Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 13th October 2022
(1 year, 6 months ago)
Commons ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
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The Secretary of State for the Home Department (Suella Braverman)
I beg to move, That the Bill be now read a Second time.
Following Putin’s unconscionable invasion of Ukraine we acted immediately, cracking down on dirty money in the UK by passing the Economic Crime (Transparency and Enforcement) Act 2022. I am very grateful for the way that the whole House got behind that effort and I hope we can come together on this Bill, too. I am very grateful to the shadow Front Bench for its constructive engagement on the Bill and to party colleagues for their considerable input. I hope we can send a united message that dirty money, fraudsters and gangsters are not welcome in the UK.
Andy Slaughter (Hammersmith) (Lab)
I just wonder why it took a war in Europe for action to take place on this matter, why for years and years and years the right hon. and learned Lady’s Government and their predecessors did nothing about it, and whether it had anything to do with the millions going into Tory party coffers from Russian oligarchs?
Suella Braverman
I am not sure what point the hon. Gentleman is making. Important strides are being taken forward in the Bill and we should all be getting behind the swift action the Government took in response to the invasion of Ukraine. I am very grateful that we were able to pass that legislation and take powers in the Act earlier this year, which included taking the groundbreaking action of sanctioning hundreds if not thousands of Russian individuals and entities, freezing assets and really excluding the influence of Russian finance in the UK. I am proud of that effort and I hope that he is too.
Suella Braverman
If I can just make some progress, I will come back to the hon. Gentleman.
Having acted immediately in response to Putin, we promised to go further. The Economic Crime and Corporate Transparency Bill will bear down even further on kleptocrats, criminals and terrorists, strengthening the UK’s reputation as a place where legitimate business can thrive but economic crime cannot. Economic crime is a serious problem. It threatens our prosperity, national security and global influence. The UK has one of the world’s largest and most open economies, and it is an extremely attractive place to do business. That is a good thing, but it also exposes us to economic crime, such as money laundering, corruption, the financing of organised crime and terrorism, and a growing range of state threats.
Stephen Doughty
I thank the Home Secretary for giving way. One issue I have raised with Foreign, Commonwealth and Development Office Ministers directly relates to the use of cryptocurrency and different mechanisms for those trying to evade sanctions or commit other crimes. There is a particular issue around mixers and tumblers—that is what they are called. The US Treasury took very, very severe action on this in August this year. My understanding is that we are yet to take that action. Will she look urgently at these issues with her colleagues in the Treasury and the FCDO to ensure that we bear down very strongly on those who are using crypto to avoid detection by our criminal investigation agencies?
Suella Braverman
The hon. Gentleman raises a really important and valid point. The Bill will go some way to dealing with cryptocurrency, but he is right that cryptoassets are increasingly being used for malign and terrorist purposes. We intend to crack down on that and will be bringing forward a Government amendment that will mirror the changes in Part 4 of this Bill in counter-terrorism legislation, but we are very happy to review that further.
The Government have already undertaken unprecedented action to stop kleptocrats and criminals.
Jim Shannon (Strangford) (DUP)
Just last year, as everyone in the House will remember very well, the Police Service of Northern Ireland seized £215 million from a money laundering scheme that started in eastern Europe, came right across into the United Kingdom and ended up in Northern Ireland. The Home Secretary said clearly that money laundering will be addressed directly. In Northern Ireland we seem to have a problem in relation to that. Will she enter into discussions with the Finance and Justice Ministers back home in Northern Ireland to ensure that they can work together to beat money laundering everywhere?
Suella Braverman
I thank the hon. Gentleman for raising that point. I am very happy to build further and closer engagement with Northern Ireland on this particular issue. In the case of anti-money laundering and other investigations, and prosecutions in relation to standalone money laundering cases or where money laundering is the principal offence, the agencies have recovered considerable amounts. £1.3 billion has been recovered in those cases since 2015-16 using the Proceeds of Crime Act 2002 powers. That is good progress, but of course there is further to go and, as I said, I am very keen to engage more closely.
Catherine West (Hornsey and Wood Green) (Lab)
On the agencies, does the Home Secretary accept that it has taken an awfully long for the Government to get around to reforming Companies House, which is very open to abuse and which the Royal United Services Institute has been mentioning for years now as a danger to our national security?
Suella Braverman
I am very pleased that we are taking this action now. I take on board the point that this has been a long-standing matter that Members and Administrations have been talking about for some time. There has been progress over several years. We have the National Economic Crime Centre and new legislation, so there are greater powers, but I am focused on ensuring that the reforms in the Bill are implemented as quickly as possible. On reforms to Companies House, we seek to ensure that the level of change is balanced to avoid causing any confusion for legitimate customers and to ensure effective implementation. So yes, speed is essential, but not at the expense of undue disruption.
Some of the action we have already undertaken includes being the first G20 country to establish, in 2016, a public register of domestic company beneficial ownership; the publication of the economic crime plan in 2019 and the progress made against it; and establishing, as I said to the hon. Lady, the National Economic Crime Centre and the combating kleptocracy cell in the National Crime Agency. The Bill is just one component of a wider Government approach to tackling economic crime, including fraud. It sits alongside the National Security Bill and the Online Safety Bill, and the forthcoming second economic crime plan and fraud strategy.
Layla Moran (Oxford West and Abingdon) (LD)
One of the areas this place will struggle to scrutinise is golden visas. It has now been four years since that review was commissioned. We understand it is ready, yet we have not seen it to be able to scrutinise it and hold the Government to account on it. Will the right hon. and learned Lady be the Home Secretary who finally releases that review?
Suella Braverman
When it comes to golden visas, I was very proud of the action the Government took in relation to Russian individuals following the invasion, where we stopped the sale of golden visas to particular individuals—
Suella Braverman
The issuance—excuse me—of golden visas to particular individuals from Russia. I agree that there is further work we can do and I am very keen to look at it.
Chris Bryant
I think the Home Secretary said the sale of tier 1 visas, as if the Government or the Conservative party were somehow selling these things. Is it not absolutely shocking that 10 of the people the Government sanctioned this year were people to whom the Conservative Government had given tier 1 visas? We were inviting crooks and Putin’s cronies to come into this country, make their lives here and carry on their criminal activities here.
Suella Braverman
I think the hon. Gentleman will find that this has actually been a long-standing issue for Administrations of both colours, and we have been vulnerable for some time. However, I am incredibly proud of and make no apology for the robust, tough and unapologetic action that this country took in response to the invasion of Ukraine by Russia. That includes, along with the EU and the US, sanctioning thousands of Russian individuals and entities; taking aggressive, prohibitive action to stop them taking part in the UK financial system; freezing the assets of all Russian banks; barring Russian firms from borrowing money; and, importantly, ensuring that we take a strong stance to affect and disable, to a degree, the Russian economy. That is how we will win this war, not by cheap political points.
Chris Bryant
Look, some of us have been battling on this for a very long time. Some of us said in 2014 that if we did not sanction Putin properly then, he would not only take the Crimea, but try to take the whole of Ukraine. Some of us fear that the Government’s refusal to act in this area is part of what has emboldened Putin. The biggest problem is that, in many cases, the UK’s sanction regime has been much weaker than that of other countries. The Home Secretary is wrong: we have not sanctioned all the Russian banks. There are still others to be sanctioned. We have sanctioned 20% of the people who have been sanctioned by the United States of America. For most of the people we have sanctioned, we are relying on EU legislation—we are just copying it. Honestly, I think she needs to do her work a bit more carefully.
Suella Braverman
No, I disagree. I will not repeat the points that I have made, but I am very proud of our record. The action was tough, unprecedented and far-reaching, and I am very glad that other countries followed suit soon after.
The Bill includes essential reforms of Companies House and measures to prevent the abuse of limited partnerships. It creates additional powers to seize cryptoassets more quickly and easily. The Bill will enable more effective and targeted information sharing to tackle money laundering and economic crime.
Kevin Hollinrake (Thirsk and Malton) (Con)
Late last year, NatWest was fined £265 million for facilitating money laundering through its UK branches. Sacks of cash, literally, were being taken into NatWest branches. Despite the £265 million fine, no person at NatWest has personally been held to account. Does my right hon. and learned Friend not agree that these fines are simply a cost of doing business, because this is profitable business? The only way in which we will clamp down on this is to hold individual executives at the top of organisations to account and, if necessary, put these people in jail.
Suella Braverman
I agree with my hon. Friend, who has a huge amount of expertise and has achieved a huge amount in Parliament to crack down on fraud and economic crime. I will come to the Bill’s anti-money laundering measures, so I will have to detain him a bit longer until I get there. I agree, however: we have to make sure that we can build on the regime, powers and law enforcement frameworks that are in place. We can go further.
Dame Margaret Hodge (Barking) (Lab)
If the Home Secretary does agree with what was said by the hon. Member for Thirsk and Malton (Kevin Hollinrake), with whom I have worked closely on these matters, why is she not reforming corporate criminal liability in the Bill to bring into effect the very change that he has promoted?
Suella Braverman
I accept what the right hon. Lady says, but the Government have already taken steps to establish the case for change on corporate criminal liability. In 2020, we commissioned the Law Commission to undertake a detailed review of how the legislative system could be improved to appropriately capture and punish criminal offences committed by corporations, with a particular focus on economic crime. The Law Commission published that paper on 10 June 2022. The Government are carefully assessing the options that were presented and are committed to working quickly to reform criminal corporate liability.
Jim Shannon
I thank the Secretary of State for generously giving way again. I understand that 929 companies registered with Companies House were identified as taking part in 89 economic crime incidents, which amounted to £137 billion of potential economic damage. I know that the Secretary of State, like me and others in the House, is keen to ensure that we get the change we want, but will that mean that that can no longer happen in relation to Companies House?
Suella Braverman
We want to ensure that there are more restrictions on who can register with Companies House so that we prevent the abuse of the regime. As I said, we have one of the most open, liberal and business-friendly economies, but we are exposed to some degree. The reforms in the Bill very much address the issue that the hon. Member raises.
Furthermore, the Bill introduces a regulatory objective into the Legal Services Act 2007; removes the statutory cap on the Solicitors Regulation Authority’s fining power for disciplinary matters relating to economic crime offences; extends pre-investigation powers to all Serious Fraud Office cases; and streamlines the process for updating the UK’s high-risk third country list. The Bill will also ensure that we have more effective and targeted information sharing to tackle money laundering and economic crime. It provides new intelligence-gathering powers for law enforcement and removes regulatory burdens on businesses. Altogether, the Bill is a formidable tool in the fight against illicit finance.
The Government have consulted widely on the Bill and won broad support from business and professional groups, law enforcement agencies and civil society. We are, of course, working closely with the devolved Administrations on this legislation, as the Bill contains several provisions that engage devolved powers in Wales, Scotland and Northern Ireland.
I will now set out the Bill’s measures in more detail, turning first to Companies House reform. Companies House is one of the foundations of the UK’s business environment. It operates the UK’s open and flexible corporate registration framework. The UK’s business community enjoys a simple system for creating and maintaining companies and other legal entities. Information on those entities is made available for the benefit of investors, lenders, regulators and the public. The companies register was accessed 12 billion times last year. Inevitably, that makes it a target. In recent years, the Companies House framework has been manipulated, particularly with the use of anonymous or fraudulent shell companies and partnerships. That gives criminals a veneer of legitimacy to help them to commit crimes, ranging from grand corruption and money laundering to fraud and identity theft.
We will reform the role of Companies House and improve the transparency of UK companies. The Bill will ensure that we can bear down on the use of thousands of UK companies and other corporate structures as vehicles for economic crime, including fraud, international money laundering, illicit Russian finance, corruption, terrorist financing and illegal arms movements. These are the most significant reforms to the UK’s framework for registering companies in 170 years. We will introduce identity verification for new and existing directors.
Kevin Hollinrake
It is very good news that we are moving from a register to a regulator. On the capacity of Companies House to do that, there are around 5 million companies in the UK, with probably two directors on average, and 500,000 companies are registered every year. Does Companies House today honestly have the capacity to properly verify the ID of all those directors?
Suella Braverman
Resourcing the agencies and organisations, such as Companies House, to better fight the threat of fraud and economic crime will be part of the equation. I am pleased to be in constant discussion with the various agencies, although, obviously, Companies House is the responsibility of other Departments. However, we have to ensure that it has the tools, operationally and from a resource point of view, to be able to carry out its legal duties.
Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
The Home Secretary is being generous in giving way. The point about institutions being able to carry out enforcement is immensely important. As well as Companies House, there is also an issue for the National Crime Agency. She may be aware that her predecessor asked the National Crime Agency to draw up plans for 20% staffing cuts. Has the Home Secretary now ruled that out?
Suella Braverman
Last year’s spending review settlement set out that the economic crime levy would provide funding totalling approximately £400 million over the spending review period. Law enforcement activity on economic crime is conducted by a number of agencies, including the National Crime Agency, as the right hon. Lady says. I want to ensure that those agencies have the proper resources, personnel and tools to be at the forefront of fighting crime effectively.
Suella Braverman
I will make some progress. As hon. Members have said, I have been very generous, but I am struggling to get through my speech. I know that everybody wants to speak, so I will take no more interventions for now.
We will introduce identity verification for new and existing directors, beneficial owners and those who file information with Companies House. That will improve the accuracy of Companies House data and will ensure that we know who is really acting for and benefiting from companies.
Suella Braverman
I am sorry, but I will not.
The powers of the registrar of companies will be broadened, making the registrar a more active gatekeeper for company creation and a custodian of more reliable data. The registrar will receive new powers to check, remove or decline information that is submitted to or already on the company register. The Bill will improve the financial information on the register so that it is more reliable, complete and accurate, and enables better business decisions. Companies House will be given more effective investigation and enforcement powers, including by enabling it proactively to share information with law enforcement bodies about higher-risk corporate bodies, or where there is evidence of anomalous filings or other suspicious behaviour. To protect individuals from fraud and other harm, we will also enhance the protection of personal information and addresses provided to Companies House.
We will introduce broader reforms to clamp down on the misuse of corporate entities. These reforms will support enterprise by enabling Companies House to deliver a better service for more than 4 million UK companies. They will help us to maintain our swift and low-cost routes for company creation. They will also improve the collection of data to inform business transactions and lending decisions across our economy.
Catherine West
The Witanhurst property, a 500-room mansion in Highgate, is the second largest property in the UK after Buckingham Palace. Its ownership is contested, so it has not been seized. Will the Bill cover such difficult and anomalous situations? Local residents feel that people should be brought to account. Considering the links with the regime in Russia, there is no way that that house was bought in an honest way.
Suella Braverman
Without knowing the details of that case, what is clear is that the reforms to Companies House will ensure not only that more investigation and enforcement powers are afforded to it, but that there will be new powers for checking, removing and declining information submitted to the company register if there are grounds for concern.
Chris Bryant
The Home Secretary is being generous in giving way; I am very grateful. I warmly welcome all these changes to Companies House, for which some of us have been arguing for a very long time. My anxiety is that Companies House will have a major change of role: as several agencies have said recently to the Foreign Affairs Committee, it will go from being a registrar to being effectively a policeman. To do so, it will need enormous additional capacity. Can she tell us how much additional money it will have to fulfil that role?
Suella Braverman
The transformation of Companies House has been under consideration for some time, and the Treasury Committee has done quite a lot of inquiring into the issue. We published a White Paper on corporate transparency and register reform earlier this year, which provided considerable detail on how these reforms will operate. It is a complex area of law. Resources will be needed for these extra powers.
Suella Braverman
The transformation is already under way, with £20 million invested in 2021-22 and a further £63 million announced up to 2024-25 at the most recent spending review. We have been thinking about this, and the money has been announced in spending reviews. It has been thought about.
Suella Braverman
I am going to continue.
The Bill will tackle the misuse of limited partnerships, including Scottish limited partnerships, and will modernise the law governing them. We will tighten registration requirements and will additionally require limited partnerships to demonstrate a firmer connection to the UK. Transparency requirements will be increased. The registrar will be able to de-register limited partnerships if they are dissolved or no longer carrying on business, or if a court orders that it is in the public interest.
Nor does the Bill overlook cryptoassets. It will give additional powers to law enforcement bodies so that they can more quickly and easily seize, freeze and recover cryptoassets that are the proceeds of crime or are connected with illicit activity. That will ensure that cryptoassets cannot be a conduit for money laundering, fraud, ransomware attacks or terrorist financing. Most notably, it will mitigate the risk posed by those who cannot be prosecuted but who nevertheless use their funds for criminal purposes. I am sorry to say that cryptoassets are increasingly being used to fund terrorism; we will crack down on that by introducing an amendment to counter-terrorism legislation that reflects those changes.
I turn to anti-money laundering. We will enable better sharing of information about suspected money laundering, fraud and other economic crimes between certain regulated businesses, allowing them to take a more proactive approach to preventing economic crime. As a result, businesses will be better able to detect crime taking place across multiple businesses and to prevent criminals from exploiting information gaps between them. We will also reduce the reporting burdens on businesses, enabling the private sector and law enforcement to focus their existing resources on tackling high-value and priority activity.
Threats evolve and are changing, so the Bill includes a measure to streamline and allow faster updates to the UK’s high-risk third country list. The list will be updated and published on gov.uk for everyone to see, reflecting updates from the Financial Action Task Force, the international standard setter, when it identifies countries with weak anti-money laundering, counter-terrorist financing and counter-proliferation financing controls. By removing the need to lay a statutory instrument before Parliament every time the list needs to be updated, we will reduce delays in updating the list and free up parliamentary time.
The Bill will add a regulatory objective to the Legal Services Act 2007:
“promoting the prevention and detection of economic crime.”
It affirms that it is the legal duty of legal regulators and professionals to uphold the economic crime regime. That will reduce the risk of lengthy and expensive challenges from regulated members over enforcement action. It will improve the ability of the Legal Services Board, as the oversight regulator, to manage the performance of frontline regulators in meeting that objective.
The Bill will remove the statutory cap on the Solicitors Regulation Authority’s financial penalty powers for disciplinary matters relating to economic crime. That will align the SRA with other regulators that have such flexibility. Fewer cases will be referred to the Solicitors Disciplinary Tribunal, resulting in faster enforcement. There will be a credible deterrent and a more coherent response to breaches of economic crime rules.
The Bill will enable the Serious Fraud Office to use its powers under section 2 of the Criminal Justice Act 1987 at the pre-investigation stage in any SFO case, including a fraud case—an ability that is currently limited to cases of international bribery and corruption. This measure will mean that the SFO can more quickly gather the information that it needs to allow its director to decide whether to take on a case.
Cracking down on economic crime is a major plank of the Government’s beating crime plan.
Andy Slaughter
I am grateful to the Home Secretary for giving way; I know that she is about to finish her speech. There are 22 professional bodies overseeing compliance with anti-money laundering rules. Is the Home Secretary going to do anything about the resulting confusion, and the inadequacy of some of those bodies? May I also ask whether she intends to introduce—as her colleague the Secretary of State for Wales hinted earlier this week—a new offence of failure to prevent offences from being committed? I do not know whether she welcomes her colleague commenting on her brief, but as the Welsh Secretary has raised the question, perhaps she could respond to it.
Suella Braverman
The hon. Gentleman raises two issues concerning the regulators. We need to ensure that they strike the right balance in terms of their investigatory or prosecutorial powers, but also do not overstretch themselves to become a burden on legitimate and bona fide enterprise. This is a balance that legislation constantly seeks to strike. As for the offence of failure to prevent offences, it is something that we consider all the time, and I am always open to considering such possibilities.
Far from being victimless, these crimes bring misery, fund other crimes and undermine our country’s reputation, and Putin’s illegal invasion of Ukraine raises the stakes even higher. The United Kingdom must ensure that we are doing nothing to aid Putin, and doing everything we can to support the courageous Ukrainian people.
I urge the whole House to get behind the Bill so that we can make sure that the UK is a great place for legitimate business and a no-go area for crooks, and I commend it to the House.
Madam Deputy Speaker (Dame Rosie Winterton)
I call the shadow Home Secretary, Yvette Cooper.
Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
Let me first join in the tributes paid earlier by Members on both sides of the House to Sir David Amess. His parliamentary office was just above mine, and I know that we all remember him very fondly.
I rise to support the Bill’s Second Reading, and also to welcome the Home Secretary to her first full debate in the Chamber in her new post. It has been—what?—about five weeks since she was appointed, and I must say that she has been busy.
We have seen a series of major public disagreements between the Home Secretary and the Prime Minister: on restoring a net migration target, and then not; on leaving the European convention on human rights, and then not; on reclassifying drugs, and then not; on seasonal agricultural workers, still unresolved; on the claim that the Prime Minister did not see small boats as a priority and did not want her to talk about Rwanda; on some kind of row with the Business Secretary about florists, which nobody could follow; and on the Indian trade deal, which is something the Prime Minister had been working on for years, and which the Home Secretary seems to have single-handedly scuppered with a passing remark during an interview with The Spectator. Furthermore, according to the latest story this morning, the Home Secretary is not actually involved in immigration policy decisions at all, although they are at the heart of her Department.
We have to wonder whether there is anything that the new Home Secretary and the new Prime Minister agree on—although, to be fair to the Home Secretary, it is not clear that the Prime Minister agrees with herself from one day to the next. There have been so many U-turns that the Cabinet is spinning in circles. I have seen 11 Home Secretaries come and go, but I have never seen anything like the chaos and confusion that we are seeing now. There are disagreements from time to time, of course, but the scale of this is actually dangerous, because the Home Office is too important.
On issues of national security, crime and migration, we need the sense that there is some stability: that the people at the top are capable of self-discipline, that there is collective Cabinet responsibility, and that, at least on home affairs, they are making statements in the interests of the country, rather than behaving as if they were still in the process of a leadership campaign—although I guess that is exactly what is going on. If they are not capable of getting their act together and being a Government who are focused on those matters, they should get out of the way, and give way to someone else who can.
Yvette Cooper
If the Home Secretary wants to respond to any of those points, I shall welcome her doing so.
Suella Braverman
I am not sure whether it has dawned on the right hon. Lady that we are here to talk about the Economic Crime and Corporate Transparency Bill, which is an important measure to tackle fraud and support victims of this heinous crime. I am not sure whether she is really focusing on that. I thank her for the party political broadcast, but let us get on with the job in hand.
Yvette Cooper
There are plenty of aspects of the Bill that we can discuss, but I note that the Home Secretary chose not to deny any of the chaotic things that she has been saying in the papers. This is not stuff that we have made up; these are things that the new Home Secretary has been saying, which undermine her ability, and indeed the country’s ability, to deal with issues relating to national security, economic crime, fraud and migration—all the serious challenges that the country faces.
This Bill, which is long overdue, should constitute an area in which the whole country can come together and in which, across the House, there is broad agreement in the national interest. I welcome the Bill, but I am concerned that it does not go far enough. The Home Secretary will have heard the points made by Members in all parts of the House: extremely detailed work has been done by many Members with great expertise in respect of areas in which the Government need to go further. I hope that the Government will listen and will be able to go further, because the whole House will agree that action on economic crime in the UK is urgently needed.
This is a rough estimate, but the National Crime Agency says that £100 billion of dirty money flows through the UK every year, and that fraud is causing £190 billion-worth of damage. Economic crime is growing. According to the latest PwC global survey, 64% of businesses have experienced fraud, corruption or other economic or financial crime within the past two years, up from 50% just four years ago. Last year, 4.5 million frauds were perpetrated against people across the country, a 25% increase in the last few years. This is hugely damaging to families and communities, to our economy and businesses, to our international reputation, and also to our security.
The organised crime that is facilitated by weak financial systems has a deeply pernicious impact on our communities and our children, drawing young people into crime, gangs and exploitation, and fuelling the most appalling violence on our streets. It undermines our economy. It undermines legitimate businesses and financial organisations, and the thousands of people who work in them, who are standing up for high standards, are also undermined by this kind of crime and exploitation.
As I have said, economic crime is deeply damaging to our international reputation. London’s reputation as the money-laundering capital of the world is a source of national shame. Ours is a country that has long prided itself on the rule of law and on strong economic institutions, which is what traditionally made it a good place in which to invest, but that is being undermined by economic crime. United States allies have expressed frustration at the UK’s failure to tackle fully the problem of the flow of illicit Russian funds through what they have called Londongrad, and exposure to corrupt oligarchs and networks of kleptocracy means that that undermines our national security too.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Dean Russell)
Thank you, Madam Deputy Speaker. May I begin by sending my condolences to the family and friends of Sir Davis Amess, who is deeply missed in this place? In fact, the very last speech I gave on the Back Benches was in the Sir Davis Amess summer Adjournment debate. During the time I knew him, he was a dear friend, and I know he is deeply missed.
It is a pleasure to follow the hon. Member for Feltham and Heston (Seema Malhotra). She has been incredibly kind in her engagement over the past week, and having our meeting was incredibly helpful in understanding her views on the Bill. I want to thank colleagues—on both sides of the House, in fact—who have spoken in this important debate for their well considered and eloquent contributions on such an important issue, and for the broad support for the objectives of the Bill, for which I am grateful. I should mention that the agreement is about the fact that they like the Bill and think it is the right thing, but some Members spent the debate more on the stuff that is not in it, which is always useful. I used to think when sitting on the Back Benches listening to Opposition Members—this not a criticism—that the argument was often to go faster and further, which is a great pitch for a personal trainer, so there are careers for them in the future. However, in this particular instance I understand where those arguments are coming from, and I will attempt to address them.
I aim to respond to as many points made by hon. and right hon. Members as I can given the time available, but I first want to remind the House what this Bill will achieve, and what signal it sends across the UK and around the world. As set out by my right hon. Friend the Home Secretary, the Economic Crime and Corporate Transparency Bill will bear down on the kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive while driving dirty money out of the UK.
This historic Bill contains a significant and coherent package of measures to help us crack down on economic crime and abuse of the UK’s corporate structures. As the House has noted today, that includes the most significant reform to the UK’s company registration framework in 170 years. There have been many Governments during that time, so it is good that this is happening now, and the importance and impact of these changes should not be underestimated.
This Bill will help tackle economic crime, including fraud and money laundering, by delivering greater protections for consumers and businesses. It will support our national security, by making it harder for kleptocrats, criminals and terrorists to abuse our open economy. It will support enterprise, by enabling Companies House to deliver a better service for over 4 million UK companies, supporting business transactions and lending decisions across our economy.
I am sure that everyone in the Chamber will agree that we must maintain the UK’s status as one of the world’s largest and most open economies, and that London must continue to be one of the world’s most attractive destinations for overseas investors—but crucially, investors of the right kind.
I thank the right hon. Member for Barking (Dame Margaret Hodge) and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) for spearheading cross-party collaboration on these important issues through the all-party parliamentary groups that they chair, and for their learned contributions to today’s debate. I have listened to them talk about these issues in the Chamber many times before. Their wisdom is deep and is heard loudly. I look forward to working with them as the Bill progresses.
Before turning to the issues that hon. Members have raised, let me first share my sadness at the tragic deaths referred to by my hon. Friend the Member for Thirsk and Malton. They are tragic examples of why it is so important to crack down on organised crime groups and their business models. At its heart, this Bill is about real people, including children and families. We have to put these regulations in place to protect them because our citizens have to come first.
I will now respond as best I can to the comments and questions raised during the debate. I will start with verification by Companies House and by agents. I welcome the broad interest from across the House in the Companies House reforms, including on identity verification. I can confirm that the identity verification requirements will apply to all new and existing company directors, people with significant control and those delivering documents to the registrar.
The hon. Member for Glasgow Central (Alison Thewliss) and the right hon. Member for Walsall South (Valerie Vaz) asked about identity verification checks undertaken by authorised corporate service providers. I can confirm that these checks will achieve the same level of assurance of the stated identity as those undertaken through the direct verification route and in line with the cross-Government identity proofing framework. Agents will need to confirm they are supervised by a body that is subject to the UK’s anti-money laundering regime and register with Companies House before they are allowed to form companies or registerable partnerships, or to file on their behalf.
Under anti-money laundering regulations, all agents are required to retain records and the registrar can request further information on identity verification checks if necessary. The agent will be committing an offence if they fail to carry out ID checks, and new powers will enable the registrar to suspend and deauthorise an authorised corporate service provider.
I can also reassure the right hon. Member for Walsall South that the measures in the Bill will help the registrar remove fraudulent information, including the addresses of innocent people, without burdening those people with so much process. We heard concerns from across the House about the challenges of the registration of false businesses and the problem of not being able to do anything about that; the Bill will solve these issues. She asked about the process for identity verification. We set that out in the White Paper earlier this year and operational design work continues. I also note her concerns about the newly implemented register of overseas entities. It is early days for that register but I will look into the quality of the filings being made.
Alison Thewliss
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?
Dean Russell
I thank the hon. Member for her question. I will gladly respond to her in writing so that she has the full details.
I turn to Companies House fees and funding. A number of hon. Members from across the House, including the hon. Members for Stretford and Urmston (Kate Green) and for Rhondda (Chris Bryant)—he is not in his place, and if he were I am sure that he would be intervening right now—asked if Companies House will be properly resourced for its new role. Investment in new capabilities at Companies House is currently under way. Companies House was allocated £63 million across the spending review period to implement its transformation programme. That will include improvement of systems to detect suspicious activity. The Government are reviewing funding arrangements in the context of the reforms and are committed to ensuring that Companies House is fully resourced to perform its new role and functions.
The hon. Member for Glasgow Central asked whether the Bill will raise Companies House fees. The Bill gives the Government more flexibility to do so, broadening the range of functions that can be funded through Companies House fees. In particular, it enables us to use fees to cover the cost of investigative and enforcement activities. However, to maintain flexibility, we will not be setting the level of fees through the Bill. That will continue to be set via regulations and subject to future parliamentary scrutiny and approval. We must get the balance right, because we do not want to put off entrepreneurs, solopreneurs and businesspeople who want to set up a new business. The threshold must therefore be thrashed out in the right way, but that will come.
Alison Thewliss
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.
Dean Russell
I thank the hon. Member for her comments. The flexibility will be there, and that is something to be looked at. We are not setting the fee right now; that is the fair thing to do.
The hon. Member for Rhondda and the right hon. Member for Barking asked about the Government’s response on asset freezing and seizing. The Government wholeheartedly support the people of Ukraine—it was wonderful to hear about those in the Gallery today—as do hon. Members across the House. We understand the wish to take ill-gotten funds and use them to support Ukraine in rebuilding its country. The UK, along with other countries, is examining further options to seize assets from sanctioned oligarchs and grappling with an array of complex issues. The aim of His Majesty’s Government is to support the recovery and reconstruction of Ukraine.
This is a novel and exploratory area with extremely complex legal and operational considerations, and we are not aware that any other country has yet identified a definitive solution, despite commonality of policy intent, but I am keen to continue conversations and hear more from learned friends. The Government are continuing to work at pace to explore all options and will continue to engage with international partners, civil society and others on this topic.
I pay tribute to my right hon. Friend the Member for East Hampshire (Damian Hinds), who has worked hard on this issue over such a long period, for his involvement in the debate and for everything that he did to progress the reforms during his time as Security Minister. That is well recognised and much appreciated. I know that my right hon. Friend the current Security Minister would like to add his thanks to mine.
My right hon. Friend the Member for East Hampshire stressed that reforms to how payments are made are important to help identify and stop suspicious payments. I value his insights significantly. Many banks already delay and refuse payments when they suspect fraud. The Government, financial regulators and industry are working together to ensure that banks can intervene where necessary. The Government and the Financial Conduct Authority are engaging with the payments industry to understand what might support banks to take a more consistent risk-based approach to payments and prevent payment fraud. We will keep under review whether legislation is required to support a risk-based approach by banks.
I turn to whistleblowing, which came up many times and colleagues have asked me about in the past few weeks. I am grateful to my hon. Friends the Members for Weston-super-Mare (John Penrose) and for Cheadle (Mary Robinson) for their comments and concerns about the framework protecting whistleblowers, and for their ongoing constructive dialogue on this important issue. They are well known for their views on this point and do incredible work to lobby Government and others on it. An effective whistleblowing framework is an important aspect of the UK’s ability to tackle corruption and all forms of economic crime and illicit finance. In recent weeks, I have noted with interest views on the whistleblowing framework and the proposals for reforms put forward by Members of this House and whistleblowing interest groups. I look forward to continuing those conversations.
The Government remain committed to reviewing the whistleblowing framework and it is only right that we take the time to do a proper review before considering legislative change. My officials are working on the proposals for the scope and timing of such a review. That work is complex, however, and will proceed over a longer timeframe than the Bill. Therefore, the Bill does not include measures on whistleblowing. However, we remain committed to discussion with all interested parties and parliamentarians as we progress that work, and we greatly appreciate the ongoing engagement on this important topic.
John Penrose
Is the Minister able—I am afraid his answer largely parallels a letter he already wrote to me, which was notably devoid of dates—to give the House any indication of when he will be able to come forward with either a fully developed plan with timetable attached, or alternatively just for the four much smaller elements that I mentioned in my speech, which would go an awfully long way to reducing the need for immediate action while he has a longer think about some of the broader, more complicated issues? Without those four immediate issues, we are letting the best be the enemy of the good.
Dean Russell
I thank my hon. Friend for his comments. I appreciate that he would love me to give a date. I cannot do that right now, but I promise that I will continue with the engagement and discussion. I have spoken to officials many times about this issue over the past two weeks, and I would like to continue to meet and have conversations on that front. The key point is that there is a willingness and a framework already being discussed. It is about how and when, as he says.
Why are the Government not legislating for corporate criminal liability? That was a topic that came up throughout the debate. My hon. Friend the Member for Thirsk and Malton, the right hon. Member for Barking and my hon. Friend the Member for Weston-super-Mare raised concerns about the prosecution of corporate bodies for economic crime. I thank them for their work in this area.
As several Members referenced, the Government have taken steps to establish the case for change. We commissioned the Law Commission in 2020 to undertake a detailed review of how the legislative system could be improved to appropriately capture and punish criminal offences committed by corporations, with a particular focus on economic crime. The Law Commission, as was mentioned in the House earlier, published that paper on 10 June 2022, just a few months ago, with the two strongest options being reform of the identification doctrine and the creation of a new criminal offence of corporate criminal liability for fraud, also known as failure to prevent fraud. The Government are carefully assessing the options presented and are committed to working quickly to reform criminal corporate liability.
I will move on to a final few points. First, I will reference comments by the hon. Member for Glasgow Central—she mentioned a lot of things in her speech, so I want to ensure I cover them as best I can—and by the hon. Member for Oxford West and Abingdon (Layla Moran). On the reforms and whether they apply to limited partnerships, including Scottish limited partnerships, I reiterate that the reforms to limited partnerships will apply to all forms of limited partnership, including Scottish limited partnerships. The Bill will tighten registration requirements and require limited partnerships to demonstrate a firmer connection to the UK. They will increase requirements and enable the registrar to deregister from the register limited partnerships which are dissolved and are no longer carrying on business.
On SLAPP—strategic litigation against public participation—the Government are committed to protecting free speech. We often have debates in this place on the importance of free speech and the rule of law, which are cornerstones of our democracy. SLAPPs are an abuse of the legal system, involving the use of legal threats and litigation to silence journalists, campaigners and public bodies who investigate wrongdoing in the public interest. That is utterly wrong and should not happen.
The invasion of Ukraine heightened concerns about oligarchs abusing those laws and seeking to shut down reporting on their corruption or economic crime. The Government published a call for evidence on SLAPPs earlier this year to build a robust basis for reform. The Ministry of Justice ran a series of roundtable events with key stakeholders, including campaigning journalists, claimant and defendant lawyers, media groups and civil society organisations.
The Government’s response to the call for evidence was published on 20 July 2022, and we are currently exploring opportunities to legislate to introduce a new early dismissal mechanism in SLAPPs cases, as well as a targeted cost protection regime through secondary legislation.
I will conclude by addressing a couple of other key points that were raised—I know there were many. I note that the big folder I have here contains the original points I was going to make, so hon. Members will be glad to hear that we will finish this debate before the Committee proceedings start.
Madam Deputy Speaker (Dame Eleanor Laing)
The Minister does actually have one hour and one minute left to speak. That is easy for me to say, as Mr Deputy Speaker is about to take the Chair.
Dean Russell
In that case, shall I start my new speech, Madam Deputy Speaker? I will not, because I am conscious that hon. Members have been incredibly gracious in their speeches and even more gracious in listening to mine. I will do my best to finish these last few points, so that the Adjournment debate can begin. [Interruption.] I can assure hon. Members that they will get weekends—I do not need to legislate for that.
Several Members, including the hon. Member for Hammersmith (Andy Slaughter), raised concerns about how the supervisory regime for professional enablers works and whether it is sufficiently robust. The UK’s anti-money laundering and counter-terrorist financing supervisory schemes are comprehensive in their regulation and supervision of firms most at risk from money laundering and terrorist financing. In December 2018 the global standard setter for those organisations, the Financial Action Task Force—there are lots of acronyms, so for anyone watching who is not as understanding of the details, I will use the words involved, rather than FATF, AML and all the rest—recognised that the UK’s regime is one of the strongest of more than 100 countries assessed by the Financial Action Task Force and its regional bodies to date.
In 2018 the Government established the Office for Professional Body Anti-Money Laundering Supervision to provide a greater degree of oversight and promote co-operation between the 22 professional body supervisors. That office has driven significant improvements in the supervision by professional body supervisors, and in 2019 only 9% of PBSs fully applied a risk-based approach. That rose to 86% by 2020. It has also developed platforms, such as the intelligence sharing expert working groups, to facilitate greater information and intelligence sharing. There is still work to be done to ensure consistency of approach and to improve information and intelligence sharing, as identified in the recent post-implementation review of the OPBAS regulations and the recent OPBAS report.
Seema Malhotra
I recognise that the Minister has made a huge set of comments on the issues that were raised, but I want to pick him up on one point relating to the Financial Action Task Force. He is right that we may be ahead in some areas, but the FATF and the IMF have highlighted that more needs to be done, including by the Financial Conduct Authority, to expand supervision. I hope that he can pick up some of that and make sure that we do not think that we have gone far enough—there is a lot further to go for confidence in the regime.
Dean Russell
I note the hon. Member’s comments. I will look into that further and follow up with more detail if required.
I thank all those across the House who have spoken. If I did not mention them, I apologise; and if I did, I hope that I covered their responses as best I can. I want to collaborate and listen, and I think that it is important that we as parliamentarians work together as best we can. It has been great to see the best of the House today. When we debate based on knowledge, experience and the ability to work together, we get the best legislation and the best outcomes, so I thank all hon. Members for that.
I look forward, based on the support that has been pledged, to working with all the hon. Members on the Committee. We have had an excellent and informative debate and I look forward to further discussion in Committee. I commend the Bill to the House.
Question put and agreed to.
Bill accordingly read a Second time.
Mr Deputy Speaker (Mr Nigel Evans)
Congratulations on your first outing, Minister.
Economic Crime and Corporate Transparency Bill (Programme)
Motion made, and Question put forthwith (Standing Order No. 83A(7)),
That the following provisions shall apply to the Economic Crime and Corporate Transparency Bill:
Committal
(1) The Bill shall be committed to a Public Bill Committee.
Proceedings in Public Bill Committee
(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 29 November 2022.
(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.
Consideration and Third Reading
(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.
(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.
Other proceedings
(7) Any other proceedings on the Bill may be programmed.—(Jacob Young.)
Question agreed to.
Economic Crime and Corporate Transparency Bill (Money)
King’s recommendation signified.
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Economic Crime and Corporate Transparency Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Jacob Young.)
Question agreed to.
Economic Crime and Corporate Transparency Bill (Ways and Means)
Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),
That, for the purposes of any Act resulting from the Economic Crime and Corporate Transparency Bill, it is expedient to authorise:
(1) the charging of fees under the Companies Act 2006 at a level that takes into account a broader range of functions; and
(2) the payment of sums into the Consolidated Fund.—(Jacob Young.)
Question agreed to.
Economic Crime and Corporate Transparency Bill (First sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 25th October 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 25 October 2022 - (25 Oct 2022)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Alison Thewliss
Q
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.
The Minister of State, Department for Business, Energy and Industrial Strategy (Jackie Doyle-Price)
Q
Gurpreet Manku: To clarify, I think this is a really important Bill. We have been saying for a very long time that the provisions need to be implemented quickly. The issues that we have raised are really on points of detail. Raising an international private equity or venture capital fund is quite a complex process. We hope that the swift introduction of the provisions will deter criminals from using the vehicles that we are talking about. When the requirement was introduced for Scottish limited partnerships to go on the people with significant control register, it led to a dramatic drop-off in the use of such partnerships for nefarious purposes. We were not aware that English limited partnerships were being used in that way instead, and we were surprised that they were, because English limited partnerships do not have a legal personality, and so cannot hold assets and should not be able to set up a bank account; certainly, they cannot in this country. We were therefore surprised by the scale of abuse there.
The Government are sending a really strong signal by introducing these provisions, particularly the requirement to have an authorised corporate service provider submit documention and the measures around annual confirmation statements. That should deter criminals. Our version of the limited partnership fund structure has been emulated across the world, so there is a lot of competition, in the sense that international fund groups could set up a vehicle in the UK, the EU or the US. Our wish is for them to be here, because that drives other economic activity.
We have a huge domestic venture capital and growth capital funds industry that invests in small businesses around the country. Two thirds of our investment is outside London; 90% of investment goes to small and medium-sized enterprises. Our managers are small firms; they need a domestic vehicle that works and is trusted by international investors, including those from the US who invest heavily in our members. These vehicles are used by private equity and venture capital funds. They are also used by infrastructure, pension schemes and fund-to-fund investors. Notably, they are also used by the British Business Bank through its equity programmes. It is the largest venture capital and growth equity investor in the UK. It has a really important role in catalysing innovation and crowding in additional institutional investors. I am passionate about the need for a robust UK vehicle, and it has been really disappointing to see the abuse first in Scotland and then in England in recent years.
English limited partnerships and Scottish limited partnerships are popular because they are here. The UK law courts attract institutional investors, as does the fact that we have a large professional services community here. Because we have funds here, we also have the administration here, which means that we have good-quality jobs around the country; some of our members have hubs in Belfast and Southampton. I am passionate about ensuring that this vehicle works, and the rules that are being introduced will deter criminals; they will improve the robustness of the vehicle.
Our points are really points of detail, just to ensure that the limited liability status of investors is protected and that we can implement these reforms in a swift and easy manner.
Jackie Doyle-Price
Q
Gurpreet Manku: I think it will make a very good statement, and it will attract international investment. There is a huge level of interest in the UK because we have had some brilliant growth stories in our businesses, particularly in deep tech in life sciences and biotech, especially coming out of the pandemic. There is a lot of interest in investments, and the Bill will send a signal that these investors should be using UK fund vehicles and not those based outside the country.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
Q
Nick Van Benschoten: That is the case, and perhaps more, in a way, than you might expect. We are not saying that Companies House should be regulated for anti-money laundering, but it does not have the provisions to verify the status of directors or beneficial owners. That is the gap to the standards. I should stress that the industry standards allow reasonable measures in how you verify status, because it is a challenge, but those reasonable measures are a matter of how, not whether.
Alison Thewliss
Q
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.
Jackie Doyle-Price
Q
Nigel Kirby: I can link this to your question on safeguards. Coming from a law enforcement background, I believe that safeguards for members of the public are really important in this space, and I am used to following those. GDPR does not stop us from doing some things. It provides a set of safeguards for what we do.
When you look at what the Bill does on safeguards—I am trying to answer both questions—it makes it very clear that we share this information when certain conditions apply, such as exit or restriction, or we need the relevant actions, which would be the prevention and detection investigations for economic crime. Those safeguards are built into the Economic Crime and Corporate Transparency Bill.
In GDPR you already have safeguards in place. The first safeguard is: do we have a legitimate interest to share? That is precisely my point, Minister, about our needing to have legitimate interests to share—prevent all crime, not just fraud. Then you have a necessity limb to this. Is what we want to share targeted? Is it proportionate? Is there a less intrusive way? From a law enforcement perspective, we look at whether our actions are proportionate and collateral intrusion. There is a balancing act sitting there as a third limb, on ensuring that the legitimate interest of the public is not unduly overridden. I actually support the fact that there are safeguards in GDPR; I think that is the right thing to have. I support the fact that we need to meet those to be able to share information, but in doing so in that particular space, we need to be able to have sufficient breadth to be able to share across all economic crime and not just fraud.
Jackie Doyle-Price
Q
Nigel Kirby: I think it would be very helpful to have, on the obligations, clear guidance from somewhere like the Information Commissioner’s Office—it has got good guidance, to be fair—as we move through this. Should the Bill be enacted and become legislation, guidance across the industry and from the relevant Government sectors or law enforcement sectors on how we do this and come together in the same way as we came together through the Bill, would be important and give clarity, because, as I am sure you are aware, Minister, there are different interpretations of things, different views and different risk appetites. That is normal in business. The views, legal interpretations and risk appetites will always be different, but where there is guidance to help us through this, with a positive intent from Parliament, that is always really helpful.
Dame Margaret Hodge
Q
I want to take you back—I could not quite hear what you said to Alison—to the SARs regime, if I may. It may not be your area of expertise, but it is a very important instrument for informing the enforcement agencies of where there may be a problem. The system is clearly broken—hundreds of thousands of SARs are landing on the desks of enforcement agencies. And we had the idea that they could be put into categories—risk categorised. I wonder whether you are able to comment on that at all, because if currently there is just a tick box—you send off your SARs and you have done it—too often the banks then carry on doing business with a suspicious person. Is there room in the Bill for doing something more on that regime, to ensure that the enforcement agencies are more effective in rooting out economic crime?
Nigel Kirby: I think the SARs regime and the Proceeds of Crime Act 2002 itself actually need—well, not necessarily to be turned upside down, but to be looked at as a whole. I think an individual focus just on some aspect of SARs probably would not change the system in any particular—
Jackie Doyle-Price
Q
Andy Gould: Probably the most obvious area would be around ransomware, which is if you are an organisation and you get hacked and attacked and then lose access to all your files or systems, and then get a demand from a cyber-criminal saying, “Okay, if you want to get access back, you have to pay”—basically, an extortion demand. That extortion demand will virtually always be in cryptocurrency, because there is a view that that is harder to trace.
Depending on the kind of cryptocurrency, the traceability varies. Effectively, a lot of the technology that sits behind cryptocurrencies is based within what is described as the blockchain. Arianna is much better at explaining this than me, but the blockchain is effectively a public ledger, if we are talking about Bitcoin or something like that. We can see all the transactions. It is like your bank account or NatWest or any other bank doing its transactions in the public space—everybody can look at them. It is effectively decentralised and very public, so there are real benefits in that. The anonymity comes from not knowing who is sending what or who is who, in terms of the bank accounts—the wallet equivalent.
That provides opportunities to follow the money, but, although you might be able to see where the money goes, you will not necessarily know who has sent it or who has received it. There are other investigations you would need to do that. And there are tools—mixing services or exchanges—that will jumble it all up and then send it elsewhere, and you will not be able to see what has come in compared with what is going out. That is why criminals like to use it—because, as they see it, it covers their tracks effectively.
Arianna Trozze: One way to make it a bit clearer is to situate cryptocurrency money laundering in the traditional phases of money laundering. When we talk about money laundering, we tend to talk about three specific phases—placement, layering and integration. In the crypto space, placement may look like someone depositing their Government-issue currency into a cryptocurrency exchange, and exchanging it for cryptoassets, or potentially using what is called a fiat on-ramp to buy cryptoassets using their fiat currency. They may also use something like an over-the-counter broker, which may allow them to buy cryptoassets using cash.
Then, the layering process follows, which is kind of what Andy was talking about, in terms of trying to obfuscate the origin and trail of funds. There are a lot of different tactics that the criminals can use to do that. As Andy mentioned, they may use mixing services, to try to break the chain. They may create thousands of different cryptocurrency wallets and accounts and transfer the funds among them in order to make it more difficult to trace. They may exchange them for various different types of cryptoassets, including privacy coins, which we, again, have a lot of trouble chasing, although there have been advancements in that regard. Finally, they may move to completely different blockchains, using what are called blockchain bridges, and that further makes it more difficult to trace—as Andy mentioned before, different providers have different capabilities and different expertise in terms of which chains they specialise in and which assets they are able to trace. That is something else that they may do to hide that trail of funds.
Finally, we have the integration process, which is criminals using those now-cleaned funds for mainstream economic activity. We know that sometimes they may seek to keep those funds in cryptoassets in an attempt to further their gains, speculatively investing in the market; or they may, again, use one of these exchanges or what is called a fiat off-ramp to transfer their cryptoassets back into pounds or any other currency.
Jackie Doyle-Price
Q
Arianna Trozze: Yes, and as it is such a quickly developing technology, there are constantly new ways coming out for criminals to use the technology for various purposes. Again, it is a rush for law enforcement and investigative companies to try to keep up with this.
Andy Gould: To give you a sense of the scale of the challenge, there are thousands of different forms of cryptoassets or cryptocoins in existence. We have to learn to use all the ones that the criminals are using. We can only do it with the private sector. There is no way we can invest in or have the skills in-house to be able to develop all of those tools for all of those different asset classes, so we work really closely with all the big private sector companies to build that capability. It is why we do big open national procurements—because that is the only way it is affordable.
Liam Byrne
Q
Andy Gould: It is really hard to say, because it is so hard to identify or report at scale. However, I would say yes. If you talked to all of the big cyber-incident companies and the threat intelligence companies about what we are seeing, in terms of reporting, then yes, everybody would say that it is rising. Certainly, the crime survey for England and Wales does.
Jackie Doyle-Price
Q
Jonathan Hall: Let us imagine that counter-terrorism police have intelligence that there is an Islamic State cell that has been fundraising in Birmingham, and they are going to try to transfer the funds that they have managed to raise to an active cell based in Syria. Their plan is to do that by using Bitcoin. Let us imagine counter-terrorism police had intelligence that that was about to happen. They could raid the premises where the UK-based cell was operating. They could seize a bit of paper on which the crucial key is written down, which would allow the transfer of the funds to take place to Syria. They could then use that key to grab the cryptoassets—let us say it is £1 million-worth of assets that are about to be converted, or have been converted, into cryptocurrency—and transfer the cryptocurrency to a police-controlled wallet or to another provider who they trust.
That money, which would otherwise have gone out to Syria to buy guns and so on, will then be seized by the police. If the police have evidence to do so, they could in six or 12 months’ or up to three years’ time, go to a magistrates court and say, “We can prove that this cryptocurrency was going to be used for the purposes of terrorism” or “It was the resources of a proscribed organisation, Islamic State. Can you now please order that the money be seized and transferred to the Treasury?” Does that help?
Jackie Doyle-Price
Yes, not only is that a brilliant explanation that brings this to life, but it is a great plot for a film.
Jonathan Hall: It is real life. There was a man called Hisham Chaudhary who was convicted last year of doing more or less that.
Jackie Doyle-Price
Q
Jonathan Hall: We can never be confident it is completely future-proof, but it is necessary and definitely a very strong step in the right direction. As I say, I have one reservation about overseas companies where I think it may go a bit too far. It may just be a question of deleting one part of the provision I read out to you. In general, it is a good step.
The Chair
I think the number of the page you are looking for is in the amendment document on page 47 and it is new schedule 1. I think that is what you were referring to, Mr Hall. I am going to move on anyway.
Economic Crime and Corporate Transparency Bill (Third sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 27th October 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 27 October 2022 - (27 Oct 2022)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
I thank Members and those giving evidence for their flexibility in moving rooms, and I inform Members and those giving evidence that we will be in this room all day today. Could the witnesses please introduce themselves for the record?
Helena Wood: Hello, my name is Helena Wood. I am a senior research fellow at the Royal United Services Institute, where I lead the economic crime programme.
Duncan Hames: Hello, I am Duncan Hames. I am the director of policy at Transparency International UK.
The Minister for Security (Tom Tugendhat)
Forgive me, Ms Wood; my hearing is not very good. Can you speak straight into a microphone?
Helena Wood: Yes.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Q
Helena Wood: To place it in context, one of Britain’s great financial crime exports of recent years has been our joint money laundering information taskforce, which is one of the first public-private partnerships. That model has been replicated across the globe, with public-private partnerships now seen as a norm by the FATF, the international standard setter on tackling money laundering and terrorist financing. In one respect, we really have been a global leader in that regard. However, as with many British exports, we are now exporting that abroad and it is being copied and replicated at a speed and scale beyond what the UK is doing. Increasingly, we are seeing people moving from peer-to-peer information sharing towards a more collaborative data analytics model. I point to the models being set up in Holland and in Singapore as particularly groundbreaking in that regard.
Coming back to the provisions in the Bill, do they get us from where we are now on peer-to-peer information sharing, which is one thing, towards this world of collaborative data analytics, which we need to get to to really home in on financial crime? No, they do not. Although the provisions in the Bill will go some way towards increasing private-to-private information sharing and, in particular, the risk appetite in the banking sector, they really do not keep pace with the global standard.
What we would like in the next economic crime plan, which we hope to see this side of Christmas, is something that is much more ambitious. In many ways, I would say that while it is welcome, the Bill is a slight missed opportunity with regard to information sharing, given that it really does not push forward to this big data analytics model that others are moving towards.
Dame Margaret Hodge (Barking) (Lab)
Q
I am going to ask about another issue, just to get it on the table. People engaged in the debate over dirty money are very anxious that we should move from just freezing the assets, particularly of the Russian Government and Russian oligarchs, to seizing the money so that we can use it—particularly for the reconstruction of Ukraine, when that war comes to an end. Can I have your views on that, starting with you, Duncan?
One final thing: a big thank you to both of you for the work your organisations do in exposing a lot of the problems and for the very positive attitude you have taken to establish solutions. Thank you to both of you, individually and to your organisations.
Tom Tugendhat
Hear, hear!
Duncan Hames: Thank you. I think it is important that we should continue to respect the rule of law and have a judicial basis for asset recovery. Too often, it is tempting to have a more administrative approach, and with that comes risks. It is very important that, as well as having the clarity of purpose to designate a whole substantial raft of individuals and entities for Russia sanctions, we have the determination to make those sanctions work.
We published some research just last month that found hundreds of millions of pounds’ worth of UK real estate that we were fairly sure was owned and controlled by individual entities that have been named under Russia sanctions. However, if you check on the Land Registry, there are not any of the typical markers to say that you cannot sell or transfer or trade this property. That is partly because of some of the very clever and complicated arrangements for their ownership, including using trusts.
In the work you are doing on the Bill, there is an opportunity to ensure that really important measures for global security, such as our Russian sanctions, actually work, bite and make it impossible for those who have moved large amounts of wealth out of Russia to continue to control it in the interests of their political sponsors.
Helena Wood: I could not agree more that we need to start moving from freeze to seize, but I echo Duncan’s sentiments that we must do so in a way that protects the very things we are trying to protect and do: the rule of law, due process and democracy. We should not push towards measures that effectively put in place a ministerial decree for confiscating individual assets and run roughshod over A1P1 principles.
That said, there is further we could go in UK legislation. Even with the advent of the much vaunted unexplained wealth order, our law enforcement agencies remain on the back foot. There is more we can do within the confines of European rights compliance-tested laws of reverse burden mechanisms to put law enforcement on the front foot.
Fundamentally, though, it is not going to be an easy fight to link those assets back to the criminality from which they once derived, given the difficulties of gaining evidence across borders. However, there are models we could replicate that have been tested for ECHR compliance, such as in Italy and Switzerland—I could name others. If the Committee will forgive me for trailing some forthcoming RUSI work, a paper is coming in November or December this year that sets out some recommendations of where part 5 of the Proceeds of Crime Act 2002 could replicate some of the principles of other regimes and push forward to at least put law enforcement on the front foot.
The other issue I would point to, which has already been partly legislated for, is cost protection for our law enforcement agencies. We have legislated for cost capping in cases involving UWOs, but they are not the right tool to use in all cases; I particularly point to the oligarchs, who do not fit under the definition of PEPs in UWO legislation. There is an argument for the Bill to potentially push for full cost capping of part 5 cases to increase the risk appetite of our law enforcement agencies to take those cases on in the first place.
James Daly (Bury North) (Con)
Q
“direct sharing between two businesses in the AML regulated sector”
and
“indirect sharing through a third-party intermediary for businesses in the financial sector”.
That is what the Bill does. Putting it bluntly, what is wrong with that? What is the criticism of those aims and the things it allows businesses to do?
Helena Wood: Civil liability for confidentiality is one barrier. It is an important one, and removing it will hugely increase appetite, but it is not the only barrier. The boundaries within our data protection legislation are not explicitly clear; they are open to interpretation. We need more guidance, potentially from the Information Commissioner, to make clear what those boundaries are. We potentially need further clarification in the data protection legislation that is currently going through—
Tom Tugendhat
Q
Duncan Hames: Yes, happily. We are quite a small organisation, but this is about the power of putting information in the public domain. The report that we were describing earlier is a form of network analysis; that is the sort of thing you can do if open data is published, rather than information in PDFs, which are essentially photographs of old documents.
Whether it is organisations like ours, or investigative reporters such as the Organized Crime and Corruption Reporting Project, civil society has shown its potential to help uncover those crimes if there is information in the public domain. If we want a spirit of partnership, and if Government want the private sector to be its first line of defence, then it is really important that everyone is equipped with the tools that they need and that the company register is providing accurate information, which has been checked, that they can rely on.
Tom Tugendhat
Q
Do you agree that those reforms begin that process and that fightback? Do they make a difference by scrubbing, as it were, the inside of the whitened sepulchre to ensure that we are exposing it to sunlight, so that organisations such as yours, the media, and many others around the world, will be able to identify where that money is going and from where it has come? This is also about jurisdictions overseas who are losing money through our system, not just about us who have to control it.
Duncan Hames: Yes, I agree. The Bill is beginning that. The challenge that we have is that it is six years ago that we last made reforms to Companies House, and I do not know when you are next going to get a chance to make further progress.
Tom Tugendhat
I have only just come into post.
Duncan Hames: It is hard, as we are often told, for legislative time to be found. So please make the most of the opportunity and take it as far as you can. It was only this summer that the US Treasury issued a money laundering alert about evasion of Russia sanctions. In that, they identified UK limited liability partnerships as part of the typology of the financial logistics for evading sanctions.
Tom Tugendhat
Q
Duncan Hames: But this is the jurisdiction that Members of our Parliament are responsible for.
Tom Tugendhat
Q
Helena Wood: May I come in on that particular point around Companies House reform? The point has been made by others giving evidence here this week and I will make it again until it sticks. Companies House reforms mean nothing if we do not resource Companies House properly. Using that secondary legislation to raise formation fees to £50, at least, is absolutely essential—
Tom Tugendhat
That is absolutely true, which is why the partnership that we have to put in place alongside agencies, NGOs and journalism, to make sure the application programming interfaces are open is so important.
The Chair
Order. I am afraid that brings us to the end of the time allotted for the Committee to ask questions.
I very much thank our witnesses, Helena Wood and Duncan Hames, for their time, and I thank Members for their questions. We now move on to the next session.
Examination of Witnesses
Chris Taggart and Elspeth Berry gave evidence.
Seema Malhotra
Q
Chris Taggart: On the latter question first, I have been a director for some 20 years. The first time, someone sat me down and said, “This is what’s involved in being a director.” You think, “Wow, that’s kind of scary.” You have a fiduciary duty and you have to understand the company. If you are a director of 200 companies, I fail to see how you can perform that fiduciary duty, or those companies are, in some ways, just legal entities for some conduits for something. They are not actually in business; they are just conduits. I struggle when someone is a director of 200 companies: either those are just legal entities for some purpose other than as a normal company or they are not doing their job. It seems to me obvious that there is a challenge there. Whether that is a limit or whether that is actually holding directors much more personally liable for the wrongdoing of the companies, I do not know, but I think that there is something. There seems to be a contradiction there, fundamentally.
Elspeth Berry: I agree. I would have supported a cap on the number of directorships for exactly those reasons, in that I do not think a director can fulfil their duties if they have a lot of companies. However, if you are not going to have that, that certainly has to be a red flag for Companies House. It has to be a thing they will investigate and that they have the resources to investigate, which comes back to the problems that we identified earlier.
On the addresses, if you have a company service provider giving their address, it is quite possible you will have multiples and that might be okay if that is their business, they are doing it properly, they are AML regulated and all the rest of it. The problem is that we have seen in recent years that they are not. Again, that ought to be a red flag. In the limited partnership proposals, where you are trying to establish some real connection, economic or otherwise, with a particular jurisdiction within the UK or, at least, with the UK, that is one of the problems. One of the options on the list—they are all problematic—I personally thought that the principal place of business might be quite a good one, showing an actual connection, but I have been corrected in my beliefs by my journalist colleagues who say that almost all the wrongdoers were able to tick that box. I think it is a problem if you are saying that as long as somebody will pick up the mail here, that is okay. Again, that needs to be a red flag.
Tom Tugendhat
Q
Chris Taggart: There are two issues. I watched some of the previous witnesses and the things that came across were issues to do with identification and resourcing and I back up both of those things. On identification, allowing the corporate service providers to essentially say they have done something seems both a huge vector for misuse and also unnecessary. The technology allows us to look like we are using one company when we are signing up online and so on, but it is all authenticated with another company. They could be using Companies House back ends or banks’ back ends—we could have that authority and those standardised processes—and still you would appear to be transacting with a corporate service provider.
Having corporate service providers doing the identity verification seems like we have walked away from doing it properly. Once you allow corporate service providers to play a significant role, particularly on identity, I think we have a bit of a problem. Assuming that loophole is closed, this is really good, but it is still state of the art two, three or four years ago, and I think we need to start using digital identities. We need to make sure that, with somebody’s identity, they are not saying one thing on this hand and not saying another thing on that hand. Again, the unique identifiers—
Tom Tugendhat
Q
Chris Taggart: Absolutely, but I think there are technical ways of doing that. It does not have to be one ID that everyone can see—
The Chair
Order. I am very sorry. That brings us to the end of the time allotted for the Committee to ask questions. I am very grateful to our witnesses for giving evidence.
Examination of Witness
Graham Barrow gave evidence.
Tom Tugendhat
Q
Graham Barrow: That is kind. You must understand that I am a private citizen, so I do not have access to huge swathes of information that I would love to be able to get hold of to give a much rounder view of that. Companies House, of course, does, so there are some interesting things that it will have, such as email addresses, IP addresses and credit card details.
There are some important provisos there. Do not allow people to pay for their enrolment through a pre-paid credit card. That would be a bad thing. Do not allow people to apply through a virtual private network—a VPN. That would be a bad thing. Do not allow people to apply through something like Proton Mail or an encrypted mail account. That would be a bad thing. What we need is transparency in all those things so that we can aggregate that data with, for example, data from His Majesty’s Revenue and Customs, voter roll data and other data, to get a much more rounded picture of people who are applying for company directorships.
Now, that only works here in the UK. It is worth bearing in mind that about 150,000 company incorporations every year emanate from outside the UK. That adds further difficulty. There were 50,000 applications from China last year, so that is clearly a problem. Incidentally, those numbers soared after China banned cryptocurrency at the end of September last year. There was an extremely easy to observe uptick in UK corporate registrations from Chinese individuals.
The Bill will start to address such a range of issues. I think it will be the first of many if we are really going to make our corporate environment safe and secure, and start tackling economic crime and the abuse.
Tom Tugendhat
Q
Graham Barrow: No. I am saying that for the purpose of registering a company in the UK, you should not be afforded that benefit.
Tom Tugendhat
I understand the distinction. I just wanted to make the point. As you can understand, it would raise other difficulties.
Graham Barrow: Absolutely.
Tom Tugendhat
Q
Graham Barrow: They are good friends.
Tom Tugendhat
They are brilliant. These people are quite literally on the frontline of our democracy, defending our freedom by defending our corporate integrities. Their work is extraordinary important. I would be grateful if you would say a little bit more about shell companies.
Graham Barrow: I count all those people as friends. Oliver and I exchange daily emails. We work very closely together. The last time we met was on a bus.
Tom Tugendhat
I should put on the record that he is a friend of mine as well.
Dame Margaret Hodge
Of lots of us around the table.
Graham Barrow: Shell companies are containers. Effectively, it is a container for assets. They are used in a whole variety of ways. They are used, clearly, as conduits for corrupt and criminal funds to be moved around the world. They are also used just as a container to access banking and do as I have just described—a one-off hit to get a bank account open and get an overdraft.
I have seen physical evidence of a company being incorporated to an address of somebody in Cardiff who knows nothing about it; on the same day, they open a bank account with one of our high street banks, and on the same day, they remove the automatic £8,000 overdraft that came with that bank account. Then they disappear, and of course it turns out that they were untraceable because none of the details they provided were real. That is a shell company, because that is not doing any normal commercial activity.
The Committee mentioned addresses earlier. I am sure some members of the Committee will know that there are addresses in central London that are home to 100,000 companies. That is clearly a matter of concern, particularly with the proportion of those companies that are registered from some of the more remote parts of the world—places you would struggle to find on a map—that concentrate at those addresses.
We need to be quite clear about the legitimate use of corporate service provider addresses. Some of our banks now provide that as a service. That is fine. There is one firm that offers this thing called a non-resident package, which should immediately make your ears prick up. Somebody from outside the country can register a business and be given the business bank account for a fixed fee. That bothers me hugely, because it makes me ask why.
The thing about shell companies is that they are not always easy to identify at the point of incorporation. We are getting very good at it, but it is still not an exact science. It is about lifetime analysis of a company’s behaviour, as well as some of the red flags that are raised at the point of incorporation.
Tom Tugendhat
Q
Graham Barrow: It probably does not assist me an awful lot, because I do not have access to a lot of the other data that particularly members of JMLIT, and other law enforcement and Government organisations, have access to. As a private citizen, I will not have access to that much more information. That is probably a good thing, because I am already drowning in information. For a man who is going to be 70 next birthday, it is not exactly the retirement that I had planned. In a way, I think the best thing I can do is help to inform and educate others so that as the Bill starts to generate that information, some of which I will not be privy to, I can at least help people to understand better how to analyse and aggregate that information to extract signals.
Ultimately, there will be too much information to do everything with, so it is about how we organise ourselves, particularly at the point of incorporation, so that instead of waiting for a problem and going back to see how it happened, we identify that problem in the process of being set up, and start proactively managing the people who are part of organised crime or corruption and are using or abusing Companies House to do that. We have never done that before, to the best of my knowledge, but we are now in a situation where we can start doing it.
