Stephen Kinnock ExcerptsTuesday 15th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 15 November 2022 - (15 Nov 2022)
Kevin Hollinrake
Clause 107 requires a limited partnership to confirm on application for registration that none of its general partners are disqualified under directors disqualification legislation. It also introduces a duty on all general partners of a limited partnership to take any steps necessary to remove a disqualified general partner on pain of criminal sanction for failure to take those steps.
General partners are responsible for the management of limited partnerships, including the movement of funds. There is currently nothing in place to remove a general partner from a limited partnership once they become disqualified. The clause is needed to ensure that disqualified individuals are prevented from being general partners of a new limited partnership set up after the Bill and to ensure that existing general partners of extant firms who become disqualified, or already are when the Bill comes into force, cease to be a general partner.
New clause 49 would require the Secretary of State to make regulations under section 87 of the Small Business, Enterprise and Employment Act 2015, which amended the Companies Act 2006 to require all company directors to be natural persons, with the power to make exceptions in regulation. I have every sympathy with the intention of the amendment, which challenges the Government to act on something they have long promised. I am happy to commit to the Committee that such regulations will be made soon.
Kevin Hollinrake
Very similar. It is sooner than shortly. The ban on the appointment of corporate directors will not and should not be absolute. That is why the Companies Act provides for a delegated power to create exemptions by regulations. Those regulations will address the limited circumstances under which a company will be permitted to have a corporate director. It is important that those regulations are in force before we ban the appointment of any corporate directors and are aligned with the new reforms proposed in the Bill.
Economic Crime and Corporate Transparency Bill (Thirteenth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
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Economic Crime and Corporate Transparency Bill (Thirteenth sitting)
Stephen Kinnock ExcerptsThursday 17th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 17 November 2022 - (17 Nov 2022)
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairmanship, Ms Elliott. I want to make a few general points about registers of beneficial ownership and have a number of questions for the Minister, as a preamble to commenting on clause 135 specifically. Registers of beneficial ownership are not, of course, a new concept. We have had one for UK companies, namely the people of significant control register, since 2016. In that year, David Cameron made what would turn out to be the first of many promises to introduce a register of overseas owners of UK property, meaning that for the first time
“foreign companies that already hold or want to buy property in the UK will be forced to reveal who really owns them”.
Yet here we are, six and a half years and four Prime Ministers later, still discussing how to implement the register. After years of kicking the can down the road, it took the Russian invasion of Ukraine to jolt the Government into action. The first of this year’s economic crime Bills, now the Economic Crime (Transparency and Enforcement) Act, provided the legislative basis for the register of overseas entities, which at long last went live on 1 August.
As much as I welcome the fact that the register is now up and running, it remains very much a work in progress. The legislation passed earlier this year was rushed through on an expedited timetable, with just two weeks of debate. The need to amend what was clearly a hastily drafted law is reflected in the changes set out in clauses 135 to 140. Before addressing the substance of the clauses, it is worth taking stock of what progress has been made in setting up the register and, more importantly, what more needs to be done. According to Government figures, some 32,000 overseas companies are required to register with Companies House by 31 January. Between them, those companies own almost 100,000 properties in the UK. It was the Minister himself, in his previous incarnation as a Back Bencher, who argued forcefully back in March for the transition period during which those 32,000 companies would be required to register to be limited to six months.
Now that we have reached the halfway point in the process, I asked the Minister in written questions how many companies have now registered. Members might have reasonably expected the number to be somewhere in the region of 16,000, or half of the 32,000 total required. Imagine my surprise and disappointment when the Minister replied to my written question saying that, in fact, only 3,214 entities had registered as of last week; in other words, just 10% of those required. If progress were to continue at such a sluggish rate, the register would not be completed until 2025. I therefore ask the Minister whether he has a magic wand, and whether he intends to use it to ensure that the remaining 90% of companies comply with the registration requirement in the next three months.
I will also ask the Minister what he thinks is the reason for the astonishingly low number of registrations to date. But the answer to that question is in fact clear: the failure of the Government to enact the new law until the situation became urgent due to the war in Ukraine meant that the regulations and statutory guidance were sloppily drafted without consultation, leaving the entire framework riddled with holes and shrouded in uncertainty.
I hope the Minister will take the opportunity we have today to clarify some of the issues. Companies House has written to entities to inform them that they need to register, but the data used to contact them came from the Land Registry. That data is, in many cases, out of date. What assessment have the Government made of the accuracy of the contact information provided by the Land Registry? What steps is the Minister taking to ensure that everyone who is expected to register is at least made aware of the requirement in time for them to apply ahead of the 31 January deadline?
Will the Minister also confirm what additional resources, if any, have been made available to Companies House to support the introduction of the register? How many staff are now working to support its implementation? What preparations are the Government making to deal with companies that fail to comply before the deadline? Specifically, how will Companies House identify such companies and work quickly to impose the financial and criminal penalties that the Government have provided for? Will the Minister explain how the Government plan to deal with companies whose beneficial ownership cannot be verified? His Department’s guidance says that entities that claim to have no beneficial owner should provide information without a “managing officer”, but that term is not defined in the guidance. Can the Minister shed some light on this?
Clause 135 makes what appear to be minor technical changes to the wording of documentation to be held as part of the register. To the extent that those changes help ensure that the information on the register is giving as complete and as accurate a picture of companies beneficial ownership as possible, the changes are welcomed by the Opposition.
Kevin Hollinrake
I very much value the hon. Gentleman’s comments and reflections. There is no doubt at all that the measures are a work in progress; that is one of the reasons behind the Bill, of course. I enjoyed answering his questions in writing and we will no doubt correspond further on such matters. He is right to scrutinise the activities of Companies House, which I have sought to do as well.
Let me give a few facts that may help the hon. Gentleman. As of today, there are 3,893 registrations; that is a more up-to-date figure than the one I gave him on 11 November, which was about 3,500. That equates to about 400 in the past six or seven days, which illustrates that the number of registrations is increasing significantly. We always thought that there would be a last-minute rush to file because, as the hon. Gentleman knows, there are significant penalties for not doing so: up to £2,500 per day and a prison sentence of up to five years. That is the risk that those who do not comply are taking, which is pretty significant, so we always thought that there would be a last-minute rush.
To answer one or two of his other questions, eight people are working full time on the register of overseas entities and 20 are trained to handle registrations. They are deployed relevant to workload. There is no current backlog at His Majesty’s Revenue and Customs in this regard. A managing officer is defined in the Act as being akin to a director, secretary or manager.
Stephen Kinnock
On that point about staffing, I think the Minister’s point is that there will be a last-minute rush. Is he confident that the current staffing levels are sufficient to cope with that last-minute rush—that surge?
Kevin Hollinrake
I am not intimately involved in the management of the register. It would be interesting to see and that is a fair point. I will write to the hon. Gentleman. I have asked Companies House to provide us with that information, which it has done, about the activities it is undertaking to pursue people who have not yet completed their registration. We will continue to do that. In the meantime, I am happy to write to the hon. Gentleman on the points he has raised and, indeed, on his further point about making sure that we have enough staff to deal with the last-minute rush that we anticipate.
Stephen Kinnock
I thank the Minister for that. Does he have any thoughts on the interface between the Land Registry and the register of beneficial owners? It appears that a lot of the information on the Land Registry is seriously outdated. What steps are being taken to address that challenge, and does he see a risk in the communication between them?
Kevin Hollinrake
I do not see there being a risk of a lack of communication; they seem to be working together adequately. There is no doubt that some information is out of date. Many overseas entities have not kept their address details up to date, and many letters have been returned as undeliverable. Companies House is undertaking open-source research to try to identify up-to-date addresses, and we are working with stakeholders to raise awareness of the requirements and the deadline.
Companies House is used to dealing with large number of registrations, and we believe it can handle much larger volumes than it is receiving. The hon. Gentleman has asked some detailed questions and made some salient points that I want to follow up with Companies House in order to make sure that we can maintain the register properly, and I suggest we correspond on that basis.
Question put and agreed to.
Clause 135 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Fourteenth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
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Economic Crime and Corporate Transparency Bill (Fourteenth sitting)
Stephen Kinnock ExcerptsThursday 17th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 17 November 2022 - (17 Nov 2022)
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Sir Christopher.
The clause amends section 15 of the Economic Crime (Transparency and Enforcement) Act 2022 to align it with amendments made to section 32 during the passage of that Act and with amendments introduced by this Bill. The clause substitutes section 15 and adds proposed new sections 15A and 15B.
Proposed new section 15 restates and slightly amends the general false statement offence in section 32 of the ECTE Act to reflect changes made by the Judicial Review and Courts Act 2022. Existing section 15 restricts the false statement offence to being committed when a person knowingly or recklessly makes a false statement in response to a notice. Proposed new sections 15A and 15B amend that offence to change the threshold to be met, by splitting it into two separate offences. That aligns with section 32 of the ECTE Act and amendments to that section introduced by the Bill.
Clause 137 amends section 32 of the ECTE Act on the general false statement offence. The effect of the amendment is that both the basic offence and the aggravated offence are expanded so that a false statement offence can be committed by a legal entity, and, where this is the case, by every officer of the entity in default. That maintains consistency with other legislation amended by the Bill. The penalty for committing the aggravated offence on summary conviction in England and Wales is also amended in line with the Judicial Review and Courts Act.
Clause 157 amends the Reports on Payments to Governments Regulations 2014. Those regulations require certain large businesses in the extractive industries to report annually their payments to overseas Governments associated with the extraction activities. The regulations were brought in to support accountability and to reduce space for corruption.
The Government are conducting a post-implementation review of the regulations to evaluate their impacts and effectiveness. However, in advance of that, the Government propose that the false statements offences and penalties in the regulations be updated to provide consistency with other offences, as previously outlined.
Clause 157 does not alter the requirement for any prosecutions for non-compliance with the 2014 regulations to be mounted or approved by the Attorney General or the Director of Public Prosecutions—or, in Northern Ireland, by the Secretary of State or the Northern Ireland Director of Public Prosecutions—to ensure that they are in the public interest.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. Compared with clause 135, clauses 136, 137 and 157 are more substantial. In drafting them, the Government appear to have accepted that the existing law in relation to false statement offences is too narrow to serve either as an effective deterrent or as a useful tool for law enforcement.
Clause 136 removes the requirement to prove that false information had been submitted knowingly and recklessly. That is a very high bar for prosecutors to clear, and the introduction of a broader set of criteria for these offences is therefore welcome. The changes will replace the existing false statement offence with a two-tier approach that will provide a range of options for dealing with overseas entities that either fail to provide information about beneficial ownership upon request or respond with false or misleading information.
The basic offence, which will not require evidence that a false statement had been made knowingly or recklessly, should provide a strong incentive for companies to be as rigorous as possible in ensuring that any information they provide is completely accurate. Of course, the financial penalties for such an offence will need to be set at a level sufficient to impose a significant cost on non-compliant companies. Will the Minister therefore comment on how he will ensure that penalties are set at a rate commensurate with achieving that objective?
Particularly welcome is the additional provision in clause 137 for an aggravated offence in cases where an intent to mislead can be proven, as is the extension of the changes to the reporting requirements in relation to payments to foreign Governments under clause 147. The threat of criminal convictions, with custodial sentences of up to two years, sends a strong message that fraudulent activities must not and cannot be tolerated.
Of course, in these clauses, as elsewhere in the Bill, the jury will be out on whether the changes will have any meaningful impact on economic crime until we can be sure that compliance with the law is robustly monitored and that non-compliance will be punished to the fullest extent of the law. The Committee will be grateful for any reassurances that the Minister can provide, especially on what preparations are being made to ensure that offences are identified and prosecuted as swiftly as possible, because he has repeatedly said that legislation without robust implementation is not worth the paper it is written on.
Kevin Hollinrake
As for the level of fines, in England and Wales they can be unlimited—level 5 on the scale.
Stephen Kinnock
I thank the Minister for that clarification. Does he have any broader assurances around enforcement and implementation? It would be useful to get a sense of what institutional or organisational capability he envisages, and of whether that is in line with what the Bill is trying to achieve.
Kevin Hollinrake
As the hon. Gentleman knows, as we have discussed on many occasions and as I am on the record as saying, legislation without implementation is worthless. We need to ensure that offences are discovered and then prosecuted. Of course, we must ensure that the registrar, and the law enforcement agencies they work with, have sufficient capacity and resources to do the job. The Bill does not cover that directly, but I am certainly keen to ensure that happens.
Stephen Kinnock
I thank the Minister for those assurances. I have no further comments.
Question put and agreed to.
Clause 136 accordingly ordered to stand part of the Bill.
Clause 137 ordered to stand part of the Bill.
Clause 138
Meaning of “service address”
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 138 will improve the effectiveness of the register of overseas entities by defining “service address” so that it has the same meaning as in the Companies Act 2006. That will help those registering as overseas entities to ensure that they understand what a service address is, and that they must provide an address that meets the definition.
Stephen Kinnock
Clause 138 is another relatively minor change to the definition of a company’s service address, and it brings the definition used for the purposes of the overseas entities register into line with the language in the Companies Act. That language, the Committee will recall, defines a service address as a place where documents may be served to someone. We have already debated the potential problems of relying on such a definition in the context of amendments in which the Opposition sought to restrict and clarify what counts as an appropriate address for a company to register.
While we will not go back on all that and re-litigate those lengthy arguments, and while we will not oppose the clause, I put on the record that the Opposition do not believe that the Bill goes as far as it could and should have to prevent the fraudulent or unauthorised use of addresses. I am sure that we will come back to that on Report.
Question put and agreed to.
Clause 138 accordingly ordered to stand part of the Bill.
Clause 139
Meaning of “registered overseas entity” in land registration legislation
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clause amends the Land Registration Act 2002, Land Registration etc. (Scotland) Act 2012 and the Land Registration Act (Northern Ireland) 1970. It will improve the effectiveness of the register of overseas entities by punishing a registered overseas entity for failing to comply with the registrar’s new power—as inserted into the Companies Act by the Bill—to require information from the entity.
Currently, an overseas entity will lose its status as a registered overseas entity if it fails to provide an annual update to the registrar. The clause adds that an overseas entity will also lose its status as a registered overseas entity if it fails to respond to a notice from the registrar requesting information. Once it is no longer considered to be a registered overseas entity, the entity will be treated as non-compliant. A non-compliant entity will find it difficult to sell, lease or raise charges over its land and cannot therefore deal freely with it.
Upon submitting the requested information to the registrar, the overseas entity will once more be compliant. However, the compliance status is not retrospective. Any person dealing with the overseas entity in the non-compliance period will be unable to register any completed transaction with the land registries. I know that all Members will join me in wanting to ensure the robustness of the register and ensure that overseas entities comply with their duties, or face tough restrictions. The clause will help Companies House to do so.
Stephen Kinnock
The clause makes some relatively minor changes to the language on the requirement to provide information requested by the registrar. The effect is to extend the existing restrictions on the ability of an overseas entity to deal with property it owns, such as by selling it, in order to apply the restrictions to companies that fail to comply with the registrar’s requests for information. The change is sensible and pragmatic, and the Opposition support it.
Question put and agreed to.
Clause 139 accordingly ordered to stand part of the Bill.
Clause 140
Power to apply Part 1 amendments to register of overseas entities
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government new clause 19—Resolving inconsistencies in the register.
Government new clause 20—Administrative removal of material from register.
Stephen Kinnock
The clause provides for certain changes to be made to the Companies Act via regulations using Henry VIII powers, where necessary, to bring the Act into line with the provisions in part 1 of the Bill. The Government’s use of Henry VIII powers to change primary legislation has generated some criticism in other contexts, but the provision that the Government have made in this clause for the relevant regulations to be subject to the affirmative procedure represents a welcome commitment to parliamentary scrutiny on their part.
Finally, the Government’s new clauses 19 and 20 have been tabled to ensure that the provisions on resolving inconsistencies in the register and on removing material from it are applied to overseas entities on the same basis as to other registered companies. Those are also sensible and pragmatic changes, which the Opposition are happy to support.
Question put and agreed to.
Clause 140 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Fifteenth sitting) Debate
Full Debate: Read Full DebateDepartment: Home Office
Stephen Kinnock
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Economic Crime and Corporate Transparency Bill (Fifteenth sitting)
Stephen Kinnock ExcerptsTuesday 22nd November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 22 November 2022 - (22 Nov 2022)
The Minister for Security (Tom Tugendhat)
It is a great privilege, as always, to be with you this morning, Mr Paisley, and to enjoy the possibility of conversing about the Proceeds of Crime Act 2002.
The clause introduces schedule 6 to the Bill, which amends the criminal confiscation powers contained in parts 2, 3 and 4 of the Proceeds of Crime Act 2002—known as POCA, not to me, but to some presumably—to make it easier for law enforcement agencies to seize, detain and recover cryptoassets in more circumstances than at present. Schedule 6 will amend the provisions in each of the three existing confiscation regimes that extend to England and Wales, Scotland, and Northern Ireland so that the measures apply in all parts of the United Kingdom. That is reflected in the three parts of schedule 6.
Key definitions in schedule 6, such as those of “cryptoasset” and “cryptoasset exchange provider”, are consistent with those used elsewhere in the Proceeds of Crime Act. The schedule includes powers to update those defined terms to ensure that the measures in the Bill can keep pace with the constantly evolving criminal use of cryptoassets, the rapidly changing nature of crypto technology as well as stay aligned with other legislation dealing with similar threats.
Stephen Kinnock (Aberavon) (Lab)
It is a great pleasure to serve under your chairship today, Mr Paisley. I take the opportunity to welcome the Minister to his place; I do not think that I have done so formally, although I might well have done informally. It is good to see him in his place.
I want to make some general comments about cryptocurrencies and about the clause and schedule 6. Broadly speaking, they have some positive aspects, but we also have some questions for the Minister, and I am sure that he will explain the position with his customary lucidity once I have sat down.
Cryptocurrencies and other digital assets are not new, but how they should be regulated is still very much an open question in the UK and internationally. The Government’s decision to expand the legal framework for asset recovery under the Proceeds of Crime Act is a positive development. For that to work, however, we need to be clear about what the legislation intends to achieve.
It is fair to say that the Government have sent mixed messages about their approach to regulating cryptoassets. On the one hand, they have acknowledged the need to tackle the use of cryptoassets for criminal purposes, hence the decision to extend the money laundering regulations to cryptoasset businesses, which has been under the supervision of the Financial Conduct Authority since January 2020. In the factsheet published alongside the Bill, the Government set out their view:
“Cryptoassets are now increasingly being used by criminals to move and launder the profits of various crimes including drugs, fraud, and money laundering. There is also an increased risk that cryptoassets are being exploited to raise and move funds for terrorist activities.”
On the other hand, earlier this year, the then Chancellor of the Exchequer, who is now the Prime Minister, said that it was his
“ambition to make the UK a global hub for cryptoasset technology”.
The then Economic Secretary to the Treasury echoed that, saying in a speech at the Innovate Finance global summit in April:
“If there is one message I want you to leave here today with, it is that the UK is open for business—open for crypto-businesses”;
and
“Because we want this country to be a global hub—the very best place in the world to start and scale crypto-companies.”
It concerns me that the Government do not seem to have made up their mind whether as a country we should value crypto firms and want to entice them to the UK, or whether we should recognise the ease with, and scale at which, criminal activity within crypto markets is allowed to happen and therefore should prioritise tightening regulation and enforcement by cracking down on the widespread use of such assets to defraud individuals and undermine our national security. Perhaps the Minister will shed some light on that strategic dilemma or ambiguity and on how the Government plan to reconcile those two apparently competing aims.
I do not want to pre-empt what the Minister will say, but I imagine that he will claim that it is possible to do both.
Stephen Kinnock
But is it not simply the case that we are not putting enough resources into the enforcement of laws and the policing of such markets? That is fundamental to achieving the regulatory aim of that side of the equation.
Crypto-expert Aidan Larkin recently told me how the US Government’s money laundering and asset recovery section brings in around $800 million a year in crypto-recovery alone, while the UK brings in close to nothing, because the UK Government fail to employ the handful of experts required simply to study the blockchains via things such as bitcoin analytics and to follow the illicit finance—“to follow the money”, as the saying goes. I cannot pretend to be an expert on the technical aspects of that, but it feels like a missed opportunity to go after illegal activity. We have surely reached a point in time when that could be self-funding, if we did it properly.
I am simply not convinced that the system for regulating cryptoassets is working as well as intended. Indeed, it is pretty telling that in response to written questions 86505 and 86504, which I tabled last week, the Minister admitted that none of the 200-plus crypto businesses operating without commission had been subject to any criminal or civil penalties.
As I mentioned, since January 2020 there has been a requirement for new businesses carrying on cryptoasset activity in the UK to register with the FCA. The requirement was extended to existing businesses the following year. The implementation of the register, however, has been beset by problems, not least of which is the fact that a very large number of the firms required to register have not done so. The FCA seems to have been unable to do much about that.
Only a couple of weeks ago, the Financial Times reported that only 16% of applications for registration have been approved by the FCA. The FCA has said that a large number of firms that failed to meet the conditions for registration have withdrawn their applications and that many of those appear to have carried on doing business without the requisite permission. Indeed, the FCA maintains a list of unauthorised cryptoasset businesses operating in the UK. As of last week, 245 firms were on that list. Will the Minister explain what is being done to prevent those 245 firms that operate outside the money laundering rules from scamming members of the public, facilitating money laundering or assisting the evasion of economic sanctions?
The Government have been aware for some time of problems involving the use of cryptoassets to defraud members of the public. In October 2018, the Government’s own Cryptoassets Taskforce published a report that identified advertising that misleads people deliberately, by overstating the potential gains from investing in such assets and downplaying the risks involved, as a significant problem for the Government to address. Only now, after four years, are new rules being introduced to expand the FCA’s remit to include consumer protection in relation to misleading financial promotions.
Despite that, however, a clear gap remains between the scale of criminal activity in the sector and the ability of the FCA and police forces to respond. In recent evidence provided to the Treasury Committee, Ian Taylor of the crypto trade body, CryptoUK, said that the recent collapse of high-profile crypto exchanges such as FTX could have been prevented had a stronger regulatory system been in place. Multiple witnesses testified to the Committee that, without additional staff with the right expertise, the FCA was unlikely to be able to regulate the crypto sector effectively.
Let me turn to the substance of the clause and schedule 6. It is clearly necessary for the law to be brought up to date to reflect the use of digital assets for criminal purposes. The clause and schedule amend the Proceeds of Crime Act 2002, to extend to intangible assets the same confiscation powers that are already used to recover physical assets like cash. That is an important first step, but in many ways the Bill leaves open more questions than it answers.
For instance, the Bill provides new powers to seize cryptoasset-related items, but the definition of those items is incredibly vague, encompassing any item of property that may provide access to some kind of information that could be relevant to an effort to seize a cryptoasset. Given the broad scope of the powers, alongside the related provisions on the destruction of confiscated property, we need more information from the Minister about how the powers are likely to be used in practice.
Alison Thewliss (Glasgow Central) (SNP)
I agree very much with what has been said from the Labour Front Bench. I ask the Minister about the interaction between this Bill and all the other Bills that are considering crypto at the moment, including the Online Safety Bill, which addresses some aspects of people being exposed online to financial crime. The Treasury Committee report on economic crime pushed quite strongly on having an aspect on economic crime in the Online Safety Bill, because it is important that people are not scammed online. To me and to many others, crypto seems very much a place where people do get scammed and lose all their money.
I draw the Committee’s attention to an interview by Henry Mance in the Financial Times yesterday with Stephen Diehl, who is very cynical about the crypto industry and its ability to rip people off. We have to be incredibly careful about the areas we are getting into; we are legislating for something that is moving very quickly. Given the number of Government amendment that will be made to the schedules in this part of the Bill, we need to think carefully about what we are putting in and whether it is suitable for seizing assets and for protecting people against crypto-related fraud more widely.
