Alison Thewliss (Glasgow Central) (SNP)

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I am glad to follow the right hon. Member for East Hampshire (Damian Hinds), whom I believe was the Minister who said he was not happy with the progress that had been made on tackling economic crime thus far. None of us in this place are happy about the situation on economic crime.

SNP Members of course welcome this Bill, which is overdue. Many of its aspects could have been picked up in legislation years ago. Members of the anti-corruption coalition across the House have been clear in calling for more action from the UK Government on this, and all this delay has cost us very dearly; openDemocracy believes that economic crime across these islands costs us £290 billion a year—just think of the services we could all be enjoying if that money were not being plundered by those people engaging in economic crime. As with all things around dirty money, we have to ask: who benefits from this? Who benefits from action not having been taken for all these years? There is much to be done, and the panoply of agencies involved must be properly co-ordinated and resourced to tackle it.

This is a big Bill and there is a lot more that could be said. My not saying something in particular now does not discount my saying something about it later, when the Bill goes into Committee. I thank everybody who has sent briefings ahead of this Bill, because that has been incredibly useful.

The UK Government must go after not only those committing economic crimes, but those enabling it. Robust supervision and proper deterrents need to be in place for those responsible for economic crime. Directors and enablers of economic crime need to face proportionate sanctions, and effective anti-money laundering supervision needs to be carried out consistently across sectors. Legislation on economic crime needs to be futureproofed, as a failure to ensure that means that legislators are always playing catch-up with criminals. We see that particularly in the field of crypto.

As Companies House reform is a significant part of this Bill, I will start with a few red flags from the UK Government that I would like to deal with straight up. Having lots of companies on the Companies House register is not the win that Ministers often seem to think it is, mainly because a good chunk of the register is absolute guff. It is like a kid in the playground with an impressive looking pile of football stickers for swapsies; but instead of getting an easy trade for the Kevin van Veen of your dreams, you find that the kid has a pile of doublers, triplers, old stickers from previous seasons, stickers from rugby and cricket, a few with Stormtroopers on and some they have drawn themselves. Sorting out that pile of stickers is pretty easy, but sorting out the millions of companies on the Companies House register is a much tougher task. Even the Department for Business, Energy and Industrial Strategy impact assessment, which I would draw everybody’s attention to, hints at the difficulty in unpicking the duplicates from the system. It is riddled with error, never mind the impact of those using it for nefarious purposes.

Having looked myself up on the register, it appears that I am on it three times; three different Alison Thewlisses exist out there in the world—just imagine that! The register believes I am three separate people, rather than the same person having been a director at different points in my life. The Home Secretary, who, disappointingly, has disappeared out of this place before hearing from the third party in this House, is on the register in her own name and in her maiden name, with no link to suggests that we are talking about the same person. The BEIS Secretary is on it as the director of 11 companies with his surname hyphenated and a further three companies with it unhyphenated. I am unclear what the process is by which Companies House will set about tidying up this basic type of messiness within its register. It should not just be put on individuals to fix this; there needs to be some mechanism by which it is all corrected.

The new objectives being given to Companies House are welcome—they are a step up from its being a passive recipient of duff information—but it is unclear how exactly they will work. The querying power must be a wider, separate piece of work to pick through in detail the existing register and figure out what is actually valid, rather than relying on helpful citizens such as Oliver Bullough, Graham Barrow, Richard Smith and David Leask to report in their concerns, as they often do.

Alison Thewliss

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I absolutely agree and share my hon. Friend’s concerns. Graham Barrow does great work on Twitter and in other places to highlight such scenarios. Whether or not that person exists, whether or not that company is valid, and whether that money is even being invested anywhere, never mind in this company—this exposes the nature of the garbage in the Companies House register. The Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Watford (Dean Russell) should consider what he intends to do about that situation, because the register also contains abusive names and people being registered when they do not know they have been registered. How do such people go about correcting the register where companies have been registered in this way without their knowledge or consent? Home addresses are being used although the person who lives there has no knowledge that their address has been used until a whole wheen of paperwork from Companies House arrives at their door. These things are being regularly exposed; they should not come as news or as any surprise to Companies House or to Ministers in this place. In the interim between this Bill making progress through the House and its eventually coming into force, what will happen to stop these “companies”? They are among the thousands of companies registered every week at Companies House.

The power to query company names where people might be setting them up to impersonate another company or for criminal purposes stands in contrast with the continued objective to allow companies to turn around their registration in 24 hours. There is a substantial industry in creating fake but similar names, and then using those companies to rip off the public. Without a vast increase in staffing in Companies House to assess and sense-check all these applications coming in, it seems that many will continue to slip through the net, even after these reforms. I suggest to the Minister that perhaps it would be better to build in a slightly longer application period to allow proper verification to take place. It is unclear—I seek confirmation from the Minister—whether the verification that is being referred to will be though the existing UK Government verify scheme used for passports, driving licences and tax returns, or whether a separate verification scheme will used. Using the existing schemes seems to work reasonably well for passports, driving licences and tax returns, and I am not aware of any particular issues being flagged for those—if there are, I shall stand corrected.

The BEIS impact assessment dismisses the opportunity to verify the link between directors or persons of significant control and their companies. Again, this should be changed. Furthermore, we have a golden opportunity here to clamp down on opaque ownership structures and I cannot understand why the Government would not want to do so. The Bill must bring in provisions that prevent all companies from being controlled by opaque offshore entities, which do not need to disclose information on their owners or structures because of where they are based.

I still seek to understand from the Ministers why Companies House cannot be an anti-money laundering supervisor in its own right; this is a huge gap within the system. The Office for Professional Body Anti-Money Laundering Supervision has had mixed results in holding the AML supervisors under its wing to account; professional bodies have not done all they can to interrogate their members. That would perhaps fall into the area of a failure to prevent offence. Culpable directors, senior managers and other enablers of economic crime, including professional enablers, need to face sanctions, and rules on AML supervision need to be applied consistently. That is not currently happening.

The non-governmental organisation Spotlight on Corruption noted that there are 22 industry bodies that currently oversee AML compliance in the legal and accountancy sectors. In 2021, OPBAS found that just 15% of supervisors were effective in using predicable and proportionate supervisory action; 85% were not. It also found that just 19% had implemented an effective risk-based approach to supervision. This disjointed approach to tackling money laundering is just not working: it is allowing too many to sail through the net.

In the UK, an estimated £88 billion of dirty money is cleaned by criminals every year, compared with the lesser, but still significant, amounts of €54.5 billion in France and €51.53 billion in Germany. To tackle the issue, it is vital that support is offered to smaller firms, which are often targeted by those who wish to engage in money laundering, criminality and other illicit activities, to enable such companies to spot red flags in respect of potential clients.

It is beyond me why the UK Government allow the verification process for company registration to be carried out by company formation agents when they are the very bodies that have to a large extent created the problem that the Government are trying to solve. As the Home Office report “National risk assessment of money laundering and terrorist financing 2020” pointed out:

“Company formation and related professional services are…a key enabler or gatekeeper of TBML”—

trade-based money laundering. We should be reducing their power, not endorsing it.

Under the Bill, all third-party agents who set up a company on behalf of someone else will be required only to declare that the information they are providing on behalf of that person has been verified. I return to my verification question: what is the system for that? Without giving Companies House the ability to carry out independent checks to ascertain whether the “verified” third-party information is correct, it is just going to become a box-ticking exercise. The verification requirement in itself has no teeth and is unlikely to lead to any material change in how third-party agents carry out that key verification process.

Before I leave Companies House, I should say that I am deeply disappointed that the UK Government seem to show no willingness to increase the ridiculously low company registration fee: £10 or £12 is nothing in the scheme of things. In Germany the equivalent fee is €400, and in the Netherlands it is around €52; I am sure the Minister would regard neither country as anti-business. Having a low fee is not the benefit that Ministers seem to think it is. I am open-minded as to what the figure ought to be, but in its economic crime report the Treasury Committee agreed that £100 would be perfectly reasonable and give Companies House more resources to deal with the huge challenges it faces.

Improving relations between Companies House and the various law enforcement agencies is welcome. The Treasury Committee report on economic crime called the landscape “bewildering” and noted that both co-ordination and economic crime itself should be higher priorities for the Government. The scale of the issue is outlined in the BEIS impact assessment, with law enforcement referrals to Companies House rising from 1,400 per annum in 2015 to 9,300 in 2021. Given that we have heard how little economic crime is actually prosecuted, this feels like the tip of a very large iceberg.

With talk of future austerity and cuts, it is important that the UK Government invest in the enforcement agencies to investigate and prosecute economic crime. It is a specialist area and it requires well-paid specialist staff to tackle this scourge. The Scottish crime campus at Gartcosh is a great example of both efficiency and inter-agency working, but it can do this only if properly funded. A further round of Westminster austerity puts it all at risk.

I feel like I have been raising Scottish limited partnerships forever, and I have no hesitation about doing so again. Because SLPs hold legal personality and can possess property, they have become a very popular mechanism. The BEIS analysis was quite stark: between 2010 and 2016 they had a growth rate—one that the Government would love—of 459%. That alone should have set off alarm bells from Companies House to the Government Front Bench, but nothing terribly much happened for a long time. BEIS figures also state that as of 31 March 2021, SLPs made up 64% of all limited partnerships on the Companies House register. If we compare that with the fact that companies registered in Scotland make up just 5% of companies in the UK, we can see that something is badly out of whack.

SLP registrations have plateaued since the rules were tightened, but they have not gone away. They have also continued to be implicated in money laundering, arms running and sanctions busting, including in respect of the Russian aggression against Ukraine. They are set up with partners in secrecy jurisdictions, with companies named as persons of significant control, which is against the rules. Linking to an actual person with an actual address would be progress, as would limiting the number of times that an address or person could be a company director. To date, enforcement and fines for breaching the rules that the Government themselves set up have been few and far between. There is little point in having rules that are just not enforced.

