Corporate Structures and Financial Crime

Stephen Williams Excerpts

Thursday 4th July 2013 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I congratulate the hon. Member for Bassetlaw (John Mann) on securing the debate. It has been wide-ranging, but I will focus my remarks, at least to begin with, on the issue that he focused on most, which was company misuse. If I have time, I will address other issues that were raised, such as tax avoidance, although to be fair we had a debate on that a week ago.

I am pleased to address company misuse because, as my hon. Friend the Member for Banbury (Sir Tony Baldry) rightly pointed out, the Prime Minister has demonstrated leadership on this issue on the international stage. The Government are committed to tackling illicit activity and the misuse of corporate vehicles to facilitate such activity, and we are well aware of the impact such things have on the UK and the global economy. Such misuse is made possible because companies can be used to hide who is really in control and who is the beneficial owner. Hidden beneficial ownership to facilitate criminal activity is a long-standing issue, and international standards have proved difficult to implement effectively for many jurisdictions. For that reason, the Prime Minister put tackling that issue at the heart of the UK’s G8 agenda. I am sorry that one or two right hon. and hon. Members have been less than generous in recognising that.

[Stephen Williams (Bristol West) (LD)]

At Lough Erne it was agreed that each of the G8 countries would come forward with a national action plan for implementing the agreements made there, which for the UK will hopefully include the Crown dependencies. Have the Crown dependencies come forward with their draft plans, and do they include commitments to publish registers of beneficial ownership?

[Mr Gauke]

It is perhaps worth saying a word or two about the Crown dependencies because they have received criticism during the course of the debate. There is nothing illegal about an international structure, especially in a globally integrated economy, but what must stop is the use of offshore structures to hide assets and income illegally, and to evade taxes. The overseas territories and Crown dependencies have all committed to automatically sharing information to fight tax evasion, and to producing national action plans to set out how they will improve beneficial ownership transparency. The Crown dependencies have already published their plans, and the overseas territories have committed to do so by the end of the year. This is a significant step forward in transparency, and we will continue to work closely with the overseas territories and Crown dependencies to ensure that the action to which they commit is robust and ensures the effectiveness of their systems. It would be a pity for this debate to give the impression that we do not acknowledge the significant progress made in recent months.

Returning to the G8, there was collective action to improve transparency of beneficial ownership and make it easier for law enforcement and tax administrations to fight company misuse. The G8 have committed to a set of common principles, and each member has committed to publish a national action plan. The US, France, Italy, Japan, Canada and the UK, as well as the Crown dependencies, have published their plans already, and Germany and Russia have committed to do so before the end of the year, along with the overseas territories.

The G8 action plan means a number of things for the UK. First, we will legislate to ensure that all companies know who owns and controls them. Companies will be required to obtain and hold information on their beneficial ownership—a requirement that will make it harder for criminals to hide their identity, and easier for law enforcement bodies to trace company misuse. Secondly, we will require that information to be held centrally at Companies House and made available, at a minimum, to law enforcement and tax authorities. Again, that will enable law enforcement and tax administrations to track down beneficial ownership information much more quickly. It will also help us develop better working relations with our international counterparts, by responding to their requests more quickly during cross-border investigations. To address the point raised by my hon. Friend the Member for Wells (Tessa Munt), it is important that law enforcement agencies and tax authorities co-operate on such matters.

We will also consider whether that information should be made publicly accessible. Although there would be significant advantages to such an act, such as enabling greater scrutiny of the accuracy of the information and allowing investors and others to understand better with whom they are doing business, there would also be legitimate concerns about individual confidentiality and whether the information would always be used in the right way. The case of companies involved in animal testing raises an interesting point. Hon. Members may be interested to know that we have committed to consult on this issue.

Thirdly, we will be looking at what measures can be taken to mitigate the misuse of nominee—or sham—directors and bearer shares. The fact that both are currently allowed to exist is inconsistent with our desire to know who really owns and controls UK companies, so the Department for Business, Innovation and Skills will be issuing a public discussion paper on these precise issues shortly, setting out a number of options for reform.

I turn now to the issue of Companies House, which was raised by the hon. Member for Bassetlaw. The House will be aware that the core function of Companies House is to receive company information and make it available to the public, and a key part of this is ensuring that accounts and annual returns are delivered for every company. Compliance rates for those documents—97.9% for annual returns and 99% for accounts—are the best they have ever been and are amongst the best in the world, but we will continue to consider additional means to ensure that companies comply with all their statutory filing requirements.

For example, in response to calls for more transparency about the extent of company subsidiaries in tax havens, my right hon. Friend the Secretary of State for Business, Innovation and Skills has asked Companies House to check the accounts of all FTSE 350 companies for the disclosure of overseas subsidiaries information. Hon. Members may be interested to know that Companies House will publish the findings on this at the end of July.

On HMRC, there are legal remedies to stop taxes being avoided or evaded through dissolving companies without payment that HMRC makes regular use of. As an example, HMRC frequently requests restoration of companies to the register and then liquidates them, an act that allows liquidators to pursue directors for misfeasance and other wrongdoing. As a Government, we have reinvested in HMRC significant sums to deal with tax avoidance as a whole.

We are short of time and I am unable to address issues such as the general anti-abuse rule and the wider issue of tax transparency, but I am grateful for the opportunity to set out the Government’s commitment to dealing with opaque company structures that facilitate financial crime. It is thanks to the Government that this was put on the agenda for the G8 and that countries around the world are setting out action plans to deal with beneficial ownership. It is why there is a much greater exchange of information between jurisdictions now than we have seen before. We have a proud record in this area and I am grateful for the opportunity to make that clear.