My other point is about expertise. I have talked an awful lot about the Government having expertise in various areas on the enforcement side, because if there is no expertise in enforcement, the laws that we are considering will just not be enforced. In our evidence session, Andy Gould said:
“We have been investigating cryptocurrency since 2015 or 2016. One of my sergeants has just been offered 200 grand to go to the private sector. We cannot compete with that. That is probably the biggest risk that we face within this area at the moment.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 24, Q37.]
If the money is not there in policing to retain the expertise to prosecute crypto crimes and to make sure that the legislation works in practice, rather than just on paper, the Government will be very much behind the curve.
I add my hesitation on the messages the Government are giving out on regulating and encouraging and on cracking down on a sector that has the potential, as we have seen with the collapse last week, of losing an awful lot of people their money and of making some people an awful lot of money out of those who have lost it.
Tom Tugendhat
So, $13,000. That certainly speaks to the level of volatility. It has been up and down like a yo-yo in between times, so it is not exactly as though anybody would have been recommended it as an investment vehicle. I understand the hon. Lady’s points about online safety and fraud, and she is completely correct, but that is being addressed in different aspects of Government policy. What the Bill does is make sure that those assets that are held in cryptocurrency can be seized, as other assets can. It is certainly true that they are held in different ways, as the gentleman who is going through the waste dump in Wales is discovering. That means that seizing the assets needs a certain ambiguity in the legislation in order to keep it updated for the future. The Government have made a sensible series of suggestions to balance that need for advancing the technology and protecting consumers.
Stephen Kinnock
The Minister is being very generous. On that point about seizing the assets, will the Minister comment on the feedback that Aidan Larkin, an expert in this area, gave me, which is that in the United States money laundering and asset recovery measures bring in about $800 million per year? He says that we do not employ enough people doing block chain analytics. We are missing a big opportunity to generate revenue for the Exchequer.
Tom Tugendhat
I am delighted that the hon. Gentleman will now be supporting this element of the Bill, because that is exactly what it is for.
Stephen Kinnock
It seems that this is an issue around resourcing and having the people in place—the handful of experts that we need to study the blockchains. Will the Minister assure the Committee that that resourcing will be provided?
Tom Tugendhat
I can assure the hon. Gentleman that the National Crime Agency, working alongside partners in places such as GCHQ, has enormous amounts of technology to look at cryptoassets in various different ways. The Bill—which I am delighted to hear the hon. Gentleman supports so enthusiastically—will indeed give the powers that he looks for.
Question put and agreed to.
Clause 141 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Clause 142
Cryptoassets: civil recovery
Tom Tugendhat
This is a series of small wording and technical amendments that make no substantial changes to schedule 7, but simply ensure clarity and maintain consistency in the Bill’s drafting.
Stephen Kinnock
The use of enhanced powers to seize and detain digital assets, as set out in schedule 6, will be subject to a court order. Clause 142 and schedule 7 and the related Government amendments extend civil recovery powers, which may be used in the absence of a criminal conviction, to a range of organisations including the National Crime Agency, His Majesty’s Revenue and Customs and the Serious Fraud Office, in addition to police forces. It would be helpful if the Minister could explain how the Government will ensure that these enforcement powers will be used effectively in a way that avoids duplication of effort and ensures that there is a clear division of responsibilities of the different agencies. As I have said before, numerous additional powers are provided for in the Bill that require further clarification.
The Chair
Order. I encourage you to speak to amendment 121. We will come to the other amendments in the next group.
The Chair
I do not want to stop you in case you have something material to put on the record on amendment 121.
Stephen Kinnock
I have no substantial comment on the Government amendments. I should have made that clear. As the Minister says, these are technical amendments that do not have a huge amount of consequence.
I return to the issue of powers provided for in the Bill that require further clarification. I would be particularly grateful if the Minister could explain how the provisions enabling a digital asset to be converted into its equivalent value in cash might be used in practice.
In my view, there are other important issues in this area, which the Bill fails to address. I would be grateful if the Minister could set out what plans, if any, the Government have to update the asset confiscation powers we have been discussing and to extend the scope of the money laundering regulations to reflect technological developments such as non-fungible tokens and the use of digital works of art as a means of disguising illicit financial transactions.
Tom Tugendhat
I was rather under the impression that we had not voted on the amendment.
Tom Tugendhat
It is unusual to have the Opposition argument before the ministerial one—
Stephen Kinnock
I apologise for jumping the gun, but I thought we had already debated the group.
Tom Tugendhat
I am delighted to have had the position set out so clearly.
Perhaps it would be helpful if I answered some of the hon. Gentleman’s questions. The reality is that this part of the Bill is to allow law enforcement agencies to search for physical items linked to cryptoassets. As I said in answer to an earlier point, many of the assets are held in different ways. Therefore, seizing physical assets in order to link to cryptoassets is often necessary.
To use the proposed powers, officers will need reasonable grounds to suspect that the cryptoassets have been obtained through unlawful conduct or are intended for use in unlawful conduct. The powers to search for and detain assets are supplemented by powers to ultimately forfeit the cryptoassets where a magistrates court, or a sheriff court in Scotland, can be satisfied that they have been obtained through, or are intended for use in, unlawful conduct. The powers to seize or freeze and ultimately recover cryptoassets may be used irrespective of whether the asset holder has been convicted of a criminal offence. They are, therefore, an important tool for disrupting criminal activity.
Government new clause 23 and new schedule 1—which we have just heard the Opposition debate—mirror in counter-terrorist legislation the civil recovery powers in schedule 7 to the Bill by introducing new provisions into the Anti-terrorism, Crime and Security Act 2001 and the Terrorism Act 2000. That addresses a gap in existing counter-terrorism legislation and ensures that the UK’s world-leading counter-terrorism framework keeps pace with modern technology.
The creation of cryptoasset-specific civil forfeiture powers in both the Proceeds of Crime Act and counter-terrorism legislation will, importantly, mitigate the risk posed by those who cannot be prosecuted under the criminal system, but who use their proceeds stored as cryptoassets to perpetrate further criminality. Key definitions in the measures inserted by schedule 7 and new schedule 1 are in line with existing legislation and with schedule 6 to the Bill. Similarly, they include powers to update the defined terms and adapt the process for forfeiture of frozen cryptoassets, if needed. With that, I believe I have answered the Opposition’s questions before they were even asked.
Stephen Kinnock
The Opposition are concerned about enforcement. As the Minister and I have agreed throughout the debate, and as his ministerial colleague has frequently said, legislation without implementation is not worth the paper it is written on. There is little point in us passing a law that cannot or will not be enforced effectively. I am, and the Opposition are, genuinely concerned about the real risk in the proposals, partly because so much detail has yet to be made clear, but mostly because of the huge gap between what we expect of law enforcement and what resources the Government are prepared to put in.
As I said about the FCA, even the most basic requirement for cryptoasset firms to register is starting to appear unworkable. Will the Minister explain, if we cannot even get such businesses to register, how on earth will we ever be able to identify which ones are breaking the law, much less impose any penalties? I look forward to his clarification.
Tom Tugendhat
I am pleased that the hon. Gentleman is so supportive of the work of the NCA, because it, GCHQ and others have been working extremely hard on identifying the movement of cryptoassets around not just the UK, but wider areas and jurisdictions. That is enormously important for the element of seizure to which he is referring.
It is also important that the conversion powers that the hon. Gentleman spoke about are understood for what they are. A few moments ago, the hon. Member for Glasgow Central asked about market volatility. That is true at any point, including at moments of seizure. Therefore, in order to avoid market volatility at moments of seizure—particularly when assets have been taken, converted to crypto in order to be moved abroad and then seized—having control of those assets means that one needs to put them into cash in order to have a recoverable asset, so this provision is extremely sensible.
The new powers are modelled on existing powers that many law enforcement agencies use to disrupt criminal and terrorist networks. They exercise proportionality and investigatory powers that are absolutely necessary, and no more.
Question put and agreed to.
Clause 142, as amended, accordingly ordered to stand part of the Bill.
Schedule 7
Cryptoassets: civil recovery
Amendments made: 51, in schedule 7, page 206, line 42, leave out “Chapter” and insert “Part”.
This amendment makes a minor technical correction to inserted section 303Z42 of the Proceeds of Crime Act 2002, which relates to the procedure for applying for the forfeiture of cryptoassets.
Amendment 52, in schedule 7, page 206, leave out lines 45 to 47 and insert—
“(3) Where an application is made under section 303Z41 in relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order—
(a) subsections (4) and (5) apply, and
(b) the crypto wallet freezing order is to continue to have effect until the time referred to in subsection (4)(b) or (5).”
This amendment amends inserted section 303Z42 of the Proceeds of Crime Act 2002 to provide that a crypto wallet freezing order continues to have effect until the end of any forfeiture proceedings started in respect of cryptoassets held in a crypto wallet that is subject to such a freezing order.
Amendment 53, in schedule 7, page 207, line 12, leave out “(4)” and insert “(4)(b)”.
This amendment is consequential on Amendment 52.
Amendment 54, in schedule 7, page 211, line 24, leave out from “applies” to end of line 28 and insert “—
(a) the magistrates’ court or sheriff decides—
(i) to make an order under section 303Z41(4) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under section 303Z41(4), or
(b) if the application is transferred in accordance with section 303Z45(1), the High Court or Court of Session decides—
(i) to make an order under section 303Z45(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under section 303Z45(3).”
This amendment provides that an application under inserted section 303Z46 of the Proceeds of Crime Act 2002 (continuation of crypto wallet freezing order pending appeal) may be made in circumstances where a forfeiture application under section 303Z41 of that Act is transferred in accordance with section 303Z45 of that Act to be heard by the High Court or the Court of Session.
Amendment 55, in schedule 7, page 211, line 31, leave out “(1)(a) or (b)” and insert “(1)”.
This amendment is consequential on Amendment 54.
Amendment 56, in schedule 7, page 211, line 37, leave out “under section 303Z47” and insert
“(whether under section 303Z47 or otherwise)”.
This amendment is consequential on Amendment 54.
Amendment 57, in schedule 7, page 211, line 39, leave out “(1)(a) or (b)” and insert “(1)”.
This amendment is consequential on Amendment 54.
Amendment 58, in schedule 7, page 213, line 2, leave out “with the approval of” and insert
“if the officer is a senior officer or is authorised to do so by”.
This amendment amends inserted section 303Z48 of the Proceeds of Crime Act 2002 to provide that an enforcement officer may destroy forfeited cryptoassets only if the officer is a senior officer or is authorised to do so by a senior officer.
Amendment 59, in schedule 7, page 214, line 44, after “may” insert “, subject to subsection (7A),”.
This amendment and Amendments 60 and 62 amend inserted section 303Z51 of the Proceeds of Crime Act 2002 to provide that cryptoassets may not be released under that section while forfeiture proceedings are ongoing in respect of those cryptoassets.
Amendment 60, in schedule 7, page 215, line 8, after “may” insert “, subject to subsection (7A),”.
See Amendment 59.
Amendment 61, in schedule 7, page 215, line 24, at end insert “or”.
This amendment makes a minor technical correction to the release condition in inserted section 303Z51(7) of the Proceeds of Crime Act 2002.
Amendment 62, in schedule 7, page 215, line 29, at end insert—
“(7A) If an application under section 303Z41 is made for the forfeiture of the cryptoassets, the cryptoassets are not to be released under this section until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.”
See Amendment 59.
Amendment 63, in schedule 7, page 226, line 18, after “cryptoassets” insert—
“, or of property which they represent,”.
This amendment amends inserted section 303Z63 of the Proceeds of Crime Act 2002 (converted cryptoassets: victims and other owners) to provide that the condition in subsection (5)(a) of that section is met where the applicant was deprived of cryptoassets or of property which those cryptoassets represent.
Amendment 64, in schedule 7, page 227, leave out lines 1 to 5 and insert—
“(a) if the conditions in this Chapter for the detention of the converted cryptoassets are no longer met, or”.
This amendment amends the release condition in inserted section 303Z63(8) of the Proceeds of Crime Act 2002 (converted cryptoassets: victims and other owners) to provide that the release condition is met where the court is satisfied that the conditions in Chapter 3F of Part 5 of that Act for detention of the converted cryptoassets are no longer met.
Amendment 156, in schedule 7, page 230, line 22, at end insert—
“Amendments to the Proceeds of Crime Act 2002
1A In section 2C(3A) of the Proceeds of Crime Act 2002 (prosecuting authorities), for ‘or 303Z19’ substitute ‘, 303Z19, 303Z53 or 303Z65’.
1B (1) Part 2 of the Proceeds of Crime Act 2002 (confiscation: England and Wales) is amended as follows.
(2) In section 7 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 82 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.
1C (1) Part 3 of the Proceeds of Crime Act 2002 (confiscation: Scotland) is amended as follows.
(2) In section 93 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 148 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.
1D (1) Part 4 of the Proceeds of Crime Act 2002 (confiscation: Northern Ireland) is amended as follows.
(2) In section 157 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 230 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.”
This amendment contains consequential and other amendments to Parts 1 to 4 of the Proceeds of Crime Act 2002 in relation to the civil recovery of cryptoassets.
Amendment 157, in schedule 7, page 230, line 24, at end insert—
“(1A) In section 278 (limit on recovery)—
(a) in subsection (7)(a), for ‘or 303Z14’ substitute ‘, 303Z14, 303Z41, 303Z45 or 303Z60’;
(b) after subsection (7A) insert—
‘(7B) If—
(a) an order is made under section 303Z44 instead of an order being made under section 303Z41 for the forfeiture of recoverable property, and
(b) the enforcement authority subsequently seeks a recovery order in respect of related property,
the order under section 303Z44 is to be treated for the purposes of this section as if it were a recovery order obtained by the enforcement authority in respect of the property that was the forfeitable property in relation to the order under section 303Z44.’”
This amendment contains a consequential amendment to section 278 of the Proceeds of Crime Act 2002 in relation to forfeited cryptoassets.
Amendment 65, in schedule 7, page 231, line 3, after “may” insert “, subject to subsection (7A),”.
This amendment and Amendments 66 and 67 amend inserted section 303Z17A of the Proceeds of Crime Act 2002 to provide that money may not be released under that section while forfeiture proceedings are ongoing in respect of the money.
Amendment 66, in schedule 7, page 231, line 13, after “may” insert “, subject to subsection (7A),”.
See Amendment 65.
Amendment 67, in schedule 7, page 231, leave out lines 25 to 36 and insert—
“(7) The release condition is met—
(a) in relation to money held in a frozen account, if the conditions for making an order under section 303Z3 in relation to the money are no longer met, or
(b) in relation to money held in a frozen account which is subject to an application for forfeiture under section 303Z14, if the court or sheriff decides not to make an order under that section in relation to the money.
(7A) Money is not to be released under this section—
(a) if an account forfeiture notice under section 303Z9 is given in respect of the money, until any proceedings in pursuance of the notice (including any proceedings on appeal) are concluded;
(b) if an application for its forfeiture under section 303Z14 is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.”
See Amendment 65. This amendment also replaces the release condition in inserted section 303Z17A(7) of the Proceeds of Crime Act 2002 to include changes for consistency with equivalent provisions in Part 5 of that Act.
Amendment 158, in schedule 7, page 235, line 5, at end insert—
“(20A) In section 386 (production orders: supplementary), in subsection (3)(b), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.”
This amendment contains a consequential amendment to section 386 of the Proceeds of Crime Act 2002 in relation to production orders and cryptoasset investigations.
Amendment 159, in schedule 7, page 236, line 11, at end insert—
“(30) In section 416 (other interpretative provisions), in subsection (1), after the entry for ‘confiscation investigation’ insert—
‘cryptoasset investigation: section 341(3D)’.”
This amendment contains a consequential amendment to section 416 of the Proceeds of Crime Act 2002 in relation to the meaning of “cryptoasset investigation” in Part 8 of that Act.
Amendment 160, in schedule 7, page 236, line 11, at end insert—
“3A In section 438 of the Proceeds of Crime Act 2002 (disclosure of information by certain authorities), in subsection (1)(f), for ‘or 3B’ substitute ‘, 3B, 3C, 3D, 3E or 3F’.
3B In section 441 of the Proceeds of Crime Act 2002 (disclosure of information by Lord Advocate and by Scottish Ministers)—
(a) in subsection (1), for ‘or 3A’ substitute ‘, 3A, 3C or 3F’;
(b) in subsection (2)(g), for ‘or 3B’ substitute ‘, 3B, 3C, 3D, 3E or 3F’.
3C In section 450 of the Proceeds of Crime Act 2002 (pseudonyms: Scotland), in subsection (1)(a), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.
3D In section 453A of the Proceeds of Crime Act 2002 (certain offences in relation to financial investigators), in subsection (5), at the end of paragraph (dc) (before the ‘or’) insert—
‘(dd) section 303Z21 (powers to search for cryptoasset-related items);
(de) section 303Z26 (powers to seize cryptoasset-related items);
(df) section 303Z27 (powers to detain cryptoasset-related items);’.”
This amendment contains consequential amendments to Parts 10 and 12 of the Proceeds of Crime Act 2002. The amendments relate to the disclosure of information obtained during cryptoasset investigations, the use of pseudonyms during such investigations and offences against accredited financial investigators exercising powers in connection with such investigations.
Amendment 161, in schedule 7, page 236, line 21, at end insert—
“Amendments to the Civil Jurisdiction and Judgments Act 1982
5 (1) Section 18 of the Civil Jurisdiction and Judgments Act 1982 (enforcement of UK judgments in other parts of UK) is amended as follows.
(2) In subsection (2)(g), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.
(3) In subsection (4ZB)—
(a) after paragraph (b) insert—
‘(ba) a crypto wallet freezing order made under section 303Z37 of that Act;
(bb) an order for the forfeiture of cryptoassets made under section 303Z41 or 303Z45 of that Act;’;
(b) after paragraph (d) insert—
‘(da) a crypto wallet freezing order made under paragraph 10Z7BB of that Schedule;
(db) an order for the forfeiture of cryptoassets made under paragraph 10Z7CA or 10Z7CE of that Schedule.’
(4) In subsection (5)(d)(i)—
(a) after ‘(a)’ insert ‘, (ba)’;
(b) for ‘or (c)’ substitute ‘, (c) or (da)’.”—(Tom Tugendhat.)
This amendment amends the Civil Jurisdiction and Judgments Act 1982 to include provision about the enforcement of certain cryptoasset-related orders in different parts of the UK.
Schedule 7, as amended, agreed to.
Clause 143
Money laundering: exiting and paying away exemptions
Question proposed, That the clause stand part of the Bill.
The Chair
Thank you, Minister. It is not unusual to start when your name is on the clause.
Stephen Kinnock
According to the Government’s impact assessment, the purpose of clauses 143 and 144, which expand the scope of exemptions from money laundering offences, is to reduce the number of ineffective defence against money laundering reports submitted to the NCA’s financial intelligence unit. It is worth bearing in mind that the purpose of the reporting system is to enable regulated firms to notify the FIU when they are asked by a client to make a financial transaction that may amount to a money laundering offence. The FIU has seven days to review the report, and if it turns out that there is a connection to money laundering, it can ensure that appropriate enforcement action is taken.
The reports can, and often do, serve as a valuable means of identifying criminal activity. The Government’s wish to reduce the number of DAML reports is understandable, but we must not throw the baby out with the bathwater. It is important for the Minister to explain to the Committee how those measures are sufficiently targeted that they reduce the number of unnecessary or unhelpful reports without causing a similar reduction in reports that might help to identify serious crime.
Clauses 143 and 144 provide exemptions from money laundering offences for certain transactions involving property worth less than £1,000, and in cases where some but not all of a client’s assets may involve criminal funds. I would be grateful if the Minister would explain the Government’s reasoning in setting the relevant thresholds at the specific levels provided for in those clauses.
I want to touch on a couple of broader points. The Government are right that the SARs process is in need of considerable reform. There are many steps the Government could take to improve the quality of reporting in addition to the measures set out in those clauses. For instance, the Solicitors Regulation Authority published a report last month in which it noted that, in two thirds of the reports it reviewed, the firms making the report did not include the glossary codes that enable the NCA to triage reports effectively and ensure an appropriate enforcement response. Additionally, the SRA found that as many as a quarter of the DAML reports it reviewed failed even to describe the criminal conduct that was suspected. Those findings are clear evidence that many law firms do not have an adequate level of understanding of the laws they are expected to help enforce. The same may well be true in other regulated sectors.
Will the Minister set out what steps the Government are taking to ensure that regulated firms have a better understanding of their obligations under the law, and how official guidance might be improved to help firms to submit better quality reports? I point out that significant improvements could be made to the speed and efficiency of the SARs process by making use of new and emerging technologies. If the FIU could use more cutting-edge software applications and algorithms to help identify the most serious crimes, it would go a long way towards addressing the problems that the Government seek to tackle. Perhaps the Minister might comment on the Government’s work in that area.
Tom Tugendhat
I am delighted to respond to that. The rising volume of DAMLs being submitted has already had an impact on effectiveness. That is welcome, in that businesses are taking their responsibilities extremely seriously, and the UKFIU is responding appropriately when it receives them. Although, as the hon. Member quite rightly says, technology can help, the reality is that there is still an awful lot of work to be done. That is why these provisions are so reasonable.
The provisions are reasonable because property or criminal funds worth less than £1,000 are already exempt from asset seizures in different circumstances. It makes absolute sense to have a restriction on that in the Bill and apply the same threshold to allow the UKFIU to target, as much as possible, those serious money laundering accusations and investigations appropriately—and, indeed, to arrest more criminals.
Stephen Kinnock
I thank the Minister for that response. Would he care to comment on the feedback from the Solicitors Regulation Authority, which points particularly at the fact that many of the firms doing the reports were not including key information such as glossary codes and sometimes did not even describe the criminal conduct that they suspected? Is there something more that could be done so that the information at source was in a better state? Does he think that the feedback from the SRA could be a good basis on which to achieve that?
Tom Tugendhat
I am sure that having data at source in as clean and fluent a fashion as possible, so that it is complete and allows investigation, is absolutely essential. I am sure that solicitors will feel the responsibility to do that. I am grateful to the hon. Gentleman for raising that point.
Question put and agreed to.
Clause 143 accordingly ordered to stand part of the Bill.
Clause 144 ordered to stand part of the Bill.
Clause 145
Information orders: money laundering
Question proposed, That the clause stand part of the Bill.
Stephen Kinnock
I thank the Minister for including the provisions in the Bill, which should make it easier for the NCA to access the information that it needs to gather intelligence and conduct analysis of the range of threats that we face from money laundering and terrorist financing. The provisions in the clauses should also help to ensure that the UK is able to provide more effective assistance to law enforcement bodies in other countries in response to requests for information.
Given that so much economic crime is inherently an issue that cuts across international borders, it is absolutely right for the Government to do all that they can to enforce the law within our own borders and to help Governments in our partner countries overseas to do the same.
Question put and agreed to.
Clause 145 accordingly ordered to stand part of the Bill.
Clause 146 ordered to stand part of the Bill.
Clause 147
Enhanced due diligence: designation of high-risk countries
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
The clause amends the Sanctions and Anti-Money Laundering Act 2018 to allow the Treasury to directly publish and amend the UK’s high-risk third countries list on gov.uk.
Under the 2017 money laundering regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. High-risk third countries are those identified by the Financial Action Task Force as having poor controls and significant shortcomings in their anti-money laundering and counter-terrorist financing regimes.
Currently, a statutory instrument needs to be laid several times a year to update the UK’s list each time the FATF’s own list is amended. The clause will allow for more rapid updates to the list, helping the UK to be even more responsive to evolving money laundering threats by ensuring that risks are communicated and mitigated by the regulated sector as soon as possible. By removing the need to introduce legislation for each update, the change will also ease pressures on ministerial and parliamentary time, thereby responding to Parliament’s call to streamline the process—very much like this Committee.
Stephen Kinnock
Clause 147 raises a number of concerns for us, which I hope the Minister will be able to address. It aims to change the procedure for updating the Treasury’s list of countries designated as high risk due to serious deficiencies in their anti-money laundering and counter-terrorist financing systems, which was established by the Sanctions and Anti-Money Laundering Act 2018. The clause will enable the Treasury to update the list directly, without the need for regulations, in effect removing the opportunity for Parliament to scrutinise any changes to the list.