As I have pointed out before in this place, there are also knock-on effects to our neighbours in Ireland. As there has been a slight tightening of the rules here, registrations of Irish limited partnerships have soared. What conversations has the Minister had with his counterparts in the Republic to ensure that we are not just shifting criminal activity from here to there? All possible co-operation must be undertaken to avoid criminals shifting their business over the sea.

I wish to ask about the links with other legislation that is currently going through this place. The Financial Services and Markets Bill has a significant section on the regulation of cryptocurrencies, which have become incredibly popular with organised crime incredibly quickly, as a means of shifting money as well as of scamming naive members of the public. It is unclear how the legislation before us interacts with that Bill and the halo effect that might be created by the regulation of certain cryptoassets but not others.

When the Treasury Committee took evidence on the Online Safety Bill—which has disappeared but will hopefully come back at some stage—we were concerned about crimes being carried out via the internet and social media platforms. Currently, the banks of those who are scammed have to pay up, but the social media companies themselves are not held accountable. For example, scams conducted over Instagram or Facebook Marketplace, scam messages sent over WhatsApp and unregulated financial advice given via platforms like TikTok are not currently covered. They should be given an awful lot more attention.

I was glad to hear from the Home Secretary that there have been some conversations with the Scottish Government about the implications of this legislation in Scotland, because Scots law is, of course, a devolved area. Registers of Scotland administers the register of persons holding a controlled interest in land, which was launched on 1 April and shows who controls the decisions of owners or tenants of land and property in Scotland. I would like a bit more information from the Government about the conversations they have had with Registers of Scotland and the interaction with the register of oversees entities. Scotland did not hang around waiting for the UK Government to make legislation on this issue; we got on with the job.

I look forward to tabling amendments to try to improve this Bill, and I really hope that for once the Government will listen and be constructive on some of the issues we raise. We would not be in the situation we are in today had they done so during the debates on the Sanctions and Anti-Money Laundering Bill or umpty other bits of legislation over the years. We are all clear in this place that robust supervision and proper deterrents need to be in place for those responsible for economic crime.

We on the SNP Benches are looking forward to independence and setting up our own robust systems to register companies and to prevent economic crime. Nobody would choose the UK system as it stands, and it remains to be seen whether it can be adequately repaired.

Alison Thewliss

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I thank the Minister for his explanation. To be clear, is the verification scheme through the existing UK Government Verify, which is used for passports and driving licences, or will a separate new scheme be built?

Alison Thewliss

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I understand the Minister’s point, but it seems incongruous that while Government Departments make people pay through the nose in the visa system, for example, where they pay way over and above production costs, Companies House is charging very little.

Alison Thewliss (Glasgow Central) (SNP)

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Q I have some questions for UK Finance about verification at Companies House. What would it take to have confidence in that verification system? You said in written evidence that Companies House should avoid over-reliance on UK-registered trust and company service providers. Can you tell us a bit more about that and what you would like to see put in place?

Nick Van Benschoten: We think that the Bill’s provisions for Companies House reform definitely point in the right direction. The question for us is, “Are they going far enough and will they be implemented fast enough?” Companies House abuse is, as I am sure you are all aware, a significant problem that we in the regulated sector have been trying to compensate for, but we cannot. We need Companies House to act as a proactive gatekeeper.

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. We understand that it may be a matter of phasing or resourcing, which can be dealt with in the implementation, but not if we do not have the order-making powers in the bill.

I have spent 12 years arguing for Companies House reform in my various roles. I do not have another 12 years in me, to be frank. We need to make sure that the Bill gives the powers so that the debate can be had during implementation and, if necessary, a phased or risk-based approach. What I mean is that there is a real risk of nominee directors and abuse thereof. Companies House needs to be able to verify that and therefore bring other things within its realm of power, querying and amending the register.

The how is maybe another question for more detail, but a risk-based, reasonable approach is also minimum industry standards. We have not yet seen it, but I note that the international body FATF—the Financial Action Task Force—agreed last Friday that it was going to consult on best practice guidance on implementing new standards for company registers. These are the same reforms that the Government pushed for as part of their G7 presidency. It has been part of the change: the US is setting up a register; Switzerland is moving. The UK cannot fall behind these new standards, so it is important that the Committee takes cognisance of that.

Trust or company service providers is one of those cases where we know that there is an issue; the banking sector and other industry partners in the joint money laundering intelligence taskforce and another four along with the National Crime Agency did a study of the risks of abuse in the UK trust or company service provider sector. We found shortfalls. There was a remediation exercise agreed. I understand that the remediation exercise is still ongoing. It is one of those sectors where there are concerns. We are doing other work that I am not at liberty to discuss, but it is about that sector.

That means that Companies House needs to be careful and cautious. There need to be strict legal undertakings with proper penalties, not just that they have met the standard of verification but that they have done everything they should be doing as a regulated sector. There needs to be access to the evidence of these checks, and that evidence needs to be something that, on a risk basis if necessary, can be queried—not just the information in the register but the actual checks undergoing. There needs to be the ability for Companies House to take sample checks and do also risk-based reviews. That may be something we can come to later on in terms of the querying power. I am sorry for a long answer, but it is an important point.

Alison Thewliss

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Q Thanks for that, it is really useful. Anti-money laundering responsibility has pushed over on to some of these trust or company service providers, which could be quite a loophole in terms of what you are saying about checks and verification. Would it be useful for Companies House to have that responsibility itself for things registered directly with it?

Nick Van Benschoten: I do not have a view on that. I know that the Treasury will be consulting on reforming the AML supervisory regime. That is something we have been pushing for for quite a while. I know that Jersey, for example, has a very different model where it has most of the regulator sector under one bailiwick, and that includes company formation. That may be something that the Committee looks at in future, but it is not the UK model at the moment.

Our priority would be, rather than look at the cost-benefit narrative and machinery of government change, the co-ordination point. There need to be powers not just to request information but to get information from other supervisors. There needs to be the ability to pass information around the ecosystem, including the National Crime Agency and regulated sector people sharing intelligence. There are some provisions in the Bill at the moment where we think they could go further on that matter, but the key thing is that Companies House needs to be a data hub. On whether it has the responsibility or others, we have not taken a view on that yet, I am afraid.

Alison Thewliss

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Q That is useful. Incorporation fees are ridiculously low at £12. The Treasury Committee recommended £100. Do you have a view on that?

Nick Van Benschoten: I do not think they are unprecedentedly low. From a very quick survey, we found that Benin and Turkmenistan also have a low figure. I am not sure that is the company the UK wants to keep. There is a question about international competitiveness. It is important to note that in other EU countries with major financial centres it is in the £50 to £100 range. That does not seem an unreasonable amount for us.

Perhaps more importantly, we think Companies House needs to get resourced properly. You have to will the means, not just the ends. It is very important that Companies House fees are set at a reasonable level that would not deter an entrepreneur but would disrupt some of the bulk abuse we have seen, in which criminals set up hundreds and hundreds of shell companies. That is definitely a typology that we have seen.

Once there is enough money coming through main registration, there is then the question of whether Companies House will be granted any investment money out of the economic crime levy that is coming in next year. It is important that the levy is spent on things that actually improve the system, and that we do not just cross-subsidise, and that some of the opportunities also have a benefit for the economy—maybe for streamlining the onboarding of small companies, or for facilitating other access to regulated services.

Obviously, there is the question of what the Government will spend the levy on. We welcome the money that they have spent so far. There is an interesting proposal—by, I think, one of the Committee members’ all-party parliamentary groups—that the Government should match-fund the economic crime levy. Obviously, we in the regulator sector would love that. It is something for the Government to consider.

Alison Thewliss

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Q Thank you, Chair. You talked about the impact on SLPs from the changes in legislation. Have you looked at the issue of Irish limited partnerships? Bellingcat has found that over a thousand ILPs were created between the early 1900s and 2014, but 2,400 were set up from 2015 onwards. Are those who are looking to exploit the system just chasing round for the structures that they need?

Gurpreet Manku: We have not looked into that. I do know that Ireland has set up a new funds limited partnership, so that could be part of the reason for their growth—but that was very recent, so I do not know why that has happened. Again, it is quite worrying if people are just moving around, exploiting different structures.

Alison Thewliss

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Q That is really interesting. I want to pick up a little on what you said earlier about receiving banks and where fraud has been against some of your customers. The Treasury Committee, in our report into economic crime, discussed fraud on online platforms, and the level of it. I understand from speaking to some of your colleagues in the past that that has been increasing. If someone tries to buy something on Facebook but is defrauded, the bank of that person will refund them. There is no obligation on the platform to take any action, and the receiving bank of the person who has done the fraud will take no action either. Could more be done in the Bill to break those types of transactions, with fraud being perpetrated on online platforms? What is the wider impact on the banking system?

Nigel Kirby: Your question is specifically about fraud and what we can do in that space. I suggest that tackling fraud is a shared responsibility. When you look at a typical fraud, you have the payment platform, as you mention; you have a sending bank and a receiving bank, and you have the victim. To tackle it, we need to look at the whole ecosystem, as Nick said, and have an approach that works. I am not convinced that there are things that one can put into the Bill for that—it is the wider point of the whole ecosystem coming together for any fraud strategy moving forward, how we tackle that and how we incentivise the right behaviours for tackling fraud in future.

Alison Thewliss

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Q Would a wider “failure to prevent economic crime” obligation be useful in that regard?

