Economic Crime and Corporate Transparency Bill (Fourth sitting)

Tom Tugendhat Excerpts

Thursday 27th October 2022 Public Bill Committees

[The Chair]

I am going to have to curb this and move on very briefly to Tom because we have to finish.

[The Minister for Security (Tom Tugendhat)]

Q This is a very brief question. What difference will this make to the solicitors’ profession as well? You will have noticed that there is not only a control of accountancy but an increase in penalty to solicitors’ regulations.

Angela Foyle: Neither of us is part of the Law Society so we cannot speak for them, but clearly, that was something that was thought to be necessary as a deterrent. Although I expect most of them are likely to be regulated by the Solicitors Regulation Authority for money laundering, rather than the Law Society. However, it must have been a gap that was thought to be necessary to fill. I really do not know, otherwise; I am speculating.

[The Chair]

Thank you very much. That brings us to the end of the time allotted for the Committee to ask questions. I thank our witnesses on behalf of the Committee for their evidence.

--- Later in debate ---

[Liam Byrne]

Q I want to pursue that point for a moment. In the interests of good governance, would it not make sense to strengthen some of the obligations on directors to include, for example, a duty to take steps to prevent corruption in their organisations? We have similar measures on corruption; we do not have similar measures on economic crime and fraud.

Peter Swabey: You have the directors’ duties under section 171 of the Companies Act and so on. Those are there, but it is difficult to identify exactly how those directors’ duties can be pursued against any defaulting director. For me, that is one of the challenges. Were you to introduce something extra on that, that would be a solution, but again you would need to look at how that could actually be enforced.

[Tom Tugendhat]

Q It is nice to see you, Mr Swabey. May I ask specifically about the governance aspect, which is your area? Accountability is fundamental to governance. You cannot hold people to account for things that they are not responsible for, or likewise the reverse. Will you touch a little on how you see that improving—not just the accountability in financial transparency, and all the anti-money laundering and various other aspects we have spoken about, but the ability to hold companies to account for other governance areas, whether those are corporate social responsibility, clean-up, environmental or many others?

Peter Swabey: The Bill deals with some very specific issues, which are not necessarily those. I think that the Bill would need to be broadened significantly were it going to get into things like sustainability, corporate social responsibility and so on.

[Tom Tugendhat]

Q You do not think that cleaning up Companies House, making people accountable, and understanding who they are and who knows what are important for governance?

Peter Swabey: No, I think that is very important for governance. What I was saying was that you were then talking about some of the other issues, such as corporate social responsibility, which are probably outwith the scope of the Bill as it stands.

[Tom Tugendhat]

Q I do not agree; let me push back on that. One of the things we have a problem with in the community that I am lucky enough to represent is dumping waste—fly-tipping—and it so happens that occasionally, it is done by companies that then disappear. I think the Bill helps to address that. Do you not?

Peter Swabey: Absolutely, yes.

[Tom Tugendhat]

Q So it does have some environmental effect.

Peter Swabey: Yes, you are right. I had not thought of that aspect of it—I was thinking in terms of the reporting that companies do—but yes, in terms of tracking down defaulting companies, I think it will help you.

[Tom Tugendhat]

Q Would you agree, then, that it may also support other areas of governance: the ability to oversee, for example, different areas of employment, human trafficking or whatever it might be, and to go through companies that set up and disappear far too quickly?

Peter Swabey: Yes, absolutely. Removing the ability for companies to go bust one day and reappear the next with a very similar name and very similar directors, but without all those tedious debts that they used to have, is one of the really important issues.

[Tom Tugendhat]

Exactly—phoenixing.

Peter Swabey: I think that is really important.

[Tom Tugendhat]

Q I am very glad you are supportive of that. I think this makes a huge difference; as you rightly say, it is one step on the journey, but it is still a huge difference from where we are.

I also wondered if you could talk a little bit about whether you think it is going to help with economic crime. Clearly, although I am not a BEIS Minister, one of my responsibilities is fraud. The presence and disappearance of corporate entities is, I am afraid, something that has caused more than its fair share of fraud. How do you think the Bill might be able to help with that?

Peter Swabey: I think the Bill will help with that by making it possible to have greater confidence in the directors who are responsible for those companies actually being real people. We were talking a little while ago about the ease with which you can set up a company, and the limited verification of directors that goes on. We have a verification process in the Bill that will help to ensure that those people are actually the people you believe them to be, and that there is an address where you can get hold of them and, particularly, where the forces of law enforcement can get hold of them should they need to. That is a real strength.

[Tom Tugendhat]

I am very grateful, not only for your evidence today, but for the work you do and the oversight you bring. It does make a huge difference, and I am very grateful indeed for it. Thank you.

[The Chair]

Thank you very much. If there are no further questions from Members, we will thank the witness for his evidence and move on to the next panel. Peter, thank you very much for your time; we greatly appreciate it.

I am going to suspend the sitting, because we have a little bit of time before the next evidence session, and the witness is not in the waiting room yet because she is giving evidence via Zoom.

--- Later in debate ---

[Seema Malhotra]

Q I want to come back on how we can take practical steps to tackle this. I think you mentioned the Foreign Policy Centre. Are there more specific measures we could take in the Bill?