During the passage of the 2018 Act, there was cross-party consensus on the need for any UK list of designated high-risk countries to reflect international standards, primarily by mirroring the lists maintained by the Financial Action Task Force. The problem with clause 147 is that it appears to enable the Treasury to make any future updates to the UK list, even in ways that diverge from the FATF lists, without any opportunity for Parliament to scrutinise or debate the proposals. Given the zeal for deregulation that we have often seen from the current Government, it takes no great stretch of the imagination to foresee a situation in which the Treasury determines that the FATF lists are unduly stringent and that certain countries and territories should be removed from the UK’s list of high-risk countries, even in cases where issues identified by the FATF remain unresolved.
Looking at the relevant impact assessment, it seems that the intention is to enable Ministers to update the list “more swiftly” when needed, thus making the UK’s list more “responsive” to emerging developments than is possible under the current system. But even if the aim is reasonable, the methods are questionable. For one thing, the 2018 Act stipulates that regulations updating the list of high-risk countries are subject to the affirmative procedure, under which Parliament is given the opportunity to retrospectively review changes that have already been made by the time the regulations are published. Together with the fact that updates are generally needed no more frequently than once every three months, this does not seem to place an undue burden on Ministers.
The changes made by clause 147 do not seem proportionate to any identifiable problem with the current system. The Opposition therefore strongly encourage the Minister and his colleagues to revisit the clause, on the basis that a convincing case for the need to remove Parliament’s oversight of this process has not been made.
Dame Margaret Hodge (Barking) (Lab)
I concur entirely with the remarks by my hon. Friend the Member for Aberavon, but I want to ask a couple of questions.
First, the Minister will know that we are considering how we can move from freezing the assets of people who are sanctioned to seizing them. One of the ways in which that could be facilitated, from the advice I have received from various non-governmental organisations and lawyers, is to have a sort of kleptocrats list. I wonder if he would take that idea away and, in considering the request for greater parliamentary oversight, look at whether we could designate particular jurisdictions as kleptocracies. All the advice I get indicates that that would make it easier to do the seizing as well as freezing. Of course, in relation to Ukraine, that would mean that some of the £18 billion that has been seized from Russia could be recommissioned and used to help us rebuild Ukraine.
The Chair
I call Neil Kinnock—I beg your pardon, Stephen. People used to do that to me and they always got it wrong.
Stephen Kinnock
Don’t worry, Mr Paisley—we could probably exchange notes on that at great length.
I thank the Minister for those points. I recall his time as chair of the Foreign Affairs Committee, when he pushed relentlessly and convincingly for parliamentary scrutiny of a whole range of key issues and decisions. Given that parliamentary scrutiny was built into the 2018 Act, it seems difficult to justify its deliberate removal from the process by this Bill. It seems like it would be good to have those guard rails in place to avoid the risk of somebody in the Treasury deciding at some point that big decisions should be made without any parliamentary scrutiny at all. Does he not agree that this is a real missed opportunity?
Tom Tugendhat
No, I do not. I always found that when I wanted to get parliamentary scrutiny as Chair of a Committee, I managed to find ways to do that—often through debates, in which the hon. Gentleman was a wonderful speaker—and to change Government policy by using not only Parliament, but the media and other forms of pressure. There is a difference between seeking to change Government policy on various aspects of areas that should really be considered as wider policy, and seeking to implement these changes, which are, let us be honest, rather technical and not issues of major parliamentary debate.
Question put and agreed to.
Clause 147 accordingly ordered to stand part of the Bill.
Clause 148
Direct disclosures of information: no breach of obligation of confidence
Stephen Kinnock
Clause 154 would lift the current statutory cap on the penalties that may be imposed by the Solicitors Regulation Authority, as delegated by the Law Society, for breaches of the law on economic crime. I am sure that Members on both sides will welcome the change if, as the Government argue in their impact assessment, it increases the deterrent effect of the financial penalties that may be levied for disciplinary matters. Although the Government provide limited evidence to support that claim, it is at least a reasonably logical conclusion.
However, the proposals raise a number of questions, principally around the degree to which clauses 154 and 155 reflect the input received from the sector in response to consultation earlier this year. Specifically, a number of serious concerns were expressed by the Solicitors Disciplinary Tribunal when the SRA consulted on planned increases to its powers to impose fines.
The tribunal argued that the SRA’s powers should be limited to imposing relatively low penalties for minor technical or administrative errors. It argued that increasing the maximum level of fines that the SRA could impose would erode transparency by preventing cases of serious misconduct from coming before a public hearing, which could also remove the scope for a detailed, publicly accessible explanation of any penalties, as is generally provided by the tribunal’s decisions under the current system. In summarising its concern, the tribunal argued that the diminution in the transparency of decision making and detailed reason would be in neither the public’s nor the profession’s interest.
It should be noted that those objections were raised, not in response to the proposed changes set out in this Bill, but in the context of the increase in the maximum level of financial penalties that the SRA may impose from £2,000 to £25,000, which came into effect in July. That change in itself begs a number of questions. In particular, can the Minister explain how many and what proportion of the fines imposed by the SRA since July have been at the £25,000 maximum? Could it not be argued that the Government have not provided enough time for the effectiveness of recent changes to be adequately assessed?
Can the Minister also set out the Government’s reasoning in lifting the cap on the SRA’s fining powers, with specific regard to the objections raised by the Solicitors Disciplinary Tribunal, and other stakeholders, around the transparency of the process?
Clause 155 would amend the Legal Services Act 2007 to set an additional objective for regulators in the legal sector to prevent economic crime. Given the objections that have been raised in the sector relating to clause 154, I would be grateful if the Minister provided further details of any consultation between his Department and providers of legal services, as well as the Legal Services Board, on this proposal.
Finally, it would be helpful if the Minister explained the rationale for the decision to set out, in this Bill, an explicit objective to prevent economic crime for providers of legal services, but not for other sectors covered by the money laundering regulations. The impact assessment sheds limited light on the Government’s thinking in this area, so any additional detail that the Minister could provide today would be welcome.
Alison Thewliss
My understanding is that the Law Society of Scotland has no particular objections to the amendments.
Tom Tugendhat
The hon. Member is asking about various of the different fining elements. Clearly, the fines discussion is a matter for the individual cases, and would be determined on a case-by-case basis, but I think that removing the cap, which, in modern terms, is actually relatively low—certainly, when compared with financial abuses and other forms of regulation—is entirely reasonable.
The Solicitors Regulation Authority does not, in any way, have any power to strike off a suspended solicitor, so the SDT remains an extremely important part of the disciplinary process. There are various different aspects at play here, but the proposals make good sense and are reasonable. I will happily write to the hon. Member on the issue he raised separately and come back to him about it later.
Stephen Kinnock
I thank the Minister for that clarification, and I am grateful for his offer to write with further details. On the point about using the Bill to prevent economic crime with respect to providers of legal services, but not for any other sector covered by the money laundering regulation, would he care to shed more light on the rationale for that decision?
Tom Tugendhat
The other sectors are already covered by the money laundering regulation. That element is focusing on legal services because that was a lacuna in the law.
Stephen Kinnock
I thank the Minister for that clarification. There is a broader scope to economic crime, not just a specific focus on money laundering, and that covers a wider range of aspects of economic crime, although there is an explicit objective in the Bill that it is limited to providers of legal services. I wonder why that broader scope will not be applied beyond the money laundering concerns.
Tom Tugendhat
The changes are being made and the new clause is important for exactly the reasons the hon. Gentleman has highlighted. The new clause will remove an obstacle with respect to the SRA exercising its judgment and punishing appropriately those who might be committing any number of different crimes, which I hope they will not be doing. The measure will give us a provision to enable us to deal with that. The reality is that much of the money laundering regulation has already been covered, along with different aspects of financial services. The proposals specifically address legal services and particular aspects. They are an important addition, and I am happy to support them.
Question put and agreed to.
Clause 154 accordingly ordered to stand part of the Bill.
Clauses 155 to 157 ordered to stand part of the Bill.
Clause 158
Power to make consequential provision
Question proposed, That the clause stand part of the Bill.
Economic Crime and Corporate Transparency Bill (Seventeenth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (Seventeenth sitting)
Stephen Kinnock ExcerptsThursday 24th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 24 November 2022 - (24 Nov 2022)
Alison Thewliss (Glasgow Central) (SNP)
I beg to move, That the clause be read a Second time.
The new clause is designed to ensure disclosure of information relating to bank accounts held by subscribers to a memorandum of association. Like many of the amendments that the Opposition have proposed, it is aimed at tightening up loopholes, making things just that wee bit more transparent, and flagging up any issues to Companies House. The issue of bank accounts and people carrying on business at a particular address in the UK has been discussed previously. Adding a bank account to that, so that one can go, “This is a bank account. This bank account is held in the UK,” and one can find that account quite easily as a result, seems to be a sensible way to close down yet another loophole in the Bill. It will continue the jurisdiction of the issuing bank of each account, which goes to some of the other points made about Companies House registration being used and abused as a means of setting up bank accounts in other jurisdictions. People were abusing the veneer of respectability afforded to them by a company registration in the UK to then set up bank accounts in other countries, which affects those other countries through the perpetration of fraud or dubious activities in those countries by those using that Companies House veneer of respectability.
The new clause would provide a bit more transparency by giving the company registrar more information, which would be useful in terms of those red flags and making it clear where companies are actually based and carrying on their business. If, for example, a company’s bank account is held in Mauritius and it claims to carry out its business in the UK, Companies House could query that and ask, “If you are really carrying on your business in the UK, why is your bank account held in Mauritius?” That would be a red flag for the registrar and would be an extra small but significant hoop that a company would have to jump through to make the situation clearer and to give Companies House a bit more reassurance that the business that is registering is indeed legitimate. It adds a helpful grip within the system, and helps Companies House to identify any red flags. I urge the Minister to consider whether this is a measure that would help Companies House in its work.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. New clause 24, tabled by SNP Members, would add to the transparency of the companies register and enhance the ability of law enforcement to identify suspect registrations. It would do so by requiring the subscribers or initial shareholders of a company to provide information on the location of any bank account held either by the individual shareholders or in the name of the company itself.
The new clause reflects an acknowledgement of the realities that have been exposed by many of the recent leaks and investigative reporting by the media of the widespread criminal use of bank accounts registered in jurisdictions known for exercising minimal oversight over financial activity and for lax controls on money laundering offences. Given that the entire point of the Bill is to clamp down on the ability of criminals to exploit gaps in laws and regulatory approaches to economic crime across different countries, the Opposition sincerely hope that the Government welcome proposals that are intended to provide law enforcement with as much information as possible to facilitate the detection of economic crime. Requiring Companies House to record information on the location of relevant individuals’ bank accounts seems like an eminently reasonable measure that could make a valuable contribution to the fight against economic crime.
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, Sir Christopher. I thank the hon. Member for Glasgow Central for the new clause, which raises an interesting point. I have concerns about the privacy issues involved in putting this information in the public domain, and I wonder whether she has considered that. We are potentially talking about personal bank accounts rather than company bank accounts.
A similar proposal to require the disclosure of bank account information relating to companies was included in the 2019 corporate transparency and register reform consultation, as the hon. Member mentioned. Respondents did not on balance support the proposal and the Government subsequently agreed that the proposal did not offer sufficient benefits to justify the additional burden being imposed on companies. There is also concern that there would be practical difficulties with implementation, such as the inability to confirm information provided, or to identify where it is missing, which would reduce the effectiveness of the proposal.
There are some other measures we can use. The European Union’s fifth anti-money laundering directive required the UK to build a centralised automated mechanism, a bank account portal, designed to help law enforcement and AML supervisors to access information on the identity of holders and beneficial owners of bank accounts and safe deposit boxes. Following the UK’s exit from the EU and the agreement of the trade and co-operation agreement in January 2021, the Government reviewed the case for building the portal. At that point, law enforcement did not believe there was a strong rationale for an alternative, centralised mechanism in order to support its work and the Government concluded that we should not build a bank account portal. UK money laundering regulations have been amended to remove redundant obligations.
I would be grateful if the hon. Member withdrew her amendment, but I would like to explore the issue further, certainly as it relates to company bank accounts, so we will perhaps return to it at a later stage.
Dame Margaret Hodge
Thank you very much, Sir Christopher. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 50
Requirement for UK-resident director
‘(1) The Companies Act is amended as follows.
(2) In section 156B of the Companies Act 2006, inserted by section 87 of the Small Business, Enterprise and Employment Act 2015, after subsection (4) insert—
“(4A) The regulations must also include provision to require all companies to have at least one director who is ordinarily resident in the UK.”’—(Stephen Kinnock.)
This new clause would amend the Small Business, Enterprise and Employment Act 2015 to require all companies to have at least one person who ordinarily resides in the UK as a director.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 49 sought to ensure that the provisions of the Small Business, Enterprise and Employment Act 2015, which require company directors to be natural persons, would be brought into force. The Opposition welcomed the Minister’s commitment to introducing the necessary regulations to enact that measure in the near future, and we are very pleased to have that on the record. At the same time, however, the Opposition remain convinced that there is much more that the Government could and should be doing to reduce the risks of money laundering and economic crime within the company registration requirements. The new clauses we are about to discuss provide a number of different means by which the law could be further strengthened against the risk of such abuses.
New clause 50 would make it a requirement that every company registering in the UK has at least one director who is ordinarily resident here. I have already spoken in Committee about the risks that often come with a system that allows companies to register in places to which they have a tenuous connection in terms of actually doing business there. Although there may be certain limited circumstances in which it might be legitimate for a company with no UK-based directors to register with Companies House, I am struggling to see what they might be. On the other hand, I can think of plenty of reasons why the fact that a company has no UK-based directors might be considered a red flag for money laundering risks, calling for additional scrutiny from the registrar.
Stephen Kinnock
I thank the Minister for his remarks. We are talking about how to make it as easy as possible for those red flags to be clear. If we were to do exception reporting, there may, of course, be a clear explanation in certain circumstances for why there is not a single UK-based company director and perfectly legitimate reasons for that. We think that it would be better to do the exception reporting on that basis, so that we are casting the net and identifying red flag areas because of the nature of the company directors and where the risk would appear to be.
I take it from the Minister’s remarks that there is not a great deal of room for negotiation on that point. However, we are trying to put forward a sensible and pragmatic solution. Can the Minister say any more about how to look through the telescope in terms of exception reporting? We argue that exception reporting could be conducted on the basis of explaining why there is not a single UK-based company director while maintaining the blanket provision that there should always be such an individual in order to minimise risk.
Kevin Hollinrake
That is exactly how we expect the process to operate. If there are red flags of concern—an exception report, as the hon. Gentleman calls it—the registrar can ask further questions and may deny that company the right to establish itself in the UK. I think those checks and balances are in place, and of course, as hon. Members have said, it is very important that those opportunities are used by the registrar. I am very keen to ensure that we have the opportunity to scrutinise the use of those powers.
Stephen Kinnock
I thank the Minister for those points. I see that we will agree to disagree on this. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 51
Registration requirements: UK-based assets held by overseas entity
‘(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In Schedule 2—
(a) in sub-paragraph (a) of paragraph 2, for “and” substitute “or”;
(b) after sub-paragraph (a) of paragraph 2 insert—
(aa) is a beneficial owner of any UK-based assets held by overseas entity, and”.’—(Stephen Kinnock.)
The intention of this new clause is to broaden the scope of registration requirements for overseas entities, as set out in the Economic Crime (Transparency and Enforcement) Act 2022, to include the beneficial owners of any UK-based assets owned by an overseas company, as well as the beneficial owners of the company itself.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
The purpose of the new clause is to close what appears to be a loophole in the current requirements on the registration of overseas entities that own property in the UK. The case for the new clause is simple. Under the current rules, as set out primarily in the Economic Crime (Transparency and Enforcement) Act 2022, a foreign company that owns property or land in the UK is required to declare the beneficial ownership of the company itself. It is, however, unclear whether it would also be required to disclose the ultimate beneficial owner of any property owned by that company.
In recent years, we have seen ample evidence of how easy it can be—
Kevin Hollinrake
I am trying to understand the new clause. How could someone be the beneficial owner of a company and someone else own the assets? If the beneficial owners own the company, how can a different beneficial owner own the assets?
Stephen Kinnock
According to our interpretation, schedule 2 of the 2022 Act is unclear about whether a company would be required to disclose the ultimate beneficial owner of any property owned by that company. Our worry is that there is a loophole in the law that talks about the beneficial owner but does not give us the tools to obtain disclosure of who is the ultimate beneficial owner of the property.
In recent years, we have seen ample evidence of how easy it can be for money launderers and the enablers of economic crime to exploit any grey area, perceived or actual, in the laws that apply to them. Therefore it is essential that the law is absolutely crystal clear on that point. It is about tightening up the law as it stands.
We already know that the beneficial ownership of property and other assets is often shrouded in layer on layer of corporate secrecy. In its official guidance and examples of best practice on beneficial ownership, the Financial Action Task Force draws a distinction between the ownership of a company on the one hand and the ultimate beneficial ownership of any assets held by that company on the other. The guidance makes it clear that they are not necessarily the same thing. One of the most salient differences is that although a company can be the legal owner of a property, the ultimate beneficial owner of that property will always be a natural person, or, in layman’s terms, a human being. It is not clear whether the current legal framework for the register of overseas entities is sufficiently clear on that point.
To make a significant difference in terms of transparency, the register must require all companies to disclose the ultimate beneficial owner of any UK property under their control. It must publish that information. I would be grateful to hear the Minister’s thoughts on whether the legislation currently provides an adequate degree of clarity. If he agrees that the requirements could be made clearer, I hope that we can trust that the necessary changes will be incorporated in the Bill, or set out in regulation.
Kevin Hollinrake
Again, I thank the hon. Gentleman for tabling the new clause. I understand what he is seeking to do, and I support him in that endeavour. I believe that the intent behind the new clause is the concern that assets other than land can be used for illicit purposes, but I am not sure that the new clause, as drafted, serves to address that.
As the hon. Gentleman knows, overseas entities are required to register beneficial owners with Companies House. Those registered as the beneficial owners of the overseas entity are the same persons as the beneficial owners that the new clause seeks to make registerable. Any assets held by the overseas entity are ultimately owned by those already required to register with Companies House.
Say an overseas entity owns a case of whisky, so we know who is the beneficial owner of that case. Who then owns the bottles of whisky in the case? It is the same owner as the one who owns the case. There is no separate owner—they either own the case of whisky, or they do not. I honestly do not think that the new clause would achieve what the hon. Gentleman wants it to achieve. If we think about yachts and other property, if we know the beneficial owner of the company, we also know the owner of the assets inside it. I hope that the hon. Gentleman will withdraw the motion.
Stephen Kinnock
I thank the Minister for that clarification. What rang alarm bells with us were the comments of the Financial Action Task Force, which drew the distinction between the ownership of a company and the ultimate beneficial ownership of any assets held by that company. The Minister has made his position clear, and, again, we just agree to disagree. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Eighteenth sitting) Debate
Full Debate: Read Full DebateStephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Economic Crime and Corporate Transparency Bill (Eighteenth sitting)
Stephen Kinnock ExcerptsThursday 24th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 24 November 2022 - (24 Nov 2022)
The Chair
Order. Let me just tell Members about the dilapidations in this room. The thermometer does not work, so we are not able to confirm our own instincts that it is quite cold. I suggested the window be shut, and I am told that it will not shut properly. If Members are very cold during the course of the afternoon, we may have to suspend the sitting for five or 10 minutes so we can go out and get some collective exercise together.
New Clause 52
Beneficial owners: shares and voting rights held by immediate family
“(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In Schedule 2, after paragraph 6 insert—
‘(6A) For the purposes of subsection (6) above—
(a) Condition 1 is also met where 5% or more of shares are held, directly or indirectly, by X and one or more members of the immediate family of X; and
(b) Condition 2 is also met where 5% or more of voting rights are held, directly or indirectly, by X and one or more members of the immediate family of X.’”—(Stephen Kinnock.)
The intention of this new clause is to close a loophole in the current rules on registration of overseas entities, so that a threshold lower than 25% ownership or control is applied where a company’s shares or voting rights are held by multiple members of the same family.
Brought up, and read the First time.
Stephen Kinnock (Aberavon) (Lab)
I beg to move, That the clause be read a Second time.
Conservative Members will have gathered by now that the common theme of many of the new clauses tabled by the Opposition on the register of overseas entities is really closing loopholes. We may not, even will the best will in the world, be able to foresee at this stage exactly where any loopholes may arise, but we can at least act now to close the most obvious and predictable ones. In that spirit, new clause 52 seeks to address one of the most widely documented and understood means by which criminals attempt to conceal the true owners of property in places such as the UK.
As the Financial Action Task Force guidance on transparency and beneficial ownership explains:
“Criminals often use informal nominee arrangements whereby friends, family members or associates purport to be the beneficial owners of corporate vehicles. This can be particularly challenging given the informal and private nature of such arrangements. This issue can be addressed by placing obligations on the nominee to disclose to the company registry the identity of the person on behalf of whom they are acting and imposing sanctions for false declarations.”
Going back as far as the Small Business, Enterprise and Employment Act 2015 as well as in more recent legislation, the Government have made significant strides toward eliminating legal loopholes used to conceal economic crime—for instance by abolishing bearer shares and providing for a requirement for company directors to be natural persons, which the Minister assures us will be brought into effect shortly.
Although I commend the Government for having taken those steps, it is clear that we need to go further. Given how high the Government have set the threshold at which ownership of a company’s shares must be declared—at 25%—the need to tackle risks of concealing ownership by spreading shares among several different people becomes all the more urgent. Splitting ownership between family members would appear to be the easiest and most obvious way to do this. If the threshold for declaring ownership is set at 25% of a company’s shares or voting rights, it takes little imagination to come up with a solution: simply break up the shares so that on paper, if not in reality, five members of the same family appear to own no more than 20% of the company each. As a result, none of them have to disclose their connections with the company under our current laws.
Although it should be acknowledged that similar issues involving the use of nominee directors, for example, raise some complicated legal questions, the use of family members to conceal the beneficial ownership of a foreign company is surely an issue that can be easily dealt with. New clause 52 provides a simple solution that I hope the Government will accept in the constructive spirit in which it is proposed.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
Although I welcome the spirit of the new clause and the hon. Member’s wish to close a loophole, I do not think there is one. Let me set out why. It is his position that persons might deliberately reduce their shareholding below the 25% threshold, or hold shares via multiple family members, in an effort to avoid scrutiny. The 25% threshold follows the UK’s people with significant control regime, which similarly requires beneficial ownership information for UK-registered companies.
When the PSC regime was in development, significant analysis, including consultation, considered the question of thresholds. The threshold of more than 25% reflects the level of control a person needs in voting rights, under UK company law, to be able to block special resolutions of a company. It was considered that 25% represented the optimum opportunity to understand who is in a position to exert significant influence and control over a company. Collecting information on legal ownership below that threshold would be much more akin to what would be done to have the effect of creating a register of shareholders, rather than beneficial ownership.
In any case, reducing shareholdings will not allow an individual legally to evade scrutiny if they continue to exert significant influence or control. The Economic Crime (Transparency and Enforcement) Act 2022 already addresses that; anyone who has a right to exercise, or actually exercises, significant influence or control over an overseas entity is still required to be registered under condition 4 of schedule 2, which states that,
“X has the right to exercise, or actually exercises, significant influence or control over Y”.
Condition 3 states that,
“X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.”
There are other conditions within the definition, other than the 25%.
Information submitted about beneficial owners must be verified by a UK-supervised “relevant person”, such as a lawyer or accountant. Where shares are held through multiple members of the same family, relevant persons are likely to notice that when verifying an overseas entity’s application. Where a nominee holds shares for another person, the ECTE Act requires the other person to be recorded as the beneficial owner, not the nominee. That is exactly what the hon. Member for Aberavon set out. It is an offence to deliver false or misleading information to Companies House, and anyone who delivered, or caused to be delivered, such information would be at risk of prosecution—including, potentially, the lawyer or accountant.