Dame Margaret Hodge
Q
Graham Barrow: Dame Margaret, you ask me a tricky question because I worked at Deutsche Bank, and some of what I know is privileged and I cannot talk about it. In fact, my work in Deutsche Bank is what has led me to be sitting here, because it was while I was there working on the Russian mirror trades that I realised that two completely different firms had filed exactly the same set of accounts—identical accounts—signed by the same person. My rather naive reaction then was, “How on earth did this happen?” I know better now. That person’s name is in the public domain: it is Ali Moulaye. He is a dentist who currently lives in Belgium and has been written about frequently. I kind of discovered him, in a way. He has signed more than 10,000 sets of accounts on Companies House on behalf of at least 2,500 limited liability partnerships, a significant proportion of which have, sadly, been named as being involved in various laundromats.
One issue was that all those accounts were filed on paper and were then scanned in as an image, not as a machine-readable document. That is a really big disadvantage, because it prevents people such as me, or those with access to clever technology, from reading those documents into artificial intelligence engines and performing deeper analysis on them. It is a very difficult problem. It would be a wonderful thing—although I suspect quite labour intensive—to retrospectively digitise all those old PDFs, because there is a huge wealth of intelligence still residing in them that we truly do not understand. That is also very much true of limited partnerships, which still can only file on paper. The only way to incorporate a limited partnership is on a paper application. That makes reading the data on those registration forms extremely difficult, which is why lots of it has remained hidden for so long.
Economic Crime and Corporate Transparency Bill (Fifth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 1st November 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Dame Margaret Hodge (Barking) (Lab)
Sincere apologies for being late, Mr Robertson. I want to start by welcoming the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Thirsk and Malton, to his role. I have worked very closely with him over the past few years, and it is great to see somebody who understands the issues sitting in his seat. I hope that we can have very positive engagement with him while considering the Bill.
Like the hon. Gentleman, I welcome the reforms. The amendments that we have tabled, including this amendment, are all designed to improve the quality of the legislation that we pass. I hope that they will be taken in that spirit. Having been a Minister in my time, I am very aware of the fact that when amendments are tabled by hon. Members, whether they are on the Opposition or the Government Benches, there tends to be a mood of “reject” from the officials advising the Minister. I simply say to him that many of the amendments that we are putting forward, like this one, are really there to improve the Bill. They are not about trying to raise contentious issues. Perhaps as we proceed, we will come across more contentious issues, but this amendment is not contentious; it is simply to secure an improvement. It is not party political, and I think it reflects common sense. I hope that the Minister will feel able to accept this particular amendment.
Why have we tabled the amendment? I draw the Minister’s attention to the Government’s own factsheet on the Bill, which states that broadening the powers of the registrar of Companies House is designed—that is my word—so that the registrar can become a “more active” gatekeeper over company creation and a custodian of more reliable data. Companies House itself has six strategic goals, one of which is to combat economic crime through active use of analysis and intelligence. We have there a commitment from Government and from the organisation itself that it should take a proactive role in using the information that it has.
Our amendment would embed in legislation the Government’s intent and the organisation’s goals. It would ensure that that intent and the goals were on the statute book and therefore implemented in the future. Too often, as the Minister knows, we have organisations and bodies that have powers but simply do not use them. We can think of His Majesty’s Revenue and Customs and its oversight of company service providers as just one example of where there is a power but, without emphasis on that duty in legislation, it tends to get ignored. The aim of our amendment is just to ensure that what is a power becomes a strong duty.
Why does that matter? Companies House holds a massive amount of data: information about 4.5 million companies, with more than 800,000 new companies incorporated each year and more than 10 million documents filed annually. That data is full of red flags that should be proactively investigated to ensure that we really bear down on economic crime. We want to pursue the wrongdoers, and if we get that stronger investigation and it is known that Companies House does use its proactive powers, that is a good preventive measure because it is much less likely that the ne’er-do-goods will indulge in bad practice.
Let us look at the sort of stuff that has come out so far. There are endless examples: five beneficial owners control over 6,000 companies—a massive red flag. They are clearly not the real beneficial owners. Four thousand beneficial owners are under two years’ old, including one who is not born yet. The company Atlas Integrate Services LLP was registered in September this year. The person of significant control in that company is just two months’ old. In her two months of life, she has not just found time to start a business but apparently has got married, as she is listed as “Mrs” in the register.
We know from all the leaks how Companies House and our UK corporate structures are used and abused by bad people. I take just one example from the FinCEN files: 3,267 of the LLPs and the LPs were holders of bank accounts that involved suspicious transactions—British corporate structures. Of those 3,267 British corporations, 1,656—over half—were created by just four agencies. Nine agencies created more than 100 UK entities. One agency created 646 limited liability partnerships and limited partnerships. Those are examples of strong red flags that suggest malpractice.
It is not just the perpetrators who benefit but the victims who suffer, as the Minister knows. The only successful prosecution in this space is that of Kevin Brewer—the Minister will probably remember the case. This was a man in his 60s who deliberately set about showing the flaws in the system in Companies House. He set up a company called John Vincent Cable Services Ltd, when Vince Cable ran the Department that the Minister is now in. He did that in 2013. He then wrote to Vince Cable to tell him what he had done.
In 2016, he used the names of James Cleverly and Baroness Neville-Rolfe to set up another company. Again, he wrote to them. All he was doing with drawing attention to what was wrong with the system, but he was prosecuted. The Government proclaimed that prosecution as a great victory of how Companies House is vigilant over the quality of the data. Nothing could be more wrong. I think the Minister will agree that, in effect, he was a whistleblower. He was treated abominably by the authorities. That throws into stark relief the lack of action taken against others responsible for setting up bogus companies.
I urge the Minister to accept the amendment. It is common sense. It simply ensures that there is a strong duty on Companies House to use that wealth of data to investigate, proactively raise red flags and talk to the enforcement agencies. I hope that he sees the amendment as something that adds to the value of the Bill.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to serve with you in the Chair, Mr Robertson, and to speak after the right hon. Member for Barking. As she knows, and I hope all Committee members know, I am—like her—incredibly ambitious for the Bill. Hopefully, the dialogue we have in this room over the next few weeks will serve a great purpose to ensure that this legislation is fit for purpose.
I entirely agree with the thrust of the amendment. Of course we want a proactive gatekeeper of the information. The right hon. Member for Barking highlights many examples, as does the shadow Minister, the hon. Member for Feltham and Heston, who talked about the culture of the organisation. She is absolutely right that the culture needs to be focused on making sure that the information held by Companies House is accurate, but we need a balance. We must avoid an impossibly bureaucratic and expensive system. The right hon. Member for Barking highlights some of the problems of dealing with a register of this size. There are between 4 million and 5 million companies and about 7 million or 8 million directors in the UK. To independently verify all those records, one by one, is clearly a huge challenge.
On changing the culture of the organisation, the Bill has its four objectives: accuracy, completeness of records, reducing risk and reducing the chances of unlawful activity. I would also point to the text in bold type in clause 1—the objective
“to promote integrity of registers”.
That does exactly what the right hon. Lady intends with her amendment. To me, promoting the integrity of the registers speaks to the proactivity that we want to see. We definitely want to see Companies House sharing information with law enforcement agencies proactively, for example.
The right hon. Lady spoke about a number of obvious cases that would raise red flags, and that happens because Companies House is not operating as she wants it to. One of the key bases of the Bill is to change the role of Companies House from registry to gatekeeper, and to promote integrity properly and proactively by identifying information on a risk-based approach.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
I join my colleagues in welcoming the Minister to his post, in what is a very welcome appointment, and I apologise to you, Mr Robertson, for being slightly late this morning.
Surely the Minister must see that there is a world of difference between action to promote the virtue of something and action to prevent the badness of something. I have been a Minister too. I have created Government agencies. I have tried to enshrine objectives in agencies, from which a business plan is then written. It is incredibly important to say what we mean and mean what we say when we are specifying the objectives of an agency such as Companies House. I urge him to think again about the amendment. It is not simply a matter of word play. It is about doing what is needed to be done.
Kevin Hollinrake
I am grateful for the right hon. Gentleman’s work in this area. We should not get into semantics. The key point, as he says, is making sure that we have a plan that sits behind the objectives, and Companies House is currently working on how it will perform its duties under the objectives. That is key. We can legislate all we want in here, but legislation is less important than implementation. The implementation of the rules is key. We must ensure that the plan is robust and that it identifies the red flags on a risk-based approach and shares that information with the relevant law enforcement agencies that have their duties to undertake. “Promoting integrity” does what the right hon. Member for Barking wants.
Dame Margaret Hodge
I am grateful to the Minister—I know he is struggling. Why not put this objective in? If Companies House is going to do this work anyway, what is the objection? Why not let it stand there? It will ensure the work over time. Our lives are always short as Ministers. The Minister is not going to be there all the time. Other people are going to take over from him. We want Companies House to be proactive throughout the time that the legislation lasts. Why not put this objective in?
The only reason I can think of for why the Minister is getting objections from his civil servants—I assume the objections are coming from them—is that Companies House will not carry out this proactive role, because it will prioritise its other role of verifying information, and we will lose the advantage of the wealth of data with integrity that we could use to eliminate the wrongdoers.
Kevin Hollinrake
I take the right hon. Lady’s point, but I do not agree. Clearly, we will seek to improve many things as the Bill goes through its various stages. However, if we look at the objectives themselves, objective 1 is to
“ensure that any person who is required to deliver a document to the registrar does so.”
That is, to me, a proactive condition and objective. We probably have arguments about the drafting, but the nature of what we seek to achieve is the same. I would therefore politely ask that the amendment is withdrawn.
Liam Byrne
This is an important debate, and I think that the Minister’s reply will be, in a sense, a useful “Second Reading” debate on how he will deal with the problem of resourcing. I know that he, as a new Minister, will have spent the weekend reading all of the evidence that we gathered last week. It was very much like an autopsy on the state of economic crime in our country—grisly and appalling. He will have been not shocked, because he is familiar with the facts, but reminded starkly that he is a Minister at a watershed in the debate. It is clear that the time to act is now.
The world is divided, and there is a great kleptosphere from Kaliningrad to Kamchatka, so it is important that we set out our stall as a place not just of free trade, but of fair trade, as well as, crucially, clean trade. That is where economic advantages will flow from in the years to come. It is therefore a matter of enormous national shame that we have become such a hotbed of money laundering. It is appalling that about 40% of the corporate structures used for Danske Bank money laundering were here in the UK, and appalling that we have become such a country.
Hundreds of billions of pounds-worth of money stolen from the Russian people has been laundered through UK corporate structures, yet last week we heard from Bill Browder and Catherine Belton that UK corporate structures are absolutely being used by friends and allies of President Putin to move money abroad to help to finance Russian intelligence operations and other nefarious activity. However, as Mr Browder said, we are not prosecuting the crime and, as my right hon. Friend the Member for Barking pointed out, there has been only one prosecution despite hundreds of billions being stolen and moved through UK corporate structures.
In part, we are not prosecuting the crime because we are not policing the crime, and all of us on the Committee will have heard loud and clear last week’s evidence from City of London police and the National Police Chiefs’ Council, which said that they need more resource. It is as simple as that. They cannot afford the specialists they need to police this area, and the task of policing such crime would be an awful lot easier if we ensured that there was a proper gateway doing its job in Companies House.
We know that Companies House needs more resource as there has already been a wide-ranging debate. Indeed, the Minister, in his pre-ministerial life, is on the record as having speculated about what some of the resources might need to look like. We hope he will repeat those comments on the record as a Minister of the Crown in the Committee today.
Let us be clear about the risks, which were starkly described for us last week by the independent reviewer of terrorism legislation: there is a direct relationship between economic crime and national security. This is not simply a question of bad people stealing lots of money from good people; it is about a threat to our country. The Minister has an opportunity to ensure not only that our economy is operating on a clean-trade basis, but that our national security defences are strengthened. That is why the amendment is important, and why it is important that the Minister set out clearly today how he is going to approach the solution to this problem.
Kevin Hollinrake
I am grateful to the hon. Member for Glasgow Central, who I worked closely with on the Treasury Committee, for all her work on economic crime. I absolutely agree we need the right resources to go alongside the Bill, so I am fully committed to anything I said before in the Chamber or otherwise about ensuring that that resourcing is available. I certainly agree with the right hon. Member for Birmingham, Hodge Hill when he talks about clean trade—absolutely right. We do not want this country associated with dirty money in any shape or form.
The right hon. Gentleman gave an interesting example about the money laundering through Danske Bank, which was, as he said, hundreds of billions of pounds-worth of Russian money stolen from the Russian people flowing through UK shell companies to its destination. That was subject to regulatory action and potential criminal enforcement; it is not as though the matter was held secretly until it was identified locally in Danske Bank. Danske Bank will get sanctioned for that, so it is not as though law enforcement is not happening. However, the right hon. Gentleman and I would agree that, too often, big banks turn a blind eye to the problem on the basis that it is quite profitable for them, and the fines are ultimately a cost of doing business. What we need to do is hold people properly to account, including individual directors.
Dame Margaret Hodge
I agree, but the point with Danske Bank, as with so many of these massive scandals, is that it was a whistleblower who uncovered wrongdoing, not the enforcement agencies. We will come to whistleblowing later in our considerations, but what we want is for the enforcement agencies—in this case, Companies House—to be equipped to do the work themselves and not to rely on whistleblowers.
Kevin Hollinrake
I agree with the right hon. Lady’s point. As she knows, I am a big fan of improving the legislation on whistleblowers. I am delighted to say that role is part of my portfolio and I am determined to take that forward as quickly as possible.
Liam Byrne
The Minister is being characteristically generous in giving way. The point about Danske Bank is that the money was moved through UK corporate structures that should not have been set up in the first place. If we had a stronger verification regime—if we had a stronger set of obligations on Companies House and a better-resourced Companies House—we would surely have run a chance of the crime being prevented, because the checks would have created a tripwire that would have stopped the structures being set up and the money being moved through them. The point about resources and duties is incredibly important.
Kevin Hollinrake
I absolutely agree. That is the nature of and the substance behind the Bill—making sure that the resources fit the need and that Companies House can promote the integrity of the register and work with law enforcement agencies to share that information and identify the red flags with a risk-based approach. We need to make sure that the work it is doing is appropriate to the task it has been given and that it is sufficiently funded.
Currently, the fees for Companies House are set at a level commensurate with its activities. The Bill seeks to massively increase the scope of its functions to that gatekeeper approach, so it has to be sufficiently funded. The funding started in this spending round, with £63 million for personnel and improving technology to be able to more easily identify the red flags. Companies House is bringing in external expertise to look at its work and what it will need to do to take the expanded activities into account. We need to make sure that as we go forward the resources will be sufficient for it to deliver on its new duties. It is right not to put the cart before the horse. We cannot say, “It should be £50” or “It should be £100”. Various figures have been thrown about. I think the Treasury Committee suggested £100. We need first to identify what it will cost for Companies House to cope with the new duties and then set the figure attached to that cost, to make sure that it has the right resources but does not become a huge bureaucracy that is out of control in terms of costs.
Seema Malhotra
We are very quickly getting to the crux of the issues on resourcing for implementation. He referred to independent experts coming in to work with Companies House on its new capabilities and how it will need to be resourced. Will there be a recommendation from those experts on how much resource will be required? We have the objectives and we have debated whether they are sufficient to achieve the goals of the Bill, and we will come back to that point, but will there be a recommendation on how much resource is required and will that recommendation be a matter of public debate?
Kevin Hollinrake
Yes, in both cases. That work is going on now. Those recommendations will then be discussed with me and my colleagues in the Department and we will come back to the House. The decisions we make will be approved by the House under the affirmative procedure.
Liam Byrne
I suppose we may as well get all the details out now. The estimates for how much extra resource Companies House might need range from three times to 10 times its current level. I was very surprised to hear from Companies House that it was proposing to employ only 100 extra people. That is an increment of about £5 million to £6 million extra, which feels radically short of what is proposed and for the implications of the Bill. Will the Minister therefore put our minds at rest by saying to the Committee that those figures will be radically improved when the Companies House business case for the next financial year is approved?
Kevin Hollinrake
The shadow Minister also wants to intervene, so I shall take the interventions together.
Seema Malhotra
My intervention also relates to that of my right hon. Friend the Member for Birmingham, Hodge Hill. There is a risk of underestimating the amount of work, and of that then being locked in. I hope that during the course of the Committee, if we are to use our time to best effect, there will be further challenge to the scope of the work or to the expectations of how much work happens. We do not want the scoping for resources to be based on the Bill at the start; that is not necessarily what it will be at the end. Will the Minister clarify that the resourcing plan will be made in light of the ambition of the Bill, because we do not want it to fall short? The Minister’s words—about legislation with implementation—will keep coming back to him, and I am sure he is the first to want not to fall short of them.
Kevin Hollinrake
Those words will live with me as long as I am in Parliament.
Kevin Hollinrake
That is hugely important. The hon. Lady makes exactly the right case: for us to give a figure now, whether that is £50 or £100, is to put the cart before the horse. We all agree that the right resources will be needed, but they will be based on the duties in the final version of the Bill approved by both Houses. That is what we will seek to do with Companies House. My intention is absolutely that Companies House will do that.
In response to the point made by the right hon. Member for Birmingham, Hodge Hill, it is not just about people. I do not yet know the extra numbers that Companies House will dedicate to this work, or when. That is what we need to see in a clear plan that it will set out. Technology, however, can also play a huge part. Companies House holds a huge amount of data, public and non-public, that law enforcement agencies can make use of with a risk-based approach. Technology can certainly play a part, and that is not always inexpensive.
Liam Byrne
My sense is that the Minister will steer clear of specifying the order of magnitude by which we need to increase Companies House resources. That is a disappointment to many of us, but will he therefore advise the Committee how as a House of Commons we best guard against the risk of under-resourcing Companies House once the Bill has reached Royal Assent?
Kevin Hollinrake
Scrutiny—by Ministers and by Back Benchers, such as those in Committee and in all parts of the House. Parliamentary scrutiny is the most important thing—scrutiny of the plans of Companies House, to ensure that they are fit for purpose. I promise that no one is keener to see that than me.
May I address one other point in this conversation? Parkinson, for all his work, came up with two laws: first, that work expands to fill the time available; and, secondly, that expenditure rises to meet income, which we probably all recognise from our personal lives, but we could say the same of Government. We do not want to set a figure now, because if we did so, Companies House might expand to fill that envelope—
Kevin Hollinrake
But I do not. I want to see the plan, to ensure that it is fit for purpose and that it delivers an excellent service at the lowest cost to the taxpayer. That is what we need to do. Doing it this way around is a better way.
Kevin Hollinrake
Thank you, Mr Robertson. I think it is wrong to put a figure in the Bill. Do I believe that Companies House should be properly resourced? Absolutely, but we need to ensure that that happens through this process and through Companies House’s plan. I can reassure the hon. Lady on one thing: Companies House is supposed to get paid by the fees that it collects to cover its activities. It is not like the Treasury, which goes and nicks some of the money. It does not want that to become a tax; the organisation is funded by its fees. I think we would all agree to ensure that it is self-funded to the level that it needs to properly deliver on its duties. For all those reasons, I hope the hon. Member will withdraw her amendment.
Alison Thewliss
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.
Kevin Hollinrake
The Government acknowledge the growing unease in many quarters about the limitations on the company registrar’s ability to manage the quality of information that finds its way on to the register for which she is the custodian. The entirely new objectives introduced by the clause set the scene for the rest of the Companies House measures in the Bill. They signal the biggest step change in the whole ethos of Companies House and the registrar since that role was established in 1844, which I think the Committee will welcome.
The objectives make it clear to all that the registrar will no longer simply be the passive recipient of information; in performing her duties and functions as modified and expanded in the other Bill provisions that we will discuss in Committee; the registrar will be emboldened to be much more active in her guardianship role. No longer will Companies House be a passive receptacle for company information; nor will it simply accept in good faith what it is given. This Bill will give the registrar wide-ranging new powers to assist her to query more information and to reject filings that the registrar does not believe meet the standards of proper delivery or which do not tally with information that the registrar already holds. The registrar will be able to analyse and share information with other bodies, including law enforcement.
Those are just a few examples of how Companies House will operate differently in the future. The new powers will be exercised with the new objectives introduced by this clause firmly in mind. The objectives are geared towards ensuring that information that companies and others provide is complete, accurate and not misleading, and towards minimising the extent to which companies and others carry out or facilitate the carrying-out by others of unlawful activity. The Government are confident that, in aggregate, their introduction will make Companies House a far more effective gatekeeper.
Seema Malhotra
I am grateful to the Minister. Now that we are debating clause stand part, perhaps I can officially say “welcome” to him—I was saving it until now. It is indeed good to see him in his place and to be having the debates with him on the Front Bench.
We have debated aspects of clause 1, and have raised relevant questions. The issue is not whether we agree with the objectives, because of course we agree with all the objectives that have been outlined. The issue is whether they go far enough. Objective 1 is about delivering documents to the registrar. Objective 2 is about those documents containing all the information that they are required to contain. Objective 3 is designed to minimise the risk of information on the register creating a false or misleading impression to the public. Objective 4 is about minimising the extent to which companies and firms carry out or facilitate the carrying out by others of unlawful activities.
I think we might ask ourselves the question again and again: why has it taken this long to get here when we have been having debates on the need to tighten up Companies House for so long and legislation has been promised for some time? When we read the provisions, I think we can say again: is this really the extent of our ambitions? Getting to second base is not the same as getting a home run, is it? I think that is the question and will remain the question. Although we agree with clause 1 and what is in it, we are going to keep asking the question about whether the basis on which so much else will be based in the Bill will be strong enough to give Companies House all it needs, along with the message about its duties to achieve its objectives.
This legislation is designed to tackle economic crime. As we have heard in the debate, it is also designed to protect UK national security. Those are two really serious matters that go together. We are talking about making it harder for kleptocrats, criminals and terrorists to engage in money laundering, with an impact on other crimes: crimes that go on in our streets, crimes related to drugs, crimes related to low-level theft and, now, even the security of our mobile phones and our data and conversations. So much more is at stake in terms of what goes on in people’s everyday lives and their everyday security, much more than perhaps we envisaged when this legislation was first promised at least six years ago. The scale of the challenge has absolutely increased, and the question is as much about whether we will be forward-looking in the legislation as it is about tackling the scale of the problem, on the basis of which legislation began to be drafted perhaps one or two years ago.
Liam Byrne
I think this has been a disappointing start to the Committee. Last week in the evidence sessions, I read out the objectives and asked the witnesses what they thought of them. We had anti-corruption organisations there—people who have given their lives to tackling corruption and economic crime—and they were very clear, saying the objectives were too weak and needed to be stronger. I will set out the politics of this for the Minister, new in his role as he is. He is on the wrong side of the argument. He risks going into the debates we are about to have as someone who it is too easy for His Majesty’s Opposition to characterise as soft on economic crime. That is not his position. It is not a position he wants to be in. I hope he will reflect on the debate we have had today and come back with stronger and proactive anti-corruption objectives, including a duty to prevent corruption placed on Companies House.
To summarise the debate we have had, we are going to have a set of objectives for Companies House. Then we are going to match the resources to those objectives. The problem with setting the bar for our objectives too low, too soft and too weak is that we end up setting a resource base that is too low, too soft and too weak. On this side of the Committee—on both sides I think—we would rather see a much tougher set of policy objectives, and we would want Companies House to have the requisite resources to fill that role. I am afraid the Minister has found himself on the wrong side of the argument today. I hope that he reflects and comes back—possibly on Report or in the other place—with a strong set of objectives and the resources to match.
Kevin Hollinrake
I thank the right hon. Gentleman for his comments. I do not agree with what he has said. I read through much of the evidence given to the Committee before I was part of it, and Transparency International said that
“the Government has taken an important step toward cracking down on kleptocrats, criminals and terrorists—including associates of the Putin regime—who abuse UK companies for nefarious purposes.”
It also says that the Bill
“presents a number of welcome reforms to the operation of Companies House that, if implemented effectively, would help to prevent money launderers from abusing the UK’s company incorporation system”.
There are people who agree with what we are doing here. We should of course reflect on the comments that have been made by hon. Members in the Committee, but I do think these objectives are important steps forward. We must ensure that they are effective, that there are no Swiss cheese loopholes, as the shadow Minister mentioned, and that the relevant bodies are properly resourced. That is a body of work I will continue with over the next few weeks.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Memorandum of association: names to be included
Seema Malhotra
I beg to move amendment 85, in clause 2, page 2, line 15, at end insert—
“(2A) After subsection 1, insert—
‘(1A) The memorandum must also state—
(a) the nationality of the each subscriber; and
(b) the country in which each subscriber is ordinarily resident.’”
This amendment would require a memorandum on the formation of a company to include the nationality and country of ordinary residence of each subscriber (a subscriber being one of the company’s initial shareholders at the time it was set up) along with their name.
Liam Byrne
Let me go back to 1855 for a moment, which is when this House last debated the creation of limited liability companies. It is worth every member of the Committee studying the Hansards of those debates, because the speeches reveal that, when our ancestors in this place made it possible for people to pool together small amounts of capital but nevertheless receive a limit on the liability that they would encounter if things went bad, their view was that it was in the common good of the country to allow in Britain the invention of limited liability, which had operated in the United States for some time. The common good of the country was the guiding principle by which the debate was shaped, and eventually the Bill was passed.
Right now, too many people are not contributing to the common good, and are using UK corporate structures to circumvent their obligations to pay tax and obey the law of the land. We should be trying to crusade against that, and this amendment would help us do that.
At the end of this year, the register of beneficial ownership for property will be published, but it is already clear that there are shell companies that own assets, including property in expensive parts of this country, whose nominal shareholders are resident abroad. There has been an enormous surge in non-resident, foreign national shareholders of shell companies that own property in this country. We have not only the phenomenon of shell companies but, as Oliver Bullough made clear, the new phenomenon of shell people.
The Minister has a decision to take. Will he put in place measures that help us guard against that risk and ensure that we honour the principles that were agreed back in 1855, or will he leave our enforcement regime as weak as it is today?
Kevin Hollinrake
Before I turn to the amendment tabled by the hon. Members for Feltham and Heston and for Aberavon, it might be helpful if I set out the intentions and effect of the clause.
The purpose of the companies register is to provide details of company ownership, and via these clauses the Government are introducing measures in this Bill to improve transparency requirements and increase the usefulness of the information held on the shareholders, subscribers and guarantors of UK companies. Clause 2 provides that each person who decides to form a company—a subscriber—must state their name on the memorandum of association. Currently, a subscriber does not need to state their full name—they can merely state their name as J. Bloggs, for example—as there is no definition of “name” for subscribers in the Companies Act 2006 or the associated regulations. This clause provides that, in relation to a subscriber, “name” means forename and surname. In that example, the person would have to state “Joe Bloggs”.
The shadow Minister and the right hon. Member for Birmingham, Hodge Hill are absolutely right to try to get to the basis of ownership and control of companies. That is why we are focusing our attentions on the people who control companies—namely, the directors and persons of significant control. As the right hon. Gentleman states, if somebody really owns the company, that information would have to be disclosed and that person’s identity would have to be fully verified.
I remind the Committee that persons of significant control are not just those who hold more than 25% of shares in a company. They can also be people who own more than 25% of the voting rights of a company, people who have the right to appoint or remove the majority of the board of directors, and people who might influence or control the company through other means—namely, a nominee. The company may also be controlled by a trust or firm without a legal personality. The provisions really focus on directors and persons of significant control, which are defined in a number of ways.
Amendment 85 would require that the memorandum of association also states the nationality of the subscriber and the country in which each subscriber is ordinarily resident. Subscribers are the persons who agree to form a company and become its members by subscribing their name to a memorandum of association. Upon incorporation of the company, they become its members and usually, but not always, its shareholders. Their details are recorded in the company’s register of members.
The Bill already contains provisions that could not only achieve the intent behind the amendment, but require the same information from a wider category of person. Clause 45 inserts new section 113A into the Companies Act 2006. New section 113A provides a power for the Secretary of State to make regulations that amend the particulars required to be entered into a company’s register of members. That power could be used to require the nationality and country of ordinary residence of all members to be entered into a company’s register of members.
Dame Margaret Hodge
Is the Minister minded to use that power to enter the nationality of individuals on a company’s register of members?
Kevin Hollinrake
I am certainly minded to consider all aspects of the debate we have had in Committee and to discuss the matter with the Secretary of State and others. We are here to inform the debate, and Members on both sides of the House are better informed as a result.
Liam Byrne
In the light of that remark, will the Minister go further and tell the Committee how he will tackle the problem of shell people if we are unable to get information about them? Shell people is the phenomenon of having what look like foreign nationals or residents of other countries controlling shell companies, which may, in turn, own assets in this country. If it is not possible for us to establish the nationality or the ordinary residence of those people, how will we know whether we have a problem? If, for example, people put down their nationality as British, we would know where to find them, but if we do not have that information, we risk getting a little lost.
Kevin Hollinrake
If the person is a director or owns more than 25% of the shares in a company, they have to have their identity verified. If the right hon. Gentleman means nominees, such a person could easily be living in the UK. I am not sure that the right hon. Gentleman would be better served by knowing where they were based, unless we were taking a risk-based approach to people from a certain nation.
Kevin Hollinrake
Such as Russia. It is key that the ID verification works for directors and persons of significant control—that is where we are on that. We need to debate whether the amendment, which seeks to find out the nationality of company members, who are not necessarily shareholders or directors, serves any purpose at all.
Liam Byrne
We might as well pursue this point while we have the time. The 25% threshold is obviously very high, and an amendment will be tabled seeking to lower it. If that does not go through, however, the risk is that there will be members on the register with a significant or even a controlling stake of below 25% in a company, yet we will not know where they are resident or where they live. We are now running that risk.
Kevin Hollinrake
The definition of “persons with significant control” accounts for exactly that—it accounts for the fact that a person with influence on a company might have any level of shareholding, even including zero shares. That is catered for in the definition of “persons with significant control.” Of course, there is always discussion about how we find out about and verify such information, which is very difficult to ascertain in any circumstance. The subject of ID verification is interesting to debate. I have discussed different aspects of it with officials and we should definitely consider it further.
The regulations under new section 113A will be subject to the affirmative resolution procedure, so the overall intent behind the amendment would be better addressed in a wider conversation about what additional information, if any, it would be proportionate to require every company to provide about its members via these regulations. I hope I have provided some assurance that this amendment is not necessary. Therefore, I would be grateful if the hon. Member for Feltham and Heston would withdraw it.
Clauses 3 to 8 will require those seeking to form a company to confirm that they are doing so for lawful purposes. The clauses make it absolutely explicit that those forming companies are welcome to do so only if they intend to do so for a lawful purpose. Through the requirement and provision of the new statement, subscribers to a new company can be in no doubt that if they are found not to be telling the truth, action can be taken against them.
Clause 4 will require applications to register a company to include a statement that none of the company’s subscribers, founding members or initial shareholders is a disqualified director. The definition of “disqualified person” is provided in proposed new section 159A(2) of the Companies Act 2006. Clause 4 enables the registrar of companies to reject the application if any subscriber is a disqualified director. The registrar should reject such applications, because by being involved in the formation of a company, a disqualified person breaches the law.
Under clause 5, an application to incorporate a company must include a statement confirming that all the company’s proposed directors have either verified their identity or are exempt from verification requirements.
Dame Margaret Hodge
How will the exemption be defined? Will the regulations confirming the exemption be subject to the affirmative procedure? Also, I draw to the Minister’s attention an example that he could look at: Fedotov took advantage of exemptions to use Russian stolen wealth in the UK. These exemptions are very dangerous; I want to hear from the Minister how we will ensure that they are properly regulated and monitored by Parliament.
Kevin Hollinrake
The right hon. Lady makes a fair point. I am sure that she will accept that the Secretary of State is as keen as she is to clamp down on this activity. Exemptions can be made when directors undergo sufficient scrutiny on employment. Also, the director’s ID can be confirmed without verification when the prohibition to act as a director while unverified does not apply. An example would be directors appointed by the community interest companies regulator under section 45 of the Companies (Audit, Investigations and Community Enterprise) Act 2004.
Dame Margaret Hodge
I am worried about this. Will the Minister look at how Fedotov managed to get an exemption, and then perhaps write to Committee members about it? Then we could see whether there is a systemic issue, and whether we ought to have a better overview of the way in which exemptions are determined.
Kevin Hollinrake
I can see the officials writing like mad. I am sure that they will have picked up on that. I am happy to look at this as well. I reassure the Committee that the affirmative procedure is required, so that we can ensure sufficient scrutiny of exemptions from the obligation on directors to verify their identity, and so that Members can see why those exemptions are proposed.
We will come to other identity verification clauses later in Committee, but I am confident that Members will agree that clause 5 is vital. It improves the accuracy and integrity of the companies register by allowing the registrar to refuse incorporation of a company if the directors are neither ID-verified nor exempt from the requirement to be ID-verified.
Clause 6 requires a company’s subscribers to provide a statement when an application to register a company is filed confirming that none of its proposed directors is disqualified or ineligible to be a director. Disqualified or ineligible people include undischarged bankrupts and individuals subject to asset freezes. The clause allows a registrar to reject an application to register a company if a proposed director is disqualified or ineligible for appointment. The registrar’s rejection prevents the company from being formed. If the statement confirms that a proposed director who is disqualified has received a court’s permission to act, the registrar will accept the registration. The clause helps to ensure that disqualified and ineligible directors do not make it on to the companies register.
Clause 7 requires that applications to register a company include a statement that none of the people with initial significant control is a disqualified director. People with initial significant control are individuals or legal entities that will own or control the company once it is registered. The clause will ensure that the registrar has the necessary information and power to reject an application if the person with initial significant control is a disqualified director.
Alison Thewliss
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?
Kevin Hollinrake
All directors and people with significant control need to be ID-verified for existing companies, and the same obligation will be placed on new corporations.
Finally, clause 8 will permit an application for the registration of a company to contain a statement that the identities of its persons with significant control have been verified. The clause will allow persons with initial significant control to comply with the ID verification requirements at the point of registering a company. Where a company’s subscribers cannot make a statement confirming that persons with significant control have complied with ID verification requirements, the company will nevertheless be registered. The registrar will then direct the persons with significant control to comply with the identity verification requirements.
Seema Malhotra
It is a pleasure to speak to clause 2 and to clauses 3 to 8. I have been listening carefully to the Minister and have a few questions. I have made extensive remarks in support for clause 2, so I do not intend to go much further on that. Suffice to say that we have had an important debate, and I think the Minister will find that we will continue to come back to some of these matters.
On the point about the nationality of the subscriber and the country in which they are ordinarily resident, I did not hear the Minister give a clear answer as to whether the Government might consider tabling future amendments if they do not want to support ours. I have good faith in the Minister and want him, on day one of taking up his responsibilities, to take on board hon. Members’ points, so I would be grateful if he could come back to us on how he plans to consider that matter. My hon. Friend the Member for Aberavon may want to apply a similar principle to other clauses, so it would be most helpful if the Minister could take away the point about the subscriber’s nationality and the country in which they are ordinarily resident.
We support clause 3, which will ensure that when a company registers, it cannot be formed for unlawful purposes. It is extraordinary that we have not made that clear before or sought such a declaration previously, but it is a necessary provision in the light of the scale of abuse of Companies House by those whom we are now seeking to prevent from doing so in the future. We need to clear out companies that are not performing the functions that we would expect of a company registered in the UK. As the Minister goes through the resources question as to how quickly we will be looking to Companies House to go through and verify existing company records, this will fall into that important cleaning-up exercise. It is a necessary provision and is intended to ensure that if such a declaration turns out to be inaccurate, the registrar can reject the company’s filing on the basis that a false filing offence will have been committed. That is an important step forward.
Clause 4 will ensure that when a company registers, it must declare that none of its subscribers—its initial shareholders—is a disqualified director. We welcome the clause, because it is important to think about people’s roles and how games could be played with Companies House, and therefore with Britain and the British public, without cross-checks and balances in place. The clause is necessary to ensure that the registrar is able to actively reject and remove company subscribers who have been disqualified as directors. It cannot be right that somebody who has been found unwilling or unable to meet their legal responsibilities as a director could still be involved in, and have control of, the formation of a new company. It was a loophole in the Companies Act 2006 that a disqualified director was not prevented from owning a newly established company. It was a loophole ripe for exploitation, but we welcome clause 4.
Liam Byrne
I want to reinforce the last point made by my hon. Friend the Member for Feltham and Heston. If we are going to equip the Minister with new powers, it is important that he tells the Committee, at this stage, how he intends to use them. The key question is: what is his deadline for ensuring that every single company on the register has fulfilled the obligations created by these clauses? Can he clarify what his risk tolerance for bad behaviour will be?
I ask the Minister that because I was forced to table parliamentary questions in October last year, which revealed—extraordinarily—that 11,000 companies on the Companies House register had still not disclosed their persons of significant control, even though it was a legal requirement at the time. That is a very big number, but despite that fact, only 119 convictions had been secured for wayward directors.
If we are going to give Companies House the new obligations and new duties that the Minister is taking through, but they are not going to be enforced, then frankly there is very little point in the Bill. If the Minister is not able to today, I hope that he will write to us later to confirm two things. First, will he confirm that his intention is for 100% of companies to meet their obligations under the Bill? Secondly, I think the whole Committee would welcome his setting out a timescale for seeing that target secured.
Kevin Hollinrake
A number of points have been raised. The shadow Minister talks about the veracity of information and how we can become certain of it. As she knows, we are talking about a huge number of records—double-digit millions when adding up companies and directors. If we added shareholders, that would be many millions more.
The focus of this debate should be on who is controlling a company, be it a zero shareholding, small shareholding or larger shareholding. That is why traditional ID verification focuses on directors, who are obviously the officers of a company and control it, or a person of significant control—someone who sits behind that organisation. That is why we ask for those IDs to be verified. That can be done by Companies House or a corporate service provider. Some of those have a dubious reputation—I am sure that will be discussed in Committee—but let us see this for what it is: many of them are bona fide, reputable organisations such as Deloitte, EY and PwC. If someone has proven their identity to those organisations [Interruption.]—I am someone who can see his wrongdoing, but I do not see wrongdoing on every single corner. Most people working in commercial enterprise are decent, honourable people who seem to do the right thing. We should keep that in the context of this debate.
The duty is on a director of an organisation to make a statement to say that their identity has been verified. If that statement is false, criminal sanctions are attached. That is how this is regulated. It would make no sense for Companies House to revisit tens of millions of records to ensure that people at Ernst & Young and Deloitte have properly verified the identity of an individual. They are subject to those criminal sanctions.
On multiple disqualifications, I think the hon. Member for Feltham and Heston was talking about some kind of “three strikes and you’re out” system for a director. The Insolvency Service has the opportunity to ban a director for up to 15 years. It is fair to say that if someone had constantly not paid their tax or filed their accounts and had been banned, their days as a director would be just about done by the time they had got three penalties of 15 years.
The exemptions, as I said before, will be brought forward by affirmative regulations. The provision is intended for when there is no need or purpose to going through another round of ID checks, to avoid needless bureaucracy. We should all welcome that because, as anyone who has been at any organisation knows, bureaucracy equals cost for somebody—whether that be a cost on commercial enterprises or on the taxpayer. We have to be careful not to step too far unnecessarily.
Liam Byrne
That is an important point. The Minister is basically telling the Committee that he wants to ensure that the verification checks are proportionate, but across Government—in the Passport Office, the visa service and benefits agencies—there is a well-established infrastructure for verifying identities. If people are applying to become a director or a person of significant control, it is hard for many of us on the Committee to understand why the checks on their identity should be much lighter than those applying for other benefits from the state.
Kevin Hollinrake
I do not understand why the right hon. Gentleman says that the checks are lighter. This is ID verification where the individual has to be identified against a form of ID such as a passport. It is a proper ID verification. That process will be brought forward so that the Committee can decide whether it is fit for purpose. It is absolutely right that we do that, but these are proper ID verification requirements.
The deadline for ID checking of existing directors is 28 days from the commencement of this legislation—[Interruption.] The right hon. Member for Birmingham, Hodge Hill is not even listening, even though I am answering his question. Existing directors will need to be verified within 28 days. The deadline that he asked for is 28 days from the commencement of the legislation.
Kevin Hollinrake
I do not think I did commit to write to the hon. Member for Feltham and Heston, but I am happy to do so if she would like. I am definitely committed to considering all the contributions to the debate.
The Companies Act 2006 contains a range of provisions, whose focus it is to mitigate potentially undesirable impacts arising from a company’s choice of name. For example, it is already unlawful to incorporate a company the name of which, in the opinion of the Secretary of State, constitutes an offence or is offensive. Clauses 9, 10, 11, 12 and 13 will place further controls and restrictions around the choosing of company names by making amendments to the Companies Act 2006.
Clause 9 will give the Secretary of State the ability to prevent the registration of a company name that, in his view, is intended to facilitate the commission of an offence involving dishonesty or deception, such as fraud. It is sadly all too common for Companies House to observe the opportunistic establishment of new companies, whose names, for example, appear to exploit natural disasters or humanitarian crises. At present, Companies House has no means of preventing the registration of company names capable of facilitating deception of this nature. This provision will provide that power.
Clause 10 builds on existing safeguards in the Companies Act 2006, which restrict the extent to which companies can adopt names that give the false impression of a connection with a UK public authority. At present, if a name was to suggest association with UK national or local government, the devolved Administrations or specified local authorities, the Act and associated regulations provide a framework within which consent needs to be sought. The clause supplements that framework by providing safeguards in the international sphere. However, rather than applying a system of consenting, the starting assumption will be to prohibit names that, in the opinion of the Secretary of State, give a misleading impression that the associated company is linked to a foreign Government or its agencies.
Such a prohibition will also apply to names that reference recognised international organisations—for example, NATO or the United Nations. Of course, there may be occasions where overseas Governments and international bodies quite legitimately wish to incorporate companies in the UK. The clause would not prevent those companies from having names that connect them with a Government or body where that connection is a true reflection of reality.
Clause 11 will give the Secretary of State the responsibility to reject the registration of names that comprise or contain what, in his opinion, constitutes computer code. Company names are a potential vehicle through which bad actors can infiltrate the systems of those who access or download them. Computer code embedded or incorporated within a company name has the potential to subvert and to exploit the networks of unwitting third parties. That is clearly something we would wish to guard against.
Clause 12 inserts a provision that effectively prevents a company from re-registering a name that has already been the subject of a direction. That change will prevent an administratively burdensome cycle of repeat name-change directions, which is clearly better avoided.
Clause 13 prevents directors and shareholders from carrying a name to another company when they have already been denied its usage, as a consequence of either a direction from the Secretary of State or an order made by a company names adjudicator. It does, however, recognise that there might be instances in which secondary use would be quite legitimate. Scope is therefore provided for the Secretary of State to approve a name, notwithstanding the general prohibition introduced by the clause.
Seema Malhotra
We support clause 9. We recognise that it amends the Companies Act to give the Secretary of State the ability to prevent registration of a company if they think the name of that company is intended to facilitate dishonesty or deception. Companies House deals with up to 100 cases of corporate identity theft every month, and given that this form of fraud and others are starting to become more prevalent, it is right that there be these new powers to prevent registration, stemming—we hope—the flow of new fraudulent registrations. An incredible amount of distress arises from the impact of that dishonesty and deception.
Clause 10 inserts into the Companies Act a new section prohibiting company names falsely connected to foreign Governments and international organisations, and the Minister has spoken about why that section is important. It gives the Secretary of State the ability to prevent the registration of a company with a proposed name that, in the Secretary of State’s opinion, suggests a connection with a foreign Government, its offshoots or international bodies where none actually exists. As has been mentioned, that could be the UN or NATO, or any other body. Of course, we support the principle behind that measure, but in the interests of transparency about the use of that power, could the Minister clarify whether, when the Secretary of State is asked to make a judgment in such a situation, he expects that the judgment will be publicly shared—that, for example, Companies House might report on the uses of that power as part of its reporting?
I also want to clarify how the power will be used. When a company is formed that the Companies House registrar suspects is not actually connected with a foreign Government or other international body, but looks like it might be, will the registrar have a duty to flag such instances with the Secretary of State? That is important, because it comes back to the question of the proactiveness of the registrar’s duties, so it would be helpful to clarify it. What about the scenario where an attempt is made to register a company with a proposed name that, were it to be raised, would go through that process and very correctly be stopped by the Secretary of State, but it is not picked up by Companies House? If that situation arose for any reason—it could be new staff, or it could be the pressure of time because of insufficient resources; mistakes can be made in those circumstances—could a third party then apply for the name of that company to be changed? How would that work if it were an international organisation?
If uses of the power were reported by Companies House, would we be able to search and see that a number of people had sought to set up a company called United Nations Associates, or something like that? Would we be able to have a sense of how Companies House is perhaps being used in that way?
Should a company that has had its name changed by direction of the Secretary of State continue to seek to trade under that company name—perhaps in an overseas jurisdiction, if the name is falsely connected with foreign Governments—it would be helpful to clarify what measures could be taken, and by whom, to seek to put an end to that. There may be an obvious answer.
Seema Malhotra
I echo the concerns raised by my right hon. Friend the Member for Barking. She has drawn out some important distinctions. One is where there has been duplicity in setting up a company with a particular name, and there may be good reason for wanting to challenge that. She has highlighted the safeguards, but she is right that we need clarity in relation to kleptocrats and real connections to foreign Governments, which the Bill is trying to stop.
I thank Joe Wright. The hon. Member for Glasgow Central is right, because technology and people who use it are getting more and more sophisticated. Embedded computer code can maliciously infect the systems of those who access or download data. I saw the very real impact of data getting on to servers when I recently visited a company in Liverpool for a roundtable. Their systems had gone down, but luckily they had safeguards to stop what had happened. How quickly viruses, spyware and other means of destruction can travel, and they pose such security risks for companies and countries. That is an important part of our security, so it would be helpful to have some further information on that.
We welcome clauses 12 and 13 as important provisions. Clause 12 ensures that companies cannot use names that are misleading or used to mask criminal purposes. Clause 13 provides a mechanism to ensure that where there is good reason for a direction to change company names, it is not bypassed by those who use the registrar for fraudulent purposes. What enforcement mechanisms would come into force in such situations?
Kevin Hollinrake
On a point of correction, I said in answer to a question from the right hon. Member for Birmingham, Hodge Hill that existing directors and people with significant control had 28 days to verify their identity. That figure has not been set yet. It will be set in a commencement order, which I will find out more about. The 28 days applies to relevant legal entities.
Kevin Hollinrake
I have only six minutes left, so if the right hon. Member wants to hear from me on all those points, he will have to keep it very short.
Liam Byrne
Could the Minister also clarify his target for compliance? I hope it is 100%, but if he could clarify that as well, I would be grateful.
Kevin Hollinrake
I am grateful. Of course, my target will certainly be 100%; I cannot imagine why it would not be. The 28 days refers to the time that relevant legal entities will have to rectify their identity from receipt of the registrar’s direction.
To answer the hon. Member for Glasgow Central on computer code, there have been a small number of instances where Companies House systems have identified computer code. What constitutes that may change and evolve over time, so the drafting is future proof. Companies House already has a security capability that will develop and evolve over time. Where necessary, Companies House’s internal scrutiny functions will consult other experts.
The right hon. Member for Barking asked what had been rejected. No other categories were rejected in the course of policy development. I think that these categories were deemed important, but I do not know of any others that were considered. The right to appeal regarding the name change would be through a judicial review. Clearly, it is fair to say that Companies House will use its judgment.
To answer the right hon. Lady’s point on the Secretary of State’s functions, Companies House exercises those functions. There is a well-established administrative process by which Companies House makes the Department aware of potentially problematic names, so the Secretary of State can also exercise their judgment. On how we identify any of those names, of course, a lot of that is technology-based.
Dame Margaret Hodge
I am really sorry, but I just want clarification. Does that mean the decision is taken by both Companies House and the Secretary of State—or a Minister on their behalf?
Kevin Hollinrake
As I understand it, Companies House makes the decision under delegated authority.
On trading styles or business names, which the shadow Minister mentioned, that is clearly not something that Companies House oversees directly, because it does not have a register of trading styles or business names. However, it does rely on third-party information to understand what a company may be trying to do regarding its trading style.
On the other problem—the other side of the coin, as the right hon. Member for Barking says—of money laundering and people supporting the Russian state, those matters are, of course, principally dealt with through money-laundering regulations or, indeed, sanctions regimes. People supporting the Russian regime, for example, should very often be subject to sanctions.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clauses 10 to 13 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned.—(Scott Mann)
Economic Crime and Corporate Transparency Bill (Sixth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 1st November 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 1 November 2022 - (1 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Stephen Kinnock
Up to and including clause 27, finishing, and then moving on to clause 28. Thank you for that clarification, Ms Bardell.
The National Crime Agency estimates that £100 billion of dirty money flows through the UK every year and that fraud is causing £190 billion of damage to our economy. According to PwC, 64% of businesses have experienced fraud, corruption, or other economic or financial crime within the past two years, which is up from 50% only four years ago.
The Labour party believes in stronger action to defend our national interest, our economy and our national security from the organised criminals, fraudsters, corrupt oligarchs and kleptocrats. Indeed, as the shadow Home Secretary, the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper), said on Second Reading:
“Ours is a country that has long prided itself on the rule of law and on strong economic institutions, which is what traditionally made it a good place in which to invest, but that is being undermined by economic crime”.—[Official Report, 13 October 2022; Vol. 720, c. 291.]
It is also being undermined by the illicit money flowing through what many call “Londongrad”. As much as that brings shame, it should also bring pride that we are coming together as parliamentarians to debate and scrutinise this important Bill.
We support the Bill, but the devil is in the detail. With 250 pages, a huge amount of detail needs extensive discussion. Part 1 is critical, because it aims to get to the crux of one of the major barriers to tackling economic crime. That problem is the underfunding, lack of regulation and lack of teeth at the heart of Companies House.
Clauses 9 to 22 cover legislation on changes to company names. I have moved amendment 87 and tabled amendments 72, 88 to 90, and 73 to clause 14, as well as amendment 91 to clause 17 and amendment 92 to clause 18. We are surprised that the Bill states that when a company is directed to change its name under the Companies Act 2006, including in cases where the name is considered misleading or might facilitate criminal activity, that company must comply with the direction in “at least 28 days”. That requirement would replace the provision to provide the company with a potentially unlimited period of time to comply with the order. In a moment, I will pause to allow the Minister to clarify whether that provision is deliberate, because it appears to be both rather confusing and rather too generous. Surely, it should say that the company must comply with the order within 28 days. That is what the amendment seeks to achieve—as opposed to “at least” 28 days, it must be within 28 days.
The Bill includes lengthy provisions on company names, and sets out how and for what reason a company may be required to change its registered name. The aim of those provisions is to enable companies’ names to be prohibited in cases where they may be intended to facilitate dishonesty, deception or another criminal offence. Although that aim is laudable, there appears to be a disconnect between the seriousness of the offences that the Government are seeking to prevent, and the lengthy periods of time that Ministers are prepared to allow for a company to comply with an order to change its name.
Given that such an order will generally be made only when a Minister has identified a clear risk of harm in relation to a company’s name—including a risk of fraudulent or other serious criminal activity—it is hard to understand why a company would then be given potentially limitless timeframes to comply with that order. The Opposition believe there should be, at the very least, a time limit on orders to change a name believed to be intended to deceive the public of the company’s true purpose. Companies that fail to comply with such an order within a reasonable period of time, and a 28-day limit seems reasonable to us, should also be penalised if they cannot provide a good reason for any delay or refusal to comply. I am happy to pause here if there is anything that the Minister would like to clarify.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I am happy to do that. The issue is in the drafting. I had to read this on a number of occasions and speak to officials before I got my head around it, but the provision achieves the purpose that the hon. Gentleman sets out. Clause 14(5)(2) states:
“The direction must be in writing and must specify the period within which the company is to change its name.”
It is a fixed period of time. It sets out the ability to give a company more time in certain circumstances, but the intention is to do exactly as the hon. Gentleman wants: a company has 28 days to comply. It will be told how long it has to comply, and that may well be 28 days.
Stephen Kinnock
I thank the Minister for that response. As he pointed out, he had to read the provision several times in order to be clear on the drafting. Clause 14 (5)(3) says:
“The period must be a period of at least 28 days”.
Our intention is to make it clear that it has to happen within 28 days. There is a clear difference between “at least” and “within”. “At least” gives the impression that a company could have an unlimited period of time beyond those 28 days, whereas if we clearly state that it must happen within 28 days, then there is no room for doubt whatsoever. Would the Minister like to come back to me on that?
Kevin Hollinrake
Again, if the hon. Gentleman reads that in the context of clause 14(5)(2), he will understand that it is a fixed period of time. That is what companies will be given.
Stephen Kinnock
Maybe the Minister and I are just not seeing it through the same lens. I agree that there should be a fixed period, but I think it should be clearly defined that the fixed period must be a maximum of 28 days. Does the Minister think that the Bill as drafted makes that clear?
Kevin Hollinrake
The point is there may well be valid circumstances where a company might take longer than 28 days, for example if it needs to seek a resolution from its shareholders or directors. In those cases, a company might then apply to Companies House or the Secretary of State to extend that time period. That is where the “at least” comes in, and it must be seen in the context of the “within”. Listen, I am not a lawyer. I do not think the hon. Gentleman is a lawyer. The lawyers have chosen to draft the legislation in this way. I do think it serves the purpose, but I can understand why the hon. Gentleman is seeking clarification.
Stephen Kinnock
My right hon. Friend has hit the nail on the head. I hope the Minister will reflect on that.
Moving on to clauses 15 to 22, we are content with clause 15, which would allow for objections based on the company name being misleading outside the UK and for the shareholders and directors of said company to be joined as respondents or defenders in the claim. In their February 2022 White Paper, the Government explained the rationale for expanding the grounds for objections to be made to a company’s name. It was broadly accepted that the current restrictions, for instance on names that imply a link to the UK Government, were too narrowly drawn.
Responses to the consultation reflected widespread concern about the impact company names that are clearly deliberately misleading might have on legitimate businesses in cases where rogue companies try to suggest they have a connection to a well-known business and thus benefit from wider public recognition of, and perhaps even loyalty to, an established brand. Such appropriation of company names is now understood as a means of scamming would-be investors out of their money. Earlier this year, for example, there were high-profile reports of a scam involving a company calling itself Diageo Partners Ltd. It attempted to solicit an investment by presenting itself as an arm of the well-known drinks company of that name. Another case flagged by the Financial Conduct Authority in January involved similar attempts by scammers to link themselves with the financial institution Wells Fargo.
Clause 15 is a welcome recognition of those issues and should go some way toward addressing them. However, many legitimate companies that raise objections via the Company Names Tribunal are currently facing delays of three months or more before they can get a decision. I wonder whether the Minister could explain what steps the Government will take to help speed up the Company Names Tribunal process and ensure that fraudulent company names are corrected as quickly as possible.
Kevin Hollinrake
I will address the hon. Gentleman’s points in my full response. There are some amendments we have tabled that address his exact points, and I would like to speak to those in detail.
The Chair
Order. Will the Minister take a seat for a second? Seema Malhotra wants to make a contribution. If Members are looking to speak to amendments, may I remind them of the convention of bobbing? It helps the Chair out.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Thank you, Ms Bardell. I do not think we were fully clear between us. It is a pleasure to serve under your chairship. I rise to speak to amendment 76, which is in my name and the name of my hon. Friend the Member for Aberavon. I want to conclude on the remarks he has already made.
Clause 27 sets out exceptions to name change directions if the Secretary of State is satisfied that it is in the interests of national security, or of preventing and detecting serious crime, for a business to carry on operating under a name that goes against regulations. We have tabled this amendment to require any exemption to a name change direction on the grounds of national security to also be subject to appropriate transparency.
Amendment 76 is a probing amendment designed to clarify the purpose and circumstances in which the Secretary of State can use their powers of exemption, and who will be aware of how the exemption is being used. The Minister may tell me that some of this is subject to greater security. In that case, which body or Committee would be aware, even under Privy Council rules, of the use of these powers?
Kevin Hollinrake
It is a pleasure to serve with you in the Chair, Ms Bardell.
As Members will have noted, this group is large and includes both amendments and clauses. The hon. Member for Aberavon—I appreciate his kind words and those of the hon. Member for Feltham and Heston—has tabled many amendments, and they would make changes across multiple clauses. It will therefore be helpful for all Members if I lay out the effects of the clause as currently drafted, before turning to the amendments and the many points made during the debate.
Clauses 14 to 22 together form the majority of the chapter on registered company names. At present, the Companies Act 2006 leaves it to the discretion of the Secretary of State to determine the time period within which a company must comply with a direction to change its name. Clause 14 amends that to standardise the various direction-issuing powers already found in part 5 of the Companies Act 2006 and those that are inserted by this Bill. This means that in all instances where companies are directed to change their registered names, they must do so within at least 28 days of the date of the direction. [Interruption.] There are two things I would say to the hon. Member for Aberavon. Clause 14 must be looked at in context, and the point is that proposed new subsection (2A) of section 64 of the Companies Act would give
“a period of at least 28 days beginning with the date of the direction.”
Combined with new subsection (2) of section 76 of that Act, as inserted by clause 14(5) of this Bill, that means the direction will be a fixed period. There will be a fixed period, just as he wants, and in all likelihood it will be 28 days. It may sound like odd drafting, but the “at least” part is to ensure that the direction cannot be less than 28 days to give companies a reasonable chance to make the change. Once the decision has been made on how long the company will get, that will be a fixed period, unless the company provides justification for changing it.
Dame Margaret Hodge
Further on in the Bill, there are a lot of Henry VIII powers. I cannot see the justification in this context, and perhaps the Minister can advise us why we cannot put 28 days in the Bill. It has to be “at least”, but it also has to be “at most”. Let us just put that in the Bill. I do not know why we give any Minister discretion on this. It ought to be in the Bill.
Kevin Hollinrake
It is in the Bill. The point is that the company, in some circumstances, can effectively apply to have that time period extended. That is the point of this; that is where the “at least” bit comes in.
Seema Malhotra
Perhaps the Minister can clarify whether a period of 128 days given in writing would be in line with the terms of the clause. Did he go back to the lawyers to see whether the clause could be redrafted to read that the period must be a maximum of 28 days, beginning with the date of direction? That would still allow for the terms of proposed new subsection (2B) and a permitted extension within three weeks.
Kevin Hollinrake
We need to allow for some discretion when certain companies cannot comply because of certain consequences and for whatever reason. As a simple example, a company might have to get an agreed resolution between directors or shareholders to change its name. That is why the term “at least” applies in the clause.
I would like to move on, because there is more that I would like to share with you, which deals with the issue from a different direction. I will come back to you, I promise you.
The Chair
Order. May I remind the Minister and other Members to speak through the Chair?
Kevin Hollinrake
I apologise. I will not do it again.
Clause 15 makes a set of changes in how objections to a company name are to be considered by the company names adjudicator, established under section 70 of the Companies Act 2006. In cases brought before the adjudicator under section 69 of the Act, the company complaining over another’s misuse of a name is known as the applicant, and the counterparty to that complaint is the respondent. Clause 15 amends section 69 in several ways. First, in recognising that the activities of companies registered in the UK are not constrained by our borders, it removes the geographic scope of complaints that the adjudicator can consider. That allows the adjudicator to consider the ability of a company name to mislead members of the public in jurisdictions other than the UK.
Secondly, the clause plugs a loophole in the existing legislation that allows directors of respondent companies to resign their position to avoid being joined alongside the company itself in the adjudication proceedings. Finally, at present it is the case that unless it can be demonstrated that the respondent registered a name in order to obtain money from the applicant, an application must be dismissed if the respondent has begun trading under the name or has incurred substantial start-up costs. That defence will no longer be available.
Clause 16 amends the Companies Act to lower the bar in terms of the harm test. Currently, section 76 of the Act allows the Secretary of State to direct a company to change its name if, in his opinion, the name gives such a misleading indication of its activities that it is likely to cause harm to members of the public. In future, the Secretary of State will form a view on the basis of whether the name poses a risk of harm, instead of considering whether the name is likely to cause harm, thus giving the Secretary of State greater discretion in the exercise of that power. The clause also clarifies that the potential harm at issue need not manifest itself in the UK alone, but might do so anywhere in the world.
Stephen Kinnock
The Minister is being very generous in giving way. The issue with clause 16 is the term
“pose a risk of harm to the public”,
which seems to be very broad. Can he expand on how that risk might be more clearly defined? Can he give a practical example of how the proposed powers might be used?
Kevin Hollinrake
If I may, I will come back to the hon. Gentleman on that point once I have some information on it from my officials.
Clause 17 will give the Secretary of State the ability to direct a change of a company name where, in his view, it has been used, or is intended to be used, to facilitate the commission of an offence involving dishonesty or deception, such as fraud.
Stephen Kinnock
Briefly on clause 17, I would just like to mark the card because, again, there is an issue with the use of the phrase:
“The period must be a period of at least 28 days”
in proposed new section 76A(3) of the Companies Act. I suggest that that phrase should be replaced with “This period must be a period of no more than 28 days, beginning with the date of direction”, because I think it would be so much clearer and tighter.
Kevin Hollinrake
I will come to that, but the hon. Gentleman’s solution to that does not give any discretion should a company need more time. [Interruption.]
Kevin Hollinrake
That is the reason why the clause is drafted in that way, but I will come back to the hon. Gentleman’s point before the end of my remarks.
The ability to direct a change of a company name recognises that there may already be some companies, among the 4.5 million or so companies already on the register, with names that are facilitating criminal conduct or have the ability to do so. In order to address those instances that may come to the Secretary of State’s attention, the clause will give him the ability to direct a company to change its name. The clause also sets time frames for compliance, penalties and methods of appeal.
I turn now to clause 18, which gives the Secretary of State the ability to direct the change of any company name already on the register of companies that appears to them to contravene any requirement of part 5 of the Companies Act 2006. The Secretary of State can also direct a change of name if, at the time of registration, they had proper grounds for forming an opinion on whether the name was in itself an offence or was offensive, being used for criminal purposes or contained computer code. Without the ability to take action to address such names once incorporated, undesirable impacts can go unchecked. A consequential amendment applies this section to provision on overseas companies.
Clause 19 complements clause 11 of the Bill. Clause 11 makes it unlawful for a company to be registered with a name that contains or comprises computer code. Clause 19 addresses the possibility that computer code lurks among the names of the 4.5 million or so companies already on the register, empowering the registrar to determine a new name.
Clause 20 provides the registrar with the power, by her own action, to change a company’s name where it has not followed a direction to do that itself. Where she does so, she must inform the company and annotate the register accordingly.
Clause 21 makes a consequential amendment related to the administrative aspects of the company name-changing powers contained within the Bill, specifically the duty of the registrar to issue a new certificate of incorporation following a change of a company’s name.
Clause 22 introduces a section into part 5 of the Companies Act that gives the Secretary of State discretion to disapply any prohibition on naming a company or operating under a company name where, in his view, that is justified in the interests of national security or for the purposes of preventing serious crime. On the point about the exercise of national security, commitments to transparency on security exemptions might well by their nature defeat the purpose of the exemption’s use.
I turn now to amendments 87 to 92, tabled by the hon. Members for Aberavon and for Feltham and Heston. The amendments concern clauses 14, 17 and 18, which I have just taken Members through. I thank the hon. Members for the amendments, as they have helpfully highlighted a gap in the Bill. We acted on that yesterday by tabling amendments that address the issue and, I hope, resolve it, albeit in a different way. I refer hon. Members to new clause 34, which effectively allows the registrar to instantly suspend the material on the register referring to the name. In that way, the Bill gives the Secretary of State a new range of powers to direct companies to change their names that supplement and strengthen the existing powers under the Companies Act. [Interruption.] That is on page 65 of today’s amendment paper.
In respect of the existing provisions, it is at the Secretary of State’s discretion to determine the period within which a company must comply with directions. Clause 14 of the Bill seeks to regularise that period across both existing and new direction provisions in part 5 of the Companies Act. That period would be a minimum of 28 days from the date of direction. These amendments seek to make the period no more than 28 days.
I have sympathy with the view that companies should not be afforded longer than necessary to take the steps to comply with a direction. I would, however, draw hon. Members’ attention to the fact that, in respect of the new classes of prohibited name, the Bill is drafted to provide the registrar with the discretion to remove the name of the subject of the direction from the publicly accessible register where a direction has been issued. I assure hon. Members that where there is potential for harm to be caused, the registrar will exercise that discretion and, therefore, the harm will cease at the point the direction is issued, regardless of the length of the compliance period.
Where a name is removed from the register, it would normally be replaced with a company registration number. I anticipate that we will legislate in secondary legislation for the registrar to annotate the register, explaining that the name had been changed because it was the subject of a direction. The Opposition’s amendments have highlighted that the suppression capability is not at present available to the registrar in all circumstances where a direction might have been issued. The Government amendments will ensure that in future it will be. Members can see those amendments in the amendment paper and will have the chance to debate them in a future sitting.
Clauses 23 to 27 comprise a chapter on business names. Clause 23 mimics clause 10, which I explained earlier, in the context of the use of business names in the UK. It builds on existing safeguards in part 41 of the Companies Act 2006, which makes it an offence for a person to carry on business that gives the impression of a connection with the UK Government and public authorities. The clause supports that framework by making an amendment to the 2006 Act that provides safeguards in the international sphere. The clause also contains the same safeguards for those conducting business with legitimate connections.
Clause 24 amends section 1198 of the 2006 Act to lower the threshold for the likelihood of harm required to satisfy the legal test. Currently, it is an offence for a person to carry on business in the UK under a name that gives such a misleading indication of activities that it is likely to cause harm to members of the public. In future, the offence will be based on whether the name poses a risk of harm to the public.
Clause 25 closes a loophole in existing legislation. At present, there is nothing to prevent a company that is the subject of a direction or order from carrying on business in the name that it has been directed or ordered to change. The clause makes it an offence to do so. There are exceptions to that where the period for complying with the direction or order has not passed, where the company has since been registered with the name following approval under proposed new section 57B of the 2006 Act, or where the direction or order was given before the clause commences.
Clause 26 introduces a proposed new section in the 2006 Act and builds on what is done in clause 25. Clause 26 makes it an offence for a company to carry on business in the UK under a name that another company has been directed or ordered to change where both companies share, or have shared, the same officers or shareholders.