Nigel Kirby: When looking at enacting new legislation, I would go back to the purpose. Putting my NCA hat on, rather than from a Lloyds perspective, I was involved in two pieces of quite significant legislative change: the introduction of asset forfeiture orders in the Global Finance Act, and the change in the sanctions penalty from two years to seven years. That was done very much on an operational need basis. As an organisation, we were able to put out the operational perspective of the gap—the fact that we could not use certain powers because, in the sanctions case, of the length of the sentence. There was a big gap in the ability to seize assets from a civil regime.

In whatever we look at, it is important that we understand that gap from an operational perspective. It is clear and compelling that by having new legislation, that gap gets filled. The other point is that there is the resource and the ability to use the legislation when it comes forward.

Alison Thewliss

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Q Finally, do you have any comments on the changes being made to the suspicious activity report regime in the Bill?

Nigel Kirby: I would leave those to UK Finance; it is not my area of expertise. Our nominated office in Lloyds feeds into UK Finance so we get the whole industry.

Alison Thewliss

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Q Leading on from that question, we are putting a lot of provisions in the legislation. Is the legislation sufficient to keep pace with those technological changes?

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.

Alison Thewliss

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Q Are the measures in the Bill sufficient to protect consumers from being victims of economic crime via crypto?

Arianna Trozze: Because they are very clear that they include cryptoassets, it really makes the rules clear for everyone in the industry. Consumers then know as well what rights they have. My view is that it obviously cannot do everything, but the fact that there are provisions for victim compensation goes a long way to also protecting consumers. Obviously, it does not prevent the crimes from occurring, but it helps them to recover the losses.

Alison Thewliss

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Q Briefly, how do you feel the measures in the Bill relate to the other measures around regulation in the Financial Services and Markets Bill? I am conscious that the two Bills are going at the same time.

Arianna Trozze: I cannot really speak to that. I am very sorry about that.

Andy Gould: I cannot either—sorry. I have not looked at that.

Alison Thewliss

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That is okay. No problem.

Alison Thewliss

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Q As a brief follow-up, do you have any information on how much that cost is likely to be? That would be very useful to us. I appreciate you might not have that figure in front of you now, but it would be useful to have that detail.

Andy Gould: It is quite commercially sensitive, but it could be a large sum—we are talking hundreds of thousands of pounds.

Alison Thewliss

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Q This is obviously a fast moving area and a lot of expertise is required. Do the enforcement authorities have sufficient expertise to keep pace with this? We heard from a witness earlier that their experts are being snapped up by industry because they are able to offer more money. Does that make it difficult to then enforce the provisions in the Bill?

Jonathan Hall: In the counter-terrorism world, there is an open question about quite how much this blockchain technology will be used by terrorists. There is quite a lot of excitement about the possibility of its use, but the jury is slightly out about how much it is, in fact, being used. I cannot speculate why that would be. Counter-terrorism is a well-resourced part of police business, so I would expect that there would be specialists who would be willing to stay because they are quite highly motivated; outside counter-terrorism, I do not know. I was very struck by the point about the £200,000 transfer fee.

Alison Thewliss

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Thank you. I will leave it at that.

Alison Thewliss

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Q I want to ask about Scottish limited partnerships, particularly given their involvement in sanctions busting and various other things. Do you share my concern that they can exist in the Companies House register in a sort of zombie form and can be reanimated? Is there more that the Bill could do about that? If the use of SLPs is being tightened up, if you were looking to abuse corporate structures where would you go next?

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.

Alison Thewliss (Glasgow Central) (SNP)

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Q How exactly will the verification scheme that you propose work?

Martin Swain: At the moment we are in the design phase for verification. I should say first of all that we will not do the ID verification ourselves; we will outsource that.

Alison Thewliss

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Q To who?

Martin Swain: At the moment we are looking at two options. We are working closely with Government Digital Service and others on the potential for the Government solution. We have been clear with them about our requirements with them. We are separately looking at market options, whereby we would go to the private sector and outsource via that route, where a number of providers can do identity checks.

Alison Thewliss

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Q Okay. How are you weighing up the balance of those two?

Martin Swain: It goes back to some of the things that I said about ease of doing business. There are two key parts of our specification: whether we can make it really efficient, and fast and easy for people to do, and whether it is at an equivalent standard to the industry standard. We are very clear that we are operating along the same lines as others in the system.

Alison Thewliss

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Q We heard from UK Finance earlier that currently the proposals are below industry standard.

Martin Swain: I heard that, and I am surprised that they are saying that. I will have a conversation with them about where that has come from.

Alison Thewliss

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Q Okay. Will there be verification of the links with shareholders and owners as well, and the control that they have?

Martin Swain: People with significant control will be subject to verification—beneficial owners, but not shareholders who have less than 25%.

Alison Thewliss

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Q Why?

Martin Swain: It was a decision by the Department and Ministers, post consultation. They consulted on the whole area of shareholders, and the information that they hold, and verification. The decision was that they would not be subject to verification.

Alison Thewliss

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Q The Home Office report, “National risk assessment of money laundering and terrorist financing 2020”, states:

“Company formation and related professional services are therefore a key enabler or gatekeeper of”

trade-based money laundering. Is there enough in the Bill to remove that risk?

Simon Welch: It is difficult to say. We have heard about the verification processes going on. With the authorised corporate service providers, if we strengthen all that and make things more difficult, we target harm. At the moment, you can register a company from abroad, and there is little opportunity for us to follow that up, especially in a jurisdiction that it is difficult to get information from. The idea of having ACSPs in this country, where we can see them and start the inquiry from the UK, would be very desirable. I am not sure whether the Bill goes that far; I have not read that bit too much.

Alison Thewliss

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Q Michelle, you were nodding. Do you have anything to add to that?

Michelle Crotty: No. Anything that will help us to identify suspects is welcome, as my colleague has said.

Alison Thewliss

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Q Okay. Are the measures in the Bill enough to disincentivise the use of shell companies, limited partnerships or Scottish limited partnerships for criminal purposes?

Simon Welch: If they can still get the companies and they can still make them work, they are going to make them work. It is if we make it prohibitively difficult for them to do that—if we make it difficult for them to create their verifications, because they will have to work harder to get the verification sorted out to make sure they have got the IDs sorted out. We have talked about the fee of £12.50 for registering a company. There are lots of arguments about that—frictionless trade and things like that—but we have the lowest price for registering a company pretty much anywhere in the world.

Alison Thewliss

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Yes—by some margin.

Simon Welch: So is there a view for increasing that and using it for Companies House to invest in verification? That is something that could be looked at.

Alison Thewliss

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Q Do you have a view about where you would like the level to be? The Treasury Committee suggests £100.

Simon Welch: I do not know. If you were to ask a businessman what they were prepared to start a company for—how many companies they are looking to start? At the end of the day, if you were just building a couple of companies and you knew you were going to get a really good service, you might be quite happy to pay £100 or whatever. I do not know what is a reasonable price.

Commander Adams: One of the challenges for us in our investigations is how desirable shell companies are to criminals who want to create a legacy pattern that an organisation has been running for many more years than it actually has. Of course, if you are then into a large-scale boiler room-type fraud, whether you are paying £12, £100 or £1,000, it is simply a drop in the ocean compared with the amount of money you are going to make at the end of that. Making it harder for people to inappropriately and unlawfully use shell companies in the way they are at the moment is what will help us ultimately.

Alison Thewliss

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Q There has been a growing trend of people setting up companies using someone else’s address and name. Presumably those will still exist on the register after this legislation comes into force. What would you like to see happen to clear out the fraudulent things that are already on the register?

Commander Adams: If I am right, the Bill allows for retrospective work to take place. However, as you have alluded to, there are simply millions of entities on there. As you heard from colleagues earlier, the resourcing of those retrospective checks, given all the work that has to be done—there are something like 1,500 companies registered every day in the UK; it is phenomenal—is going to be a real challenge. We would want to see resourcing to do those retrospective checks, to remove those companies from the register as quickly as possible.

Alison Thewliss

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Q I have some questions about whether the Bill is sufficient to deter the abuse of shell companies, limited partnerships or Scottish limited partnerships.

Dr Hawley: We focused more on what is not in the Bill. I do not know whether John or Thom want to address that.

Thom Townsend: I would hand over to John on this one.

John Cusack: The Bill is positive. It is one of the contributions that will definitely help, and it is trying to fix a long-standing problem. At the end of the day, however, if we want to deal with financial crime, economic crime, we need convictions—investigations, prosecutions and convictions—and asset recoveries. That comes from resourcing the public sector, as well as demanding high expectations from the private sector. I am worried that in the UK the financing of law enforcement, and of the FIU in particular, is insufficient to assure the objectives that we all want, which are to mitigate, manage and reduce harms from economic crime. This is a long-standing weakness in the UK, as it is in many other countries, and that would definitely help, but let us not kid ourselves that it will make a material difference to the economic crime situation in the UK.

Alison Thewliss

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Q Do you share my concerns that previous Bills to tighten things up—for example, for Scottish limited partnerships—have not been met with enforcement action? Since the changes to the persons with significant control regime came into force, only one fine has been issued, to the value of £210. Would you like to see more enforcements and more follow-up of those who are not applying the current rules?

John Cusack: Yes, of course. I would support that. However, I would also say, with respect, that the idea is to do prevention with the changes. When we put a lock on the door of an aeroplane, the fact that no one has stormed the cockpit is not how we judge whether a lock on the door is appropriate. We are tightening things up and preventing financial crime, but yes, absolutely, we need to see more enforcement. You would hope that these measures will mean that people will no longer necessarily look to UK companies and Scottish limited partnerships as the vehicle of choice for abuse, and they will look elsewhere.

Alison Thewliss

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Q May I ask about the issues with the register as it exists? There are lots of things on it that are inaccurate, deliberately false or involving the misuse of people’s personal information and addresses. How much do you feel that Companies House has to go back actively into the register to figure out what is wrong with it and to put it right?