From April 2023, UK anti-money laundering supervised relevant persons will be required to report material discrepancies to Companies House in the information contained on the register of overseas entities. That would include where a person has not been recorded as a registrable beneficial owner when a relevant person believes they should have been. The Government do not intend to lower the threshold at this time, but the Bill includes a power to amend the beneficial ownership threshold, which will be subject to the affirmative resolution procedure. I hope that these reassurances will persuade the hon. Gentleman to withdraw the new clause.
Stephen Kinnock
I thank the Minister for his response. I think the spirit of the new clauses is about prevention being better than cure. The Opposition feel that, if we look at the spectrum from deeply opaque business practices to fully transparent ones, when family members are involved we are almost by definition at the more opaque end of the spectrum. By definition, family members will be in a position to communicate with one another, things will not be on the record and the whole thing can be easily cooked up in the way that I outlined. For example, if five family members were given 20% each, they would come in under the 25% threshold.
Does the Minister agree that where family members are concerned things are more likely to be at the more opaque end of the spectrum and therefore the Bill should reflect that and have the lower threshold, as set out in the new clause?
Kevin Hollinrake
I go back to what I said earlier; I think there are all kinds of ways in which somebody could try to subvert the regulations. That is the reality and that is why we are putting the onus not only on the people concerned with the entity but on the people who represent the entity. That is the lawyer, or the accountant, and they should ask all the questions that the hon. Member set out. They should notice a family connection and potentially the person behind those individuals.
However, as I said before, someone could potentially have 0% ownership of an entity and still exert significant control. That is the point. What we are saying is that even if they have 0%, the rules still catch them if they are the person who is exerting control in a way that influences directors or shareholders, or indeed if they can appoint or dismiss directors. All those things are covered under the current provisions.
Stephen Kinnock
As I have said, we are very much about prevention being better than cure and a smart as possible approach to risk management. However, I take the Minister’s comments on board and I have no further comments to make. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 53
Beneficial owners in overseas territories
‘(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.
(2) In section 51, after subsection (5) insert—
“(5A) The Secretary of State must ensure that the Order in Council under subsection (2) above comes into effect on date no later than 30 June 2023.”’—(Stephen Kinnock.)
This new clause would amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories comes into force no later than 30 June 2023.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 53 would amend the wording of provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the UK’s overseas territories.
Some of the Committee’s Members are veterans of the struggle to incorporate the requirement into the 2018 Act and will no doubt recall that it was only thanks to the persistent effort of certain Back Benchers against the determined resistance of Ministers that the necessary amendment was ultimately made. It would be remiss of me not to pay particular tribute to the efforts on this issue of my right hon. Friend the Member for Barking. The Minister also deserves recognition for his advocacy on the need for transparency to be extended to the overseas territories, albeit in his previous incarnation as a Back-Bench Member of this House.
Stephen Kinnock
My right hon. Friend asks a very good question, while chuntering from a sedentary position. I trust that the Minister’s views have not changed with his recent promotion.
The fundamental principle behind new clause 53 is simply that there should be no double standards in the legal requirements for transparency of beneficial ownership across different parts of the UK, including in the overseas territories. To put it bluntly, we have simply witnessed too many scandals involving money being laundered through territories for whose administration the UK is ultimately responsible to accept the idea that we must simply leave them to their own devices.
I will not name names here, but I think—
Stephen Kinnock
My right hon. Friend may well wish to do so.
I think that any member of this Committee will understand what I mean when I refer to certain “usual suspects” in cases involving financial dealings that, even with the most charitable interpretation, can only be described as being questionable at best.
The language that was ultimately added to the Sanctions and Anti-Money Laundering Act 2018 reflected a recognition from Members of all parties and in both Houses that the same standards requiring open, publicly accessible registers of beneficial ownership should apply to both the UK and its overseas territories. It also reflected the widespread consensus that if we wanted to ensure that the overseas territories played by the same standards, we should be prepared to use sticks as well as carrots.
The result of that consensus was the provision in section 51 of the 2018 Act that any overseas territory that had not established a beneficial ownership registry in line with the standards of our own by the end of 2020 should be subject to direct legislation by an Order in Council. As I have already mentioned, the Government practically had to be dragged kicking and screaming to the point where they accepted that provision in the first place. However, as subsequent events have demonstrated, the real problem is that Ministers have interpreted section 51 of the Act so creatively that in effect they have completely undermined if not the letter then certainly the spirit of the law.
It seemed clear to those who pushed for section 51 of the 2018 Act that what it required was for beneficial ownership registries to be in place by the end of 2020, whether as a result of the overseas territories’ own legislation or an Order in Council. According to the spin the Government chose to put on it, its obligation had been met simply by the publication of a draft Order in Council, regardless of when, or even whether, such an order might actually come into force. The result is that we are here yet again—almost five years later—still discussing how to ensure the implementation of registers to the same standards across all of the UK’s territories. Surely it should not be beyond the wit of Ministers—even in this Government—to have sorted this out by now—[Interruption.] I am just checking that hon. Members are still awake on the Back Benches.
Stephen Kinnock
I fear that it is a bit naive and complacent to think that this is going to be done by consensus. Five years have gone by since the 2018 Act was introduced and it is extraordinary that we may have to wait another 12 months, as the Minister says. Frankly, I remain sceptical that, without a stick as well as a carrot in this conversation, anything will ever happen. I would welcome any feedback that the Minister has on that point. I do not really have a specific question for him, but I am struggling to understand why we can possibly think it is acceptable that here we are, five years later, with a chasm in our ability to implement and go after the things that we want to go after. Does he really think it is justifiable to wait another 12 months, rather than just accepting the new clause?
Kevin Hollinrake
As Ronald Reagan used to say about the Russians: trust, but verify. It is important that we trust our partners but also that we see what they are doing to put these measures into effect. I quoted a number of examples where that has been done. All these overseas territories are putting the measures in place. It is right to work on a basis of good faith. We have the stick the hon. Gentleman requires, if necessary. Beyond the end of 2023, we can then use the Order in Council procedure, as he suggests. I will ensure that we keep watch over the situation very carefully, as I have committed to do. The hon. Gentleman can rest assured that it is our understanding that these measures will be in place. I urge him to withdraw the new clause on that basis.
Stephen Kinnock
Unfortunately, we remain unconvinced by the Minister’s answers on these points and we wish to push the new clause to a vote.
Question put, That the clause be read a Second time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
Given the extensive discussions we have had on issues involving money laundering risks, including risks in relation to certain designated high-risk jurisdictions overseas, there is a fundamental question that we are not sure we have got to the bottom of. That question, which is addressed in part by new clause 54, is why we should allow a company incorporated overseas in a jurisdiction that operates on the basis of lax money laundering controls to do business in the UK at all, much less to own property or land here.
As we have already discussed, the primary purpose of the Treasury’s list of designated high-risk countries is to mirror the list of jurisdictions identified by the Financial Action Task Force as posing serious threats of money laundering and terrorist financing on account of weaknesses in their laws, inadequate law enforcement or some combination of the two.
New clause 54 seeks to incorporate into the Bill what we on the Opposition Benches believe to be a matter of basic common sense: if a company was initially formed under laws designated by the Treasury, under international guidelines, as seriously deficient in their approach to money laundering risks, that company should not be allowed to own land or property in the UK. It is a straightforward solution to a very serious problem. It would go a long way towards driving tainted money out of the UK property market. I hope that, on this basis, the Government will support new clause 54.
Kevin Hollinrake
New clause 54 seeks to prevent the acquisition of land in the UK by companies registered in jurisdictions that are listed as high risk by the Financial Action Task Force or so designated by the Secretary of State under the UK’s money laundering regulations. The Financial Action Task Force lists jurisdictions identified as having strategic deficiencies in their anti-money laundering and counter terrorist financing regimes that could pose an increased illicit finance risk.
The new clause is well intentioned and hon. Members are to be commended for their determination to rid the UK of dirty money. However, we do not believe that the new clause will have the intended effect. Jurisdictions that appear on the taskforce’s list of jurisdictions under increased monitoring, which include some key UK partners and Commonwealth members, have committed to swiftly resolve the identified deficiencies within agreed timeframes. The list is updated three times a year, and under the UK’s AML regulations, obliged businesses are already required to take enhanced due diligence measures for customers and transactions linked with individuals or companies established in high-risk jurisdictions.
Kevin Hollinrake
He may not have been, because he was not on the sanctions list at that point, and he was not on a sanctions list anywhere else in the world, as far as I am aware. He may have been—I do not actually know that information—but Usmanov would have been treated like anybody else under our system. It is interesting how quickly the Opposition sometimes will jettison some of the fundamentals of our society, one of which being that a person is innocent until proven guilty. We need the evidence before we can sanction somebody. We will adhere to that principle—certainly I will as long as I am in Parliament.
This new clause would prevent the registration of titles by legitimate companies in any of the jurisdictions on the lists. That would have a detrimental impact on those companies wishing to invest in the UK, as not every company incorporated in those jurisdictions is a bad actor. Although the new clause would prevent registration of title by an overseas entity, it is not possible to prevent a transaction from taking place and money changing hands. Unintended consequences would be likely.
Any overseas entity applying to the Land Registry to register title must now be registered with Companies House and have an ID number. That provides a safeguard against bad actors, more transparency about the overseas entity, and information for law enforcement should it later transpire that the overseas entity is involved in criminal activity. Therefore, I politely ask for this new clause to be withdrawn.
Stephen Kinnock
We are really just going back to the point about prevention being better than cure. Of course, what is really important here is that it is our sovereign Government, our Treasury, doing the designations. It is our Treasury and other expertise in our British Government saying, “That jurisdiction over there is high risk. It has lax control on money laundering. It has no sense, really, of what is going on. It’s a kind of wild west in its business environment.” That should raise many red flags and set many alarm bells ringing. The constructive spirit of this proposal is to say, “Look, we know where there are red flags. We should be acting on those red flags in a preventive way,” rather than, as my right hon. Friend the Member for Birmingham, Hodge Hill said, an ex post facto way, because once the damage is done, it is a lot more costly and a lot more insidious, because we have not dealt with the issue at source and then we are left to clear up the mess and pick up the pieces. That is the spirit in which the proposal is made. I invite the Minister to express any reflections that he has on what is actually a kind of philosophical point about the Bill. Is prevention better than cure—yes or no?
Kevin Hollinrake
Yes, undoubtedly, but I think that putting a blanket restriction on bona fide companies and bona fide individuals buying from those jurisdictions is disproportionate and wrong. I absolutely agree with the hon. Gentleman in terms of the spirit of the new clause and of his point about red flags. That is exactly the way the system works. Yes, certainly, the registrar should definitely look at the jurisdiction from which the person is purchasing a property, for example. That may well be the red flag that the hon. Gentleman refers to. To me, that is a more appropriate way of dealing with this matter than simply a blanket ban on purchase.
Stephen Kinnock
I thank the Minister for those points. We remain unconvinced by the position and would like to push this new clause to a Division.
Question put, That the clause be read a Second time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
New clause 55 also provides a simple solution to what appears to be a flaw in the Bill’s current drafting, which could be exploited by criminals seeking to exploit any legal loopholes left open to them. Under the Economic Crime (Transparency and Enforcement) Act 2022, companies required to register their ownership of UK property are required to provide annual updates on any changes to their beneficial ownership. It is not hard to see how that could be used as a loophole to conceal the ownership of property by, for instance, an individual designated by UK sanctions. A company could, at least in theory, report to Companies House that its beneficial owner was the same as it had been the previous year, without disclosing the fact that another individual had been a beneficial owner at some point during the intervening 12 months.
New clause 55 is intended to probe the Government’s thinking in this area and, as with the previous new clause, to provide the Minister with an opportunity to set out in detail how the Government plan to ensure that the laws leave no foreseeable loopholes open for exploitation by criminals.
Kevin Hollinrake
I might get into trouble with you, Sir Christopher, but on the previous new clause, countries on the high-risk jurisdiction list include Israel, Turkey and the Czech Republic. Is it honestly the Opposition’s intention to prevent individuals and companies from those jurisdictions from buying property in the UK? We should think again.
I thank the hon. Member for Aberavon for new clause 55. I wholeheartedly agree that keeping the information on the register up to date is critical. The annual update requirement is intended to provide certainty for third parties transacting with overseas entities. Property transactions often take many months to complete, and during that time a third party transacting with an overseas entity must have certainty that the entity remains compliant with the requirements of the register so that transactions are not disrupted. The key sanction for non-compliance with the register, which interferes with existing property rights, is to make it impossible for a buyer to register a title if purchasing from a non-compliant overseas entity. The onus is therefore on the buyer and their agents to ensure that they do not transact with a non-compliant entity.
In order to protect the buyer, likely to be an innocent third party, it follows that there must be absolute legal certainty about the compliance status of the overseas entity throughout the duration of the transaction. An annual update provides that certainty, giving enough time for transactions to be completed before the requirement for an update kicks in. If an update is not made on time, the overseas entity is regarded as non-compliant, and the restrictions on land transfers will bite.
The hon. Member talked about somebody switching ownership between the two reporting times. I cannot honestly see what the benefit to anybody of doing that would be, but he may wish to give me examples.
The ECTE Act includes a power to amend the update period by regulations. Should it become clear, once the register has bedded in, that the update period is too long or too short, that power can be exercised to change the update period. I therefore ask that the probing new clause be withdrawn.
Stephen Kinnock
I thank the Minister for those clarifications. This was an opportunity to set out those assurances, which we are happy to accept. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 56
Limited partnerships: registration of persons of significant control
“(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships.
(2) For the purposes of regulations under this section, ‘persons of significant control’ may include persons with a right to—
(a) 25% or more of the surplus assets on winding up,
(b) a voting share of 25% or more,
(c) appoint or remove the majority of managers,
(d) exercise significant influence or control over the business, or
(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.
(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The Chair
With this, it will be convenient to discuss:
New clause 61—Reporting requirement (overseas territories)—
“‘(1) The Secretary of State must, no later than six months from the date on which this Act comes into force, carry out and publish the results of a review of the level of regulation of cryptoasset businesses for the purposes of tackling economic crime in—
(a) each of the Crown Dependencies; and
(b) each of the UK Overseas Territories.
(2) Following the publication of such a review, the Secretary of State must prepare and publish a strategy for enhancing the level of regulation of cryptoasset businesses in any of the jurisdictions mentioned in subsection (1) above which may have serious deficiencies in their regulatory frameworks in relation to such businesses.
(3) For the purposes of subsection (2) above, criteria for identifying serious deficiencies shall include—
(a) the level of compliance by each jurisdiction with international standards set out by the Financial Action Task Force and affiliated regional bodies;
(b) the level of compliance by each jurisdiction with its legal obligations under any relevant international agreements to which it is a party; and
(c) the level of enforcement in each jurisdiction of relevant laws applicable in that jurisdiction.
(4) The strategy required by subsection (2) above must include specific plans to ensure parity between—
(a) legal frameworks; and
(b) law enforcement efforts
between the UK and each Crown Dependency and Overseas Territory.”
Stephen Kinnock
New clause 60 takes us back to some of the issues we touched on during Tuesday’s debate on part 4 of the Bill in relation to cryptoassets. Considering how many new regulations there are in this area, it is worth taking stock of how well the regulations already in place have been implemented to date and what more needs to be done to ensure that those responsible for enforcing the measures in the Bill have the powers, the expertise and the capacity they need.
The Minister for Security (Tom Tugendhat)
I am sympathetic to the intent of new clause 60, but I cannot agree to it. It remains vital to maintain a robust supervisory regime for cryptoasset firms, but that is something the FCA already does.
The FCA’s approach to assessing firms in the initial stages through registration removes poor-quality firms and bad actors from the UK system, reducing the risk of domestic firms being used to launder the proceeds of illicit activity. That robust gateway has already prevented over 200 firms that were unable to manage anti-money laundering and counter-terrorist financing risks from being registered.
Cryptoasset firms approved to operate in the UK are subject to ongoing supervision by the FCA to make sure they continue to meet those standards. The regime also provides the FCA with a number of powers in relation to those who do not meet the UK’s standards. For example, the FCA can direct a firm to make disclosures, implement additional controls and oversights, and issue injunctions to prevent potentially illicit cryptoasset activity. Furthermore, the FCA is already subject to oversight by His Majesty’s Treasury, the lead Department for anti-money laundering regulations, and, as a statutory regulator, it is also directly accountable to Parliament.
I turn to new clause 61. Again, I am sympathetic but do not support it. As we have discussed, FATF sets international standards on anti-money laundering and counter-terrorist financing, including in relation to the regulation of cryptoasset businesses, or “virtual asset service providers”, as the taskforce calls them.
FATF and its regional bodies are responsible for assessing their members against international standards. That includes assessments of the Crown dependencies and overseas territories on their regulation of cryptoasset businesses. A UK review of the Crown dependencies and overseas territories would not add value to that. The Crown dependencies and overseas territories co-operate with the UK and are committed to meeting international standards on fighting financial crime and countering terrorist finance. I therefore ask the hon. Member for Aberavon to withdraw the proposed new clauses.
Stephen Kinnock
I thank the Minister for that feedback. We want to ensure there is a mechanism to check and verify that the FCA is able and resourced to do what we want it to do. Our worry is that if we take a hands-off approach and leave it to its own devices without looking at whether it is achieving what we want it to achieve, in this fast-moving world, we could potentially lose control of the situation. I am sure that that would be a matter of regret to the Minister and the Committee.
New clause 61 is about ensuring that UK authorities can keep a close watch on developments in the overseas territories and take any necessary steps to ensure that we avoid the same kind of race to the bottom that has turned some of those territories into a magnet for a host of dodgy—and often outright criminal—financial transactions in recent decades. There are already reports of rapidly growing cottage industries springing up in places such as the Cayman Islands, aiming to facilitate the incorporation of cryptoasset businesses with, we can only assume, minimal regulatory oversight.
I thank the Minister for his comments, but will he say a bit more about how we are ensuring and building robust approaches to regulating crypto-related risks in our overseas territories, as well as the Crown dependencies, in the light of those growing cottage industries, the increasing risk, and our responsibility for what is happening there? Does he feel that there is anything more that could or should be done?
Tom Tugendhat
The hon. Member raises some important points. I do not in any way wish to disabuse him of the view that there is a risk with this industry; crypto has posed challenges to many areas. It is worth pointing out that the FCA has a budget of £600 million and co-operates extremely closely with the overseas territories and their regulatory bodies. It provides not just an oversight function here, but an education function for many others, and it sets an example that many other jurisdictions seek to emulate.
I urge the hon. Member to look at the way in which the FCA actually works, and at the way in which the overseas territories and Crown dependencies already co-operate. That is not to say that there are not problems—there are often problems in such regulatory environments, which we need to address—but the correct thing to do is to work with the FCA, as it is already doing an excellent job, and ensure that it is properly resourced. As I said, £0.6 billion seems like quite a lot, and there are various ways in which we are supporting further improvements via co-operation.
Stephen Kinnock
I thank the Minister for those points. We feel that it is a bit of a leap of faith but, on the basis of the assurances that he has given, I am happy to withdraw the clauses. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 64
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.”—(Liam Byrne.)
Brought up, and read the First time.
Stephen Kinnock
I will be brief. I fully support the comments made by my right hon. Friend the Member for Birmingham, Hodge Hill, and I fully support the new clause. I pay tribute to the other Members he mentioned who have played an important role in raising the profile and awareness of this very important issue. The Committee has an opportunity to reflect on the need for urgent action by the Government to crack down on abuses of our legal system by the wealthy and powerful individuals who seek to shut down dissenting voices whose investigations are inconvenient to them.
Surely, the Government have been aware for some time of the most flagrant cases of jurisdiction shopping by oligarchs and kleptocrats in British courts, but recognition of the problem has not been backed up by the necessary legislation. The Government have missed repeated opportunities to legislate against SLAPPs, and although consultations have been launched and expert advice and evidence has been reviewed, we still have not seen meaningful action to deal with these problems. It remains unclear when, or even if, new legislation will be forthcoming. I look forward to hearing what the Minister has to say on this important subject.
Alison Thewliss (Glasgow Central) (SNP)
I very much to support everything that the right hon. Member for Birmingham, Hodge Hill said. In his evidence to the Committee, Thomas Mayne of Chatham House said:
“This is a perfect opportunity for some kind of anti-SLAPP legislation to be put in the Bill.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 80, Q166.]
If the new clause is not going to be accepted this afternoon, will the Minister explain exactly when we will pass this legislation? Not “in due course”, not “at some point”, not “when legislative time permits”—when precisely will we legislate on this issue, if not now?
Liam Byrne
I meant, in summary, the economic effect. The impact is that agencies have much greater latitude to bring cases against bad people in American courts without fear of what it will do to their enforcement budget. That is exactly where we need our enforcement agencies to be. If we are going to strengthen their hand, to really effectively police the problem and to respect what the Government need to do, namely, to ensure that we maximise the effectiveness of our enforcement agencies within tight budgets, the measure should, I hope, be accepted by the Government. I am delighted to have had the opportunity to move the new clause.
Stephen Kinnock
I wish briefly to concur with my right hon. Friend’s every word. He has made a powerful case about unexplained wealth orders. That was something of a false dawn for the reasons he set out. Similar to what we said about SLAPPs, we are concerned about the chilling effect—the vast disparity between the financial firepower of the people that the UWOs seek to go after and that of the NCA and, frankly, the British state.
My right hon. Friend’s new clause would absolutely push the Bill in the right direction. It provides a means for us to level the playing field. On the basis of that common-sense proposal, we can start to have serious conversations about how to crack down on some of the kleptocrats. I thank my right hon. Friend for his clause and the manner in which he has proposed it. I hope that the Minister will seek to champion it rather than oppose it.
Tom Tugendhat
I am grateful for the intent behind new clause tabled by the right hon. Member for Birmingham, Hodge Hill. He has an absolutely valid point—we need to equalise the firepower between some of the organisations. We have a fundamental challenge, because we cannot assume that arising from the actions of a UWO, which is not a human rights action but to do with civil litigation, costs should fall on the losing party. We must look at how to balance the different elements.
My own inclination would be look more at how we fund our agencies to do this work. Some members may have heard that I once was in the Army. The way the armed forces does such things is by having two different forms of budget—the ongoing budget and the war reserve. I am much more inclined, and much more persuadable, towards the argument that we should be making sure that the agencies that take on such claims have a war reserve to ensure that they can meet the costs without that affecting their ongoing work, rather than changing the law in a way that would affect civil liabilities in many different areas.
Economic Crime and Corporate Transparency Bill (Nineteenth sitting) Debate
Full Debate: Read Full DebateDepartment: Department for Business, Energy and Industrial Strategy
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Department for Business, Energy and Industrial Strategy
Economic Crime and Corporate Transparency Bill (Nineteenth sitting)
Stephen Kinnock ExcerptsTuesday 29th November 2022
(1 year, 11 months ago)
Public Bill CommitteesRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 29 November 2022 - (29 Nov 2022)
Dame Margaret Hodge
Anyway, I thought it was a speech in favour of the intent of this new clause.
Failure to prevent offences have proved effective elsewhere, as the Minister himself has said. We use them to tackle bribery and tax evasion, and the Minister always raises the best example when he refers to what used to go on in the construction industry. In my youth, people would regularly have terrible accidents on construction sites, some of which were fatal. It was only when a duty was introduced for those who ran construction companies to ensure the health and safety of their workers in the workplace, meaning it would be a criminal offence if they failed to do so, that miraculously, overnight, deaths on building sites came almost to a 100% halt. We have lots of examples of where a failure to prevent does not end up with people being locked up but does change behaviour. That is what we are trying to do.
