Economic Crime and Corporate Transparency Bill (Eleventh sitting)

Stephen Kinnock Excerpts

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[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.

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[The Chair]

Does Stephen Kinnock wish to respond?

[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

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[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.

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[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]

I just made those comments.

[Stephen Kinnock]

You mentioned intelligence agencies—

[Kevin Hollinrake]

I did not.

[Stephen Kinnock]

I am sorry, Minister; I may have misunderstood.

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[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.

[Stephen Kinnock]

Does “public authorities” include all local authorities?

[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.

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[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.

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[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.

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[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.