Thom Townsend: When this legislation passes, there will be a lot of remedial work to sort out what is there—there is no doubt about that. Everything that you have just described is true, and it is probably a lot worse even than we are aware of. As you just mentioned, we are clearly starting from such a low bar that any legislation will have some kind of deterrent effect, but it is important to think not just about ensuring that we hit the gold standard with a piece of primary legislation. It is also the resourcing, but ultimately nothing that we can do will create a 100% perfect system.

Essentially, we are trying to remove as much noise as possible from the system to give law enforcement the best possible chance of focusing its resource where it can make the most difference. It is important not to think about this in zero-sum terms of: is it possible to commit crime or not? It is really just about making an environment where it is somewhat more manageable to detect, and then enforce. As it stands it, is the wild west on that register. If you wanted to do enforcement, we would be here until the end of time.

Alison Thewliss

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Q Yes. Finally, can I ask you, John, whether there is any particular recommendation that you would like to make on the register of overseas entities section of the Bill?

John Cusack: Not necessarily, because what I am most interested in is getting the Bill out in its current form with a financed and adequate registrar with obligations, and resolving that underlying issue. One of the reasons people use UK companies is not so that they can open UK bank accounts, because then you go through the gamut of UK obligations in the regulating sector, even though that happens occasionally when buying real estate and other things. Actually, people buy and acquire UK companies and Scottish limited partnerships so that they can open accounts abroad, because the UK is seen as a first-class jurisdiction. That means that when they open those accounts abroad, not many questions are asked, or not as many as would be if they were acquiring a Nigerian company, for example, which would ring all sorts of alarm bells. The interesting thing about the companies registry is that the abuse by foreigners does not necessarily translate into a UK economic crime issue per se, even though it is something that we also all want to address.

Alison Thewliss

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Q Can I ask Oliver first whether the Bill could do more to deter the abuse of UK corporate structures such as limited partnerships, including Scottish limited partnerships, and shell companies? What more would you like to see in this area to deal with this issue? In your book, you talked an awful lot about the use of such structures for property and other things. Can more be done here?

Oliver Bullough: It is probably fine. Hopefully, if things are actually enforced and Companies House is given the money it needs to do the job and it is ambitious about that, this may work. Personally, I would like the threshold for a person with significant control to be reduced significantly: perhaps to 10% or 5%. Perhaps there should not be a threshold at all, but if you control you need to declare it.

The Bill is potentially an improvement. I still do not think it is the kind of root-and-branch re-evaluation of Companies House that we need. An amazing variety of corporate structures are available in this country. I do not think anyone has stopped to say, “Do we really need limited liability partnerships and limited partnerships? Why do we have both?” Does anyone stop to think about why they exist at all? Limited partnerships were created as a bit of a strange afterthought back in 1906 anyway. Why do they even exist?

I would like to see discussions like that, personally, but as it stands I think that bit of the Bill is probably okay—certainly if it is enforced properly. If there were an Oliver Bullough-ocracy, there would be all sorts of different changes to how companies could be used. I would not allow people to use foreign companies to own UK property at all; you would have to own it via British companies if you wished to use a company. But that is not going to happen so it is silly to talk about it.

On Margaret Hodge’s point, in the Oliver Bullough-ocracy I would definitely like to have something similar to the Senate’s Permanent Subcommittee on Investigations, with the power to investigate whatever it likes and do really forceful, well resourced investigations into Government agencies or anything at all. That would really help to cut through some of the failures to understand why the failures are happening and to really bring accountability to these bodies, which have been able to hide behind the lack of oversight for a long time.

Alison Thewliss

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Q What more would you do to tighten up the company verification scheme proposed for Companies House? Would you put in place more measures to make sure that those registering companies were real people at real addresses?

Oliver Bullough: I heard the Companies House official talking earlier; I did not join at the beginning so I did not catch his name. He was saying that there would be difficulties with resourcing the verification of all that, particularly when it comes to the issue I wrote about recently in my newsletter, about what I call “offshore shell people”—people essentially acting as a kind of shell company. It is noticeable that while the number of offshore companies owning property in the UK has flatlined over the last decade, the number of people with overseas addresses has increased by 250%. Clearly, scams can always be used and things are always coming in. Making sure that Companies House can have the resources to do all that is a tough ask.

This is perhaps stretching way beyond what is in the Bill, but I am not sure that it would not be a good idea to have what the British Virgin Islands has, which is that an ordinary person cannot just file things with Companies House; they have to go via a lawyer or another registered professional. I am not sure that that would not be a bad idea, because then you would not have this issue at all of people being able to log on.

Just to show how absurd it is, I was at a conference the other day and a participant from Canada could not believe me when I said how easy it is to file things at Companies House, so we logged on together and she created a company then and there. She is a tax consultant; there was no “tax consultant” option on the dropdown menu, so she called herself a taxidermist. That is how absurd the system is. There is a lot of scope for improvement before we need to worry about fine-tuning the details.

Alison Thewliss

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Q Thank you. Bill, is there anything that you would like to add about how Companies House is being abused and what could be tightened up there?

Bill Browder: One of the things we have seen is that the same individuals—these money launderers—will find a drunk Latvian person, get their passport and then register them in hundreds and hundreds of companies. If those companies get shut down, then they can register them as the directors of other companies; they then become directors of those companies.

Why is it okay to have a person be a director of 400 companies? That does not make any sense to me. Why should there not be some limitation—maybe 10? Ten companies is a lot of companies—but 400 companies, or a thousand companies? That limitation would be an easy thing to put in here, and that would make it harder for the criminals, because there are not that many people who are ready to give up their passports to do money laundering. The number of people who are involved in this is quite small when you actually look at it, because most people do not want their names being used for these terrible schemes.

Alison Thewliss

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Q You also have multiple companies —in the hundreds—registered to single addresses. Would that also be an issue that you would like to see tackled?

Bill Browder: In theory, yes. 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?

Alison Thewliss

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Q And Scottish limited companies have been used for various—

Oliver Bullough: I did an investigation a while ago and there was a woman who was a director of four companies, I think, despite the fact that she had been dead for five years. Clearly, someone had been using her signature to sign off on the companies, and that is clearly a misuse of information. Clearly, that is falsifying company information and is already a criminal offence. Despite the fact that I had written about it, nothing was done; no action was taken. As I say, there are a lot of easy wins here before we need to worry about the details.

Alison Thewliss

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Q I want to ask about Scottish limited partnerships, the implication being that they are used in sanctions-busting and various other things to do with the war in Ukraine and Russia’s activities around the world. Does that misuse cause a reputational damage to the UK and to Scotland?

Bill Browder: Well, Scotland is so dwarfed by London that you do not have to worry about your reputation, because the reputation is so bad here that no one will even be paying attention.

Alison Thewliss

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Q I will pick up on a couple of the recommendations from the “The UK’s kleptocracy problem” report. You were calling for the investigation of and penalties for those who submit fraudulent information to Companies House. Would you like to see Companies House doing that retrospectively with the new powers that they take, by actively going back through that register to prosecute people who have submitted fraudulent information in the past?

Thomas Mayne: I think so. Where do you cut it off? It certainly should if there have been large-scale, egregious actions. Oliver mentioned somebody registering companies in the name of a dead person, and I found an example of that in an investigation years ago. People should be penalised for really fraudulent misuse and prevented from registering companies again in the future.

Alison Thewliss

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Q Should there be limits on the number of companies a person should be a director of, or registered at a particular address?

Thomas Mayne: On the point about directors, there certainly should be; it is crazy that you have these people with 1,000 companies. I am not sure on your point about addresses. If you are an investigative journalist or a freelancer and you do not want to register a company with your home address, for example, or if you are the PSC and you have your name on the company, is that enough? Perhaps there needs to be some provision about having an office where you have to physically be and sign your name. I am not sure about the proxy address, but certainly, on your point about proxy directors, limiting the number would be a good idea.

Alison Thewliss

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Q You talked about persons with significant control and whether or not they are really the person controlling that company. There has been only one fine issued to somebody for not registering a person of significant control for Scottish limited partnerships since that was brought into force. Do you think a lot more needs to be done to interrogate those persons of significant control, and assess whether or not they are accurate and the filing has been done properly?

Thomas Mayne: I think so. Obviously it is difficult with PSCs, because I can say I am the PSC of a company and there could be an agreement written in a safe in Liechtenstein somewhere that says it is actually a Kazakh politician or whoever it may be. Certainly, there are probably egregious examples where it is clear that the person is not the PSC. You can do some research on them. There have been some examples today where there is clear evidence that the person is not who they say they are. Yes, there need to be fines, and the fact that there has been only one so far again goes to the point on lack of enforcement over fraudulent information submitted to Companies House.

Alison Thewliss

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Q You talk in the report about AML controls. Would it be useful to have Companies House be an anti-money laundering supervisor in its own right?

Thomas Mayne: Possibly; maybe that would overburden it. There are already talks, with the verification coming in, about ramping it up.

Alison Thewliss

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Q In the sense that the trust and company service providers and other supervisors are not doing their job properly, so that would stop those who are registering directly.

Thomas Mayne: It is an option.

Alison Thewliss (Glasgow Central) (SNP)

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Q I want to ask Duncan about Scottish limited partnerships and limited partnerships more generally. The Bill does not really crack down on the opaqueness of ownership. Could you explain a wee bit more to the Committee why that is a particular issue?

Duncan Hames: Limited liability partnerships have been a company entity available for the last 20 years or so, and 200,000 have been formed. We noticed that they kept appearing in revelations about major money laundering scandals. In the Danske Bank scandal, for example, the investigations found that UK limited liability partnerships were the vehicle of choice for the non-resident clients of its Estonian branch basically to hide their identity from those conducting compliance checks.

There are 1,600 LLPs that have appeared in these various scandals, but there are thousands upon thousands of UK limited liability partnerships that share the same offshore corporate partners. A pair of corporate partners registered in Belize are the controlling corporate partners of over 2,000 UK limited liability partnerships.