I have lots of examples of areas where the Bribery Act 2010 has been successful and this is not one. This is the last legislative opportunity we will have in this Parliament to put into effect something that Members across the House think is important. There is so much evidence from so many bodies emphasising the importance of this bit of legislation. I cannot see any argument for delay. Before they reached their great, really important roles on the Front Bench, both Ministers argued passionately, frequently and loudly for this reform. I hope they will accept the new clauses, together with new clause 79, on the identification principle. With the inclusion of those three new clauses, we can hold our heads up high and say that we have done good work in Parliament.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Mr Robertson. I pay tribute to my right hon. Friend the Member for Barking. The passion and eloquence with which she spoke was exemplary in terms of reminding us about what is at the heart of the Bill and one of the top priorities that we want to achieve. I do not want to say much more; how can I follow that?
New clause 73 would introduce a new offence of failing to prevent fraud, false accounting or money laundering, and new clause 74 would extend that offence, so I shall take them together. In effect, the new clauses would extend current failure to prevent offences beyond bribery and tax evasion to other economic crimes, money laundering and fraud. The offences would be applicable both to companies themselves and to senior managers or directors.
The Labour Front Bench team welcomes the new clauses tabled by my right hon. Friend the Member for Barking as vital to help to drive cultural change and corporate governance standards for the prevention of economic crime in the UK. They would also standardise criminal rules for holding companies to account across different economic crimes.
The call for this change is supported by a number of stakeholders, including Spotlight on Corruption, which made the following argument in written evidence to the Committee:
“Most urgently, a new failure to prevent fraud offence would help address the UK’s serious fraud epidemic. Fraud accounts for 40% of all recorded crime, but fraud prosecutions have fallen from 42,000 in 2011, to 13,500 in 2021 in the last decade, a 67% decrease. According to the Crown Prosecution Service (CPS): ‘an extension of the “failure to prevent” model to fraud, false accounting and money laundering would be unlikely to require companies to do more than what they would already be expected to do under the current law (which relies on the identification doctrine) but it would enable prosecutors to hold them to account more effectively where they fail to do so’. The heads of the Serious Fraud Office (SFO) and the CPS have both recently called for new failure to prevent offences.”
I refer the Minister, in addition to the stakeholders that support the call for change, to his own words on Second Reading. I will not replay his greatest hits—that my right hon. Friend the Member for Barking has already done so—but he has stated clearly that he sees this offence as “the No. 1 measure” that we need. The Opposition fervently hope that both Ministers will agree with their former selves that this is the No. 1 measure we need in the prevention and detection of economic crime. We urge the Conservative Front-Bench team to accept the new clause as a necessary and urgent provision to tackle economic crime that would have support across the board.
Dame Margaret Hodge
I beg to move, That the clause be read a Second time.
I have been promoting accountability for years now. In the work that I did with the Minister as we thought about how we could tackle economic crime and turn round the tanker, we always said there were four ways in which we had to respond. One was through having not more regulation, but smart regulation. The second was through tough enforcement. The third was through broad transparency—the ruling of the European Court of Justice last week is an absolute nightmare that could create real difficulties for us in the economic crime space. The fourth was accountability, and with the new clause we are suggesting a way for us to have that accountability.
There is interest in this subject across the House. The hon. Member for Hitchin and Harpenden (Bim Afolami) has written a paper on these issues. Can we find a mechanism for holding the regulatory bodies properly accountable to Parliament for what they do?
A lot of these questions arose when I chaired the Public Accounts Committee and we first started looking at tax avoidance. The rule is that everybody should be equal before the law in tax, but there was always a suspicion that sweetheart deals were being struck with certain big corporations and high net worth individuals. In fact, early on we came across one involving Goldman Sachs; on the back of a story in Private Eye, we uncovered a sweetheart deal. To this day, though, I do not understand whether Google is paying the correct tax or whether there is a deal there, and I could say the same about a lot of the big multinational companies. Because of the confidentiality of taxpayers’ interests, Parliament has no way to get the information that it needs to assure itself that the tax authorities are treating all taxpayers equally.
I have worked with all the agencies in this area—the NCA, the Serious Fraud Office, the Metropolitan police and so on—so whistleblowers, or just people who come across something that is wrong, often come to me, and I give the case to one of the agencies—and that is the last I ever hear of it. I always pursue the cases, but all too often I get the response, “Oh, there are security reasons for you not being given the information.” There was the Savaro case, which I referred to BEIS at the time. It went through BEIS and I still do not know whether anybody was pursued. Certainly, there were people behind that explosion in Lebanon, which led to so many deaths and loss of property.
I think that Parliament needs a better hold on what is happening and better accountability around how those agencies are operating. In the new clause, we suggest that we mirror the Intelligence and Security Committee, which meets under Privy Council terms. The proposed economic crime committee could be a Committee of both Houses, meeting under Privy Council terms and overseeing all the regulatory bodies in this space—in financial services and economic crime. It could call for papers relating to individual cases, which would remain confidential because the ECC would meet in private. The ECC could then produce reports on systemic changes that are necessary, arising from consideration of those individual cases.
I think that that would massively improve accountability, as well as the performance and effectiveness of the agencies. With that information, members of the ECC would have a better understanding of what, if anything, they needed to do as legislators to improve the situation. I believe that this committee will happen one day, but I am proposing it today as a new clause in this Bill. I know that the hon. Member for Hitchin and Harpenden and those who support him in this mission would be happy to support me today, and I hope that Ministers give it a good hearing.
Stephen Kinnock
I am happy to support new clause 75, tabled by my right hon. Friend the Member for Barking, which would require the Secretary of State by regulation to establish a body to be known as the economic crime committee of Parliament.
The new clause is driven by and based on the fundamental principles of transparency and accountability. Our call for those two principles to be adhered to is important because it recognises that the structures for reviewing progress, and scrutinising and reviewing economic crime, are simply not good enough. There is too much siloed thinking. This aspect of scrutiny does not sit neatly within BEIS, the Treasury, the Home Office, or the Ministries of Defence and of Justice; it really spans the waterfront, yet those Departments are all vital parts of what should be a systemic approach to tackling economic crime.
The proposed committee would consist of nine Members drawn from the House of Commons and the House of Lords, with each member of the ECC appointed by their respective House of Parliament. The ECC would have the power to meet confidentially; it could examine or otherwise oversee any regulatory enforcement or supervision agencies involved in work related to, but not limited to, tax avoidance and evasion by corporations, illicit finance, money laundering, fraud, kleptocracy, corruption, and whistleblower protection.
We welcome the new clause as it would introduce a vital mechanism for transparency and accountability within the Bill. If the Minister does not agree with it, we hope that he will acknowledge that the existing mechanisms are unfit for the kind of joined-up, systemic, expert-driven scrutiny that is needed to keep pace with and keep ahead of economic crime. Throughout this Committee’s proceedings, my colleagues and I have tabled amendments and new clauses designed to increase the scrutiny and transparency of the measures that the Bill will introduce, so as to ensure that when they are implemented, they are as effective as possible. If the Minister is not able to support the new clause, Parliament and the country more broadly would need him to come up with something better.
Alison Thewliss
I wholeheartedly agree with the new clause. When the Treasury Committee looked at this issue, what struck me was that economic crime was nobody’s priority. Our report said:
“Economic crime seems not to be a priority for law enforcement. The number of agencies responsible for fighting economic crime and fraud is bewildering.”
If it is bewildering in that sense, it is bewildering to Parliament, too. This is a BEIS and Home Office Bill, yet it has huge Treasury implications and huge security implications, and that gets to the heart of why this new clause is so important. There needs to be a body in Parliament that holds all these agencies to account in one place. If BEIS does a little bit, and the Home Office does a little bit, and security does a little bit, and the Treasury does a little bit, there will not be the cohesive scrutiny of all those agencies that is needed. Committees could well be palmed off with different responses by different agencies, with nobody consistently holding them to account.
The work of the Treasury Committee is very wide ranging. We have two meetings a week, and that is not enough to cover all the issues we need to cover. Setting up a bespoke Committee that could build up expertise on this issue would allow for that accountability. It could meet in private if it needed to, although it would ideally meet in public. The point is that it would keep an eye on all the things that we have agreed to in the Bill, and we would be holding all these agencies and Ministers to account in a consistent way. The reports of the ECC would also, we hope, be taken seriously, and its recommendations implemented.
It is not really enough that the Treasury Committee or another Committee looks at economic crime every once in a while and sees how things are going. The Treasury Committee has done that previously, looking back at previous reports and asking, “How are things going now?” but there is not that week in, week out consistent scrutiny of what is happening. Without scrutiny and consistency, it is difficult to see how the Government will get this right. We are legislating here, but legislation cannot be put on a shelf and left; it has to be living legislation that is scrutinised on a regular basis. A committee of sort proposed in the new clause really would give Parliament a lot of power to ensure that these measures are implemented correctly and that the agencies responsible for economic crime, which affects all of our constituents, continue to be held to account.
Stephen Kinnock
I will be brief because my right hon. Friend the Member for Barking has, again, made the case so eloquently. We support new clause 76. The basic fact is that by their very nature, money laundering and economic crime are very often linked to serious organised crime gangs and hostile states. We are dealing with some pretty frightening people. Without adequate protection, the stakes for an informed insider blowing the whistle are simply too high.
New clause 76 would take those vital first steps to provide more adequate protection for whistleblowers and enable the greater detection of fraud and economic crime by establishing a body specifically set up to both protect whistleblowers and investigate their reports. We feel strongly that the Government must bring forward steps to protect and enable whistleblowers. New clause 76 provides an excellent and strong platform to make that happen.
Dame Margaret Hodge
Yes, because I want it on the record. I am just conscious that Members want to get on, and that the argument is the same.
Stephen Kinnock
We fully welcome the new clause, which we think is very important to ensure that all perpetrators of economic crime are caught and dealt with.
Tom Tugendhat
I merely point out that, while the new clause addresses many of the points that the right hon. Member for Barking has raised before, it also raises many of the same challenges. For that reason, I will object to it.
Dame Margaret Hodge
I will speak to this very quickly, too. This is an interesting new clause, because its purpose is to tackle the issue of suspicious wealth remaining frozen in bank accounts and serving no useful purpose. We propose a new, more straightforward, pragmatic solution to deal with suspicious wealth, enabling our enforcement agencies to confiscate the moneys in the bank and repurpose them so that much of the wealth can be used to fund and strengthen our anti-money laundering enforcement capacity and perhaps be given back, in some cases, to the nations from which it has been stolen.
When a banker sees a suspicious transaction, he or she is required to ask for consent from the police to allow the transaction to go ahead. If the police officer refuses consent, the moneys can be frozen in the bank account. Under our new clause, the money would then remain frozen for six months, and the director of the Serious Fraud Office could apply to the courts to confiscate or seize the moneys. They will be granted that application unless the respondent proves to the court that the funds do not have a criminal origin. The onus is on the respondent to prove that he or she has obtained the assets legitimately. The SFO does not have to prove that the respondent committed a criminal activity; it is up to the respondent to prove that the funds are legitimately and honestly acquired and are not linked to acts of criminality. The new clause is modelled on unexplained wealth orders.
This would add an important new weapon to our arsenal in the fight against economic crime, as it provides for the non-conviction-based confiscation of frozen assets. Although they are not my favourite people, the people of Jersey have introduced a very similar law and recently managed to secure £1.7 million that was frozen in accounts there. That was money paid to Lieutenant General Jeremiah Useni, who had held office in the Abacha regime in Nigeria, and the allegation was that it was the proceeds of corruption. Although he tried to get his money back, he could not, and a lot of the £1.7 million went back to Nigeria.
The British Bankers’ Association thinks that we have up to £50 million held in frozen accounts, untouched. We need a little touch of boldness from the Minister. He should not just accept the message of “resist” that he gets from his officials. He should give good consideration to this sensible, practical, good idea of seizing money stolen by bad people and giving it back to the citizens who have been robbed, or repurposing it to strengthen the fight against economic crime.
Stephen Kinnock
We welcome these new clauses, which would give effect to the Government’s stated intention to unlock the proceeds of crime held in bank accounts to fund law enforcement efforts to tackle economic crime. Their adoption would also optimise the potential of the defence against money laundering regime and streamline the process of UK law enforcement identifying tainted wealth and being able to seek its forfeiture.
Tom Tugendhat
I thank the right hon. Member for Barking. While I agree with the intent behind her new clauses, I argue that they narrow slightly the scope in which the state can already recover much of the proceeds of crime. While they attempt to simplify, the reality is that we are already recovering large sums. I am not saying that we could not do more—we certainly could—but I am not convinced that the new clauses would add significantly to existing legislation. Last year, for example, a record £115 million of proceeds of crime were recovered under existing powers.
Dame Margaret Hodge
That is not a brilliant argument, but I will pursue this issue on Report, as we are doing with other issues around seizing and freezing assets. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 84
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.’—(Stephen Kinnock.)
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.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
As this is the last time I will be on my feet, I thank the Committee; it has been an excellent set of debates, and I look forward to further constructive engagement with the Government on these matters.
The context of new clause 84 is the devastation caused by Putin’s barbaric and illegal war for the lives and livelihoods of Ukraine’s population. This demands a concerted cross-party and international effort, of which the UK should be at the forefront, as the staggering costs of reconstruction are sure to remain a key challenge long after the war itself has reached its inevitable end.
The new clause would require the Government to prepare and publish a wide-ranging strategy for efforts to ensure that the necessary financial compensation is made available to victims of economic crime, wherever they may be. This could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regimes around the world. The new clause would provide a mechanism for compensating victims of economic crime in the UK, including the thousands, or perhaps even millions, of British victims of online scams and other kinds of fraud. We therefore commend the new clause to the Committee, and I look forward to the Minister’s response.
Tom Tugendhat
If anybody thinks that I was trying to soft-soap the right hon. Lady in order to shut her up in future sittings, they do not know her very well. It would have not worked, and I have not tried it. All I have done is to pay credit to somebody who has definitely earned it. I also thank my fellow Minister and the Whips, who have got us through at lightning speed.
On the new clause, the powers in part 4 already increase the focus on victims. The compensation principles of the Serious Fraud Office, CPS, the National Crime Agency and others have committed law enforcement bodies to ensuring that compensation for economic crime is considered in every relevant case, including where there are overseas victims, so I believe that the Bill already focuses on many of the aspects that we have discussed. That said, we are coming to Report. As always, I will be listening, but I have yet to be convinced about the new clause, because I believe that it has largely been covered.
Stephen Kinnock
Has the Minister any thoughts on the international forums that have been set up—for example, the Russian Elites, Proxies, and Oligarchs Taskforce and the European Commission’s Freeze and Seize Taskforce. What contribution are the UK Government planning to make to those processes?
Tom Tugendhat
I can speak directly to that, because I have recently had a meeting about it with other Governments and other jurisdictions. So far, many people have come up with ways to freeze assets. That is not a particular challenge; the UK does so very actively. Seizing and forfeiting in totality is a different challenge, because it depends on ownership and on many aspects of common law jurisdiction that we would not want to understate. I assure the hon. Gentleman honestly that I have not given up on this, because compensation for the victims in Ukraine is the very least that we should expect, as he correctly identified. Ukraine’s inevitable victory, which is absolutely assured, leads us to start thinking about how we reconstruct that extraordinary country. It is clear that Russian state assets held abroad—some, sadly, are held in the UK—should go some way to contributing to that.
That said, how do we construct the legal arguments to ensure that that is possible? They need to be in keeping with British common law, for obvious reasons. We do not want a jurisdiction of forfeiture; we want a jurisdiction of law. There is more work to be done, therefore. We are working very closely with other common law jurisdictions, such as Australia, Canada and, indeed, the United States. There is an ongoing discussion, but it is not quite as straightforward as I would have hoped.
Stephen Kinnock
I have no further comments, and I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Schedule 1
Cryptoassets: terrorism
“Part 1
Amendments to the Anti-terrorism, Crime and Security Act 2001
1 Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist property) is amended as follows.
2 After Part 4B insert—
‘Part 4BA
Seizure and detention of terrorist cryptoassets
Interpretation
10Z7A (1) In this Schedule—
“cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically;
“crypto wallet” means—
(a) software,
(b) hardware,
(c) a physical item, or
(d) any combination of the things mentioned in paragraphs (a) to (c),
which is used to store the cryptographic private key that allows cryptoassets to be accessed.
“terrorist cryptoasset” means a cryptoasset which—
(a) is within subsection (1)(a) or (b) of section 1, or
(b) is earmarked as terrorist property.
(2) The Secretary of State may by regulations made by statutory instrument amend the definitions of “cryptoasset” and “crypto wallet” in sub-paragraph (1).
(3) Regulations under sub-paragraph (2)—
(a) may make different provision for different purposes;
(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.
(4) A statutory instrument containing regulations under sub-paragraph (2) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(5) In this Part—
“cryptoasset-related item” means an item of property that is, or that contains or gives access to information that is, likely to assist in the seizure under this Part of terrorist cryptoassets;
“senior officer” means—
(a) a senior police officer;
(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;
(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;
“senior police officer” means a police officer of at least the rank of superintendent.
Seizure of cryptoasset-related items
10Z7AA (1) An authorised officer may seize any item of property if the authorised officer has reasonable grounds for suspecting that the item is a cryptoasset-related item.
(2) If an authorised officer is lawfully on any premises, the officer may, for the purpose of—
(a) determining whether any property is a cryptoasset-related item, or
(b) enabling or facilitating the seizure under this Part of any terrorist cryptoasset,
require any information which is stored in any electronic form and accessible from the premises to be produced in a form in which it can be taken away and in which it is visible and legible, or from which it can readily be produced in a visible and legible form.
(3) But sub-paragraph (2) does not authorise an authorised officer to require a person to produce privileged information.
(4) In this paragraph “privileged information” means information which a person would be entitled to refuse to provide—
(a) in England and Wales and Northern Ireland, on grounds of legal professional privilege in proceedings in the High Court;
(b) in Scotland, on grounds of confidentiality of communications in proceedings in the Court of Session.
(5) Where an authorised officer has seized a cryptoasset-related item under sub-paragraph (1), the officer may use any information obtained from the item for the purpose of—
(a) identifying or gaining access to a crypto wallet, and
(b) by doing so, enabling or facilitating the seizure under this Part of any cryptoassets.
Initial detention of cryptoasset-related items
10Z7AB (1) Property seized under paragraph 10Z7AA may be detained for an initial period of 48 hours.
(2) Sub-paragraph (1) authorises the detention of property only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to that property as described in paragraph 10Z7AA(1).
(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—
(a) any Saturday or Sunday,
(b) Christmas Day,
(c) Good Friday,
(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or
(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.
Further detention of cryptoasset-related items
10Z7AC (1) The period for which property seized under paragraph 10Z7AA may be detained may be extended by an order made—
(a) in England and Wales or Northern Ireland, by a magistrates’ court;
(b) in Scotland, by the sheriff.
(2) An order under sub-paragraph (1) may not authorise the detention of any property—
(a) beyond the end of the period of 6 months beginning with the date of the order, and
(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).
(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).
(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.
(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—
(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and
(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.
(6) An application for an order under sub-paragraph (1) or (4) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the item of property to be further detained, that—
(a) there are reasonable grounds for suspecting that it is a cryptoasset-related item, and
(b) its continuing detention is justified.
(8) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the item of property to be further detained.
(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
(10) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.
Seizure of cryptoassets
10Z7AD (1) An authorised officer may seize cryptoassets if the authorised officer has reasonable grounds for suspecting that the cryptoassets are terrorist cryptoassets.
(2) The circumstances in which a cryptoasset is “seized” for the purposes of sub-paragraph (1) include circumstances in which it is transferred into a crypto wallet controlled by the authorised officer.
Prior authorisation for detention of cryptoassets
10Z7AE (1) Where an order is made under paragraph 10Z7AC in respect of a cryptoasset-related item, the court, sheriff or justice making the order may, at the same time, make an order to authorise the detention of any cryptoassets that may be seized as a result of information obtained from that item.
(2) An application for an order under this paragraph may be made, by a person mentioned in paragraph 10Z7AC(6), at the same time as an application for an order under paragraph 10Z7AC is made by that person.
(3) The court, sheriff or justice may make an order under this paragraph if satisfied that there are reasonable grounds for suspecting that the cryptoassets that may be seized are terrorist cryptoassets.
(4) An order under this paragraph authorises detention of the cryptoassets for the same period of time as the order under paragraph 10Z7AC authorises detention in respect of the cryptoasset-related item to which those cryptoassets relate.
Initial detention of cryptoassets
10Z7AF (1) Cryptoassets seized under paragraph 10Z7AD may be detained for an initial period of 48 hours.
(2) Sub-paragraph (1) authorises the detention of cryptoassets only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to those cryptoassets as described in paragraph 10Z7AD(1).
(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—
(a) any Saturday or Sunday,
(b) Christmas Day,
(c) Good Friday,
(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or
(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.
(4) This paragraph is subject to paragraph 10Z7AE.
Further detention of cryptoassets
10Z7AG (1) The period for which cryptoassets seized under paragraph 10Z7AD may be detained may be extended by an order made—
(a) in England and Wales or Northern Ireland, by a magistrates’ court;
(b) in Scotland, by the sheriff.
(2) An order under sub-paragraph (1) may not authorise the detention of any cryptoassets—
(a) beyond the end of the period of 6 months beginning with the date of the order, and
(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).
(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).
(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.
(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—
(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and
(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.
(6) An application for an order under sub-paragraph (1) or (4) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the cryptoassets to be further detained, that condition 1, condition 2 or condition 3 is met.
(8) Condition 1 is that there are reasonable grounds for suspecting that the cryptoassets are intended to be used for the purposes of terrorism and that either—
(a) their continued detention is justified while their intended use is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(9) Condition 2 is that there are reasonable grounds for suspecting that the cryptoassets consist of resources of an organisation which is a proscribed organisation and that either—
(a) their continued detention is justified while investigation is made into whether or not they consist of such resources or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(10) Condition 3 is that there are reasonable grounds for suspecting that the cryptoassets are property earmarked as terrorist property and that either—
(a) their continued detention is justified while their derivation is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(11) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the cryptoassets to be further detained.
(12) A “request for assistance” in sub-paragraph (11) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
(13) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.
Safekeeping of cryptoasset-related items and cryptoassets
10Z7AH (1) An authorised officer must arrange for any item of property seized under paragraph 10Z7AA to be safely stored throughout the period during which it is detained under this Part.
(2) An authorised officer must arrange for any cryptoassets seized under paragraph 10Z7AD to be safely stored throughout the period during which they are detained under this Part.
Release of cryptoasset-related items and cryptoassets
10Z7AI (1) This paragraph applies while any cryptoasset or other item of property is detained under this Part.
(2) A magistrates’ court or (in Scotland) the sheriff may, subject to sub-paragraph (9), direct the release of the whole or any part of the property if the following condition is met.
(3) The condition is that the court or sheriff is satisfied, on an application by the person from whom the property was seized, that the conditions for the detention of the property in this Part are no longer met in relation to the property to be released.
(4) A person within sub-paragraph (5) may, subject to sub-paragraph (9) and after notifying the magistrates’ court, sheriff or justice under whose order property is being detained, release the whole or any part of the property if satisfied that the detention of the property to be released is no longer justified.
(5) The following persons are within this sub-paragraph—
(a) in relation to England and Wales and Northern Ireland, an authorised officer;
(b) in relation to Scotland, a procurator fiscal.
(6) If any cryptoasset-related item which has been released is not claimed within the period of a year beginning with the date on which it was released, an authorised officer may—
(a) retain the item and deal with it as they see fit,
(b) dispose of the item, or
(c) destroy the item.
(7) The powers in sub-paragraph (6) may be exercised only—
(a) where the authorised officer has taken reasonable steps to notify—
(i) the person from whom the item was seized, and
(ii) any other persons who the authorised officer has reasonable grounds to believe have an interest in the item,
that the item has been released, and
(b) with the approval of a senior officer.
(8) Any proceeds of a disposal of the item are to be paid—
(a) into the Consolidated Fund if—
(i) the item was directed to be released by a magistrates’ court, or
(ii) a magistrates’ court or justice was notified under sub-paragraph (4) of the release;
(b) into the Scottish Consolidated Fund if—
(i) the item was directed to be released by the sheriff, or
(ii) the sheriff was notified under sub-paragraph (4) of the release.