Clause 27, the final clause in the group, introduces a proposed new section in the 2006 Act and gives the Secretary of State discretion to disapply any restriction or prohibition on carrying on business under a name, if it is in the interests of national security or for the purposes of preventing or detecting serious crime. Where such discretion is exercised, the Secretary of State must give written notice of confirmation to any relevant person. It is necessary that sufficient flexibilities exist in all areas to take the steps most appropriate to safeguard security and target serious crime.
Amendments 72 to 76 would impose a duty on the Secretary of State to publish details of instances where he had extended the deadline for companies to comply with directions that he had issued to them to change their company name. I am not sure, however, that it would achieve what the Opposition really intend it to. It is of course always dangerous to make assumptions, but I suspect that what those who have tabled the amendment really want is for information to be published about each and every direction that the Secretary of State has issued, and that is not what it would do. I reassure hon. Members that we will consider how that information might best be made available—potentially, for example, through annotations of the companies register, which would of course be available to view through the Companies House online service.
I thank Members for their patience. I have taken them through a technical but important part of the Bill. I hope that they will appreciate that their amendments perhaps do not have the desired effect, particularly taking into account the Government amendments that have been tabled.
Stephen Kinnock
I thank the Minister for coming back in such detail on our points. We certainly look forward to studying new clause 34. We have not really had an opportunity to look at it yet, but it is great to see that the Minister and his team have taken our amendments on board and come up with something that will hopefully enable us to find common ground.
I want to make two additional points. The first goes back over the ground of “at least” versus “within” debate. I spoke earlier about proposed new section 76A(3), on page 10, as introduced by clause 17(4), which says that the period must be a period of “at least” 28 days; our amendment suggests that it should be “no more than” 28 days. The Minister said that making that change would give no leeway to the Secretary of State to be able to override in certain cases. We accept that there are certain cases where further direction is required to extend the period; there may well be extenuating circumstances, and we certainly do not want to create a straitjacket for businesses—we take that point. However, proposed new subsection (4) does precisely that. That is why we should lay out in proposed new subsection (3) that the basic principle is “no more than” 28 days. We have no desire to change the provisions of proposed new subsection (4)—with extenuating circumstances, the Secretary of State should be able to extend the period.
We would be more than happy with that change. It only requires the insertion of “no more than” in proposed new subsection (3), and no change to proposed new subsection (4). That would give the right balance between the need for a basic, tightly defined standard and still having the ability for the Secretary of State to extend the period where required.
Kevin Hollinrake
As I said before, I think the Bill achieves the same objective; it might not be with the words of the hon. Gentleman’s choosing, but I think the objective is served by the drafting we have. It may well also be served by the drafting he suggests, but I do not see the point of changing the wording when it already does the same thing.
Stephen Kinnock
I thank the Minister for that response.
My second point is on clause 15, which considers changing names. As we have said, the clause is a welcome recognition of the issues around name changes and companies using names for fraudulent purposes—trying to give themselves connections to well-known brands and so on. Many legitimate companies that raise objections via the company names tribunal are facing delays of three months or more before they get a decision. I asked whether the Minister could assure us that the Government are alive to the issue. What steps might they be taking to speed that process up?
Kevin Hollinrake
I am happy to. I think we would all acknowledge that, due to various reasons beyond any of our controls, tribunals have fallen behind in the cases they are hearing. I am very happy to look at the timeframes that the hon. Gentleman refers to, as I was not aware of specific issues. The important principle behind the clauses is that they allow the Secretary of State, via Companies House, to bear down very quickly when there is the risk of harm to individuals, companies or others.
Stephen Kinnock
In the light of the fact that new clause 34 has been tabled, which we have not yet had the opportunity to study, we will not press the amendment. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Kevin Hollinrake
Permission should certainly be sought; it is just that some people do not seek permission. That is the point behind the clause. We are putting provisions in place to clamp down on that behaviour and completely eradicate the possibility of someone doing that.
Dame Margaret Hodge
Okay, but I have not read anywhere in the Bill of a legal duty placed on an individual establishing a company to seek the permission of the person whose address it is, whether a householder or a business. I cannot see that in the Bill, so it would be helpful if the Minister could direct me to it.
That is point No. 1. My second point is that there is massive abuse of addresses, to which other Members have already pointed. In the FinCEN files, which I happened to have looked at again recently, one case involved a private address in Leicester that was used as the company address of 36 shell companies.
Kevin Hollinrake
I draw the Committee’s attention to the wording of clause 28, on an “appropriate address”:
“A company must ensure that its registered office is at all times at an appropriate address…An address is an ‘appropriate address’ if, in the ordinary course of events…a document addressed to the company, and delivered there by hand or by post, would be expected to come to the attention of a person acting on behalf of the company”.
It is therefore impossible to see how people could just pick any address, as some do now; that clearly would not be an appropriate address, because there would be nobody there to hand the correspondence on.
Dame Margaret Hodge
Interestingly enough, the example that I was halfway through describing proves that one could still choose an address and have documents delivered to it, but, if one had not sought permission of the person whose address it is, it could still be a phoney address.
To follow through on the example in the FinCEN files, a private address in Leicester had 36 shell companies, all with accounts in the Danske Bank in Estonia. The address was in fact that of the home of a Latvian cleaner called Dace Streipa—I hope I pronounced that correctly. When she was confronted by the journalist investigating the FinCEN files, she claimed to know nothing about it. Letters had kept appearing at her house, but she did not know what to do with them.
The other FinCEN files example was that of 175 Darkes Lane, Potters Bar, which I am sure the Minister will remember. It was home to more than 1,000 companies. It may be, then, that there is an obligation, but someone could choose any address, including my home address if they so wanted, and I am not sure that there is an obligation for the person who chooses that address to seek my permission to do so. If I am wrong, I am happy to take that back, but I do not think the clause that the Minister directed me to covers that. We want to stop the cuckooing activity.
Clauses 61 and 62 put duties on Companies House to ensure that identities are verified, but there is no duty to ensure the verification of addresses. That duty is needed: it is part of the proactive role that we talked about at the beginning of this morning’s debate. It should be proportionate and could be done with a risk-based assessment, but if we do not place a duty on Companies House to perform some sort of check on the addresses that are submitted in relation to the formation of each company, as well as a check on the identity of the individuals, we are digging a hole for ourselves and will find that the legislation we pass is not effective in the way that is wanted. I ask the Minister to give the idea really serious consideration, because I do not think the Bill goes far enough to give us the certainty that we seek on the legitimacy of companies that are formed.
The Chair
Order. Before I call the Minister, I remind the Committee that it is helpful if Members indicate in their substantive contribution whether they are going to press or withdraw an amendment.
Kevin Hollinrake
I hear clearly the comments made on both sides of the argument, but I think the provisions in the Bill do tackle the issues that Members are trying to tackle—
Kevin Hollinrake
The right hon. Lady should let me develop my argument, if she does not mind.
We are all aware of the frequent problems that arise when criminals incorporate companies using an address that belongs to a person who has nothing to do with that company, or when criminals hijack the details of a legitimate company and change the address to one that is invalid or ineffective. The Bill contains provisions that will not only reduce the risk of that happening, but mean that when it does happen the registrar can take swifter action to remedy the situation, which I think is what Members are asking for.
The Bill will operate like this. Clause 28 imposes new duties on companies to ensure at all times that their registered office address is an appropriate address. The companies and individuals involved would be guilty of an offence if they did not make sure that the address was appropriate—
Kevin Hollinrake
Let me develop my point a little bit. The meaning is clearly defined in the Bill: an appropriate address is an address where it can be reasonably expected that documents sent to the company will come to the attention of a person acting on the behalf of the company. It is inconceivable that a Latvian lady in Leicester who does not know why she is getting correspondence could be defined as somebody who is able to pass on the documentation to a person acting on behalf of the company.
Kevin Hollinrake
Let me just finish the other critical part of the definition. An appropriate address is an address where an acknowledgement of the delivery of documents is capable of being recorded.
Dame Margaret Hodge
The Minister has not answered the point about whether, in the Latvian cleaner example, her permission would legally have had to be sought for that address to be used, but let us put that to one side. He says that if it does happen, swift action will be taken; how on earth would that ever come to the knowledge of Companies House? How would it ever know if there is no system of spot checking to ensure that the addresses that are used are true? There is no system in the Bill. The main point of this whole argument is that we need a checking system—I accept that not every address would be checked, but it could be a spot-checking system—to ensure that the addresses are valid. That is not in the Bill.
Kevin Hollinrake
And I do not think the right hon. Lady imagines that the registrar could go around them all. I am glad we agree on that.
Kevin Hollinrake
I would like to finish the point. The key point is that the measure requires the people who control the company, be it the directors or persons of significant control, to make statements. If they make false statements or fail to comply with the requirement, they will be committing a criminal offence, as is every officer of the company who is in default.
What the right hon. Member for Barking seems to want is to have armies of address checkers going around the country. This is ex post regulation, which is a more effective means of regulation. I do not suppose that anybody on this Committee wants to inhibit the lawful, commercial activity of the vast majority of companies that go about their normal commercial business every single day.
Kevin Hollinrake
No, not at this point in time.
We are striking a balance between the two. These measures have to be seen in the context of the wider provisions of the Bill on checking the identity of directors and persons of significant control—the people who are controlling the company. If people make false statements, those people and that company will be guilty of an offence.
The shadow Minister wanted to intervene.
Seema Malhotra
Does the Minister agree that being able to use analytics to determine that 1,000 companies are registered at one address would not mean manually going through and using resources in that manner, and would mean—taking a risk-based approach—that we would identify where something needed to be done?
Kevin Hollinrake
Absolutely. We all agree with that. The registrar will look at that.
Kevin Hollinrake
If it is an example where 2,000 companies are registered at an address near Edinburgh, and somebody tries to register that address, that may well lead to a red flag. Companies House is investing in that capability, as part of its work. It is not just about people, but systems and automation of systems, in order to see those red flags. At that point in time, the system would potentially do what the right hon. Member for Barking wants it to do—raise a red flag. That could then be queried with the directors and the people who control the company, and could alert law enforcement authorities. I do not think anybody here is suggesting that Companies House becomes another law enforcement authority. There has to be information sharing between Companies House and the law enforcement authorities.
Liam Byrne
The Minister is being characteristically generous in giving way. The problem the Committee has with the argument about ex post facto regulation is that, if we take the example I gave this morning of the requirement to register persons of significant control, there are still 11,000 companies that have not registered persons of significant control, but there have only been 119 convictions. There is an enormous enforcement gap, which is a real concern to the Committee, not least because the powers that the Minister is seeking are for companies to verify an address, rather than creating a duty to verify the address. Witness after witness gave evidence to the Foreign Affairs Committee on the duty to verify the address, which is why that Committee, of which the Minister for Security was Chair, concluded that there must be a tough verification regime in place at Companies House.
Kevin Hollinrake
The right hon. Gentleman may think a duty to check 4.5 million addresses is proportionate. I think it would be disproportionate. The vast majority of those addresses are bona fide addresses of bona fide companies. We have to take a risk-based approach; I think we would both agree on that.
The right hon. Gentleman returns to resources. We have already had a long debate on resources. He knows that I agree that the registrar, and the law enforcement agencies for that matter, must have sufficient resources to ensure that the registration of persons of significant control is undertaken. That body of work is ongoing now with Companies House.
Stephen Kinnock
Would the Minister consider a PO box address to be an appropriate address—yes or no?
Kevin Hollinrake
No, and I will come to that point shortly.
Clause 29 provides an important new power for the registrar to deal effectively with those abusing our systems. As we have discussed and all agree, for too long criminals have acted with impunity, providing fraudulent addresses for companies set up deliberately to scam people, many of them vulnerable. We know the distress and inconvenience that can cause to many constituents, including when bailiffs arrive at the door in connection with a matter with which that person has no connection.
Alison Thewliss
What happens to all the companies that currently have a PO box, and how long do they have to comply with this measure?
Kevin Hollinrake
As for the period of compliance, we will let hon. Member know. There is a huge volume of records. We want Companies House to be more proactive. We do not want it to be swamped by information being supplied to it all at once. We need to make sure that the commencement order is carried out sensibly. Red flags could well be applied to a company address that has many other companies attached to it. If a company had registered multiple company directors or persons of significant control or had recognised multiple companies at one particular address, that should be the kind of red flag that, following a risk-based approach, would require checks and balances to be put in place. Those companies would be struck off the register and other actions would be taken against the individuals.
The new definition in clause 28 negates the need to include the reasonable suspicion element of amendment 86. Where the registrar, informed by the intelligence and information available to her, has reasonable grounds to suspect that the company does not have permission to use the address, she may come to the view that in the ordinary course of events, the appropriate address conditions will not be met. The registrar will then either reject it or change it according to the circumstances.
Seema Malhotra
If I am following the Minister’s arguments as he intends, is he saying that his view of objective 4 and how it would be interpreted means it would be implicit that the registrar would be expected to check addresses and ensure minimum fraudulent activity and so on? In response to the amendment tabled by my right hon. Friend the Member for Barking, which called for a duty on the registrar to verify the appropriateness of the address using a risk-based approach, I believe the Minister argued that that was implied and would therefore be done under the objectives as they stand.
I put it on the record that we agree with the new clauses and amendments that he has outlined and that were debated with clause 29. They are important. Does the Minister think that, even after his new powers and requirements are in place, the gap will be closed sufficiently? To say that the registrar could act on intelligence available to her either implies that somebody will give it to her or that there will be a function that will operate as if there were a duty. Is that his intention?
The Chair
I remind Members that interventions are supposed to be interventions and not substantive contributions.
Kevin Hollinrake
The objectives promote the integrity of the register. That is quite clear. The registrar therefore has the responsibility to act. The intelligence and information available to her could come from a number of sources, such as third-party sources, law enforcement agencies or financial institutions. Red flags within an organisation can come from a number of places. If a red flag leads to the conclusion that there are reasonable grounds to suspect the company does not have permission to use the address, the conditions will not be met and the registrar will either reject it or change it, according to the circumstances. The golden thread running through that is that the registrar has the power to act on information based on the risk-based approach, which conforms to the request from the right hon. Member for Barking that we do spot checks. A risk-based approach is far more effective than random spot checks. That is what we are trying to get to here.
The hon. Member for Glasgow Central asked about when people would have to move away from PO box addresses to an appropriate address. The earliest commencement by regulation is two months after Royal Assent.
Lastly, I turn my attention to the first element of amendment 86, which would have the effect of compelling companies to register their main place of business as their registered office. That would be problematic for many good companies. Let us take, for example, a company with a large, rural manufacturing facility, which might be considered its main place of business, and a city centre showroom. There are perfectly legitimate reasons for such a company to favour the city over the country as its registered office location. The amendment would prevent that. I hope hon. Members will be reassured that the provisions will be an effective means by which to monitor and police the accuracy of company address information and will feel able to withdraw their amendment.
Turning to amendment 94, I hope the right hon. Member for Barking will agree with me that the Bill’s new definition of what constitutes an appropriate address for the purposes of a company’s registered office address is an improvement on what has existed up to now. It requires the company to have authority to use the address on pain of criminal sanction for the company in breach and every one of its officers in default. I trust she and the Committee members will welcome the provisions that I have just described. I do not think it is proportionate to agree to routine or spot checking for each and every company and, in our view, we need to take a risk-based approach, which I think we all agree with, to make sure Companies House resources are used fruitfully.
In the light of the reforms proposed in the Bill, Companies House, armed as it will be with new powers and objectives, will home in on those companies that are most likely to be engaged in criminal activity. In some cases, intelligence and information-sharing enabled by measures in the Bill might suggest that the registered office address is a clue to that criminal behaviour and might prompt any one of a number of different approaches on the part of the registrar and, potentially, law enforcement agencies. For example, it is my expectation that in future Companies House will consider carefully whether to process multiple incorporations emanating from a single address, as described earlier, and deploy the new querying powers available to it before doing so.
Ultimately, the Bill seeks throughout to focus effort and resource where it will achieve the most meaningful impact. I hope that the right hon. Member for Barking will be reassured that proactive intervention, based on sound risk assessment, is a more cost-effective approach to take and that she will feel able to withdraw her amendment.
Liam Byrne
Perhaps the Committee could take more comfort from the approach the Minister has enunciated this afternoon if he could give us a sense of how many companies he thinks Companies House would be able to check under the new regime each year? Can he give us a sense of the scale and proportion?
Kevin Hollinrake
That is something that we will need to see—the plan for Companies House and the resources needed for that. A figure of £50 or £100 was quoted; if the company formation fee was £50, that would raise £20 million a year. That is quite a significant amount of money. As I said, cart and horse, first we need to see what powers and resources Companies House needs, and then we can apply the right levy in terms of the company formation fee to ensure that the resources are available. A review will also be conducted to ensure that those resources will still be available as time goes on. On that note, I conclude my remarks.
Dame Margaret Hodge
I want to say a number of things. First, may I say to Conservative Back Benchers that I do not think anyone in the room wants to do anything other than encourage maximum commercial activity to maximise growth? Right? I have looked at the issue for a long time, and my view, which I believe is shared by the Minister, is that if we do not sort out the dirty money, Britain will become a less attractive place in which to invest and grow. Let us be clear that we are not in any way trying to over-regulate or impede economic and commercial activity; we want to encourage it. Let us have that as a shared objective.
Secondly, I accept and applaud the work the Government have done on trying to hone down the definition of appropriate address. The proposed clauses and amendments on that are really important, but then comes the “but”, which is that all the evidence we have, from all the leaks we have had over the past decade or so, demonstrates that shell companies abuse addresses for nefarious purposes. That is how they work.
In his concluding remarks, the Minister said that Companies House would intervene “where intelligence and reasonable information was made available to her”. We are not asking for the addresses of 4.5 million companies, or whatever the figure is. The idea of knocking on the door of all such companies is obviously completely and utterly totally absurd, and that is why we are calling for a risk-based approach. The shadow Minister, my hon. Friend the Member for Aberavon, made a very good point; if we could just use the technology intelligently, we could then see whether the same address was being used by 10, 20 or 30 companies. There are ways of doing that, but at present, there is no duty or obligation on Companies Houses to check. I have not found it, but perhaps the Minister will be able to show it to me. We also know that if we do not make that duty clear, it will fall out of the in-tray and go to the back of the to-do list. We then leave the opportunity available for dirty money to enter the country and not be checked by Companies House.
Kevin Hollinrake
If the right hon. Lady looks at the literal interpretation of her amendment, she will see that it puts an obligation on Companies House to check every single address in the UK. It says:
“Duty of the registrar to verify appropriateness of address of registered office”.
It does not say “on a spot-check basis”. It seems to be a blanket provision. I agree with much of what the right hon. Lady has said, but I think we need to be careful. The drafting of this has to be right, because, as she rightly says, we do not want to impede the normal commercial activity of 4.5 million businesses in the UK. That would be detrimental to our constituents and the citizens of this country.
Kevin Hollinrake
I beg to move, That clause 29 be transferred to the end of line 33 on page 76.
This motion would move clause 29 to the end of Part 1 of the Bill. It is proposed that it would be placed there under a new italic cross-heading, alongside other new clauses about moving addresses in the companies context (see NC5 and NC6).
The Chair
With this it will be convenient to discuss the following: Government amendment 7.
Government new clause 5—Rectification of register: service addresses.
Government new clause 6—Rectification of register: principal office addresses.
Government new clause 8—Power to require businesses to report discrepancies.
Government amendments 44 to 48.
Government amendment 50.
Kevin Hollinrake
The purpose of this set of amendments and new clauses is to better standardise address information requirements across the Companies Act 2006 to allow the registrar to take appropriate action when information is erroneous or misleading.
It is important for users of the company register that the information they find on it is accurate and has genuine utility for them. The amendments standardise the address information that companies will be required to file in relation to corporate directors, company secretaries, relevant legal entities and registerable persons—the latter two being the categories of people with significant control of a company. In future, a service address and a principal office address will be required for all those categories. The former measure will give certainty about where documents can be served, and the latter will give clarity about the physical whereabouts of the party concerned.
New clauses 5 and 6 address the circumstances in which it appears that the stated service address does not fulfil its requirements or that the person of significant control or the company cannot demonstrate that the stated address is their principal office address. The new clauses imitate section 1097A of the Companies Act 2006 as amended by clause 29 of the Bill.
Clause 29 amends the 2006 Act to give the Secretary of State the power to make regulations enabling the registrar to change a company’s registered office address when there is reason to believe that it is no longer appropriate. That power, and those contained within this group of amendments, will be an important weapon in the fight against identity hijack and abuses of innocent people’s address details.
Similarly, the purposes of the remaining amendments in the group are to strengthen the framework for changing address when it is expedient to do so, and to improve the utility of address data. I trust that the Committee will agree that these well-considered amendments and additions will add value for users of the Companies House registers and afford further protection against the nefarious use of private individuals’ information.
Seema Malhotra
I am grateful for the opportunity to speak in support the Government’s amendments and new clauses, which we welcome.
As the Minister has set out, new clauses 5, 6 and 8 give the Government the power to introduce regulations that authorise or require the registrar to change addresses and to serve documents to those with significant control. He also mentioned that new clause 5 mirrors section 1097A of the Companies Act, which confers a regulation-making power to enable the registrar to change a company’s registered address, and an equivalent power for a company’s service address. New clause 6 does the same for the registered principal address of a relevant person
As we have been discussing today, registering an address at Companies House does not require the permission of the owner or occupier of that location. It goes without saying that the negative impacts are significant, from visits from debt collectors or bailiffs to damage to a company’s credit rating. Under the regulations, anyone can apply to the registrar to have the registered office of a company changed, following a procedure. It is right that the Bill broadens that power to service addresses and principal addresses. Those are important steps, and the wider amendments close loopholes on company addresses.
New clause 8 allows documents to be served on persons of significant control over a company as well as on directors, secretaries and others. Amendment 44 requires a corporate director to include a principal office in all cases, rather than its registered or principal office. Amendments 46 and 47 do the same for corporate secretaries. Amendment 45 requires a company to provide a service address for directors who are not individuals. Amendment 48 requires a company to provide a service address for persons of significant control who are not individuals. Amendment 50 requires a principal office to be provided for all partners that are a legal entity in a limited partnership.
It goes without saying that all those amendments are welcome in limiting the value of registered offices used as a way of concealing where a company does its business. We support them, but a question remains about the missing link in the chain. We must ensure that, in the use of the powers that we have been talking about, the registrar will—I hope, from our discussions with the Minister—in due course have a duty to ensure that whatever can be done with a risk-based approach can make the most use of the additional powers and requirements being introduced in the Bill. Without that, it feels as if their impact will be far less, and the achievement of the goals of those powers and requirements will be considerably less than otherwise.
Question put and agreed to.
Clause 30
Registered email addresses etc
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clauses 30 and 31 relate to new requirements for companies to provide an email address to the registrar. When the Companies Act 2006 was drafted, the vast majority of filings presented by companies to Companies House were on paper, and communications to companies from Companies House were posted to the company. The effect of that, especially in the modern digital world, is to slow things down. These days, the vast majority of filings are made digitally, and the Companies Act needs to change to reflect that reality and more modern working practices.
Clause 30 will require that all companies maintain an appropriate email address. One benefit of that is that communications with a company can be expected to be quicker. In addition, it is a cheaper way to communicate and will provide savings for both Companies House and businesses. A failure to provide an appropriate email address will be an offence, and when a company notifies a change to its registered email address it will be obliged to provide a statement that the email address is appropriate. That will assist the registrar in instances where the email address is found not to be appropriate, and it turns out to be something other than a genuine mistake. I provide reassurance, however, that the effect of subsection (7) is that registered email addresses will not be made available for public inspection. That will reduce the risk of their being used fraudulently.
Clause 31 describes the means by which companies already on the register must provide their appropriate email address. Companies will be required to provide the appropriate email address in a statement submitted alongside their first confirmation statement after the requirements outlined in clause 30 come into effect. That transitional period has been selected to reduce the burden both on companies and on Companies House. Given the number of companies already registered with Companies House, it will provide a staggering of notifications of appropriate email addresses, allowing Companies House to deal with them in a timely manner. Companies will not have to provide an extra document to Companies House until they already have to make a required filing. That is a sensible and proportionate method of ensuring compliance with the new requirements. If the company does not supply the appropriate email address with its confirmation statement, it will be in breach of the requirements.
Seema Malhotra
I have just a few remarks. We have no issues at all with the clauses, and welcome them. Amending the Companies Act to require all companies to maintain an appropriate email address that can be used in correspondence and administrative matters with Companies House seems appropriate. The email address would be trusted, and any emails sent by the registrar would be expected to come to the attention of a person acting on behalf of the company. We therefore support clause 30.
It is also very sensible to have a transitional period. I am not sure whether clause 31 says how long the transitional period will last before the previous clause comes into effect, and I am not sure whether the Minister said so either. He may have a view on that, or he may come forward with it later.
Kevin Hollinrake
I am happy to come back to the shadow Minister with that information in due course.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Seventh sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 3rd November 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 3 November 2022 - (3 Nov 2022)
The Committee divided: - Ayes: 10 / Noes: 7 - Question accordingly agreed to.
The Committee divided: - Ayes: 10 / Noes: 7 - Question accordingly agreed to.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
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The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 1, in clause 32, page 22, leave out lines 8 to 12 and insert—
“(1) This section applies in relation to a person who has, at any time on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force, become a person subject to relevant financial sanctions and who remains so subject.”
This amendment and Amendment 3 would mean that a person who is subject to sanctions is disqualified under the GB directors disqualification legislation only if those sanctions relate to asset-freezing.
The Chair
With this it will be convenient to discuss the following:
Amendment 93, in clause 32, page 22, line 12, after “force” insert
“, or a person who is suspected of the facilitation of the evasion of sanctions by a person so designated.”
This amendment seeks to expand the criteria for disqualifying individuals from being company directors to include people suspected of facilitating evasion of UK sanctions by sanctioned individuals, in addition to sanctioned individuals themselves.
Government amendments 2 and 3.
Amendment 83, in clause 32, page 22, line 20, at end insert—
“11B Designated persons: requirement to notify the registrar
(1) This section applies in relation to a person who becomes a designated person as defined by section 9(2) of the Sanctions and Anti-Money Laundering Act 2018 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) If the person changes any details relating to any company on the register in the three months prior to the person becoming a designated person, the registrar must inform the Office of Financial Sanctions Implementation and the National Crime Agency of the changes made.”
This amendment requires Companies House to notify the OFSI and NCA if a designated person has changed any details relating to a company in the three months prior to their designation.
Clause stand part.
Clause 33 stand part.
Government amendments 4, 5 and 6.
Clause 34 stand part.
Clause 35 stand part.
Kevin Hollinrake
It is a pleasure to see you in the Chair, Ms Elliott.
Government amendment 1 is one of six amendments that the Government have tabled to clauses 32 and 34. Before I discuss the Government amendments and those tabled by the Opposition, it is worth explaining what clause 32 does in order to understand better the purpose of the Government amendments.
Currently, individuals subject to an asset freeze—designated persons under the regulations that contain prohibitions or requirements of the sort referred to in section 3(1)(a) of the Sanctions and Anti-Money Laundering Act 2018—can continue acting as a director. They can also be involved, directly or indirectly, in the promotion, formation and/or management of a company. It is not appropriate for asset-frozen individuals to be company directors. It would be perverse for a person who is forbidden from dealing with their own funds or economic resources none the less to be free to direct a company.
Clause 32 prohibits individuals subject to an asset freeze from acting as directors, and does so by amending the Company Directors Disqualification Act 1986 to prohibit individuals subject to an asset freeze on or after the day the provision comes into force from acting as directors of companies or directly or indirectly taking part in or being concerned in the promotion, formation or management of a company. Such individuals will only be permitted to take part in such activities with the leave of the court.
An individual in breach of that prohibition will be committing an offence, the maximum penalty for which will be two years’ imprisonment or a fine, or both. It will be a defence for the person if they did not know and could not reasonably have known that they were subject to an asset freeze at the time that they acted as a director or were involved in a promotion, formation or management of a company. The provision will take effect in England and Wales, and Scotland; clause 34 makes the equivalent provision for Northern Ireland.
Government amendments 1 to 6 all work to the same purpose. Collectively, they will ensure that new director disqualification measures impact those who should be prevented for public policy reasons from acting as directors, namely individuals who are subject to an asset freeze. The amendments will also ensure that we do not disproportionately and unnecessarily extend measures to categories of people whose sanction status has no bearing on whether they are fit to act as company directors. The narrower definition introduced via the amendments includes only designated persons subject to asset-freeze measures of the sort described in section 3(1) (a) of SAMLA.
Stephen Kinnock (Aberavon) (Lab)
Could I trouble the Minister to explain a little more about what categories of people who are sanctioned should therefore allowed to be designated as unqualified as directors under the legislation? He has said that amendments are an attempt to narrow the definition to assets-based, but is he therefore saying that someone who is sanctioned for human rights abuses should nevertheless be able to be qualified as a GB director?
Kevin Hollinrake
I will go on to describe the categories. As the hon. Gentleman knows, an assets freeze is a type of financial sanction. Only those sanctions are relevant to someone’s ability to manage, form or promote a company. Non-asset freeze financial sanctions, such as securities and money market instrument prohibitions, can apply to a broader category of person beyond designated persons, for example, all persons connected to a particular country. To subject entire populations of countries to the directorship ban is grossly disproportionate. It would also be operationally unenforceable, as only designated people appear in published sanctions lists.
Dame Margaret Hodge (Barking) (Lab)
I do not understand that. I do not know whether the Minister can explain it in ordinary language. It sounds to me like people with other financial interests will not be subject to this measure. I am sorry if I am being clueless, but I just do not understand what is being excluded at this point, and therefore what is included in this very welcome amendment.
Kevin Hollinrake
As I said in my explanation, for sanctions such as securities and money sanctions, those market instruments can affect entire populations; they do not just affect an individual. Those kinds of broad actions affect whole populations.
Kevin Hollinrake
The right hon. Lady can intervene again if she wants further clarification.
Dame Margaret Hodge
If someone has some ownership in the securities market—I am not a financial expert, so I do not know whether I am understanding this right—and one took action on the assets, that would have an impact beyond the individual. Is that what we are being told?
Kevin Hollinrake
No, that is not what the right hon. Lady is being told. If someone has ownership, they have an asset, and therefore if that asset is frozen they are a designated person. It is just that the instruments themselves can affect the broad category of people who may or may not own assets. What we are trying to do is target people who actually own the assets.
Dame Margaret Hodge
I am very grateful. This is really to understand it. If somebody is sanctioned, are they the sort of individual we would want to be a director of a company?
Kevin Hollinrake
It is not a person who is sanctioned. What we are trying to say is that everybody who is subject to an asset freeze is a designated person—exactly the kind of person the right hon. Lady would want to see sanctioned. Rather than getting into a to-and-fro debate, perhaps we can write to her and explain the situation in layman’s terms.
Kevin Hollinrake
Furthermore, the Foreign, Commonwealth and Development Office does not currently designate people in relation to non-asset freeze financial sanctions. Although that may change in the future, a directorship ban may not necessarily be the most appropriate measure to impose on those designated for non-asset freeze financial sanctions.
Stephen Kinnock
On the point about the FCDO not sanctioning anything apart from asset freezes, does it not impose travel bans? Is a travel ban not a non-asset freeze type of sanction?
Kevin Hollinrake
Yes, that is right. What we are focusing on in the Bill is people who are subject to asset freezes, not travel bans. Hon. Members can argue that other people should be banned from being the director of a company, but we do not think this is the appropriate place to make that restriction.
Stephen Kinnock
Are the Government saying that if somebody has been sanctioned and given a travel ban but not an asset freeze, they are still a fit and proper person to be a director of a British company?
Kevin Hollinrake
The point is that they may be or they may not be. Putting a broad ban in the Bill just because somebody is subject to a travel ban is not the appropriate way to do it, in terms of whether they are a fit and proper person to run a company.
Stephen Kinnock
Are the Government seriously arguing that somebody who has been sanctioned by the FCDO and given a travel ban but not an asset freeze is still a fit and proper person to be a GB director? If the Minister is saying that the Bill is not the proper place to deal with that issue, where in our legislative framework will it be made clear that somebody who has a travel ban under FCDO sanctions is not a fit and proper person to be director of a British company?
Kevin Hollinrake
What we are talking about here is financial sanctions. These matters relate to companies and financial sanctions, not to travel sanctions.
Let me explain these points further. Not automatically imposing these measures on potential future scenarios will give the Foreign, Commonwealth and Development Office the flexibility it needs to impose the most appropriate and meaningful conditions on people designated for financial sanctions beyond asset freezes. Without these amendments, director disqualification measures introduced by the Bill would automatically apply to anyone against whom the designation power under section 9 of SAMLA 2018 is utilised—for example, transport or immigration sanctions, or any future measures that His Majesty’s Government choose to design. Although those are extremely serious matters, such sanctions ought not by necessity impact on the person’s ability to act as a company director. Furthermore, should there be a future need to extend director disqualification measures to people subject to those broader sanctions, that can be done via future legislation as and when the need arises.
Dame Margaret Hodge
I am genuinely sorry to interrupt, and I am looking at the Minister for Security as well. It seems to me that if we consider the behaviour that somebody has done to be so bad that we want to sanction them in whatever way—through a travel ban, asset freeze or other mechanism—surely in those conditions we do not think they are a fit and proper person to start a business? I cannot see the logic of this; I cannot see where the pressure is coming from to have a distinction between the two, and why we should want it. Why are we putting this down? Why should somebody who has been guilty of a human rights abuse, who may not have an asset that we can sanction, still need to be defined as somebody who is not a fit and proper person to set up a company here? We do not want them to do that, do we?
Kevin Hollinrake
I think the best way forward on that is for myself and the Minister for Security to have a conversation. We can set out some of the reasons why that is the case in more detail in writing, as I promised to do earlier. We can then have a further discussion from there.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
When the Minister writes to my right hon. Friend the Member for Barking—which I am sure will be copied to all members of the Committee—it would be helpful to understand who would have been in scope in the original drafting, what specifically changed and who would be out of scope in the revised drafting. It would be clearer for us to know whether it has narrowed correctly, whether it is a tightening—and we should be happy with it—or whether, inadvertently, in dealing with one matter it has excluded others who might be useful to draw into the scope of the provision.
Kevin Hollinrake
That is perfectly reasonable. I tried to set out those kinds of example earlier, so I am very happy to clarify that in a letter to both the hon. Lady and the right hon. Member for Barking. Our position is that somebody might be subject to a travel ban for a number of reasons, and that does not necessarily exclude them from being a fit and proper person to run a company. Now, Members may think of some reasons why that individual should not be a fit and proper person, but I will set out why that person may still be fit and proper, and then we can all either agree, disagree or find a way of dealing with it.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It seems that if somebody is subject to a travel ban, they will fail pretty much every “know your customer” rule for every financial institution in the country. Indeed, we have set out regulations precisely to ensure that there are those tripwires. How will a company director be able to fulfil their duties? If the Minister cannot answer now, perhaps he can set that out in the correspondence to follow.
Kevin Hollinrake
That is exactly what I have already agreed to do. We will move on from that point, but, briefly, there will be instances where that person is not necessarily described as unfit or not proper to run a company, but we will set that out.
Amendment 83, tabled by the right hon. Member for Barking, introduces enhanced data sharing provisions to enable Companies House to more proactively identify and exchange information regarding suspicious activity with partners, including with law enforcement agencies. That is in addition to existing information sharing gateways and arrangements.
The Government believe it is better and more flexible to allow relevant operational agencies to formulate their own preferred approach to information exchange, rather than to define it inflexibly in primary legislation—[Interruption.] The right hon Member for Barking looks at me quizzically. I think she has picked up on one particular situation where she wants Companies House to act in a certain way, but she must agree that we could pick up myriad different situations where we might want Companies House to do something if we sat down and made a list. I am sure she does not want to get into the micromanagement of what Companies House should do in every circumstance. There will be millions of different things we expect Companies House to do. We prefer to give Companies House the objective of promoting the integrity of the registers and then hold it to account through the objectives and the provisions of the Bill. Specifying every single condition that we expect Companies House to operate in a certain situation is the wrong thing to do.
Liam Byrne
The last Bill Committee I had the pleasure of serving on was for the Data Protection Act 2018, which implements the general data protection regulation and prescribes all manner of protections for data privacy. This is our worry. When the new duty set out by the Minister for Companies House clashes with GDPR legislation, how do we resolve those clashes of principles to allow Companies House to share the data they need to share with the people they need to share it with in order to pinpoint the bad guys?
Kevin Hollinrake
That is a fair point and it is covered in the Bill, which seeks to make it easier for Companies House to share information proactively with other organisations or, indeed, commercial organisations and vice versa. Here, we are talking about specifying the exact circumstances in which that should happen, which we think is the wrong approach.
I now turn to amendment 93, which seeks to expand the criteria for disqualifying individuals from being company directors to include people suspected of facilitating evasion of UK sanctions by sanctioned individuals, in addition to the sanctioned individuals themselves. Any person enabling or facilitating the evasion of certain sanctions would already be committing an offence, for example, under regulation 19 of the Russia (Sanctions) (EU Exit) Regulations 2019. The maximum penalty on indictment is seven years in prison or a fine. Those are already dissuasive measures to ensure compliance with sanctions.
It is not appropriate and proportionate to apply director disqualification and offences to an individual who is only suspected of facilitating the evasion of sanctions. It is not clear what would constitute such suspicion and at what point a person would be prohibited to act. That could mean exposing an individual to criminal liability in circumstances reliant on suspicion alone, which I am sure the right hon. Member for Barking would not want to see. The uncertainty of what would constitute the criminal offence and potential interference with presumption of innocence has implications for the rule of law. I therefore ask hon. Members not to press their amendment.
I will now speak to clause 33. New section 11A of the Company Directors Disqualification Act 1986, introduced by the Bill, prohibits individuals subject to relevant financial sanctions, such as asset freezes, from acting as directors of companies. The clause limits the scope that prohibition by disapplying it for building societies, incorporated friendly societies, NHS foundation trusts, registered societies, charitable incorporated organisations, further education bodies and protected cell companies. The Secretary of State may, by regulations, repeal any of the subsections in the section, therefore applying the prohibition on individuals subject to an asset freeze from acting as directors in any of the organisation types in the clause. That allows the Secretary of State to apply those measures only to company directors in line with the policy focus of the measures in the Bill, without that unnecessarily applying to other entities currently not in scope. That will take effect in England and Wales and Scotland. Clause 35 makes equivalent provision for Northern Ireland.
Stephen Kinnock
Clause 32 raises important questions about who we should and should not allow to hold positions of power and responsibility in UK companies.
Currently, under the 1986 Act, the circumstances in which a disqualification order can be imposed are strictly limited. For the most part, they involve individuals with a criminal record for breaches of company legislation involving UK companies. Clause 32 expands the disqualification criteria to provide an explicit prohibition on any sanctioned individual serving as a company director. That is entirely proper, but the Opposition’s question is: why are the Government not going any further? They have considered who should be banned from serving as a company director, but the decision to add only those specifically designated under UK sanctions legislation feels like a missed opportunity.
We tabled amendment 93 to better understand and probe the Government’s thinking and to explore how additional changes could contribute to the Bill’s aims. The amendment is largely self-explanatory: it would add to the criteria those who aid and abet sanctioned individuals, or so-called “enablers” who help sanctioned individuals to evade our laws. The Minister will be aware of the army of lawyers, accountants and other so-called service providers who are in many ways doing Putin’s dirty work in London. In our view, it is crucial that they are caught in the net that the Bill seeks to cast.
Kevin Hollinrake
I totally agree with the hon. Gentleman that we need to clamp down on the enablers of dirty money, but does he understand the point behind the provisions? There are serious penalties for somebody convicted of breaking sanctions—up to seven years in jail—but his amendment seeks to penalise somebody who is not convicted but merely suspected of facilitating that kind of activity. Does he understand why that is a difficultly for the Government?
Stephen Kinnock
I do understand that; the Minister makes a valid point. As I was saying, this is what one might describe as a probing amendment to try to get from him a sense of the proactive action the Government are going to take to go after those enablers.
Stephen Kinnock
I thank my right hon. Friend for that extremely useful and eloquent intervention. That is absolutely the case, because the enablers are, by definition, experts in knowing how to play and game the system. We know it is going on, but they are notoriously difficult to track down. If we put the onus on industries to act proactively to prevent this sort of activity, that changes the game and makes prevention much more of a duty. I agree with the Minister that we cannot punish people if they are only suspected, but we can have a proactive ex ante approach. I would be grateful to hear his thoughts on that. In many ways, the amendment was designed to illicit a response from the Minister on what my right. hon Friend has just so rightly described.
The Minister has already pointed out that specifically designated individuals represent just the tip of the iceberg in terms of the scale of economic crime in the United Kingdom. There are any number of others who seek to exploit weaknesses in our laws and our ability to enforce them—for example, by creating opaque corporate structures to hide kleptocrats’ assets. Adding to the criteria those who help to facilitate the evasion of sanctions by designated individuals—not necessarily as our amendment suggests, but through a more root-and-branch, proactive ex ante approach—is one way the Government could really improve the Bill. I would appreciate the Minister’s thoughts on that. Restrictions on company directorships, as envisaged by amendment 93, should go much further.
Clause 33 extends the provisions of clause 32 to sectors other than companies—for example, building societies—and clauses 34 and 35 extend the same provisions to Northern Ireland. We support those clauses and, of course, amendment 83, which was tabled by my right hon. Friend the Member for Barking.
At various points in recent years Ministers have outlined a number of specific proposals, which now appear to have fallen by the wayside. It seems reasonable to expect that all companies should have at least one director who is an actual human being. We do not have to be experts to intuit how easy it is to abuse the existing system, which allows a company to name another company as its director provided that at least one human being is on its board. In the Government’s own words in a 2021 consultation paper:
“Evidence suggests that the use of corporate directors can muddy the waters around ownership and provide a screen behind which to conduct illicit activity…More generally the opacity they create can weaken corporate governance by preventing individual accountability.”
The Government even went so far as legislating in the Small Business, Enterprise and Employment Act 2015 to enable the Secretary of State to impose a ban on corporate directors. After more than seven years, however, regulations to implement that have yet to be published. In fact, clause 37—on which my hon. Friend the Member for Feltham and Heston will speak shortly—makes some changes to the relevant section of the 2015 Act. The apparent intent of the changes, which is to make it easier for corporate directors to be held to account for their action, is certainly welcome, but what is not clear to Opposition Members is why the Government have decided to amend the primary legislation—namely, the 2015 Act—when, as we understand it, the secondary legislation to implement the ban on corporate directorships under that Act has still to be introduced. Perhaps the Minister will shed some light on that.
Another glaring omission is the issue of nominee directorships. As long ago as 2013, the Government raised that as an issue that company law reform should deal with. Again, the Government’s own words provide us with a useful summary of the problem:
“Where a company is being used to facilitate criminal activity, the individuals who really control the way that the company is run will likely want to avoid making this information public. They may use ‘nominee directors’ to do this. Nominee directors are individuals who go on the public record as the director of the company to be, effectively, a ‘straw man’ or ‘front man’ for the company. The beneficial owner ‘stands behind’ the nominee and controls the way that the company is run”,
de facto. The failure to address that in legislation remains a cause for serious concern.
Kevin Hollinrake
I am not sure I understand the hon. Gentleman’s point. Irrespective of who the directors are, if people of significant control are exerting such influence, they will have to be named and have their ID verified under the Bill.
Stephen Kinnock
My understanding is that the regulations under the 2015 Act have not yet been put in place. Our question is: why are the Government not implementing those regulations but instead seeking to introduce the provisions in the Bill? That is simply a point for clarification and explanation. We welcome the fact that ID verification is provided for, but we are trying to get to the bottom of who a nominee director is and who actually controls a company. It would be useful to understand what happened between 2015 and 2022 to prevent the implementation of the regulations.
Kevin Hollinrake
Two separate things are going on. The Bill enables regulations to ban corporate directorships unless the corporation itself has all its directors named and they are all actual persons and ID-verified. It will do exactly that. The other point that I think the hon. Gentleman is talking about is people who sit behind companies and influence them but might not be named in those companies. If people do that, they are persons of significant control; under the definitions in the Bill, someone does not have to own 25% of the shares of a company to be a person of significant control, but they have to be named and ID-verified.
Stephen Kinnock
I will now stand up and allow the Minister to intervene on me.
Kevin Hollinrake
There are two separate things going on here: ownership and directors. We were talking about directors, and the right hon. Lady is now talking about ownership, which is a slightly different thing, but we will talk later about ownership and how that information has to be made public under this legislation.
Stephen Kinnock
I thank the Minister; I think he has just provided clarification that he is confident that there is now a ban on the use of nominee directors as a front to obscure true beneficial ownership. We are grateful for that absolute reassurance. There was perhaps a misunderstanding on our side of some of the technicalities in the Bill that I am seeking to probe, so I am grateful to the Minister for that clarification.
It is worth noting that the World Bank published a report just a few months ago that explained how, under current UK law, nominee directors of UK companies can neglect their duties by failing to submit accounts and certify companies as dormant, even though tens of millions of pounds are passing through those accounts. A crucial point is that the impunity of delinquent nominee directors is especially pronounced if such nominees are not UK residents. On the rare occasions that they are questioned, such directors tend to make the legally false argument that because they are only nominees they have no responsibility to know anything about the company, let alone control its actions.
The lack of progress on this issue—certainly until the Bill’s introduction—has raised concerns with us. Again, perhaps the Minister will say a little more about the Government’s thinking. What does he think has been the impact of not implementing the regulations from the 2015 Act? Can he reassure us with absolute confidence that the issue of delinquent nominee directors will be eradicated by the passing of the Bill?
Kevin Hollinrake
I always listen to the right hon. Lady very carefully, so she can be sure that I have been listening. I am keen to tie up—as the shadow Minister, the hon. Member for Feltham and Heston, put it—any loopholes that we identify in the legislation. That is one of the purposes of Committee stage.
Broadly, I think the Committee and the wider House would accept that our sanctions regime, and the supervision regime at Companies House, are not fit for purpose today—that is why we are legislating. Clearly, the actions taken by Russia in recent months have further highlighted the work we need to do and the reform we need to put in place. The comments are welcome, and I think we are all trying to get to the same end point; we just want to make sure people do not suffer unintended consequences in the process.
I think the right hon. Lady said that Companies House is very poor at sharing information. That is probably a little unfair. Currently, it is not there to share information, other than by putting things on a public register for people to seek out; that has been its role in the past. Today, it is a register—we might call it a dumb register—and that is what we are seeking to change. We are seeking to give the registrar responsibility for promoting the integrity of the registers so that people can rely on the information in them and, as it says in the registrar’s objectives, to minimise unlawful activities and the facilitation of unlawful activities.
Dame Margaret Hodge
Obviously, Companies House has not had to do this to date; it has just been a library of dud data, really. What I was drawing to the Minister’s attention—I am sure he agrees with this—is that all the enforcement agencies working in this territory are poor at sharing information. That is why the stuff we get from whistleblowers so often falls through the middle somewhere and does not get tackled. That is why we should put a duty on the agencies to share information; we would not tell them how to do it, but just say, “This is really important if we are to bear down on wrongdoing.”
Kevin Hollinrake
I am still not sure I agree. Of course there are elements of our enforcement agencies that we are all frustrated by at times, but to my mind nobody goes to work to do a bad job. People are doing their best, often in very difficult circumstances. We all agree that we need to hold our enforcement agencies to account and properly resource them. What we are trying to do is provide them with more powers and ability, and then hold them to account for the use of those powers.
Liam Byrne
The Minister is being characteristically generous. As he reflects on the huge wisdom of the amendments tabled by my right hon. Friend the Member for Barking and perhaps returns to the Committee with some of his own, could he share with us how many of the 1,200 individuals and 120 businesses that have been sanctioned since Russia’s invasion of Ukraine have had directorships suspended?
Kevin Hollinrake
I do not know the answer to that question. When the Bill has received Royal Assent, it will facilitate exactly that process. At the moment, Companies House does not have the powers we would like it to have to bring that about. That is exactly what we are debating.
On amendment 83, I think the right hon. Member for Barking implies that Companies House knows of the changes with a company on an ongoing, dynamic basis. That is not how things work. Companies House does not have access to information until a company files an annual return. Companies do not provide information to Companies House on a daily or even monthly basis. That is not how it works.
Dame Margaret Hodge
But under the legislation, companies will have to provide information on changes of directorships and so on within 28 days, we hope—we had this argument yesterday—so Companies House will have that. I am not expecting it to go through 4 million companies, but there must be a way that the information can be highlighted by the IT system and, if we know a director is somebody who has been sanctioned, that information can be shared. Under the legislation, if a company has changed a directorship, as Usmanov did, it will have to provide that information within 28 days or whatever, and surely that will be there to share.
Kevin Hollinrake
A change of directorship, yes, but I do not think that is the situation the right hon. Lady was describing. She was talking about a movement of assets, as I understand it. I do not know the detail of the case she is talking about—[Interruption.] May I finish? If she is trying to prevent a person from moving assets around on the basis that Companies House needs to know about that as it is happening, that situation cannot be delivered. Companies can move assets around without asking the permission of Companies House or notifying it, so her amendment does not serve any purpose in that regard.
The right hon. Lady is absolutely right that any information that Companies House is made aware of and deems to be pointing to some kind of risk should be shared with the relevant agencies. We all agree with that point, and the Bill allows Companies House to do that for the first time. That is what we are trying to facilitate, but directing it to act in a certain way on a certain piece of information will lead us down a million rabbit holes, and we do not have the time or the ability to implement that through the Bill. We have to give it the powers and then let it get on with it while holding it to account against those broader objectives.
Alison Thewliss
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.
Kevin Hollinrake
That situation would be covered under the Bill because company naming is part of it. That is a different thing from what the right hon. Member for Barking was describing. She was taking about the movement of assets, and Companies House would not have access to that information on a dynamic basis. It clearly would have information on a name or director change, and it can act as it deems appropriate, in terms of notifying authorities or making further enquiries about what the company is doing.
Seema Malhotra
I am grateful to the Minister for giving way. I feel that we have allowed this conversation to get a bit more complicated than it needs to be on one specific point in relation to amendment 83, and I think the Minister has made it slightly more complicated too.
I understand that the Minister may be wondering whether a huge scope of things have happened in the three months prior to a person becoming a designated person. Does he agree that proposed new section 11B(2) could be tighter so that where it says, “If the person changes”, it specifies changes to owners, directors or other information relating to the company on the register in the three months prior to the person becoming a designated person? There should be a way, through the design of the computer systems, which is being undertaken as part of the transformation in Companies House, for the registrar to trigger an automatic alert when somebody becomes a designated person to inform the Office of Financial Sanctions Implementation and the National Crime Agency that something had happened on the record in the previous three months. That would therefore not require a huge amount of resource and labour, but there would be a useful report and trigger if the Bill required the registrar to do that.
Kevin Hollinrake
I do not disagree with that, but my point was not that it would be too much work for the registrar; I never said that at all. My point was that may well be that the Companies House registrar looks at the amendment—she may be listening to this debate—thinks, “It’s a really good idea to do that,” and builds that into her systems. As legislators, we could direct Companies House to do a million things, but surely we should give it the power to share this information in a way that provides the most appropriate risk alert processes. We should let it get on with it while holding it to account for the broader objectives. We should not micromanage Companies House.
Seema Malhotra
I thank the Minister for giving way. I do not think this is a case of micromanagement, and nor are we asking for hundreds of things. We are making a specific request, based on specific research. I think an automatic alert could be triggered, and perhaps the Minister—
Kevin Hollinrake
As I have already said, such information-sharing is exactly what the Bill facilitates. It may well be that Companies House decides that that is exactly the right trigger to share information with the OFSI. Our view is that we should not direct Companies House in that level of detail as to how the registrar should perform her wider duty. We will continue to disagree on that point if the hon. Lady presses her amendment.
Stephen Kinnock
I thank the Minister for allowing me to intervene where I should have done in the first place. On the quantum that we are considering, as my right hon. Friend the Member for Birmingham, Hodge Hill has just said, 1,200 individuals and 120 businesses have been sanctioned since Putin’s illegal invasion of Ukraine. We are not talking about a huge number. Perhaps the terms of the amendment tabled by my right hon. Friend the Member for Barking could be more tightly drawn to make it clear that it is not about every movement of assets and everything a company has done, but simply designed to ensure that if there was a change of director or change of address, the registrar should share that information with the other relevant agencies. The quantum is quite small, so would the Minister consider that proposal?
Kevin Hollinrake
I think we need to move on, and I think the hon. Gentleman is missing the point as well. This is not about my deciding whether the proposal is right or wrong, or whether Companies House has or has not got the resources. For me, it should have the resources that it needs. However, it is for the organisation itself to determine the best way to alert other authorities to the risk. That is the principle at issue here, and it is one to which I will strongly adhere.
The argument about enablers has been well made, and we have referred to corporate criminal liability and the failure to prevent that. As the Committee is aware, I have been a key advocate in introducing such liability for fraud and other offences. Members may have noted the details of a case this morning, in which the current offence of failing to prevent bribery was a key element in the case against Glencore, which has pleaded guilty to that offence. The Serious Fraud Office launched a successful prosecution against Glencore and, although the number of times it has proceeded against a company is far too few, that prosecution shows that the current legislation can be effective. I am keen to discuss that further in our proceedings.
On travel bans and securities, Committee members might find it useful to sit down with officials to discuss those measures, so that they then understand why those things might not mean that a person is not a fit and proper individual to be a director of a company. I would be happy to extend that opportunity to members of the Committee.
The hon. Member for Glasgow Central spoke about nominee directors and associated abuses. Under the terms of the Bill, any director, nominee or otherwise, who acts outside the terms of the legislation and is subject to the control of another undisclosed person could be put in jail for two years. That is exactly what we are seeking to do and to clamp down on such inappropriate use of companies.
In terms of what the hon. Member for Birmingham, Hodge Hill said—is it right hon. or hon?
Kevin Hollinrake
Quite right, too; the right hon. Gentleman was Chief Secretary to the Treasury—I will go no further. The Foreign and Commonwealth Office is not responsible for the Office of Financial Sanctions Implementation—that is a function of His Majesty’s Treasury—which determines how the sanctions regime works once people are sanctioned. The OFSI ensures that the regime works effectively. It is fair to say that when that organisation was established fairly recently, it was not ready for the amount of work it had to do. It has been scaled up to make it a more effective organisation, which has been discussed in the context of resources generally.
Liam Byrne
Let me give the Minister a bit of feedback from my time as Chief Secretary to the Treasury. If a spending Minister comes before the Chief Secretary to say: “I’m really sorry, but we have a legal duty to do this”, it is an awful lot easier for them to win the case for the resource that they need than when they do not have the weight of that legal duty on their shoulders. Therefore, automatic consideration of a sanctioned individual for suspension of a directorship is a good thing to enshrine in a legal duty. I am trying to be helpful to the Minister, because I want him to be able to win arguments with the Treasury for the resources that he needs to achieve the objectives we both share.
Kevin Hollinrake
Yes, but we have to make careful use of our resources, otherwise there would be no money left.
We agree that sanctioned individuals should not be allowed to be directors of companies. That is what we are talking about, so there is no disagreement. Our disagreement is about how we share information between different agencies, and whether we should tell them how to do it, or they should do it themselves. We are parliamentarians; we are not experts in financial crime or how the financial system works. Wherever we can, we should leave it to the experts to determine the best way to share the information between agencies and—the important thing we are doing here—give them the powers to do that.
Question put, That the amendment be made.
The Chair
With this it will be convenient to discuss the following:
Clauses 37 to 43 stand part.
New clause 35—Person convicted under National Minimum Wage Act not to be appointed as director—
‘(1) The Company Directors Disqualification Act 1986 is amended as follows.
(2) After Clause 5A (Disqualification for certain convictions abroad) insert—
“5B Person convicted under National Minimum Wage Act not to be appointed as director
(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.
(3) An appointment made in contravention of this section is void.”’
This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.
Kevin Hollinrake
Before I turn to the new clause, I will set out the intentions and effect of the clauses in the group. As part of the reform of Companies House, it is necessary to update the provisions regarding company directors. Most crucial to that is the introduction of a prohibition on people acting as company directors when they have not had their identities verified and reported their directorships to Companies House. That is a critical part of improving the integrity of the companies register. Accordingly, it is appropriate to provide teeth to ensure compliance with those obligations. The Bill will also create grounds for director disqualification if the person fails to verify their identity.
On new clause 35, all businesses, irrespective of their size or business sector, are responsible for paying their staff the correct minimum wage. The vast majority of responsible employers make sure they get it right. I assure the hon. Members for Aberavon and for Feltham and Heston that the Government take enforcing the minimum wage seriously, and we are clear that anyone who is entitled to be paid the minimum wage should receive it. We take robust enforcement action against employers who do not pay their staff correctly. Every area of regulation affecting businesses, whether it is employment practices or environmental impacts, has its own enforcement and penalty frameworks.
It is not entirely clear why we should single out breaches of the national minimum wage—important though it is—as being worthy of leading to disqualification. Nor does it immediately follow that someone who has breached their regulatory obligations in one of those areas should automatically be considered unfit to be a company director in the round. Having said that, I have some understanding when it comes to the new clause. There have been 16 people convicted under the National Minimum Wage Act 1998. I want to do some further research on that to see what has happened to those people and their director qualification or disqualification. That might inform debate more clearly.
I draw hon. Members’ attention to the fact that the greater flexibility in the Bill over the use of Companies House fees will cover the company investigation teams at the Insolvency Service, allowing the Government the potential to expand their work and go after a greater proportion of rogue directors. I respectfully ask hon. Members not to press the new clause.
Dame Margaret Hodge
This is a question of clarification: if a director is disqualified, can he or she still act as a shadow director?
Kevin Hollinrake
It depends on how the right hon. Lady defines a shadow director. If she is implying that they are a person of significant control influencing others, which I guess is what she means, I will point her to the definitions of a person of significant control. They are those who hold
“more than 25% of shares in the company…more than 25% of voting rights in the company…the right to appoint or remove the majority of the board of directors”
that might influence or control a company through other means. That means that the person is still covered under the legislation; if a person is exerting that control, they should be designated as a person of significant control and ID verified, as discussed previously. Any person who became disqualified before the clause comes into force and is disqualified at that time will also cease holding the office of director.
Clause 37 amends some yet to be commenced provisions of the Companies Act 2006 on when a corporate director can act and minimum age requirements for directors. The Small Business, Enterprise and Employment Act 2015 amended the 2006 Act to establish—as the hon. Member for Aberavon said—that company directors should, in future, be natural persons except where they have met specific requirements determined by regulations. We will bring forward those regulations following the enactment of the Bill to establish the exemptions to the general natural person director rule. After a transition period, companies must ensure that any corporate directors on their boards are compliant with the regulated exemption criteria. Where they fail to do so, those director appointments will be void once the transition period ends.
The clause makes it clear that should any non-compliant corporate director continue to act in the capacity of either a de facto or shadow director after the end of the transition period, they will be held liable for the consequences of their actions as they would be if they were a validly appointed director. The clause makes a similar clarification in respect of the principles that will apply in respect of an individual who does not meet minimum age requirements for a company director. In such instances, the appointment would also be void, but those who continue to purport to act as a director or operate in a shadow capacity will continue to be exposed to personal liability none the less.
Clause 38 repeals the power for the Secretary of State to require that companies with disqualified directors who have been given permission by the court to act as a director make a statement to the registrar confirming that permission. The power is no longer required, because the Bill introduces new requirements to provide statements about disqualification and permissions to act in sections 12, 12A, 167G and 790LA.
Clause 39 introduces a prohibition on an individual acting as a director unless their ID is verified or exempted from that requirement under the regulations. It establishes a duty on a company to ensure that unverified individuals do not act as directors unless they are exempted from the ID verification requirement. Failure to comply with the duty constitutes an offence committed by the company and every officer of the company who is in default.
Clause 40 will make it a criminal offence for a person to act as a director unless their appointment has been notified to the registrar. It will be a defence for a person to prove that they reasonably believed that the notice of their appointment had been given to the registrar. The actions taken by an unverified director, or a director whose appointment has not been reported to the registrar, will remain valid to ensure that third parties who have relied on the actions of an unverified director are not unfairly disadvantaged.
We want there to be consequences for not complying with ID verification obligations, and clauses 41 and 42 help us to achieve that. The clauses allow for the disqualification of individuals where they are persistently in default of the ID verification requirements for directors and people with significant control, or where they have been convicted by consequence of such contravention. Clause 41 legislates in respect of Great Britain, with clause 42 legislating to create equivalent powers for Northern Ireland.
Finally, clause 43 makes amendments to section 246 of the Companies Act 2006 regarding addresses on public record. It is consequential to other amendments to no longer require companies to hold their own local registers of directors.
The Chair
Before I call Seema Malhotra, I remind the Front-Bench spokespeople that they need to indicate to the Chair that they want to speak.
Economic Crime and Corporate Transparency Bill (Eighth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 3rd November 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 3 November 2022 - (3 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Mr Robertson. I will continue to speak to this group, finishing with a few remarks about clause 43 and our new clause 35.
We welcome clause 43 and recognise that it reflects new circumstances that arise from the Bill’s abolition of local registers of directors, set out in clause 50. We have further questions on that, which we will deal with when we come to later clauses.
On new clause 35, let me put our argument on the record. I thank the Minister for his comments, which I hope suggest that we will move on in some form, perhaps with the data he comes back with. Will he update us on when he expects to come back to us, so that we can come to a conclusion, and perhaps on an alternative way to make progress on the matter, during the passage of the Bill?
The reason my hon. Friend the Member for Aberavon and I tabled new clause 35 is to include provision such that persons convicted under the National Minimum Wage Act 1998 cannot be appointed as company directors. There are real questions about whether we would want an employer who wilfully neglected or refused to pay the national minimum wage to a worker who qualified for it to be the director of a company after the Bill comes fully into force. The new clause would strengthen a lot of the measures in the Bill, because we are talking about people we hope to trust to undertake their responsibilities as a director.
The Bill introduces a substantial amount of regulation about who can and cannot serve as a company director as a result of criminal or potentially criminal practices, so this feels like the right place for consideration of such a measure. I will welcome the Minister’s comments and I look forward to continuing to work with him as we make progress.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Mr Robertson.
I am not quite clear when I will be able to get the information that we should have before we look at the matter in new clause 35. I think it is right to identify the scale and nature of the problem before we legislate, but I am certainly keen to do so, not least in my role as the person responsible for labour frameworks and markets.
I will respond to one or two of the comments of the hon. Member for Feltham and Heston. We already have power to ban directors disqualified overseas, under section 5A of the Company Directors Disqualification Act 1986. We can and have taken steps to disqualify directors who have been convicted of relevant foreign offences. On exemptions, I think we dealt with exemption from identity verification in a previous sitting. This will be set out in regulation, but that will probably include people who have already had their ID verified, for example.
The hon. Lady also asked about the defence of “reasonably believed” in clause 40. That would cover a situation where somebody had broken the rules but perhaps did not know that the rules had been broken. That would of course be subject to some kind of investigation, and the person could say, “It wasn’t me who submitted the return. I am not guilty of an offence.” It is a defence that somebody believed the information had been submitted correctly when actually it had not. I think that is a reasonable provision, which investigators would be able to take into account before taking forward a prosecution.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clauses 37 to 42 ordered to stand part of the Bill.
Clause 43
Registrar’s power to change a director’s service address
Amendment made: 7, in clause 43, page 31, line 10, at end insert
“(but see subsection (4A)).
(4A) Subsection (4)—
(a) does not limit the service address that may be registered for the director under regulations under section 1097B (rectification of register), and
(b) ceases to apply in relation to the director if a new service address is registered for the director under those regulations.’”—(Kevin Hollinrake.)
Where a director’s service address is moved to their residential address under section 246 of the Companies Act 2006, subsection (4) imposes restrictions on further changes. This amendment ensures those restrictions do not bite on further changes under new section 1097B (inserted by NC5).
Clause 43, as amended, ordered to stand part of the Bill.
Clause 44
Register of members: name to be included
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 45 to 48 stand part.
That schedule 1 be the First schedule to the Bill.
Kevin Hollinrake
A core purpose of the companies register is to provide details of company ownership. Users of the register, such as those who use it to confirm basic information about a company or to carry out due diligence work, have reported some problems with the way company ownership data is recorded. These clauses introduce measures to increase the usefulness of the information held on the members of UK companies. Collectively, they will mean that users of the register have more certainty about who they are doing business with, building confidence in the integrity of the companies register and preventing bad actors from exploiting it.
Clause 44 amends sections 112, 113 and 115 of the Companies Act 2006, which concern the provision of information relating to the members of a company. The clause provides that in the case of an individual, the requirement to enter a name in the register of members and the index of members means entering the individual’s forename and surname. In the future, entries will have to read “Joe Bloggs” and not “J. Bloggs”. The clause is necessary because there is currently no definition of “name” for members in the 2006 Act or associated regulations.
Clause 44 also provides that in the case of an individual usually known by a title, the title may be entered in the register of members and the index of members instead of the individual’s forename and surname. The 2006 Act currently allows directors to state their title instead of their forename and surname, or in addition to either or both of them, but it does not contain equivalent provision for members. The clause provides that if a person’s name or title is entered in a company’s register of members in a form that does not comply with the new requirements, that does not affect the person’s becoming a member of the company. It may well be that that was not the fault of the member themselves.
The objective of the clause is to increase transparency rather than introduce a condition around name format into the concept of membership. If a company fails to comply with the requirements of section 113 and/or section 115 of the 2006 Act, an offence is committed by the company, and every officer in default, so non-compliance can be pursued.
Clause 45 inserts into the 2006 Act new section 113A, which will allow the Secretary of State to make regulations to change the information required to be entered in a company’s register of members. Regulations could, for example, require all members to provide an address. Currently, the initial members, or subscribers, of a company are required to provide their name and address, but those who become members later are only required to provide their name.
As reforms are implemented to Companies House and the companies register, it is possible that further opportunities to improve information on shareholdings will be identified, on which the Government would want to act swiftly. For example, law enforcement may identify additional types of information that the registrar could require that would help in the prevention and detection of crime.
The power in clause 45 will align the position for members with that for directors and people with significant control, in respect of which there are already powers to amend the required information. Information provided in a company’s register of members is provided to Companies House via the company’s confirmation statement. This power will increase the usefulness of the information on the companies register.
Clause 46 amends section 125(1) of the Companies Act 2006, which gives the court the power to rectify the register. Without the clause, the court may order the rectification of the members register only in relation to names. The clause broadens the rectification power so that it is available in respect of any information on the members register. It means that a person aggrieved, any member of the company, or the company can apply to the court for rectification of the members register if the register does not contain necessary information, or if it contains unnecessary information. It is conceivable that information other than names may be included in a company’s register of members in error.