What is bizarre is that MPs have thankfully legislated to end secretive ownership of UK property, but we do not have the same requirements for overseas entities that control UK limited partnerships. As a result, we still have a veneer of UK respectability presented over what is essentially a secretive corporate network.

Alison Thewliss

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Q Helena, in terms of tightening up Companies House registration, is there more that needs to go into the Bill to prevent abuse of the system?

Helena Wood: There are some fundamental flaws. Although this is a significant step forward from where we are, as we all recognise, there are some flaws in the model that has been designed. When the consultation was put out three and a half years ago, we advised against outsourcing ID verification checks to the trust and company service provider sector.

Our evidence for saying that was that there was an assumption in the model being developed that these sectors were largely compliant with money laundering regulations, but we know from the various scandals that Duncan has pointed to and the great investigative work by Duncan and others that that is not the case. I have referred publicly to some of that sector as a bunch of cowboys, and I would gladly go on the record to say that today. That comes from poor levels of compliance, which is the result of poor Anti-Money Laundering Council provision in the sector.

If we are to go ahead with this model where we outsource those checks to a sector that hitherto has not been known for its compliance with the standards, we need to do something outside the context of this Bill to really hammer that home. I particularly point to HMRC as the supervisor of the standalone TCSP sector. We really need to hammer down on compliance in that sector to raise standards overall so that HMRC can properly take on the role, although I restate that we initially advised against it taking on that role, given the current state of compliance in the sector.

Alison Thewliss

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Q First, I want to follow up on that point about unique identifiers and how those would help. I have looked myself up in the Companies House register, and I appear as three separate people. Can you tell us what the benefits of having a unique identifier would be?

Elspeth Berry: The idea is that the John Smiths, the J. Smiths and the Mr Smiths can be linked. Where it is a common name—or an overseas name, where a person like me who was looking at this would not know it was a common name and might assume, “Well, that must be the same person,” when actually it is not, because it is such a common name—it is important to find links. I can see that it is important for Companies House as one of their red flags, and they are going to be able to operate this system, but only partly, because it will not apply to shareholders or partners. But outsiders—people who do fantastic work that Companies House can’t, doesn’t or won’t—are going to find it difficult, or at least as difficult as it is now, to do the work of trawling though everything.

Alison Thewliss

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Q Do you think it would be necessary for Companies House to set about the work of going backwards through the register? There are companies being registered every single day. The legislation comes into force and things going forward will be registered, but how much work does Companies House now need to do to go backwards through the register and get rid of all the guff information in there?

Chris Taggart: Perhaps not as much as you would think. Companies House currently has a thing called the personal ID, which is sort of inferred. It is not that somebody has confirmed they are this person, that they are the same as that person and that it has been identity-verified. By looking at the home address and other information that has been supplied and that they have, Companies House create a personal ID. We actually pull in information from the API and from various dumps. In some of those dumps, that information exists, but not in the normal stuff. So that information is there.

I would just back up what Elspeth said: not only is it essential, but I see no benefit otherwise. If you are a business trying to understand whether you want to do business with another company—this is not just about crime; this is about creating a great business environment—you can go to a director page on OpenCorporates and see other people with the same name. Okay, that is useful, but do you really want to be trawling through that and making a judgment call? It is almost like sending investigators off to try to understand whether they are the same. If this person has three other companies that all went bust owing money, you do not want to do business with them. I see no public benefit at all to keeping this identifier private and a secret.

Elspeth Berry: In terms of historic information, I think that has changed over time and gone in a bad direction. As I understand it, Companies House is now restoring some of the historic information, and it is important that that is available.

I would also raise the issue that there are provisions here for limited partnerships to be deregistered or dissolved. I think the provisions themselves do not do what it was hoped they would do. We also need to know how those are going to appear on the register, because that has been a problem with—shall I say—shady limited partnerships appearing and disappearing.

Alison Thewliss

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Q Is there an amendment you would make to make that clearer?

Elspeth Berry: In terms of the historic record? I would think 20 years; I understand that has been done for a lot of company information. If we are now going to have a registry power to dissolve and/or deregister, it is a little problematic. All of that needs to be clear. We know that there has been a pattern of limited partnerships appearing and disappearing, perhaps ceasing to trade and perhaps coming back. We know that that is a pattern, which we want to see, and if 20 years has been the standard at various times for companies, why not for everybody?

Alison Thewliss

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Q Thank you, Graham, for coming to give evidence and for all the work you have been doing on the Companies House register. You have exposed quite a lot of companies that are essentially fake. They do not really exist—they are not real companies. Some of them are set up to imitate existing companies. Can you tell us a bit more about the extent of that and the scale of the work that the Companies House register will have to undergo to have a register that has integrity?

Graham Barrow: Where do I start? The scale is enormous. Even today, I have been looking—I have a company that tracks new company registrations. I can tell you that 20 or 30 companies have been set up in Leeds and in Birmingham today that have used real peoples’ names and addresses, some of them for the fifth, sixth or seventh time. One gentleman is 92 years old and has just had his name used for a second time. It is an absolute scandal what is going on. I would say that at least 1,000 people every week have their names used as directors on companies without their knowledge or permission. You are talking about potentially 50,000 people a year. It is on an unimaginable and wholly unreported scale.

Alison Thewliss

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Q Presumably very little of that gets picked up by way of an offence. It is an offence to make a false filing to Companies House.

Graham Barrow: No, and there are a whole range of reasons why, one of which is that you would need to identify the problem in the first place in order to understand that it is an offence. How do you deal with thousands of weekly company registrations that are clearly breaching the false declaration rules? It would overwhelm you. I think one of the conversations we probably need to have is that you are not going to address the problem instantly.

One of the things that will happen when this legislation is enacted—and I am massively supportive of it—is that company registrations will fall off a cliff to begin with. At this point, I do not think people realise just how many registrations currently would just not go ahead because it is not worth meeting, or they will not meet, those requirements. Will it have an economic impact? Absolutely not, because none of them were ever set up to do anything commercially relevant in the first place. I would not worry about it, but I do worry that the reaction to potentially a 30% or 40% drop in company registrations may force people to start rethinking the tenets of this, but they should not. I do not think you will see any economic consequences.

Alison Thewliss

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Q Are there additional measures in the Bill that you think would be useful to shut that door on new companies?

Graham Barrow: I think there have been a couple of opportunities missed. You have been talking about PSCs, but what I have not heard yet is the fact that there is no minimum age to be a PSC. That is an issue, because you can be a shareholder and PSC at the age of zero. I do not know how you going enforce the identification verification for somebody who has absolutely no documentation. I do not see that addressed in the Bill. That is my first point. Secondly, I see nothing in the Bill to address statements of capital. I think that is problematic. At the moment the record is held by a gentleman from Equatorial Guinea who registered a company with £670 trillion of capital. That is a pretty neat trick, because that is 10 times the global GDP.

The other one that worries me, and this is something that I would like to talk about, is burner companies. That is a phrase that I have come up with; it means companies that start out with no long-term use whatsoever. There are elements within the Bill that allow grace days for conforming with requirements. If you are a burner company, it is fantastic because you have no intention of conforming. All you need, effectively, is to get that registration document to do whatever it is you want to do with it—and there are a range of things that you might what to do with it—and then you have no further use for it. Allowing grace days for conformance is potentially problematic. Those are my top three. I am not going go down the route of allowing CSPs—that has been done to death. It is obvious that it is a difficulty because you have no history of assertive regulation outside of the FCA and banks. We are aware that has not worked desperately well by the level of fines that are being administered. I think there is a bit of a hit-and-hope model, which in the end is unlikely to translate into any sort of useful outcome.

Alison Thewliss (Glasgow Central) (SNP)

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Q In your evidence to the Committee, you said that you wanted Ministers to amend the legislation to ensure that accountancy firms are in the scope for indirect information-sharing provisions. Will you tell us a bit more about why that is important?

Mike Miller: Indirect information provision essentially relates to a third-party database which would allow the easier sharing of information between financial firms. The ones that are already mentioned include banks, crypto exchanges and various different entities that could be privy to malicious financial movements, essentially. The accountancy sector has not been included in that, so for the purposes of a lot of the work that we are doing about the open sharing of information with law enforcement, between bodies, between other firms, it would be helpful for the streamlined moving of information. It would certainly help accountancy firms to identify more quickly, and thus reduce the likelihood of, any bad transactions taking place. An accountancy firm could avoid getting embroiled in things it does not wish to get embroiled in if it had pre-emptive access to any intelligence—that may have been discovered by a bank, for example, looking in more detail at specific financial transactions than accountancy firms tend to—that indicated that it should not be doing business with particular entities.

Alison Thewliss

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Q Thank you, that is useful. As one of the organisations under the OPBAS umbrella, how do you feel that is going with anti-money laundering supervision because there has been some criticism of that regime and its efficacy? Looking at the 2019-20 figures, I understand that you cancelled 10 memberships and issued 39 fines totalling £117,000 to members. What does that stand at now, and is it an effective deterrent?

Mike Miller: I do not have the up-to-date figure with me today, but I can come back to the Committee with that in writing. Generally, in OPBAS, we are obviously very supportive on the need to have professional bodies for oversight of regulation for anti-money laundering. There is obviously a Treasury consultation going on into the potential restructuring of OPBAS. We have been working closely with it to ensure that our members are represented, but also so that it will be the most effective oversight that it can be.

ICAEW is the largest supervisory body in that space. We are very proactive in taking a risk-based approach. We cover a lot of firms, and it is necessary that a lot of those inspections are carried out based on where we assume there is a higher level of risk of illicit financial transactions. Whether that should be changed is obviously something that we will come back to in the consultation.