(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.
Part 4BB
Terrorist cryptoassets: crypto wallet freezing orders
Interpretation
10Z7B (1) In this Part—
(a) “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—
(i) exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,
(ii) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
(iii) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets;
(b) “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—
(i) cryptoassets on behalf of its customers, or
(ii) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets;
(c) “cryptoasset service provider” includes cryptoasset exchange provider and custodian wallet provider.
(2) In the definition of “cryptoasset exchange provider” in sub-paragraph (1)—
(a) “cryptoasset” includes a right to, or interest in, a cryptoasset;
(b) “money” means—
(i) money in sterling,
(ii) money in any other currency, or
(iii) money in any other medium of exchange,
but does not include a cryptoasset.
(3) The Secretary of State may by regulations made by statutory instrument amend the definitions in sub-paragraphs (1) and (2).
(4) Regulations under sub-paragraph (3)—
(a) may make different provision for different purposes;
(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.
(5) A statutory instrument containing regulations under sub-paragraph (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(6) For the purposes of this Part—
(a) a crypto wallet freezing order is an order that, subject to any exclusions (see paragraph 10Z7BD), prohibits each person by or for whom the crypto wallet to which the order applies is administered from—
(i) making withdrawals or payments from the crypto wallet, or
(ii) using the crypto wallet in any other way;
(b) a crypto wallet is administered by or for a person if the person is the person to whom services are being provided by a cryptoasset service provider in relation to that crypto wallet.
(7) In this Part—
“enforcement officer” means—
(a) a constable, or
(b) a counter-terrorism financial investigator;
“relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court, and
(b) in Scotland, the sheriff;
“senior officer” means a police officer of at least the rank of superintendent;
“UK-connected cryptoasset service provider” means a cryptoasset service provider which—
(a) is acting in the course of business carried on by it in the United Kingdom,
(b) has terms and conditions with the persons to whom it provides services which provide for a legal dispute to be litigated in the courts of a part of the United Kingdom,
(c) holds, in the United Kingdom, any data relating to the persons to whom it provides services, or
(d) meets the condition in sub-paragraph (8).
(8) The condition in this sub-paragraph is that—
(a) the cryptoasset service provider has its registered office, or if it does not have one, its head office in the United Kingdom, and
(b) the day-to-day management of the provider’s business is the responsibility of that office or another establishment maintained by it in the United Kingdom.
Application for crypto wallet freezing order
10Z7BA (1) This paragraph applies if an enforcement officer has reasonable grounds for suspecting that cryptoassets held in a crypto wallet administered by a UK-connected cryptoasset service provider are terrorist cryptoassets.
(2) Where this paragraph applies the enforcement officer may apply to the relevant court for a crypto wallet freezing order in relation to the crypto wallet in which the cryptoassets are held.
(3) But—
(a) an enforcement officer may not apply for a crypto wallet freezing order unless the officer is a senior officer or is authorised to do so by a senior officer, and
(b) the senior officer must consult the Treasury before making the application for the order or (as the case may be) authorising the application to be made, unless in the circumstances it is not reasonably practicable to do so.
(4) An application for a crypto wallet freezing order may be made without notice if the circumstances of the case are such that notice of the application would prejudice the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.
(5) An application for a crypto wallet freezing order under this paragraph may be combined with an application for an account freezing order under paragraph 10Q where a single entity—
(a) is both a relevant financial institution for the purposes of paragraph 10Q and a cryptoasset service provider for the purposes of this Part, and
(b) operates or administers, for the same person, both an account holding money and a crypto wallet.
Making of crypto wallet freezing order
10Z7BB (1) This paragraph applies where an application for a crypto wallet freezing order is made under paragraph 10Z7BA in relation to a crypto wallet.
(2) The relevant court may make the order if satisfied that there are reasonable grounds for suspecting that some or all of the cryptoassets held in the crypto wallet are terrorist cryptoassets.
(3) A crypto wallet freezing order ceases to have effect at the end of the period specified in the order (which may be varied under paragraph 10Z7BC) unless it ceases to have effect at an earlier or later time in accordance with this Part or Part 4BC or 4BD.
(4) The period specified by the relevant court for the purposes of sub-paragraph (3) (whether when the order is first made or on a variation under paragraph 10Z7BC) may not exceed the period of 2 years, beginning with the day on which the crypto wallet freezing order is (or was) made; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order is (or was) made.
(6) The relevant court may make an order under sub-paragraph (5) if satisfied that a request for assistance is outstanding in relation to some or all of the cryptoassets held in the crypto wallet.
(7) A “request for assistance” in sub-paragraph (6) means a request for assistance in obtaining evidence (including information in any form or article) in connection with some or all of the cryptoassets held in the crypto wallet, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an enforcement officer, to an authority exercising equivalent functions in a foreign country.
(8) A crypto wallet freezing order must provide for notice to be given to persons affected by the order.
Variation and setting aside of crypto wallet freezing order
10Z7BC (1) The relevant court may at any time vary or set aside a crypto wallet freezing order on an application made by—
(a) an enforcement officer, or
(b) any person affected by the order.
(2) But an enforcement officer may not make an application under sub-paragraph (1) unless the officer is a senior officer or is authorised to do so by a senior officer.
(3) Before varying or setting aside a crypto wallet freezing order the court must (as well as giving the parties to the proceedings an opportunity to be heard) give such an opportunity to any person who may be affected by its decision.
(4) In relation to Scotland, the references in this paragraph to setting aside an order are to be read as references to recalling it.
Exclusions
10Z7BD (1) The power to vary a crypto wallet freezing order includes (amongst other things) power to make exclusions from the prohibition on making withdrawals or payments from the crypto wallet to which the order applies.
(2) Exclusions from the prohibition may also be made when the order is made.
(3) An exclusion may (amongst other things) make provision for the purpose of enabling a person by or for whom the crypto wallet is administered—
(a) to meet the person’s reasonable living expenses, or
(b) to carry on any trade, business, profession or occupation.
(4) An exclusion may be made subject to conditions.
(5) Where a magistrates’ court exercises the power to make an exclusion for the purpose of enabling a person to meet legal expenses that the person has incurred, or may incur, in respect of proceedings under this Schedule, it must ensure that the exclusion—
(a) is limited to reasonable legal expenses that the person has reasonably incurred or that the person reasonably incurs,
(b) specifies the total amount that may be released for legal expenses in pursuance of the exclusion, and
(c) is made subject to the same conditions as would be the required conditions (see section 286A of the Proceeds of Crime Act 2002) if the order had been made under section 245A of that Act (in addition to any conditions imposed under sub-paragraph (4)).
(6) A magistrates’ court, in deciding whether to make an exclusion for the purpose of enabling a person to meet legal expenses in respect of proceedings under this Schedule—
(a) must have regard to the desirability of the person being represented in any proceedings under this Schedule in which the person is a participant, and
(b) must disregard the possibility that legal representation of the person in any such proceedings might, were an exclusion not made—
(i) be made available under arrangements made for the purposes of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, or
(ii) be funded by the Department of Justice in Northern Ireland.
(7) The sheriff’s power to make exclusions may not be exercised for the purpose of enabling any person to meet any legal expenses in respect of proceedings under this Schedule.
(8) The power to make exclusions must, subject to sub-paragraph (6), be exercised with a view to ensuring, so far as practicable, that there is not undue prejudice to the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.
Restriction on proceedings and remedies
10Z7BE (1) If a court in which proceedings are pending in respect of a crypto wallet administered by a UK-connected cryptoasset service provider is satisfied that a crypto wallet freezing order has been applied for or made in respect of the crypto wallet, it may either stay the proceedings or allow them to continue on any terms it thinks fit.
(2) Before exercising the power conferred by sub-paragraph (1), the court must (as well as giving the parties to any of the proceedings concerned an opportunity to be heard) give such an opportunity to any person who may be affected by the court’s decision.
(3) In relation to Scotland, the reference in sub-paragraph (1) to staying the proceedings is to be read as a reference to sisting the proceedings.
Part 4BC
Forfeiture of terrorist cryptoassets
Interpretation
10Z7C (1) In this Part—
“cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(1));
“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));
“senior officer” means—
(a) a senior police officer;
(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;
(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;
“senior police officer” means a police officer of at least the rank of superintendent.
(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.
Forfeiture
10Z7CA (1) This paragraph applies—
(a) while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, or
(b) while a crypto wallet freezing order made under paragraph 10Z7BB has effect.
(2) An application for the forfeiture of some or all of the cryptoassets that are detained or held in the crypto wallet that is subject to the crypto wallet freezing order may be made—
(a) to a magistrates’ court by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer, or
(b) to the sheriff by the Scottish Ministers.
(3) The court or sheriff may order the forfeiture of some or all of the cryptoassets if satisfied that the cryptoassets are terrorist cryptoassets.
(4) An order under sub-paragraph (3) made by a magistrates’ court may provide for payment under paragraph 10Z7CJ of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—
(a) the proceedings in which the order is made, or
(b) any related proceedings under this Part.
(5) A sum in respect of a relevant item of expenditure is not payable under paragraph 10Z7CJ in pursuance of provision under sub-paragraph (4) unless—
(a) the person who applied for the order under sub-paragraph (3) agrees to its payment, or
(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.
(6) For the purposes of sub-paragraph (5)—
(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (3) had instead been a recovery order made under section 266 of that Act;
(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations;
(c) if the person who applied for the order under sub-paragraph (3) was an authorised officer, that person may not agree to the payment of a sum unless the person is a senior officer or is authorised to do so by a senior officer.
(7) Sub-paragraph (3) ceases to apply on the transfer of an application made under this paragraph in accordance with paragraph 10Z7CE.
Forfeiture: supplementary
10Z7CB (1) Sub-paragraph (2) applies where an application is made under paragraph 10Z7CA for the forfeiture of any cryptoassets detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG.
(2) The cryptoassets are to continue to be detained in pursuance of the order (and may not be released under any power conferred by this Schedule) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.
This is subject to Part 4BD (conversion to money)
(3) Where an application is made under paragraph 10Z7CA in relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order—
(a) sub-paragraphs (4) and (5) apply, and
(b) the crypto wallet freezing order is to continue to have effect until the time referred to in sub-paragraph (4)(b) or (5).
(4) Where the cryptoassets are ordered to be forfeited under paragraph 10Z7CA(3) or 10Z7CE(3)—
(a) the cryptoasset service provider that administers the crypto wallet must transfer the cryptoassets into a crypto wallet nominated by an authorised officer, and
(b) immediately after the transfer has been made, the freezing order ceases to have effect.
(5) Where the application is determined or otherwise disposed of other than by the making of an order under paragraph 10Z7CA(3) or 10Z7CE(3), the crypto wallet freezing order ceases to have effect immediately after that determination or other disposal.
(6) Sub-paragraphs (4)(b) and (5) are subject to paragraph 10Z7CF and Part 4BD.
(7) The Secretary of State may by regulations made by statutory instrument amend this paragraph to make provision about the forfeiture of cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order.
(8) Regulations under sub-paragraph (7) may in particular make provision about—
(a) the process for the forfeiture of cryptoassets;
(b) the realisation of forfeited cryptoassets;
(c) the application of the proceeds of such realisation.
(9) Regulations under sub-paragraph (7) may—
(a) make different provision for different purposes;
(b) make consequential, supplementary, incidental, transitional, transitory or saving provision, including provision which makes consequential amendments to this Part.
(10) A statutory instrument containing regulations under sub-paragraph (7) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
Associated and joint property
10Z7CC (1) Paragraphs 10Z7CD and 10Z7CE apply if—
(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,
(b) the court or sheriff is satisfied that some or all of the cryptoassets are terrorist cryptoassets, and
(c) there exists property that is associated with the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in paragraph (b).
(2) Paragraphs 10Z7CD and 10Z7CE also apply in England and Wales and Northern Ireland if—
(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,
(b) the court is satisfied that some or all of the cryptoassets are earmarked as terrorist property, and
(c) the cryptoassets in relation to which the court is satisfied as mentioned in paragraph (b) belong to joint tenants and one of the tenants is an excepted joint owner.
(3) In this paragraph and paragraphs 10Z7CD and 10Z7CE, “associated property” means property of any of the following descriptions that is not itself the forfeitable property—
(a) any interest in the forfeitable property;
(b) any other interest in the property in which the forfeitable property subsists;
(c) if the forfeitable property is part of a larger property, but not a separate part, the remainder of that property.
References to property being associated with forfeitable property are to be read accordingly.
(4) In this paragraph and paragraphs 10Z7CD and 10Z7CE, the “forfeitable property” means the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in sub-paragraph (1)(b) or (2)(b) (as the case may be).
(5) For the purposes of this paragraph and paragraphs 10Z7CD and 10Z7CE—
(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and
(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.
Agreements about associated and joint property
10Z7CD (1) Where—
(a) this paragraph applies, and
(b) the person who applied for the order under paragraph 10Z7CA (on the one hand) and the person who holds the associated property or who is the excepted joint owner (on the other hand) agree,
the magistrates’ court or sheriff may, instead of making an order under paragraph 10Z7CA(3), make an order requiring the person who holds the associated property or who is the excepted joint owner to make a payment to a person identified in the order.
(2) The amount of the payment is (subject to sub-paragraph (3)) to be the amount which the persons referred to in sub-paragraph (1)(b) agree represents—
(a) in a case where this paragraph applies by virtue of paragraph 10Z7CC(1), the value of the forfeitable property;
(b) in a case where this paragraph applies by virtue of paragraph 10Z7CC(2), the value of the forfeitable property less the value of the excepted joint owner’s share.
(3) The amount of the payment may be reduced if the person who applied for the order under paragraph 10Z7CA agrees that the other party to the agreement has suffered loss as a result of—
(a) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or
(b) the making of a crypto wallet freezing order under paragraph 10Z7BB.
(4) The reduction that is permissible by virtue of sub-paragraph (3) is such amount as the parties to the agreement agree is reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) An order under sub-paragraph (1) may, so far as required for giving effect to the agreement, include provision for vesting, creating or extinguishing any interest in property.
(6) An order under sub-paragraph (1) made by a magistrates’ court may provide for payment under sub-paragraph (11) of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—
(a) the proceedings in which the order is made, or
(b) any related proceedings under this Part.
(7) A sum in respect of a relevant item of expenditure is not payable under sub-paragraph (11) in pursuance of provision under sub-paragraph (6) unless—
(a) the person who applied for the order under paragraph 10Z7CA agrees to its payment, or
(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.
(8) For the purposes of sub-paragraph (7)—
(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (1) had instead been a recovery order made under section 266 of that Act;
(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations.
(9) If there is more than one item of associated property or more than one excepted joint owner, the total amount to be paid under sub-paragraph (1), and the part of that amount which is to be provided by each person who holds any such associated property or who is an excepted joint owner, is to be agreed between both (or all) of them and the person who applied for the order under paragraph 10Z7CA.
(10) If the person who applied for the order under paragraph 10Z7CA was an authorised officer, that person may enter into an agreement for the purposes of any provision of this paragraph only if the person is a senior officer or is authorised to do so by a senior officer.
(11) An amount received under an order under sub-paragraph (1) must be applied as follows—
(a) first, it must be applied in making any payment of legal expenses which, after giving effect to sub-paragraph (7), are payable under this sub-paragraph in pursuance of provision under sub-paragraph (6);
(b) second, it must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the forfeitable property and any associated property whilst detained under this Schedule;
(c) third, it must be paid—
(i) if the order was made by a magistrates’ court, into the Consolidated Fund;
(ii) if the order was made by the sheriff, into the Scottish Consolidated Fund.
Associated and joint property: default of agreement
10Z7CE (1) Where this paragraph applies and there is no agreement under paragraph 10Z7CD, the magistrates’ court or sheriff may transfer the application made under paragraph 10Z7CA to the appropriate court.
(2) The “appropriate court” is—
(a) the High Court, where the application under paragraph 10Z7CA was made to a magistrates’ court;
(b) the Court of Session, where the application under paragraph 10Z7CA was made to the sheriff.
(3) Where (under sub-paragraph (1)) an application made under paragraph 10Z7CA is transferred to the appropriate court, the appropriate court may order the forfeiture of the property to which the application relates, or any part of that property, if satisfied that what is to be forfeited—
(a) is within subsection (1)(a) or (b) of section 1, or
(b) is property earmarked as terrorist property.
(4) An order under sub-paragraph (3) made by the High Court may include provision of the type that may be included in an order under paragraph 10Z7CA(3) made by a magistrates’ court by virtue of paragraph 10Z7CA(4).
(5) If provision is included in an order of the High Court by virtue of sub-paragraph (4) of this paragraph, paragraph 10Z7CA(5) and (6) apply with the necessary modifications.
(6) The appropriate court may, as well as making an order under sub-paragraph (3), make an order—
(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or
(b) providing for the excepted joint owner‘s interest to be severed.
(7) Where (under sub-paragraph (1)) the magistrates’ court or sheriff decides not to transfer an application made under paragraph 10Z7CA to the appropriate court, the magistrates’ court or sheriff may, as well as making an order under paragraph 10Z7CA(3), make an order—
(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or
(b) providing for the excepted joint owner‘s interest to be severed.
(8) An order under sub-paragraph (6) or (7) may be made only if the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks it just and equitable to do so.
(9) An order under sub-paragraph (6) or (7) must provide for the payment of an amount to the person who holds the associated property or who is an excepted joint owner.
(10) In making an order under sub-paragraph (6) or (7), and including provision in it by virtue of sub-paragraph (9), the appropriate court, the magistrates’ court or the sheriff (as the case may be) must have regard to—
(a) the rights of any person who holds the associated property or who is an excepted joint owner and the value to that person of that property or (as the case may be) of that person’s share (including any value that cannot be assessed in terms of money), and
(b) the interest of the person who applied for the order under paragraph 10Z7CA in realising the value of the forfeitable property.
(11) If the appropriate court, the magistrates’ court or the sheriff (as the case may be) is satisfied that—
(a) the person who holds the associated property or who is an excepted joint owner has suffered loss as a result of—
(i) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or
(ii) the making of the crypto wallet freezing order under paragraph 10Z7BB, and
(b) the circumstances are exceptional,
an order under sub-paragraph (6) or (7) may require the payment of compensation to that person.
(12) The amount of compensation to be paid by virtue of sub-paragraph (11) is the amount the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(13) Compensation to be paid by virtue of sub-paragraph (11) is to be paid in the same way that compensation is to be paid under paragraph 10Z7CM.
Continuation of crypto wallet freezing order pending appeal
10Z7CF (1) This paragraph applies where, on an application under paragraph 10Z7CA in relation to a crypto wallet to which a crypto wallet freezing order applies—
(a) the magistrates’ court or sheriff decides—
(i) to make an order under paragraph 10Z7CA(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under paragraph 10Z7CA(3), or
(b) if the application is transferred in accordance with paragraph 10Z7CE(1), the High Court or Court of Session decides—
(i) to make an order under paragraph 10Z7CE(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under paragraph 10Z7CE(3).
(2) The person who made the application under paragraph 10Z7CA may apply without notice to the court or sheriff that made the decision referred to in sub-paragraph (1) for an order that the crypto wallet freezing order is to continue to have effect.
(3) Where the court or sheriff makes an order under sub-paragraph (2) the crypto wallet freezing order is to continue to have effect until—
(a) the end of the period of 48 hours starting with the making of the order under sub-paragraph (2), or
(b) if within that period of 48 hours an appeal is brought (whether under paragraph 10Z7CG or otherwise) against the decision referred to in sub-paragraph (1), the time when the appeal is determined or otherwise disposed of.
(4) Sub-paragraph (3) of paragraph 10Z7AF applies for the purposes of sub-paragraph (3) as it applies for the purposes of that paragraph.
Paragraphs 10Z7CA to 10Z7CE: appeals
10Z7CG (1) Any party to proceedings for an order for the forfeiture of cryptoassets under paragraph 10Z7CA may appeal against—
(a) the making of an order under paragraph 10Z7CA;
(b) the making of an order under paragraph 10Z7CE(7);
(c) a decision not to make an order under paragraph 10Z7CA unless the reason that no order was made is that an order was instead made under paragraph 10Z7CD;
(d) a decision not to make an order under paragraph 10Z7CE(7).
Paragraphs (c) and (d) do not apply if the application for the order under paragraph 10Z7CA was transferred in accordance with paragraph 10Z7CE(1).
(2) Where an order under paragraph 10Z7CD is made by a magistrates’ court, any party to the proceedings for the order (including any party to the proceedings under paragraph 10Z7CA that preceded the making of the order) may appeal against a decision to include, or not to include, provision in the order under paragraph 10Z7CD(6).
(3) An appeal under this paragraph lies—
(a) in relation to England and Wales, to the Crown Court;
(b) in relation to Scotland, to the Sheriff Appeal Court;
(c) in relation to Northern Ireland, to a county court.
(4) An appeal under this paragraph must be made before the end of the period of 30 days starting with the day on which the court or sheriff makes the order or decision.
(5) Sub-paragraph (4) is subject to paragraph 10Z7CH.
(6) The court hearing the appeal may make any order it thinks appropriate.
(7) If the court upholds an appeal against an order forfeiting any cryptoasset or other item of property, it may, subject to sub-paragraph (8), order the release of the whole or any part of the property.
(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.
Extended time for appealing in certain cases where deproscription order made
10Z7CH (1) This paragraph applies where—
(a) a successful application for an order under paragraph 10Z7CA relies (wholly or partly) on the fact that an organisation is proscribed,
(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,
(c) the property forfeited by the order under paragraph 10Z7CA was seized under this Schedule on or after the date of the refusal of that application,
(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,
(e) a deproscription order is made accordingly, and
(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.
(2) Where this paragraph applies, an appeal under paragraph 10Z7CG against the making of an order under paragraph 10Z7CA, and against the making (in addition) of any order under paragraph 10Z7CE(7), may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.
(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.
Realisation or destruction of forfeited cryptoassets etc
10Z7CI (1) This paragraph applies where any cryptoasset or other item of property is forfeited under this Part.
(2) An authorised officer must—
(a) realise the property, or
(b) make arrangements for its realisation.
This is subject to sub-paragraphs (3) to (5).
(3) The property is not to be realised—
(a) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or
(b) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.
(4) The realisation of property under sub-paragraph (2) must be carried out, so far as practicable, in the manner best calculated to maximise the amount obtained for the property.
(5) Where an authorised officer is satisfied that—
(a) it is not reasonably practicable to realise any cryptoasset, or
(b) there are reasonable grounds to believe that the realisation of any cryptoasset would be contrary to the public interest,
the authorised officer may destroy the cryptoasset.
(6) But—
(a) the authorised officer may destroy the cryptoasset only if the officer is a senior officer or is authorised to do so by a senior officer, and
(b) the cryptoasset is not to be destroyed—
(i) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or
(ii) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.
(7) The question of whether the realisation of the cryptoasset would be contrary to the public interest is to be determined with particular reference to how likely it is that the entry of the cryptoasset into general circulation would facilitate criminal conduct by any person.
Proceeds of realisation
10Z7CJ (1) This paragraph applies where any cryptoasset or other item of property is realised under paragraph 10Z7CI.
(2) The proceeds of the realisation must be applied as follows—
(a) first, they must be applied in making any payment required to be made by virtue of paragraph 10Z7CE(9);
(b) second, they must be applied in making any payment of legal expenses which, after giving effect to paragraph 10Z7CA(5) (including as applied by paragraph 10Z7CE(5)), are payable under this sub-paragraph in pursuance of provision under paragraph 10Z7CA(4) or, as the case may be, 10Z7CE(4);
(c) third, they must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the property whilst detained under this Schedule and in realising the property;
(d) fourth, they must be paid—
(i) if the property was forfeited by a magistrates’ court or the High Court, into the Consolidated Fund;
(ii) if the property was forfeited by the sheriff or the Court of Session, into the Scottish Consolidated Fund.