Given that clause 45 gives the Secretary of State the power to make regulations that require additional information to be entered in a company’s register of members, it is crucial that the rectification power is broadened. Information provided in a company’s register of members is provided to Companies House via the company’s confirmation statement. A wider power to rectify the members register will increase its integrity and, by extension, that of the company’s register as a whole.
As well as introducing measures to increase the transparency of company ownership, the Bill will introduce measures to prevent the abuse of personal information held on the Companies House register. Proposed new section 120A of the Companies Act, inserted by clause 47, allows the Secretary of State to make regulations that empower the registrar to order a company to refrain from using or disclosing individual membership information, except in specified circumstances. Members of a company will then be able to apply to the registrar to request that the order be made to the company.
Clause 47 also amends sections 114 to 116 and 120 of the Companies Act, so that where a company is ordered not to use or disclose member information, other obligations that would otherwise require that information to be inspectable by the public are switched off. The clause also provides that if a company fails to comply with an order for the restriction of the use or disclosure of information, an offence is committed by the company and every officer of the company who is in default. Adding such an offence is proportionate given the serious risk that individuals who have applied for protection face.
Clause 48 amends the Companies Act to remove the option for private, non-traded companies to elect to keep information about their members solely on the central register maintained by the registrar. The effect will be to require private companies that previously chose to keep information only on the central register to maintain their own register of members. It will be the sole responsibility of the company to update and maintain its register of members. The register of members is separate from the register of companies, which is maintained by the registrar.
Clause 48 also inserts a new transitional provision in relation to the abolition of the option to elect to keep members registers at Companies House rather than locally, requiring companies to enter in their register of members all the information that would have been required had the election never been made. Such companies will then be required to provide any updates to the registrar about their members via the confirmation statement. The clause also makes various consequential amendments to other sections of the Companies Act, which are in schedule 1.
Clause 48 also clarifies that, while the provisions relating to the central register were in force, the information about the members of a company that elected to hold membership information on the central register is to be considered prima facie evidence about the members of the company. However, from the point that the central register is abolished by the Bill, the prima facie evidence about the members of a company can be found in the company’s own register, held under section 113 of the Companies Act 2006.
Seema Malhotra
I thank the Minister for his comprehensive walk through these clauses, which I am sure he wrote overnight. It was very helpful. I have a few questions, but I will start by speaking to clause 44, which amends the Companies Act 2006 so that for individuals entered in a register of members, commonly denoting shareholders, “name” refers to a forename and surname. I have made the point before that it is quite staggering that we have not had such specification of the information that should be required. We absolutely welcome this measure and the encouraging of greater transparency of company shareholders.
We support the clause, but it seems to be countered by moves that arguably encourage less transparency of shareholders. In particular, the withdrawal of the central register, with information held only by the company rather than centrally, will make it harder to have public access and knowledge of who shareholders are.
It is important for us to emphasise why transparency continues to be so important. Transparency International has noted that, until now, shareholder information has been extremely limited and difficult to access. That has been a core factor in the UK’s unwanted reputation as a hub for dirty money and economic crime. The lack of any substantial rules and regulations around shareholder information reduces the reliability of the information published by Companies House and, in turn, of the totality of information about a company held by Companies House. We have tabled amendments to later clauses, but I wanted to make that broader point. While we talk separately about directors, officers and shareholders, in the end we are talking about entities working together as a whole, and wanting transparency about activity, and who is involved in it, as a whole.
Clause 45 concerns the power to amend required information. As the Minister outlined, the clause allows the Secretary of State to make regulations to specify changes to the information that must be entered in a company’s register of members. This is an important clause, and I have a couple of questions for the Minister. First, is there any consideration of what information may be required? I think there was some suggestion about the addresses of company members. In the Minister’s opinion, would the clause provide for a potential future decision by the Secretary of State to bring forward proposals to request identity verification and perhaps directors’ IDs from shareholders with shares of less than 5%?
I wonder whether this should be among the requirements for transparency of shareholder information in the Bill, which specifies changes to information that must be entered. If there are measures that could be brought forward, should they not be in the Bill rather than in future regulations? Is it a case of simply saying, “We will go as far as we think is relevant now and leave the option open for additions later”? Where the Minister thinks there could be further measures later, it would be interesting to debate whether some of them could be brought forward.
The Minister clearly set out the arguments for clause 46, and we support the expansion of the court’s powers.
Clause 47 relates to the register of members and the protection of information. As the Minister outlined, the clause would allow the Secretary of State to make regulations requiring a company to refrain from using or disclosing individual membership information except in specified circumstances. I was not fully clear who may make applications to the registrar not to use or disclose information. There may well be good reasons for such a request, but what individuals do the Government have in mind and in what circumstances could such a direction be made? Procedures in the future may result in less transparency, and for good reason, but it is important that we understand the reasons for that and that they are on public record as we consider the Bill.
It is possible that transparency is countered by the implementation of the Bill and the subsequent legislation for which it makes provision. That may reduce transparency by backdoor means, as it were, and reduce its scope to apply to those very individuals whom we may want to subject to such transparency. I am sure that the Minister understands why we want to probe that issue.
Clause 48 concerns the removal of the option to use the central register. Given all the measures relating to transparency and shareholder information, I am concerned about their total effect. The important principle running through the Bill is increased transparency in terms of publication and searchability, but the Bill also provides for private companies to exercise the option not to be on the central register. Perhaps I have not followed all the detail relating to the disclosure of shareholder information, but after the Bill’s implementation, I think there will be less publicly available shareholder information and not more. I look forward to the Minister’s response to those concerns.
Kevin Hollinrake
I think I have noted all the points raised by the hon. Lady. She is absolutely right that, in future, the Secretary of State could, through regulations, elect for the collection of more information from shareholders or any other relevant parties. We must all acknowledge that we do not want to put undue burdens on people who are trying to go about their normal, legitimate, bona fide commercial business. We are trying to strike a balance to ensure that we get the information from those we need it from, who may be acting for nefarious purposes.
On the hon. Lady’s point about the circumstances in which someone may want to remove details from the public register, that individual could be a celebrity, who would not want their address held publicly, or someone who fears domestic abuse. Those are the types of cases and circumstances that may arise. The information would still be held, just not in public. The law enforcement agencies would still have access to it, but the general public would not. When making such an application for removal, an individual would have to demonstrate evidence of risk, and could not simply say, “I want that information removing.” The registrar can refer cases to law enforcement agencies if she is in any doubt about whether the application has been made for bona fide reasons. She can also revoke a removal, if she feels that she has been given false information. I think they are reasonable provisions, and that judgment will be exercised.
On updating the register, the hon. Lady has tabled amendment 104, which we will consider in the next group. Perhaps we will have a good debate about that then.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Clauses 45 to 48 ordered to stand part of the Bill.
Schedule 1 agreed to.
Clause 49
Membership information: one-off statement
Seema Malhotra
I beg to move amendment 104, in clause 49, page 34, line 32, after “time” insert “and annually thereafter”.
This amendment would require a confirmation statement with company membership information as set out in clause 49 subsection 2 to be submitted annually.
The clause requires a company to provide a full list of shareholders when the first confirmation statement is filed after clause 44(3) comes into force. As I said, the clause is a welcome step in increasing the transparency of shareholder ownership and information, which we support strongly. Nevertheless, as has been said, the provisions in the Bill on shareholder information could and should go further. That is the context in which we tabled the amendment.
The amendment would provide that the confirmation statement about the company membership under this clause is submitted not only on a one-off basis but annually. The principle of shareholder information being submitted is one we support fully. If the Government believe that should be a one-off, I would be grateful if the Minister could explain why it need not be annual.
As I have mentioned, opaque shareholder ownership is a significant barrier to ensuring transparency and tackling economic crime. An example that has been cited already is Savaro Ltd. In August 2020, tonnes of ammonium nitrate exploded in Beirut port, killing more than 200 and wounding thousands more. The reported owner of the chemicals was a UK-registered private limited company called Savaro Ltd. The data provided by Savaro Ltd gives an insight into the poor quality of shareholder information held at Companies House and how that hinders investigation. Transparency International highlighted how, to identify the shareholders, it had to go back to 2015 for documents that named Status Grand as the sole owner.
Instead of identifying shareholders annually, companies only have to say that no shareholders have changed. The information is hidden in PDF documents, so it is unnecessarily time-consuming to establish who held shares in an entity at a particular point in time. Savaro is a clear example of how annual shareholder data, which the amendment would provide for, could assist considerably in investigating even criminal activity in UK companies.
Let me pre-empt the Minister’s pushing back on the amendment. One common argument against companies providing shareholder names annually is that it would prove too onerous a task for UK companies, but in answer to a written parliamentary question that I tabled his predecessor outlined that the average number of shareholders in UK companies in 2021-22 was only 2.15. The average number of directors was 1.59, so the number of shareholders was not that much higher. To argue that it would be onerous for the majority of companies to provide shareholder information does not seem so credible when set against the low average number of shareholders by comparison with company directors, as set out in the Government’s own data.
I urge the Government to consider this important amendment and hope the Minister will respond positively on how we might move forward with the sentiments and arguments behind it.
Kevin Hollinrake
I am grateful to the hon. Lady for her amendment. Clause 49 requires companies to provide to the registrar a one-off snapshot of relevant membership information when the first confirmation statement is due following the clause’s commencement. The amendment would require companies to provide that relevant membership information annually thereafter. The hon. Lady—or is she right honourable?
Kevin Hollinrake
It is only a matter of time. The hon. Lady cited the disturbing case, which I too read about, of Savaro Ltd in Beirut. It may be helpful for me to clarify how the clause as drafted works with existing company law. Companies are already required to provide a confirmation statement at least annually, which records changes in membership information in the previous period. One of the principles behind the confirmation statement is that companies should not be required to resubmit information that has already been filed on the register. Through the process, companies are required to either confirm the information submitted previously or provide Companies House with any updates to a variety of information, including the information contained in their register of members.
For example, if information submitted previously about a company’s members needed to be updated, or there were new members to disclose information about, the existing confirmation statement process already requires the disclosure of that information. Clause 49 introduces a requirement for companies to file a one-off snapshot of relevant information. That will be the means for companies to provide full names for all their members, as required by clause 44. That will give Companies House the starting point to display the information in a more user-friendly way. That information will then be maintained through existing confirmation statement requirements—annual updates, in effect.
The hon. Lady makes a good point about the usability of the information and the different PDFs being held. Companies House is looking at that. The Government would welcome suggestions on how best to display the information—a simple table would be preferable, in my view—which is to be determined as part of the implementation. That will involve user testing in the usual way to ensure that the information is displayed in a user-friendly way, as the hon. Lady seeks. Although I appreciate the intent behind the amendment, it would serve only to duplicate existing requirements, and would introduce the requirement to deliver potentially the same information on a yearly basis in cases where there had been no change in membership. I would therefore be grateful if she could withdraw it.
Seema Malhotra
I thank the Minister for his comments and his recognition of the important sentiments behind the amendment, which I will withdraw. I think some of the measures he outlined regarding the format of the information on Companies House and searchability will go a long way to addressing the point. I hope that we will be able to continue a dialogue on that, perhaps under his guidance about how we can best engage, to ensure that what is published is searchable and meets the important sentiments of transparency, so that frankly we never have another Savaro Ltd. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 49 is linked to clause 44, to which I spoke a few seconds ago and which introduces new requirements in respect of the names information to be provided to the company in relation to its members, for inclusion by the company in its register of members. Currently, information on shareholders can be contained across multiple filings. The clause requires certain companies to provide the registrar with a one-off list of all shareholders, including their names and how many shares they hold. The first confirmation statement will be due after the new names requirement in clause 44 comes fully into force.
Collecting that information via a one-off snapshot will improve the usefulness of the information on the register by enabling Companies House to display the information in a more user-friendly way. Companies will then confirm the information submitted previously, or provide any updates to Companies House—via the existing confirmation statement process—on the information contained in its register of members.
Seema Malhotra
I have no further points to add.
Question put and agreed to.
Clause 49 accordingly ordered to stand part of the Bill.
Clause 50
Abolition of local registers etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 69, in schedule 2, page 148, line 40, at end insert—
“167GA Unique identification number for directors
(1) On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.
(2) Any information supplied to the registrar under or by virtue of this Act about a person who has been allocated a unique identification number under subsection (1) must include that number.”
Amendment 68, in schedule 2, page 150, line 36, at end insert—
“167KA Limit on number of directorships held
(1) Where notice has been given to the registrar that a person (P) has become a director, the registrar may determine that P may not hold that directorship.
(2) The registrar may make a determination under subsection (1) if the registrar considers that P holds an excessive number of directorships.
(3) The factors that the registrar may take into account in making a determination under subsection (1) are the experience, expertise and circumstances of P.
(4) If the registrar makes a determination under subsection (1), P may not hold office as a director of the company.”
Amendment 70, in schedule 2, page 150, line 39, after “167G,”, insert “167GA”.
This amendment would provide for penalties to apply to anyone failing to provide their unique identification number (see Amendment 69) to the registrar.
That schedule 2 be the Second schedule to the Bill.
Kevin Hollinrake
In last year’s consultation on the powers of the registrar, the Government asked stakeholders for their views about the requirements for companies to hold their own registers and to deliver the information contained in them to Companies House. Stakeholders were also asked whether the election regime, by which companies can choose to keep their registers only at Companies House, should be retained. They were clear that centralising certain registers with Companies House could reduce burdens on businesses. In response, the Government said that we would continue to consider updating the registers regime accordingly.
The Government have decided that, where possible, a single source of information about companies is preferable, and that that source should be Companies House. In future, the definitive registers of directors, secretaries and persons of significant control will, in all cases, be held by the registrar rather by companies themselves. Clause 50 introduces schedule 2, which contains the amendments to the Companies Act to implement that policy by setting out the requirements and processes that will apply upon the abolition of local registers and the existing election regime. The changes will apply to registers of directors, of secretaries and of persons of significant control.
Schedule 2 sets out the detailed requirements necessary to give effect to the new regime for companies’ registers. The schedule is necessarily long and detailed because of the complexity of re-engineering the existing system to repeal obligations to maintain local registers and replace them with a regime that will result in the population of central registers. What have largely been a range of duties for companies to maintain records are broadly being transposed into an analogous set of obligations to report that information to the registrar. In many instances, companies are currently obliged not only to maintain registers but to notify the registrar of changes to them. The eradication of local registers will therefore serve to ease burdens on business.
However, it is worth drawing attention to a number of areas in which the new registers regime will involve new reporting obligations for companies. Proposed new section 167G will replace section 167 of the Companies Act 2006 and introduce additional requirements on companies. When notifying the registrar of a new director, companies will be required to make statements to verify the director’s identity and that the individual is not disqualified or otherwise ineligible to be a director.
Proposed new section 790LB will permit that the notification of a new person with significant control, which is required under proposed new section 790LA, is accompanied by a statement confirming that the individual’s identity is verified. If a statement is provided in relation to a registrable relevant legal entity—a legal entity that itself has significant control in a company—it must specify the name of one of its relevant officers and must confirm that their identity is verified. The notice must be accompanied by a statement from the relevant officer confirming that they are the relevant officer of the registrable relevant legal entity.
On amendment 68, which was tabled by the hon. Member for Glasgow Central, given that in our consultation on potential reforms for inclusion in the Bill the Government considered the possibility of including a cap on directorships, I am sympathetic to the underlying intention of the amendment. Approximately three out of four respondents to the consultation opposed a cap. The Government chose not to proceed with one, believing it preferable to verify identities and provide more accurate linkage of records, thereby providing a more accurate picture of involvement with companies. That reasoning stands today.
Analysis of the companies register, together with comparison against other data sets and the reporting of anomalies from obliged entities, will assist in identifying circumstances in which we believe the number of directorships poses a risk of criminal activity. That information will be shared with the relevant enforcement and supervisory bodies.
The amendment proposes a form of fitness test rather than a cap. I acknowledge that this removes some concerns about the bluntness of such a cap and addresses some of the concerns raised by respondents in our original consultation. However, in return the amendment undermines the agency of company owners to act independently and in their own interests when appointing people to run the business they own. It places the registrar in the position of being a higher authority for such appointments. Would they ever have at their disposal the evidence to make a negative determination? What would be the implications of a negative determination on the actions taken by a validly appointed director up to the point of such a determination?
The possibilities in this policy area were given careful consideration as part of the Government consultation. We have not identified a legislative proposal along the lines of 68 amendment that is workable or appropriate. It would undermine business confidence in the UK if companies could not be sure whether their director appointments would take effect. We believe that the new and existing powers to analyse and query information and on identity verification, along with the enhancement that will be brought to linking people across multiple roles and the wider data-sharing possibilities for the registrar, all serve to strengthen our capacity to identify possible grounds for concern. Such concerns can be reported to the relevant agencies, investigated and acted upon, including by pursuing the disqualification of directors, if appropriate. I hope I have clarified why we do not believe the amendment should be taken forward.
Amendments 69 and 70 will be redundant once the expanded power under section 1082 is exercised, as amended under clause 66. The effect will be that all individuals who are under a duty to verify their identity will be assigned a unique identifier when they successfully complete identity verification. This will include all directors, who will commit an offence if they act as a director without having their identity verified.
Seema Malhotra
Will the Minister clarify what he said? Will all directors be given a unique identifier?
Kevin Hollinrake
Yes, that is in clause 66. Further detail about the use and allocation of unique identifiers will be set out in regulations made via the affirmative procedure, so Parliament will have sufficient opportunity to scrutinise them. There is no need, therefore, for the inclusion of a penalty for directors who fail to provide the registrar with their unique identifier. It will be the registrar who issues a director with a unique identifier, not the company or the director. I hope my explanation has provided further clarity on why the amendments are not needed. I urge the hon. Member not to press the amendments to a vote.
Seema Malhotra
Thank you, Mr Robertson.
The importance of clause 50, which relates to schedule 2, is obvious and requires no further comment. The Minister’s description of schedule 2 as long and detailed was on the button. Its length is understandable given the changes it is making by abolishing the requirement for companies to maintain their own registers of directors, registers of directors’ residential addresses, registers of secretaries and registers of people with significant control. Instead, that information will be held centrally by the registrar, with the important provision that companies have a duty to update the registrar of any change to the information.
We welcome the proposed changes in clause 50, but I want to comment on amendments on 68, 69 and 70 tabled by my SNP colleagues, to which I am sure they will speak. Amendment 68 would limit the number of directorships that one individual may hold. Where notice has been given to the registrar that a person has become a director, the registrar may determine that they should not hold that position, if the registrar considers that they hold an excessive number of directorships. That may be achieved by setting a cap on the number of directorships held and it might be possible to override that limit if there were good reason, and a simple means introduced by which that application and argument could be made to the registrar. Such a proposal could be implemented sensibly to bring about the benefits that it offers, especially in the light of some of the abuses committed.
From our evidence sessions and debates in Committee, we have learned that individuals with multiple directorships are a massive red flag in terms of potential criminal activity. In evidence to us on 27 October, Bill Browder said:
“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?”
––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 74, Q151.]
A limit on the number of directorships could easily be set in legislation and that would not stop people conducting their lawful business, but it would make it harder for criminals to use the system and our company structures to launder money and act as drivers of economic crime. It is worth reflecting on the fact that the evidence for that change came from a range of professional bodies. They also said that if they were directors of four, five, six or seven companies, how would they have the time to undertake their responsibilities with the required due care? The Minister referred to the consultation on this issue and said that three out of four of those consulted opposed a cap. Can he give us clarification on the year of that consultation? There are some questions about how we might interpret some of the responses, given the number of respondents and how many responded to all the questions.
In the light of that, I will make a few other remarks. The Association of Accounting Technicians, a registered charity based in London that acts as a professional body for accounting technicians worldwide, echoes Mr Browder’s assessment. In September 2020, it published an article recommending a cap of 15 directorships for one person, but it recognised, I think as we all do, that it is a difficult balancing act. We do not want to stop legitimate, lawful and productive activity, but we want to have a way of putting a stop to mechanisms that are easy to abuse. The AAT noted that there was a cap of 15 in Ireland, a general cap of 20 in India, and a cap of five in France that applies to public companies only.
Bodies that responded to the Government’s consultation made other interesting comments. There was a wide range of views on the cap, from two to 100 I think, with many suggesting between 15 and 25. This is an important conversation in the light of the scale and nature of economic crime, how it is changing, and the scale of abuse of our company structures. Some action has been undertaken in slightly different contexts, with less clarity about what has been happening with Russian money, Russian oligarchs and the connection to our international security. This year has really helped to challenge and expose much of that, albeit six years after legislation on economic crime was first promised. The point is that we have reached a place where our eyes are wide open now—or definitely wider, if not open completely.
Some of the wider comments and contributions to the Government’s consultation may well be worth going back to, in the light of what other countries do seemingly without impeding their economy or their companies’ activities. India is a good example of a nation whose trade is growing and that has a real focus on both domestic growth and international trade. I worry that we are closing down some of these debates, when this is a time to review them, perhaps with a slightly more open mind.
Seema Malhotra
The Minister asks a fair question. He is not necessarily stating a cap. Given what has come out in the consultation, and what has been in the articles about whether there should be a cap and what would be right for British companies, it is certainly open to further conversation. It is interesting that in the Government’s consultation many were suggesting between 15 and 25, which is in the ballpark of what has been happening in other countries. The make-up of our economy could be slightly different. We have to understand it in the round, and in the context of our economy, but it is a question of a scale of 400 to 1,000.
If the Minister is saying that there might be a level at which there starts to be a red flag, and implicitly that Companies House may implement the legislation, perhaps Companies House and the registrar will say, “Maybe we’ll just do a procedural check if we have 25-plus directorships.” I do not know. That is where data and analytics help, rather than a ballpark figure. It must be within a considered understanding of how our economy works, and how and where legitimate business is carried out, with a view from directors as well. We might find that it is an easier answer to reach, because it does not have to be one that only we, as Members of Parliament, comment on; it has to be informed.
We are not arguing for a hard cap. We are saying that, as the logic of the SNP amendment outlines, rather than managing on a case-by-case basis, having a way to manage risk structurally and procedurally is an important response to the evidence, the nature of use that we have seen and the situation we find ourselves in today. There is room to learn from the experience of other countries.
Amendment 69 would insert a provision into schedule 2, requiring that:
“On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.”
Amendment 70 follows from that, and would provide penalties for anyone failing to provide their unique identification number to the registrar. We support the spirit of the amendments, but I refer the Committee to our amendments 102 and 103, which we will be speaking to in later debates. Our amendments take a slightly different approach and place a duty on the registrar to give every director a unique identification number, which is published on the registrar’s website. I think that approach is tighter.
I hope in his response that the Minister will be clear about what the registrar is required to do versus what they can do, and what will be and will not be published on the unique identifiers for directors.
Alison Thewliss (Glasgow Central) (SNP)
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.
Kevin Hollinrake
The hon. Lady has obviously read clause 66, “Allocation of unique identifiers”, which I think is what she is seeking to achieve. What about that clause does she not like?
Alison Thewliss
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.
Kevin Hollinrake
Let me quickly respond. The shadow Minister wanted to know the date of the consultation that the three out of four figure came from. It happened between 2019 and February 2021, so it was pretty recent.
The issue of whether there should be a cap and where it should be set has been raised by both hon. Members. We think it is wrong to set a cap. The hon. Member for Glasgow Central asks the interesting question of, “Why do we need all these companies, and why do they need to be registered?” We believe that it is ours not to reason why. We believe in freedom and that people should be allowed to live their lives as they choose. We do not seek to put restrictions on people for no good reason.
Kevin Hollinrake
I will go on. We think there may be a nefarious reason why a person is a director of many companies. The hon. Member for Glasgow Central mentioned red flags in her speech, and that is exactly how we see this operating. It may well be that Companies House determine that there is a cap of 20, and when somebody gets to 20 directorships, then they become a risk. It may then look further into what that person is doing and share that information with law enforcement agencies. We would rather leave it to the discretion of the registrar to determine where the red flags should be, rather than impose it through the Committee.
The hon. Member for Glasgow Central took the opportunity to google my directorships, and she found that incredibly easy to do. Just type in “Kevin Hollinrake directorships” and it lists all my directorships.
Kevin Hollinrake
It is my name and all my directorships are listed underneath.
Kevin Hollinrake
I am sure it is on Companies House right now. There are 20 records. The hon. Member for Glasgow Central would maybe say that I cannot be director of any more companies, as I am already director of 20, but I have valid reasons for being directors of all those. I can promise her that none of it was for criminal purposes. The hon. Lady may say there should be a limit, but we think that basically we should leave it to the discretion of Companies House and the registrar to do the right thing—set the red flags where most appropriate and then identify risk and act accordingly.
Alison Thewliss
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.
Kevin Hollinrake
The clause would make amendments to the Companies Act 2006 to streamline filing obligations and remove unnecessary burdens, and to provide more protection of personal information than is currently the case. Clause 50 will remove the option for a company to elect to hold its register of directors or its register of people with significant control solely on the central register—the one held by the registrar.
Currently, when companies elect to hold their registers at Companies House, personal information, such as a date of birth, is publicly available on the register. That is because the election regime replicates what would happen if a member of the public asked to view the registers at the company’s registered office. When the election regime is removed, clause 51 will ensure that date of birth information is protected from public inspection, in the same way as dates of birth from non-elected filings are protected. The clause also provides that information such as dates of birth provided prior to 10 October 2015 will not receive automatic protection in the same way. Other provisions in the Bill will enable individuals to apply to protect historic information when it still appears on the public register.
The clause will amend the Companies Act 2006 to streamline and protect personal information of individuals that could otherwise increase the risk of identity theft or other fraud. It clarifies the extent of that protection, which, with some exceptions, will be applied to documents received from 10 October 2015.
Kevin Hollinrake
This group of clauses will improve the quality and value of financial information on the companies register.
Clause 52 will require a micro-entity company to file both its balance sheet and profit and loss account with the registrar. It removes the current option available for a micro-entity to omit—or fillet out—its profit and loss account when filing its accounts with Companies House. Clause 53 will require small companies to file a profit and loss account, and a directors’ report, when filing their accounts with the registrar. Clause 54 ensures that clauses 52 and 53 operate as intended by amending references to the existing small company and micro-entity filing obligations in the Companies Act 2006.
Clause 55 requires any companies seeking an audit exemption to provide an additional statement from their directors. That will help to deter fraudulent under-reporting by companies and, where a company director has provided a false statement, provide additional enforcement evidence that can make it easier to successfully prosecute directors. Finally, clause 56 removes the option for small companies, including micro-entities, to prepare and file a set of abridged accounts.
Collectively, the clauses will ensure that more financial information for micro-entities is publicly available on the register, helping to inform better business and lending decisions. They will ensure that the company’s turnover—one of the three eligibility criteria that determine the size of the company and what it must file with the registrar—is publicly available. The clauses will also provide greater transparency of micro-entity accounts, which will help to deter fraudulent or criminal activity and make such activity more easily identifiable.
It is crucial that we strike the right balance between transparency and burdens on business. As micro-entities already file a copy of their annual accounts for other purposes—tax returns with His Majesty’s Revenue and Customs, for example—the changes will not be overly burdensome for them.
Seema Malhotra
I thank the Minister for his comments. We welcome the measures in these clauses.
As the Minister said, clause 52 updates the filing requirements for micro-entities. A company is a micro-entity if it has any two of the following criteria: a turnover of £632,000 or less, a balance sheet of £316,000 or less, or 10 or fewer employees. The technical definition of a small company is any company that has any two of the following criteria: a turnover of £10.2 million or less, a turnover of £5.1 million or less, and 50 employees or less. Although we use the terms micro and small entities—in terms of the scale and size of other companies, that is significant—they can be larger than the terms indicate. That increased transparency from clause 52 is important.
We welcome clause 52 as a reflection of the fact that insufficient information is filed from those micro-entities to give a true and fair view of their financial position. The minimal disclosure requirements at present have also made them attractive to fraudsters who want to present a false picture.
There were 1.3 million micro-entity accounts filed in 2019-20. It is the most common choice for account filings. The Government’s December 2020 consultation on improving the quality and value of financial information on the register noted:
“Fraud investigation bodies have reported that micro-entity accounts are often used by companies that are investigated in money laundering cases.”
It is therefore absolutely right to tighten things up and seek greater transparency in the accounts and financial positions of companies’ activities. However, that raises the important question of whether any further work might be needed on micro-entities, although that question is for another debate.
On roll-out time, the Bill’s impact assessment suggests on page 76 that familiarisation time will be needed to get micro-entities up to speed with the changes, but there should not be significant additional costs, as companies already collect and submit additional information to HMRC in tax filings. In the light of what we and the Minister have said, we want moves that stop the criminal behaviour, but do not impede ordinary, good, productive and lawful business, so the measures are welcome. We want to see them come into force as soon as is practicable. The Secretary of State may make a determination later about when to bring the requirements into force, but perhaps the Minister will indicate today when he expects the Government will want the new requirements on micro-entities to become operational.
We welcome clause 52 as a necessary means to ensure that small businesses that are not micro-entities file full accounts to the registrar—which, again, will increase transparency and the availability of information. Clause 54’s consequential amendments seek to ensure that clauses 52 and 53 function as intended.
I want to make a few comments on clause 55. Perhaps the Minister can clarify the exemptions from audit requirements under this clause. When a company seeks an exemption from the requirement to have its accounts audited—for example, because it is a small company with £10 million or less in turnover—the clause would require directors to make a statement confirming that the company qualifies for an exemption.
I would appreciate it if, in the interest of the robustness of legislation, the Minister would expand on the clause and clarify what qualifies a company to have an exemption in that regard. The Government brought in an increase in audit exemption levels, effectively making more companies eligible for exemptions, and that goes back to the 2013 EU accounting directive, which sought to simplify requirements on companies submitting accounts and gave member states the flexibility to increase the small company accounting and audit exemption thresholds. Is there likely to be any review of those thresholds? Perhaps the Minister can enlighten me as to whether there is clear demand for that.
In the light of current circumstances—the clamping down on, and growth in, economic crime, as well as the transformations we will have seen in the last six, eight or 10 years—will the Minister tell us whether the high thresholds brought in by the Government have reduced audits and the transparency of information on the register? Have they affected the extent to which information filed by companies is trusted? Is the Minister interested in considering whether the levels for audit exemption are acceptable and right in the context of current economic crime, or does he think, in the light of the opportunities presented by the Bill, that there is reason to look at any of that again?
We welcome clause 56 as a necessary provision for improving the accuracy of information in relation to small companies.
Kevin Hollinrake
I will check the implementation date of the new rules around filing full accounts and let the hon. Member know in detail.
In terms of the audit exemption, the threshold is currently £10.2 million. We will always keep that under review, because we are trying to ease the burden on business while ensuring that nothing untoward is happening. Having been through the process myself, I know that auditing a business is very extensive, exhaustive and expensive. It is absolutely right that we seek to reduce burdens on business whenever we can, while also putting appropriate checks and balances in place.
Question put and agreed to.
Clause 52 accordingly ordered to stand part of the Bill.
Clauses 53 to 56 ordered to stand part of the Bill.
Clause 57
Confirmation statements
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clauses in this group will help the registrar to fulfil their new objectives, as set out in clause 1. Clause 57 obliges companies to notify the registrar of additional information that is required to be delivered under new requirements brought in via the Bill. Companies will have to do this before, or at the same time as, delivering their annual confirmation statement. The new information of which companies will have to notify the registrar will be to confirm the company’s lawful purpose. If it is the company’s first confirmation statement, as it is a newly incorporated company, the company will need to notify the registrar of any changes that have happened between its application for incorporation and the incorporation taking place.
The annual confirmation statement is a fundamental aspect of that data. It provides an opportunity for a company to focus its attention on the statutory requirements that it has to meet, and it also re-establishes the benchmark against which a company is assessed by others, including the registrar.
Clause 58 ensures that the registrar will have up-to-date information that will allow them to uphold the investigations and sanctions regime more effectively. The accuracy of the information provided in the confirmation statement is obviously of key importance, given that making false statements, or failing to deliver confirmation statements, may result in an offence being committed.
Dame Margaret Hodge (Barking) (Lab)
What happens if it is a false statement? Who will uncover that?
Dame Margaret Hodge
I ask the question for a reason. I did not intervene during the previous debate, but the Minister might know—I certainly do—that thousands and thousands of microbusinesses are supposed to put their annual accounts in to HMRC, but do not do so, and nobody ever goes after them. There therefore may be thousands and thousands of businesses that put in false statements. Given the anti-regulatory stance that the Minister has displayed today, I am just interested in knowing who will actually check the statements and what will happen then.
Kevin Hollinrake
I am very disappointed that the right hon. Lady regards me as anti-regulatory. I want a system that allows good, bona fide businesses to go about their daily business without unnecessary checks and balances. We cannot control everything that goes on in our society but, in the main, businesses are lawful, and undertake lawful and legitimate commercial activity.
If the right hon. Lady expects a world in which we check every single filing, nobody will be doing any commercial work in our society. The only people we will have will then be box-checkers, and where would the tax revenue come from to pay for all the things that both she and I want in our society?
We must have a proportionate balance between regulation, the cost of resourcing regulators and the needs of law enforcement agencies. That is why our belief, which I know is not entirely hers, is that we need to take an intelligence-based approach to regulation. That is the most effective way to do it.
Seema Malhotra
I think we all agree that we do not want to do things that impede lawful activity—that is not a matter for debate, really. The question is whether the systems will be strong enough. They do not have to be burdensome; there are ways in which systems can have automatic checks, and be underpinned by clear roles and responsibilities. The question of who would know whether there are errors in a confirmation statement, and how that would be checked, is quite an important one for ensuring that we are not—
Kevin Hollinrake
I do not disagree. I agree with the hon. Lady about automation, but checking every single document and every single file would be ludicrously burdensome, because 99% of those filings would be legitimate documents. I speak as somebody who has been an authorised person under the FCA, so I know how many checks, and double-checks, someone in such a position has to make. The vast majority of people who the FCA regulates do a bona fide, legitimate job.
We are trying to find the people who are not doing so, and what we are trying to do through the Bill is to allow the sharing of information and the cross-referencing of information to identify all the red flags—the hon. Lady talks about automation—and then trigger alerts that can be investigated. I think that we all agree about that, and that is the approach that we are taking.
As I was saying, these measures will all ensure that companies, once formed, will reassert to the registrar via their annual confirmation statement that the company’s intended future activities are lawful.
Clause 59 will oblige a company to notify the registrar via its first annual confirmation statement of a change in its principal business activity if such a change takes place between the company’s application to be incorporated and the incorporation taking place. That addresses the fact that there is currently no duty to notify the registrar during the incorporation process. This new obligation builds on the existing obligation in section 853C of the Companies Act 2006, whereby companies have to notify the registrar of a change in principal business activities via their annual confirmation statement.
Clause 60 amends section 853J(4) of the Companies Act so that the framing of criminal offences is consistent with similar provisions in this Bill. It also makes the same amendment to section 853L(1), which concerns the offence of failing to submit a confirmation statement on time. It will clarify that every officer of the company who is in default can commit the offence, as well as every director of the company. It also corrects an irregularity with the framing of the offence, which currently imposes strict liability on all the company’s directors and secretaries, regardless of whether they are in default—in other words, regardless of whether they authorised, permitted, participated in, or failed to take all reasonable steps to prevent, the contravention. I hope right hon. and hon. Members agree that it is important that these measures reach the statute book.
Seema Malhotra
We welcome clause 57 which, as the Minister said, prescribes the company’s duty to notify the registrar about certain events and provide certain information in advance of and at the same time as the delivery of the annual confirmation statement. That is obviously very important.
We have already debated some of the issues that clause 58 addresses. It is obviously an important clause, and the Minister has outlined that the approach is to hope for accuracy, based on risk assessments and red flags. We understand that, but it still does not feel as strong as we need it to be. It does not feel clear and strong on detecting issues, and it does not give the registrar a clear expectation of what the Minister intends. It felt a little like the Minister was just hoping that everything would work out. We should be clearer about what steps should be taken on detection, prevention and enforcement, and ensure that that is as strong as possible through the passage of the Bill. That is incredibly important, because we know that those are weak areas.
My right hon. Friend the Member for Birmingham, Hodge Hill made the very important point that we need to clarify what is expected of the registrar. They will be subject to many different demands, and in some ways it will make their life easier if they see in Hansard that there is a clear expectation from the Government, the Minister and the House about what is to be done. That would aid the call for greater resources, as it is frankly a way of making savings from enforcement later, and increasing the speed of detection will considerably lower the cost of economic crime. I hope that the Minister recognises that I am putting these comments and questions to him in the hope of detecting ways of tightening up the message about what we expect, in order to better implement the Bill and its stated goals.
We welcome clause 59, which I think we referred to earlier. Clause 60 will align terminology around existing offences relating to confirmation statements. The Minister outlined the detail of that. I raise a similar question as previously, because I seek clarity from him on what it will mean in practice for companies that breach the new provisions around confirmation statements. What is the result of failure to comply with the provisions, and who will be held to account? Clarifying that would be quite helpful. It would also be helpful to understand whether the Bill will allow for retrospective penalties, should information on the confirmation statements turn out to be misleading, and perhaps purposefully misleading.
Kevin Hollinrake
The hon. Lady raises some good points on retrospective penalties. I will find out that information and come back to her.
Question put and agreed to.
Clause 57 accordingly ordered to stand part of the Bill.
Clauses 58 to 60 ordered to stand part of the Bill.
Clause 61
Identity verification of persons with significant control
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 27—Reporting requirement (identity verification)—
“(1) The Secretary of State must publish an annual report on the progress of establishing identity verification procedures in relation to proposed officers and persons with initial significant control.
(2) The first report must be published within three months of this Act being passed.
(3) A further report must be published at least once a year.
(4) The Secretary of State must lay a copy of each report before Parliament.”
This new clause would add a requirement on the Secretary of State to report on the progress of establishing identity verification procedures for proposed company officers and persons with initial significant control.
Kevin Hollinrake
I am aware that hon. Members have tabled amendments in relation to ID verification in the groupings to follow, but I will first speak to the first clause in this chapter. Clause 61 introduces requirements for people who own or control companies to undergo ID verification to improve the reliability of information on the company register. The UK was the first G20 nation to introduce a public beneficial ownership register of companies: the people with significant control register, which has more than 5.8 million entries about people with significant control over entities on the company register. The clause will apply ID verification requirements to persons with significant control and relevant legal entities on the register. It is a vital clause.
If a company has not voluntarily delivered a statement confirming that the identity of a person with significant control is verified, the registrar will direct such a person with significant control to make an identity verification statement within 14 days. A company might be owned or controlled not only by individuals, but by legal entities—for example, other companies. To be a registrable relevant legal entity, a legal entity must meet certain conditions, and be subject to its own disclosure requirements. It is registrable in relation to a company if it is the first legal entity in the company’s ownership chain.
Where there is a registrable relevant legal entity in relation to a company, and the company has not voluntarily made an identity verification statement for that RLE, the registrar will direct such a relevant legal entity. That direction will require the entity to make a statement within 28 days, naming its verified relevant officer. The statement by the RLE must include a statement made by the relevant officer confirming that they are a relevant officer for the entity. That will prevent individuals from being notified without their consent or any relation to the entity.
The clause creates a duty on persons with significant control to maintain their verified status as long as they are registered with the registrar. The RLEs will also be under a duty to maintain a verified relevant officer as long as they are registered with the registrar. That is to ensure that a verified individual is always traceable for each RLE. Failure to comply with the registrar’s directions or to maintain a verified status is an offence under the clause.
Kevin Hollinrake
As an overriding point, we all know how important the integrity of the ID verification system is. I completely agree with that and we need there to be confidence in it.
On the point raised by the hon. Member for Glasgow Central, it is not right that a tender has gone out already. A request for information has been put out to determine some of the characteristics of the suppliers to learn what services they provide, but a tender has not gone out. Once determined, the ID verification system will be brought to the House to be approved by affirmative resolution. There will be opportunities for debate at that time to make sure it is fit for purpose, both in the framework and how it will be operated.
On the comments the hon. Member for Aberavon made about persons of significant control, first, I think he makes the exact case that we would make. A 25% threshold is pretty much the global standard, but even if it were lowered, people could find ways around it—even if there were a 0% threshold, as was suggested by Professor Elspeth Berry. That is why the definition of a person of significant control is not solely about the percentage of the shareholding of a company. There are five definitions, including one I that believe will interest the hon. Gentleman, which is somebody who, other than by shareholding,
“has the right to exercise or actually exercises significant influence or control”
over a company. Therefore, there could be zero shareholding and they would still be a person of significant control. How is that enforced? If directors allow that to happen and do not declare that they have a person of significant control, they are liable for a fine and a custodial sentence of up to two years. We do deal with that in a reasonable way.
Some valid concerns have been expressed about company formation agents. I am happy to write to the National Crime Agency to ask what it has done about them. However, not all company service providers are company formation agents; there is a distinction. A company service provider may well be a large accountancy practice, such as Deloitte, PwC or KPMG. The hon. Member for Aberavon stated that such organisations know very little about their clients and offer a blanket service, but I do not think that is fair. My accountants can verify my ID and they know a great deal about me, I can promise the hon. Gentleman.
Of course we must make sure that the system is robust, and I acknowledge that there are some concerns about the supervision of those registered as supervised for money-laundering purposes. Of course we must be sure that the system is right. As hon. Members are aware, I think, the Treasury is looking at means of improving the regime to ensure that the supervision is much better, and it needs to be. The difficulty is—we will have more debate about the issue in forthcoming sittings—whether we want to get everything perfect in the system before we start ID verification, or whether we start ID verification. In my view, it is essential that we get that ID verification done as quickly as possible. Waiting until the AML supervision regime is absolutely perfect would be a mistake, in my view. The two things should happen concurrently.
I understand the reasoning behind new clause 27. I completely agree with the idea of giving confidence to Parliament that the matters are being taken forward. I am happy to commit to return to Parliament to communicate by whatever means is preferable—written ministerial statement or oral statement—what progress has been made to ensure that Parliament has the information that it needs to hold Companies House and other agencies to account.
Kevin Hollinrake
I will deal first with amendment 78, tabled by the right hon. Member for Barking. As she knows, it would place a restriction on the permitted ID verification processes set out elsewhere in the Bill. It would allow a person such as a company director or beneficial owner seeking to verify their identity through an authorised corporate service provider to do so only once His Majesty’s Treasury had completed its review of the AML supervisory regime and laid the report before Parliament. I think that if the right hon. Lady thinks about it, she will probably want to go further than that, based on her remarks. I think she wants to go ahead only once the AML regime is properly supervised generally, not just to the point where we have the report from the Treasury. We are potentially talking about getting some way down the line before we are in a situation where she would be happy with the regime.
I take on board many of the comments the right hon. Lady made. Parts of the regime are not operating as they should—I quite agree. We absolutely need to fix that. As with other amendments proposed today, I am sympathetic to the intention; however, I think that there better ways to do it.
The practical effect of the amendment would be to place a temporary restriction on the functions that legitimate businesses may carry out. That restriction is unrelated to and may be unaffected by the publication of the review to which it is linked. It is anomalous and unfair that those businesses affected will still be subject to their current regulatory obligations to carry out ID checks. However, they will be prevented from making a statement reporting to Companies House that such checks have taken place, effectively delaying the whole regime. I also draw attention to the impact of the right hon. Lady’s amendment on those people who use agents to manage their interests. I accept that some are shady characters, but, as my hon. Friend the Member for Bury North stated, the overwhelming majority are not.
Alison Thewliss
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?
Kevin Hollinrake
The hon. Lady is mixing up two different things. I am not saying that some company formation agents are not shady—I have just said that. However, not all service providers are company formation agents. Many are bona fide solicitors or accountants that are household names. I think we need to keep this in perspective. The hon. Lady cites statistics on the capability of some of the sector in terms of proper supervision. According to OPBAS, 50% of professional body supervisors were “fully effective”. I think that figure should be much higher, but in its opinion 50% are fully effective, so it is not as if there are not some actors in this area that are doing the job absolutely right.
Many company directors and people with significant control that are currently registered at Companies House, all of whom will need to verify their identity under the transitional provisions post enactment, would prefer to do so by using their professional adviser. They will suddenly find that their long-established legal adviser is deemed fit by the Government to verify their identity for money laundering purposes, but unfit to report that to Companies House. The amendment would therefore create considerable inconvenience to individuals, as well as to corporate service providers.
I can assure the right hon. Member for Barking and the Committee that I will urge my counterparts at the Treasury to bring forward their consultation as quickly as officials can ready it. I also point to the powers in the Bill that will enable the registrar to keep an audit trail of the activity of agents to support the work of supervisors both immediately and following any changes from the Treasury’s review. I hope my explanation has provided reassurance.
Let me touch on one or two of the right hon. Lady’s other comments. On the light-touch financial services regulation that I think she was suggesting was responsible for the global financial crisis, this is not deregulation. This is the opposite of deregulation; we are making regulations about the verification of ID. I would also point to the penalties for wrongdoing. In certain circumstances, if someone is found guilty of the aggravated offence of false filing under these rules—I think some of the examples she gave would constitute that—the sanction would be two years in jail. That is not for fraud, but for the false filing. There are real teeth to this legislation, which will reduce the likelihood of this stuff happening in future.
The right hon. Lady’s amendment would effectively delay the whole regime we are talking about. She talks about Transparency International. As I said earlier, TI welcomes the reforms to the operation of Companies House that will effectively help to prevent money launderers from abusing the UK’s system. We need to ensure that this happens as effectively as possible. I agree with many of the concerns that she raises, but it is wrong to delay implementation as she suggests.
I turn to amendments 107 to 112. I thank hon. Members for their contributions. The procedure for ID verification, including the evidence required, will be set out in secondary legislation under the powers in new section 1110B of the Companies Act 2006 inserted by clause 62 of the Bill. The regulations will set out the technical detail of ID verification procedures, which will reflect evolving industry standards and technological developments. The regulations can specify the process of ID verification and the evidence of identity that individuals will be required to provide when verifying their identity with the registrar. The amendments, particularly amendment 107, would limit the documents acceptable for the purposes of ID verification to photographic IDs issued by Government agencies and identity documents issued by a recognised official authority. That would exclude individuals who do not have a photo ID, such as a passport, from verifying their identity.
Stephen Kinnock
It is absolutely clear that our amendment 107 uses the words “to include”. We are not limiting anything. The amendment sets out what the minimum should be. Surely the Minister agrees that an identity document with a photograph of the individual’s face and an identity document issued by a recognised official authority should be the bare minimum we would want in the Bill.
Kevin Hollinrake
Under the cross-Government identity proving framework in “Good Practice Guide 45”—GPG 45—a combination of non-photographic documents, including Government, financial and social history documents, can be accepted to achieve a medium-level assurance of identity. That includes birth certificates, marriage certificates and recent utility bills. The framework, which also recognises ID documentation from authoritative sources, such as the financial sector or local authorities, is routinely used to build a picture of identity. Restricting that process by defining a recognised authority as a Department or agency could therefore inadvertently disenfranchise individuals from meeting ID verification requirements. I take the hon. Member’s point that the amendment seeks to include certain forms of ID, but it might not serve the purpose that he thinks it would.
Seema Malhotra
I understand what the Minister says in relation to GPG 45. I wonder whether he has considered that, in circumstances where an identity document with a photograph of the individual’s face may not be available, for whatever reason, in some way having a photograph of the person’s face is the most important thing. Is that something he has considered as part of verification checks?
Kevin Hollinrake
All these matters need to be considered in the round when we come to the further details of ID verification. I was simply pointing out some of the shortcomings of the amendment.
In certain circumstances, non-photographic verification should also be available, to ensure that the Companies House service meets digital inclusion drivers and accessibility requirements, as set out in the Department for Digital, Culture, Media and Sport digital identity and attributes trust framework. The Companies House service must also adhere to the public sector equality duty.
The ability to verify using a range of documentation will maximise the number of service users able to verify digitally or at all. Not having that route would prospectively drive users toward assisted digital or non-digital routes, resulting in additional burden, an impact on ease of doing business, and increased cost and resource. It would also lead to far higher rejection rates, impacting company incorporations and appointments. As I said, the vast majority of companies are law-abiding, and it is disproportionate to put this burden on them.
I turn to the amendments that seek to remove parts of clause 62. Again, I have sympathy with my colleagues who are concerned about the effectiveness of the AML regime. Indeed, the measures in the Bill requiring corporate service providers to register with Companies House are intended to support the AML regime—a point raised earlier by the right hon. Member for Barking. There is a requirement for corporate service providers to register with Companies House as well as an AML supervisor. We will know who corporate service providers are registered with, and we will be able to provide their supervisors with information that will enable them to do their job more effectively. Where corporate service providers fail to act effectively, the registrar will be able to suspend or de-authorise them.
The practical effect of the amendments would be to limit verification pathways to the registrar only, preventing verification by the AML regulated sector from being acceptable for the purposes of ID verification under the Companies Act. That is unnecessary, and it would come at the expense of people and businesses conducting their activities entirely legitimately.
About half of company formations are currently submitted by third parties, very many of which take their responsibilities seriously and are highly diligent in conducting ID verification checks. They include high street accountants, regional legal firms servicing small businesses, and so on. I am concerned that preventing third parties from being able to register with Companies House and verify identities would have disproportionate consequences for those entities, possibly driving business away from them. That effect would be particularly acute where ID verification is taken as a package with company formation and other services. It is not clear how the amendments would affect the ability of corporate service providers to deliver documents on behalf of their clients if they are not required to be authorised, for example if they represent limited partnerships.
Many company directors and people with significant control currently registered at Companies House, all of whom will need to verify their ID under the transitional provisions post enactment, would prefer to do so by using their professional adviser. They would suddenly find that their long-established legal adviser was deemed fit by the Government to verify their ID for money laundering purposes under the money laundering regulations but unfit to do so under the Companies Act. The amendments would therefore create considerable disruption for individuals as well as corporate service providers. I hope that my explanation has provided reassurance and that hon. Members will consider withdrawing their amendments.
I have already described the new powers provided by clause 62. Beyond that, it is important to note that the regulations provided for by the clause can also specify the records that authorised corporate service providers will be required to keep in connection with the verification or reverification of identity. Those record-keeping obligations on authorised corporate service providers can be enforced through offences for non-compliance. Additionally, the Secretary of State can confer, by regulation, discretion on the registrar about when an individual’s identity ceases to be verified. The individual will then be required to re-verify their identity. Finally, regulations under the new sections introduced by the clause will be subject to the affirmative resolution procedure.
Dame Margaret Hodge
I will speak very briefly. It would be nice if the Minister could agree to the amendments, which are simply there to tighten up the oversight of the bodies. Amendments 81 and 82 are connected, and would force HMRC to do what it is not currently doing and carry out proper checks on the TCSPs and monitor them properly. Amendment 79 gives the registrar the power to require information. At the moment, as I read the Bill, there is no power for the registrar to challenge any of the information provided to her by any corporate service provider.
Kevin Hollinrake
I thank the right hon. Lady for her contribution. Clause 63 introduces a requirement for third party agents who wish to provide corporate services to clients, such as incorporating companies and filing documents on their behalf, to be registered with Companies House as authorised corporate service providers. ACSPs will be required to be supervised for the purposes of the money laundering requirements at all times and to notify the registrar of any changes to supervision.
I understand and am sympathetic to the intention behind amendments 81 and 82. They are driven by concern that the UK’s AML supervisory regime is not as robust as it could be. The Government recognise that, as do I. It is being addressed by my colleagues at the Treasury, who are responsible for the supervisory regime. I am afraid, however, that the amendments would duplicate some of the regulatory obligations of HMRC, the default supervisor for corporate service providers, by adding to the role of the registrar of companies. Their effect would be to make an agency of my Department responsible for overseeing activities of another Department. Not only is that duplicative, but it is wrong for one branch of Government to mark the homework of another branch. The most efficient means to address any issues with the quality of supervision is to tackle them at source, which is work that HM Treasury is undertaking on supervisory reform. I hope I have provided clarity on why the amendments are not needed.
On amendment 79, I understand the right hon. Lady’s concerns, but I consider the amendment to be unnecessary. As I have set out, under the measures in the Bill corporate service providers will need to confirm they are supervised for the purposes of the money laundering regulations, register with the registrar and, in the case of an individual, have their identity verified before they are allowed to form companies or registerable partnerships or to file on their behalf. The ID verification checks undertaken by those providers will achieve the same level of assurance of the claimed identity as those undertaken through the direct verification route.
Dame Margaret Hodge
I am grateful to the Minister for giving way. Yes or no: will Companies House be able to challenge at any point information given to it by a TCSP—an authorised provider?
Kevin Hollinrake
As I understand it, yes, Companies House will have the rights and powers to do that, though we do not at this point know to what extent it will do so. The right hon. Lady spoke in a previous debate about spot checks. It would seem sensible to take that kind of risk-based approach. Certainly, an AML supervisor would have that ability as well.
Providers will be required to declare that they have completed all the necessary identification checks when they interact with the registrar. Under money laundering regulations, all agents are required to retain records, and the registrar can request further information and ID verification checks if necessary, which I think answers the question that the right hon. Lady just asked. The agent will be committing an offence if they fail to carry out the ID checks to the required standards, or at all.
Under the Bill, proposed new sections 1098F and 1098G of the Companies Act 2006, as introduced by clause 63, will enable the registrar to suspended and deauthorise an authorised corporate service provider. The Bill will allow the registrar to maintain an audit trail of agent activity and to share it with supervisors. That will serve as a prompt to supervisors to up their game. I hope that that explanation has further clarified why the amendments are not needed.
Stephen Kinnock
Once again, I find myself somewhat baffled by what the Government are trying to get into the Bill. The provisions set out under clause 63 in proposed new section 1098I of the Companies Act 2006 would enable the Secretary of State to allow foreign corporate service providers to operate in the UK, outside the scope of the UK’s money laundering regulations. There has been such extensive coverage in recent years of the risks that that would entail that I am really quite amazed that this needs to be reiterated yet again, but, in a nutshell, any UK laws attempting to regulate the activities of company formation agents, some of which have been responsible for the most flagrant examples of money laundering and sanctions evasion according to recent reports, could well be rendered essentially meaningless by these few clauses.
I say that because, if enacted as drafted, the clauses would appear to hand the Secretary of State a blanket power to disapply the money laundering regulations to foreign agents, on no one’s authority but his or her own. We need not look too far for examples of how profoundly damaging that could be to our own laws, given how significant the divergences often are between anti-money laundering regimes in countries such as the UK, and those in overseas jurisdictions better known for their corporate secrecy than anything else. In fact, we need look no further than the UK’s own overseas territories and Crown dependencies.
Any Member who is either unaware of or in denial about the scale of the problem would be well advised to read an enlightening, although also alarming, article published by Forbes on 9 March 2022. It had the somewhat provocative title of “Evading Sanctions: A How-To Guide For Russian Billionaires”. The piece documented the use of opaque offshore corporate structures to launder literally billions-worth of assets held by Russian oligarchs in the last few months and years. What is most troubling about the account is that most of the jurisdictions that it specifically mentions as hotbeds of money laundering and sanctions evasion are UK-linked territories. It will surprise nobody that the list includes the Isle of Man, the British Virgin Islands and the Cayman Islands—in other words, the usual suspects.
I do not wish to dwell too long on the overseas territories, because I am sure there will be further discussions in the Committee when we come to debate later sections of the Bill. The point the Opposition are trying to make is simply that if we are going to allow businesses of any kind to operate in the UK, we should expect them to abide by our laws. If we start letting them off the hook, for reasons that Ministers have entirely failed to make clear, we are complicit in their actions. In short, the proposed new section 1098I would have us trust in the infinite wisdom of the Secretary of State to allow corporate service providers to operate outside the law, on the basis that those powers would be used only in cases where the relevant overseas jurisdiction has a regulatory framework with “similar objectives” to the UK’s own rules.
I frankly do not trust the wisdom of the Secretary of State to use those powers for good. I do not believe that it is at all appropriate for such sweeping, ill-defined powers to be conferred on the present or any other Secretary of State. Although amendments 99 and 100 are probing amendments that give us the opportunity to seek answers from the Minister on these extraordinary provisions, amendment 98 is intended quite simply to remove the powers from the Bill.
Kevin Hollinrake
Once more, I am sympathetic to the aims of the amendments. They are driven by concerns that AML supervisory regimes outside the UK may not be robust. That is why the Government are specifying that authorised corporate service providers must be subject to the UK’s AML regime. Nevertheless, it is possible that in the future the UK may become a party to an agreement—a trade agreement, for example—that would require it to accept applications from abroad where that regime is equivalent to that of the UK. I do not think the example the hon. Gentleman gave of Russia would qualify in that regard.
The power in the Bill would facilitate such an agreement and remove the need for primary legislation to implement it. I draw Members’ attention to the wording already in the Bill, in proposed new section 1098I(2), introduced by clause 63. The UK would only become a party to an agreement if it could be assured that the regime was no less effective than its own. To be confident of that parity, the Secretary of State would need to establish that a regime was the equivalent of the UK’s by considering evidence and advice from a range of sources, including the National Crime Agency. That would include the consideration for whether prospective authorised corporate service providers are disqualified under the relevant legislation.
As the legislation makes clear, the power would be subject to the affirmative resolution procedure and parliamentary scrutiny. While I understand any concerns expressed, I hope that Members will withdraw the amendment.
Stephen Kinnock
I thank the Minister for his response. As with the previous debate, I am not particularly happy with the position, and we will look for opportunities to return to the issue during the further passage of the Bill. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 63, as amended, ordered to stand part of the Bill.
Clause 64
General exemptions from identity verification: supplementary
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
We debated the clause at length in the previous groupings. I do not propose to repeat the arguments, and I hope the Committee agree with the Government’s position.
Stephen Kinnock
We have no further comments to add on clause 64.
Question put and agreed to.
Clause 64 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Ninth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 8th November 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 8 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
Before we begin, I have a few preliminary reminders for the Committee. Please switch electronic devices to silent. No food or drink is permitted except the water provided.
Clause 65
Exemption from identity verification: national security grounds
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 9, in clause 65, page 55, line 3, at end insert
“and section 167M(2) does not impose any obligation on a company in relation to the person”.
This amendment ensures that where a company director is exempt on national security grounds etc from being a person whose ID is verified, the company can also be relieved from the obligation to ensure that the director is ID verified.
The Chair
With this it will be convenient to discuss amendment 101, in clause 65, page 55, line 22, at end insert—
“(4) The Secretary of State must report any use of the identity verification exemption on national security grounds as provided for by this section to the Intelligence and Security Committee of Parliament. Each report—
(a) made under subsection (4) must include the name of the person and company exempt from identity verification.
(b) must include the Secretary of State’s reason for granting exemption on national security grounds.”
This amendment would place a requirement on the Secretary of State to report any use of the identity verification exemption on national security grounds to the Intelligence and Security Committee.
Kevin Hollinrake
It is a pleasure to serve with you in the Chair, Ms Bardell.
Amendment 9 is a technical amendment. Clause 65 enables the Secretary of State to exempt a person from identity verification requirements by written notice, if necessary in the interests of national security or to prevent or detect serious crime. The consequence of someone being subject to such a written notice is that they will not be obliged to observe certain rules. For example, an unverified individual benefiting from an exemption will not need to refrain from acting as a director and will not be liable for an offence for acting as such.
The amendment clarifies that companies whose directors are exempt from the prohibition to act when unverified are relieved of their duty to ensure that such a director has their identity verified. Therefore, they will not be criminally liable for failing to comply with that duty in relation to the exempted person. Relieving companies of the duty meets the original policy intention and is a logical consequence of the exemption granted to individuals on these grounds. I hope that my explanation has provided further clarity on why that is needed.
On amendment 101, any proposed use of the national security exemption in clause 65 will be carefully considered by the Secretary of State. A duty to report to Parliament’s Intelligence and Security Committee on the use of that exemption is unnecessary. The ISC’s oversight functions are clearly set out in the Justice and Security Act 2013 and the accompanying memorandum of understanding. It is inappropriate to include a specific oversight role for the ISC in relation to the deployment of this exemption. The amendment is therefore not necessary, and I ask hon. Members not to press it.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Bardell. I thank the Minister for his opening remarks. I recognise that clause 65 gives the Secretary of State the power to provide written notice to exempt someone from identity requirements if necessary in the interests of national security or for preventing or detecting crime. The Opposition recognises the importance of protecting national security, but the Minister will know from previous debates that we seek greater clarity about where exemptions may be granted, and the transparency and accountability around the use of those powers. The Government have tabled amendment 9, which is consequential to clause 65. If the clause is agreed to, the amendment makes sense.
Amendment 101, which my hon. Friend the Member for Aberavon and I tabled, comes back to scrutiny of the use of the exemption powers. I will probably say a few times today that the title of the Bill includes is the Economic Crime and Corporate Transparency Bill. Where there are questions about a potential lack of or reduced transparency and possible serious impacts, there should be accountability, even from the Secretary of State. We live in a democracy where the Government should be and are accountable for actions of the Secretary of State.
The amendment simply states that there should be a process by which any use of the identity verification exemption on national security grounds provided by the clause should be subject to some scrutiny. The Minister may have better ideas on how to deal with that question if the Intelligence and Security Committee is not the right place. We have used the ISC because it is a parliamentary Committee that deals with national security matters, is on Privy Council terms, and will have the confidence of Parliament and the Government in reviewing these matters and raising any questions. All the amendment does is provide scrutiny for the exemption process by referring a report to the Intelligence and Security Committee, which ensures that the information remains privileged and not publicly accessible. If the Minister is, as he intimated, unable to support the amendment, I urge him to give us confidence about how he would provide assurances.
Kevin Hollinrake
Perhaps I could give the hon. Lady some examples of the kinds of individuals the exemption might apply to. We expect the exemption to be used on very rare occasions, for individuals including, but not limited to, those working for the UK intelligence community or law enforcement agencies. She should bear in mind that the Secretary of State is introducing the provisions. I hope that she will be reassured that the powers will be used sparingly but wisely.
Seema Malhotra
I thank the Minister for his intervention. The issue is not what we assume and hope might happen, but having some checks and balances on the use of powers. It is part of our responsibility on the Committee to think that through.
Seema Malhotra
I thank my right hon. Friend for highlighting an important case in point.
Kevin Hollinrake
May I speak to that case very quickly? The Usmanov case was entirely different. A Secretary of State did not introduce legislation providing for a Russian oligarch to move, in that case, billions of pounds-worth of assets to his sister, I think. What we are talking about here is the Secretary of State using a power to remove somebody whose identity is sensitive from a public register—not allowing an oligarch to subvert the regulations.
Seema Malhotra
Thank you, Ms Bardell. I thank my right hon. Friend for her intervention. To wrap up my remarks on this point, the Minister makes a valid point in relation to the types of cases and the circumstances under which people might be given exemptions, identified on national security grounds. My right hon. Friend makes a good point as well about where things might come through the system inadvertently. That is partly why we have checks and balances.
I take the Minister’s point about individuals who may be working for the intelligence and security community, but he could give us some reassurance by saying that every single Secretary of State in whose hands this power lies in future will consider every case carefully so we need have no cause for concern about that, given the transparency and accountability. We set up systems such that there are ways in which the decisions of Secretaries of State and Ministers have controls, checks and balances around them.
In circumstances in which a Secretary of State might say that a name is too secret to divulge, even knowing whether there has been use of the power—the number of times used and the categories for which it has been used—could still be important information. For example, what if suddenly in future the Secretary of State was determining 10 a month—I am not saying that they would? The Minister and I have no idea who the Secretary of State might be in five or 10 years’ time, so we have no idea whether there might be an abuse of the power. However, sometimes even having the number can be a red flag, because ordinarily we might expect one every three months, so why do we have five a month coming through?
There are therefore ways in which we can have such controls without putting someone’s identity or security—or the nation’s security—at risk. Having some controls over those powers is a big and important theme of the report. I ask the Minister to consider that and to say: “Look, we will consider whether we can have, without it being too onerous a job, some mechanism for controls and reporting on use of the powers, such as through Privy Council routes.” I would then be happy not to press my amendment.
Kevin Hollinrake
I am happy to reflect on that and have further discussion. As the hon. Lady and other Members know, I am keen for Parliament to have scrutiny of any measures that we introduce. We will take it away to consider.
Seema Malhotra
I appreciate the opportunity. I therefore will not press amendment 10.
Amendment 9 agreed to.
Clause 65, as amended, ordered to stand part of the Bill.
Clause 66
Allocation of unique identifiers
Alison Thewliss
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.
Kevin Hollinrake
I think that we are trying to achieve the same thing, just in different ways. We discussed this issue at length in previous sittings. Companies House is already actively working on unique identifiers. It is not credible to think that, having legislated for them, we will not implement them. A basic principle of the Bill is to be able properly to link individuals on the Companies House register, so that company directors have a better experience and so that it is easier for the public to identify the connection between directors, including persons of significant control, and companies.
Dame Margaret Hodge
I accept that great progress has been made in the Bill, but addresses and personal details are also important. We know the way in which addresses are exploited: people put 3,000 companies into one address. That is relevant information that Companies House needs to have.
Kevin Hollinrake
Addresses are not covered by the amendment, although we discussed the verification of addresses at length the other day. We think we have struck a fair balance in terms of a company address. The shadow Minister seems to be saying that she wants the unique identifier to be searchable; we think that the person’s name should be public and searchable. I did not quite understand her point about people hiding their email addresses or names, and searching by unique identifier, rather than the other way around. We think that the searchable entity should be the person’s name, and the Bill would then make it easier to see the connections between a director’s name and the different companies with which that person is connected.
Seema Malhotra
The example was given of the number of John Smiths there might be. There might even be a number of Seema Malhotras, but I do not know that there are as many.
Seema Malhotra
I think I found three. For the most part, the Minister’s arguments are very strong, but he is on very weak ground here. Is he seriously saying that if someone genuinely wants to see Mr John Smith’s directorships, they will have to spend three hours going through all the John Smiths? Would that be enough time to de-duplicate and link the right ones together? That is crazy. There is a much simpler solution. It would do the job, and bring us in line with other countries.
Kevin Hollinrake
I am not aware of the countries to which the hon. Lady refers. How would someone know the unique identifier so as to be able to search by that record? What someone will recognise is the name of the person, whether it is Usmanov or another name. That is likely to be the search term that people use, so we think that, for the public view, the most important link is the name. That would also have some implications in terms of potential fraud.