We have been speaking regularly to Treasury and other groups. They are collecting intelligence to try to determine, I think, some concrete proposals before they put it out to consultation, but we are very supportive of OPBAS. We continue to work closely with it and have a strong supervisory body in place for the PBSs.

Alison Thewliss

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Q We heard earlier about some of the deficiencies in the way that documents are delivered and uploaded to the Companies House website, and how they can be used thereafter. Are there practical improvements that could be made to improve that situation, both at your end of the process, in the filing, and for the use of those documents at the other end of the process?

Peter Swabey: Yes, I think there are. We have regular engagement with Companies House and that is one of the things that it is seeking to tackle already, but will also seek to tackle through the powers and resources that it will hopefully get as a result of the Bill. It would great if everything that has to be filed at Companies House can be filed electronically. There are still a number of things that cannot be. Again, that may be changed as a result of the changes that Companies House are making to their system but, as we stand at the moment, there are things that cannot be filed electronically.

In terms of use, there is a question that companies sometimes get feedback on from shareholders, which is on the availability of information, particularly about retail shareholders, and particularly for those companies that have large registers of members. Individuals on this Committee, or me, or whoever—their name and address might be at Companies House in respect of a holding of 100 shares in a company. If it is a big public company with millions and millions of shares, that is probably not that helpful. There are people who buy copies of the register for commercial purposes. It would be quite useful to tighten that up.

Alison Thewliss

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Q We have heard an awful lot about deficiencies in the register in terms of the information that is on there and the practical difficulties that that causes for companies who wish to interrogate the information for their own due diligence. Is that an issue you have come across?

Peter Swabey: Yes, I think it is. It is an issue in a couple of ways. We just heard about the challenges in correcting deficient information. There are a number of plcs that have reported that their registered office address has been used for companies of whom they have never heard. If you are a plc with a large number of subsidiary companies, that could quite easily be overlooked by people. As somebody said in the last session, that is then used to give credibility to the potentially fraudulent company that is being set up. Being able to fix that more quickly is certainly an advantage.

Alison Thewliss

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Q Thank you very much, Catherine. Could you tell us a bit more about why the UK has become the destination of choice for people wishing to use corporate structures for money laundering and other purposes? Could you tell us about the impact that has internationally?

Catherine Belton: The UK, like many other countries, has welcomed capital from places such as Russia with open arms for the past 20 years. It is certainly a place that Russian oligarchs have flocked to, not only because they want to be part of the UK establishment but because they have clearly taken advantage of our lax legislation and regulation compared with the US, for instance. If you are listing a company in the US you face the Sarbanes-Oxley regulations, and you have committed a crime if you are found to have lied on your financial disclosures. Here, there seem to be so many loopholes; people can get away with everything.

We only have to look at our Companies House institution to see that there is very little scrutiny of filings that people are making. We have all heard the obvious examples of people not disclosing anything. I think you are a great expert in the use of limited liability partnerships by Russian money launderers. UK LLPs have seen tens of billions of dollars’ worth of illicit Russian cash move through them over the last decade or so.

Most of those money laundering schemes have been overseen by the Federal Security Service of the Russian Federation. It has a money laundering department called Department K, which has overseen all those schemes and has had an involvement in each and every one of them. I am told by security officials in Moldova—where one scheme used LLPs to move tens of billions of dollars of cash into the UK—that essentially the schemes are used not just by Russians seeking to move money to evade customs and tax, but by the Russian Federal Security Service itself, because it sees the greater flows of cash as cover for it to move its strategic cash into our jurisdiction.

I must again point to the need for SLAPP legislation and ask whether that could, or should, be attached to the economic crime Bill as it stands. If we do not enable journalists and financial watchdogs to look at those entities without fear of getting crushed by enormous lawsuits that will cost more than anyone’s budget allows, then we are going to be open to this type of abuse of our system forever. It was only July when Dominic Raab, the Justice Secretary, finally and wonderfully—it seemed like a miracle at the time—forwarded that anti-SLAPP legislation. It was going to allow for an early dismissal mechanism for cases that were clearly an abuse of the law, and aimed at intimidating journalists and financial watchdogs out of reporting matters of public interest—whether financial misconduct or something else. There has been a great deal of turmoil in Government since then, but we are seeing that SLAPP cases have very much not gone away.

The esteemed Chatham House think-tank recently had to remove the mere mention of a Tory donor, who had previously been convicted of money laundering, from a report on the abuses of the UK system by kleptocrats. The past of our Tory donors is something that we should know about, yet Chatham House had to erase its mention of that donor from its report. Staff looked into how much it was going to cost to defend, even though it was clearly public interest reporting. There was not really much to dispute about it, but they found it was going to cost them £500,000 before the case even got to trial, which means there is something so deeply wrong with our system, and we cannot even begin to combat any of these issues without having these anti-SLAPP measures in place. That is not just for journalists but for the Serious Fraud Office and for other public interest watchdogs.

Alison Thewliss

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Q Thank you; that is very helpful. I just wanted to ask about something else. Bill Browder had suggested a sort of “adverse costs” amendment, to prevent law enforcement companies from not being able to afford to take a case against these people. Would you support that?

Catherine Belton: Yes, for sure. Obviously, the companies pursuing these abusive cases should face having to carry the full cost of the case. I have a colleague at the Foreign Policy Centre, Susan Coughtrie, and she and Charlie Holt of English PEN have been working on a new Bill for this SLAPP reform, and I very much recommend that you speak to them as well. That Bill would provide even tougher requirements for cases to really show a likelihood of success.

What the Ministry of Justice proposed was like a three-step set of criteria for judges deciding whether a SLAPP case is a SLAPP case, and whether it should be dismissed before the costs racked up too highly. One of those criteria was whether the case being pursued had a realistic chance of success and it is very clear that this type of criterion needs to be toughened up. I certainly recommend that you speak to Susan Coughtrie at the Foreign Policy Centre about ways in which to do that.

However, I guess that my question to you would be: “Do you think there is a significant possibility that the anti-SLAPP Bill could be attached to the Economic Crime Bill? Is that something that will this speed up?” It is so vitally needed—more than ever. I mean, it is completely—

Alison Thewliss

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I think my colleagues and I are interested in hearing this.

Alison Thewliss

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Q There has been a lot of discussion about anti-money laundering supervision, and the effectiveness of the agencies that the Government expect to carry out those duties. Are they the weakest link in the chain, and could more be done to tighten up that anti-money laundering supervision, to shut the door, and to stop these companies from beginning their business here?

Professor Jason Sharman: There is certainly more that could be done. Some of it has been mentioned by other people; more money is the obvious one, but that may be necessary but not sufficient. In some ways, the career structure and career incentives for people who work in these agencies needs reviewing: if they start an investigation and it goes well, they get a small bonus to their career. If they start an investigation and it goes badly, they get a very big, indelible black mark, so in terms of career progression, it is safer for them not to investigate things.

One of the main sources of support has not been fully used: there are a lot of people outside the formal enforcement agencies who are very keen to help in this cause, including journalists and those in non-governmental organisations, as well as in the for-profit sector. That potential has not been tapped, so there are certainly things that the Government and the state could and should do, particularly in terms of regulatory agencies; but the area where I think it is possible to make most progress is probably beyond that.

Alison Thewliss

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Q That makes sense. Certainly, there have been lots of times when I have been in rooms with a group of people who have solutions to tackle this, and Government should be doing more to make sure that they are listened to. Could I ask about the abuse of limited partnerships, secrecy jurisdictions and things like that? Could more be done to tighten up those rules? It feels as though there is an awful lot of abuse of those corporate structures, and very little scrutiny.

Professor Jason Sharman: It depends what you mean by “secrecy jurisdiction”. A person who has studied this for a long time said this: “People are not surprised when I tell them that the most important tax haven in the world is an island. People are surprised when they hear that the name of that island is Manhattan. People are not surprised to hear that the second largest tax haven is a city on an island. The city is London, and the island is Great Britain.”

We recently formed a shell company with co-authors Michael Findley and Dan Nielson in the United States. It took 137 seconds to incorporate that company. Here, it would probably take you a little longer—it might take you as long as 10 minutes—but you do not really have to show ID in any case, so the barriers are pretty low. If you do not want to use anything as fancy as a limited liability partnership, you can just use a plain old company, and that works pretty well for holding a bank account overseas.

Alison Thewliss

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Q The Government have talked up the benefits of being able to incorporate companies fast. Do you think there needs to be a bit more grit in the system to allow for scrutiny, rather than speed?

Professor Jason Sharman: I think so. For me, it is telling that in jurisdictions for which incorporations are their lifeblood, such as the British Virgin Islands, it is much slower to incorporate. It takes close to two weeks to incorporate in the British Virgin Islands, and it takes about $1,000. The British Virgin Islands get half of their Government revenue from incorporation fees. They have a real interest in making sure their company registry works well. No one likes red tape and filling out forms, but the idea that you might have to spend a couple of hours instead of 15 minutes, or £50 instead of £12 is, to me, not unreasonable.

Alison Thewliss (Glasgow Central) (SNP)

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I beg to move amendment 71, in clause 1, page 2, line 10, at end insert—

“(4) The Secretary of State must ensure that the registrar has sufficient resources to fulfil the objectives set by subsection (3).”

This amendment would require Companies House to be properly resourced in line with its new responsibilities.

Much like with the previous amendment, it seemed sensible to bring things to the attention of the Government right at the very start of the Bill, because matters can get diluted over time. If we put this issue front and centre of the Bill, and say that the Secretary of State must ensure that the registrar has sufficient resources to fulfil the objectives set by subsection (3), that puts an obligation on the Government, and on future Governments, to follow through on the recommendations regarding the very worthy legislation in the Bill.