(3) If what is realised under paragraph 10Z7CI represents part only of an item of property, the reference in sub-paragraph (2)(c) to costs incurred in storing or insuring the property is to be read as a reference to costs incurred in storing or insuring the whole of the property.
Victims etc: detained cryptoassets
10Z7CK (1) A person who claims that any cryptoassets detained under this Schedule belong to the person may apply for some or all of the cryptoassets to be released.
(2) An application under sub-paragraph (1) is to be made—
(a) in England and Wales or Northern Ireland, to a magistrates’ court;
(b) in Scotland, to the sheriff.
(3) The application may be made in the course of proceedings under paragraph 10Z7AG or 10Z7CA or at any other time.
(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—
(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,
(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the cryptoassets belong to the applicant.
(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant or to the person from whom they were seized.
(6) This sub-paragraph applies where—
(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,
(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.
(7) The release condition is met—
(a) if the conditions in Part 4BA for the detention of the cryptoassets are no longer met, or
(b) in relation to cryptoassets which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.
(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, the cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
Victims etc: crypto wallet freezing orders
10Z7CL (1) A person who claims that any cryptoassets held in a crypto wallet in respect of which a crypto wallet freezing order has been made belong to the person may apply for some or all of the cryptoassets to be released.
(2) An application under sub-paragraph (1) is to be made—
(a) in England and Wales or Northern Ireland, to a magistrates’ court;
(b) in Scotland, to the sheriff.
(3) The application may be made in the course of proceedings under paragraph 10Z7BB or 10Z7CA or at any other time.
(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—
(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,
(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the cryptoassets belong to the applicant.
(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant.
(6) This sub-paragraph applies where—
(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,
(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.
(7) The release condition is met—
(a) if the conditions for the making of the crypto wallet freezing order are no longer met in relation to the cryptoassets to which the application relates, or
(b) in relation to cryptoassets held in a crypto wallet subject to a crypto wallet freezing order which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.
(8) Cryptoassets are not to be released under this paragraph—
(a) if an application for their forfeiture under paragraph 10Z7CA is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, until the proceedings are concluded.
(9) In relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order, references in this paragraph to a person from whom cryptoassets were seized include a reference to a person by or for whom the crypto wallet was administered immediately before the crypto wallet freezing order was made.
Compensation
10Z7CM (1) This paragraph applies if no order is made under paragraph 10Z7CA, 10Z7CD or 10Z7CE in respect of cryptoassets detained under this Schedule or held in a crypto wallet that is subject to a crypto wallet freezing order under paragraph 10Z7BB.
(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—
(a) a person to whom the cryptoassets belong or from whom they were seized;
(b) a person by or for whom a crypto wallet to which the crypto wallet freezing order applies is administered.
(3) If the relevant court is satisfied that the applicant has suffered loss as a result of the detention of the cryptoassets or the making of the crypto wallet freezing order and that the circumstances are exceptional, the relevant court may order compensation to be paid to the applicant.
(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.
(6) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—
(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;
(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(7) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—
(a) in the case of a counter-terrorism financial investigator who was—
(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or
(ii) a member of staff of the City of London police force,
it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(8) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.
(9) If an order under paragraph 10Z7BB, 10Z7CA, 10Z7CD or 10Z7CE is made in respect of some of the cryptoassets detained or held, this paragraph has effect in relation to the remainder.
(10) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7CK or 10Z7CL.
(11) In this paragraph “relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court;
(b) in Scotland, the sheriff.
Part 4BD
Conversion of cryptoassets
Interpretation
10Z7D (1) In this Part—
“converted cryptoassets” is to be read in accordance with paragraphs 10Z7DC and 10Z7DD;
“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));
“relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court;
(b) in Scotland, the sheriff;
“relevant financial institution” has the same meaning as in Part 4B (see paragraph 10Q);
“UK-connected cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(7)).
(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.
(3) In this Part references to the conversion of cryptoassets into money are references to the conversion of cryptoassets into—
(a) cash, or
(b) money held in an account maintained with a relevant financial institution.
(4) For the purposes of Parts 2 to 4, converted cryptoassets detained under this Part are not to be treated as cash detained under this Schedule.
Detained cryptoassets: conversion
10Z7DA (1) Sub-paragraph (2) applies while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG (including where cryptoassets are subject to forfeiture proceedings).
(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets detained pursuant to the order to be converted into money.
(3) The following persons are within this sub-paragraph—
(a) an authorised officer;
(b) a person from whom the cryptoassets were seized.
(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before they are released or forfeited (including the period during which an appeal against an order for forfeiture may be made).
(5) Before making an order under this paragraph the court must give an opportunity to be heard to—
(a) the parties to the proceedings, and
(b) any other person who may be affected by its decision.
(6) As soon as practicable after an order is made under this paragraph, an authorised officer must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.
(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.
(8) At the first opportunity after the cryptoassets are converted, the authorised officer must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account and held there.
(9) Interest accruing on the amount is to be added to it on its forfeiture or release.
(10) Where cryptoassets are converted into money in accordance with an order made under this paragraph—
(a) the cryptoassets are no longer to be treated as being detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, and
(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets.
(11) An order made under this paragraph must provide for notice to be given to persons affected by the order.
(12) No appeal may be made against an order made under this paragraph.
Frozen crypto wallet: conversion
10Z7DB (1) This paragraph applies while a crypto wallet freezing order under paragraph 10Z7BB has effect (including where cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order are subject to forfeiture proceedings).
(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets held in the crypto wallet to be converted into money.
(3) The following persons are within this sub-paragraph—
(a) an authorised officer;
(b) a person by or for whom the crypto wallet is administered.
(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before—
(a) the crypto wallet freezing order ceases to have effect, or
(b) the cryptoassets are forfeited (including the period during which an appeal against an order for forfeiture may be made).
(5) Before making an order under this paragraph the court must give an opportunity to be heard to—
(a) the parties to the proceedings, and
(b) any other person who may be affected by its decision.
(6) As soon as practicable after an order is made under this paragraph, the UK-connected cryptoasset service provider that administers the crypto wallet must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.
(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.
(8) At the first opportunity after the cryptoassets are converted, the UK-connected cryptoasset service provider must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account nominated by an authorised officer and held there.
(9) But—
(a) the UK-connected cryptoasset service provider may deduct any reasonable expenses incurred by the provider in connection with the conversion of the cryptoassets, and
(b) the amount to be treated as the proceeds of the conversion of the cryptoassets is to be reduced accordingly.
(10) Interest accruing on the amount obtained for the cryptoassets is to be added to it on its forfeiture or release.
(11) Where cryptoassets are converted in accordance with an order made under this paragraph—
(a) the crypto wallet freezing order ceases to have effect,
(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets, and
(c) any application made under paragraph 10Z7CF(2) in relation to the crypto wallet which has not yet been determined or otherwise disposed of may not be proceeded with.
(12) An order made under this paragraph must provide for notice to be given to persons affected by the order.
(13) No appeal may be made against an order made under this paragraph.
Conversion: existing forfeiture proceedings
10Z7DC (1) Where—
(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and
(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DA requiring the cryptoassets to be converted into money,
paragraph 10Z7DJ(1) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).
(2) Where—
(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and
(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DB requiring the cryptoassets to be converted into money,
paragraph 10Z7DJ(2) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).
(3) Where—
(a) an appeal may be made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and
(b) an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,
the appeal may instead be made under paragraph 10Z7DH (within the time allowed by paragraph 10Z7CG(4)) as if it were an appeal against the determination of an application under paragraph 10Z7DG.
(4) Where—
(a) an appeal is made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and
(b) before the appeal is determined or otherwise disposed of, an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,
the appeal is to be treated as if it had been made under paragraph 10Z7DH(1) in relation to the determination of an application under paragraph 10Z7DG for the forfeiture of the converted cryptoassets.
Detained cryptoassets: detention of proceeds of conversion
10Z7DD (1) This paragraph applies where cryptoassets are converted into money in accordance with an order under paragraph 10Z7DA.
(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the cryptoassets could, immediately before the conversion, have been detained under Part 4BA (ignoring the possibility of any extension of that period).
(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.
(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the relevant date; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the relevant date.
(6) In sub-paragraphs (4) and (5) “the relevant date” means the date on which the first order under paragraph 10Z7AE or 10Z7AG (as the case may be) was made in relation to the cryptoassets.
(7) An application for an order under sub-paragraph (3) or (5) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(8) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(9) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).
(10) A “request for assistance” in sub-paragraph (9) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
Frozen crypto wallets: detention of proceeds of conversion
10Z7DE (1) This paragraph applies where cryptoassets held in a crypto wallet subject to a crypto wallet freezing order are converted into money in accordance with an order under paragraph 10Z7DB.
(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the crypto wallet freezing order was, immediately before the conversion, due to have effect under Part 4BB (ignoring the possibility of any extension of that period).
(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.
(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the day on which the crypto wallet freezing order was made; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order was made.
(6) An application for an order under sub-paragraph (3) or (5) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(8) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).
(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
Release of detained converted cryptoassets
10Z7DF (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.
(2) The relevant court may, subject to sub-paragraph (7), direct the release of the whole or any part of the converted cryptoassets if the following condition is met.
(3) The condition is that, on an application by the relevant person, the court is not satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be released—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(4) In sub-paragraph (3) “the relevant person” means—
(a) in the case of converted cryptoassets detained under paragraph 10Z7DD, the person from whom the cryptoassets mentioned in sub-paragraph (1) of that paragraph were seized, and
(b) in the case of converted cryptoassets detained under paragraph 10Z7DE, any person affected by the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.
(5) A person within sub-paragraph (6) may, subject to sub-paragraph (7) and after notifying the magistrates’ court or sheriff under whose order converted cryptoassets are being detained, release the whole or any part of the converted cryptoassets if satisfied that the detention is no longer justified.
(6) The following persons are within this sub-paragraph—
(a) in relation to England and Wales or Northern Ireland, an authorised officer;
(b) in relation to Scotland, a procurator fiscal.
(7) Converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained)—
(a) if an application for their forfeiture under paragraph 10Z7DG is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, until the proceedings are concluded.
Forfeiture
10Z7DG (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.
(2) An application for the forfeiture of some or all of the converted cryptoassets may be made—
(a) to a magistrates’ court by, the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) to the sheriff, by the Scottish Ministers.
(3) The court or sheriff may order the forfeiture of some or all of the converted cryptoassets if satisfied that the converted cryptoassets to be forfeited—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(4) But in the case of property which belongs to joint tenants, one of whom is an excepted joint owner, the order may not apply to so much of it as the court thinks is attributable to the excepted joint owner’s share.
(5) Where an application for forfeiture is made under this paragraph, the converted cryptoassets are to continue to be detained under paragraph 10Z7DD or 10Z7DE (and may not be released under any power conferred by this Part) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.
(6) For the purposes of this paragraph—
(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and
(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.
Forfeiture: appeals
10Z7DH (1) Any party to proceedings for an order for the forfeiture of converted cryptoassets under paragraph 10Z7DG who is aggrieved by an order under that paragraph or by the decision of the court not to make such an order may appeal—
(a) from an order or decision of a magistrates’ court in England and Wales, to the Crown Court;
(b) from an order or decision of the sheriff, to the Sheriff Appeal Court;
(c) from an order or decision of a magistrates’ court in Northern Ireland, to a county court.
(2) An appeal under sub-paragraph (1) must be made before the end of the period of 30 days starting with the day on which the court makes the order or decision.
(3) The court hearing the appeal may make any order it thinks appropriate.
(4) If the court upholds an appeal against an order forfeiting the converted cryptoassets, it may, subject to sub-paragraph (5), order the release of some or all of the converted cryptoassets.
(5) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
Extended time for appealing in certain cases where deproscription order made
10Z7DI (1) This paragraph applies where—
(a) a successful application for an order under paragraph 10Z7DG relies (wholly or partly) on the fact that an organisation is proscribed,
(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,
(c) the converted cryptoassets forfeited by the order under paragraph 10Z7DG were converted from cryptoassets which were seized under this Schedule on or after the date of the refusal of that application,
(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,
(e) a deproscription order is made accordingly, and
(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.
(2) Where this paragraph applies, an appeal under paragraph 10Z7DH against the making of an order under paragraph 10Z7DG may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.
(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.
Application of forfeited converted cryptoassets
10Z7DJ (1) Converted cryptoassets detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—
(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the safe storage of the cryptoassets mentioned in paragraph 10Z7DD(1) during the period the cryptoassets were detained under Part 4BA;
(b) second, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the conversion of those cryptoassets under paragraph 10Z7DA(6);
(c) third, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;
(d) fourth, they must be paid—
(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and
(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.
(2) Converted cryptoassets detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—
(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;
(b) second, they must be paid—
(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and
(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.
(3) But converted cryptoassets are not to be applied or paid under sub-paragraph (1) or (2)—
(a) before the end of the period within which an appeal under paragraph 10Z7DH may be made, or
(b) if a person appeals under that paragraph, before the appeal is determined or otherwise disposed of.
Victims etc
10Z7DK (1) This paragraph applies where converted cryptoassets are detained under this Part.
(2) Where this paragraph applies, a person (“P”) who claims that the relevant cryptoassets belonged to P immediately before—
(a) the relevant cryptoassets were seized, or
(b) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,
may apply to the relevant court for some or all of the converted cryptoassets to be released to P.
(3) The application may be made in the course of proceedings under paragraph 10Z7DD, 10Z7DE or 10Z7DG or at any other time.
(4) The relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant if it appears to the relevant court that the condition in sub-paragraph (5) is met.
(5) The condition in this sub-paragraph is that—
(a) the applicant was deprived of the relevant cryptoassets, or of property which they represent, by criminal conduct,
(b) the relevant cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the relevant cryptoassets belonged to the applicant immediately before—
(i) the relevant cryptoassets were seized, or
(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held.
(6) If sub-paragraph (7) applies, the relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant or to the person from whom the relevant cryptoassets were seized.
(7) This sub-paragraph applies where—
(a) the applicant is not the person from whom the relevant cryptoassets were seized,
(b) it appears to the relevant court that the relevant cryptoassets belonged to the applicant immediately before—
(i) the relevant cryptoassets were seized, or
(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,
(c) the relevant court is satisfied that the release condition is met in relation to the converted cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (6) has been made by the person from whom the relevant cryptoassets were seized.
(8) The release condition is met—
(a) if the conditions in this Part for the detention of the converted cryptoassets are no longer met, or
(b) in relation to converted cryptoassets which are subject to an application for forfeiture under paragraph 10Z7DG, if the court or sheriff decides not to make an order under that paragraph in relation to the converted cryptoassets.
(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
(10) Where sub-paragraph (2)(b) applies, references in this paragraph to a person from whom relevant cryptoassets were seized include a reference to a person by or for whom the crypto wallet mentioned in that provision was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.
(11) In this paragraph “the relevant cryptoassets” means—
(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph, and
(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph.
Compensation
10Z7DL (1) This paragraph applies if no order is made under paragraph 10Z7DG in respect of converted cryptoassets detained under this Part.
(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—
(a) a person to whom the relevant cryptoassets belonged immediately before they were seized;
(b) a person from whom the relevant cryptoassets were seized;
(c) a person by or for whom the crypto wallet mentioned in paragraph 10Z7DE(1) was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.
(3) If the relevant court is satisfied that—
(a) the applicant has suffered loss as a result of—
(i) the conversion of the relevant cryptoassets into money, or
(ii) the detention of the converted cryptoassets, and
(b) the circumstances are exceptional,
the relevant court may order compensation to be paid to the applicant.
(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.
(6) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—
(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;
(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(7) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—
(a) in the case of a counter-terrorism financial investigator who was—
(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or
(ii) a member of staff of the City of London police force,
it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(8) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.
(9) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7DK.
(10) In this paragraph—
“the relevant cryptoassets” means—
(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;
(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;
“the relevant crypto wallet freezing order”, in relation to converted cryptoassets detained under paragraph 10Z7DE, means the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.”
3 In Part 1, in paragraph 1(1) (terrorist cash), for “and 4B” substitute “to 4BD”.
4 In Part 4B (forfeiture of terrorist money held in bank and building society accounts), after paragraph 10Z6 insert—
“Victims etc
10Z6A (1) A person who claims that money in respect of which an account freezing order has been made belongs to them may apply to the relevant court for the money to be released.
(2) The application may be made in the course of proceedings under paragraph 10S or 10Z2 or at any other time.
(3) The court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant if it appears to the court that—
(a) the applicant was deprived of the money to which the application relates, or of property which it represents, by criminal conduct,
(b) the money the applicant was deprived of was not, immediately before the applicant was deprived of it, property obtained by or in return for criminal conduct and nor did it then represent such property, and
(c) the money belongs to the applicant.
(4) If sub-paragraph (5) applies, the court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant.
(5) This sub-paragraph applies where—
(a) the applicant is not the person from whom the money to which the application relates was seized,
(b) it appears to the court that the money belongs to the applicant,
(c) the court is satisfied that the release condition is met in relation to the money, and
(d) no objection to the making of an order under sub-paragraph (4) has been made by the person from whom the money was seized.
(6) The release condition is met—
(a) in relation to money held in a frozen account, if the conditions for making an order under paragraph 10S in relation to the money are no longer met, or
(b) in relation to money held in a frozen account which is subject to an application for forfeiture under paragraph 10Z2, if the court or sheriff decides not to make an order under that paragraph in relation to the money.
(7) Money is not to be released under this paragraph—
(a) if an account forfeiture notice under paragraph 10W is given in respect of the money, until any proceedings in pursuance of the notice (including any proceedings on appeal) are concluded;
(b) if an application for its forfeiture under paragraph 10Z2, is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(c) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cash is connected, until the proceedings are concluded.
(8) In relation to money held in an account that is subject to an account freezing order, references in this paragraph to a person from whom money was seized include a reference to a person by or for whom the account was operated immediately before the account freezing order was made.”
5 In Part 6, in paragraph 19(1), at the appropriate places insert—
““cryptoasset” has the meaning given by paragraph 10Z7A(1);”;
““crypto wallet” has the meaning given by paragraph 10Z7A(1);”;
““justice of the peace”, in relation to Northern Ireland, means lay magistrate;”;
““terrorist cryptoasset” has the meaning given by paragraph 10Z7A(1);”.
Part 2
Amendments to the Terrorism Act 2000
6 The Terrorism Act 2000 is amended as follows.
7 In Schedule 6 (financial information)—
(a) in paragraph 6(1) (meaning of financial institution)—
(i) omit the “and” after paragraph (ha), and
(ii) after paragraph (i) insert—
(b) after sub-paragraph (1AA) insert—
“(1AB) For the purposes of sub-paragraph (1)(j), “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—
(a) exchanging or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,
(b) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
(c) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets.
(1AC) For the purposes of sub-paragraph (1)(k), “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—
(a) cryptoassets on behalf of its customers, or
(b) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets.
(1AD) For the purposes of sub-paragraphs (1AB) and (1AC), “cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically.
(1AE) For the purposes of sub-paragraph (1AB)—
(a) “cryptoasset” includes a right to, or interest in, the cryptoasset;
(b) “money” means—
(i) money in sterling,
(ii) money in any other currency, or
(iii) money in any other medium of exchange,
but does not include a cryptoasset.
(1AF) The Secretary of State may by regulations amend the definitions in sub-paragraphs (1AB) to (1AE).”
8 In section 123 (orders and regulations), after subsection (6ZE) insert—
“(6ZF) Regulations under paragraph 6(1AF) of Schedule 6 may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”’—(Tom Tugendhat.)
Part 1 of this Schedule amends the Anti-terrorism, Crime and Security Act 2001 to make provision for a civil recovery regime in relation to terrorist cryptoassets. Part 2 of this Schedule amends the Terrorism Act 2000 to make provision about financial institutions and cryptoassets.
Brought up, read the First and Second time, and added to the Bill.
Bill, as amended, to be reported.
Economic Crime and Corporate Transparency Bill Debate
Full Debate: Read Full DebateDepartment: Home Office
Stephen Kinnock
Main Page: Stephen Kinnock (Labour - Aberafan Maesteg)Department Debates - View all Stephen Kinnock's debates with the Home Office
Economic Crime and Corporate Transparency Bill
Stephen Kinnock ExcerptsWednesday 25th January 2023
(1 year, 9 months ago)
Commons ChamberRead Full debate Economic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 25 January 2023 - large print - (25 Jan 2023)
Tom Tugendhat
I will not, because I am going to close.
Despite all the areas that we could have gone into, and would like to go into at a different time, the Bill is closely focused on economic crime and corporate transparency for the purpose of passing a series of measures that are essential to ensure that we keep our country safe and our economic jurisdictions clean.
Stephen Kinnock (Aberavon) (Lab)
We on the Opposition Benches have been clear that the Bill is long overdue. It has been painful to witness London becoming the world’s laundromat for dirty money with the National Crime Agency calculating that £100 billion of illicit finance flows through the UK every single year. Add to that the Government’s abject failure to properly scrutinise the issuing of golden visas to Russian oligarchs—seven now-sanctioned Russians were awarded such visas even after the invasion of Crimea in 2014—and we see a pattern emerging of Ministers failing to treat economic crime with the seriousness it deserves.
This legislation, which is finally wending its way towards the statute book five years after it was promised—and, let us face it, was only brought forward in response to Putin’s invasion—is a step in the right direction that we on these Benches support. However, it still falls short in a number of areas, as I will cover in my remarks.
Layla Moran (Oxford West and Abingdon) (LD)
On golden visas, I think the hon. Member will agree that the response we have had so far is unpalatable. I look forward to speaking to new clause 3, which I hope we will be able to divide on later, so that we can get to the bottom of that.
Does the hon. Member agree that the whole point of sanctions is that they are actually adhered to and that the Government do not in any way allow them and their effect to be diluted? There is the case of current Conservative party treasurer Mohamed Mansour, who owns a company called Unatrac that sells Caterpillar equipment to Russia in contravention, it would seem, of one of the sanctions we have set. Is he aware of that case, and what would he urge the Government to do about it?
Stephen Kinnock
I thank the hon. Lady for her intervention. The new clause on golden visas that she mentioned is spot-on, and we are very happy to support it. I am afraid there are a number of examples of the role Russian money is playing in the Conservative party, including the one she mentioned. I do think that that has acted as a constraint on the kind of action the Government could and should have been taking for many years now, and I really hope Ministers will start to wake up to that reality.
The public need to know that the Government and parliamentarians are taking this issue very seriously indeed, and I am proud of the way that Labour Front Benchers—including my hon. Friend the Member for Feltham and Heston (Seema Malhotra), who is alongside me on the Front Bench—and others have sought to work constructively with the Government to improve this legislation. Members of the Bill Committee considered the Government’s proposals in great detail during 19 sittings, covering hundreds of pages of legislation and amendments. Both the quality and the tone of the debates were of the highest standard, reflecting not just the widespread interest in these issues across the House, but the depth of knowledge and expertise in a wide range of areas. In that regard, I must pay tribute to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne). The Committee benefited greatly from their thoughtful and well-informed contributions, which I have no doubt will be shared more widely in this debate.
It is therefore profoundly disappointing that, in Committee, there was little in the way of movement from the Government, even in areas where they struggled to find fault with our amendments and new clauses. While I welcome the constructive tone that both Ministers brought to our debates in Committee, the disappointing fact remains that every single effort by Opposition parties to strengthen the Bill met with resistance from Ministers, and every Opposition amendment pressed to a vote was defeated. As a result, the Committee stage amounted to little more than a litany of missed opportunities, forcing us to return to these arguments once again in this debate, and no doubt we will have to do so during the Bill’s remaining stages.
That point is illustrated by the first amendment on today’s selection list, Government new clause 14 on information-sharing powers. The new clause seeks to expand access to information relevant to economic crime enforcement efforts, but focuses only on the Law Society and
“any other approved regulators specified by the Lord Chancellor”.