The unique identifier is there to do exactly what the hon. Lady and the hon. Member for Glasgow Central want it to do: it creates a connection behind the scenes, in Companies House, so that a simple search can reveal the connection between a person and all the different companies. That is how it works: we search by the names. We think that is the best way around. She wants to search by the unique identifier.
Seema Malhotra
May I kindly suggest that the Minister ask his officials more about how the unique IDs that are used in Australia, New Zealand and India are working, and whether there is something we might learn from them? If he has not been briefed on that already, it might be a useful step for him to take.
On the Minister’s second point, he is absolutely right that we usually start with a name. We might start with “Mr Kevin Hollinrake, Thirsk and Malton”, but we would then find his unique identifier and be able to use it to link him with the hundreds of other entries for Kevin Hollinrakes—perhaps some of them even live in Feltham and Heston—and see whether they are the same person.
If the Minister is unclear about what I referred to as a proxy identifier, I am happy to take that offline. It is a simple measure used for security reasons, and it is basically like having a “known as” name. Everyone might know the Minister by a nickname, but people will always be able to identify him, because the unique identifier is linked solely to the underlying email address or ID. It is not publicly the same, but it is uniquely linked, so that someone who uses one will access the data of the other.
Kevin Hollinrake
I am happy to look at the international examples that the hon. Lady mentions, and at the generic name issue. I think that is a fair point, and I have already asked officials to look at how that might work in the case of John Smith and the like. I have just done a quick search on one of my previous co-directors, Harry Hill, who has quite a generic name. If we put in “Harry Hill, Hunters, Companies House” it brings up the Harry Hill that is associated with me, not another Harry Hill. There are simple ways to make connections involving names such as John Smith. I will come back to the hon. Lady with an answer on that if I can.
We do not think that changing the power to a duty would have the desired effect of obliging people to have unique identifiers in the first place. That will be achieved by mandatory provisions including the regulations under the power contained in section 1082 of the Companies Act.
Seema Malhotra
I would appreciate it if the Minister came back to me on that point, because I am not clear that section 1082 of the Companies Act, as amended by the Bill, will achieve what he thinks it will. I want a clear answer about whether all directors will have a unique identifier under the new regime. That is question No. 1, and everything else follows from that.
Kevin Hollinrake
Yes, they will. That is exactly what the Bill provides. It is a mandatory provision, including the regulations under the power contained in section 1082 of the Companies Act. Those two things combined will ensure that Companies House provides a unique identifier for every company director and for every person of significant control. I think that is what the hon. Lady hopes to achieve.
Let me turn to amendment 103. Unique identifiers will be a tool to help Companies House to link an individual’s verified identity across multiple roles and company associations. For example, if an individual is a director for company A and also a person with significant control for company B, Companies House will be able better to link those appointments using the unique identifier. The identifiers should not be made public, in our view. Their purpose is to allow the person who is assigned the identifier to communicate securely and privately with Companies House. Making the unique identifiers public would, in our view, compromise their use, because they could be appropriated and misused by anyone looking at the register, including potentially to commit identify fraud and other crimes. However, Companies House will be making changes to how members of the public view the register, enabled by unique identifiers, so it will be possible accurately to see connections between individuals and entities, including how many companies an individual is a director of, or how many companies a person has significant control over. On that basis, I hope hon. Members will withdraw their amendment.
Kevin Hollinrake
I beg to move amendment 10, in clause 67, page 56, line 3, after “subsection (1)” insert “—
(a) in the words before paragraph (a), after ‘not’ insert ‘, so far as it forms part of the register,’;
(b) ”.
This amendment spells out that section 1087 of the Companies Act 2006 is only concerned with information on the register of companies.
Kevin Hollinrake
Clause 67 amends section 1087 of the Companies Act 2006 to extend the list of registered material unavailable for public inspection to include
“any statement delivered to the registrar”
to confirm compliance with identity verification requirements, which means that statements delivered to the registrar concerning identity verification will stay private, protecting personal and sensitive information. Government amendment 10 clarifies that section 1087 is only about withholding from public inspection the portion of the registrar’s records concerning companies. Other provisions elsewhere in legislation provide for the withholding from public inspection of the portion of the registrar’s record pertaining to other entities, such as limited liability partnerships and limited partnerships.
Seema Malhotra
We have very few remarks to make. As the Minister has outlined, clause 67 amends the Companies Act to extend the list of material unavailable for public inspection to include
“any statement delivered to the registrar”
under the provisions listed. I make the general comment that we want to have greater clarity on this matter so that we do not inadvertently find ourselves, through the legislation, in a situation whereby director, shareholder or officer information becomes hidden for all the reasons outlined in the Bill. The clue is in the name—it is about corporate transparency. I am making a broad point about concerns of reducing transparency when we are here to increase it.
Amendment 10 agreed to.
Clause 67, as amended, ordered to stand part of the Bill.
Clause 68
Requirements for administrative restoration
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 45—Striking off a company: identity verification—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1003 (striking off on application by company) insert—
‘1003A Striking off on application by company: identity verification
Before striking off a company under section 1003, the registrar must first, in the case of each individual named as a director of the company—
(a) confirm that the individual’s identity is verified (see section 1110A), or
(b) confirm that the individual falls within any exemption specified in regulations made under section 12(2A)(b).’”
This new clause would extend directors’ Identity Verification requirements to dissolving a company in addition to registering a company.
New clause 46—Application for administrative restoration to the register—
“In section 1024 of the Companies Act 2006 (application for administrative restoration to the register), for subsection (3) substitute—
‘(3) An application under this section may only be made by a former director, former member, former creditor or former liquidator of the company.’”
This new clause would make it possible for a creditor or liquidator to apply to restore a company administratively.
Kevin Hollinrake
Clause 68 amends section 1025 of the Companies Act 2006 to require that outstanding fines or financial penalties must have been paid for a company that has been previously struck off to be restored to the register. I thank the hon. Members for Feltham and Heston and for Aberavon for new clauses 45 and 46.
First, new clause 45 seeks to ensure that before striking off a company, the registrar must check whether the named directors have had their identities verified or do not need to do so because are they are exempt. Secondly, there are two routes by which a dissolved company can be restored to the register: one is an administrative process involving application to the registrar; the other involves applying to the court to order restoration. New clause 46 would expand the categories of persons who can use the administrative route by allowing former creditors and former liquidators to apply to the registrar for a dissolved company to be restored to the register. At present, only former directors or members of the company can apply to the registrar. Creditors of the company at the time of its striking off or dissolution and former liquidators currently have access to the court application route under section 1029 of the Companies Act 2006.
While I appreciate that in comparison to the administrative route, the court route is more cumbersome and potentially costly, it exists for a reason. Where a creditor seeks restoration in an effort to prove a debt outstanding from a company, the court is best placed to determine the validity of the case. Opening the administrative restoration route to creditors would place the registrar in the position of having to judge the legitimacy of a creditor’s interest in a company. That is not and should not be the role of a registrar.
However, liquidators are a matter of public record and in many cases might be the official receiver. I appreciate that there may be instances where their interests in restoring a company might be in the wider interest of others, including potential creditors, and that there may be a case for giving them access to the less cumbersome administrative process. On the basis of our undertaking to consider the matter further, I shall be grateful if hon. Members do not press the new clause.
Although driven by good intentions, we believe that new clause 45 is unnecessary. As the Committee has heard, ID verification requirements will apply to all new and existing registered company directors, as well as to people with significant control and those delivering documents to the registrar. That means that directors and beneficial owners already on the register prior to the reforms coming into force will be covered by the ID verification requirements, although they will have a transition period within which to become compliant.
Directors of companies applying for strike-off under section 1003 of the Companies Act 2006 will therefore not evade verifying their identity before their company is struck off without exposing themselves to criminal liability. Crucially, anyone delivering an application to strike off a company to the registrar will also have to verify their identity. I hope that that explanation is appropriate, and provides such reassurance that hon. Members will consider not pressing the new clauses.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Ms Bardell.
Clause 68 makes welcome changes to the Companies Act and should make it easier to enforce penalties imposed in response to criminal breaches under it. The circumstances under which an application can be made for a company struck off the register to be restored to it are set out in section 1025 of the Companies Act. Clause 68 amends section 1025 to make it clear that, as a prerequisite for any such application, any outstanding fines imposed on the applicant and relevant company directors in relation to a criminal offence under the Companies Act must be paid in full. That is a positive step toward increasing levels of compliance with companies legislation in the UK.
The Minister may wish to clarify one point in relation to company directors convicted of criminal offences. In previous sittings, the Committee discussed the grounds on which someone can be disqualified from serving as a company director under the Company Directors Disqualification Act 1986 and subsequent amendments. They include the disqualification of individuals guilty of persistent breaches of companies legislation. That appears to leave the door open for someone to serve as a director, even if they have committed a criminal breach of the legislation, provided they have not done so on multiple separate occasions.
Will the Minister tell us whether the Government considered extending the criteria so that anyone with even a single criminal conviction related to companies legislation would be prohibited from serving as a director again? Does he believe that it might send a stronger message were the Government to adopt a zero-tolerance approach to these kinds of crimes? I hope that he will come back on that point. It has some relation to new clauses 45 and 46, and I look forward to the remarks of my hon. Friend the Member for Feltham and Heston on them.
Clause 69 establishes—
Kevin Hollinrake
As I said in my remarks, anyone delivering an application to strike off a company to the registrar would have to verify their identity. I do not see how that is not clear.
Seema Malhotra
I thank the Minister for that intervention. If he means that the aims of the new clause are already included in the proposed operation of the system, that is helpful clarification.
Currently, when companies are struck off the Companies House register, very little is done to check whether fraud has occurred and, in turn, that means that there are few repercussions for the directors of those companies. On average, 400,000 companies are struck off the register each year, so perhaps the Minister could go one step further and clarify whether such ID verification will apply to all directors of companies that are struck off. How will that happen if there are no unique identifiers? If wrongful actions are committed, will the proposed regime go one step further to ensure that red flags and investigations into possible misconduct or fraudulent activity will ensue? At the moment, unscrupulous directors are likely to misappropriate the strike-off process to avoid scrutiny and to rack up debts or to sell company assets ahead of the company dissolution, effectively absconding with the proceeds. Our new clause does not just call for a check on IDs but for red flags in the system to alert authorities to possible fraudulent activity that should be subject to further investigation. The Minister may want to respond to that suggestion later.
As I have outlined, creditors may seek to apply through the courts for a company to be restored, albeit under different legislation. New clause 46 would enable a creditor or a liquidator to apply to restore a company administratively. I believe it would be helpful to the Minister’s considerations to outline our intentions. The introduction of director identity verification may go some way to deterring directors from registering multiple companies fraudulently, but in the case of companies already struck off the register, there is limited opportunity to hold directors accountable for their wrongful actions and for returns to their companies’ creditors.
Members of the insolvency and restructuring trade body, R3, report that director disqualifications have little or no effect on fraudulent directors. It is absolutely shocking that the system has been allowed to continue in that way. There is little or no effect on fraudulent directors, and seriously rogue directors will often go on to commit repeat frauds despite being disqualified.
Those directors who have been disqualified may continue to operate behind the scenes as de facto directors, shadow directors or advisers to a company. We are trying to close some of those options, but there are all sorts of ways in which those who want to get around the system can do so if determined. Hence the need for the legislation to be more belt and braces.
A much more significant deterrent occurs when the company is put through an insolvency process and directors are held to account for the assets that have been misappropriated. If a company has been dissolved and automatically struck off the Companies House register—the company therefore no longer exists, in effect—that process can only take place if the company is first restored. However, if a company’s former creditors or liquidators at the time of the company’s striking off or dissolution wish to apply to restore the company, they must do so through the court.
The court process can clearly deter creditors as it is sometimes a complex procedure, in part due to the costs, which are typically £1,500 to £3,000, and in part due to the huge amount of time involved, which can be 12 to 18 months. Businesses are busy, creditors are busy, and the extra strain has to be weighed up against the cost of doing it. We have to have a solution. I am glad that the Minister has intimated that there ought to be a basis for what I think he described as a “less cumbersome” process. I agree. I hope that we will see some proposals, perhaps in Committee. It would be helpful to strike while the iron is hot.
Directors are all too easily able to create a significant barrier to the investigation of their conduct. Indeed, data from Companies House shows that only 2% of dissolved companies are put through a process to restore them to the register each year. I do not have the data on the number of creditors who might do so were it a less cumbersome process, but I think we can all agree that it would be far more than 2%. Certainly the research suggests that.
Under section 1024 of the Companies Act, former directors or members of a company can apply to restore a company administratively, avoiding a court process. However, that is not an option for a former liquidator or creditor of a company. New clause 46 would amend section 1024 so that a former creditor or liquidator could apply to restore a company administratively, without the need for a potentially lengthy and costly application to court. That would make it simpler for a company to be put through an insolvency process so that the company’s directors can be held to account for the assets that have been misappropriated and incur liability for their actions. Returns to creditors could then be made.
I hope that the Minister will, in his reflections, consider the wording of new clause 46. It might help him on the way to finding a simple solution. There is a real issue here. In the interests of fairness to businesses and creditors that do the right thing but are treated unfairly, it should not be so hard to bring to account those who had clearly planned to be struck off, more quickly, cheaply and easily.
Kevin Hollinrake
On the hon. Lady’s legitimacy argument, as I said, we can understand that there might be a case about liquidators. We have committed to look at that. It is much more difficult in the case of creditors’ interests. She talked about the misappropriation of funds, but it is not the registrar’s position—the registrar is not deemed capable—to determine whether that is the case. I do not see how a creditor’s interests can be decided on by the registrar. However, I commit to us looking at the liquidator element.
On the issues the hon. Lady has mentioned with respect to Companies House and new clause 45, the requirements under the objective at the start of the Bill make it clear that the registrar’s responsibility is to minimise unlawful activities. On whether a striking-off in certain circumstances is a red flag, there will be a number of ways in which that can be determined, either through automated processes or by human intervention. It is not realistic for the registrar to determine fraud, but it is definitely within her capability to determine whether there is a red flag around fraud. We expect the registrar to put those measures in place; in fact, there is a requirement for her to do that under objective 4— minimise unlawful activities.
We have had debates at length in previous sittings on whether we should dictate to the registrar how she should do that, with myriad conditions and circumstances involved and discussion as to what constitutes a red flag. On this side of the Committee, we believe that we should leave it to Companies House to determine how the registrar minimises unlawful activities and what constitutes a red flag. That, of course, will be shared with relevant enforcement agencies.
Seema Malhotra
I know the Minister is not intending to, and I would not want him to, misrepresent our position, but the difference between our views is generally whether there should be greater tools and provision in legislation to give the registrar teeth that might be helpful in her work. The Minister is right that it would not be for the registrar to determine fraud, but that there should be a red flag system whereby the registrar is uniquely in a position to be able to determine that.
Kevin Hollinrake
We are in total agreement—violent agreement—which is great.
The hon. Lady made a point about shadow directors. There are all kinds of ways in which a nefarious individual can influence the behaviour of a company, for which we cannot possibly legislate. There is no such thing as, and no legal status of, a shadow director. Therefore, how would we ban somebody from being one? We have to operate within the boundaries of the law. That is what we feel, and we have reached a fair balance here. I hope the hon. Lady will not press her new clauses to a vote later in the proceedings.
Question put and agreed to.
Clause 68 accordingly ordered to stand part of the Bill.
Clause 69
Delivery of documents: identity verification etc
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clause introduces identity verification requirements for individuals delivering documents to the registrar. It also requires that when an individual acts on behalf of another, they must confirm that they have the authority to do so. That will enable the registrar to reject documents unless they are accompanied by a true statement that the identity of the individual filing the document is verified and that the person filing the document is authorised to file.
An individual who delivers a document to the registrar on their own behalf must have their identity verified, and the document must be accompanied by a statement confirming their verified status. If an individual is exempt from identity verification requirements under the clause, they must provide a statement to that effect when delivering a document. Documents delivered on behalf of another person must be accompanied by a statement that the filer is authorised to do so. A document delivered by an employee of an authorised corporate service provider must additionally confirm that they are acting in the course of their employment.
Ensuring that individuals are identity verified before they can deliver documents to the registrar and that they are permitted to do so provides greater accountability because the documents will be traceable back to a verified identity.
Clause 70 creates a prohibition on delivery of documents to the registrar by disqualified persons. Clause 71 enables the registrar to reject documents that have been delivered by people who are not within the categories permitted to file documents under clauses 69 and 70.
Stephen Kinnock
Clause 69 establishes a requirement for anyone delivering documents to the registrar to have their identity verified, subject to certain exemptions, which may be set out in secondary legislation. However, it is not clear in what circumstances the Government might consider an exemption appropriate. The requirement for any exemption to be set out in secondary legislation subject to the affirmative procedure is welcome, because it enables the relevant changes to be scrutinised by Parliament. Nevertheless, it would be helpful if the Minister could provide an indication of what sort of exemptions might be expected.
Clauses 70 and 71 relate to the delivery of documents to the registrar. Clause 70 stipulates that disqualified individuals may not deliver documents on either their own or someone else’s behalf. As set out in the clauses, individuals delivering documents to the registrar will be required to make a series of statements confirming that they are not subject to any disqualification under companies legislation.
Kevin Hollinrake
The hon. Gentleman asked me for examples of exemptions. We expect exemptions to be used rarely, but examples might include Government Departments, local authorities and international organisations where the identity and accountability of the organisation delivering the information carries little risk.
Stephen Kinnock
I thank the Minister for that clarification. Assessing the meaning of “carrying little risk” is a subjective thought process, but he is right that not everything can be micromanaged in this process. We will probably never get absolute clarity on these issues, but it will be important that Parliament scrutinises the way in which exemptions are implemented so that we get to know what “little risk” means through their implementation. It will also be important for Ministers to keep a close eye on the risk management processes that need to be implemented. As the Minister rightly said, legislation without good implementation is not worth the paper it is written on.
In previous debates, this Committee has discussed issues involving the verification of information provided to Companies House and the enforcement of criminal penalties for those who fail to comply with requirements to provide truthful information. These clauses raise similar questions. For instance, could the Minister explain what actions the registrar will be able to take to verify that, if somebody delivering documents states that they are not acting on behalf of a disqualified individual, that is a true and accurate statement?
The clauses also relate to issues discussed by the Committee on authorised corporate service providers. We all want this Bill to make it much more difficult for the people who own or control companies to hide their identities behind layers of secrecy, which often take the form of corporate service providers or other individuals acting on behalf of those in control. It would be helpful if the Minister could provide more detail about how the Government plan to protect the system against abuse, particularly by third parties acting on behalf of criminal clients. Could he tell us, for instance, whether the Government have considered introducing a more proactive licensing system for corporate service providers—as is used by some other jurisdictions, including Jersey—and what assessment the Government have made of whether the Bill provides adequate safeguards against the submission of false statements to the registrar?
Kevin Hollinrake
I think the hon. Gentleman asked me to address two points. First, he asked how we will ensure that the documents filed are accurate. That goes back to the risk-based approach that the registrar should take on potential red flags and other such matters. Obviously, that role fits into the registrar’s wider objectives of ensuring that the information is accurate and minimising unlawful activity. It is a red-flag approach in terms of systemised and human intervention.
The hon. Gentleman’s second, wider point was on the penalties for false filing, which are up to two years in jail. I think most people will consider that to be a decent deterrent against abuse of the system.
Stephen Kinnock
I thank the Minister for that clarification. Does he have a view on the question of a more proactive licensing system for corporate service providers, along the lines of what is done in Jersey? Have the Government made any assessment of whether the Bill provides adequate safeguards against the submission of false statements to the registrar, particularly by corporate service providers?
Kevin Hollinrake
I fully recognise the concerns expressed across the Committee about our oversight of corporate service providers. As I say, we should not mix up the many bone fide companies and household name accountants and lawyers, but clearly there are concerns, for example about some company formation agents. We need to ensure that the system that supervises money laundering is much more effective—we know there are deficiencies. The Treasury is looking at that right now. It will report and say exactly what it will do to beef up the system and make sure it is more fit for purpose. I am taking a keen interest in that. I am just as keen as the hon. Gentleman and other Members that the system properly identifies people with shortcomings and identifies wrongdoing, and that we build a much better system of money laundering supervision.
The hon. Gentleman mentioned licensing. Let us see what the Treasury review says and then we can make judgment. In terms of oversight of the money laundering supervision system, I am as concerned as he is and as keen to make sure that that system is fit for purpose.
Stephen Kinnock
I thank the Minister for that clarification. Will he assure us that he will encourage his colleagues at the Treasury to consider the option of a licensing system within the terms of reference of the review?
Kevin Hollinrake
I am keen to make sure that the system works, whether by licensing or by some other means. There are lots of different options for what might be described as a system that is fit for purpose. Of course, in common with all Members of this House, we are keen to avoid unnecessary bureaucracy, but nevertheless we want a system that works and that we have faith in, so, in my view, all options should be on the table.
Alison Thewliss
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.
Kevin Hollinrake
Will the hon. Lady ask the question again? I did not quite get it.
Alison Thewliss
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?
Kevin Hollinrake
I think I have understood the hon. Lady’s question. Clearly, all directors and company service providers need to have their identity verified too. If that is what the hon. Lady is referring to, that is absolutely contained in the provisions of the Bill.
Dame Margaret Hodge
I was very interested in what the Minister said about ensuring that the authorised company service providers should be checked and supervised properly. It is really important to ensure that all the details of the individuals on the register can be found with certainty. However, we are all struggling with how to do that in quickest, most cost-efficient and effective way. Does the Minister agree that a suitable mechanism should be presented on Report—unless he would like to suggest one now—that does not waste time, keeps within the timeframe, does not require massive additional resources and enables swift action to be taken? I love the Treasury, but we should do this without having to wait for a Treasury review or reorganisation. Does he accept that that might be a way forward? We all want the same thing, and if we do not get this right there could be a huge flaw in the system we are establishing.
Kevin Hollinrake
We are on the same page about ensuring that the system is fit for purpose. It is difficult for me to do a review when the Treasury itself is doing one and is probably better placed than I am to do it, given its wider understanding of the system.
Kevin Hollinrake
Perhaps it might not be as ambitious as me, but it certainly has access to detailed information and the resources to properly conduct the review. The Treasury should be allowed to do that job.
I think that we are all on the same page. I am absolutely committed to ensuring that the system is fit for purpose. It is not a case of just getting the Bill passed; we need to ensure its implementation, as I have said many times in the House and in Committee.
Liam Byrne
I am sorry to intervene, but the Minister provokes me. A point to take away is that we are now bedevilled by a real problem in this country: responsibility for policing this area is divided between the Minister, the Treasury, the Foreign, Commonwealth and Development Office and the Bank of England. At the moment, as the Foreign Affairs Committee has said repeatedly, there is not an effective gearbox for joining those things together. If one of the Minister’s legacies could be to fix that problem, he would be cheered from all sides.
Kevin Hollinrake
God forbid that the Government work in silos, whoever is in power, but they do tend to do so at times. I am on the same page as the right hon. Gentleman and other Committee members that we must have a joined-up approach right across Government. The systems of supervision of money laundering must be fit for purpose, tight, verified and checked, and the people who do not do it right must be held to account. We must ensure that we get that right, and I am fully committed to that.
Question put and agreed to.
Clause 69 accordingly ordered to stand part of the Bill.
Clauses 70 and 71 ordered to stand part of the Bill.
Clause 72
Delivery of documents by electronic means
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
I hope that the clauses are pretty uncontroversial, but let us see. Companies House systems are already enabled to receive digital account submissions. The clauses will help Companies House to become a fully digital organisation by 2025.
Clause 72 transfers the power to require delivery by electronic means from the Secretary of State to the registrar. Filing information digitally is easier, quicker and more secure for filers. The information can be more easily checked for accuracy and compliance, and is less likely to be rejected for basic errors or omissions. That increases transparency. Suspicious activity can be better identified, contributing to our efforts to detect and prevent economic crime.
Clause 73 will require companies to deliver to the registrar a copy of a court order confirming their share capital reduction, rather than the original document itself. Clause 74 does the same in respect of a declaration of solvency. Clause 75 gives the registrar an administrative power to specify, in registrar’s rules, where documents must be delivered together.
Requiring companies to file component parts together will make it easier for Companies House to check that companies are meeting their filing obligations. It will also reduce unnecessary errors. Where filings are made that do not meet the requirements, they can be rejected, helping to improve the integrity of information on the register.
Stephen Kinnock
The main purpose of clause 72 is to make it easier for future changes to registrar’s rules to be made by the registrar directly, rather than through the Secretary of State. The Government’s intention is to facilitate the electronic delivery of documents. Using quicker, more efficient electronic systems for delivery should play an important role in wider plans for the transformation of Companies House and the service it provides.
With that in mind, could the Minister say a bit more about how the provisions fit into the ongoing Companies House transformation programme, particularly in relation to the planned new IT system? When might the fully electronic system for the submission and processing of documents submitted to the registrar be in place? We would be grateful for the Minister’s comments, particularly about timing.
Kevin Hollinrake
Companies House already has the capability to accept documents filed digitally—89% of companies already do that. Therefore, it is not an IT development requirement; it is just a requirement for companies to file documents digitally rather than using paper. It puts the onus on the companies rather than on Companies House itself.
In relation to authenticity, we are again back to the red-flag approach. Companies House has a requirement, an objective, to oversee the integrity of the register. There is definitely a risk-based approach to that. The aim is to try to put the red flags in place to ensure that we are identifying documents that are not authentic. Also, there are penalties for false filing of documents, which I think we went through previously.
Alison Thewliss
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.
Kevin Hollinrake
The hon. Lady makes a good point. I do not know the detail behind that, but I am happy to go away and look at that for her.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clauses 73 to 75 ordered to stand part of the Bill.
Clause 76
Power to reject documents for inconsistencies
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clauses 76 to 79 support the Bill’s overarching ambition to broaden the powers of the registrar to maintain the integrity of the register. Clause 76 provides a new power to reject documents for discrepancies. Currently, the registrar must accept documents if they have been properly delivered—that is, they meet the requirements as to their contents, form, authentication and manner of delivery, and the other requirements listed in section 1072 of the Companies Act 2006.
Documents containing information that is at odds with information that the registrar holds may none the less meet “proper delivery” requirements in their own right. If so, they must be placed on the register despite the apparent inconsistency. This clause cures that problem by enabling the registrar to reject a document if it appears to be inconsistent with other information that is held by or available to the registrar. The power is available if, due to the inconsistency, the registrar has reasonable grounds to doubt whether the document complies with the requirements as to its contents.
Dame Margaret Hodge
This is a question to aid understanding. This provision sets out the duties of the registrar in relation to documents, but the documents will actually be checked by the company service providers, will they not? That will be outsourced to those providers. I might be wrong—the Minister is looking puzzled—but that is the case if I read the situation correctly. Therefore, is this provision suggesting that there will be a check at Companies House on the work that the company service providers do? Perhaps the Minister can say a little about how that will be implemented. I thought that all that was to be pushed out to the company service providers.
Kevin Hollinrake
Not at all—quite the opposite. Companies House has a requirement to oversee the integrity of the register, and the clause states exactly that. If the registrar feels there is an error that she is not happy with in the document, or it is inconsistent, she can reject the document whether it is filed by a company service provider or by a director of the company.
Dame Margaret Hodge
For complete clarity, there will be a risk-based system of checks on documents provided as a mechanism for ensuring the accuracy of the documents that are submitted.
Kevin Hollinrake
Absolutely. That is exactly how we expect it to operate.
Once the registrar refuses the document, it will be treated as not having been delivered. Under clause 77, the Companies Act 2006 allows the registrar, upon receipt of an instruction from someone else and only with the relevant company’s or other body’s consent, to correct a document at the pre-registration stage if it appears to be incomplete or internally inconsistent. That power was useful when more companies filed on paper, as informally correcting material was easier than rejecting a document and waiting for it to be refiled. However, in the digital world, filings can now be rejected, returned to the filer and then refiled within minutes. There is no longer a need to informally correct a document pre-registration. Clause 77 therefore removes that power, which also encourages accuracy in filing by removing the expectation that a document can be informally corrected.
Clause 78 reduces the period of time for which the registrar must keep originals of documents that have been delivered in hard copy from three years to two years. Once that period has passed, the original documents can be destroyed as long as the information they contain has been recorded. The retention period that was previously reviewed was reduced from 10 years to three years when the Companies Act 2006 replaced the 1989 Act. The number of requests for the retrieval of filings has decreased further and steadily since then due to declining paper filings, improved image capture processes and increased confidence in digital records. It is therefore right to reduce the retention period again. The information in the documents will still of course be available electronically to users as appropriate.
Clause 79 amends the period for which the registrars in each UK jurisdiction must maintain certain records available for public inspection. The records in view are those concerning dissolved companies, including certain information regarding PSCs of dissolved companies, overseas companies that have ceased to have any UK connection, and overseas credit and financial institutions that have ceased to be required to file accounts with the registrar. The clause provides that those records can be moved to the Public Record Office two years after the relevant date of dissolution or cessation.
Dame Margaret Hodge
May I ask a question on that? It is relevant to later amendments. I do not know whether the Minister or his officials can help, but can Companies House stop a request for dissolution?
Dame Margaret Hodge
I think it can. I have tried to find its powers and cannot find them. The great example is the Savaro one. It was the UK-based company that owned the warehouse where the fire took place in Lebanon. It tried to dissolve the company, but I think the Minister intervened. I have looked up Savaro and it does still exist. It is quite important if we have a dirty company that wants to rush away. Do we have powers to dissolve it?
Kevin Hollinrake
I am happy to raise that with officials and come back to the right hon. Lady. [Interruption.] There is some flapping about right there, as I speak.
Kevin Hollinrake
Yes, the registrar can decline an application if it does not satisfy the requirements—[Interruption.]
The Chair
Order. If Members could refrain from shouting across the room, out of respect to our colleagues at Hansard and those watching proceedings, that would be greatly appreciated.
Kevin Hollinrake
The clause also provides that the registrar need not make these records available for public inspection 20 years after those dates.
Seema Malhotra
I will speak to clauses 76 to 79. I thank the Minister for his comments. He has outlined that clause 76 would amend the Companies Act 2006 to give the registrar the power to reject documents that are not consistent with information held by the registrar and that give the registrar reasonable grounds to doubt whether the document complies with Companies House requirements.
A document that is refused under this power is treated as not having been delivered. These clauses will apply to all documents filed with the Companies House registrar. Such documents could include the annual confirmation statement—formerly the annual return—the annual accounts, forms appointing or terminating directorships, applications to register a charge or the filing of changes to the articles of association. The broad list can be found on the Government website under the postal forms that a limited company can file with Companies House.
Clause 76 is a welcome measure that should help Companies House transition from passive administrator to active agent as regards the information submitted to it. Will the Minister expand on how the registrar will be alerted when inconsistent documents are submitted? Have there been discussions with the registrar about the process by which inconsistencies will be checked? The Government may be considering a risk-based approach such as automatic flagging, but it would be helpful to clarify how the system is likely to work and be implemented.
I was searching the legislation to see if there was any deadline for rejection by which Companies House will confirm the rejection of a document. I cannot see a timeline specified, but I would be grateful if the Minister could correct me if that is wrong. In the Bill as drafted, a rejected document is treated as never having been delivered. Could the Minister clarify that? It suggests to me—though it is not fully clear—that companies could be submitting information in good faith, maybe just before a deadline, but could be fined for missing a deadline if the document was subsequently rejected. It would be helpful to know whether Companies House will be working to a deadline to confirm or reject a document that has inconsistencies. If there will be, what might that mean for companies that submitted documentation in good faith, and what will happen with the resubmission of any documentation?
I have no particular comments on clause 77, but I have a question about clause 78 and the preservation of original documents. The Minister is right that our confidence in digital technology and digital records has improved significantly. Can the Minister clarify what needs to be kept in hard copy for two years? Does that refer to all the records that we have discussed? I am not clear about how that sits alongside options for electronic storage of original documents that had been certified by the registrar. There are some other mentions of certification in the Bill, so it would be useful to understand that. I do not have any other concerns or questions on that point.
Kevin Hollinrake
How can we consistently tackle inconsistency in the documentation? We are back to the red flags issue. It is up to Companies House to determine the circumstances in which something would have a red flag, in that it was incorrect. It is not impossible for the Committee to do Companies House’s job for it in terms of how it determines what might constitute a red flag, but I have every confidence that Companies House will determine that appropriately. Again, that is assisted by the requirement that when people file information that is clearly, patently and deliberately wrong, there are penalties for false filing.
As for deadlines, I do not think there is any deadline that the registrar has to adhere to for when determining something to be inconsistent or wrong. The document can be rejected and companies can expect that rejection to be speedy in the majority of cases. The registrar has discretion not to reject an inconsistent document if she feels it is not materially inconsistent. Those are points of detail that can probably be left to Companies House.
Seema Malhotra
I thank the Minister for his response. What he said about points of detail is true to some extent, but not fully true as regards what the provisions could mean for companies that have submitted information in good faith before a deadline. If documents are rejected after the deadline, it could result in the company being considered to have not submitted documents. There seems to be a slightly grey area. Would companies be fined for missing deadlines, or would they be given, in the case of a significant document, a short period of, say, seven days to resubmit it with corrections, without facing a penalty? It could be seen as a late submission. We just want a fair process in instances when genuine mistakes are made.
Kevin Hollinrake
So do I, and I would expect the registrar to use her judgment when determining whether something has been inappropriately filed. We would not expect a fine to be issued if it is not the company’s fault that it has missed a deadline, as in the situation that the hon. Lady describes. There is a wider requirement for any registrar to act reasonably in that regard.
Question put and agreed to.
Clause 76 accordingly ordered to stand part of the Bill.
Clause 77 to 79 ordered to stand part of the Bill.
Clause 80
Power to require additional information
Kevin Hollinrake
I beg to move amendment 11, in clause 80, page 63, line 2, at end insert—
“(vi) section 28 or 29 of the Limited Partnerships Act 1907;”.
This amendment spells out that statements made by a person in response to a requirement under section 1092A of the Companies Act 2006 can be used in criminal proceedings for the false statement offences under the Limited Partnerships Act 1907.
Amendment 11 reinforces the legal framework to maximise the prospects of truthful and accurate information being delivered to the registrar. The general rule is that fairness requires that a person who is compelled on pain of criminal sanctions to provide information to the authorities should not be prosecuted if the information they are forced to supply is incriminating. Proposed new section 1092C(1) of the Companies Act 2006, inserted by clause 80, ensures that that fairness requirement is met in relation to uses by the registrar under the new power in proposed new section 1092A to compel a person to provide her with information for the purposes of her being able to determine whether filing obligations have been met.
However, the privilege against self-incrimination is not absolute. As is the case elsewhere in the statute book, the Bill includes exceptions. A person compelled to provide information is not immune from prosecution for offences that prohibit the giving of false, misleading or deceptive statements. Proposed new section 1092C(2) provides for that exception. The amendment adds the two proposed new “false statements” sections that clause 129 of the Bill inserts into the Limited Partnerships Act 1907 to the list in proposed new section 1092C(2). That ensures that when the registrar compels a person to provide information under her new power to determine whether filing obligations concerning limited partnerships have been met, the person cannot claim privilege against self-incrimination if the information they are compelled to deliver reveals that they have submitted a false filing. I trust the Committee will agree that this is a well-considered amendment.
Seema Malhotra
We do not have extensive remarks. As the Minister has outlined, the clause introduces a new power for the registrar to require information to determine whether someone has met the requirements on document delivery. Failure to comply without a reasonable excuse would be a criminal offence.
Seema Malhotra
Yes. Thank you, Chair. I was just speaking briefly to clause 80. The amendment spells out that statements made by a person in response to that requirement can be used in criminal proceedings on those false statements, and we support that.
Amendment 11 agreed to.
Kevin Hollinrake
I beg to move amendment 12, in clause 80, page 63, line 14, leave out subsection (5).
This amendment is consequential on NC17.
The Chair
With this it will be convenient to discuss the following:
Government new clause 16—Material unavailable for public inspection: verification information.
Government new clause 17—Material unavailable for public inspection.
Government new clause 18—Protection of information.
Government amendments 49, 40 and 39.
Kevin Hollinrake
These amendments relate to the register of overseas entities introduced by virtue of part 1 of the Economic Crime (Transparency and Enforcement) Act 2022. The new clauses mirror equivalent sections in the Companies Act 2006 as amended by part 1 of the Bill, which we have already debated. They will ensure consistency between the two Acts.
The amendments will ensure that the public register contains only information that it is necessary to display, and that certain information including email addresses is not made publicly available, because of the risk that that could facilitate identity theft or other fraud. New clause 16 will ensure that personal information supplied in connection with the verification process for the register of overseas entities can be appropriately protected from public inspection. It is right to ensure that certain personal information, including email addresses, is not made publicly available because of the risk that that could facilitate identity theft or other fraud.
Dame Margaret Hodge
Again, I am really asking for information. It would be interesting to learn whether the Minister knows how many overseas entities have been registered since the enactment of the 2022 Act. It could still end up being unclear who the real beneficial owner was of an overseas entity. If someone went to an overseas entity to find out who owns One Hyde Park, and it said that the owner was a British Virgin Islands company, would the owner of that company be shown?
Kevin Hollinrake
That does not directly relate to this amendment, but I will get back to the right hon. Lady on that point in a separate conversation. Details such as the name and company of the person verifying the information submitted by an overseas entity to the register will continue to be publicly visible; it is not our intention to change that.
New clause 17 replaces sections 22 to 24 of the ECTE Act with proposed new sections 22 and 23. As with new clause 16, new clause 17 adds to the list of information that the registrar must not make available for public inspection, to help prevent the abuse of such information. That includes categories of information that were never intended to be made available for public inspection, but were missed during the expedited passage of the ECTE Act through Parliament, such as the email address of an overseas entity. New clause 17 also includes new categories of information that an overseas entity will be required to provide as a result of other amendments that are being introduced by the Bill, including the title number of land that an overseas entity owns, and documents provided to the registrar under her new power to require further information. New clause 17’s insertion of new section 23 also means that the registrar can disclose protected information about trusts, date of birth and residential address only in two scenarios.
Amendments 12, 39, 40 and 49 are consequential on new clause 17. Under the amendments, the registrar need not retain material that must not be made available for public inspection longer than appears reasonably necessary to her for the purposes for which the material was delivered to her.
I will say to the right hon. Member for Barking that there have been over 3,000 registrations on the register of overseas entities since it was established on 1 August 2022. It is right to ensure that the public register of material concerning overseas entities contains only information that is necessary to display, and that certain information, including email addresses, is not made publicly available for the reasons that I have stated. It is also right to amend the Companies Act 2006 in a way that mirrors amendments made in the Bill, so that there is consistency between the two Acts.
Seema Malhotra
In the time that we have had, it has been difficult to go through exactly what all the new clauses and amendments mean for what is and is not hidden information. We may come back to this issue, so I will not oppose the measures today. New clause 16 confers a power to make regulations about identity verification.
Kevin Hollinrake
Protected information includes protected date of birth information, which means information as to the day of the month—but not the month of the year—on which the registered beneficial owner or managing officer of an overseas entity was born. It also includes protected residential information, which means information as to the usual residential address of an individual who is a registered beneficial owner or managing officer, and protected trust information, which means the required information about a trust.
Seema Malhotra
I thank the Minister for his clarification. He did set out a little of that when he spoke to the new clauses. Given the speed with which we are going through the Bill, it is sometimes a little hard to keep track of what has been added, and whether there are any other consequences from that. I am not saying that there are consequences, but it feels as though a lot of Government amendments have come forward. I am not necessarily objecting to those before us today, but as a matter of principle, we need to go through provisions to check whether the devil is in the detail; after all, as I have said, the Bill has “Corporate Transparency” in its title.
Kevin Hollinrake
We will debate the overseas entities register in more detail in part 3, so there might be a good opportunity for further debate then.
Seema Malhotra
That would be welcome. New clause 18 grants the Secretary of State the power to make regulations as they see fit, in order to protect material on the register. Further scrutiny will be required on what could happen in future, and the circumstances in which that power might be needed.
The perception may have been that we had opposing positions on some aspects of the Secretary of State’s powers, but we now find ourselves coming a little closer together. We are debating the Bill, which largely has cross-party support, in good faith, but there are many little ways in which things could get changed, without those changes being subject to full debate in the House. It is important that we debate that further during proceedings on the Bill. I repeat that I want to ensure that there is no devil in the detail. I appreciate the Minister committing to return to the issue in part 3, when we will have a chance to look at the matter in slightly more detail.
Dame Margaret Hodge
There was a report in The Guardian yesterday on an organisation called Wealth Chain Project. Its analysis showed that 138,000 residential and commercial properties in England and Wales are owned by offshore companies. We have managed to get 3,000 so far, so there is a heck of a lot—
Kevin Hollinrake
There is not a direct correlation between the two, because one overseas entity might own many UK properties.
Dame Margaret Hodge
Ah, that is a valid point, and I think the article deals with it. Some entities will own more than a few properties, but—sorry, I am just looking to see whether the article does make that point. The article demonstrates the enormous importance of Executive action. That is why the Opposition feel strongly that action should take place; there is no point in just putting legislation in place. There is a desire to monitor that action, and toughen up the provision to ensure that the action happens. I hope that the Minister bears that in mind. No matter how many entities own more than one property, 3,000 is still a long way from the 138,000, assuming that figure is accurate.
I am getting muddled by all these amendments. Will the Minister or his officials provide us with a list of what information will be on the register? What will we see? If we had that, we could take a view on whether that information is sufficient for all our purposes.
Kevin Hollinrake
On the points raised by the right hon. Member for Barking, as I have said many times in Committee and in the House, implementation is everything. In my business, we used to say, “Ideas are 10 a penny. Execution is everything.” We have to ensure that we follow through on the measure, and that it is properly executed.
We will debate the overseas register at length when we come to part 3, so I ask the right hon. Lady to hold off on any key questions about that. We will try to get the answers that she wants, and will probably have a conversation about the kind of information that she wants to see. The provisions relating to overseas entities are about trying to identify the people who have control over those entities and companies. That is what the legislation is about: understanding who the directors are—for the first time, we will be able to see that properly—and the persons of significant control. They are not just people who own more than 25% of a company, but people who exert control in other ways.
The right hon. Member for Birmingham, Hodge Hill, is right that journalists play a key part in investigation. Many of them spend much of their time analysing databases of all kinds to try to find information that would be useful for law enforcement agencies. We want to ensure that that information is readily available to them, because they play a huge investigative role. We are very keen to ensure that they get the information that they need.
Amendment 12 agreed to.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Tenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 8th November 2022
(1 year, 6 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 8 November 2022 - (8 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Ms Elliott. Clause 80 gives the registrar of companies a new power to require information. The registrar’s existing powers are insufficient to tackle the large volume of inaccurate or suspicious information on the register. She has no powers to compel filers to furnish her with information to assist her to investigate filings that she is concerned are inaccurate or fraudulent, and that she may wish to remove. That means that suspect information is often accepted on to the companies register, damaging its accuracy, reliability and usefulness.
The insertion of proposed new section 1092A into the Companies Act 2006 will give the registrar a power to require that a person provide her with information for certain purposes. Those are: determining whether someone has complied with a delivery obligation or requirement; determining whether a document delivered to her satisfies the proper delivery requirements, including whether it contains accurate information; or determining whether or how to exercise her powers to remove improperly delivered information from the register or to resolve inconsistencies on it.
It is suspected that a significant amount of fraudulent information is already on the register. The power will therefore apply to existing register information as well as to all new information submitted to the registrar. The clause will also make it an offence for someone to fail to respond to the registrar’s request for information without a reasonable excuse. The maximum penalty for that offence will be two years’ imprisonment. It is imperative that we equip the registrar with all the tools necessary to challenge dubious information and ensure the integrity of the register. The power in the clause is the cornerstone of that ambition.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Elliott. I thank the Minister for his remarks. We support the clause, which provides for a power to require additional information. He is right that the proposed new section is the cornerstone of providing the registrar with the powers to maintain the integrity of the register, so we support the clause.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It is a pleasure to serve with you in the Chair, Ms Elliott. When the Minister winds up the debate on the clause, will he say a little more about some of the information that the registrar may be seeking, and in particular whether she is able to solicit information from people seeking to file accounts, and so on, that has been requested by other agencies? All kinds of information is sometimes beyond the purview of, for example, the National Crime Agency, and sometimes the registrar, rather than a police agency, making the first approach may be a more intelligent way to get the information needed for an investigation. It would be helpful if the Minister clarified whether Companies House can act in concert with other law enforcement agencies to gather information that is needed to help to bring prosecutions.
Kevin Hollinrake
I am grateful for the right hon. Gentleman’s remarks. The answer is yes, that is exactly what the legislation allows for: the risk-based flow of information between the registrar and law enforcement agencies. Of course, the power will be discretionary, so the registrar will determine when to exercise it, but it can be to request any information that she requires under legislation—both public and private information.
Question put and agreed to.
Clause 80, as amended, accordingly ordered to stand part of the Bill.
Clause 81
Registrar’s notice to resolve inconsistencies
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 13.
Clause 82 stand part.
Clause 83 stand part.
Government new clause 7—Power to require businesses to report discrepancies.
Kevin Hollinrake
Clause 81 enables the registrar to require a company to resolve an inconsistency where it appears that information contained in a document delivered to the registrar in relation to a company is inconsistent with any other records she holds, including records about other business entities or organisations such as limited liability partnerships and limited partnerships. Currently, the inconsistency resolution power is available only if there is an inconsistency between the delivered information and the information on the companies register.
Where the registrar suspects that information submitted to her is inaccurate, but that suspicion is based only on information that she holds but that is not published on the register, for instance information gleaned from law enforcement agencies—that is the point the right hon. Member for Birmingham, Hodge Hill just mentioned—she will be able to issue a notice to require the company to correct the mistake. The clause will strengthen the registrar’s ability to ensure the register is accurate and reliable.
Government amendment 13 and new clause 7 are concerned with the identification and rectification of discrepancies between information that businesses, such as banks, lawyers or accountants, obtain in the course of their business relationships with customers, and information that the registrar curates. In our White Paper in February, the Government committed to expand current discrepancy reporting requirements to include discrepancies in director information and in registered office addresses. That would build on the discrepancy reporting that already occurs under the money laundering regulations in relation to beneficial ownership. It is a key part of our vision for Companies House reform that there are active and effective feedback loops from the private sector to help the registrar maintain the accuracy of the data she holds. This will benefit business and help protect personal information.
The power inserted by new clause 7 introduces a regulation-making power into the Companies Act 2006. Regulations made under that power can set out who must check for discrepancies and what information they check, beyond just discrepancies in relation to beneficial ownership information. The regulations can also be used to create offences for failure by those obliged to check for discrepancies to comply with those obligations.
Government amendment 13 omits section 1095A from the Companies Act. This power to resolve discrepancies in certain circumstances is no longer needed because of the wider power introduced by clause 82, which enhances and rationalises the registrar’s powers to remove material from the register. Proposed new section 1094 of the Companies Act, as substituted by clause 82, gives the registrar the power to remove material on the register where it has not met proper delivery requirements or is unnecessary. The registrar could exercise that power on her own motion, or on application.
Clause 82 will strengthen the registrar’s powers, enabling her to proactively clean up the register. The power is safeguarded by the requirement that the registrar may exercise it only if satisfied that the interest of the company or applicant in removing the material is not outweighed by any interest of other persons in the material continuing to appear on the register. That matches the test that the court has to apply, which is the focus of clause 83.
Clause 83 expands the range of people whose interests a court must take into account when considering whether to make an order to remove material that has legal consequences from the register. Currently, a court can only make an order to remove material if satisfied that the material is damaging to a company and removing the material outweighs the interests of any other person in the material in retaining it.
That test overlooks the fact that a person other than the company might have their interests affected by a filing—for example, a person whose name has been fraudulently registered as a director of a company with which the person in fact has no connection. Clause 83 amends section 1096(3) of the Companies Act so that the court must now also take into account the interests of an applicant, who may be different to the company, as well as the company.
Seema Malhotra
I have a few questions on the clauses. Clause 81, on the registrar’s notice to resolve inconsistencies, would expand the powers of the registrar to identify inconsistencies by considering all records—it goes wider than just the information on the register. Any notice given would state the nature of the inconsistency and give the company 14 days to resolve it. Could I ask the Minister to clarify what will happen if a company exceeds this 14-day period?
On new clause 7 on the power to require businesses to report discrepancies, I want to understand how that might be operationalised. Would the registrar seek information from businesses, or would businesses be expected to do something without being requested to? It was not quite clear how the measure would be used. On businesses that might come under scope, the Minister mentioned financial services, but the proposed new section under new clause 7 refers to regulations imposing requirements on
“a person who is carrying on business in the United Kingdom”.
Any company or business may be required to report discrepancies. It would be helpful to understand that point, as there is a fair bit of detail in new clause 7. I would appreciate the Minister’s comments on that.
Clause 82 creates a new power for the registrar to remove information that was submitted to it and accepted despite not meeting proper delivery requirements. There may well have been reasons for the information being accepted. As the Minister mentioned in a previous debate, for some reason there may have been a minor issue that was considered not significant—I think he may have used the word “material”—and the information did not meet proper delivery requirements. Could I clarify whether the Minister would expect there to be any notification to directors or officers about material being removed? Would any note be made on the register as a record of material having been removed? It would simply be a matter of putting on a company’s record that material was there and accepted even though it did not meet properly delivery requirements and was subsequently removed. It is not about there being a risk of a cover-up, with material being removed, but it is helpful to have an audit trail. Perhaps the Minister can outline how he envisages that power being used.
Clause 83 amends the Companies Act 2006 so that, as regards material being removed, the court may take into consideration whether the interests of an applicant outweigh the interest of other parties. Can I clarify how this would be used? Would it be used when a third party did not believe that it was appropriate to remove the material? Who else might the applicant be? I am trying to understand when it might be used and a case might come to court to weigh the pros and cons in terms of parties’ interests in having that material removed. It would be helpful to have some clarity on that.
Alison Thewliss (Glasgow Central) (SNP)
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.
Kevin Hollinrake
I will first take the latter point, which covers some of the shadow Minister’s points as well. There will be more detail in secondary legislation about how new clause 7 is expected to operate, but it is quite reasonable to think that third party business entities will understand how this should work. Within that, we would expect there always to be a reasonableness defence if an error was made or something was done in good faith. We would not expect a penalty to be applied in that case, but there will be more detail on that in secondary legislation.
The shadow Minister asked what would happen if an organisation failed to comply with a notice within the 14-day period that it is given to respond. There is an unlimited fine, potentially, for failure to comply. Other situations might even lead to somebody facing a prison sentence of up to two years, in certain instances. A lot would depend on the circumstances involved. That also relates to what the hon. Member for Glasgow Central asked.
The shadow Minister asked for more detail about how the relationship between the registrar and third party companies would work. This does not just refer to the financial sector; it also refers to the legal sector. It would pertain to any organisation that is supervised by money laundering regulations. I think that is the extent to which companies would be bound by the rules on checking discrepancies.
The shadow Minister asked whether there would be a flag if a record was removed. Clearly, there will be a red flag for the registrar themselves, depending on the reason why that record has been removed, and that may be something we cover in further detail in secondary legislation. My immediate reaction is that we would not want red flags to be set against a company that had made an honest mistake, because that might unreasonably set some hares running. I am a little concerned that that might happen if we did as the shadow Minister described.
Seema Malhotra
For clarity, perhaps I can distinguish the difference between a red flag and a record of what has happened. We keep a record of what happens, but a red flag is a cause of concern.
Kevin Hollinrake
Yes. The registrar will have the ability to annotate the register as is appropriate in the regulations we intend to make using the power found in section 1080.
Question put and agreed to.
Clause 81 accordingly ordered to stand part of the Bill.
Clause 82
Administrative removal of material from the register
Amendment made: 13, in clause 82, page 65, line 21, at end insert—
“(6) Omit section 1095A (rectification of register to resolve a discrepancy).”.—(Kevin Hollinrake.)
This repeals section 1095A of the Companies Act 2006 as in practice the only circumstances in which material would be removed from the register under that section are caught by new section 1094 (inserted by clause 82 of the Bill).
Clause 82, as amended, ordered to stand part of the Bill.
Clause 83 ordered to stand part of the Bill.
Clause 84
Inspection of the register: general
Kevin Hollinrake
I beg to move amendment 106, in clause 84, page 65, leave out lines 40 and 41 and insert—
“sections 64(6A), 67(1A), 73(7), 75(4A), 76(5A), 76A(9) and 76B(9) (which confer powers to suppress a company’s name that it has been directed or ordered to change);”.
This is consequential on NC34.
The Chair
With this it will be convenient to debate Government new clause 34—Requirements to change name: removal of old name from public inspection.
Kevin Hollinrake
Members of the Committee might remember that when we discussed the provisions concerning company name change directions last Tuesday, there was much debate about the 28-day compliance period, a topic on which I have since written to the hon. Member for Feltham and Heston. It is fair to say that we might not have exactly achieved a meeting of minds on that occasion, but we will try again today.
I am grateful to the hon. Members for Feltham and Heston and for Aberavon for withdrawing their amendments in the hope that we could get to a place we agreed on. I think we all agree that a company should have a reasonable amount of time to change its name and that we would prefer compliance rather than an imposed solution involving the registrar defaulting the company’s name to its rather anonymous company registration number.
Compliance will, quite legitimately, take some time and effort on behalf of the company. Notice of a proposed change will have to be given to shareholders, and those representing not less than 75% of the total voting rights of eligible shares will have to agree to the change. That is why it is the Government’s position that a company should have a minimum period of 28 days to change its name following a direction, with the possibility to ask the Secretary of State to extend that period where necessary.
Hon. Members are right, however, to be concerned about the harm that can flow from offending names. Where the Secretary of State has determined it appropriate to issue a direction, it will almost invariably be the case that the name’s presence on the register risks causing harm to users. That is why clauses 17 and 18 give the registrar new powers to remove a company name from the publicly accessible part of the register at the point a direction is issued, so any ongoing harm would be curtailed immediately at that point.
The earlier amendments have very helpfully highlighted for us that this ability to remove an offending name from the publicly inspectable part of the register is not available to the registrar in respect of the name change direction and order provisions that already exist in the Companies Act 2006—but it ought to be. New clause 34 addresses that issue, ensuring that the registrar will have the ability to suppress the name and the subject of a direction or order under all circumstances under which one might be issued.
Government amendment 106 ensures that the general right for people to inspect the register does not extend to offending names that have been suppressed. The effect is that we strike a fair balance between allowing companies adequate time to comply with a name change direction and protecting users of the register from harm that might arise from the offending name remaining visible while the company goes through its internal name change process. I hope hon. Members will welcome these amendments, and I commend them to the Committee.
Seema Malhotra
I thank the Minister for his remarks, and wish to speak to this group on behalf of my hon. Friend the Member for Aberavon as well. I must say that these provisions are not easy to follow, so forgive me for feeling like I will need to reread Hansard in a darkened room in order to completely follow what the Minister has said.
Kevin Hollinrake
In layman’s terms, it means that if a company is required to change its name because it could cause harm, the registrar can immediately suspend that name from the register—as we discussed last week—so it cannot cause harm.
Seema Malhotra
I thank my right hon. Friend for her question, which the Minister may wish to answer before I continue my remarks.
Kevin Hollinrake
It extends the extent. The registrar did have that power to a certain degree for certain names, but they did not have it in every circumstance, so the Bill extends its right to use the power. Basically, in any situation where a name change is required because it could cause harm to the public, the registrar can immediately suspend that name from the register so that it cannot cause harm in any circumstance.
Seema Malhotra
I am grateful to the Minister for his intervention.
The clauses on the register include important provisions related to information sharing and the parameters of information that may be made available to the public. They are hugely important on a number of levels, facilitating access to relevant information for law enforcement and, more broadly, building public trust and confidence in our laws on economic crime. As drafted, the Bill appears to lean much more heavily towards restricting the availability of information to the public, and as we have said, an explanation of the Government’s thinking and rationale on these issues would be helpful for the deliberations of the Committee.
Clause 84 deals specifically with exemptions from requirements to make information publicly available. Exempting information from public disclosure pending verification by the registrar is a reasonable provision, since it could be argued that such information might otherwise give a misleading or inaccurate picture of the registry if certain information released to the public was ultimately excluded on the grounds that it could not be verified.
Clause 84 also deals with the names of companies registered incorrectly or used for criminal purposes. As the explanatory notes confirm, the intention is to prevent such information from being disclosed to the public, but a slightly clearer explanation of those provisions would be helpful. It seems reasonable in most cases to exclude information submitted in error to the registrar. On company names used for criminal purposes, perhaps the Minister could explain whether the intention of clause 84 is to prevent the disclosure of information relevant to a specific ongoing criminal investigation.
Seema Malhotra
Have I jumped? That is my fault. I have just checked the grouping, and I see that we are discussing clauses 82 and 83. In which case, I will stop there.
Seema Malhotra
That is clear. I was slightly confused by the grouping, but that is absolutely clear, and I will continue my remarks when we come to the next group.
Kevin Hollinrake
I have nothing further to add.
Amendment 106 agreed to.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
Clauses 84 to 86 all make amendments to the provisions in the Companies Act 2006 about rights to inspect the register and obtain copies of the material on it.
Section 1085 of the Companies Act requires the registrar to make company information available for public inspection. Clause 84 makes consequential technical amendments to the section resulting from the various amendments to the Companies Act that are made elsewhere in the Bill—[Interruption.]
The Chair
Order. We need some clarity. We are in the middle of a Committee sitting and it is not appropriate to speak from beyond the bar. May I also say that we need some light? [Interruption.] Order. We will resume.
Kevin Hollinrake
I can see my notes very clearly. It is absolutely fine.
The amendments qualify the inspection rights in section 1085 of the Companies Act to ensure that certain information cannot be inspected. The information in question comprises company names that have, for example, been the subject of a registrar name- change direction because of concern that the name’s use is for criminal purposes.
The technical amendments to the Companies Act made by clauses 85 and 86 improve the integrity of the companies register and prevent the abuse of personal information held on it. Clause 85 makes amendments that relate to copies of material on the register, clarifying that the right to require a copy of material on the register applies only to materials that are available for public inspection. The clause also removes the option that an applicant has for submitting applications to require a copy of an enhanced disclosure document in paper form or electronically. It allows the registrar to determine the form and manner in which copies of registered material are to be provided under section 1086 of the Companies Act.
Seema Malhotra
Clause 84, as I alluded to earlier, deals with names of companies registered incorrectly or used for criminal purposes. The explanatory notes confirm that the intention is to prevent such information from being disclosed to the public. Excluding information submitted to the registrar in error seems reasonable, as I mentioned earlier, in most cases. With regard to company names used for criminal purposes, I would be grateful if the Minister could clarify whether the intention behind clause 84 is to prevent the disclosure of information relevant to a specific criminal investigation that may be ongoing. I am sure that we all agree that sensitive information should not be disclosed if doing so would compromise an active investigation by law enforcement agencies. If, however, all investigations and, where relevant, prosecutions and court proceedings have reached their conclusion, there might be an argument for public disclosure of said information about the company in question to then be permitted.
If it is the Government’s intention to prevent disclosures of company names used for criminal purposes only in circumstances where it is absolutely necessary to do so, perhaps the wording of clause 84, which is currently quite broad, may be usefully amended to reflect that. I am also raising those concerns on behalf of my hon. Friend the Member for Aberavon. Perhaps there could be a specific provision enabling information on such company names to be disclosed to the public once any criminal proceedings are over in cases where there may be a public interest to do so. It would be helpful if the Minister could set out the Government’s thinking on those issues.
Clause 85 amends the Companies Act to give more powers to the registrar, for instance in relation to the format in which information may be provided. The provision enabling the registrar to require an application for access to information to be submitted electronically is broadly welcome, inasmuch as it supports the wider objective of delivering more streamlined and effective services, although it may be helpful for the Minister to clarify when he expects a fully electronic process for members of the public to request and access information held by the registrar to be up and running.
Clause 86 extends the scope for information, including information of the kind covered by previous clauses, not to be disclosed by the registrar. The more general question of what information should be made publicly available, and the criteria on which those decisions are made, will be discussed shortly in relation to the next clause, but I would be grateful for the Minister’s comments.
Kevin Hollinrake
Clause 84 relates to issues that we debated earlier. The information in question comprises company names that have, for example, been the subject of a registrar name change direction because of a concern that the name’s use is for criminal purposes. I do not think that there is anything different here from what we have already discussed. It deals only with the exception to the general rule of making the entire register available to the public where the registrar uses her discretion to take a name off the register. It is not related to police investigations; she would suppress the name of a company for other reasons.
Question put and agreed to.
Clause 84, as amended, accordingly ordered to stand part of the Bill.
Clauses 85 and 86 ordered to stand part of the Bill.
Clause 87
Protecting information on the register
Seema Malhotra
I beg to move amendment 114, in clause 87, page 68, line 7, at end insert—
‘(7A) Regulations under subsection (1) above may not prevent the registrar from making available for public inspection information mentioned in paragraphs (a) to (d) unless there are compelling reasons for the information to be withheld.
(7B) For the purposes of subsection (7A) above, “compelling reasons for the information to be withheld” include circumstances in which the registrar may decide that public release of the information may result in—
(a) a serious threat to the personal safety and security of the individual to which the information relates;
(b) adverse effects on any investigation by an appropriate officer of a suspected offence under this Act;
(c) adverse effects on the ability of an appropriate officer to impose a penalty for any offence under this Act; or
(d) a clear risk to the national security of the UK;’.
This amendment seeks to expand the registrar’s powers to release information about the Companies House register, where it is in the public interest to do so, while also enabling personal information relating to an individual to be withheld in cases where there are compelling reasons to do so.
It is a pleasure to speak to the amendment, tabled in my name and that of my hon. Friend the Member for Aberavon. It appears at least possible that the Government could place strict limits on the rights of journalists to request information, for example, in connection with investigations that may well be firmly in the public interest. Disclosures of that kind have been seen in the Panama papers and the Paradise papers. Those are just two examples of how important it is that legitimate journalistic access to information held by the registrar must be protected.
It is with those concerns in mind that we have tabled amendment 114. Its aim is to ensure that there is a default presumption in favour of disclosing information in response to a request, whether from a journalist or an ordinary member of the public, and to ensure that legitimate requests are refused only when there is clear evidence of a compelling reason to do so. We believe that the powers granted to the Secretary of State under clause 87, as drafted, are simply too broad. We therefore strongly urge the Government to support the sentiments in amendment 114.
Kevin Hollinrake
I am not sure that what we are trying to do here is relevant to the matter that the hon. Lady raised. Amendment 114 would prevent regulations being made to allow the registrar to make information unavailable for public inspection under new section 1088 unless there are compelling reasons for the information to be withheld, which this amendment outlines.
Of course, there are instances where disclosure of information on the public register is inappropriate—I think we have all agreed that through the course of this debate—for instance, where it could lead to an increased risk of fraud and identity theft, or put individuals at risk for some reason, such as in cases of domestic abuse. There are limitations in the extent to which existing provisions in the Companies Act 2006 allow personal information to be withheld from the public register. We want to expand that to ensure that personal information is properly protected.
Clause 87 amends the Companies Act to allow individuals to apply to the registrar to suppress information relating to an individual or address and prevent it from being disclosed or made available for public inspection. That will include their residential address, signature, business occupation, and date of birth in old documents.
Dame Margaret Hodge
This is another opportunity to raise the issue, to which I have not had an answer, of Fedotov. That is how he kept his name off the—[Interruption.] It is. We just need an answer.
Kevin Hollinrake
The answer is that any person applying under the exemption will have to prove to the registrar that there is sufficient evidence of a serious risk of violence or intimidation to protect their names or information. If necessary, the registrar will refer cases to an appropriate law enforcement agency and will have the power to revoke protection if information comes to light to suggest that false evidence has been provided.
Does the right hon. Lady honestly think that a registrar, who has a duty and responsibility to protect the integrity of the register, would assist an oligarch, for example, in trying to hide information? I think we are into conspiracy theory territory here, which I do not think will get us very far.
Dame Margaret Hodge
In general, I would agree with the Minister. However, the truth is that Fedotov did manage that. If the Minister could provide an explanation of why and how that happened, then we might get greater comfort in this Committee that those circumstances will not arise again.
Kevin Hollinrake
I committed earlier to look into that case, and I will, but the Usmanov case, as I said, was a completely different case. The whole reason why we are bringing forward this legislation is to improve transparency and fight economic crime. The right hon. Lady’s indication that perhaps the registrar might be complicit with Russian oligarchs, who may be guilty of economic crime, is not really plausible.
These are reasonable provisions for people whom we suggest might be at risk of harm if we publish that information, and they have to demonstrate that that harm is a salient risk. They are reasonable provisions that would be used fairly sparingly in the main, but nevertheless there have to be those kinds of provisions where somebody is at risk of harm. That does not exempt the applicant from providing the information to the registrar, where it is still required by legislation, but it will no longer be displayed publicly. Critically—and this should answer the right hon. Lady’s point—information would still be available to law enforcement agencies and other public bodies. It would not be appropriate to limit the registrar’s ability to protect personal information in the way proposed by the amendment.
Seema Malhotra
I will not push amendment 114 to a vote. It is an area where there is probably further debate to be had but, having reflected on that with my hon. Friend the Member for Aberavon, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
As we have discussed, there are instances where disclosure of information on the public register can lead to an increased risk of fraud and identity theft or put individuals at risk for other reasons, such as in cases of domestic abuse. The clause addresses this by amending certain sections of the Companies Act 2006 that confer or otherwise relate to the power for the Secretary of State to make regulations, permitting applications for personal information to be suppressed or protected, which means that the information is not made available on the public companies register.
Seema Malhotra
I wish to make a few remarks. I take on board the Minister’s comments, and we all agree about instances where there may be domestic violence reasons, for example, or other security and personal information reasons for why an individual’s home addresses and so on should not be disclosed. As discussed earlier, transparency plays a vital role in building public confidence in our ability to crack down on fraudulent or other criminal abuses of our companies legislation. Arguably, clause 87 grants an extraordinary degree of power to the Secretary of State to specify in regulations not just what information may be disclosed to the public, but who might be permitted to request information in the first place and on what grounds. It is quite a long clause. We had a debate before on the questions about safeguards, some of the uses of those powers and the extent to which there may be information that is not publicly available that ought to be, in the public interest. I would be grateful for a further discussion of the matter. I will work with my hon. Friend the Member for Aberavon to put together a note for the Minister with some more specific points to which it would be useful to have responses before Report.