We heard a lot of evidence about earlier legislation. I served in Committee on some of it, such as in the evidence sessions for the Joint Committee on the Draft Registration of Overseas Entities Bill, and in Committee for the Sanctions and Anti-Money Laundering Act 2018. Over the years, there has been much legislation, but, as Bill Browder said in his evidence, without any enforcement of that legislation, and without the resources to ensure it is followed through, the Government can write as much law as they like but it does not actually matter.

We want to see resources put front and centre of the Bill, right up there at the start, and to hold future Governments to the important principle of funding this work. If the registrar is not funded to carry out the work it is being given to do, it just will not do that work. That has been the evidence of Companies House over many years. If it is not funded as well as empowered to do the work, it seems very unlikely that it will complete the tasks that the Government and all of us in this room expect of it. I therefore think the amendment is important and urge the Minister to accept it.

Alison Thewliss

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I would like to press the amendment to a vote because it does not set a figure or commit the Government to any particular sum of money, but guards against the under-resourcing that has plagued Companies House for many years. According to openDemocracy, economic crime costs the UK £290 billion a year, whereas Spotlight on Corruption tells us that the Government spend only £852 million on enforcement, or 0.042% of GDP. A lot more needs to be done. I am not committing the Government to any figure whatsoever, but the amendment would ensure that the register has the resources to fulfil its objectives. It is a simple and neat amendment.

Question put, That the amendment be made.

Alison Thewliss

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I rise to support this useful amendment. It is fundamentally about enhancing the transparency of the register and what we know about the people on the register. It is also about tracing control: who owns what and where they happen to be. That is useful. Those are things that the Bill should look to fix. The Bill is about putting right things that are not quite right. The amendment adds to the richness of the information that is available to people. It seems perfectly logical that the Minister should support it.

Alison Thewliss

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This is about new registrations. Will the registrar go back through the Companies House records to find people who may still be on the register but ought not to be, because they have been disqualified?

Alison Thewliss

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I want to highlight again to the Minister the issues in these clauses that Graham Barrow raised in the excellent evidence that he gave to the Committee last week. He said:

“The Bill does include the ability for Companies House to reject similar names, but if you have 3,000 companies a day—and that extends to companies across the world that may have similarities—I do not see how you are going to enforce that reasonably. There is just too much volume and too many potential comparative data points to compare them to.”

His suggestion was that the system needs to have

“a little bit of friction”.–––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 109, Q204.]

Instead of Companies House turning around an application in less than 24 hours, a little bit of time should be taken to assess and analyse it.

The human element of this process is also important. Some of it may be possible to achieve with clever computer algorithms to sift out any companies whose names are too similar to existing ones, but there needs to be human judgment as well. This goes to the point of Companies House resourcing and staff being able to understand what they see in front of them. That will take expertise and long-term knowledge, not only of the company in front of them but of the existing companies on the register—and they are there in their millions.

I will address a point that has not really been raised before about clause 11 and names containing computer code. When these kinds of things come up, I reach for the expertise that I have pretty much at hand. I went to my husband and asked him about this, because it is his profession—he is a computer coder by trade—so I thank Mr Joe Wright for his assistance. I said, “Is this really a problem, and what does it actually mean?” My understanding is that the clause is to guard against SQL injection into the Companies House register, because anyone pulling that out of the register can have their systems corrupted by companies that register with computer code.

My husband directed me to a very useful article, which people should have a wee look at, by Neil Brown on decoded.legal that looks into this in some detail. A company has been registered using computer code. It was registered under the name ; DROP TABLE "COMPANIES";-- LTD, which has some computer code around it. Dr Michael Tandy registered that company name, but Companies House did not publish the name on its register; it said that the name was available on request. Can the Minister clarify whether the clause will deal with that specific case, or whether it is broader than that?

The article by Neil Brown raises some questions. What exactly would be prohibited? The Bill does not define computer code; it prohibits the use of names that

“in the opinion of the Secretary of State”

are computer code. I do not know whether the Minister knows his SQL from his JavaScript, but that seems like a big judgment and responsibility to put on Government Ministers. In its very essence, computer code is just an instruction to a computer, and that instruction can be in plain English text as well. Can the Minister tell us exactly how this will be assessed and what systems will be put in place at Companies House to define what computer code is, in practice? That, again, comes down to the human element—someone understanding exactly what is in front of them.

I urge the Minister to give a wee bit more clarity about what is code, what is not code and what exactly the clause is intended to catch. There are such companies on the Companies House register, and because code can be in text that we would understand—rather than a series of numbers, letters and symbols—it might be more difficult to enforce this. I would be grateful if the Minister could help us understand a wee bit better how the Secretary of State’s complete discretion to define what is and what is not computer code will be used in practice.

Alison Thewliss (Glasgow Central) (SNP)

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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.

Alison Thewliss

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What happens to all the companies that currently have a PO box, and how long do they have to comply with this measure?

Alison Thewliss (Glasgow Central) (SNP)

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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?

Alison Thewliss

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My reading of the amendment is that it relates to a person changing any details relating to any company in the register in the three months prior. One of the red flags that Graham Barrow raised when he gave evidence was companies that switch their name backwards and forwards multiple times within a short space of time. Surely that would be a useful red flag for Companies House to report on, and the amendment would empower it to do that.

Alison Thewliss (Glasgow Central) (SNP)

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I rise to speak to amendments 69, 68 and 70. These are connected amendments to schedule 2. I appreciate the point about clause 66, but we will get to that when we get to it, and we are here now.

The evidence from various witnesses last week, which I have heard over many years, is that the Companies House register is a mess. The amendments seek to tidy it up to some extent. A unique identifier that follows a person all the way through, from becoming a director of a company to perhaps resigning as a director of that company and going on to be a director of a different company at a later stage, would help to trace that person through the Companies House system.

I have mentioned in previous debates that there are three Alison Thewlisses on the Companies House register. They are all me, but they appear three times, and nobody would necessarily know that they are the same person. It would make sense to have a unique identifier attached to me as a person so that people can easily find and trace my history as a company director.

I looked up the Minister on the Companies House register. He is there five times. There are five Kevin Paul Hollinrakes out there in the world. It would be useful for companies doing due diligence or for people seeking to look at somebody’s directorship history if there was only one Kevin Paul Hollinrake on the register and we could see a complete picture of all those registrations over the course of his life and career.

That is the main purpose of the amendments—to make registrations traceable and to make the system easier for users and for me, if I want to be a company director, to provide the correct information. I could say, “I am already a director—here’s my number; just add it on to the previous things I have.”

Amendment 70 seeks to prevent people getting around that system and trying to register themselves perhaps by using their middle name or a different name, as if they were a different person. The unique identifier, once allocated to a person, should always follow that person through the system. If I try to register with my middle name or a married name rather than my maiden name, the system should pick it up. That is often an issue for women in the system. They might look very much like two separate people, with a married name and a maiden name, but they are in fact the same person. That unique identifier within the system would help trace people through, simplifying it for everyone.

Alison Thewliss

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Broadly, I support clause 66. The amendments are not to that clause, but to schedule 2, to tighten it up and to improve it in any way we can. I accept what the Minister says. Labour, too, has an amendment to tighten the provisions, and I dare say I will support that as well, when we get to that stage, because all such amendments are to press the Government to tighten things up and to improve the Bill.

On amendment 68 and the number of directorships held, in evidence we heard Bill Browder suggesting the scenario of a drunk Latvian having their passport taken and being registered as a director in hundreds and hundreds of companies. Bill Browder said rightly:

“Why is it okay to have a person be a director of 400 companies?” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q151.]

Clearly, that is ridiculous. There is no way that someone could fulfil their obligations as a director if they were the director of 400 companies at once. It would be impractical to suggest that anyone could.

Also, Thomas Mayne said:

“On the point about directors, there certainly should be”

a limit—

“it is crazy that you have these people with 1,000 companies.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October; c. 79, Q162.]

It really is.

I do not want to put a specific number in the Bill—that would be something for Companies House and regulations to decide—but we clearly all understand what an excessive number of companies is. Four hundred is excessive and 1,000 is ludicrous. Perhaps the cut-off could be at 20 or 30, although even at that I would struggle to say that someone could make a good job as a company director keeping an eye on all those companies. It is worthwhile looking at the issue, because it is a red flag in the system: if one person is registered to multiple companies, that is a red flag, and it should be something that triggers Companies House to look into them in more detail.

Alison Thewliss

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I agree. I do not want to go too far on clause 66, as we have not reached it, but this is about ensuring that something is in the Bill, that it is hard and fast that it happens, rather than having a suggestion, something that the registrar might like to consider, or some kind of “have regard to”. It needs to be there and specified. That is what we are trying to achieve.

Proposed new subsection (3) in amendment 68, on what Companies House should take into account in making its determination under the clause, specifies the “experience, expertise and circumstances” of a director. If someone has long-term experience of running companies that actually existed and have filed accounts, there is something tangible there and then Companies House can say: “Oh yes, that person has 30 directorships, but they are active in all those directorships, and we know what they are.” However, if someone has no active activity that Companies House can fill in, that becomes a red flag under amendment 68. It would give Companies House a degree of discretion. Wherever it might want to put the number is also a factor.

The Minister is trying to suggest that having such a check would be an inhibition to business. I do not believe that, and I am interested to hear what evidence the Minister has to suggest that such a limit on directorships would inhibit businesses in any way. As the Labour spokesperson, the hon. Member for Feltham and Heston, mentioned, other countries have such a rule. Those restrictions are in place elsewhere around the world, so the comparison would be interesting: do they feel that businesses, directorships and the involvement of people in companies are inhibited by having such a rule? We are proposing a change to the Bill to help Companies House do its job, to help it with the red flags and to give it an action to take once it has seen the red flags and identified them through something such as holding multiple directorships.

Alison Thewliss

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Will the Minister give way?