Catherine Belton: In July, the MOJ forwarded anti-SLAPP legislation. Unfortunately, because of the chaos of the last couple of months, that has not really gone anywhere. That legislation could be attached, as is, to the Economic Crime and Corporate Transparency Bill. The Bill as drafted slightly toughens the criteria for claimants; they have to prove that there is a significant likelihood that they have a real claim. You should speak to the FPC to weigh whether it is worth pursuing their draft laws as a better model, or whether it is enough to use the one already drafted by the MOJ. They had extensive consultations on that, but now it looks like all the momentum has gone. It is astonishing to me that this is not being pursued as a priority, given the situation we are in. It is absolutely vital that we shine light on individuals who may be operating on behalf of Putin to undermine western support for Ukraine, and to undermine our resolve this winter as we face enormous cost of living hikes. It is really important.

[Tom Tugendhat]

Q Catherine, thank you very much for giving evidence to what must be your 20th or 30th Committee in the last 12 months. I am very grateful for the work you do. Could you tell us how you think the reforms to Companies House will improve oversight of listed finance? As you say, it is a building block.

Catherine Belton: You say that this is my 20th or 30th time giving evidence, but unfortunately, it is not. I have only spoken on SLAPPs before. I will leave the realm of Companies House reforms to people who are more expert on it than me.

[Tom Tugendhat]

Okay, thank you.

[The Chair]

If there are no further questions from Members, thank you very much, Catherine, for taking the time to speak to us.

Examination of Witness

Professor Jason Sharman gave evidence.

--- Later in debate ---

[The Chair]

Thank you. I move finally to Tom Tugendhat.

[Tom Tugendhat]

Q Professor, thank you very much indeed. I am grateful to you for reminding us that Magna Carta guarantees private property in various ways. Various legal jurisdictions, including the United States, Italy, the European convention on human rights, European property law and, indeed, many other jurisdictions around the world have all maintained and guaranteed it, which makes this so difficult. That said, do you agree that it is important to try to find out who owns what, so that we can at least take action where we have a legal ability to do so, and does this Bill help with that?

Professor Jason Sharman: Yes and yes. I think this is a modest positive step, but, given the track record of legislation, I would say that it has to be implemented. That is where the problem has been heretofore, and I can possibly anticipate that it may be the problem here, too. If you say, “You have to identify yourself as the owner of a company,” and you have entries in Companies House saying, “My name is XXX XXX,” and that does not get challenged, then more information is not necessarily better if that information is junk.

[Tom Tugendhat]

Q No, that is true, and that is why the work being done between Companies House and the agencies is so important—to ensure that Companies House goes from being a pinboard to being a regulator and a check. That is a very important move. It is not the same as the FCA or a regulator of that kind, but at least it is beginning to verify in terms of ID and so on. How much of a difference do you think the overseas territories and Crown dependencies verifications have already made?

Professor Jason Sharman: I mentioned briefly that some of my research, together with Mike Findley and Dan Nielson, has been to impersonate would-be money launderers and look to set up companies in various jurisdictions. It is much harder to set up companies, and the standards are much more rigorous, in the Cayman Islands, the British Virgin Islands and the Crown dependencies than in the UK. Of the UK jurisdictions, the UK is the easiest place to set one up, so I think the UK could learn a lot from its overseas territories and Crown dependencies. I noticed with interest that a couple of the other witnesses here said the same.

[Tom Tugendhat]

Q It is clear that there is a huge number of changes. You will know about the work that we have done in the past on the Foreign Affairs Committee and now in Government on trying to clean this up. This is something that, sadly, has lasted for the best part of 100 years, with no Government really making any effort to do anything about it until now. It is interesting that we are here again with a number of registrations, many of which were warned about in the 1970s, ’80s, ’90s, noughties and, now, the ’10s and ’20s. I am glad that we are doing something about it. Do you think that Companies House is going to be able to do that if it has the proper resources, or is it going to require other agencies as well?

Professor Jason Sharman: No, I do not think Companies House will be able to do it. Its main function is passive and archival; it is a library mainly. I think it is just not in its DNA to be otherwise. I think most of the solution for this is in the private sector. I am talking about properly regulated, supervised and audited corporate service providers. I co-authored a report 10 years ago with the World Bank called “The Puppet Masters”, and that was overwhelmingly the conclusion that we came to.

[Tom Tugendhat]

Q Would you say that the extra powers given to organisations such as the Solicitors Regulation Authority and its equivalent in Scotland are important to ensure that such regulators actually do have teeth? At the moment, as you will know, the fines form both of them are very low. This would, one hopes, connect to the work that we did in 2017 or 2018—I cannot remember exactly when—for the report “Moscow’s Gold”, where the Foreign Affairs Committee highlighted the role of enablers, not just regulators.

Professor Jason Sharman: I completely agree. I think, even more, that HMRC, as the regulator for corporate service providers, those enablers, has been completely missing in action. If there were one bit of the public sector that I would change, repurpose or fund, it would be to get HMRC to take its duty to regulate and penalise corporate service providers seriously. It has just been completely missing in action so far.

[Tom Tugendhat]

Thank you very much.

[The Chair]

If there are no further questions from Members, I want to thank the witness for his evidence. Professor Sharman, thank you very much for taking the time to come and speak to us.

Ordered, That further consideration be now adjourned. —(Nigel Huddleston.)