Kevin Hollinrake
I just want to reiterate that all protected information, whether suppressed or not, is available to law enforcement agencies. That is the critical point. Individuals who seek to use these exemptions have to provide sufficient evidence of a serious risk of violence or intimidation, and that protection can be revoked if new information comes to the registrar’s attention that she feels casts doubt on the original assertions.
Question put and agreed to.
Clause 87 accordingly ordered to stand part of the Bill.
Clause 88
Analysis of information for the purposes of crime prevention or detection
Dame Margaret Hodge
I beg to move amendment 119, in clause 88, page 68, line 15, leave out from “must” to the end of line 17 and insert
“analyse information within its possession with a view to preventing or detecting crime.”
Dame Margaret Hodge
The Minister is delighted. All the provisions are grouped together, so he will have to listen to me forever. The lighting is not much better, but we will see how we go—I know we are saving energy.
The provisions that we are discussing all sit together. I will start with amendments 119 and 120, with which we are trying to strengthen the duties, rather than the powers, of Companies House. During the course of the Committee’s discussion of the Bill, we have considered how UK corporate structures and vehicles are used to move, hide and launder money. When the Bill is enacted, although I hope that it will be amended to strengthen the nature of the information we get by strengthening the supervision of company service providers, Companies House will hold a wealth of data.
Amendment 119 seeks to make it compulsory for Companies House to analyse that data to prevent and detect crime. By removing some words, it would be tougher than the current wording of the clause, according to which Companies House could analyse that data, but does not necessarily have to. The clause says
“as the registrar considers appropriate”,
and, without the amendment, Companies House could and will argue that it does not consider analysis “appropriate”. We would remove that provision and say that the registrar must use the data that has been made available to her to see whether or not it can support us in our efforts to avoid crime.
I have one other thing to say about this issue. We have talked a lot in the debate about corruption and the way in which it has impacted the UK economy. As we discuss the Bill further, we have to remember the impact it will also have much more widely. According to the ONE Campaign’s latest estimate, around $1 trillion is lost every year to corruption in developing countries. A lot of that comes through the abuse of corporate structures that we have in the UK. That is just one example that demonstrates how UK corporate structures facilitate theft and corrupt activity.
I know that that is under the current regime and that much of this should go when we get to our new regime. However, I will give another example of how the abuse of UK corporate structures led to money, again, coming out of Russia, which is the bottle laundromat—another of these laundromats—that was uncovered by Transparency International. British companies were, again, at the centre. It was a money laundering operation from 2014 to 2016 where $820 million came out of Russia. Again, it involved—classically—a network of shell companies, many of them UK firms, that apparently sold bottle-moulding machines to Russia.
Kevin Hollinrake
The right hon. Lady raises some important cases, and she is right to do so. Is that not exactly why we are trying to do this in this way? There are 4.5 million companies registered in England. Around 700,000 companies are registered every year, or 2,000 a day, and 400,000 are dissolved every year. If she is asking Companies House to analyse every single company—that is exactly what her amendment says—to determine risk, she is asking too much of Companies House and she will miss the important needles in the haystack that she refers to.
Dame Margaret Hodge
Were I asking that, that would be unreasonable but if the Minister takes all my amendments together, he will see that they and others talk about a risk-based assessment of the available data.
Kevin Hollinrake
The amendment does not say that. It says that
“the registrar must carry out a risk assessment”,
not a risk-based approach. There is a big difference in terms of what the right hon. Lady is asking for.
Dame Margaret Hodge
But when we come to the new clauses, which we will discuss later, they say “risk-based”. It is a risk-based assessment. Perhaps the Minister could explain what the difference is.
Kevin Hollinrake
The amendment says
“a risk assessment to identify where the information it holds might give rise to a matter of concern.”
That certainly says to me that a risk assessment would be required for every company. To me, a risk-based approach would identify various pieces of information, and Companies House would act on that information and determine whether the risk is from companies, directors or persons of significant control and act on that. That is our approach; the right hon. Lady’s approach is moving away from that.
Dame Margaret Hodge
The Minister is misinterpreting our approach. I am sorry if he reads it that way, but I agree that we are not asking for 100%. He calls it a risk-based assessment; I call it a risk assessment. Apologies for the difference in language.
Dame Margaret Hodge
And presumably the policeman does not knock on every door.
Dame Margaret Hodge
At the moment, the Bill says—I can’t read it because there is no bloody light! It is a thing that as you get old, your eyes aren’t brilliant:
“The registrar must carry out such analysis of information within the registrar’s possession as the registrar considers appropriate”.
We are attempting to take that wording out of the Bill to make it a duty, because otherwise we know from the other enforcement agencies and the work of other Government agencies that unless clearly directed, the real work would not be done. There would be an excuse. They would be busy doing something else. This is their key proactive role. We can go on and on about it during the course of the Bill, but I assure the Minister that the registrar should do it in a risk-based way. She should not do it, as the Bill says, as is appropriate; she should just do it. That is really the first thing.
I will quickly describe the bottle laundromat. The Minister and I are very familiar with all the stories, but other members of the Committee are not, and the stories are pretty shocking. Every time we hear another one, it is shocking. The stories reinforce the justification for the sort of interventions that Labour Members want to include in the Bill.
Dame Margaret Hodge
I think this is about a different interpretation of words.
The amendment would require Companies House to conduct risk assessments of the information and data it holds on the register for the purposes of the prevention and detection of economic crime. The amendment also creates a basis for new clauses 37 and 38, to introduce an obligation on Companies House to use all the data it collects to identify where economic crime risks lie.
I genuinely think we are quarrelling about words, not about what we want to do. On the basis of that risk assessment, or whatever word the Minister wants to use, Companies House would then decide when to use its powers proactively.
Interestingly enough, my wonderful staff have looked it up, and everybody else uses these terms. We are not alone in this. The Financial Action Task Force standards talk about risk assessments. It talks about a “risk-based approach”. Is that language better for the Minister?
Dame Margaret Hodge
It means the same to us—I think the Minister is really being a little bit pedantic here. If we bring the amendments back on Report with the words “risk-based”, perhaps we will have a better chance of getting them through.
The risk-based approach is central to the implementation of FATF’s recommendations. The UK’s AML regime and the Council of Europe use a risk-based approach, as does the private sector. I want to use a risk-based approach, and so does the Minister, so why do we not just get on with it?
Kevin Hollinrake
We do, and it is exactly what the clause states:
“The registrar must carry out such analysis of information within the registrar’s possession as the registrar considers appropriate for the purposes of preventing or detecting crime.”
In other words, the registrar identifies a red flag and then does an investigation. The right hon. Lady’s amendment 116 says:
“the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.”
That is a non-risk-based assessment.
The Chair
Order. Minister, may I intervene for a second? You will have time to respond to all this in the debate, but that is a very long intervention.
Liam Byrne
It is a pleasure to speak to new clause 43, which is in my name but has been drafted with the assistance of my right hon. and hon. Friends. In introducing it, I have to think that the Minister is a lucky man, because there are very few opportunities when any of us in this place have the chance to translate a life’s work into the law of the land. Yet that is precisely the opportunity that we have afforded to the Minister, who is steering the Bill so ably through Committee. That is why we are here to help him. The Minister will know that he is living the dream.
I know that the Minister is not insensible to the scale of economic crime in this country or to the threat that it poses, because I was privileged enough to be there in Westminster Abbey just a few months ago, when he got up to speak with his customary eloquence to the launch of the economic crime manifesto. That has been drawn up with input from so many right hon. and hon. Members, and it is the manifesto that declares loud and clear:
“Dirty money is a national security threat…Dirty money causes massive financial damage…Dirty money is damaging the UK’s reputation…Dirty money may be pushing up prices for British citizens…Dirty money undermines the rule of law and democratic institutions.”
The Minister knows what he is talking about when it comes to the Bill, which is why he is stewarding it so ably through Committee. That is why I know that, as a canny captain in his Department, he is alive to all the constructive recommendations that we are making to him, because that that strengthens his hand.
The Minister has obviously got some theatre to perform because he has to get the Bill through the House and then get it through the House of Lords, and then back through the House of Commons. As an experienced and seasoned political operator, he will know that it is really wise to make a few strategic concessions to the Opposition to keep them on side. Although he has not revealed that yet by making us any concessions, it will not be long, and it could be at the conclusion of my speech to new clause 43, because it is a blindingly obvious improvement to a current hole in the Bill.
To make that case, I need to demonstrate three things this afternoon: that use of proxies by bad people is a problem; that use of proxies by bad people is a problem here in our country; and that the Bill is deficient and needs toughening up.
Let me share a few examples of why proxies are such a problem. Where better to start than with exhibit A, Roman Abramovich, who was finally sanctioned earlier this year after a disgraceful period of licence in which he was allowed to do terrible things like buy football clubs? Now he has of course put Chelsea football club into some sort of trust. The money is frozen. He has declared that all net proceeds from the sale will be donated to the victims of the war. Members on both sides will have been as surprised as I was to hear from the Foreign Office Minister this morning at Foreign Office questions that that money has still not been routed to victims of Russia’s barbarity in Ukraine; it is still frozen by red tape and bureaucracy in this country.
That is an outrage, because Roman Abramovich secretly transferred hundreds of millions of pounds in assets, including private jets—including the world’s biggest private jet—to his children just days before he was placed under sanctions. That is not my view; that is the view of the Federal Bureau of Investigation. The oligarch has seven children, aged between eight and 30. He is alleged to have made his offspring the beneficiaries of an offshore trust in Cyprus that controls his assets. That transfer was made in February and included a £282-million Boeing 787 Dreamliner, super yachts and trophy items bought through a network of shell companies, including some in Jersey and the British Virgin Islands: Wotton Overseas Holdings Ltd, Jersey; Clear Skies Flights Ltd, Jersey; and Wenham Overseas Ltd, British Virgin Islands.
All that begins to illustrate how a bad actor has used proxies to circumvent sanctions and sanction controls. The tragedy of course is that it was not Companies House that proactively brought the matter to the House to say, “Here we are, folks. I think we have a bit of a problem”; no, we have to learn about it not from Companies House or a British crime enforcement agency, but from the United States, where the authorities brought an action and forced disclosure of the information in the American courts. That underlines my point that use of proxies is a systemic problem.
I want to go further, however, and to illustrate how the use of proxies is a systemic problem of economic crime here in our country. Who better to illustrate that than Alisher Usmanov? He has strong ties to President Putin and his inner circle. On 22 March this year, it was revealed that Usmanov’s sister, a gynaecologist based in Tashkent, had the beneficial ownership of 27 different Swiss bank accounts with hundreds of millions of dollars in them. In fact, analysis of the suspicious activity reports related to those accounts showed that they had been moving around about $1.6 billion. That was revealed in The Guardian newspaper. His assets include a $600-million super yacht, the Dilbar, an Airbus H175 helicopter and UK properties including Sutton Place, a 16th-century Tudor house in Surrey, which are held through a range of different trusts. He is widely known as someone whom we should be taking far more aggressive action against than we are today.
We then have the case of Dimitry Mazepin. He was —is—the controller of Uralchem and a number of other fertiliser companies on behalf of President Putin and the Russian Government. Among the holding companies in Mazepin’s group is Uralchem Freight, based in Cyprus, which has control of a fertiliser terminal in Latvia. The Latvian press, however, reports that the beneficial owner of that organisation is someone called Aamar Atta Bhidwal. That is the same name as a director of Quest Resources, incorporated at Companies House on 16 July 2021, in Guisborough. The co-director was someone called Gordon Alexander, a director of Hutton Chemicals. Quest is also, we are told, in the beneficial ownership of a company with close association with Mr Mazepin.
Clearly, there is already a risk that UK nationals on the Companies House register can be used as proxies, whether wittingly or unwittingly, by someone who is sanctioned.
Kevin Hollinrake
I intervene in the hope that I might abbreviate the debate—I am probably going to fail. Is the right hon. Gentleman aware that it is already the case in law that a share held by a person as a nominee or proxy for another is to be treated as though the share is held by the true owner? Also, in law, failure to declare the true owner is a criminal offence. Is he aware of that?
Liam Byrne
Yes, of course, but the Minister must also be aware that the provisions he has sketched into the law have comprehensively failed, as my next example will now prove.
Mazepin was the majority owner of Hitech Grand Prix, and his son was a racing driver. His company, Uralkali, was the sponsor of this company until March 2022. In March of this year, 75% was transferred to a company called Bergton Management Ltd. The shares were not sold; they were relinquished. There does not seem to have been any cash paid out for this major economic interest in a globally significant grand prix company.
From Bergton Management Ltd, the ownership of the assets moved to somebody called Oliver Oakes, who now controls 75% of the shares. He created Uralkali racing in January of this year. In an interview last year, he called Dmitry Mazepin a friend, associate, colleague and manager. I saw from the Companies House register this morning that he created Hitech Global Holdings on 11 March 2022, just three days after Mr Mazepin and his son were sanctioned.
There is a clear risk that oligarchs are using proxies, and that this misbehaviour is washing up on our shores and in Companies House. That leaves us with the third question: whether there is a hole in the Bill here. We need look no further than the evidence that UK Finance provided to the Committee. I said:
“So you would say to Members of Parliament who are worried about bad people transferring control of an economic asset to proxies that, at the moment, we do not have enough safeguards in the Bill.”
The answer came:
“I think they could be improved, yes.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 11, Q10.]
Here is a simple opportunity for the Minister to apply a bit of good old-fashioned belt and braces, make the Opposition happy, keep them on side and ensure that some of his former colleagues who put together the economic crime manifesto are singing his praises wherever they can—accept either the principle or the wording of new clause 43. It asks for nothing more than that any person holding shares in a public company as a nominee for another person must disclose that fact to the register, or face a sanction. That is straightforward, it is not complicated, and it would make a difference.
Kevin Hollinrake
I am grateful to the right hon. Gentleman for his kind words. I remember very clearly my speech in Westminster Abbey that night. He might remember that I talked about corporate criminal liability and whistleblower reform, which are absolutely essential. Indeed, at least one of those falls under my portfolio, so I am certainly committed to bringing forward those reforms when I can.
The only difference between hon. Members of the Opposition and ourselves is the means by which we would achieve the same end. On amendments 119 and 120, I am always happy to look at sensible amendments that take us forward. When Opposition Members talk about those cases, they are talking primarily about cases in the past where we did not have the powers that this Bill provides, and where we did not have the level of enforcement; we both agree that that needs improvement.
Where we differ is on how we go about this. I have serious concerns about the provisions in amendment 116, tabled by the right hon. Member for Barking, which seem to require the registrar to look at every single company on the record. That is exactly what it says. It says that the registrar
“must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.”
The registrar can do that only by looking at every single record.
Kevin Hollinrake
I will just develop my arguments. I listened to hers at length, and I heard them very clearly. Our approach is a more workable one. I do not think her approach is workable. I think that if we listen to each other’s arguments, we are probably saying the same thing. We are trying to overlay the information that sits with the registrar herself in Companies House with information from others, such as banks, lawyers, accountants—we discussed that in earlier debates—and law enforcement agencies in order to identify where the information she holds identifies risks, so that she can then carry out an investigation.
Kevin Hollinrake
I will develop my point a little further, and then I will let the right hon. Lady intervene.
Liam Byrne
My concern was to ensure that the registrar has a crime-fighting obligation, and that when she conducts her risk assessments, she is not constrained merely to the information that is before her—that which is on the register.
Kevin Hollinrake
As the right hon. Member knows, objective 4 establishes exactly that: an obligation
“to minimise the extent to which companies and others carry out unlawful activities, or…facilitate the carrying out by others of unlawful activities.”
That is quite clearly in the Bill.
New clauses 37 and 38 would require the status of a person with significant control and the accounts of dissolved companies to be checked by the registrar. The registrar would be required to carry out a risk assessment of all those companies—roughly 1,000 companies per day. Members might be thinking that every person with significant control has some connection to Russian dirty money or Russian oligarchs, but the vast majority of state-owned enterprises have a person with significant control, because they own more than 25% of those companies. For the registrar to look at 1,000 companies every single day to determine whether there is a risk, and then investigate further—that is exactly what the right hon. Lady’s new clauses would require—would not be practical.
Dame Margaret Hodge
This is becoming a rather absurd psephological debate. I have just asked my right hon. Friend the Member for Birmingham, Hodge Hill whether I have got the wording wrong—whether there is a great difference between risk assessment and risk-based assessment. Perhaps Government Members will tell me differently, but those two things are the same, and we should not try to locate a difference between them.
The last thing any of us wants to do is micromanage any of our organisations through legislation, but we have to look at the experience and the record of all the enforcement agencies and bodies in the financial services sector over the years. If we have colleagues of ours in the House doing that, they will meet with massive criticism. One way to tighten and toughen this up without having to get involved in the minutiae is to move from powers to duties, which is the purpose of a lot of the amendments we are debating today. If the Minister does not take seriously some of these practical suggestions, he is in danger of setting up a new system that is as open to abuse as the current system, and we will be back here in a couple of years putting it right.
Kevin Hollinrake
All legislation needs improvement, but we must not put the registrar under a duty that makes her job impossible. That is what the right hon. Lady’s amendment would do. That is what I am pointing out to her; not that I do not think—
Kevin Hollinrake
I cannot let the right hon. Lady intervene again. We are pressed for time. We just do not agree on this point. I think that we agree on the broad sentiment that there should be a risk-based analysis, but that is not what her amendment says.
With 1,000 companies resolved every day, it would be impractical to have a risk assessment of every single one of those companies and to then do the risk-based analysis. I think that the amendments are too directive, and I ask Members not to press them. I am happy to consider whether there is a less prescriptive formulation that we could add to the clause to have that effect. I completely understand and concur with Members’ broad objective. Of course we want a proactive regulator who determines where the risks are and acts on information, be it from journalists, private sector companies or enforcement agencies, to inform her work and to make sure that she pursues those who are most likely to be guilty of wrongdoing.
A couple of Members referred to the Russian sanctions regime. In the Russia (Sanctions) (EU Exit) (Amendment) (No. 13) Regulations 2022, we broadened the designation criteria to include specified immediate family members and those with links to Russian state-owned businesses. There are, of course, things like the combating kleptocracy cell at the National Crime Agency.
New clauses 41, 42 and 43 seek to address concerns about nominee shareholders. New clauses 41 and 42 would require people who control, directly or indirectly, 5% or more of the shares in a public company to declare themselves. New clause 43 would require any person holding shares in a public company as a nominee for another person to disclose that fact to the registrar. The new clauses would put additional obligations to disclose information to the registrar on to the person who holds the shares, rather than the company to which the shares relate.
New clauses 41 and 42 would create a burden in relation to public companies that would not exist for private companies. It would not be proportionate to impose such a burden on public companies that are low risk and that have additional requirements placed on them. It is already the case in the law on nominee shareholders or proxies that a share held by a person as a nominee for another is to be treated as though the share is held by the true owner and not by the nominee. Failure to declare a shareholder is a criminal offence and if the court were to find that a person should have been registered, the person and their company would be at risk of prosecution. I hope that provides the assurance that right hon. and hon. Members need.
Dame Margaret Hodge
I know that we share the objectives, but I feel very frustrated by the inability to decide whether a risk assessment and a risk-based assessment are the same. For the life of me, I cannot see the difference. We will put it to the vote and see whether those in favour of risk-based assessments are happy to go with “risk assessments”.
Kevin Hollinrake
That is not what the right hon. Lady has put in her amendment. It says not “risk-based assessment” but “risk assessment”.
Dame Margaret Hodge
I would say that there is no difference. In amendment 116, we have “risk assessments”. For those of us who think this is the way forward, I have to say that the Minister’s argument seems constructed rather than real.
Kevin Hollinrake
Currently, the registrar cannot proactively share the information she holds on businesses and individuals that is of use to law enforcement agencies and regulatory bodies. Nor can she carry out routine analysis to spot patterns of behaviour that are indicative of criminal activity. The clause inserts a new function for the registrar so that she is obliged to undertake such analysis as she considers appropriate for crime prevention and detection purposes, such as spotting fraudulent activity. That will provide the statutory basis on which the registrar’s new intelligence hub will be founded. The hub will be instrumental in identifying strategic and tactical economic crime threats posed by information on the register. That has long been called for. Under the data sharing powers that sit elsewhere in the Bill, the registrar will be able to proactively exchange the fruits of her analysis. The new clause is critical in supporting law enforcement agencies to tackle economic crime.
Seema Malhotra
As I have said before, we do not necessarily have any problem with what is in the Bill. It is about what is not in the Bill. The clause is important. We have debated how it can be improved and I am sure we will come back to debate that further. On the basis that it is an important part of the Bill, we support clause stand part.
Question put and agreed to.
Clause 88 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Eleventh sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 15th November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 November 2022 - (15 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
Good morning. I have a few preliminary announcements. Please switch all electronic devices to silent. No food or drink other than water is permitted during Committee sittings.
Clause 89
Fees: costs that may be taken into account
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 14, in clause 89, page 68, line 33, at end insert—
“(aa) any function of a Northern Ireland department under or in connection with the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4));”
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect the costs or likely costs of a Northern Ireland department in discharging functions relating to directors disqualification.
Kevin Hollinrake
It is a pleasure to speak with you in the Chair, Mr Robertson. The Bill seeks to ensure that companies and other entities benefiting from incorporated status directly contribute to maintaining the integrity of the company register. We will do that by including investigation and enforcement costs in Companies House fees. We will debate those issues shortly, but first, I hope that Members will agree that it is right that the costs incurred through pursuing enforcement activity in Northern Ireland should also be included in the Secretary of State’s decision making when setting Companies House fees, which is the effect of these amendments.
Amendment 14 agreed to.
Amendments made: 15, in clause 89, page 68, line 36, at end insert—
“(ba) any function of a Northern Ireland department under or in connection with the Insolvency (Northern Ireland) Order 1989 (S.I. 1989/2405 (N.I. 19)), so far as relating to bodies corporate or other firms;”.
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect costs or likely costs of a Northern Ireland department under the insolvency legislation.
Amendment 16, in clause 89, page 68, line 40, at end insert—
“(d) any function carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department in connection with the detection, investigation or prosecution of offences, or the recovery of the proceeds of crime, so far as relating to bodies corporate or other firms.”.—(Kevin Hollinrake.)
The amount of fees set under the Companies Act 2006 is determined in accordance with regulations. This amendment allows the regulations to reflect costs or likely costs of the Insolvency Service in Northern Ireland in connection with enforcement.
Stephen Kinnock (Aberavon) (Lab)
I beg to move amendment 115, in clause 89, page 68, line 40, at end insert—
“(3B) Prior to making any changes to the level of fees payable to the registrar, the Secretary of State must—
(a) consult with the registrar on the proposed changes; and
(b) set out in writing what the basis is for the proposed changes, with reference to subsection (2) above.”.
Dame Margaret Hodge
I know it is, but most of that comes from the economic crime levy. The £300 million comes from the economic crime levy; £100 million comes from the Government’s coffers. Correct me if I am wrong, but that is my understanding of it, so a third of that—£32 million or £33 million—is the Government’s annual contribution out of taxation. That is where I got the figure from. If I am wrong, I stand to be corrected, but that is my understanding.
Looking across the world, even the British Virgin Islands, our favourite secrecy jurisdiction, charges £1,000 to people who wish to create a company there; I cannot think that that has put anyone off using the BVI if they want a secrecy jurisdiction to support them. Australia charges £247; in the USA, in California, it is £150; in Delaware, another secrecy jurisdiction, it is £590; in New York, £570; Italy, £2,000; and Germany, £383. Even with our new clause, we would still be a cheap place in which to do business.
That is all I need to say at this point. We brought in new clause 40 because we think that should also be embedded. The Minister may tell me that it happens, but we think it should be embedded in legislation so that no future Government are ever tempted to take the money they earn from fees and put it towards other purposes. I hope that the Minister will accept that.
Again, correct me if I am wrong, but I have not seen anything in legislation that ensures that money raised in fees goes directly to enforcement. The Minister may want to do that, but his successors may not feel the same. The issue is never a high political priority so it is important that we get sustainability for the issue over time. That is the reason for the new clause.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
It is a pleasure to speak with you in the Chair, Mr Robertson. It is fantastic for the Minister to be able to kick off today with this debate—surely there has never been a Minister as lucky as this one is in taking this Bill through Committee. Here we have an entire Opposition side of the Committee united in wanting to give the Minister the tools to do the job—the job for which he has argued for years and years in this House.
We want to send the Minister into the spending review, with his colleague the Chancellor of the Exchequer, with his hands bound. We want to ensure that he goes into those conversations with the law of the land changed, so that he is required to put up the fees for Companies House and actually has the money he needs to do the job. We know that that is not going to damage the business investment environment in this country. How? Because it could not get any worse than it is today.
The business investment level in this country over the last 12 years has now been the worst in the G7, so it is unlikely to get any worse if fees at Companies House are put up a little bit: it is already spectacularly bad. That underlines a simple point: that the level of economic crime in this country is now so infamous around the world that it could be damaging the level of business investment here. If we are known around the world—certainly, in Washington and in European capitals—as a global epicentre of dirty money, how does that help us become a great, global hub of business investment in years to come? Obviously, it does not. There is a competitive advantage to be had by becoming one of the great capitals of clean trade. Here we are, an Opposition united in wanting to help the Minister achieve that ambition and make sure that he has the resources to do the job.
In the public evidence sessions, we heard a clear set of arguments as to why these amendments need to be made. We heard that our country has now become the centre of the Russian laundromat, the Troika laundromat and the Azerbaijan laundromat. Indeed, the Security Minister and I were on the Foreign Affairs Committee together when we heard the most appalling evidence that some of the biggest money-laundering scandals have involved UK corporate structures more than anything else; I think I am right that about 40% of the billions laundered through Danske Bank came through UK corporate structures. That is truly a mark of shame, and why Bill Browder was absolutely right when said in evidence to this Committee that it is appalling—a matter of shame—that there has been only one prosecution for money-laundering around economic crime in this country. That truly is an appalling record of law enforcement.
Worse than that, we also heard from the Independent Reviewer of Terrorism Legislation that the situation is not simply bad news for economic crime, but a national security issue. When the Independent Reviewer of Terrorism Legislation tells the Committee that it is a matter of national security that we clean up the dark mass of economic crime in this country, we as Members of Parliament ought to listen and do something about it. Then we heard from a range of police specialists who said, first, that they thought the problem was getting much worse quite quickly, and secondly, that they did not have the resources they needed to enforce the law in this area.
All that evidence points in one direction: Companies House needs more money. When we took evidence from representatives of Companies House, we heard, startlingly, that they have not even discussed their budget with the Treasury for the next financial year, which is due to start in only a few months’ time. They mooted the idea of asking for cash for an extra 100 people, which the dogs in the street know is not going to be enough to enforce the measures in the Bill.
With all his native cunning and wit, the Minister needs to find a way to make the concessions the Opposition are asking for and to agree to the amendment, so that he can be the great, historic, legendary, reforming Minister who took the bull by the horns once and for all and helped make sure that this country is once more renowned around the world as a capital of clean trade—all because of the efforts, cunning and wisdom of the Minister in accepting the amendment before him today.
Kevin Hollinrake
I thank the right hon. Gentleman and other Members for the amendments and their contributions. I would never take credit for all the progress we are making on economic crime. In fact, I would hark back to the words of Ronald Reagan, who said something like, “There is no limit to what you can achieve in life, as long as you don’t mind who takes the credit.” I am happy to share the credit with anybody on this Committee or the many people who have campaigned on the issue over the years.
One thing I do agree with the Opposition about—it is a point on which we all agree—is that Companies House and the other enforcement agencies should have enough money to do the job. That is what we are trying to get to and what I think we will get to. I also agree that, in the past and currently, enforcement agencies have been and are under-resourced, so we need to do something about that. I also have to agree with myself on the statements I made about the proportion of spending on law enforcement for economic crime and in respect of the Treasury Committee report’s conclusion that Companies House fees should be raised. My position on that absolutely stands.
I disagree on a number of points, the first being that this situation is somehow just the current Government’s fault—that somehow, Companies House fees have been reduced to £12 over recent years. That is not the case; it has been the case for years, including when Opposition Members were in charge of setting those fees. The right hon. Member for Birmingham, Hodge Hill was in the Treasury at the time when fees were at £12. The reason for that is that Companies House has always had the principle that its fees are levied to the extent it needs to do the job that it is set to do.
Kevin Hollinrake
Very briefly, because we are over half an hour into this debate already.
Liam Byrne
We are just getting warmed up. The Minister is absolutely right to flag that point. The fee level was always set in relation to the perception of the crime environment at the time, which was very different in 2009-10 from what it is today. As we have heard in the evidence, the crime environment is much worse and is multiplying exponentially each year, which is why the fees have to go up so dramatically. Hopefully, that is the point he is going to make.
Kevin Hollinrake
Again, we are all in agreement. Changing the environment is what this Bill—this very substantial document—is all about. There is no doubt that the situation has been hastened by what we have seen in Ukraine and other matters. It is absolutely high time to do this; I agree.
The shadow Minister suggested that somehow the fees to Companies House are going to face cuts in the future—that is the opposite of what is happening. I think he said the disparity would widen and there would be an absence of additional funding. That is absolutely the wrong way to look at the situation. The right hon. Member for Barking said that somehow these matters would be subject to cuts, and we would have to go to the Treasury as part of the comprehensive spending review to get funding for Companies House. That is exactly what is not happening—what is happening is that Companies House will collect the fees that it needs to do the job.
The position we take is that we do not put the cart before the horse. Companies House needs to set out exactly what resources, staffing and IT implementation it will need to do the job. It will present that to the Treasury and the Department for Business, Energy and Industrial Strategy and say, “Right, this is what we need to do”. Fees will then be set on a commensurate basis and ringfenced to the job, not stolen by the Treasury. They are set in accordance with the rules and the oversight that they need, including enforcement. As we know, Companies House is moving from that dumb register to being a proactive body, in terms of overseeing the integrity of the register.
Kevin Hollinrake
I am coming to that. The simple answer is that, when the fees are assessed, they are subject to regulations that are subject to parliamentary scrutiny. They are laid before the House before the fees are approved.
Kevin Hollinrake
It is under the affirmative resolution. Different Members have suggested different figures, from £50 to £100. The right hon. Member for Barking said £1,000, as if to say, “We charge that in the BVI, therefore why not charge it in the UK?” That was the implication. What she said was that the people who look to use those jurisdictions to hide their money would be quite happy to pay £1,000, but that is exactly the point. On 99.9% of occasions, we are not just dealing with companies that indulge in nefarious activities; we are talking about not deterring bona fide businesses by setting the fee level at a fair level that does not deter business activity but does mean that Companies House has the right enforcement capability. That is what we want to get to, and we want to ensure that Companies House is able to do that.
I will touch on a couple of the points made about the SFO case last week, which I think we all welcome. It was not actually about resourcing; changing legislation made that possible. It was about corporate criminal liability and failure to prevent, which was successfully enforced in that case. That is a lesson for us all. The right hon. Member for Birmingham, Hodge Hill said that there has been only one case ever of a successful economic crime prosecution in the UK, and that Bill Browder had said that. Mr Browder did not say that; there have been many prosecutions of economic crime. To clarify, he was talking about it in connection to the money that came out of Russia.
Companies House is funded by the fees that it charges. If the Secretary of State considered changing those fees, there would of necessity be an appraisal of the resourcing needs of Companies House before that could take place. Fees can be charged only to cover the costs of the activities that they are intended to fund, including enforcement.
In order to arrive at an appropriate level of fee, my Department would have to work directly with Companies House to determine the funding requirements. Of course, there has to be Government oversight of that, because that is what we are elected to do. It is right that the Secretary of State would oversee that and then present it to Parliament for scrutiny. I agree that companies will justifiably want to understand how and why a particular level of fee has been arrived at, but the mechanism for that already exists. Fees will continue to be set by regulations, and the basis for any changes will be included in the accompanying analysis and explanatory memorandum that are published and presented to Parliament for scrutiny.
New clauses 25 and 33, introduced by the hon. Member for Glasgow Central and the right hon. Member for Barking, will shortly set out intentions on the level of fees to be charged. We do not intend to enshrine a level of fee in primary legislation, as doing so would restrict flexibility that may be required at a future date. We will commit to reviewing the fees on a regular basis to ensure that they provide the funding that Companies House needs.
Liam Byrne
I think we all welcome the revelation that fees will be set shortly. What month of the year does the Minister think that might be?
Kevin Hollinrake
Sorry, I did not catch that. Will the hon. Gentleman repeat the question? I do apologise.
Liam Byrne
The Minister said that he will set out the fees shortly, but what month of the year does he mean by “shortly”?
Kevin Hollinrake
I am a new Minister, but I have heard many Ministers speak on such occasions and I have never heard a Minister commit to a date before.
Kevin Hollinrake
I cannot imagine that in his many years as a Minister the right hon. Gentleman would have ever set out a date, but it will be shortly.
Finally, I turn to proposed new clause 45 and the points made by the right hon. Member for Barking. The Bill amends the fee-raising power within the Companies Act 2006, in order to enable costs associated with investigation and enforcement to be included when setting the level of fees. Companies House is able to retain incorporated fee income under current arrangements between the Treasury and Companies House, with the arrangement reviewed periodically. Legislation does not set the level of fees, but rather the level of fees is set by our regulations. I have to say to the right hon. Member for Barking that that is under the negative resolution procedure and therefore receives parliamentary scrutiny.
Dame Margaret Hodge
If it is under the negative resolution procedure, the Minister well knows that it will not receive the parliamentary scrutiny it deserves. The advantage of the way we framed our new clauses is that the fee would automatically rise with inflation rather than any other mechanism being needed. I would have thought the Minister would welcome that because it would ensure consistent resourcing.
Kevin Hollinrake
I do not accept that the two things—inflation and the resources needed by Companies House—necessarily correlate. Salaries do not rise automatically on that basis. As the right hon. Lady will know, Companies House reports annually and I am keen to ensure that there is the right level of scrutiny around this type of activity in terms of resourcing, as I have said to her before. Therefore I do not think an automatic inflationary increase is right, but I absolutely believe in parliamentary scrutiny and it is something that perhaps we can discuss.
Dame Margaret Hodge
Will the Minister therefore come back with an amendment that provides for affirmative resolution?
Kevin Hollinrake
That may be something that the right hon. Lady wants to table, but this is a significant commitment, both in terms of legislation and resourcing. I cannot imagine a situation where Companies House comes to the Secretary of State or to me, as I will have some oversight over it, and say, “We need this level of resourcing, which will impact on fees in this way,” and we respond by saying, “Actually, that is too much.” It depends what they say, of course, and it is right that we have scrutiny over that, but I am sure there will be many mechanisms the right hon. Lady can use to ensure we have that level right.
Stephen Kinnock
No. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 17, in clause 89, page 69, line 5, at end insert—
“(b) the reference in subsection (3A)(d) to functions carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department, so long as the functions referred to are functions of a Northern Ireland department that are of a similar nature.”—(Kevin Hollinrake.)
The amendment allows the reference to functions carried out by the Insolvency Service in Northern Ireland on behalf of a Northern Ireland department to be amended in the event that, in future, the functions are exercised otherwise than by the Insolvency Service in Northern Ireland.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
As I have just set out to the Committee, clause 89, as amended, will enable Companies House fees to be used to fund enforcement and prosecution action against companies and other entities. As we increase the powers of the registrar and expand the role that Companies House and the Insolvency Service play in tackling economic crime, we need to make sure that they are appropriately resourced to carry out that activity. The clause is therefore vital in ensuring that Companies House can do that.
Question put and agreed to.
Clause 89, as amended, accordingly ordered to stand part of the Bill.
Clause 90
Disclosure of information
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
I beg to move amendment 105, in clause 90, page 69, line 24, at end insert
“and,
(c) to an insolvency practitioner appointed over a corporate who has requested information not publicly available on the register about to a corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed, from the Registrar.”
This amendment would enable the Registrar to share non-public information on the register upon request by insolvency practitioners, in relation to the corporate over which they have been appointed, or any other corporates linked to that of the entity to which they have been appointed.
It is a pleasure to serve under your chairship, Mr Robertson. Clause 90 amends the Companies Act 2006, inserting proposed new sections that allow any person and the registrar to disclose information to each other, and help the registrar to perform its functions. It is an important clause that effectively widens disclosure provisions, allowing the registrar to disclose any information held, and to do so proactively where that disclosure enables the exercise of the registrar’s functions. I am concerned that it perhaps does not go far enough. We heard in evidence about the importance of clarity around information sharing, what is and is not permitted, and what can be disclosed.
It is in this light that I speak to amendment 105, in my name and that of my hon. Friend the Member for Aberavon, which would enable the registrar to share non-public information on the register on request by insolvency practitioners in relation to a corporate over which they have been appointed, or any other corporates linked to the entity to which they have been appointed. In short, the amendment would ensure that, where the registrar holds non-public information that could aid insolvency practitioners in carrying out their duties in investigating a corporate that they have been appointed to investigate, the registrar can, on request, share that information with the insolvency practitioners.
As R3, the insolvency practitioners group, laid out in its evidence to the Committee, insolvency practitioners, when appointed over corporate entities, are required by law
“to investigate a company’s affairs and director conduct…in order to discharge their duties.”
The group recommends
“that insolvency practitioners be able to request access to Companies House’s non-public information pertaining to any other corporates linked to that of the entity to which they have been appointed.”
This is a simple but quite important amendment, which would ensure that, where economic crime could have taken place in a dissolved company, insolvency practitioners can proactively request all the non-public information held by the registrar on the register that would help in either preventing or detecting the possible economic crime. It is not about a fishing expedition, or anything like that: it is about giving, in specific circumstances, insolvency practitioners the further tools that they have said are important to help them to do their incredibly important job.
I ask the Minister to give the amendment serious consideration. We are not necessarily planning to press it to a vote, because this is an area where he will probably see the merits of the argument. He may want to come back to it later, perhaps with a Government proposal, or we may pick it up again. It seems to plug an important gap in a part of the legislation that concerns the disclosure of information. The legislation is proactive, from the point of view of the registrar being able to share information; if, however, the registrar does not know where it might be needed, insolvency practitioners, who have duties under the law, should have the opportunity to request information that can provide evidence for economic crime or give insight into a company, so that potential economic crimes do not go undetected and unpunished.
Kevin Hollinrake
I thank the hon. Members for the amendment.. The registrar is already permitted to share information with insolvency practitioners for purposes connected with her own functions—clearly now expanded, given this legislation. However, we acknowledge that there may be other specific circumstances in which she wishes to share information, so I sympathise with the tabling of the amendment.
The Chair
With this it will be convenient to consider the following:
That schedule 3 be the Third schedule to the Bill.
Clause 91 to 93 stand part.
New clause 36—Disclosure of PSC information to local authorities—
‘(1) The Companies Act 2006 is amended as follows.
(2) After section 790ZH (inserted by section 92 of this Act) insert—
790Z1 Disclosure of PSC information to local authorities
‘(1) The Secretary of State may by regulations make provision to facilitate the release of information held by companies on people of significant control to any relevant local authority which may request such information for the purposes of—
(a) tackling economic crime; and
(b) recovering a relevant unpaid debt;
(2) For the purposes of subsection (4A)(a) above, “tackling economic crime” includes any reasonable steps which the local authority may see fit to take as part of an investigation into a company which the authority has reasonable grounds to suspect may be involved in the commission of a relevant offence.
(4) For the purposes of subsection (4B) above, a “relevant offence” includes an offence under—
(a) the Proceeds of Crime Act 2002; and
(b) the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, as amended.
(5) For the purposes of subsection (4A)(b) above, a “relevant unpaid debt” includes unpaid business rates subject to recovery by the local authority under the Local Government Finance Act 1988.’
This new clause makes specific provision for relevant information to be disclosed, upon request, to a relevant local authority in connection with any effort by such an authority to investigate suspected economic crime, or to collect outstanding debts from companies which have not paid business rates.
Kevin Hollinrake
Currently, the registrar is restricted in what information she can share, which can be done only on a reactive basis. Clause 90 enhances the data sharing powers of the registrar so that she can proactively share information. Sharing will be allowed for the purposes of the registrar’s own functions or where she is sharing with a public authority for the purposes of their function.
Schedule 3 makes consequential amendments to the Companies Act 2006 and the Economic Crime (Transparency and Enforcement) Act 2002 resulting from clause 90. Clauses 91 to 93 make further amendments to the Companies Act to improve the registrar’s information sharing capabilities, ensure that the necessary safeguards are in place and improve the integrity of the register. Clause 91 closes a gap by making it an offence for a company to use or disclose protected information in contravention of section 241 of the Companies Act.
Clause 92 confers a power on the registrar on application to make an order requiring a company not to use or disclose relevant people with significant control particulars. Currently, the registrar can use directors’ residential addresses only for the purpose of communicating with the director. Clause 93 will remove the restriction on the use of protected information, specifically directors’ residential addresses. That means that the registrar will be able to use residential address information for alternative purposes such as cross-checking the accuracy of information on the register. That will help to improve the integrity of the register.
I thank hon. Members for new clause 36. Its effect would be to give the Secretary of State a power to make regulations to facilitate the release of people of significant control information from companies to local authorities for the purposes of tackling economic crime and recovering a relevant unpaid debt. We do not believe that the amendment is necessary. Clause 92 already provides a power for the Secretary of State to make regulations that specify the circumstances in which a company may disclose relevant PSC particulars.
Furthermore, the Government consider that it would be more appropriate for the registrar to have the power to disclose such information to local authorities, rather than the company, given the closeness of the relationship between a company and its people of significant control, and the risk of tipping off. A company may have only one director, person of significant control and shareholder. Such person could, in effect, be disclosing self-incriminating information about themselves.
Committee members can rest assured that under the new powers given to the registrar in clause 90, they can disclose information to a public authority for purposes connected with that public authority’s functions. That includes local authorities. The registrar may also disclose information to any persons for purposes connected with its own functions, such as for the purposes of crime prevention and detection. Clause 90 already provides a route for local authorities to access PSC information for the purposes of tackling crime and recovering relevant unpaid debt. I hope that provides reassurance to hon. Members.
Seema Malhotra
It is a pleasure to speak in this stand part debate. I will defer to my hon. Friend the Member for Aberavon to speak to new clause 36.
I have referenced some points on clause 90 and its importance. I will make a couple of other remarks on that more generally. It widens disclosure provisions, and the registrar will proactively disclose information held where that disclosure enables the exercise of her functions. I have a question for the Minister on subsections (5) and (6), where offences and defences are set out. That is obviously important, but I have a concern about the disclosure or data sharing provisions.
The fear of being on the wrong side of the law can sometimes deter the use of those powers. It is a question about whether there has been any discussion with the registrar, for example, about the interpretation of the wording; being as clear as possible about what is permissible within the law and where the offences might be, and the possible defence for a person who could be charged with an offence under subsection (5). So often we say, “There are powers to do X” or “The police have a power”, but there are concerns about the use of that power and how someone could be accused of not using that power within the law, so we might end up having a challenge. Someone could go through a process to clear their name or to say that their actions were within the scope of the law. We just need to be clear to reduce the challenges that can come later.
Perhaps the Minister will respond today or clarify in discussions with the registrar on this very important clause that it is as clearly worded as it could be, with less room to be challenged where that power is used as intended by Parliament.
Schedule 3 makes consequential amendments to clause 90 and amends the Companies Act to enable the registrar to disclose usual residential addresses. It states that where additional trust information is protected from disclosure to the public, regulations made under section 25 may not require the registrar to refrain from disclosing that information under proposed new section 1110E. Will the Minister explain that aspect a little further? Broadly, we welcome the schedule as a necessary provision in expanding the information sharing aspect.
Clause 91 highlights an offence that can be committed by a company and every officer who is in default. Clause 92 confers a power on the Secretary of State, on application, to make regulations requiring the registrar to make an order requiring a company not to use or disclose relevant information regarding persons of significant control. The Minister has spoken to this point briefly, but could he expand a little more on the introduction of this clause, and can he provide any examples of instances in which—as per clause 92—the Secretary of State might require a company not to disclose PSC information? We would welcome that clarity.
I have no further comments on clause 93, which restricts the registrar from using directors’ residential addresses for anything other than communicating with the director. I would welcome the Minister’s clarification of the points I have raised.
Alison Thewliss
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.
Kevin Hollinrake
I shall respond briefly to the queries raised. All the information must be handled in accordance with the Data Protection Act 2018. The way the Bill operates is consistent with similar legislation that deals with data sharing.
The hon. Member for Feltham and Heston raised the issue of the protection of information. The provision applies in a situation of risk of harm or serious risk of violence or intimidation—for example, in respect of domestic abuse victims.
Data sharing was raised by both shadow Ministers—the hon. Members for Feltham and Heston and for Aberavon. It is permitted to assist public authorities when they exercise public functions, such as confirming the accuracy of data or providing intelligence to law enforcement agencies.
Stephen Kinnock
Does the Minister have any comments on the points about local authorities?
Kevin Hollinrake
Data sharing is permitted to assist public authorities when they exercise their public functions. For example, they could ask the registrar to confirm the accuracy of data that is held, which may lead to information being shared for intelligence purposes with enforcement agencies.
Kevin Hollinrake
Local authorities are a subset of public authorities.
Question put and agreed to.
Clause 90 accordingly ordered to stand part of the Bill.
Schedule 3
Disclosure of information: consequential amendments
Amendment made: 49, in schedule 3, page 162, line 5, leave out paragraphs 5 to 7.—(Kevin Hollinrake.)
This amendment is consequential on NC17 and NC18.
Schedule 3, as amended, agreed to.
Clauses 91 to 93 ordered to stand part of the Bill.
Clause 94
General false statement Offences
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 94 amends the general false statement offence in section 1112 of the Companies Act 2006 to create two separate offences: a basic offence and an aggravated offence. The Bill also amends section 32 of the Economic Crime (Transparency and Enforcement) Act 2022 to make a mirror-image, two-tier approach. The existing false statement offence under the Companies Act requires a document or a false, misleading or deceptive statement to have been delivered or caused to be delivered knowingly or recklessly to the registrar. Clause 94 substitutes that existing offence for two new offences with commensurate penalties.
The basic offence is committed when the false statement is made without reasonable excuse. The aggravated offence is committed when the false statement is knowingly made. It is worth noting that that refines the amendments made by the Government during the passage of the 2022 Act in response to parliamentary scrutiny. When either offence is committed by a firm, every officer of the firm that is in default also commits the offence. The structure of the new sections maintains consistency with amendments to the 2022 Act, the Limited Partnerships Act 1907 and the Reports on Payments to Governments Regulations 2014, as amended by the Bill.
On clause 95, we have already discussed many of the new powers that we are providing to the registrar and how they are intended to work. In exceptional circumstances, it may be necessary for the Secretary of State to allow material that would otherwise be treated as false, misleading or deceptive to be deliberately provided to the registrar to protect our nation’s interests or to assist in the prevention or detection of serious crime. The clause ensures that when such action is taken, the Secretary of State can issue a certificate that ensures that the person to whom it is issued is not liable for the commission of acts that might otherwise amount to a false filing offence.
Clearly, the work of our law enforcement and intelligence agencies must be able to be carried out without fear of prosecution when they are acting in our interests. The certificate that may be issued provides an exemption for those purposes. The Secretary of State must be satisfied about the reason why a certificate has been sought and may issue one only if to do so is in the interest of national security or for the prevention or detection of serious crime. The certificate can be revoked at any time.
To further limit the circumstances in which a certificate can be issued, serious crime is defined in the clause, providing further assurance about the need for such a certificate. The definition of serious crime aligns with that used in section 18 of the 2022 Act, which allows the Secretary of State to exempt a person from the requirements of the register of overseas entities for the same reasons. The Government listened to the concerns expressed about such exceptions and exemptions during the expedited passage of the 2022 Act; the clause is therefore carefully constructed so as to be as narrow as possible.
Stephen Kinnock
One of the key problems the Bill seeks to address is the difficulty that arises when enforcing laws for which the burden of proof is exceptionally high. In that regard, the Opposition welcome the changes set out in clause 94. The current requirement to prove that somebody who has delivered false or misleading information or documents to Companies House did so knowingly and recklessly seems to set the bar so high as to act, in effect, as a hindrance to successful prosecution. It is a sensible change to replace the current requirement with language that enables a defence on grounds of a reasonable excuse, especially in the context of the related provision in the clause to prosecute those who can be shown deliberately to have provided false information for an aggravated offence that is subject to imprisonment for up to two years.
Clause 95, however, raises some questions that I hope the Minister will clarify. It will amend the Companies Act to allow the Secretary of State to issue any individual with a certificate that, it would seem, could provide blanket immunity from prosecution for any offence related to the delivery to the registrar or the making of a statement that is misleading, false or deceptive. This power is potentially very broad and, beyond a couple of lines stating that a certificate could be issued for reasons of national security or to assist in the prevention or detection of serious crime, there is little clarity as to how it might be used. I am sure the Committee would be grateful if the Minister could provide any further detail on how frequently and in what kinds of circumstances the power might be used. Perhaps the Minister could also set out in a bit more detail what safeguards, if any, might be put into place to ensure that the power is used only in cases in which there is a compelling need to do so.
Alison Thewliss
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.
Kevin Hollinrake
I think the shadow Minister, the hon. Member for Aberavon, had two main queries. On the type of circumstance in which a certificate would be issued, it is impossible to predict other than to say that it would be when it is in the interests of national security or in the case of a serious crime, which is defined in the clause. The actual circumstances around that are incredibly difficult to predict. It is fair to say that we expect such a certificate to be issued on extremely rare occasions, but we cannot rule out the possibility of our needing to do so. Ultimately, it has to be a judgment for the Secretary of State.
On false filing, I well remember responding to the written question from the hon. Member for Glasgow Central. It was a very fair question. That is why we are in this Committee Room: it is about not just legislation but implementation. There have to be the proper resources for Companies House to do that job and I absolutely want to make sure that it has not just the powers but the resources to interrogate the database, make sure it is accurate and share the data information, because it is critical to look at the context. A number of things align in this respect: it is about the powers, the resources, the data-sharing capability and, for the first time, the sanctions of up to two years in prison on individuals who file falsely.
We absolutely want to ensure that the figures improve. I absolutely agree with the hon. Lady that there will be many more cases of false filing than those that have been identified, but to be fair to Companies House, without the resources to do it, which it has never been given before, that is a pretty difficult job for it to do. Companies House does publicly report annually, and I would very much like to see that kind of accountability in future reports, in terms of its efficacy in this area.
Question put and agreed to.
Clause 94 accordingly ordered to stand part of the Bill.
Clause 95 ordered to stand part of the Bill.
Clause 96
Financial penalties
Dame Margaret Hodge
Let us see where we get with this one—I will have another go. This is a vital amendment and I hope that the Government will listen carefully, because it would go a long way to ensuring that our enforcement capabilities, which we have been talking about all morning, really are fit for purpose and properly funded, without burdening the taxpayer—that is really important. If we tried to get competition between funding enforcement and funding other Government priorities, we would get nowhere in trying to ensure properly funded enforcement agencies.
The UK’s record is abysmal. I am going to put this on the record. The NCA has had five prosecutions each year for the last five years. That is hopeless. Money laundering prosecutions are down 35% over the last five years, at a time of exponential growth in money laundering. Less than 1% of the billions of pounds laundered annually is ever restored to us. And the number of criminal fraud cases by the SFO has halved in the last three years, although again I welcome the Glencore case, and I agree with the Minister that it shows the importance of introducing the offence of failure to prevent economic crime.
This is not a criticism of the agencies; it is a criticism of us and our failure to fund this work properly, which is what we are trying to do here. If we look at the totality of the UK’s expenditure on enforcement, we see that it is pathetic. It is 0.042% of GDP, whereas we know that the cost to the UK economy of economic crime is 14.5%, so there is an absurd relationship between our need to detect and prevent crime and our capability to do so. The FBI is 15 times larger than the NCA. We have already said that the police spend less than 1% on fraud, even though it represents 40% of crime—and that is just reported crime. And we have already said that the Americans have increased their budget, because they see this as a security threat, whereas we have reduced one.
I would welcome a comment from the Minister on this matter. My understanding is that the Government contribution to the fight against economic crime is £100 million. Out of the totality of £400 million in the budget, £300 million comes from the economic crime levy and only £100 million, over the comprehensive spending review period, comes from the taxpayer, so that is a mere £32 million or £33 million a year.
Kevin Hollinrake
If the right hon. Lady includes what we resource—the SFO, NCA and other enforcement agencies—it is not entirely clear, but we give about £825 million a year to our enforcement agencies.
Dame Margaret Hodge
The Minister knows that that is not necessarily to fight economic crime, but to fight other crimes. I was talking about the economic crime levy and those are the figures that I have.
It is irritating but understandable that the enforcement agencies prioritise other crimes in their day-to-day work; they do not prioritise economic crime. Despite the lack of funding, a lot of money is brought in by the enforcement agencies. Between 2018 and 2021, £3.9 billion was brought in in fines, confiscation and forfeiture. If all of that had been reinvested, all of the agencies would have had an extra £748 million to fight economic crime over that period. That would have had a fantastic impact on our ability to fight, detect and prevent economic crime.
It has been said in previous debates that money from fines cannot be hypothecated in that way, but I draw the Minister’s attention to three precedents that negate that claim. In June 2022, the Information Commissioner announced a new arrangement allowing the office to keep some of the proceeds of its civil penalties to fund its work with the big tech companies. In 2019, Ofwat kept the proceeds of penalties it had raised on Southern Water to pay out to and reimburse customers. The Gambling Commission can also require payments rather than penalties to compensate victims or make payments to charities. Those are three precedents on which the Minister could build the argument that it would be perfectly appropriate for the proceeds of fines to be kept in order to resource the fight against economic crime.
I also draw the Minister’s attention to a report on fraud published by the House of Lords last week, which states:
“To support the forthcoming fraud strategy”,
which is only a part of addressing economic crime,
“with adequate resources, the Government must commit to a long-term funding strategy with an increased offer for law enforcement agencies”—
and this is the important bit—
“focussed primarily on recycling revenue collected by law enforcement agencies back into law enforcement activity.”
The House of Lords has, therefore, come to the same conclusion as we have in tabling this amendment.
The UK’s asset recovery incentivisation scheme ensures that some assets are recycled. Most of them go to the Treasury. Of the £354 million recovered in 2021-22 from confiscation orders, forfeiture orders and civil recovery orders, only 40% went back into fighting crime. If we compare ourselves with the Americans, we will see that all of their forfeiture proceeds go back into enforcement.
Under our proposal, money would be ring-fenced and it would be a cross-Government fund to finance enforcement against fraud and dirty money. The Minister knows that if the UK is to tackle economic crime effectively, far greater ambition is needed on the scale of public investment, and establishing an economic crime fund is the radical response that we need.
Stephen Kinnock
I would like to add some comments to the eloquent remarks of my right hon. Friend the Member for Barking.
In clause 96, the Government provide a framework for the registrar, within parameters to be set out by the Secretary of State in regulations, to impose direct financial penalties for many offences without the need for lengthy and often costly court proceedings. That is surely a welcome development, at least in so far as it should enable the registrar to take swifter action to deal with any offences involving false representations made to Companies House.
Of course, we will need to look closely at the details of how that will work in practice. In that respect, it is right that the Bill provides for parliamentary scrutiny of the relevant regulations via the affirmative resolution procedure. If the Minister could give a rough indication of when we can expect those regulations to be published, I am sure that the Committee would be grateful.
One thing that clause 96 makes clear is that any civil penalties imposed by the registrar will not exceed £10,000. I would be grateful for an explanation from the Minister about how that figure was arrived at, and whether he is confident that the power to impose a fine at that level will act as a deterrent to would-be offenders. Given the profit margins involved in some of the most serious crimes, we must ensure that the threat of civil penalties is both real and sufficient in terms of its potential to take a meaningful chunk out of criminals’ assets. I am not entirely convinced that the threat of a £10,000 fine will be taken all that seriously by some of the intended targets, but if the Minister is aware of any convincing evidence to the contrary, I would be glad to hear it.
Even if we assume that the Government make rapid progress with the regulations enabling the registrar to impose civil penalties, we must then address—not for the first time in Committee—what happens to any funds raised from civil penalties. In amendments 84 and 80 and new clause 29, my right hon. Friend the Member for Barking has once again provided the Committee with an eminently reasonable and sensible answer to that question. Taken together, these amendments would require any fines paid to the registrar to be specifically designated and ring-fenced for the purposes of tackling economic crime.
The asset recovery incentivisation scheme, introduced by the previous Labour Government, provides a template of sorts, but given the scale of the threat that we now face from economic crime, we need to go further. It is surely a no-brainer that any fees paid to the registrar, together with penalties for those who break the rules, should be reinvested in broader cross-Government efforts to tackle economic crime. That would provide a stronger incentive for tougher enforcement and a more sustainable long-term funding model for Companies House and other enforcement bodies at no additional cost to the taxpayer. Opposition Front Benchers therefore fully support these amendments. We hope that Members on the Government Benches will do the same.
Kevin Hollinrake
I am very sympathetic to the points raised by contributors to this debate, and I am fully signed up to making sure that our law enforcement agencies have a long-term funding solution. As the right hon. Member for Barking knows, I am very sympathetic to the need to properly resource enforcement agencies, and, indeed, to the need for clarity on what funding is in place, right across the piece. We could have various different debates about what level that should be and on whether it should be £30 million a year. It is an awful lot more than that, but I accept that there should be more clarity. Wherever we can, we should seek to raise the moneys that the enforcement agencies need to do their job properly.
We are developing a new funding model for Companies House, which demonstrates our commitment to tackling economic crime. The combination of last year’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. That applies to the AML regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24. There will be a wide-ranging review three years later to provide transparency on how the levy is performing against its original purpose, including how the money is being spent.
In addition, as the right hon. Member for Barking set out, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability under the asset recovery incentivisation scheme. The figures that she quotes are interesting, because according to my note here, the receipts paid should be split 50:50 between the Home Office and the Treasury and operational partners, which should be the enforcement agencies. It should be an equal split. I do not know about the numbers that she gives regarding the situation in the US, but I am happy to look at that in further detail. I am very keen to make sure that resources are made available.
There is probably a difference here in relation to fines. The right hon. Lady acknowledges that POCA offences have been subject to the oversight of our courts. In terms of fines and civil penalties, however, there are strict guidelines on how that money can be spent. It is interesting to look at the examples she quotes, but I think that two of them concern reimbursement of victims rather than further resourcing of the relevant agencies. I also slightly worry about the unintended consequences of allowing the regulator to simply issue fines and keep them. Many of those fines may be issued not because of transgressions related to economic crime; they may be related to other offences and other things.
The shadow Minister, the hon. Member for Aberavon, raised the issue of whether the level of £10,000 was appropriate. It is quite a lot of money, of course. The vast majority of businesses registered with Companies House are smaller companies. For a smaller company, £10,000 is an awful lot of money. It is, of course, an option. It is not that the registrar cannot refer this to law enforcement agencies. She can determine whether to impose a civil penalty or refer the matter to a law enforcement agency if it is serious enough. We felt that £10,000 was a reasonable compromise. On that basis, I hope that the right hon. Member for Barking will withdraw the amendment.
Kevin Hollinrake
At present, most obligations relating to the functions of the registrar are enforced through the criminal justice system. Clause 96 inserts new section 1132A into the Companies Act 2006, which gives the Secretary of State the power to make regulations to enable
“the registrar to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to a relevant offence under this Act.”
The registrar will have the discretion to choose to either pursue a financial penalty or pass a case on to law enforcement to consider criminal prosecution. Clause 96 contains a delegated power regarding the level of financial penalty. That is because in order to best support enforcement agencies in their fight against economic crime, there is likely to be a need to review and refine the enforcement procedures and processes.
Dame Margaret Hodge
Will the Minister confirm whether the action of Companies House under this clause should be part of the annual report to Parliament?
Kevin Hollinrake
I think that is a very sensible suggestion and I am happy to take that away. I would like to see a number of things in that report that are currently not there. If we look at the most recent report, we see a number of references to this particular legislation. It welcomes this legislation, and I think it is important that the body reports publicly and to Parliament, as would be the case with the measures that the right hon. Lady mentions.
Similarly, there may be reason to review the appropriate financial penalty amount, and interest or late payment amount, to deter misconduct against the register as effectively as possible. The regulations will be subject to the affirmative procedure, which will provide the appropriate amount of parliamentary scrutiny of any proposed further changes.
Clause 97 will strengthen the link between civil sanctions and director disqualification by amending section 3 of the Company Directors Disqualification Act 1986, which states that the court may make
“a disqualification order against a person where it appears to it that he has been persistently in default in relation to provisions of the companies legislation”,
and that
“the fact that a person has been persistently in default…may…be conclusively proved by showing that”,
in the previous five years,
“he has been adjudged guilty…of three or more defaults”.
Under proposed new section 1132A of the Companies Act 2006, the registrar will be able to impose a financial penalty on a person, if she is satisfied beyond reasonable doubt that the person has engaged in conduct amounting to an offence.
Section 3 of the CDDA will be amended so that the imposition of a financial penalty can count as a default. That will provide a greater deterrent to those who seek to circumvent legislative requirements. Not only will individuals face the risk of a financial penalty but the risk of being disqualified will become more likely when a financial penalty has been imposed. Clause 98 mirrors the provisions in clause 97 so that they apply in Northern Ireland, amending the current provision in article 6 of the Company Directors Disqualification (Northern Ireland) Order 2002.
Stephen Kinnock
We are disappointed that clause 96 will go forward unamended, because we feel that there are real risks in not directly linking the moneys raised with reinvestment specifically into economic crime. It is important to put that disappointment on the record.
Kevin Hollinrake
Of course, there is a link in the average scheme. I think £1.3 billion has been raised from asset recovery for law enforcement agencies since 2007, so there is a link. The point that we disagree on is fines.
Stephen Kinnock
I thank the Minister for that intervention. The amendments were trying to require any fines paid to the registrar to be specifically designated and ringfenced for the purposes of tackling economic crime. It is the lack of a specific designation and ringfencing that is disappointing, but we are where we are, and we move forward.
I will comment briefly on the final two clauses in the group. They are largely supplementary to the provisions that we have already discussed, but are nevertheless important. I particularly welcome the clarification in clause 97 that individuals subject to civil penalties under the preceding clauses will be treated in a similar way to those with a criminal conviction for the purposes of determining whether they meet the criteria for disqualification from serving as company directors. Making it clear that the same standards of conduct apply to those with a record of civil or criminal penalties should buttress the new system for civil enforcement fines, and will hopefully increase compliance.
The provisions of clause 97 that apply within Britain would be extended to Northern Ireland under clause 98. As I have said before, ensuring that a common set of rules and regulations is applied across the UK as a whole can only be a good thing.
Question put and agreed to.
Clause 96 accordingly ordered to stand part of the Bill.
Clauses 97 and 98 ordered to stand part of the Bill.
Clause 99
Meaning of “limited partnership”
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
This is a very simple measure. The Government are seeking to tackle the misuse of limited partnerships while modernising the law governing them. The clause clarifies the meaning of the term “limited partnership”. The revised wording removes ambiguity and sets out that it is possible to be a limited partnership only by virtue of being registered as a limited partnership under the Limited Partnerships Act 1907. Furthermore, the Companies Act 2006 provision relating to the index of company names is amended to refer to limited partnerships registered under the Limited Partnerships Act. That allows the registrar to remove firms from the index of company names if they are dissolved, cease to be registered under the Limited Partnerships Act, or both.
Seema Malhotra
The clause inserts the definition of limited partnership into the Bill and makes clear that the registrar is obliged to maintain only those limited partnerships registered under the 1907 Act within the registrar’s index of names.
Limited partnerships are a specific type of business structure in UK law that confer limited liability on some partners and therefore have to be registered with Companies House in line with the Limited Partnerships Act 1907 and the Partnership Act 1890, but numerous reports and consultations by the Government have identified the risk of economic crime through limited partnerships and Scottish limited partnerships. As I know the Minister will be well aware, the consultation in 2018 also emphasised the apparent attractiveness of such partnerships as vehicles for organised crime, and I am sure we will come back to that when we consider amendments to this part of the Bill. The consultation noted specifically that the National Crime Agency reported a high volume of suspected criminal activity involving Scottish limited partnerships. It also referred to claims made in an investigation that 113 SLPs were involved in a much larger money laundering scheme that transferred more than $20 billion out of Russia between 2010 and 2014.
Limited partnerships and Scottish limited partnerships have been identified by the Government for some time as high-risk corporate structures when it comes to facilitating and enabling economic crime. It is positive that we have reached this point, but it is disappointing how long it has taken. The clause is important, as it ensures that the registrar is obliged to maintain those limited partnerships that are registered as such, thereby ensuring that the registrar is not under any obligation to maintain names of defunct limited partnerships.
Kevin Hollinrake
As the hon. Member for Glasgow Central knows, the new provisions apply to Scottish limited partnerships, as well as limited partnerships. She is absolutely right to say that it is about not just the powers but the resources. I fully concur with that, as we have said previously. I will not reiterate those points.
The hon. Lady make her points on displacement—people will stop doing it here or in Scotland and go to Delaware, Ireland, or wherever else—well, of course. But we can do precious little about that, other than work on international co-operation through organisations such as the Financial Action Task Force, as we do internationally, to put pressure on all those jurisdictions. My view on the suggestion that has been raised many times that people will simply go somewhere else is that if all we can do is ensure they do not carry on their nefarious activities here, that is at least something. However, we certainly must work internationally with others on what happens globally.
Question put and agreed to.
Clause 99 accordingly ordered to stand part of the Bill.
Clause 100
Required information about partners
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
That schedule 4 be the Fourth schedule to the Bill.
Clause 101 stand part.
Clause 102 stand part.
New clause 56—Limited partnerships: registration of persons of significant control—
“(1) The Secretary of State must by regulations make provision about the registration of persons of significant control in relation to limited partnerships.
(2) For the purposes of regulations under this section, ‘persons of significant control’ may include persons with a right to—
(a) 25% or more of the surplus assets on winding up,
(b) a voting share of 25% or more,
(c) appoint or remove the majority of managers,
(d) exercise significant influence or control over the business, or
(e) exercise significant influence or control over a firm which would be a person of significant control if it were an individual.
(3) No regulations to which this section applies may be made unless a draft of the statutory instrument containing the regulations (whether or not together with other provisions) has been laid before, and approved by a resolution of, each House of Parliament.”