Put simply, local authorities need these powers, too. Tackling economic crime is a huge challenge for councils due to the lack of licence they have to act on their own intelligence about crime in their local areas.
Councils want to play their part in cracking down on illicit wealth as it manifests itself in their areas. For instance, I have heard at first hand from Westminster City Council how it is battling a growing number of shop fronts—so-called American candy stores—on Oxford Street in particular, that are being used to channel illicit finance, but the process for taking meaningful action against these illegal practices is simply too slow, and as a result it is a gift to the criminals. Disappointingly, following opposition from Ministers to amendments we tabled in Committee that sought to expand powers for local authorities to enforce economic crime laws, there are still no specific provisions to enhance the ability of councils to act.
Moving on to the many important amendments tabled by Front and Back Benchers on both sides of the House, my right hon. Friend the Member for Birmingham, Hodge Hill again raises the issue of strategic lawsuits against public participation—or, as they are commonly known, SLAPPs. This has, of course, been a deeply troubling issue for a very long time. SLAPPs are defined as
“a recognisable and pernicious form of litigation which seeks to silence, intimidate, and harass opponents”,
and they
“are designed to silence criticism and investigation conducted in the public interest.”
Those are not my words, but the Government’s own definition. Others refer to this practice as lawfare.
We have in the past seen this practice used by the lawyers of Russian oligarchs against investigative journalists seeking to uncover corruption, but we now know that these tactics have also been used by not one, but two Conservative party chairmen in recent years. In March 2019, I wrote to the right hon. Member for Great Yarmouth (Brandon Lewis) when he was chair of the Conservative party with my concerns regarding the origins of a £1.8 million donation from Ehud Sheleg, who was then the treasurer of the Conservative party, to the Conservative party. I was sent a reply by the right hon. Member threatening to sue me for libel. He might even have got away with it had one of Mr Sheleg’s donations not later been flagged by Barclays bank to the National Crime Agency because, in its view, it originated not from Mr Sheleg’s bank account, but from the bank account of his father-in-law, a former pro-Putin Russian politician. That is lawfare in action.
But there is more—this time from representatives of the current Conservative chair. Members may have heard his name, as he has been in the news quite a bit recently. In July 2022, Dan Neidle, a former head of tax at Clifford Chance who now runs Tax Policy Associates, accused the then Chancellor of the Exchequer of providing unsatisfactory answers about his tax affairs. What happened next? Mr Neidle received a letter from the law firm Osborne Clarke, representing the right hon. Member for Stratford-on-Avon (Nadhim Zahawi), demanding that he withdraw his claims. That was a truly audacious approach and move, one might say, given what we now know about the former Chancellor’s tax returns. The bottom line is that we have a Government who claim to be committed to tackling SLAPPs, while Ministers are actively using the practice to their own benefit. It is little wonder that legislative progress has been somewhat sluggish, and that the speed of action on the part of the Government does not reflect the urgency and gravity of the issue.
New clauses 1 and 2, in the name of my right hon. Friend the Member for Birmingham, Hodge Hill, would provide a much-needed shot in the arm to efforts to resolve the endemic use of SLAPPs in British courtrooms. New clause 21, tabled by my right hon. Friend the Member for Barking with cross-party support, addresses the related issue of costs orders, which clearly form part of the legal architecture that is all too easily exploited by criminals to exert a chilling effect on critics and journalists reporting in the public interest. New clause 7, tabled by the hon. Member for Cheadle (Mary Robinson), would incorporate much-needed protections for whistleblowers into the Bill. All of those Back-Bench amendments have the wholehearted 100% support of the Opposition.
After months of consultation on SLAPPs, the Ministry of Justice published a response, which confirmed that
“the Government intends to pursue legislative reform at the earliest opportunity.”
That was back in July last year. If there has been any meaningful progress since that time, it has not been apparent to me, to my right hon. and hon. Friends or to any other Members who have signed these new clauses, so I ask the Minister: how much longer will it take for the Government to act decisively on this issue?
In new clause 3, as has been mentioned, the hon. Member for Oxford West and Abingdon (Layla Moran) raises the important issue of the tier 1 investor—or golden visa—scheme, which was closed down last year amid much ignominy arising from its extensive use by Russian oligarchs and other kleptocrats. In April last year, I wrote to the then Home Secretary to call for the publication of the Government’s internal review of the scheme without delay. In that letter I said:
“It is simply not enough that the scheme is now closed and a small number of oligarchs sanctioned; politicians and the public alike must be able to understand the findings of the report and learn the lessons.”
Here we are more than nine months later, and that argument still holds true. It is deeply regrettable that the Home Secretary is refusing to publish the report in full.
New clauses 4, 5 and 6 on corporate criminal liability point to another of the Government’s missed opportunities. There is a well-established and proud tradition of groundbreaking UK law on holding company executives to account for misdeeds committed in their names, or in the names of corporations they are responsible for running. A precedent was set by the Bribery Act 2010, which was passed by the last Labour Government. The Government built on that example in the Criminal Finances Act 2017 by introducing new corporate criminal offences related to failures to prevent the facilitation of tax evasion both in the UK and overseas. Extending those “failure to prevent” offences to a wider range of economic crimes is the logical and natural next step. New clause 40 provides a starting point for reforming the law in that area, and would require the Secretary of State to publish a report, setting out the various options by which a new offence might be introduced. New clauses 4 to 6 would go further still, by taking forward specific proposals within the Bill. The Opposition are more than happy to support those measures, and I pay tribute to the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the hon. Member for Bromley and Chislehurst (Sir Robert Neill) for their leadership on this important issue.
Even as we support these reforms, it is important to remind ourselves that new laws will not necessarily be game changers in themselves. These laws, like any others, will be only as useful as the willingness and ability of this or any future Government to enforce them. Legislation without implementation is not worth the paper it is written on—[Interruption.] The Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Thirsk and Malton (Kevin Hollinrake) is nodding, because we heard that from him frequently in Committee.
John Penrose (Weston-super-Mare) (Con)
I thank the shadow Minister for giving way—I have an enormous amount of time for an awful lot of what he does and says. I want to challenge him a little on whether these potential changes about the duty to prevent might be more effective and game changing than he is describing, because not only should they reduce the burden of criminality, which is reducing our economic performance and our productivity as a nation, but they could be quite deregulatory. They sweep away a raft of largely ineffective and deeply costly measures, and replace them with something that is simpler and easier to comply with, but more effective at the same time.
Stephen Kinnock
The hon. Gentleman speaks with great knowledge on this issue, and he is right that we need a streamlined, simple approach that clearly places responsibility and liability where they need to be. That is smart regulation. Over-complicating regulation is precisely where the lawyers, fixers and those who so often facilitate this illicit activity find their niche, and how they exploit it is their leverage. Let us make this a game-changing Bill, along the lines that he suggests, and let us hope that the Government’s scale of ambition matches his and that of other hon. Members across the Chamber.
As far as the record of this Government goes, the evidence is hardly encouraging, with just 168 prosecutions and five convictions brought against companies by the Serious Fraud Office between 2016 and 2021, and increasing reliance on US-style deferred prosecution agreements that fall well short of providing full accountability for corporate criminal behaviour. I pay tribute to the work of my right hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), who has set out detailed plans to reverse the SFO’s loss of senior staff and expertise, transform the agency’s approach to prosecutions, and allow more of the proceeds of successful cases to be retained by the SFO, as part of a renewed crackdown on corporate malfeasance under the next Labour Government. Labour’s blueprint is there, and Labour Members would be delighted to see the Government adopt it when addressing this issue.
Other new clauses tabled by Back-Bench Members address additional areas that the Government could and should address, but that unfortunately they have not addressed in the Bill. New clause 23, tabled by the hon. Member for Huntingdon (Mr Djanogly) is one example. Its call for a review of the need for further regulations
“to prevent the circulation in the UK economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions”
is welcome, as is new clause 25, tabled by the right hon. Member for Stevenage (Stephen McPartland). If I were to raise any slight criticism, it would be that the new clauses fall a little short of what is needed, but Labour supports them nevertheless. Specifically, both new clauses fail to mention the enormous and central role that is played not just by the UK, but by individual Crown dependencies and overseas territories in enabling—and all too often actively facilitating—global flows of illicit finance, and the ill-gotten assets of kleptocrats and crooks.
Liam Byrne
I am grateful to my hon. Friend for making such a brilliant speech. Among the greatest victims of economic crime right now are the people of Ukraine. One virtue of his own proposal and the amendment tabled by the hon. Member for Huntingdon (Mr Djanogly) is that they propose a shift not just to freezing assets, but to seizing assets and recycling them into the reconstruction of Ukraine. Surely we should legislate for that work now and crack on with it forthwith.
Stephen Kinnock
As always, I agree absolutely with my right hon. Friend’s views on the matter. That cannot be beyond the wit of this place or the Government. I know there are legal complications around property and international law, but those are not insuperable. We cannot allow them to be insuperable because, with every day that passes, the people of Ukraine are suffering, and the barbaric acts of Vladimir Putin and his regime are not being held to account in a way that would contribute to the massive reconstruction effort that will be required for Ukraine. It is absolutely right that the person guilty of the crime should pay for the crime and that has to be the fundamental basis of our approach. We need urgency on this in the G20, the G7, and the United Nations. We need Ministers to get a grip of this issue so that we can do justice and deliver for the people of Ukraine, which we must do with great urgency.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
New clause 27 is interesting. It is about setting up a fund for compensation of victims of economic crime. We have heard estimates that economic crime costs UK citizens £200 billion to £300 billion a year. How much will this cost and who will pay for it?
Stephen Kinnock
The Minister tempts me to write Labour’s manifesto right here at the Dispatch Box. It is an issue of principle: how will we ensure that victims of economic crime are compensated? Clearly, we cannot finalise in the Chamber today the quantum of that amount, but we did raise that in Committee and are open to discussing it with the Government. We hope that they will be open to having that discussion in the fullness of time.
Kevin Hollinrake
Will the hon. Member confirm that he is expecting the taxpayer to contribute to the fund? Is that what the new clause would effectively lead to?
Stephen Kinnock
No. This is based on a fund that is generated through fines and through accountability for those committing the crimes. It is along the lines of what I said about Ukraine: the people who commit the crime, rather than the victims, should be paying for the crime. How will we address that question now? If the Government think that the current system is absolutely fine and that there is justice and equity in the system, the Minister should come to the Dispatch Box and say that. However, if he thinks that there is a clear, principled and moral argument in favour of ensuring that the people who commit a crime should be made to pay for it, and that that should contribute to the compensation, we can have that conversation.
Liam Byrne
Is my hon. Friend scandalised as I am that at the moment only 40% of fines from economic criminals are recycled back into the business of tackling economic crime, whereas in the United States it is 100%?
Stephen Kinnock
That is precisely the point. There is an opportunity to generate revenue that could be deployed to address the causes of the problem. It is a win-win. We have criminals. We need to crack down on those criminals. We need to ensure that the agencies are given the resources to do that. It is the criminals who should be paying for that process. That seems logical to me.
Dame Margaret Hodge
Further to that point, does my hon. Friend agree, and I hope that the Government agree, that if they were more assertive in pursuing the people who enable economic crime and those who commit economic crime, more fines could be generated, which they could ringfence for a fund to be used in part to compensate victims of crime? It need not be a burden on the taxpayer and it could be a just way of ensuring that the victims of economic crime do not suffer inappropriately.
Stephen Kinnock
Again, my right hon. Friend has hit the nail on the head. We need a war chest and that should be built up on the basis of moneys paid by criminals. That war chest should also be looked at and used, where possible, to support the compensation of innocent victims of economic crime. The new clause is a two-pronged attack on the issue. The opportunity is there because the better we get at going after these criminals, the more we will have coming into the war chest.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I am convinced by my hon. Friend’s argument, but one thing worries me. Having the resources would be good, but having the determination to deliver on the policy is more important. I have had a long-running campaign over the years to improve the efficacy of the Serious Fraud Office. We need a fundamental change in our attitude to how we deliver these policies.
Stephen Kinnock
My hon. Friend is absolutely right. As I mentioned earlier, my right hon. Friend the Member for Islington South and Finsbury has set out a clear and detailed blueprint for how we need to boost the institutional capacity, human resources capacity, financial capacity and firepower of the SFO. The blueprint is right there. I very much hope that the Government will look at it and perhaps even adopt it. Of course, if they do not, we will soon have a Labour Government who will.
The Opposition’s new clauses on victims intend to go much further than victims of economic crime in the UK alone. It is our hope—in government, it will be our intention—to work with our allies and partners internationally to provide robust mechanisms for the seizure of proceeds of corruption, kleptocracy and other crimes under international law, and to use such assets to provide funds for the reconstruction and other forms of financial redress to victims—in Ukraine, for instance—of the criminal acts of dictators such as Vladimir Putin.
For months, we have had nothing but warm words from the Government on such proposals. We know that there have been international discussions, including with our G7 partners and our allies in Ukraine, but we need more than warm words and vague promises of jam tomorrow. While Ministers stall on this issue, we are increasingly at risk of being left behind by our allies in the US, Canada and elsewhere, who are already taking the actions that we want to see in the UK. New clause 27 would therefore direct the Secretary of State to publish a strategy for using the proceeds of crime to compensate victims, and to do so within 90 days of the Bill receiving Royal Assent.
We welcome the Bill, but it is a great shame that the Government are failing to take more substantive action in the crucial areas that I mentioned. The Bill is a step in the right direction, but, as it stands, it lacks ambition and is therefore a missed opportunity. I hope that Conservative Members will support our amendments today, so that we can finally begin to clean up our country’s reputation as the go-to destination for dictators, oligarchs, kleptocrats and gangsters, and for their dirty money.
Sir Robert Buckland (South Swindon) (Con)
I draw hon. Members’ attention to my entry in the Register of Members’ Financial Interests.
This issue has been a concern of mine not just for months but for many years. Anybody who has even a passing acquaintance with the issue at hand will know that its history is somewhat tortuous. A series of options were set out comprehensively in a Law Commission report published in June last year, which I commend to hon. Members. However, there is much that predates that. Indeed, much that has happened in the last few months in this place—in both Houses—reinforces the thrust of the argument that I seek to advance by way of new clauses 4 to 6, which stand in my name and those of many other right hon. and hon. Members, from all parties in the House, to whom I am extremely grateful.
In 2015, my party’s manifesto rightly committed the Government to make it illegal for companies to fail to put in place measures to prevent economic crime. It would be unfair to say that nothing happened. We had the Criminal Finances Act 2017, which created a new offence of failing to prevent tax evasion. That was a development on the failing to prevent bribery offence contrary to section 7 of the Bribery Act 2010, which opened the door to the development of the principle across a range of criminality in this space.
Subsequent to that, the Ministry of Justice launched a call for evidence in early 2017 on corporate liability reform for economic crime. However, it is right to say that progress on that was exceedingly slow. It was not until November 2020, when I was serving as Secretary of State, that it was agreed across Government that the Law Commission would be given the task of examining the issue and producing a report. It was right to acknowledge at that stage that there were a number of potential models that could be deployed here, and it was important for an independent body such as the Law Commission to look at different jurisdictions, as of course it did. It looked in particular at the United States, Canada and Australia: common law jurisdictions that have long been wrestling with the same challenges that we face. To differing effect, they have brought in and deployed their own particular regimes. More on that slightly later.
What is clear is that there is very much consensus in this place on the need for reform of corporate criminal liability. The Treasury Committee’s report of February last year urged the Government
“to act quickly in bringing forward any legislation flowing from the Law Commission’s review.”
In June, the Foreign Affairs Committee talked about
“reform of outdated and ineffective corporate criminal liability laws”,
and, in October, the Justice Committee spoke in similar terms. Finally, a report from the House of Lords Fraud Act 2006 and Digital Fraud Committee in November said:
“Reform of corporate criminal liability will be essential in order to maximise the impact of the Fraud Act and other legal tools going forward…to hold corporates across all sectors to account and to inspire behaviour change.”
Liam Byrne
I am incredibly grateful to the right hon. and learned Gentleman for his generosity in giving way. We appear to have an overload of rumness here.
Liam Byrne
Yes. It is unusual for unity to break out on both sides of the House and on the Front and Back Benches. Given that ubiquity of unity, what, in the right hon. and learned Gentleman’s analysis, is the problem that is preventing these proposals from becoming the law of the land?
Mr David Davis (Haltemprice and Howden) (Con)
I am going to be brief and speak simply to new clauses 1 and 2, which stand in the name of the right hon. Member for Birmingham, Hodge Hill (Liam Byrne), in my name and in the names of a number of other long-standing defenders of justice in Britain. The new clauses, in effect, make SLAPPs near impossible where they are used to protect economic crime. The provisions are far too narrow, by the way, but that is what the Bill demands. I will leave it to him to explain the mechanism, but I want to talk for a couple of minutes about how important this is and how we got to where we are today.
The issue dates back to about 2000, or perhaps a bit earlier, when London had become liberalised and the Putin oligarchs and others, including some Chinese people, were looking for places to hide their ill-gotten gains and behaviour. London was a wonderful target for that. There were vast flows of money in which they could hide the billions they were stealing from the Russian people and others.
At the time, there was pretty slapdash corporate admin—we were talking about that yesterday in respect of Companies House—and, I say this quite brutally, the complete feebleness of the British establishment, by which I mean everybody: both parties; and the agencies tasked with controlling this, the Serious Fraud Office, which has been a waste of space, and the NCA, which has not been good enough. It was created to tackle this but has not been good enough. All those things were happening. I say to the hon. Member for Aberavon (Stephen Kinnock) on the Opposition Front Bench that it goes wider than the Conservative party. It starts with Blair/Brown and goes on to Cameron/ Osborne. All of them made mistakes. The golden visa that the hon. Gentleman talked about was created just as we were rushing into the collapse of western financial capitalism under the previous Government. We were too soft—
Stephen Kinnock
The right hon. Gentleman makes a valid point. I agree that the creation of the scheme was under the new Labour Administration, but the point I made in my speech was that a number of those golden visas were given after the Russian invasion of Crimea in 2014. He is right that successive Governments are guilty of naivety and complacency, but there is a point in 2014 when we really needed a different approach.
Mr Davis
There is no doubt that the more recent you are, the more salient the case. Frankly, I can remember being ashamed of a British Prime Minister hosting Putin at the Olympics only a few years after Litvinenko was murdered in our country in the most cruel and overt act of state terrorism. Neither Government dealt with that. Cameron’s action was grotesque in the extreme, but neither Government dealt with it. Similarly, both Governments kowtowed to China after Tibet and all the rest of it. That has been done too many times. It is the entire system, not just one Government or another.
London is a fabulously attractive place for the Russians or the Chinese. If you want to be somewhere else than Russia, this is the place to be. We have facilitated that at every turn. Here comes the issue to which SLAPPs relate. We have a legal system that is probably the most brilliant in the world in delivering fair outcomes and good justice, but it is also phenomenally expensive, which means it is one-sided in its operation between an oligarch and an ordinary citizen, journalist or whoever they may be.
In conjunction with that are the things that flow from it, such as the behaviour of solicitors, to some of whom my hon. Friend the Member for Isle of Wight (Bob Seely), who is not in his place, gave a fair old pasting yesterday, but one that was deserved. The private investigators industry, unregulated, undertakes crimes to gather information for use as weapons against other people. Our courts—not uniquely, but outstandingly—allow that information to be used. In each individual case that might be the right decision, but the collective effect of that is to suck criminally based information into our system and therefore engender and help the industry.
All that is why new clause 1 and 2 are vital. That all had the effect of creating a vast, possibly unintentional institutional cover-up for criminal activity: money laundering, fraud and concealment of evil actions abroad. Let us bear in mind that some of the oligarchs we are talking about are murderers. The system murders people. It is evil activity. That is why new clauses 1 and 2 are incredibly important.
What the right hon. Member for Birmingham, Hodge Hill is proposing in new clauses 1 and 2 is a second best option. We already heard the best option in earlier interventions: a freestanding Bill immediately, because this is happening now. There are court cases going on as I stand here in which people are having their lives destroyed by SLAPPs. The next best is to have it in the Bill of Rights, but we know that that is way down the timetable, for all sorts of reasons. We may not see it before the next election, in which case we will have lost two more years.
The new clauses amount to a way of dealing with this criminal—or near criminal—activity in a way that is not susceptible to a finely turned piece of law. I listened with fascination to my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) on that point. Getting that right is difficult; getting this right is not, because the greatest enemy of evil is a free press. In our country in the last couple of decades we have allowed our free press to become gagged and crippled. If we can take that gag away and remove those bonds, we will suddenly expose all the things that we need to deal with. We will see the weaknesses I talked about—the SFO and the NCA—and put them right, one by one. That is why we should support new clauses 1 and 2. I talked before about the weaknesses of the SFO and the NCA. We will see those weaknesses and we will put them right, one by one. That is why we should support this measure today.
Tom Tugendhat
My apologies, Madam Deputy Speaker. For some reason I was under the impression that the hon. Member for Aberavon (Stephen Kinnock) would be speaking first.
Stephen Kinnock
Like the Minister, I am keen to thank colleagues who have done so much and made so many valued contributions both to this Bill throughout its progress and in the debate today. I would very much like to thank the Bill team for the excellent work they have done, as always supporting us through our work and on many occasions helping to shed light where there was more or less total confusion, so we really appreciate that. I also thank our own staff. My hon. Friend the Member for Feltham and Heston (Seema Malhotra) and I are very fortunate to have wonderful teams supporting us—particularly colleagues such as Joe Bishop, Danny Hathaway and Joe Jervis—who have done so much in our teams to help us to get to this point.
It is worth just casting our minds back to October, when the Prime Minister stood on the steps of Downing Street and stated that he wanted a Government of “integrity, accountability and professionalism”. Well, we are almost 100 days into his tenure, so we are bound to take stock of how that is going, and I think it is fair to say that progress has been somewhat mixed. His Home Secretary has committed multiple breaches of the ministerial code, his chairman has just been exposed for tax avoidance on a massive scale and his claims—
Mr Deputy Speaker
Order. Mr Kinnock, you are going really wide of the mark on Third Reading. Please could you focus on the Bill that is having its Third Reading?
Stephen Kinnock
Thank you very much, Mr Deputy Speaker. I was just about to make the point that the Home Secretary has talked of learning the lessons from the golden visas issue, but she still has not published the full report. Of course, we have seen many oligarchs getting those visas since the invasion of Crimea, so I would contend that that is directly relevant to the debate we are having today.
That is the key point. It is about striving for integrity, professionalism and accountability. Of course the Bill offers an outstanding opportunity to deliver the change we all want to see. As we have said on many occasions, it is a step in the right direction and we are supporting it on Third Reading, but of course it still does not go far enough on SLAPPs, golden visas, information sharing, corporate transparency, corporate criminal liability, compensating victims or, indeed, structures for enforcement.
That final point is critical. We can have all the laws we want, but if we do not enforce them—whether we are talking about economic crime or anything else—they are pointless. These were points that Bill Browder made forcefully during the evidence that he gave to our Committee and, on cryptocurrency, that the expert Aidan Larkin made in a recent meeting with me. So we need to ensure that the agencies and institutions that should be fighting the illicit finance we all want to combat are given the resources they need, and are given the political support and licence to operate they have to have if they are going to be able to deliver on what we want them to deliver.
In conclusion, the fact is that we have left the back door open and allowed our country to become a kind of fixer for the world’s dictators, kleptocrats and gangsters. We cannot go around the world preaching about the rule of law and transparency until we get our own house in order. We should not have to wait for the next “Panama Papers” or the illegal invasion of another country to force us into taking action. I said at the outset of the debate that the Opposition have approached this Bill in a spirit of constructive engagement. That has not changed and it will not change. However, we have not so far seen from Ministers sufficient openness to input from Opposition Members, or even from many of their own Back Benchers, but we welcome the remarks that the Minister made in his winding-up speech. We look forward to the progress that we wish to see being made in the other place as rapidly as possible. It is not too late, there is still time, and I genuinely hope that the remaining stages of the Bill will see the gaps filled, the loopholes closed, and the opportunities seized.