Alison Thewliss

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indicated dissent.

Alison Thewliss

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But they are separately listed.

Alison Thewliss

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The Minister talks about not wanting to look at someone’s motivation for having, say, 400 company directorships. It is really is a case of, “There might be a reason, but we’re not going to ask about it. Why should we?” I think Companies House should be inquisitive about somebody who has 400 directorships, but the Minister is not tasking it to be inquisitive through the legislation. Tasking Companies House to be specifically inquisitive on that point is important, because the Bill does not put a duty on it or give it the right to be inquisitive.

Looking at the Companies House register, it appears that the Minister is listed five separate times—with one appointment, with zero appointments, with one appointment, with another appointment and with 18 appointments. They all appear as separate entries, not as one single person. A unique identifier would seek to grab those entries and put them in one place. That would make more sense. It would make it more traceable. I gave the example of myself being in there three separate times with three separate directorships, which are from very different points in time. If the entries were all in one place, it would be a neater and tidier way of logging them.

Alison Thewliss

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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?

Alison Thewliss

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The Home Office report, “National risk assessment of money laundering and terrorist financing 2020,” states:

“Company formation and related professional services are therefore a key enabler or gatekeeper of”

trade-based money laundering activity. Should that not raise more concerns for the Minister?

Alison Thewliss (Glasgow Central) (SNP)

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I exist three times.

Alison Thewliss

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I support the excellent amendments tabled by the hon. Member for Feltham and Heston. It is incredibly important that clarification is given through the register, for a number of reasons. A unique identifier that follows a person through their whole life as a company director is important. I mentioned before that I appear in the register three separate times. It would make sense for that to be consolidated in one entry so that people could see the course of that.

The identifier should go through all of the directorships that people have. We know—it has been raised previously in Committee—that some directors have many hundreds, or even thousands, of directorships to their name. It seems sensible to have clarity to ensure that they are the same person. A name such as mine is reasonably unusual—it is quite easy to find—but if a John Smith is on the register, it is much more difficult to establish that they are the right John Smith, the one who is the director of a company. Therefore the identifier becomes all the more important, particularly if that person changes their name. If Jane Smith becomes Jane Jones through marriage, it becomes more difficult to chase her through the register. It would therefore make sense, particularly for women, who are most likely to change their name, but also for other people who may change their names for a variety of reasons—perfectly honest ones, or, in some cases, to divert attention from their previous directorships, perhaps, or any previous misbehaviour—that that person’s ID should follow them around. Anybody doing due diligence on that person as a director could then find them on the register quite easily.

That goes to the point made by my hon. Friend the Member for Paisley and Renfrewshire North about phoenixing. If a company director has been involved in many phoenix companies, it would make sense for people to know that, and to know that they might well carry out that behaviour in future. It would enhance the clarity of the register against such fraud and poor behaviour. The example that the hon. Member for Feltham and Heston gave, of the Charity Commission register, was a good and relevant one, because it is about somebody’s appropriateness and that wider sense of understanding somebody’s behaviour through the register.

It is very important to make the change from “power” to “duty”. A person can have the power to do lots of things, but if they have no obligation to do them, that is quite a different scenario. Lots of the issues that the Companies House register has got itself into are down to those duties not having existed. It is important that those duties exist, and that we set them down in the Bill. I am not hugely confident that what we are talking about will happen if the duties and responsibilities are not set down in law. Future Ministers may decide not to bother with them. I am sure that the Minister would; future Ministers might not.

It is incredibly important that we do everything we can to make the Bill as tight as possible, and that we take all precautions against the abuse of the register. We must get rid of those abuses. We must make a better register, and better legislation, to ensure the integrity of the register in the future.

Alison Thewliss

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I have a small query and seek clarification from the Minister. In clause 69(3), proposed new section 1067A(2) states:

“An individual may not deliver documents to the registrar on behalf of another person unless—

(a) the individual’s identity is verified”.

Will the identity of those entitled to deliver documents be added to the register, and will they have to be separately verified? I am not clear on the mechanism.

Alison Thewliss

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Yes, of course. I understand that if someone is delivering documents on behalf of themselves, there will be a check to see whether they are verified, but if someone is delivering documents on behalf of somebody else, the Bill seems to say that they also need to be verified. Is that subject to a separate verification list? That person would not be registering to be a company director in their own right; they would be delivering the documents to register somebody else, so is there now going to be a separate list for that?

Alison Thewliss

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I have a brief point on a technical issue. It was flagged in evidence that some documents submitted electronically or posted on the Companies House website in electronic format were image files rather than searchable documents. I wonder what consideration the Minister has given to mandating the type of files that can be filed electronically, because it would make sense to accept them in a format that can then be searched online.

Alison Thewliss (Glasgow Central) (SNP)

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I have some questions about new clause 7. I am reading through it and trying, as I have done with many of the amendments, to put myself in the scenario of being the person who is carrying on business in the United Kingdom. It says that as that person, I am obliged to

“obtain specified information about a customer (or prospective customer)…before entering into a business relationship with them, or…during a business relationship with them”

and I have to identify any discrepancies and report them to the registrar. I get that: if I do that and I see a discrepancy, I have an obligation to report it. It feels as though the Minister is bringing forward a very soft version of a failure to prevent offence, which of course I am fine with.

I want to double-check something, however. The new clause goes on to talk about offences that might be created for failure to comply with the requirements, and I want to know what happens if I, as the person carrying on the business, do not spot a discrepancy. How is it ascertained whether I did not spot the discrepancy—whether it was a genuine mistake on my part—or whether I failed to report something that somebody else later picked up?

We are talking here about convictions, punishable as set out near the end of the new clause, and I am curious about how the regulations will work in practice. If I do not spot a discrepancy and report it, how does the law know that I did not spot it? Perhaps I ignored it because I thought it was not relevant or important, or perhaps I did it deliberately. If I come back after the fact and say, “I didn’t report it because I didn’t see it,” or “I didn’t report it because I didn’t want to,” those are two very different things.

I do not quite understand how the new clause will work. Some people might think it is good and beneficial to go clyping and grassing up people who do not comply, and that is fine, but it is quite a different thing if a discrepancy has been overlooked. I would like the Minister to explain how that will work in practice.

Alison Thewliss

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I have been tracking for some time the number of times when a person of significant control for Scottish limited partnerships has not even been registered. Does the right hon. Lady agree that it is ridiculous that there are still 201 companies for which a person of significant control does not exist at all?

Alison Thewliss (Glasgow Central) (SNP)

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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.

Alison Thewliss

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I very much agree with the hon. Member for Aberavon. As a former local government councillor, I can confirm that there definitely needs to be an interface between central Government and local government and it needs to look at economic crime. I was curious about previous discussions we have had about fit and proper persons. The fit and proper person test applies to parts of licensing within local government, but there is not necessarily any way of linking that with Companies House information.

The point about phoenixing is also important. Local businesses often come to local government for support, particularly during the pandemic or other times of crisis, and quite rightly so. Councils may hold information about the legitimacy of companies that have perhaps phoenixed many times—they applied for Government grants but the previous directors of the company dissolved it when business rates were due. Local government will have information, but there is not necessarily a place for it to reside. The Government need to think about how that information goes between the two levels of government.

With companies involved in property or homes of multiple occupation, there may be concerns about the fit and proper persons test and how that interacts with the companies engaged in housing provision. There needs to be some thought as to how those bits interact. We very much encourage the Minister to look at how the Government can be involved in that, and we support the Opposition new clause.

Alison Thewliss

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I am glad that an aggravated offence is included in clause 94, on general false statement offences, because quite clearly there are some people who are absolutely taking the piss in terms of their company registration.

The false filing bit leads me to the topic of enforcement, which is the other side of the puzzle. Out of interest, I tabled a written parliamentary question to the Minister to ask

“how many fines have been levied in each of the past ten years for the offence of false filing to companies house, and what estimate he has made of the value of those fines.”

His response was quite interesting. In 2012, the number of fines levied was nil, as it was in 2013. In 2014, 2015, 2016 and 2017 it was also nil. In 2018, things got slightly better, because one fine of £1,602 was levied. In 2019, there was a much better £15,000 fine for false filing. In 2020 and 2021, the number of fines was nil, and up to 31 October 2022 there was one fine of £500.

I guess there have been far more instances of false filing to Companies House in the past 10 years than those fines suggest. I do not believe that there have been only three cases of false filing to Companies House, because all the evidence suggests that it is absolutely rife. Will the Minister tell us more about how, in looking at the false statement offences, the aggravated offences and the fines that will be levied for non-compliance, he intends to pursue those who file false statements? Currently, they are not being pursued at all.

Alison Thewliss

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My views on the abuse of Scottish limited partnerships are on the record, and the Minister is well aware of them. Anything that will help to tighten up protection against that abuse is welcome, but again, a lot of this goes to enforcement. It is not good enough just to legislate. There has to be enforcement, and the current enforcement has been absolutely woeful, with just one fine for failing to register a person with significant control. When the legislation started in January 2018, 7,078 people were not registered as they should have been as persons with significant control. That now stands at 201, but 201 is still too many, and the Government are still not issuing any fines for not complying with the obligations under that law. As with all the measures within this part of the Bill, my concern is about enforcement and making sure that everything is absolutely watertight, because if there is no consequence—at the moment, there is no consequence for non-compliance—people will continue to abuse the systems.

I caution the Minister also that when the rules around Scottish limited partnerships were tightened, people just moved to the next structure, and the next structure was limited partnerships in Ireland. Ireland has seen a huge surge in people abusing its corporate structures, which are similar to ours for historical reasons, but nobody warned the Irish that this was coming. I would be interested to know how the Government intend to monitor the tightening up of this legislation so that we are not just pushing down the bubble in the wallpaper for it to come up somewhere else.