Kevin Hollinrake
Clause 100 and schedule 4 significantly increase the amount of information that must be provided about a new limited partnership and its prospective partners, and, subsequently, when they make their annual confirmation statements or deliver notifications that report changes. Schedule 4 sets out what information must be provided, including date of birth, nationality and the usual residential address when the partner is an individual.
Clause 101 is intended to ensure that existing limited partnerships registered prior to the commencement of the Bill are equally required to deliver the relevant information set out in schedule 4. The general partners of limited partnerships will be required to provide the registrar with the required information of each person who is a partner in the limited partnership, or who became a partner on registration within a six-month transitional period.
Failure to comply with those requirements may give the registrar reasonable cause to consider that the limited partnership is no longer operating and is dissolved. That will mean that the registrar may exercise her confirmation of dissolution power, which we will debate later on. If the registrar goes through the confirmation of dissolution process, she may deregister the dissolved firm.
Clause 102 provides that the Secretary of State may, by regulations, designate a standard system for classifying the business of a limited partnership. That will make it easier to collate and sort information about a limited partnership’s activities and it aligns with the position for companies. I thank the right hon. Member for Barking for her new clause 56. Perhaps she should speak about that now, and I will respond to her points.
Dame Margaret Hodge
I am grateful to the Minister and I agree with him that what we are all attempting to do here is trying to clean up the act in the UK. Some of our amendments are pragmatic, and I just hope that the Minister will listen and take them on board.
I want to go back to first principles, from when I started working in this area almost a decade ago. It was absolutely clear that transparency is a powerful tool in preventing and detecting economic crime. Sunshine is the best disinfectant. David Cameron used that phrase when he introduced the register of beneficial ownership, saying that we had a “gold standard”. It did not quite turn out that way, but that was what he wanted. To go back to the days of 2018, the Financial Action Task Force said that Britain was
“a global leader in promoting corporate transparency”.
We should hang on to that.
In 2014, the Cameron Government said it was “particularly important” that plans to force companies to name their ultimate owners should include English limited partnerships, in order to ensure that there were no loopholes or unintended consequences. That was completely right, yet two months later, in an inexplicable move, English limited partnerships were dropped. I do not know if the Minister has an explanation—I am happy to give way if he has—but that is what happened.
New clause 56 would introduce transparency into the system. I recognise that it is not a perfect answer, but it is a huge improvement on the status quo. We want to use the mechanism of the persons of significant control register. We propose that all limited partnerships, whether they are Northern Irish, English or Welsh, would have to register a person of significant control. All limited partnerships would therefore be treated in the same way.
As the Minister knows, limited partnerships have been used time and again by criminals to move and hide dirty money. I will give just one egregious example. In 2014, the US imposed sanctions on the Rotenberg brothers, Boris and Arkady, who are known as close friends of Putin, in response to the annexation of Crimea. A later investigation by the UK Senate found that the two brothers had used an English limited partnership, Sinara Company, to pay a front figure in the art industry, a man called Gregory Baltser, a huge amount of money to get around the sanctions, buying and selling paintings worth up to $18 million. Paintings by Magritte, Chagall and Braque were sold through this intermediary, Baltser. It was all done through an English limited partnership.
When the Government tightened up on Scottish limited partnerships, criminals moved to other forms, as the hon. Member for Glasgow Central said. I quote to the Minister a Russian-language newsletter that was circulated to clients by a formation agency called LAS, which said, after the UK tightened up on Scottish limited partnerships, that there is always a way out:
“As a substitute for Scottish partnerships, we offer the registration of English, Welsh and Irish LP partnerships, which have an identical legal form and similar benefits…At the moment, the privileges of this type of partnership are that they do not fall and will not fall under the laws on the disclosure of information about controlling persons.”
Transparency International’s report, which the Minister has quoted previously in our debates, shows how the structures are open to abuse by bad actors. It analysed 1,628 limited liability partnerships used in various corruption and money laundering schemes over a 12-year period between 2004 and 2016 for the nationality of the person of significant control. Russians were the most frequent nationality, at 17%; UK nationals were 16%; and Ukrainians, 15%. Nationals from the combined former Soviet states constituted half of those in the disclosures. That is a good red flag. The benefit of the persons of significant control register is that it would provide that red flag if it was extended elsewhere.
Limited partnerships are used by formation agencies, over whom there is also a red flag. Finance Uncovered and the BBC found that the five busiest formation agencies in 2017 created 28% of all English limited partnerships created that year.
Economic Crime and Corporate Transparency Bill (Twelfth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 15th November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 15 November 2022 - (15 Nov 2022)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Dame Margaret Hodge (Barking) (Lab)
I am not going to recap, because we want to make progress, but I hope the Minister is listening. We are talking about a way of improving transparency, accepting that the new clause is not the perfect answer.
English limited partnerships have no directors, but they do have individuals required to sign paperwork, and the formation agencies that help to establish such limited partnerships often hire proxies to do that. A great example of that is Ruth Neidhart, a 71-year-old Swiss national who lived in Cyprus. She is a ceramic artist, she sometimes arranges pottery painting sessions for children’s birthday parties, and she has been signing documents for a formation agency called IOS since at least early 2009. We see that see that she has signed 161 of these ELPs since 2016 and has links to IOS companies in Nevis, the British Virgin Islands, Belize and the Bahamas, all offshore firms that have been used to form UK shell companies.
Alexandru Terna, a 32-year-old Romanian who lives on a busy road junction in west London in what is described as “a modest house”, has signed 306 of these ELPs. He said in an email to Finance Uncovered, which covered the story:
“We worked only with [LAS],”
the formation agent. He added:
“We have never been involved in the management or control of any of these companies or any other company, where we were appointed as signatories.”
I thought that was interesting. Then we have the infamous Moldovan bank fraud, where $1 billion vanished from three Moldovan banks in just two days through limited partnerships—a series of Hong Kong and UK-registered companies. The new owners took over the bank in 2012, buying shares and using funds from UK limited companies.
The Government argue that these limited partnerships are not legally separate from their partners and so they cannot be beneficially owned. However, the person of significant control requirements require control—that is the issue—and not necessarily ownership. There does not have to be separate legal personality and ownership for there to be significant control, and if there is a corporate partner, there must be a human being controlling that corporate partner. The corporate partner cannot exist without somebody controlling it.
The PSC is defined as somebody with more than 25% of assets or more than 25% of voting share, or—this is another aspect of the definition—who exercises significant influence or control over the business. In practice, all the leaked documents we have seen from journalists show that formation agencies routinely create ELPs and issue clients with documents that declare them as beneficial owners, so they use that term anyway; they see them as beneficial owners. Indeed, ELPs also open bank accounts. There is somebody behind them, and we need to try to get to that person.
I accept that what we are proposing is not a perfect answer, but I think it is better than the status quo. We would get nominees putting themselves forward, and we would get company service providers declared as persons of significant control, but the same nominee appearing frequently would be a red flag, and company service providers reappearing in relation to lots of companies would also be a red flag. Remember: transparency is the best disinfectant.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I am very pleased to respond to the right hon. Lady’s speech. In relation to some of the issues we have with limited partnerships, she has set out her case very well and fairly.
Through the Bill, we are trying to make it easier for Companies House to spot exactly the kinds of red flags the right hon. Lady has referred to. She mentioned people such as Alexandru Terna. Under this legislation, for the first time, significant penalties will accrue to somebody who does not declare their partners accurately. As I have said on a number of occasions in recent days, I am sympathetic to a number of the right hon. Lady’s amendments, including new clause 56. I understand the reasons why she has tabled it.
The new clause would partially duplicate the Scottish Partnerships (Register of People with Significant Control) Regulations 2017. Scottish limited partnerships have legal personality, meaning that in the eyes of the law they are a separate legal entity and have distinct duties and liabilities to those of their partners. It is therefore possible to apply persons of significant control requirements to those entities. As the right hon. Lady said, the same is not true of English, Welsh or Northern Irish limited partnerships, which do not have legal personality. Unlike SLPs, those forms of limited partnership register with Companies House but are not a separate legal entity from their partners. The partners are the embodiment of the partnership; as such, legislating for the registration of people who have significant influence or control over an English, Welsh or Northern Irish LP is legislating for the registration of people who control other people. I will return to that point in a second.
Not having legal personality means that limited partnerships cannot own property or assets in their own name; any assets are held in the name of the partners themselves. They are a registrable legal relationship, and can be thought of a bit like a marriage: the act of registering gives the relationship legal force and bestows rights and duties on the partners, but it does not create something separate that can be owned. Like a marriage, a partnership ends on the death of a partner.
It is therefore not legally possible to apply the persons of significant control requirements currently applied to Scottish LPs to English, Welsh and Northern Irish LPs. It would be possible to draft legislation for a different regime applying a different definition of beneficial ownership, but given that the partnership only exists as a business relationship between partners and its body exists in the person of the partners, it is not apparent who, beyond the partners, should be registered. A likely outcome would therefore be all limited partnerships reporting that no person met the requirements, other than those already registered as partners.
Nevertheless, I understand that the intention of the right hon. Member for Barking is to increase transparency about who is managing and controlling a limited partnership. That is why the clauses that we are debating will increase the amount of information that is available concerning the partners of a limited partnership, and place a legal duty on partners to update those details with the registrar. In addition, the identities of all general partners must now be verified, and any corporate general partner must name an individual who may be contacted in relation to the limited partnership and whose identity must also be verified.
Although the right hon. Lady admits that her new clause is not a perfect solution, she has raised a good point. In consultation with her and officials, I will give further consideration to this matter, to ensure that there are no other means by which somebody may have undue control over a limited partnership. I am keen to work with her and discuss how we might do that.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to say a few words on this topic—we have had a very good and extensive debate on these clauses, so I will limit my remarks.
I think we are in violent agreement that more needs to be done. I made remarks earlier about the extent to which we have seen the misuse of partnerships grow. Research in the past eight to 10 years has shown the growth in the formation of limited partnerships and the extent to which they are used for economic crime. We have taken a long time to get here, but it is useful and important that we are now at this point.
Schedule 4, which is inserted into the Bill by clause 100, sets out information that must be provided to the registrar by partners who are individuals and corporate bodies in relation to limited partnerships. I think we all support the introduction of these measures as necessary for increasing the information and transparency around who actually owns and controls limited partnerships. As the Minister is responding to the points and questions raised by my right hon. Friend the Member for Barking, I think those points about transparency and how that works across these clauses and the framework of the legislation as a whole are extremely important.
There is a transitional period of six months for compliance after the Bill comes into force, and the Bill provides that non-compliance will be
“treated by the registrar as reasonable cause to believe that the limited partnership has been dissolved”.
We have raised related questions in the course of debate. Although we may recognise the need for a transitional period, why are we waiting six months? What reassurances can the Minister give us that there are adequate safeguards against limited partnerships that have been set up for criminal purposes simply taking no action during the six-month period in order to avoid scrutiny and transparency?
The Minister may refer us to other parts of the Bill where we have discussed what can happen when companies get dissolved. However, we do not want to strengthen the legislation on one hand but, on the other, provide a way for those who have been using these vehicles for years, given the scale of economic crime that the research suggests, to have a “get out of jail free” card because of the time allowed for compliance and the lack of scrutiny of what is happening.
On new clause 56, I am really pleased that the Minister recognises the arguments that have been made, and his openness about wanting to work together. As my right hon. Friend the Member for Barking said, the wording may not be perfect, but let us work together on the solution. That is important if the Committee is to make sure that the legislation is improved prior to its return to the whole House on Report.
I think it is worth saying that those who have given evidence to the Committee will also be looking for changes. There have been numerous reports by the Government themselves highlighting the use and abuse of the limited partnership model for the purpose of economic crime. To give one example, when giving evidence to the Committee, the legal professor Elspeth Berry said of limited partnerships:
“I dread explaining them to my students, because of the difficulty in trying to get at who owns limited partnerships and who is in control of what is going on”.––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 103, Q194.]
Clearly, there is opinion among experts that mirrors the wider concerns that we have heard about the opaqueness of ownership and control information around limited partnerships.
Kevin Hollinrake
It is clear from the number of different things that we have discussed over recent days that we need to work on a number of points to improve the legislation. There is no question about that, and I am grateful to hon. Members for their contributions to that end. The shadow Minister raised the six-month transitional period. Clearly, we are trying to strike a balance between rooting out wrongdoing and ensuring that legitimate organisations have time to provide the information. I think it is a reasonable time period. It may be that something happens as she described, and some nefarious activities are—
Seema Malhotra
Will the Minister consider this a little further in the light of the fact that the Bill’s provisions will not come as a surprise? The Bill has been introduced, there has been Government documentation and consultation, and so on. Might the six months be looked at again in the light of that fact?
Kevin Hollinrake
I was going on to say that I think the period is fair. As the hon. Lady knows from the debate that we have had over recent days, the way the legislation works is that a number of different pressure points are applied to those who are potentially guilty of wrongdoing. The dissolution of a partnership may well be a red flag for Companies House in certain circumstances, together with other information that it may glean, including from the confirmation statements that general partners have to submit—those are combined with criminal sanctions, of course—and information sharing. All those things come together in this holy alliance to clamp down on the opportunities created by limited partnerships and other vehicles that we have discussed. I think it is a fair balance, but I am always happy to continue to debate these things.
Question put and agreed to.
Clause 100 accordingly ordered to stand part of the Bill.
Schedule 4
Required information
Amendment made: 50, in schedule 4, page 164, line 1, leave out “registered or”.—(Kevin Hollinrake.)
This amendment would mean that, in relation to the registration of limited partnerships, the required information that must be provided about a partner that is a legal entity includes its principal office in all cases, rather than there being an option to provide its registered or principal office.
Schedule 4, as amended, agreed to.
Clauses 101 and 102 ordered to stand part of the Bill.
Clause 103
A limited partnership’s registered office
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Currently, limited partnerships must provide a proposed principal place of business only on registration. There is a requirement to notify the registrar if the principal place of business changes, but the penalty is just a fine of £1 per day, which does not effectively deter non-compliance. There are many cases where limited partnerships have not informed the registrar that their principal place of business has changed, meaning that she is unable to notify them of any changes or serve documents on them.
Clause 103 therefore introduces a requirement for general partners to maintain a registered office address that is in the original jurisdiction of registration in the United Kingdom and keep this up to date. This means where the principal place of business changes, including by moving abroad, the registrar still has a UK registered office address on record for the limited partnership. An important attraction of limited partnerships for legitimate businesses is the flexibility to move their principal place of business abroad. The clause therefore retains that flexibility while also ensuring the registrar has an appropriate address in the United Kingdom for contact and potential enforcement purposes.
The clause also sets certain conditions for the address to shore up the limited partnership’s connection to the UK and allow scrutiny of the limited partnership. For example, the address must be able to be used for communication purposes and it must be possible for the delivery of documents there to be recorded by an acknowledgement of delivery. The address must be either the limited partnership’s principal place of business, the usual residential or office address of a general partner, or the address of an authorised corporate service provider that is acting for the limited partnership.
The general partners of limited partnerships can change the registered office address, but they must inform the registrar of the change and confirm that the new registered office address is an appropriate address. This is a critical part of limited partnership reform. Failure to meet the address requirements will be an offence and may result in a substantial fine. The clause mirrors changes made by part 1 of the Bill to powers for the registrar to move registered office addresses, either on application or on the registrar’s own motion, where the address fails the “appropriate address” test.
Clause 104 extends the requirement to have a registered office address to limited partnerships that were registered before commencement of the Bill. It gives them a period of six months to comply with the new requirements. The end of the transition period will provide the registrar with a point at which to assess which limited partnerships have failed to comply and may therefore be inactive. The registrar can then treat the limited partnership as dissolved and update the register accordingly, which will assist enforcement and compliance activities.
Seema Malhotra
I thank the Minister for his remarks. I have some brief comments to make about clauses 103 and 104 stand part. The Minister has outlined what the clauses do. Clause 103 inserts a new section into the Limited Partnerships Act 1907 that establishes on general partners of limited partnerships a duty to ensure that the firm’s registered office is at all times an appropriate address at which to receive correspondence. The clause introduces a new power for the Secretary of State to make regulations giving the registrar the power to change a limited partnership’s registered office address. The appropriate address is supposed to be within the original jurisdiction.
While new regulations on the addresses of limited partnerships are needed, Elspeth Berry, a legal expert on limited partnerships, set out in her written evidence to the Committee concerns about this element of the Bill. She said:
“The requirements for an “appropriate” registered office address or email are an improvement but do not guarantee a genuine economic link to the UK…The “appropriate” address for the registered office, and email address, ensure that the address is used with consent, and someone will answer. However, the provisions still lend themselves to maildrops, with no real economic presence. None of the options intended to link an LP to the UK demonstrate a real economic link. Option 1 is apparently already complied with by most rogue LPs already, because they have no real place of business in the UK, so anywhere can be the “principal” place. Option 2, the usual residential address of a partner, can be redacted, so redaction must not apply if it is also chosen as the registered office. Option 3 is the address of a corporate general partner, with all the lack of transparency that entails. Option 4 is an ACSP address, which can be a maildrop.”
Will the Minister respond to those concerns? What assurances have the Government received that the provisions in the clause will genuinely guarantee the economic link to the UK that is intended? If not, will he look again at this part of the Bill? It would be a shame to get to the point of the Bill becoming an Act without it being able to do what is intended.
Clause 104 provides for a six-month transitional period during which the general partners of existing firms must submit a statement specifying the firm’s registered office, per the regulations set out in clause 103. Will it really take six months to specify an address? Is that not something that the Minister can look at? Other provisions of the Bill refer to 28 days, so why this six-month period? Perhaps six months emerged from a consultation as the most effective option, or it has simply been passported into the Bill because that is in alignment with some other regulation. Was it just cut and paste? If, however, not much thought has gone into this transition period, and if there are no downsides to doing so, we have an opportunity to amend,. Again, I will be grateful for the Minister’s response.
Alison Thewliss (Glasgow Central) (SNP)
I very much agree with the hon. Member for Feltham and Heston. Without rehashing our previous arguments about addresses—checking whether they are real addresses and whether someone can pick up mail there, which requires people going to make such checks—I note the concerns of the Law Society of Scotland that “principal place of business” could still be a bit unclear. It points out in its briefing that a number of other concepts already exist in legislation, such as “head office”, “establishment” or “centres of main interest”. That makes things confusing and more easy to get around if people wish to do so.
The society believes that another issue has emerged, in part owing to covid: not everybody has a principal place of business as we used to understand it—a head office with a sign above the door. That is what we were used to seeing, but now that people work remotely, sourcing a principal place of business might become more difficult. Businesses have adapted, so it will be useful to understand from the Minister whether such things will be caught by the legislation. Someone might not have a traditional headquarters in the old way, and so might not be caught by the legislation. I seek his assurance about the intention of the Bill.
The Law Society of Scotland briefing also points out that members of a management team might not all be based in the same location; they might be working remotely or in different countries around the world. Again, sourcing that person who has responsibility at a principal place of business has become a little murkier as a result of changes in working practices. We need to ensure that legislation keeps pace with that and that there is not a workaround for those who want to avoid scrutiny.
Kevin Hollinrake
A few minor points have been made additional to the ones that have been discussed before. The shadow Minister, the hon. Member for Feltham and Heston, asked about the corporate general partner. Clearly, there is still a person behind a corporate general partner—an officer has to register their identity behind the corporate general partner, so there is an actual person behind it.
The shadow Minister also referred to the six months. As I said, I think that is a reasonable period, but she might think differently and seek to amend it on that basis. To me, it is not just about the time period, but about the other points—the foundations of the Bill, which are the sanctions, the red flags and the sharing of information. Those are the important things. The downside she mentioned is the impact on legitimate businesses, for which the time period may not be sufficient.
Clearly, there is a link to the UK in terms of how the entity is established. The limited partnership is established and has to maintain its registered address. I do not think that any of these measures contain a requirement to have an economic link to the UK, but I will discuss that with officials.
Dame Margaret Hodge
The Minister said earlier something that I did not think was the case. I thought that corporate general partners did not have to register the person behind the company. That is the problem: people register the company without registering the person.
Kevin Hollinrake
Absolutely, although I will clarify that with my officials. We discussed this issue before. I will confirm it later today, if I can, but I am sure that that is the case.
There is no requirement to have an economic link. The link is with the person, the general partner and the limited partners, and the UK-based address. That is the link to the UK that these measures seek to ensure.
Question put and agreed to.
Clause 103 accordingly ordered to stand part of the Bill.
Clause 104 ordered to stand part of the Bill.
Clause 105
A limited partnership’s registered email address
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The two clauses mirror the provisions in clauses 30 and 31, which we debated previously. They apply to limited partnerships the registered email requirements introduced for companies. Clause 105 requires limited partnerships to have a registered email address. The email address must be “appropriate”, which means that
“in the ordinary course of events, emails sent to it by the registrar would be expected to come to the attention of a person acting on behalf of the limited partnership.”
Clause 106 provides for a transition period of six months for existing limited partnerships to provide an appropriate email address to the registrar. If, at the end of six months, a limited partnership has failed to supply an appropriate email address, the registrar will have reasonable cause to believe that the limited partnership is dissolved. That will mean that the confirmation of dissolution process, which we will debate later, is open to the registrar, who may consequently move to deregister the limited partnership.
Seema Malhotra
It is a pleasure to speak to clauses 105 and 106. As the Minister said, clause 105 inserts new provisions in the Limited Partnerships Act 1907. The new measures provide that all general partners must maintain an appropriate email address. The Minister has probably outlined this before, but it is helpful to consider what we mean by “appropriate”. Email addresses can be anything—for example, mylp@gmail.com—or they could be more robustly connected to an entity. Will the Minister say anything further about the definition of an appropriate email address? Is it just one that works and to which somebody responds in the end? A failure to comply would be an offence, and it is right that a general partner could face a fine.
Clause 106 gives the general partners of a limited partnership a six-month transition period in which to submit their email addresses to the registrar and comply with the provisions introduced by clause 105. I think the Minister knows exactly what my concerns are about how long it can take to register an email address with the registrar. The most honest businesses and those doing the best are probably more likely to comply more quickly. Again, I make the point that it feels as though six months is an extremely long time for limited partnerships to comply with these new measures.
Kevin Hollinrake
The hon. Lady asked about the definition of an appropriate email address. As I said, it is an appropriate email address if emails sent to it would be
“expected to come to the attention of a person acting on behalf”
of a limited partnership. I think that is pretty clear—it has to be an address that can receive emails and to which somebody can respond.
On the question asked by the right hon. Member for Barking, where the partner is not an individual but a firm or body corporate, information is also required on the individuals involved in the management of those firms. That includes making sure that there is a named contact.
Question put and agreed to.
Clause 105 accordingly ordered to stand part of the Bill.
Clause 106 ordered to stand part of the Bill.
Clause 107
Restrictions on general partners
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 49—Requirement for all company directors to be natural persons—
“The Secretary of State must, on a date no later than 31 March 2023, make regulations to bring into force section 87 of the Small Business, Enterprise and Employment Act 2015 (Requirement for all company directors to be natural persons).”
This new clause would bring into effect provisions of the Small Business, Enterprise and Employment Act 2015 enabling a ban on the designation of a company as the beneficial owner of another company, requiring all company directors to be “natural persons”.
New clause 57—Limited Partnerships required to have at least one partner who is a natural person—
“(1) A limited partnership must have at least one partner who is a natural person.
(2) This requirement is met if the office of partner is held by a natural person as a corporation sole or otherwise by virtue of an office.
(3) For the purposes of this section, “limited partnership” includes Scottish limited partnerships and limited partnerships in Northern Ireland.”
New clause 58—Limited Liability Partnerships required to have at least one member who is a natural person—
“(1) A limited liability partnership must have at least one member who is a natural person.
(2) This requirement is met if the office of member is held by a natural person as a corporation sole or otherwise by virtue of an office.”
Kevin Hollinrake
Clause 107 requires a limited partnership to confirm on application for registration that none of its general partners are disqualified under directors disqualification legislation. It also introduces a duty on all general partners of a limited partnership to take any steps necessary to remove a disqualified general partner on pain of criminal sanction for failure to take those steps.
General partners are responsible for the management of limited partnerships, including the movement of funds. There is currently nothing in place to remove a general partner from a limited partnership once they become disqualified. The clause is needed to ensure that disqualified individuals are prevented from being general partners of a new limited partnership set up after the Bill and to ensure that existing general partners of extant firms who become disqualified, or already are when the Bill comes into force, cease to be a general partner.
New clause 49 would require the Secretary of State to make regulations under section 87 of the Small Business, Enterprise and Employment Act 2015, which amended the Companies Act 2006 to require all company directors to be natural persons, with the power to make exceptions in regulation. I have every sympathy with the intention of the amendment, which challenges the Government to act on something they have long promised. I am happy to commit to the Committee that such regulations will be made soon.
Kevin Hollinrake
Very similar. It is sooner than shortly. The ban on the appointment of corporate directors will not and should not be absolute. That is why the Companies Act provides for a delegated power to create exemptions by regulations. Those regulations will address the limited circumstances under which a company will be permitted to have a corporate director. It is important that those regulations are in force before we ban the appointment of any corporate directors and are aligned with the new reforms proposed in the Bill.
Dame Margaret Hodge
I am grateful, thinking about my new clause, because it sounds like there might be movement on that. I want to ask the Minister a difficult question: what are the legitimate reasons for limited liability partnerships to have a corporate member? What on earth is a legitimate reason? I cannot think of one.
Kevin Hollinrake
It might be an investment fund. It might be an insurance company or a collective around investment funds that derive returns for our pensions for millions of people up and down the country. It may well be that a corporate body is part of that limited partnership. I think that is perfectly reasonable, and I imagine we would expect that to be the case.
Dame Margaret Hodge
Even in that case, why not have a natural person—a named individual? I just do not get it.
Kevin Hollinrake
That is exactly what we have. Does the right hon. Lady mean in terms of companies, or in terms of limited partnerships?
Dame Margaret Hodge
Yes, in companies; no, I mean in limited partnerships. Apologies.
The Chair
Order. We cannot have a general conversation. The person speaking is the person I call to speak—at the moment, that is the Minister.
Dame Margaret Hodge
Apologies to you, Mr Robertson. I got carried away. I am talking to limited liability partnerships. I cannot see the point of hiding behind a corporation rather than having a natural person.
Kevin Hollinrake
There is a bit of confusion generally about the difference between limited partnerships and limited liability partnerships. I think we are talking about limited partnerships here.
Kevin Hollinrake
A named individual will be required for corporate partners—namely, a registered officer. I made that commitment earlier in the debate. I hope the right hon. Lady will be reassured on that point.
Seema Malhotra
On a point of clarification, the Minister just talked about limited partnerships, where a named individual is required. I know this is confusing. Would the situation be the same in relation to limited liability partnerships?
Kevin Hollinrake
Yes, as I understand it, but I will get clarification on that.
Dame Margaret Hodge
I am trying to think this through properly: I may be wrong. In the circumstances where the corporation is offshore—an offshore company owns it—would there have to be a natural person named?
Kevin Hollinrake
Yes. There is no distinction between companies or corporate partners operating offshore to those that are operating onshore. There will be a registered officer in all circumstances.
The regulations will address the limited circumstances under which a company will be permitted to have a corporate director. It is important that the regulations are in force before we ban appointment of any corporate directors, that they are aligned with the new reforms proposed in the Bill and, most importantly, that identity verification of the officers of the corporate director can be carried out.
It is the Government’s intention that any corporate director be as transparent and accountable as a natural person and therefore we intend to make our corporate director regulations come into force alongside the regulations enabling identity verification. Introducing those regimes will be one of the implementation priorities post Royal Assent. I repeat my commitment to the Committee that the regulations will be brought forward.
I understand that the intention of new clause 57 is to ensure that limited partnerships should always have a partner who is a natural person, in order that the person might be contacted in relation to that limited partnership’s activities. Clause 108 inserts proposed new section 8K into the Limited Partnerships Act 1907: the new section places a duty on limited partnerships to have a registered officer who is a natural person for any general partner who is a legal entity and goes on to place strict duties for notifying any changes to that person to the registrar.
The duty in the proposed new section applies only to general partners and not all partners because limited partners are not permitted to engage in management activities. The objective of the new clause in the name of the right hon. Member for Barking would not be met if a limited partnership’s only natural person was a limited partner, because they would not be permitted to correspond with or act in relation to a notice from the registrar.
New clause 58 targets the misuse of limited liability partnerships in opaque corporate structures. While I sympathise with the intent, I cannot support the new clause. UK limited liability partnerships have been named in a number of international money laundering scandals. Many of those will have partners that are solely corporate structures. I am concerned about the abuse, but just as with companies, there can be legitimate reasons why a limited liability partnership might have all corporate partners. For instance, an investment company might a manage a pension fund for a limited partnership. The investment company would be the general partner and manage investments for the limited partners, which generate pension income. It is important for us to get the balance right.
Seema Malhotra
It is a pleasure to speak to these measures. We have had quite an extensive debate, so I will make just some limited remarks on clause 107 and new clauses 57 and 58. Clause 107 is a very important clause, inserting a requirement on registration for confirmation that a limited partnership’s proposed general partners are not disqualified under the director’s disqualification regime. It also inserts, under proposed new section 8J, a new duty to take steps to remove a general partner who is disqualified. If general partners fail to do that, they will be liable to an offence.
Those requirements are extremely important. I think that some of the debate is just on where some measures perhaps do not go far enough. In summary, we support the arguments made by my right hon. Friend the Member for Barking on new clauses 57 and 58.
I want to read out another contribution from Professor Berry. I think it is important to keep these contributions on the record in our discussions—recognising as well some of what the Minister has said. As Professor Berry set out in her written evidence to the Committee about the issue of corporate directors, ascertaining an individual acting as a director through a body corporate is certainly more opaque than if the director is just a natural person. The situation is very confusing, but I will read out what the professor said. She stated that
“the concept is demonstrably open to abuse, a ban”
on corporate directors
“was originally proposed in the interests of accountability and transparency, and a legal entity is incapable itself of carrying out the functions or duties of a director…Not only are corporate partners/LLP members a significant feature of wrongdoing…the attempts in the Bill to trace an individual somewhere behind them are so complex as to be unworkable in practice…impossible in practice for CH to check, and an obvious route for obfuscation by wrongdoers. E.g the concept of a named officer or of a managing officer of a corporate partner (and presumably of an LLP member), compounded by the fact that a named officer’s residential address can be redacted and they need not supply a service address.”
As the Minister reflects on our discussions and how we move forward, he should bear in mind the concerns raised by Professor Berry. Whatever is brought forward by the Government—however they have reconsidered it, and tested what it will do and mean in practice—does it pass the Professor Berry test, and meet the challenges that have been put to us regarding the legislation and what could otherwise slip through the net?
Kevin Hollinrake
I think it passes that test; it certainly seems to pass the test of the new clause tabled by the right hon. Member for Barking. In her remarks, she said that we are just looking at one person behind that corporate entity: that is exactly what we are achieving through the regulations, making sure that there is an actual person—a registered officer, a managing officer—who sits behind any corporate entity. That person will be verified, with a UK address. The TCSPs within those organisations, to which the right hon. Lady referred, will also have their identify verified, and anyone who is found guilty of false filing could face significant fines and jail sentences. I think the Bill achieves what she has set out, but as I said in my earlier remarks, I am happy to consider what further restrictions on those corporate entities might be appropriate.
Question put and agreed to.
Clause 107 accordingly ordered to stand part of the Bill.
Clause 108
Officers of general partners
Kevin Hollinrake
I beg to move amendment 18, in clause 108, page 86, line 32, at end insert
“, and
(b) confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(i) or confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(ii).”
This amendment would require each general partner that is a legal entity to state, in an application for registration of a limited partnership, whether its registered officer is identify verified or exempt.
The Chair
With this it will be convenient to discuss the following:
Government amendments 19 to 24, 26 to 28, 37 and 41.
Government new clause 9—National security exemption from identity verification.
Kevin Hollinrake
Amendments 18 to 24 and 26 to 28 make changes to clauses 108 and 111 of the Bill to extend identity verification requirements to registered officers of corporate general partners of limited partnerships. General partners will be required to confirm whether their registered officer is identity-verified or exempt when registering a limited partnership, becoming a general partner, changing a general partner, or changing the registered officer. A failure to do so will result in those general partners committing an offence. Each proposed registered officer will also be required to confirm whether they are identity-verified or exempt. The corporate general partner will be required to maintain a registered officer, who will have to be verified at all times unless exempted from those requirements.
The other amendments in the group mirror the changes made by clauses 64 and 65, the principles of which we have already debated. They include allowing the Secretary of State to make regulations setting out exemptions to the ID verification requirement. Exemptions may be warranted: for example, where it would not be appropriate to require a registered officer who has already undergone sufficient checks as part of their appointment process to verify their identity. Similarly, the amendments also mirror the regulations requiring statements about identity verification to be accompanied by other statements or other information; making statements relating to ID verification unavailable for public inspection; and introducing an identity verification exemption on the grounds of national security, or to prevent serious crime.
Seema Malhotra
We will keep our comments on this first group of amendments very brief. Broadly, we support these amendments. I would like clarification on a couple of points about amendments 22 and 37 and new clause 9.
Kevin Hollinrake
The hon. Lady is quite right. Exemptions might be applied where somebody’s identity can be confirmed without verification. An example could be a director appointed by the community interest companies regulator under section 45 of the Companies (Audit, Investigations and Community Enterprise) Act 2004. The CIC regulator and its office is part of a Government Department that is co-located within the registrar. That is simply to ease the burden of bureaucracy where unnecessary.
We expect the powers to be used very rarely. We discussed the matter at length earlier in our proceedings and we do not think there is any reason to go further than that at this point in time. I am sure it is a matter for further debate as we progress.
Amendment 18 agreed to.
Amendments made: 19, in clause 108, page 87, line 11, at end insert
“, and
(ii) confirming that the individual meets the requirement in section 8K(1)(c)(i) or confirming that the individual meets the requirement in section 8K(1)(c)(ii).”
This amendment would require each proposed registered officer to confirm, in an application for registration of a limited partnership, whether they are identify verified or exempt.
Amendment 20, in clause 108, page 87, line 24, leave out “and”.
This amendment is consequential on Amendment 21.
Amendment 21, in clause 108, page 87, line 26, at end insert
“, and
(c) either—
(i) is an individual whose identity is verified (within the meaning of section 1110A of the Companies Act 2006), or
(ii) falls within any exemption that may be specified by regulations made by the Secretary of State for the purposes of this sub-paragraph.”
This amendment would require a general partner’s registered officer to be identity verified or exempt.
Amendment 22, in clause 108, page 88, line 22, at end insert—
“(7) Regulations under subsection (1)(c)(ii) are subject to the affirmative resolution procedure.”
This amendment makes regulations providing for exemptions from identity verification requirements subject to the affirmative resolution procedure.
Amendment 23, in clause 108, page 88, line 33, leave out from “partner” to end of line 35 and insert—
“(i) confirming that the new registered officer meets the requirements in section 8K(1)(a) and (b), and
(ii) confirming that the new registered officer meets the requirement in section 8K(1)(c)(i) or confirming that the new registered officer meets the requirement in section 8K(1)(c)(ii), and”.
This amendment would require a general partner, when changing its registered officer, to specify whether its new registered officer is identify verified or exempt.
Amendment 24, in clause 108, page 88, line 38, at end insert
“, and
(ii) confirming that the individual meets the requirement in section 8K(1)(c)(i) or confirming that the individual meets the requirement in section 8K(1)(c)(ii).”—(Kevin Hollinrake.)
This amendment would require a new registered officer to confirm whether they are identify verified or exempt.
Kevin Hollinrake
I beg to move amendment 25, in clause 108, page 91, line 6, at end insert—
“8PA Regulations about change of registered officers’ addresses by registrar
(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to change a registered service address of a registered officer of a general partner if satisfied that the address does not meet the requirements of section 1141(1) and (2) of the Companies Act 2006.
(2) In this section—
‘registered officer’ has the meaning given by section 8K(3);
‘registered service address’, in relation to a registered officer, means the address for the time being shown in the register as the registered officer’s current service address.
(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.
(4) The regulations—
(a) may include provision corresponding or similar to any provision that may be included in regulations under section 1097B of the Companies Act 2006;
(b) must include—
(i) provision about appeals corresponding to the provision that must be included in regulations under section 1097B by virtue of subsections (7) and (8) of that section;
(ii) provision corresponding to subsection (9) of that section.
(5) Regulations under this section are subject to the affirmative resolution procedure.”
This amendment confers a regulation-making power to enable the registrar to change the registered service address of a registered officer of a general partner in a limited partnership.
The Chair
With this it will be convenient to discuss the following:
Government amendment 29.
Clause 114 stand part.
Government amendments 31, 35 and 36.
Kevin Hollinrake
Amendments 25, 29, 31, 35 and 36 aim to bring about alignment between companies and limited partnerships legislation. Amendments 25 and 29 enable the Secretary of State to make regulations that empower the registrar to take action to move a service address of a general partner, or a registered officer of a general partner, where it does not meet the requirements as set out in legislation, or where it is not the service address of the individual. Those two secondary legislation powers are sufficiently broad that the provisions in clause 114, which provide the registrar with a more narrowly drawn power to move service addresses, are no longer needed. Clause 114 should therefore not stand part of the Bill.
Amendments 31 and 36 are consequential on the fact that proposed new section 10A of the Limited Partnerships Act 1907 is no longer needed, and they remove cross-references to it. Amendment 35 ensures that when the registrar receives an application to change the service address, she will be prevented from making that information available for public inspection. The registrar will, however, have to make available for public inspection any court order or direction to change a service address.
Seema Malhotra
We broadly support the amendments. Clause 114 inserts a proposed new section into the Limited Partnerships Act 1907 that would give the registrar the power to change the service address of a relevant individual. Amendments 25 and 29 confer a regulation-making power to enable the registrar to change the registered service address or principal office address of a general partner in a limited partnership. Although we do not oppose the amendments, I would be grateful to understand why they are regulation-making powers. If there is a basis for legislating for the regulations, why are they not in the Bill? Is it just a case of creating the provisions now? It would be helpful to understand that.
Amendment 35 would mean that
“any application or other document delivered to the registrar under section 8PA, 8G or 8V (changes of addresses by registrar) other than an order or direction of the court”
would be unavailable for public inspection. What information will that cover? In the light of the transparency arguments being made, would any relevant information not be publicly available? As the Government have tabled a lot of amendments, it would be helpful to slightly disentangle some of their implications.
Kevin Hollinrake
I am grateful to the hon. Lady for her points. On why the amendments confer regulation-making powers, as she knows, regulations give us flexibility to change things more easily. The provisions of the regulations are probably moveable feasts. It is sensible not to have them in the Bill, but to be able to learn and change areas as we go along.
Amendment 35 would prevent documents relating to changes of address by the registrar under new powers from being made available for public inspection. If I can, I will get back to the hon. Lady later in the debate about the particular circumstances she described.
Amendment 25 agreed to.
Amendment made: 26, in clause 108, page 91, line 6, at end insert —
“8PB Registered officers: statements about exemption from identity verification
(1) The Secretary of State may by regulations make provision requiring a relevant statement delivered to the registrar to be accompanied by additional statements or additional information in connection with the subject-matter of the relevant statement.
(2) In this section “relevant statement” means a statement under any of the following provisions that confirms that a general partner’s registered officer falls within an exemption from identity verification—
(a) section 8A(1C)(b) or (1F)(c)(ii);
(b) section 8L(3)(a)(ii) or (b)(ii);
(c) section 8Q(4)(b) or (7)(c)(ii);
(d) section109(2)(a) or113(2)(a) of the Economic Crime and Corporate Transparency Act 2022.
(3) Regulations under this section are subject to the affirmative resolution procedure.”—(Kevin Hollinrake.)
This amendment allows the Secretary of State to make regulations requiring statements about identify verification to be accompanied by other statements or information. It mirrors the amendment to the Companies Act 2006 made by clause 64 of the Bill.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
When registering a limited partnership, the names of the general partners are currently required. Not all general partners are individuals; they can instead be a business entity. That means there is often no named individual associated with that general partner or indeed the partnership. Clause 108 introduces a requirement for general partners that are legal entities to provide a registered officer for that entity. As I set out earlier, general partners must ensure that their registered officers are individuals and have had their identity verified. The clause also requires general partners that are legal entities with one or more corporate managing officers to have a named natural person contact for each of those corporate managing officers.
The measures will increase transparency of the partnership activity by further identifying who is involved in the chain of management. They also ensure that the registrar has a point of contact for the general partner for compliance and enforcement purposes. General partners who are legal entities are responsible for keeping that information up to date. If they fail to comply, they are liable for an offence and a substantial fine. That could also fall on any managing officers who are in default.
Clause 109 introduces a six-month transition period within which existing partnerships’ general partners that are legal entities must bring themselves into compliance by submitting a statement to the registrar setting out those details. That allows the register to be brought up to date while giving sufficient time for general partners to submit the required information without being immediately liable to an offence.
Seema Malhotra
Clause 108 amends the Limited Partnerships Act 1907 by inserting provisions, as outlined by the Minister, that set out that general partners that are legal entities must specify the name or names of a proposed registered officer. That will make it possible to contact an individual person in general partners that are legal entities.
We have had some broad debate on the matter, but we have no objection to clause 108, which is welcome. Obviously, questions about transparency go further, but we welcome and support the clause.
Clause 109 relates to the transitional provisions. We understand the need for that, but the Minister will know my views on the six months.
Clause 108, as amended, ordered to stand part of the Bill.
Clause 109 ordered to stand part of the Bill.
Clause 110
Removal of option to authenticate application by signature
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 110 removes the option to authenticate limited partnerships registration applications, as well as applications for designation as a private fund limited partnership, by signature. A signature, which is something readily forged, is no longer a necessary requirement as the Bill introduces other means of electronic authentication to ensure the correct delivery of documents to the registrar by authorised persons. Those means will be robust, secure and effective. Furthermore, other similar provisions that require general partners to deliver documents to the registrar, such as confirmation statements, do not require a signature. The clause therefore creates alignment across the Limited Partnerships Act.
Seema Malhotra
This clause amends the Limited Partnerships Act by removing the need for a signature when applying for registration of a limited partnership, as the Minister outlined along with the reasons for that. It aligns with new provisions set out in the Bill that impose obligations on general partners to deliver statements and other documents that do not require a signature. I will welcome assurances from the Minister that the Government have carried out some analysis of whether the removal of the option to authenticate an application by signature will have any impact on the effectiveness of the registrar in detecting or preventing economic crime. I will be grateful for that, for the background and for the possible impacts of the measure.
Kevin Hollinrake
As I said, a wet signature is not the key to preventing inappropriate filing documents or inappropriate use of any kind of entity, be it a limited partnership or a company. We are in the modern age now, when many of us approve documents through electronic means. The key to ensuring that we have a register that has integrity and is correct is in the other measures, as we have set out many times.
Seema Malhotra
I understand what the Minister is saying about a wet signature depending on the circumstance, but a lot of documents can be signed electronically but still with a signature. I want to clarify, given the total removal of a wet signature, whether something can be signed electronically and in what circumstances. I know of a situation in which some signatures were put on documentation fraudulently, and that is now being uncovered as evidence of a fraud that took place.
Kevin Hollinrake
The clause does remove the option of a wet signature. It means that electronic means are fine, which already applies to companies. The key to uncovering an undoing, with a wet signature or not, is the other measures in the Bill: sharing of information, sanctions for false filing of documents, criminal sanctions and all those other measures that we discussed by which we can identify wrongdoing and take action against those who are culpable.
Question put and agreed to.
Clause 110 accordingly ordered to stand part of the Bill.
Clause 111
Notification of information about partners
Amendments made: 27, in clause 111, page 92, line 34, at end insert—
“, and
(b) confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(i) or confirming that the proposed registered officer meets the requirement in section 8K(1)(c)(ii).”
This amendment would require a new general partner which is a legal entity to confirm whether its proposed registered officer is identify verified or exempt.
Amendment 28, in clause 111, page 93, line 17, at end insert—
“, and
(ii) confirming that the individual meets the requirement in section 8K(1)(c)(i) or confirming that the individual meets the requirement in section 8K(1)(c)(ii).”—(Kevin Hollinrake.)
This amendment would require the proposed registered officer for a new general partner which is a legal entity to confirm whether they are identify verified or exempt.
Seema Malhotra
I beg to move amendment 162, in clause 111, page 95, leave out lines 22 to 24.
This amendment would remove the provision for it to be a defence for a person charged with an offence under this section to prove that they reasonably believed that notice had been given under proposed section 8Q of the Limited Partnerships Act 1907.
It is a pleasure to move the amendment, which I tabled with the hon. Member for Aberavon. The clause inserts new sections into the Limited Partnerships Act requiring general partners to notify the registrar of changes to a limited partnership’s partners and information about partners, and changes occurring between an application and the limited partnership’s registration. It also inserts offences for failing to notify information about partners. If the limited partnership does not notify Companies House of notifiable changes within 14 days of a change occurring, the limited partnership will have committed an offence. We have concerns about certain provisions in the clause, which is why we tabled the amendment.
As Professor Berry, a legal professor, set out in her written evidence submitted to the Committee:
“The Bill should not provide a defence if a general partner reasonably believed notice of their appointments had been given to the Registrar… General partners are personally liable for the acts of one another…and are jointly responsible for registering/filing notice of appointment. If they themselves fail to register/file, they should be required to wait to see a change on register. Reasonable belief would provide a loophole.”
That is a significant point. If the Minister is unable to support this amendment or to commit to looking at this more closely and coming back to the Committee, I ask him to identify whether and where Professor Berry is wrong in her written evidence or in the concerns she raised. What assurances has he received, what questions has he asked of officials, and what advice has he taken that this defence does not merely create an unnecessary loophole through which regulations can continue to be abused?
In the interests of ensuring that the legislation is as robust as possible, I urge the Minister to accept this amendment. I look forward to his response.
Kevin Hollinrake
On the hon. Lady’s point relating to amendment 35 regarding an address that might be removed from public view, a person could apply to the registrar because their address has been fraudulently registered as that of a general partner. Amendment 35 would mean that the person’s application was not visible to the public, therefore protecting the applicant. That is the sort of circumstance in which the registrar would use that power.
Clause 111 makes it an offence for a person to act as a general partner of a limited partnership if the registrar has not been notified that the person has become a general partner with 14 days of their appointment. A general partner who manages the firm without that notification having been given on time but in the reasonable belief that notification was given has a defence to prosecution. Amendment 162 would remove that defence, making the person strictly liable despite their reasonably held belief. General partners who deliberately fail to comply with the requirement to notify the registrar of their appointment should of course be punished for that offence. In the example that the hon. Lady raises, it may well be that if other general partners were guilty of not properly submitting information, they may be guilty of that offence too. The registrar would make a decision accordingly.
Notwithstanding that the Bill creates these offences, in our view the general partner should not be liable for the offence if they have acted on the basis of an objectively reasonable belief. Examples of circumstances in which a general partner might reasonably, but mistakenly, believe that notification of their appointment had been given might include where a general partner has asked its authorised corporate service provider to submit the application, which has been delayed in circumstances beyond the general partner’s control and without their knowledge, or where there has been a technical hitch of which they were unaware—for example, if the information was being supplied electronically. I therefore ask that the amendment be withdrawn.
Seema Malhotra
I thank the Minister for his response. There might be a question about whether confirmation is received or one can go online and check. The Minister’s response does not seem as robust as I was expecting or hoping in relation to this as a potential loophole.
Kevin Hollinrake
Sometimes in life, things happen and it may well be that they are not drawn to the attention of the general partner. The hon. Lady may think there should be a requirement on the general partner to check that the record has been properly made. It is a reasonableness defence. We expect the registrar to use her judgment in the exercise of any decision about whether an offence has been committed. We may need to agree to disagree on this particular point.
Seema Malhotra
I am not going to press the amendment to a vote, but I do think this is something we should come back to. If the risk is a serious one, we need to take it seriously. I will look to how we might progress this issue through the future stages of the Bill. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 29, in clause 111, page 95, line 45, at end insert—
“8V Regulations about change of general partner’s addresses by registrar
(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to—
(a) change a registered service address of a general partner in a limited partnership if satisfied that the address does not meet the requirements of section 1141(1) and (2) of the Companies Act 2006;
(b) change the address registered as the principal office of a general partner in a limited partnership if satisfied that the address is not in fact their principal office.
(2) In this section—
‘address registered as the principal office’, in relation to a general partner, means the address for the time being shown in the register as the address of the general partner’s current principal office;
‘registered service address’, in relation to a general partner, means the address for the time being shown in the register as the general partner’s current service address.
(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.
(4) The regulations—
(a) may include provision corresponding or similar to any provision that may be included in regulations under section 1097B of the Companies Act 2006;
(b) must include—
(i) provision about appeals corresponding to the provision that must be included in regulations under section 1097B by virtue of subsections (7) and (8) of that section;
(ii) provision corresponding to subsection (9) of that section.
(5) Regulations under this section are subject to the affirmative resolution procedure.”—(Kevin Hollinrake.)
This amendment confers a regulation-making power to enable the registrar to change the registered service address or principal office address of a general partner in a limited partnership.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to consider clauses 112, 113 and 115 stand part.
Kevin Hollinrake
Under current legislation, general partners are required to notify the registrar of changes to partners or partner information. Clause 111 clearly sets out what information must be kept up to date on the register and places responsibility on general partners to notify the registrar of changes. They will commit an offence and be liable for a substantial fine in instances of non-compliance. Clause 111 goes further, stating that general partners who join limited partnerships after registration must notify the registrar within 14 working days of their appointment. Otherwise, they are prohibited from managing the business.
Clause 112 requires that general partners of limited partnerships registered prior to the commencement of this Bill provide the information set out in clause 111 within a six-month transition period. If the required information is not submitted within this period, the Registrar may reasonably conclude the limited partnership is dissolved and consider taking steps towards deregistering it. Clause 113 requires that new general partners of limited partnerships that were registered prior to the commencement of this Bill must inform the Registrar who their managing officers or named contacts are, or to confirm that they do not have any managing officers. Again, there is a six-month transition period during which this information must be provided.
Clause 115 creates a more robust offence for failing to provide requested information to the registrar, replacing the existing offence with a stiffer penalty. The current penalty of a £1 daily fine on each of the general partners, set back in 1907 when the original legislation was passed, is an insufficient deterrent. The new penalty may be applied if the general partners fail to inform the registrar of changes to a limited partnership’s name, place of business, nature and character of business, or capital contributions by partners occurring after application but before registration.
Dame Margaret Hodge
This batch of clauses we are considering introduces a range of penalties. Does the Minister agree that the use of those penalties should be part of the annual report to Parliament?
Kevin Hollinrake
The right hon. Lady makes a fair point. As I said earlier, that is the kind of information I would like to see reported, so that Parliament and the public can see activities surrounding the legislation and the regulations clearly and ensure that Companies House is doing its job. There should be a proper conversation with members of the Committee, the wider House, officials and indeed Companies House to determine what the appropriate measures should be, but the key thing is not the measures, but the outcomes. I think the right hon. Lady, like me, would be very happy if no penalties were applied, as long as our system was 100% clean. That is what we are aiming for, and ideally it is what our measures will achieve; to me, that is the most important thing.
Question put and agreed to.
Clause 111, as amended, accordingly ordered to stand part of the Bill.
Clauses 112 and 113 ordered to stand part of the Bill.
Clause 114 disagreed to.
Clause 115
Notification of other changes
Amendment made: 31, in clause 115, page 99, line 1, leave out
“10A (inserted by section 114 of this Act)”
and insert “10”.—(Kevin Hollinrake.)
This amendment is consequential on Amendment 30.
Clause 115, as amended, ordered to stand part of the Bill.
Clause 116
Confirmation statements
Kevin Hollinrake
I beg to move amendment 32, in clause 116, page 102, leave out lines 6 and 7.
This amendment means that new section 10E of the Limited Partnerships Act 1907 (confirmation statements) will apply to Scottish limited partnerships. As a consequence, Amendment 33 leaves out the power in clause 117 to amend existing provision about confirmation statements for Scottish limited partnerships.
The Chair
With this it will be convenient to discuss the following:
Government amendment 33.
Clauses 116 and 117 stand part.
Kevin Hollinrake
To aid understanding of the amendments, I will first explain clauses 116 and 117, which they amend. It is essential that the registrar and the public can be assured that the information held on the register concerning limited partnerships is accurate and up to date. Scottish limited partnerships already supply some of that information through a confirmation statement.
Clause 116 introduces a similar requirement for all limited partnerships, irrespective of the jurisdiction of their registration, to confirm that the information held about them on the register is current. It will also ensure that limited partnerships that are registered prior to commencement of the Bill provide a confirmation statement within six months. Limited partnerships that wish to update the registrar on a more frequent basis will be permitted to do so by notifying the registrar. Given that it is critical for the register to be up to date, general partners of limited partnerships that fail to deliver their confirmation statement will commit an offence. SLPs already submit confirmation statements to the registrar concerning the information held about them and their beneficial owners. That is a requirement under the Scottish Partnerships (Register of People with Significant Control) Regulations 2017.
Seema Malhotra
I may not have indicated clearly that I wished to speak earlier, Mr Robertson, and that may be why I was not called to speak in the clause stand part debate for clauses 111 to 115. Nevertheless, my speeches were not going to be long ones, so we will move forward.
We are generally supportive of clauses 116 and 117. Clause 116 inserts new sections into the Limited Partnerships Act 1907 to assist in keeping the register up to date and places a requirement on limited partnerships to deliver statements to the registrar specifying what changes have been made to the partnerships that must be delivered to the registrar within 14 days of every review period, which is every year from the date the limited partnership was registered. We welcome the clause as a necessary provision to maintain the accuracy of the register in relation to limited partners.
Amendment 32 means that new section 10E of the Limited Partnerships Act, on confirmation statements, will apply to Scottish limited partnerships. As a consequence, amendment 33 leaves out the power in clause 117 to amend existing provision about confirmation statements for Scottish limited partnerships. We support clauses 116 and 117 and the Government amendments.
Amendment 32 agreed to.
Clause 116, as amended, ordered to stand part of the Bill.
Clause 117
Confirmation statements: Scottish partnerships
Amendment made: 33, in clause 117, page 103, line 2, leave out from beginning to “(review” in line 17 and insert—
“In regulation 37 of the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 (S.I. 2017/694)”.—(Kevin Hollinrake).
See Member’s explanatory statement for Amendment 32.
Clause 117, as amended, ordered to stand part of the Bill.
Clause 118
Power for HMRC to obtain accounts
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Limited partnerships are tax transparent, meaning that the individuals that are part of the limited partnership pay tax, rather than the limited partnership itself. In many cases, the partners of a limited partnership will pay tax in the UK, either because they are individuals who pay income tax or because they are corporate entities that pay corporation tax. Where the partners are UK corporate entities, they will also provide accounting information to the registrar. However, there are some limited partnerships whose partners do not pay tax in the UK or which are not legally required to provide accounting information to the UK Government.
The clause will give the Secretary of State the power to make regulations that require the general partners of UK-registered limited partnerships to provide accounting information to HMRC, closing the current gap. General partners who do not comply with that requirement will commit an offence and be liable to a fine or imprisonment.
Dame Margaret Hodge
That sounds like a good idea, but HMRC is absolutely hopeless at using such powers. Time and again with these limited partnerships where scandals have emerged, it appears companies have told HMRC that they are dormant. They have not submitted accounts, and HMRC never checks up on them. What steps will the Minister take to make sure that those useful powers are used?
Seema Malhotra
I thank my right hon. Friend for her remarks. The clause is extremely important for HMRC, providing clarity around accounts and accounting information and what tax should be due. It gives HMRC powers to request information and inserts a new section into the Limited Partnerships Act 1907 to create a new power for the Secretary of State to make regulations that require general partners to prepare accounts and, on request, make accounting information available to HMRC.
We very much support the measure. We want enhanced powers for HMRC to help with the detection and prevention of economic crime, and indeed the paying of rightful tax through better accounting information and submission of tax returns. I support the question that my right hon. Friend the Member for Barking asked about how we can ensure that HMRC uses the powers in a useful way.
Kevin Hollinrake
The right hon. Member for Barking went to a very tough school. She is not an easy person to please. Quite rightly, she is very demanding of more action in various areas; I support that, as she knows. HMRC is not directly answerable to BEIS. It reports to the Treasury, of course.
Kevin Hollinrake
The right hon. Gentleman knows that very well. I agree about enforcement, but I question the right hon. Lady’s language a little bit. She implied that HMRC is useless in certain contexts. I have met Jim Harra and other people from HMRC and found them to be diligent, decent people seeking to do the right job. The vast majority of people in any agency—officials, or whoever—do not go to work to do a bad job, so I think the language she used is not helpful.
We do need to beef up enforcement in all sectors, whether we are talking about tax avoidance, evasion or economic crime, and I absolutely support that. We see time and again that the return on investment from the extra enforcement capability is more than worth while for the taxpayer. I appreciate the spirit of the right hon. Lady’s remarks but not some of the language around them. Certainly, enforcement in all areas is something we need to look at carefully.
Question put and agreed to.
Clause 118 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Thirteenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 17th November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 17 November 2022 - (17 Nov 2022)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move amendment 95, in clause 119, page 105, leave out lines 8 and 9 and insert—
“‘(2B) A limited partnership is dissolved if—
(a) it ceases to have any general partners,
(b) it ceases to have any limited partners, or
(c) each general partner is either insolvent or disqualified under the directors disqualification legislation (see section 8J(3)), irrespective of whether they became insolvent or disqualified before or after this subsection comes into force.’;”
This amendment would mean that limited partnerships dissolve if all of the general partners are either insolvent or disqualified, rather than only dissolving if they are all insolvent. Together with amendment 96 it would mean that limited partnerships would not dissolve if all of the limited partners are insolvent.
The Chair
With this it will be convenient to discuss the following:
Government amendments 96 and 97.
Clause 119 stand part.
Clause 120 stand part.
Government new clause 30—Duty to notify registrar of dissolution.
Government new clause 31—Winding up limited partnerships on grounds of public interest.
Government new clause 32—Winding up dissolved limited partnerships.
Kevin Hollinrake
It is a pleasure to speak with you in the Chair, Ms Elliott.
This group of amendments and new clauses make provision about the circumstances in which limited partner ships dissolve, prescribe the winding-up responsibilities of the partners, and establish powers of the court to wind up limited partnerships. The lead amendment provides that a limited partnership is dissolved: if it ceases to have any general partners; if it ceases to have any limited partners; or where all general partners are either insolvent or disqualified under the directors disqualification legislation.
Government new clause 30 and amendments 96 and 97 concern the duty to notify the registrar of dissolution. Amendment 96 provides for who winds up a dissolved limited partnership. If there are general partners at the time it dissolves, the responsibility falls to them. If there are no general partners, the limited partners are obliged to take all reasonable steps to ensure that the firm is wound up.
The effect of new clause 30 is that when a limited partnership dissolves and has at least one general partner, they must notify the registrar of the dissolution. When there are no longer any general partners at the time of dissolution, the limited partners will be required to notify the registrar. Amendment 97 removes subsection (3) from the clause as the penalty for failing to notify the registrar of dissolution is covered by new clause 30. The rationale for the provisions is that the registrar needs to be informed of a limited partnership’s dissolution so that she can reflect that in the index of limited partnerships’ names which she maintains.
Government new clause 31 concerns winding up limited partnerships in the public interest. This new clause will allow the Secretary of State—in effect, the Insolvency Service—to petition the court to wind up any limited partnership in the United Kingdom, whether solvent or insolvent, and for the court to order the winding up of a limited partnership if it considers it just and equitable to do so. The Secretary of State will be able to receive information from bodies across Government, such as a law enforcement agencies or investigatory bodies, or indeed the registrar under her new information-sharing power. That will help the Secretary of State decide whether to petition the court.
Government new clause 32 allows the Secretary of State or any other person with sufficient interest to apply to the court for orders in relation to the winding up of a limited partnership. The court may make such orders if it appears to the court that a dissolved limited partnership has not been wound up properly or at all. That will ensure that dissolved limited partnerships are properly wound up in a timely manner.
The clause amends and clarifies the existing law around the winding up of limited partnerships. The changes work together with the amendments in this group to make the register more transparent. Specifically, the remaining changes in the clause, which we have not yet debated, concern the application of the actions of limited partners. They provide that a limited partnership shall not be dissolved by the bankruptcy of a partner, and remove the current provision in the Limited Partnerships Act 1907 relating to the winding up of limited partnerships.
Turning to clause 120, the Partnership Act 1890 provides that a court may dissolve a partnership when a partner is found to be suffering from “lunacy or unsound mind”. Clause 120 updates that provision with references to modern definitions of “mental disorder”. The clause also modernises the Limited Partnership Act 1907 by removing reference to the “lunacy” of a limited partner as being grounds for the dissolution of the partnership.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
We largely support the Government amendments, but I will ask a few questions and speak to clauses 119 and 120 stand part. As the Minister outlined, clause 119 concerns the dissolution and winding up of limited partnerships. It sets out that:
“A limited partnership is dissolved if it ceases to have a general partner or ceases to have a limited partner.”
The clause also sets out what happens if a limited partnership is dissolved at a time when the firm has at least one general partner. As the Minister said, it requires the general partner to notify the registrar before they wind up the limited partnership, and it would be an offence for the partners to fail to notify the registrar of the firm’s dissolution. We welcome the new provisions, but I would also welcome the Minister’s thoughts on some comments made by Professor Berry in her evidence. She stated that:
“The Bill inappropriately amends partnership law to prevent automatic dissolution on the bankruptcy of a general partner in an LP… Personal liability is no guarantee of good behaviour if the partner is already insolvent, and indeed the same restriction remains on general partners of a general partnership.”
If I have understood correctly, amendment 95 would mean that a limited partnership is dissolved if all the general partners are either insolvent or disqualified, rather than if they are all insolvent. Taken with amendment 96, it would mean that limited partnerships would not dissolve if all the limited partners are insolvent. Amendment 96 would mean that any insolvent general partners who are not disqualified must wind up a dissolved limited partnership or take “reasonable steps” to ensure that it is wound up. If there are no general partners, the insolvent limited partners must take reasonable steps to ensure that it is wound up. We support amendments 95 and 96.
I will speak briefly to Government new clause 30 and make a few comments about amendment 97. New clause 30 would introduce a new duty on the general partners of limited partnerships to notify the registrar in the event of a dissolution. If the general partners fail to comply,
“an offence is committed by each general partner who is in default”,
but
“where the general partner or limited partner is a legal entity, it does not commit an offence as a general partner or limited partner in default unless one of its managing officers is in default.”
New clause 30 also states:
“Where any such offence is committed by a general partner or limited partner that is a legal entity, or any such offence is…committed by a managing officer that is a legal entity, any managing officer of the legal entity”—
are you still following this, Ms Elliott?—
“who is in default also commits the offence if—
(a) the managing officer is an individual, or
(b) the managing officer is a legal entity and one of its managing officers is in default.”
Some of this speaks to the complexity of some of these structures, which is why it is important to be moving forward in this way. Although we welcome new clause 30, will the Minister expand on the regulations in relation to general partners who are legal entities? Could there be a situation in which none of the criteria needed for an offence to be committed is met when the general partner is a legal entity? Is there still a loophole?
We welcome new clause 31, which would allow a court to order the winding up of a limited partnership on a petition by the Secretary of State in the public interest. New clause 32
“would mean that if a limited partnership has not been wound up as is required by section 6(3A) or 6(3B), the court can make various orders on an application by the Secretary of State or a person with sufficient interest”
to order a winding up of the limited partnership. We believe the measures strengthen the legislation, so can the Minister comment on those two points?
Clause 120 amends the Partnership Act, specifying the provision for the dissolution of a partnership on the grounds of a partner’s lunacy. It is right that we update those references to “mental disorder” within the meaning of modern legislation. However, in her written evidence to the Committee, Professor Berry makes an important point that the clause may give the impression that it
“appears to mean that mental health disorder of a limited partner is now a ground for dissolution (whereas previously it was not), which cannot be intended.”
Can the Minister respond on that point as well, just to make sure that that is not a consequence in the way by Professor Berry suggested?
Kevin Hollinrake
It might be helpful if the hon. Lady shared with me Professor Berry’s written comments, so I can look at it in more detail. Clearly, if a general partner is a legal entity, there is a named individual behind that. We have discussed that at length before. With that information, I will write back to her to clarify those points.
Amendment 95 agreed to.
Amendments made: 96, in clause 119, page 105, line 11, leave out paragraphs (e) to (g) and insert—
‘(e) for subsections (3A) and (3B) substitute—
“(3A) If a limited partnership is dissolved at a time when the partnership has at least one general partner who is—
(a) solvent, and
(b) not disqualified under the directors disqualification legislation, the general partners at that time who are solvent and are not so disqualified must either wind up the partnership’s affairs or take all reasonable steps to ensure that its affairs are wound up by a person who is not a partner at that time.
(3B) If a limited partnership is dissolved at a time when the partnership does not have a general partner who is—
(a) solvent, and
(b) not disqualified under the directors disqualification legislation, the limited partners at that time who are solvent must take all reasonable steps to ensure that the partnership’s affairs are wound up by a person who is not a limited partner at that time.
(3BA) For enforcement of the duties under subsections (3A) and (3B) see section 25B.”
(f) omit subsection (3C).’
This amendment means that any solvent general partners who are not disqualified must wind up a dissolved limited partnership or take reasonable steps to ensure it is wound up. If there are no such general partners, the solvent limited partners must take reasonable steps to ensure it is wound up.
Amendment 97 in clause 119, page 105, line 36, leave out subsection (3).—(Kevin Hollinrake).
This amendment is consequential on NC30.
Clause 119, as amended, ordered to stand part of the Bill.
Clause 120 ordered to stand part of the Bill.
Clause 121
The register of limited partnerships
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
This is a simple clause that removes outdated requirements for the registrar to file statements made by limited partnerships and issue certificates of registration for the statements filed. It brings those into line with the more modern approach for the companies register. The clause introduces a definition of the register of limited partnerships, making clear that it is part of the records the registrar holds under section 1080 of the Companies Act 2006.
Seema Malhotra
As the Minister outlined, the clause increases clarity over the inspection of the register, and we support it.
Question put and agreed to.
Clause 121 accordingly ordered to stand part of the Bill.
Clause 122
Material not available for public inspection
Kevin Hollinrake
I beg to move amendment 34, in clause 122, page 107, line 34, leave out “available for public inspection” and insert
“the following material available for public inspection, so far as it forms part of the register of limited partnerships”.
This amendment spells out that the relevant material is only to be made unavailable for public inspection if it forms part of the register of limited partnerships.
The Chair
With this it will be convenient to discuss the following:
Government amendment 38.
Clauses 122 and 123 stand part.
Kevin Hollinrake
Clause 122 will prevent personal or confidential information, such as a partner’s residential address and date of birth or a limited partnership’s email address, from being disclosed to the public. That aligns the position of limited partnerships with that of companies as set out in the part 1 clauses that we have already debated.
Seema Malhotra
Clause 122 inserts a new section into the Limited Partnerships Act, as the Minister outlined, to set out provisions for certain information that the registrar must not make available for public inspection. The Minister outlined that that could include dates of birth, residential information, and I think also email addresses, for the limited partnership.
We understand the need for the measure, and the Committee has debated previously the need to hold back information for personal security or privacy reasons, but information sharing might sometimes be necessary. We have talked about those who need access to information because they are undergoing insolvency or other proceedings. Is there a mechanism by which the Government could enable information that would ordinarily be protected to be shared with third parties where it is deemed necessary and does not threaten the integrity of the register or the privacy of limited partnerships? This does get confusing, so we are probing where the registrar may be able to share information, if there is a reason to do so in terms of preventing economic crime.
Amendment 34 spells out that the relevant material is to be made unavailable for public inspection only if it forms part of the register of limited partnerships. Amendment 38 will make statements required to be made when documents are delivered unavailable for public inspection. Such statements relate either to identity verification or to an individual being an authorised corporate service provider or employee of an authorised corporate service provider.
I want to ask the Minister for more detail about why that is protected information. Have the Government considered whether it would be helpful and transparent for third parties dealing with a limited partnership to know whether an individual involved in its registration is related to an ACSP? That may be particularly useful given the evidence that has already been recounted to the Committee on the increased risk of economic crime when an ACSP is involved in the registration of the company or limited partnership. This is about transparency in relation to ACSPs.
Kevin Hollinrake
As the hon. Lady sets out, the reason for some information not being made public is security—to prevent ID theft, for example. Throughout the Bill, we are giving the registrar powers to share information wherever necessary, particularly if it relates to tackling economic crime. Nothing in the Bill would prevent any information, public or private, from being shared with law enforcement agencies. That is quite clear; the Bill facilitates that.
On authorised corporate service providers, the measure relates to statements and not things such as ID verification. This is where it may be considered that a statement is not suitable for sharing with the general public, which we have discussed in previous debates.
Amendment 34 agreed to.
Amendments made: 35, in clause 122, page 107, line 34, at end insert—
“(za) any application or other document delivered to the registrar under section 8PA, 8G or 8V (changes of addresses by registrar) other than an order or direction of the court;”.
This amendment would mean the documents mentioned in it are unavailable for public inspection.
Amendment 36, in clause 122, page 107, leave out lines 35 to 37.
This amendment is consequential on Amendment 30.
Amendment 37, in clause 122, page 108, line 4, at end insert—
“(ba) so much of any statement delivered to the registrar as is required to contain the information mentioned in any of the following provisions (which relate to identity verification)—
section 8A(1C)(b) or (1F)(c)(ii);
section 8L(3)(a)(ii) or (b)(ii);
section 8Q(4)(b) or (7)(c)(ii);”.
This amendment would make statements relating to identity verification of registered officers unavailable for public inspection.
Amendment 38, in clause 122, page 108, line 7, at end insert—
“(ca) any statement delivered to the registrar by virtue of section 1067A(3) or (4) of the Companies Act 2006 (delivery of documents: identity verification and authorised corporate service providers);”.
This amendment would make statements required to be made when documents are delivered unavailable for public inspection. The statements either relate to identity verification or to an individual being an authorised corporate service provider or employee of an authorised corporate service provider.
Amendment 39, in clause 122, page 109, line 4, leave out “and”.
This amendment is consequential on Amendment 40.
Amendment 40, in clause 122, page 109, line 7, at end insert—
“(c) section 22(5) of the Economic Crime (Transparency and Enforcement) Act 2022 (extent of obligation to retain material not available for public inspection).”.—(Kevin Hollinrake.)
This amendment is consequential on NC17.
Clause 122, as amended, ordered to stand part of the Bill.
Clause 123 ordered to stand part of the Bill.
Clause 124
Disclosure of information about partners
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
This is another simple clause, which ensures that personal information is used only for its intended purpose and prevents personal information from being exposed to abuse. The clause prevents the registrar from disclosing personal information about partners unless, in a few limited circumstances, it is necessary to do so. In all cases, information will remain available to law enforcement.
Seema Malhotra
We support the clause. As the Minister said, it restricts the registrar from disclosing certain information unless specific conditions apply. As we have rehearsed in other debates, we acknowledge the importance of ensuring that law-abiding individuals who have provided personal information are adequately protected. I am grateful for the Minister’s confirmation and clarity that that information would still be available to law enforcement officers.
I am less clear about what is proactively and reactively available, in the sense of whether it is for the registrar to make the information available or for law enforcement to request it. Perhaps the Minister could just confirm that it can work both ways.
Kevin Hollinrake
Yes, it can.
Question put and agreed to.
Clause 124 accordingly ordered to stand part of the Bill.
Clause 125
Registrar’s power to confirm dissolution of limited partnership
Seema Malhotra
I beg to move amendment 163, in clause 125, page 112, line 35, leave out “power” and insert “duty”.
This amendment is consequential on Amendment 164.
Kevin Hollinrake
The quick answer to the hon. Gentleman’s comment is that we believe in people using their judgment. The registrar, who we believe to be a competent person, should use her judgment in these cases. It may not always be proportionate in the circumstances to issue a notice of dissolution. However, I am grateful for the amendments.
The Bill allows the registrar to remove a limited partnership from the index of names without going through the dissolution notice process if she is absolutely certain that the partnership was dissolved, resulting in its deregistration. Amendments 163 and 164 would compel the registrar to publish a notice warning of dissolution, and then a notice confirming dissolution within two months if she reasonably believes that a limited partnership is dissolved. The registrar, despite being certain that the limited partnership was dissolved, would be forced to go through the warning notice and representation-seeking process to confirm that. It would unnecessarily take longer for the registrar to deregister a limited partnership that she was certain had been dissolved.
Furthermore, the process of issuing a dissolution notice attracts a cost. Were the registrar to issue a warning notice, wait for representations and then issue a dissolution notice each and every time she had reasonable cause to believe that a limited partnership had dissolved, the cost may be significant. The registrar should therefore be given flexibility to use her judgment to determine whether to begin the dissolution notice process on a case-by-case basis.
I support the intentions of the hon. Members for Feltham and Heston and for Aberavon, through amendment 165, to increase transparency and bring clarity to the register concerning limited partnerships that are dissolved. The Bill already requires the registrar to issue the notice of dissolution in the Gazette, which is a matter of public record and can be accessed by the public indefinitely. That information will also be added to a limited partnership’s record, with the information being made available to the public for 20 years, either on the register or through the public records office. The information would therefore already be in the public domain. However, I would like to explore with Companies House the feasibility and costs associated with also publishing that information on its website, as the hon. Members have suggested. I will return to them on that point.
Seema Malhotra
I thank the Minister for his comments, which I welcome, and I thank SNP colleagues for their support.
I will reflect on the Minister’s comments in relation to amendments 163 and 164. Obviously, we want to look at proportionality of resources alongside the management of risk and the effectiveness of provisions. I will not press the amendments to a Division today.
In relation to the Minister’s comments on amendment 165, I welcome his taking our suggestion away to look at it, and I look forward to hearing from him in due course. Perhaps he could produce a short note to confirm how the Government might want to move forward with our suggestion. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 125 will allow the registrar to confirm that a limited partnership is dissolved where she has reasonable cause to believe that it is, and to remove the name of the dissolved firm from the index of limited partnerships that she maintains. It is important that limited partnerships and interested parties are given sufficient notice of the potential dissolution, allowing them to make representations to the registrar if they object. The registrar will therefore be required to publish a notice of her intention to dissolve the limited partnership in the Gazette and to notify the limited partnership of her intention. After a period of not less than two months, the registrar may publish a second notice in the Gazette, which will effectively dissolve the limited partnership, if it is not dissolved already, and let it be deregistered.
Within a period of six years from dissolution, a dissolved limited partnership’s former general partner may apply to the registrar for the partnership to be revived if they bring the limited partnership’s information up to date and pay any fines or penalties that are owed. The Secretary of State, any partner or any person with an interest in the limited partnership may also apply to the court for the limited partnership to be revived. We expect that confirmation of dissolution power to dramatically reduce the number of limited partnerships that are currently registered. A more accurate and up-to-date register will give clarity to the public and law enforcement about the number of active limited partnerships.
Clause 126 will, within a six-month period following commencement of the Act, allow the registrar to publish a notice in the Gazette that limited partnerships are dissolved without having to follow the warning notice and representation-gathering process. This will immediately dissolve those limited partnerships that failed to comply in the six-month transitional period with the requirement to supply the registrar with information required under the Bill.
Clause 127 allows limited partnerships that are not dissolved to deregister and, should the partners want to, continue as general partnerships without the need to wind up the affairs of the firm. All partners in the limited partnership must agree to the deregistration process. That avoids both the potentially protracted process of dissolving and winding up the limited partnership before it becomes a different entity, and the associated administrative burden that would fall upon the registrar.
Seema Malhotra
We discussed clause 125 previously, but it is perhaps helpful to summarise it. Labour supports the clause. It would insert proposed new sections 18 to 24 into the Limited Partnerships Act 1907. They would give the registrar the power to publish a warning notice if she has reasonable cause to believe that a limited partnership has been dissolved. In the absence of any information to the contrary being received within two months, the registrar would have the power to publish a dissolution notice, and the partnership would be dissolved. The proposed new sections also provide for a process for applications to the registrar or court to revive a limited partnership if certain conditions are met.
Clause 126 is a transitional provision. It provides that if the registrar exercises the powers in clause 125 during the six-month period—is it during the six-month period or after it?—after the Bill comes into force, she can publish a notice stating that she has reasonable cause to believe that a limited partnership has been dissolved without having to comply with the warning notice or notification provisions. Will the Minister clarify whether the power applies within the six months or after the six months?
Clause 127 inserts a proposed new section into the Limited Partnerships Act to allow limited partnerships that want to cease to exist to apply to the registrar to be removed if all the partners agree to deregister the partnership. Will the Minister assure the Committee that the clause will not enable limited partnerships involved in wrongdoing and economic crime to voluntarily dissolve before any scrutiny or investigation into them? Will there be safeguards against that occurring?
Kevin Hollinrake
On the hon. Lady’s point of clarification, it is after the six-month period.
On the hon. Lady’s latter point, about the dissolution of a company, will she clarify what question she wants me to address?
Seema Malhotra
I am very happy to. Clause 127 enables limited partnerships to apply to be deregistered if all partners agree. My question relates to the potential opportunity that that provides a partnership where there has been wrongdoing or economic crime and the deregistration is an attempt to avoid scrutiny or investigation. Are there any safeguards around that? Will checks take place if partners apply to voluntarily deregister under the provisions of the clause?
Kevin Hollinrake
That is a fair point. Off the top of my head, I would say that that might be a red flag and the registrar would look in more detail into the parties related to the deregistration, but I will write to the hon. Lady to provide further detail on that point.
Question put and agreed to.
Clause 125 accordingly ordered to stand part of the Bill.
Clauses 126 and 127 ordered to stand part of the Bill.
Clause 128
Delivery of documents relating to limited partnerships
Seema Malhotra
I beg to move amendment 166, in clause 128, page 117, leave out lines 7 to 23 and insert—
“(1) An individual may not deliver a document under a provision listed in subsection (4) to the registrar on their own behalf unless—
(a) the individual’s identity is verified (see section 1110A which, for the purposes of this section, will apply to limited partnerships as it applies to companies), or
(b) the individual falls within any exemption that may be specified in regulations made by the Secretary of State for the purposes of this paragraph.
(2) An individual may not deliver documents to the registrar on behalf of another person unless—
(a) the individual’s identity is verified (see section 1110A),
(b) the individual is an authorised corporate service provider,
(c) the individual is an employee of an authorised corporate service provider and is acting in the course of their employment, or
(d) the individual falls within any exemption that may be specified in regulations made by the Secretary of State for the purposes of this paragraph.
(3) A document delivered to the registrar by an individual on their own behalf must be accompanied by—
(a) a statement that the individual’s identity is verified, or
(b) a statement that the individual falls within an exemption specified in regulations under subsection (1)(b).
(3A) A document delivered to the registrar by an individual on behalf of another person must be accompanied by—
(a) a statement that the individual’s identity is verified and that they have the person’s authority to deliver the document,
(b) a statement that the individual is an authorised corporate service provider and that they have the person’s authority to deliver the document,
(c) a statement that the individual is an employee of an authorized corporate service provider and is acting in the course of their employment and that the authorised corporate service provider has the person’s authority to deliver the document, or
(d) a statement that the individual falls within an exemption specified in regulations under subsection (2)(d) and that they have the person’s authority to deliver the document.
(3B) Regulations under subsection (1)(b) or (2)(d) are subject to affirmative resolution procedure.”
It is a pleasure to move the amendment tabled by my right hon. Friend the Member for Barking. The clause sets out that certain documents relating to a limited partnership can be delivered to the registrar only by an authorised corporate service provider. The documents include, but are not limited to, applications for registration, changes of address, changes relating to partners, and confirmation of statements.
We are concerned by the provisions set out in the clause, particularly those on allowing documents relating to limited partnerships to be submitted only by ACSPs, given the concerns that have been raised about economic crime committed through ACSPs. As a result, we support amendment 166, which would expand beyond just ACSPs the range of people who can deliver documents relating to limited partnerships. It would remove the provision in the clause that mandates that only ACSPs can deliver such documents and replace it with new provisions.
Kevin Hollinrake
I am happy to provide that clarification. I thank the right hon. Member for Barking, who is not present today, for her amendment. The measures in part 2 are intended to tackle the role of limited partnerships in global money laundering schemes. Clause 128 ensures that key documents pertaining to limited partnerships can be submitted only by an authorised corporate service provider. The key is that those providers must be registered with the registrar and supervised for anti-money laundering purposes. Doing so will give the registrar a clear audit trail of who has been setting up and providing corporate services to limited partnerships, and enable that audit trail to be shared with AML supervisors.
The hon. Member for Feltham and Heston is absolutely right to say that there are question marks over corporate service providers. We know that, and we recognise those comments from UK Finance. That is why the Treasury is undertaking the consultation on how we can improve the supervision of corporate service providers, which certainly needs to be done. As I have said many times, corporate service providers can be major accountants that are bona fide organisations; the hon. Lady refers to the minority of corporate service providers that we do need to better regulate and supervise. That body of work is currently being undertaken.
We think the approach of requiring ACSPs to provide the documentation, which is more restrictive than the filing options for limited companies, is appropriate given both the relatively low numbers of limited partnerships created each year and the fact that they are used chiefly by the investment sector, which routinely uses agents. The amendment would require individuals to submit documents if their identity was verified, but it would remove the requirement for individuals to be relevant persons under the money laundering regulations. I do not think that would be the right approach. It would mean that they would not, for example, have the obligation to conduct due diligence checks on those on whose behalf they were acting or to adhere to record-keeping requirements, and they would not be supervised for anti-money laundering purposes.
Clause 128 will serve not just to better support supervision but as a prompt for better supervision, so I invite the hon. Member for Feltham and Heston to withdraw the amendment.
Seema Malhotra
I thank the Minister for his remarks. This is an important debate. I am not sure that we have exhausted it today, and we may not, but it strikes me that the Minister’s main argument—that the volume of registrations might be less—is not the strongest. I wish to look further at what he said about who and what would fall under anti-money laundering regulations and whether the amendment could reduce some of the scrutiny and controls in that respect. I do not believe that would necessarily be the case if we were effectively allowing individuals to submit documents on their own behalf if they wished to do so.
It would be worth our coming back to this issue. I do not intend to press the amendment to a vote, and I am sure that my right hon. Friend the Member for Barking will also want to reflect on the Minister’s comments, but we remain concerned about the delivery of documents relating to limited partnerships. I recognise what the Minister said, but I also appreciate—he will know this from his work on these issues in the past—the concerns about trust and company service providers and ACSPs. If we can make the provision a little stronger and a little more in line with the way the process works for companies, and if we push the argument just a little further and there is not as strong a downside as the Minister believes, it may be worth coming back to this issue. I will reflect on it with my right hon. Friend. On that basis, I intend to withdraw the amendment.
Kevin Hollinrake
Just to clarify, my argument was not that smaller numbers of limited partnerships are being set up and therefore the risk is less. It is quite the opposite: we know that limited partnerships have been involved in economic crime so we think the risk is greater. That is why we want to put in an extra layer of scrutiny. We believe that introducing somebody who is supervised under the AML regulations provides that extra level of scrutiny and an extra level of check and balance in the process. That is our basic argument.
Seema Malhotra
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: 41, in clause 128, page 117, line 39, leave out from beginning to end of line 16 on page 118. —(Kevin Hollinrake.)
This amendment is consequential on NC9.
Question proposed, That the clause, as amended, stand part of the Bill.
Kevin Hollinrake
Clause 128 is another simple clause. It ensures that key documents pertaining to limited partnerships can be submitted only by an authorised corporate service provider. I have already set out why clause 128 is so important in making limited partnerships and their partners subject to a greater level of scrutiny than they are currently exposed to.
Seema Malhotra
As the Minister has outlined, clause 128 inserts into the Limited Partnerships Act proposed new sections 26 and 27, which require applications for registration and documentation of changes to be submitted by an ACSP. We have had a useful debate to which I am sure we will return.
Proposed new section 27 gives the Secretary of State the power to disapply section 26 if that is necessary
“in the interests of national security”
or
“for the purposes of preventing or detecting serious crime”.
We did not go into this exemption in much detail and the Minister may have some further comments on it. The ideas of national security and preventing or detecting serious crime are quite broad; perhaps the Minister could comment on some of the circumstances in which he sees the power being used by the Secretary of State and whether this might be an example of where the use of the power and the number of times it is used should be reported through some mechanism to Parliament.
Kevin Hollinrake
We have debated the same issue at length on a number of occasions. We feel they are proportionate powers to hand the Secretary of State and will be used very rarely.
Question put and agreed to.
Clause 128, as amended, accordingly ordered to stand part of the Bill.
Clause 129
General false statement offences
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 129 simply introduces two false statement offences—basic and aggravated— into the Limited Partnerships Act. The offences mirror those in the Companies Act and the Economic Crime (Transparency and Enforcement) Act 2022. The Committee has supported this approach when debating other clauses.
Seema Malhotra
I thank the Minister for his remarks. I just want to clarify for the record that clause 128 was confusing, Ms Elliott, because I was talking about proposed new sections 26 and 27, which are in clause 128. I hope that has cleared that up.
Clause 129 relates to general false statement offences. As the Minister said, the clause introduces two levels of offences relating to the submission of a false, misleading or deceptive document or statement to the registrar. That is absolutely right. Proposed new section 28 defines offences where such submissions are made without reasonable excuse and proposed new section 29 defines aggravated offences where such submissions are made knowingly. In each case, where an offence is committed by a legal entity, every managing officer of the entity will also be deemed to have committed the offence. We welcome the new offences and support the clause.
Question put and agreed to.
Clause 129 accordingly ordered to stand part of the Bill.
Clause 130
Service on a limited partnership
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 130 specifies how documents may be served at the registered office for the purposes of the Limited Partnerships Act. The clause is necessary to ensure that the registrar or another body can serve documents to a limited partnership’s registered address with assurances that they will be received. It is in line with the principles we discussed in part 1 of the Bill.
Seema Malhotra
I thank the Minister for his comments. We support this straightforward clause. It inserts a new section in the Limited Partnerships Act to enable documents to be served on the limited partnership by leaving them at or sending them to their registered office. We welcome and support the clause.
Question put and agreed to.
Clause 130 accordingly ordered to stand part of the Bill.
Clause 131
Application of company law
Kevin Hollinrake
I beg to move amendment 42, in clause 131, page 120, line 18, leave out
“any Act, whenever passed or made”
and insert
“either of the following, whenever passed or made—
(a) an Act;
(b) Northern Ireland legislation.”
This would allow for consequential amendments to be made to Northern Ireland legislation if the power inserted by clause 131 of the Bill is exercised to apply company law to limited partnerships, for example amendments to the Company Directors Disqualification (Northern Ireland) Order 2002.
The Chair
With this it will be convenient to discuss the following:
Clauses 131 to 133 stand part.
New clause 48—Application of Part XIV of the Companies Act 1985 to limited partnerships—
“In Part XIV of the Companies Act 1985, references to a company shall include references to a limited partnership.”
This new clause would extend the investigations regime under Part XIV of the Companies Act 1985 to include Limited Partnerships.
Kevin Hollinrake
To set the context, clause 131 permits the application of company law to limited partnerships where that provision of company law is similar to, or corresponds to, limited partnership law. That will ensure that when company law is amended over time, the corresponding limited partnership law can be amended alongside it, making it easier to keep company law and limited partnership law aligned. To ensure the appropriate level of parliamentary scrutiny, the regulation-making power in the clause will be subject to the procedure applied to the company law that it will adapt. Government amendment 42 amends clause 131 so that the Company Directors Disqualification (Northern Ireland) Order 2002 can be updated to apply to limited partnerships, so that we can disqualify general partners for their actions within a limited partnership.
Turning to clause 132, there is some ambiguity as to whether a limited partnership that is registered in Scotland, or one that is in business in Scotland but registered elsewhere in the UK, has legal personality distinct from its partners. That has significant consequences as the partnerships that are legal persons distinct from their partners can, for example, enter into contracts and own property in their own right. The clause clarifies that only those limited partnerships that have been registered by the registrar for Scotland are legal persons distinct from their partners. That puts beyond doubt the fact that limited partnerships that have their principal base of business in Scotland but are not registered in Scotland are not legal persons in their own right—the place of registration is determinative.
Clause 133 provides that regulation-making powers can also make consequential, supplementary, incidental, transitional and saving provisions. It sets out definitions for negative and affirmative procedures. I am happy to let Opposition Members speak to their amendment before I respond.
Seema Malhotra
It is a pleasure to speak to new clause 48, which would extend the investigations regime under part XIV of the Companies Act 1985 to include limited partnerships. The new clause simply applies to limited partnerships the investigation regimes that companies are currently subject to. We have heard throughout the Committee’s debate on part 2 of the Bill how limited partnerships can be used as a vehicle for economic crime. We have raised numerous concerns, reports and consultations by this Government and other agencies that identify the risk of economic crime through limited partnerships and Scottish limited partnerships. As a result, new clause 48 provides a simple mechanism for applying more scrutiny and transparency to limited partnerships—something I am sure the Government will agree is important. I would be grateful for the Minister’s response on this matter. I hope the Minister will consider the strong reasons for bringing in this new clause.
Kevin Hollinrake
On new clause 48, it is of course right that Companies House should have the necessary powers to investigate wrongdoing by limited partnerships. I am fully signed up to improving transparency and scrutiny, as the shadow Minister knows. One thing we want to avoid, though, is duplication. I will set out why I think the amendment is unnecessary on that basis.
The provisions set out in part XIV of the Companies Act 1985 allow the Secretary of State to appoint investigators to conduct investigations into companies’ affairs. Part XIV applies to companies, overseas companies, and limited liability partnerships. All of these are bodies corporate with independent legal personality. In these cases, it makes sense to have powers to investigate the conduct of the people running them to ensure that they cannot hide behind the independent legal personality of the entity itself.
In contrast, where a limited partnership has no separate legal personality, the conduct of its partners is unshielded. They can already be investigated for fraudulent and other unlawful conduct under existing criminal law and prosecuted accordingly. Where a partner in a limited partnership is itself a company, the provisions of part XIV would already apply to them. It is therefore unnecessary to extend the investigations regime under part XIV in its entirety to limited partnerships, as this amendment would.
Nevertheless, I welcome and am happy to consider suggestions that help us to root out wrongdoers and deal with them appropriately. I have asked my officials to consider which of the measures in part XIV of the 1985 Act there might be a case for refashioning to bolster the authorities’ ability to investigate limited partnerships and those concerned in their management.
Seema Malhotra
I thank the Minister for his very helpful response to new clause 48. I think it is the right way forward to be considering the provisions in part XIV of the Companies Act 1985 that might be relevant and applicable, so that we do not duplicate what may be on statute elsewhere. The easiest way to keep this issue on record for further debate would be for the Minister to come back to me in writing once officials have had a chance to make their assessment. We would be grateful for that.
Clause 131 sets out provision for regulations to be made by the Secretary of State to facilitate the continuing alignment of partnership law with general company law. We support this, and the discussion we have just had is in alignment with that principle. We also support amendment 42. Clause 132 sets out provisions to make it clear that a limited partnership registered in any part of the UK other than Scotland does not have an independent legal personality, even if its principal place of business is in Scotland. The location of registration is the determining factor. It would be helpful if the Minister spoke to this measure, so that we are clear on the reasons behind it. Clause 133 inserts new section 28 into the Limited Partnerships Act 1907 and sets out the general provisions for regulations that can be made under that Act and that the power to make regulations will be exercisable by SI.
I also just wanted to clarify the process by which regulations will be made, because I think they are subject to negative procedure rather than positive resolution procedure. I just wondered why the Government have made that decision about these regulations.
Kevin Hollinrake
In terms of the situation with Scotland, it can be confusing for third parties—it might be a bank, for example; opening a bank account—to understand the difference between a business that is operating in Scotland and has a base there, and one that is registered as a Scottish limited partnership. This measure is trying to clarify in law the difference between the two, to try to ensure that the right questions are asked in those circumstances. That is the basis for this clarification.
If I may, I will write to the hon. Lady to say why we have determined that regulations made under the negative or affirmative procedure should be treated in the way she describes.
Amendment 42 agreed to.
Clause 131, as amended, ordered to stand part of the Bill.
Clauses 132 and 133 ordered to stand part of the Bill.
Clause 134
Limited partnerships: further amendments
Question proposed, That the clause stand part of the Bill.
The Chair
With this, it will be convenient to consider that schedule 5 be the Fifth schedule to the Bill.
Kevin Hollinrake
Clause 134 omits section 17 of the Limited Partnerships Act 1907, which gives a power to the Board of Trade to make rulings relating to the registrar’s functions, including duties, forms and performance of officers. This is because section 1068 of the Companies Act 2006 contains a power for the registrar to impose requirements about the form, authentication and manner of delivery for documents, which renders section 17 of the 1907 Act unnecessary.
Schedule 5 adds new headings to the 1907 Act to ensure that the legislation flows coherently. These reflect the new provisions inserted into the 1907 Act by this Bill.
Seema Malhotra
I am grateful to the Minister for laying that out. As he outlined, clause 134 omits section 17 of the Limited Partnerships Act 1907 and introduces schedule 5 to that Act, which makes consequential amendments. We have no issues with or comments to make on this clause.
Question put and agreed to.
Clause 134 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 135
Register of overseas entities
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clauses that we will now debate in part 3 of the Bill make amendments to the Economic Crime (Transparency and Enforcement) Act 2022, which establishes the register of overseas entities. The amendments all serve either to either address issues identified post-implementation or to align the ECTE Act with similar provisions in companies legislation, for instance provisions relating to false statement offences.
The ECTE Act requires overseas entities that own or intend to own land in the United Kingdom to register their beneficial owners with Companies House in certain circumstances. The ROE opened for registrations on 1 August 2022. Section 3 of the ECTE Act currently states that the register is to consist of the following:
“a list of registered overseas entities…documents delivered to the registrar under this Part or regulations made under it, or otherwise in connection with the register, and…any other information required to be included in the register by this Part or regulations made under it.”
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairmanship, Ms Elliott. I want to make a few general points about registers of beneficial ownership and have a number of questions for the Minister, as a preamble to commenting on clause 135 specifically. Registers of beneficial ownership are not, of course, a new concept. We have had one for UK companies, namely the people of significant control register, since 2016. In that year, David Cameron made what would turn out to be the first of many promises to introduce a register of overseas owners of UK property, meaning that for the first time
“foreign companies that already hold or want to buy property in the UK will be forced to reveal who really owns them”.
Yet here we are, six and a half years and four Prime Ministers later, still discussing how to implement the register. After years of kicking the can down the road, it took the Russian invasion of Ukraine to jolt the Government into action. The first of this year’s economic crime Bills, now the Economic Crime (Transparency and Enforcement) Act, provided the legislative basis for the register of overseas entities, which at long last went live on 1 August.
As much as I welcome the fact that the register is now up and running, it remains very much a work in progress. The legislation passed earlier this year was rushed through on an expedited timetable, with just two weeks of debate. The need to amend what was clearly a hastily drafted law is reflected in the changes set out in clauses 135 to 140. Before addressing the substance of the clauses, it is worth taking stock of what progress has been made in setting up the register and, more importantly, what more needs to be done. According to Government figures, some 32,000 overseas companies are required to register with Companies House by 31 January. Between them, those companies own almost 100,000 properties in the UK. It was the Minister himself, in his previous incarnation as a Back Bencher, who argued forcefully back in March for the transition period during which those 32,000 companies would be required to register to be limited to six months.
Now that we have reached the halfway point in the process, I asked the Minister in written questions how many companies have now registered. Members might have reasonably expected the number to be somewhere in the region of 16,000, or half of the 32,000 total required. Imagine my surprise and disappointment when the Minister replied to my written question saying that, in fact, only 3,214 entities had registered as of last week; in other words, just 10% of those required. If progress were to continue at such a sluggish rate, the register would not be completed until 2025. I therefore ask the Minister whether he has a magic wand, and whether he intends to use it to ensure that the remaining 90% of companies comply with the registration requirement in the next three months.
I will also ask the Minister what he thinks is the reason for the astonishingly low number of registrations to date. But the answer to that question is in fact clear: the failure of the Government to enact the new law until the situation became urgent due to the war in Ukraine meant that the regulations and statutory guidance were sloppily drafted without consultation, leaving the entire framework riddled with holes and shrouded in uncertainty.
I hope the Minister will take the opportunity we have today to clarify some of the issues. Companies House has written to entities to inform them that they need to register, but the data used to contact them came from the Land Registry. That data is, in many cases, out of date. What assessment have the Government made of the accuracy of the contact information provided by the Land Registry? What steps is the Minister taking to ensure that everyone who is expected to register is at least made aware of the requirement in time for them to apply ahead of the 31 January deadline?
Will the Minister also confirm what additional resources, if any, have been made available to Companies House to support the introduction of the register? How many staff are now working to support its implementation? What preparations are the Government making to deal with companies that fail to comply before the deadline? Specifically, how will Companies House identify such companies and work quickly to impose the financial and criminal penalties that the Government have provided for? Will the Minister explain how the Government plan to deal with companies whose beneficial ownership cannot be verified? His Department’s guidance says that entities that claim to have no beneficial owner should provide information without a “managing officer”, but that term is not defined in the guidance. Can the Minister shed some light on this?
Clause 135 makes what appear to be minor technical changes to the wording of documentation to be held as part of the register. To the extent that those changes help ensure that the information on the register is giving as complete and as accurate a picture of companies beneficial ownership as possible, the changes are welcomed by the Opposition.
Kevin Hollinrake
I very much value the hon. Gentleman’s comments and reflections. There is no doubt at all that the measures are a work in progress; that is one of the reasons behind the Bill, of course. I enjoyed answering his questions in writing and we will no doubt correspond further on such matters. He is right to scrutinise the activities of Companies House, which I have sought to do as well.
Let me give a few facts that may help the hon. Gentleman. As of today, there are 3,893 registrations; that is a more up-to-date figure than the one I gave him on 11 November, which was about 3,500. That equates to about 400 in the past six or seven days, which illustrates that the number of registrations is increasing significantly. We always thought that there would be a last-minute rush to file because, as the hon. Gentleman knows, there are significant penalties for not doing so: up to £2,500 per day and a prison sentence of up to five years. That is the risk that those who do not comply are taking, which is pretty significant, so we always thought that there would be a last-minute rush.
To answer one or two of his other questions, eight people are working full time on the register of overseas entities and 20 are trained to handle registrations. They are deployed relevant to workload. There is no current backlog at His Majesty’s Revenue and Customs in this regard. A managing officer is defined in the Act as being akin to a director, secretary or manager.
Stephen Kinnock
On that point about staffing, I think the Minister’s point is that there will be a last-minute rush. Is he confident that the current staffing levels are sufficient to cope with that last-minute rush—that surge?
Kevin Hollinrake
I am not intimately involved in the management of the register. It would be interesting to see and that is a fair point. I will write to the hon. Gentleman. I have asked Companies House to provide us with that information, which it has done, about the activities it is undertaking to pursue people who have not yet completed their registration. We will continue to do that. In the meantime, I am happy to write to the hon. Gentleman on the points he has raised and, indeed, on his further point about making sure that we have enough staff to deal with the last-minute rush that we anticipate.
Stephen Kinnock
I thank the Minister for that. Does he have any thoughts on the interface between the Land Registry and the register of beneficial owners? It appears that a lot of the information on the Land Registry is seriously outdated. What steps are being taken to address that challenge, and does he see a risk in the communication between them?
Kevin Hollinrake
I do not see there being a risk of a lack of communication; they seem to be working together adequately. There is no doubt that some information is out of date. Many overseas entities have not kept their address details up to date, and many letters have been returned as undeliverable. Companies House is undertaking open-source research to try to identify up-to-date addresses, and we are working with stakeholders to raise awareness of the requirements and the deadline.
Companies House is used to dealing with large number of registrations, and we believe it can handle much larger volumes than it is receiving. The hon. Gentleman has asked some detailed questions and made some salient points that I want to follow up with Companies House in order to make sure that we can maintain the register properly, and I suggest we correspond on that basis.
Question put and agreed to.
Clause 135 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Fourteenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 17th November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 17 November 2022 - (17 Nov 2022)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
With this it will be convenient to consider clauses 137 and clause 157 stand part.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to speak with you in the Chair, Sir Christopher.
The clause amends section 15 of the Economic Crime (Transparency and Enforcement) Act 2022 to align it with amendments made to section 32 during the passage of that Act and with amendments introduced by this Bill. The clause substitutes section 15 and adds proposed new sections 15A and 15B.
Proposed new section 15 restates and slightly amends the general false statement offence in section 32 of the ECTE Act to reflect changes made by the Judicial Review and Courts Act 2022. Existing section 15 restricts the false statement offence to being committed when a person knowingly or recklessly makes a false statement in response to a notice. Proposed new sections 15A and 15B amend that offence to change the threshold to be met, by splitting it into two separate offences. That aligns with section 32 of the ECTE Act and amendments to that section introduced by the Bill.
Clause 137 amends section 32 of the ECTE Act on the general false statement offence. The effect of the amendment is that both the basic offence and the aggravated offence are expanded so that a false statement offence can be committed by a legal entity, and, where this is the case, by every officer of the entity in default. That maintains consistency with other legislation amended by the Bill. The penalty for committing the aggravated offence on summary conviction in England and Wales is also amended in line with the Judicial Review and Courts Act.
Clause 157 amends the Reports on Payments to Governments Regulations 2014. Those regulations require certain large businesses in the extractive industries to report annually their payments to overseas Governments associated with the extraction activities. The regulations were brought in to support accountability and to reduce space for corruption.
The Government are conducting a post-implementation review of the regulations to evaluate their impacts and effectiveness. However, in advance of that, the Government propose that the false statements offences and penalties in the regulations be updated to provide consistency with other offences, as previously outlined.
Clause 157 does not alter the requirement for any prosecutions for non-compliance with the 2014 regulations to be mounted or approved by the Attorney General or the Director of Public Prosecutions—or, in Northern Ireland, by the Secretary of State or the Northern Ireland Director of Public Prosecutions—to ensure that they are in the public interest.
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. Compared with clause 135, clauses 136, 137 and 157 are more substantial. In drafting them, the Government appear to have accepted that the existing law in relation to false statement offences is too narrow to serve either as an effective deterrent or as a useful tool for law enforcement.
Clause 136 removes the requirement to prove that false information had been submitted knowingly and recklessly. That is a very high bar for prosecutors to clear, and the introduction of a broader set of criteria for these offences is therefore welcome. The changes will replace the existing false statement offence with a two-tier approach that will provide a range of options for dealing with overseas entities that either fail to provide information about beneficial ownership upon request or respond with false or misleading information.
The basic offence, which will not require evidence that a false statement had been made knowingly or recklessly, should provide a strong incentive for companies to be as rigorous as possible in ensuring that any information they provide is completely accurate. Of course, the financial penalties for such an offence will need to be set at a level sufficient to impose a significant cost on non-compliant companies. Will the Minister therefore comment on how he will ensure that penalties are set at a rate commensurate with achieving that objective?
Particularly welcome is the additional provision in clause 137 for an aggravated offence in cases where an intent to mislead can be proven, as is the extension of the changes to the reporting requirements in relation to payments to foreign Governments under clause 147. The threat of criminal convictions, with custodial sentences of up to two years, sends a strong message that fraudulent activities must not and cannot be tolerated.
Of course, in these clauses, as elsewhere in the Bill, the jury will be out on whether the changes will have any meaningful impact on economic crime until we can be sure that compliance with the law is robustly monitored and that non-compliance will be punished to the fullest extent of the law. The Committee will be grateful for any reassurances that the Minister can provide, especially on what preparations are being made to ensure that offences are identified and prosecuted as swiftly as possible, because he has repeatedly said that legislation without robust implementation is not worth the paper it is written on.
Kevin Hollinrake
As for the level of fines, in England and Wales they can be unlimited—level 5 on the scale.
Stephen Kinnock
I thank the Minister for that clarification. Does he have any broader assurances around enforcement and implementation? It would be useful to get a sense of what institutional or organisational capability he envisages, and of whether that is in line with what the Bill is trying to achieve.
Kevin Hollinrake
As the hon. Gentleman knows, as we have discussed on many occasions and as I am on the record as saying, legislation without implementation is worthless. We need to ensure that offences are discovered and then prosecuted. Of course, we must ensure that the registrar, and the law enforcement agencies they work with, have sufficient capacity and resources to do the job. The Bill does not cover that directly, but I am certainly keen to ensure that happens.
Stephen Kinnock
I thank the Minister for those assurances. I have no further comments.
Question put and agreed to.
Clause 136 accordingly ordered to stand part of the Bill.
Clause 137 ordered to stand part of the Bill.
Clause 138
Meaning of “service address”
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
Clause 138 will improve the effectiveness of the register of overseas entities by defining “service address” so that it has the same meaning as in the Companies Act 2006. That will help those registering as overseas entities to ensure that they understand what a service address is, and that they must provide an address that meets the definition.
Stephen Kinnock
Clause 138 is another relatively minor change to the definition of a company’s service address, and it brings the definition used for the purposes of the overseas entities register into line with the language in the Companies Act. That language, the Committee will recall, defines a service address as a place where documents may be served to someone. We have already debated the potential problems of relying on such a definition in the context of amendments in which the Opposition sought to restrict and clarify what counts as an appropriate address for a company to register.
While we will not go back on all that and re-litigate those lengthy arguments, and while we will not oppose the clause, I put on the record that the Opposition do not believe that the Bill goes as far as it could and should have to prevent the fraudulent or unauthorised use of addresses. I am sure that we will come back to that on Report.
Question put and agreed to.
Clause 138 accordingly ordered to stand part of the Bill.
Clause 139
Meaning of “registered overseas entity” in land registration legislation
Question proposed, That the clause stand part of the Bill.
Kevin Hollinrake
The clause amends the Land Registration Act 2002, Land Registration etc. (Scotland) Act 2012 and the Land Registration Act (Northern Ireland) 1970. It will improve the effectiveness of the register of overseas entities by punishing a registered overseas entity for failing to comply with the registrar’s new power—as inserted into the Companies Act by the Bill—to require information from the entity.
Currently, an overseas entity will lose its status as a registered overseas entity if it fails to provide an annual update to the registrar. The clause adds that an overseas entity will also lose its status as a registered overseas entity if it fails to respond to a notice from the registrar requesting information. Once it is no longer considered to be a registered overseas entity, the entity will be treated as non-compliant. A non-compliant entity will find it difficult to sell, lease or raise charges over its land and cannot therefore deal freely with it.
Upon submitting the requested information to the registrar, the overseas entity will once more be compliant. However, the compliance status is not retrospective. Any person dealing with the overseas entity in the non-compliance period will be unable to register any completed transaction with the land registries. I know that all Members will join me in wanting to ensure the robustness of the register and ensure that overseas entities comply with their duties, or face tough restrictions. The clause will help Companies House to do so.
Stephen Kinnock
The clause makes some relatively minor changes to the language on the requirement to provide information requested by the registrar. The effect is to extend the existing restrictions on the ability of an overseas entity to deal with property it owns, such as by selling it, in order to apply the restrictions to companies that fail to comply with the registrar’s requests for information. The change is sensible and pragmatic, and the Opposition support it.
Question put and agreed to.
Clause 139 accordingly ordered to stand part of the Bill.
Clause 140
Power to apply Part 1 amendments to register of overseas entities
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government new clause 19—Resolving inconsistencies in the register.
Government new clause 20—Administrative removal of material from register.
Kevin Hollinrake
Section 27 of the ECTE Act allows the registrar to require an overseas entity to resolve an inconsistency in information delivered to her where it appears to be inconsistent with other information on the register of overseas entities. New clause 19 amends section 27, so that the registrar may use any information she possesses, not only that published on the register, to require an overseas entity to resolve a suspected inconsistency. That will strengthen her ability to ensure that the register is accurate and reliable.
Government new clause 20 mirrors amendments made in the Bill to equivalent sections in the Companies Act 2006 to ensure consistency between the Act and this Bill when it becomes an Act, and to enhance the registrar’s power to remove material from the register, which is limited under section 28 of the ECTE Act. She can only remove from the register information where there was a power but no duty to include it, or where it no longer appears reasonably necessary for the purposes for which the material was delivered to the registrar.
Proposed new section 28 will ensure that material that is unnecessary or does not meet proper delivery requirements can be removed at the discretion of the registrar, either unilaterally or upon application. The Secretary of State will also have the power to specify what sort of material can be removed from the register upon application, so that the scope of material eligible for removal can be modified in line with future operational needs. Under proposed new section 28A, the Secretary of State must make regulations that set out what notice the registrar should give when unilaterally removing information, and the processes to be followed in determining applications for removal.
The clause strengthens the registrar’s powers and ensures that she has all the necessary tools at her disposal to clean up the register of overseas entities proactively. The clause also allows the Secretary of State to amend the ECTE Act to apply any changes that part 1 of the Bill may make to corresponding provisions in the Companies Act. The ECTE Act contains a number of provisions that correspond to those in the Companies Act. Given the number of changes that part 1 of the Bill makes to the Companies Act, the clause is necessary to ensure that accuracy and consistency are maintained between the ECTE Act and the Companies Act, and the respective registers of overseas entities and of UK companies.
Economic Crime and Corporate Transparency Bill (Fifteenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 22nd November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 22 November 2022 - (22 Nov 2022)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Chair
With this it will be convenient to discuss that schedule 6 be the Sixth schedule to the Bill.
The Minister for Security (Tom Tugendhat)
It is a great privilege, as always, to be with you this morning, Mr Paisley, and to enjoy the possibility of conversing about the Proceeds of Crime Act 2002.
The clause introduces schedule 6 to the Bill, which amends the criminal confiscation powers contained in parts 2, 3 and 4 of the Proceeds of Crime Act 2002—known as POCA, not to me, but to some presumably—to make it easier for law enforcement agencies to seize, detain and recover cryptoassets in more circumstances than at present. Schedule 6 will amend the provisions in each of the three existing confiscation regimes that extend to England and Wales, Scotland, and Northern Ireland so that the measures apply in all parts of the United Kingdom. That is reflected in the three parts of schedule 6.
Key definitions in schedule 6, such as those of “cryptoasset” and “cryptoasset exchange provider”, are consistent with those used elsewhere in the Proceeds of Crime Act. The schedule includes powers to update those defined terms to ensure that the measures in the Bill can keep pace with the constantly evolving criminal use of cryptoassets, the rapidly changing nature of crypto technology as well as stay aligned with other legislation dealing with similar threats.
Stephen Kinnock (Aberavon) (Lab)
It is a great pleasure to serve under your chairship today, Mr Paisley. I take the opportunity to welcome the Minister to his place; I do not think that I have done so formally, although I might well have done informally. It is good to see him in his place.
I want to make some general comments about cryptocurrencies and about the clause and schedule 6. Broadly speaking, they have some positive aspects, but we also have some questions for the Minister, and I am sure that he will explain the position with his customary lucidity once I have sat down.
Cryptocurrencies and other digital assets are not new, but how they should be regulated is still very much an open question in the UK and internationally. The Government’s decision to expand the legal framework for asset recovery under the Proceeds of Crime Act is a positive development. For that to work, however, we need to be clear about what the legislation intends to achieve.
It is fair to say that the Government have sent mixed messages about their approach to regulating cryptoassets. On the one hand, they have acknowledged the need to tackle the use of cryptoassets for criminal purposes, hence the decision to extend the money laundering regulations to cryptoasset businesses, which has been under the supervision of the Financial Conduct Authority since January 2020. In the factsheet published alongside the Bill, the Government set out their view:
“Cryptoassets are now increasingly being used by criminals to move and launder the profits of various crimes including drugs, fraud, and money laundering. There is also an increased risk that cryptoassets are being exploited to raise and move funds for terrorist activities.”
On the other hand, earlier this year, the then Chancellor of the Exchequer, who is now the Prime Minister, said that it was his
“ambition to make the UK a global hub for cryptoasset technology”.
The then Economic Secretary to the Treasury echoed that, saying in a speech at the Innovate Finance global summit in April:
“If there is one message I want you to leave here today with, it is that the UK is open for business—open for crypto-businesses”;
and
“Because we want this country to be a global hub—the very best place in the world to start and scale crypto-companies.”
It concerns me that the Government do not seem to have made up their mind whether as a country we should value crypto firms and want to entice them to the UK, or whether we should recognise the ease with, and scale at which, criminal activity within crypto markets is allowed to happen and therefore should prioritise tightening regulation and enforcement by cracking down on the widespread use of such assets to defraud individuals and undermine our national security. Perhaps the Minister will shed some light on that strategic dilemma or ambiguity and on how the Government plan to reconcile those two apparently competing aims.
I do not want to pre-empt what the Minister will say, but I imagine that he will claim that it is possible to do both.
Stephen Kinnock
But is it not simply the case that we are not putting enough resources into the enforcement of laws and the policing of such markets? That is fundamental to achieving the regulatory aim of that side of the equation.
Crypto-expert Aidan Larkin recently told me how the US Government’s money laundering and asset recovery section brings in around $800 million a year in crypto-recovery alone, while the UK brings in close to nothing, because the UK Government fail to employ the handful of experts required simply to study the blockchains via things such as bitcoin analytics and to follow the illicit finance—“to follow the money”, as the saying goes. I cannot pretend to be an expert on the technical aspects of that, but it feels like a missed opportunity to go after illegal activity. We have surely reached a point in time when that could be self-funding, if we did it properly.
I am simply not convinced that the system for regulating cryptoassets is working as well as intended. Indeed, it is pretty telling that in response to written questions 86505 and 86504, which I tabled last week, the Minister admitted that none of the 200-plus crypto businesses operating without commission had been subject to any criminal or civil penalties.
As I mentioned, since January 2020 there has been a requirement for new businesses carrying on cryptoasset activity in the UK to register with the FCA. The requirement was extended to existing businesses the following year. The implementation of the register, however, has been beset by problems, not least of which is the fact that a very large number of the firms required to register have not done so. The FCA seems to have been unable to do much about that.
Only a couple of weeks ago, the Financial Times reported that only 16% of applications for registration have been approved by the FCA. The FCA has said that a large number of firms that failed to meet the conditions for registration have withdrawn their applications and that many of those appear to have carried on doing business without the requisite permission. Indeed, the FCA maintains a list of unauthorised cryptoasset businesses operating in the UK. As of last week, 245 firms were on that list. Will the Minister explain what is being done to prevent those 245 firms that operate outside the money laundering rules from scamming members of the public, facilitating money laundering or assisting the evasion of economic sanctions?
The Government have been aware for some time of problems involving the use of cryptoassets to defraud members of the public. In October 2018, the Government’s own Cryptoassets Taskforce published a report that identified advertising that misleads people deliberately, by overstating the potential gains from investing in such assets and downplaying the risks involved, as a significant problem for the Government to address. Only now, after four years, are new rules being introduced to expand the FCA’s remit to include consumer protection in relation to misleading financial promotions.
Despite that, however, a clear gap remains between the scale of criminal activity in the sector and the ability of the FCA and police forces to respond. In recent evidence provided to the Treasury Committee, Ian Taylor of the crypto trade body, CryptoUK, said that the recent collapse of high-profile crypto exchanges such as FTX could have been prevented had a stronger regulatory system been in place. Multiple witnesses testified to the Committee that, without additional staff with the right expertise, the FCA was unlikely to be able to regulate the crypto sector effectively.
Let me turn to the substance of the clause and schedule 6. It is clearly necessary for the law to be brought up to date to reflect the use of digital assets for criminal purposes. The clause and schedule amend the Proceeds of Crime Act 2002, to extend to intangible assets the same confiscation powers that are already used to recover physical assets like cash. That is an important first step, but in many ways the Bill leaves open more questions than it answers.
For instance, the Bill provides new powers to seize cryptoasset-related items, but the definition of those items is incredibly vague, encompassing any item of property that may provide access to some kind of information that could be relevant to an effort to seize a cryptoasset. Given the broad scope of the powers, alongside the related provisions on the destruction of confiscated property, we need more information from the Minister about how the powers are likely to be used in practice.
Alison Thewliss (Glasgow Central) (SNP)
I agree very much with what has been said from the Labour Front Bench. I ask the Minister about the interaction between this Bill and all the other Bills that are considering crypto at the moment, including the Online Safety Bill, which addresses some aspects of people being exposed online to financial crime. The Treasury Committee report on economic crime pushed quite strongly on having an aspect on economic crime in the Online Safety Bill, because it is important that people are not scammed online. To me and to many others, crypto seems very much a place where people do get scammed and lose all their money.
I draw the Committee’s attention to an interview by Henry Mance in the Financial Times yesterday with Stephen Diehl, who is very cynical about the crypto industry and its ability to rip people off. We have to be incredibly careful about the areas we are getting into; we are legislating for something that is moving very quickly. Given the number of Government amendment that will be made to the schedules in this part of the Bill, we need to think carefully about what we are putting in and whether it is suitable for seizing assets and for protecting people against crypto-related fraud more widely.
My other point is about expertise. I have talked an awful lot about the Government having expertise in various areas on the enforcement side, because if there is no expertise in enforcement, the laws that we are considering will just not be enforced. In our evidence session, Andy Gould said:
“We have been investigating cryptocurrency since 2015 or 2016. One of my sergeants has just been offered 200 grand to go to the private sector. We cannot compete with that. That is probably the biggest risk that we face within this area at the moment.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 24, Q37.]
If the money is not there in policing to retain the expertise to prosecute crypto crimes and to make sure that the legislation works in practice, rather than just on paper, the Government will be very much behind the curve.
I add my hesitation on the messages the Government are giving out on regulating and encouraging and on cracking down on a sector that has the potential, as we have seen with the collapse last week, of losing an awful lot of people their money and of making some people an awful lot of money out of those who have lost it.
Tom Tugendhat
If I may, I will just give a quick explanation of what crypto is because there seems to be some misunderstanding. Crypto is both a technology and a financial instrument. The financial instrument element is only part of it. Allowing for crypto technology is basically allowing for mathematics. Passing laws against crypto is like passing laws against mathematics—we can try, but it is not going to work.
What the now Prime Minister was talking about was encouraging the mathematics, the algorithms and the technology to develop in this country to create the kind of industry and the kind of infrastructure that would allow the technological use of algorithms for the transfer, sometimes of wealth, sometimes of knowledge, sometimes of contractual obligations. That is what blockchain fundamentally is.
On top of the blockchain, there are various forms of currency. There are bitcoins, which are proof of work, and then there is ethereum, which is proof of stake. These are different kinds of technologies and different ways in which cryptoassets use the blockchains and the technology that has underwritten them.
Having regulation for the currency is not the same as having regulation for the underlying mathematics. We would not say that we have regulation for the economist in the same way that we have regulation for the bank—they are different things. The Government are doing the right thing. We recognise that there is technology, and supporting it; we recognise that there are financial instruments, and are looking to work with others to make sure that those financial instruments are regulated in a sensible way. Now, that is difficult: I will be honest. It is difficult because the technology and its use are changing remarkably. The hon. Member for Aberavon spoke about FTX. As he may know, other companies such as Celsius and Gemini have stopped trading in various different ways, as well. It is not just about one instrument. It is certainly arguable that FTX got into difficulties for reasons other than lack of regulation.
The hon. Member’s point about advertising is extremely valid. There is a real challenge. That is different—it does not quite relate to this element of the Bill. We are seeing increasing amounts of financial advertising online in different ways. I do not know how many members of the Committee have Instagram accounts, but the number of Instagram messages I get advertising foreign exchange trading is frankly bizarre.
Tom Tugendhat
I do not want to know what they advertise to the right hon. Gentleman. They don’t do it by pigeon.
The reality is that there are different ways in which people are trying to hack and attack, to steal from individuals in our country and around the world. That is why the work we are doing on the Joint Fraud Taskforce, which met yesterday, and on many other aspects of regulation, such as the Online Safety Bill, which the hon. Member for Glasgow Central quite rightly spoke about, is so important. The FCA has moved forward on many of those areas, in a sensible way, to balance the need of the technology to advance with the protection of society. It is certainly true that many people have lost a lot in recent weeks and months. I do not think anybody was under any great illusion, though, that cryptocurrencies were not a high-risk item, to put it politely. Anything worth about $1 10 years ago and $60,000 a few years later is probably not a stable currency. It may be many things, but it is probably not stable. It is now worth about $10,000 or so—
Tom Tugendhat
So, $13,000. That certainly speaks to the level of volatility. It has been up and down like a yo-yo in between times, so it is not exactly as though anybody would have been recommended it as an investment vehicle. I understand the hon. Lady’s points about online safety and fraud, and she is completely correct, but that is being addressed in different aspects of Government policy. What the Bill does is make sure that those assets that are held in cryptocurrency can be seized, as other assets can. It is certainly true that they are held in different ways, as the gentleman who is going through the waste dump in Wales is discovering. That means that seizing the assets needs a certain ambiguity in the legislation in order to keep it updated for the future. The Government have made a sensible series of suggestions to balance that need for advancing the technology and protecting consumers.
Stephen Kinnock
The Minister is being very generous. On that point about seizing the assets, will the Minister comment on the feedback that Aidan Larkin, an expert in this area, gave me, which is that in the United States money laundering and asset recovery measures bring in about $800 million per year? He says that we do not employ enough people doing block chain analytics. We are missing a big opportunity to generate revenue for the Exchequer.
Tom Tugendhat
I am delighted that the hon. Gentleman will now be supporting this element of the Bill, because that is exactly what it is for.
Stephen Kinnock
I thank the Minister for sitting down even before I had intervened.
Stephen Kinnock
It seems that this is an issue around resourcing and having the people in place—the handful of experts that we need to study the blockchains. Will the Minister assure the Committee that that resourcing will be provided?
Tom Tugendhat
I can assure the hon. Gentleman that the National Crime Agency, working alongside partners in places such as GCHQ, has enormous amounts of technology to look at cryptoassets in various different ways. The Bill—which I am delighted to hear the hon. Gentleman supports so enthusiastically—will indeed give the powers that he looks for.
Question put and agreed to.
Clause 141 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Clause 142
Cryptoassets: civil recovery
Tom Tugendhat
I beg to move amendment 121, in clause 142, page 125, line 18, at end insert—
“(2) It also contains related amendments.”.
This amendment provides for Schedule 7 (cryptoassets: civil recovery) to contain related amendments.
The Chair
With this it will be convenient to discuss Government amendments 51 to 64, 156, 157, 65 to 67 and 158 to 161.
Tom Tugendhat
This is a series of small wording and technical amendments that make no substantial changes to schedule 7, but simply ensure clarity and maintain consistency in the Bill’s drafting.
Stephen Kinnock
The use of enhanced powers to seize and detain digital assets, as set out in schedule 6, will be subject to a court order. Clause 142 and schedule 7 and the related Government amendments extend civil recovery powers, which may be used in the absence of a criminal conviction, to a range of organisations including the National Crime Agency, His Majesty’s Revenue and Customs and the Serious Fraud Office, in addition to police forces. It would be helpful if the Minister could explain how the Government will ensure that these enforcement powers will be used effectively in a way that avoids duplication of effort and ensures that there is a clear division of responsibilities of the different agencies. As I have said before, numerous additional powers are provided for in the Bill that require further clarification.
Stephen Kinnock
I have no substantial comment on the Government amendments. I should have made that clear. As the Minister says, these are technical amendments that do not have a huge amount of consequence.
I return to the issue of powers provided for in the Bill that require further clarification. I would be particularly grateful if the Minister could explain how the provisions enabling a digital asset to be converted into its equivalent value in cash might be used in practice.
In my view, there are other important issues in this area, which the Bill fails to address. I would be grateful if the Minister could set out what plans, if any, the Government have to update the asset confiscation powers we have been discussing and to extend the scope of the money laundering regulations to reflect technological developments such as non-fungible tokens and the use of digital works of art as a means of disguising illicit financial transactions.
Tom Tugendhat
I was rather under the impression that we had not voted on the amendment.
The Chair
We are not voting yet—we will be coming to a vote in a moment. It is for you to now conclude the debate.
Tom Tugendhat
It feels a bit sentence first, verdict afterwards, but all right.
The Chair
We have been doing it for thousands of years. Don’t worry—you will get used to it.
Tom Tugendhat
I have nothing further to add on that.
Amendment 121 agreed to.
Question proposed, That the clause, as amended, stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 7 be the Seventh schedule to the Bill.
Government new clause 23—Cryptoassets: terrorism.
Government new schedule 1—Cryptoassets: terrorism.
I call the Minister to speak to clause 142 stand part, although that might seem a bit déjà vu for some folk now.
Tom Tugendhat
It is unusual to have the Opposition argument before the ministerial one—
Stephen Kinnock
I apologise for jumping the gun, but I thought we had already debated the group.
Tom Tugendhat
I am delighted to have had the position set out so clearly.
Perhaps it would be helpful if I answered some of the hon. Gentleman’s questions. The reality is that this part of the Bill is to allow law enforcement agencies to search for physical items linked to cryptoassets. As I said in answer to an earlier point, many of the assets are held in different ways. Therefore, seizing physical assets in order to link to cryptoassets is often necessary.
To use the proposed powers, officers will need reasonable grounds to suspect that the cryptoassets have been obtained through unlawful conduct or are intended for use in unlawful conduct. The powers to search for and detain assets are supplemented by powers to ultimately forfeit the cryptoassets where a magistrates court, or a sheriff court in Scotland, can be satisfied that they have been obtained through, or are intended for use in, unlawful conduct. The powers to seize or freeze and ultimately recover cryptoassets may be used irrespective of whether the asset holder has been convicted of a criminal offence. They are, therefore, an important tool for disrupting criminal activity.
Government new clause 23 and new schedule 1—which we have just heard the Opposition debate—mirror in counter-terrorist legislation the civil recovery powers in schedule 7 to the Bill by introducing new provisions into the Anti-terrorism, Crime and Security Act 2001 and the Terrorism Act 2000. That addresses a gap in existing counter-terrorism legislation and ensures that the UK’s world-leading counter-terrorism framework keeps pace with modern technology.
The creation of cryptoasset-specific civil forfeiture powers in both the Proceeds of Crime Act and counter-terrorism legislation will, importantly, mitigate the risk posed by those who cannot be prosecuted under the criminal system, but who use their proceeds stored as cryptoassets to perpetrate further criminality. Key definitions in the measures inserted by schedule 7 and new schedule 1 are in line with existing legislation and with schedule 6 to the Bill. Similarly, they include powers to update the defined terms and adapt the process for forfeiture of frozen cryptoassets, if needed. With that, I believe I have answered the Opposition’s questions before they were even asked.
Stephen Kinnock
The Opposition are concerned about enforcement. As the Minister and I have agreed throughout the debate, and as his ministerial colleague has frequently said, legislation without implementation is not worth the paper it is written on. There is little point in us passing a law that cannot or will not be enforced effectively. I am, and the Opposition are, genuinely concerned about the real risk in the proposals, partly because so much detail has yet to be made clear, but mostly because of the huge gap between what we expect of law enforcement and what resources the Government are prepared to put in.
As I said about the FCA, even the most basic requirement for cryptoasset firms to register is starting to appear unworkable. Will the Minister explain, if we cannot even get such businesses to register, how on earth will we ever be able to identify which ones are breaking the law, much less impose any penalties? I look forward to his clarification.
Tom Tugendhat
I am pleased that the hon. Gentleman is so supportive of the work of the NCA, because it, GCHQ and others have been working extremely hard on identifying the movement of cryptoassets around not just the UK, but wider areas and jurisdictions. That is enormously important for the element of seizure to which he is referring.
It is also important that the conversion powers that the hon. Gentleman spoke about are understood for what they are. A few moments ago, the hon. Member for Glasgow Central asked about market volatility. That is true at any point, including at moments of seizure. Therefore, in order to avoid market volatility at moments of seizure—particularly when assets have been taken, converted to crypto in order to be moved abroad and then seized—having control of those assets means that one needs to put them into cash in order to have a recoverable asset, so this provision is extremely sensible.
The new powers are modelled on existing powers that many law enforcement agencies use to disrupt criminal and terrorist networks. They exercise proportionality and investigatory powers that are absolutely necessary, and no more.
Question put and agreed to.
Clause 142, as amended, accordingly ordered to stand part of the Bill.
Schedule 7
Cryptoassets: civil recovery
Amendments made: 51, in schedule 7, page 206, line 42, leave out “Chapter” and insert “Part”.
This amendment makes a minor technical correction to inserted section 303Z42 of the Proceeds of Crime Act 2002, which relates to the procedure for applying for the forfeiture of cryptoassets.
Amendment 52, in schedule 7, page 206, leave out lines 45 to 47 and insert—
“(3) Where an application is made under section 303Z41 in relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order—
(a) subsections (4) and (5) apply, and
(b) the crypto wallet freezing order is to continue to have effect until the time referred to in subsection (4)(b) or (5).”
This amendment amends inserted section 303Z42 of the Proceeds of Crime Act 2002 to provide that a crypto wallet freezing order continues to have effect until the end of any forfeiture proceedings started in respect of cryptoassets held in a crypto wallet that is subject to such a freezing order.
Amendment 53, in schedule 7, page 207, line 12, leave out “(4)” and insert “(4)(b)”.
This amendment is consequential on Amendment 52.
Amendment 54, in schedule 7, page 211, line 24, leave out from “applies” to end of line 28 and insert “—
(a) the magistrates’ court or sheriff decides—
(i) to make an order under section 303Z41(4) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under section 303Z41(4), or
(b) if the application is transferred in accordance with section 303Z45(1), the High Court or Court of Session decides—
(i) to make an order under section 303Z45(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under section 303Z45(3).”
This amendment provides that an application under inserted section 303Z46 of the Proceeds of Crime Act 2002 (continuation of crypto wallet freezing order pending appeal) may be made in circumstances where a forfeiture application under section 303Z41 of that Act is transferred in accordance with section 303Z45 of that Act to be heard by the High Court or the Court of Session.
Amendment 55, in schedule 7, page 211, line 31, leave out “(1)(a) or (b)” and insert “(1)”.
This amendment is consequential on Amendment 54.
Amendment 56, in schedule 7, page 211, line 37, leave out “under section 303Z47” and insert
“(whether under section 303Z47 or otherwise)”.
This amendment is consequential on Amendment 54.
Amendment 57, in schedule 7, page 211, line 39, leave out “(1)(a) or (b)” and insert “(1)”.
This amendment is consequential on Amendment 54.
Amendment 58, in schedule 7, page 213, line 2, leave out “with the approval of” and insert
“if the officer is a senior officer or is authorised to do so by”.
This amendment amends inserted section 303Z48 of the Proceeds of Crime Act 2002 to provide that an enforcement officer may destroy forfeited cryptoassets only if the officer is a senior officer or is authorised to do so by a senior officer.
Amendment 59, in schedule 7, page 214, line 44, after “may” insert “, subject to subsection (7A),”.
This amendment and Amendments 60 and 62 amend inserted section 303Z51 of the Proceeds of Crime Act 2002 to provide that cryptoassets may not be released under that section while forfeiture proceedings are ongoing in respect of those cryptoassets.
Amendment 60, in schedule 7, page 215, line 8, after “may” insert “, subject to subsection (7A),”.
See Amendment 59.
Amendment 61, in schedule 7, page 215, line 24, at end insert “or”.
This amendment makes a minor technical correction to the release condition in inserted section 303Z51(7) of the Proceeds of Crime Act 2002.
Amendment 62, in schedule 7, page 215, line 29, at end insert—
“(7A) If an application under section 303Z41 is made for the forfeiture of the cryptoassets, the cryptoassets are not to be released under this section until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.”
See Amendment 59.
Amendment 63, in schedule 7, page 226, line 18, after “cryptoassets” insert—
“, or of property which they represent,”.
This amendment amends inserted section 303Z63 of the Proceeds of Crime Act 2002 (converted cryptoassets: victims and other owners) to provide that the condition in subsection (5)(a) of that section is met where the applicant was deprived of cryptoassets or of property which those cryptoassets represent.
Amendment 64, in schedule 7, page 227, leave out lines 1 to 5 and insert—
“(a) if the conditions in this Chapter for the detention of the converted cryptoassets are no longer met, or”.
This amendment amends the release condition in inserted section 303Z63(8) of the Proceeds of Crime Act 2002 (converted cryptoassets: victims and other owners) to provide that the release condition is met where the court is satisfied that the conditions in Chapter 3F of Part 5 of that Act for detention of the converted cryptoassets are no longer met.
Amendment 156, in schedule 7, page 230, line 22, at end insert—
“Amendments to the Proceeds of Crime Act 2002
1A In section 2C(3A) of the Proceeds of Crime Act 2002 (prosecuting authorities), for ‘or 303Z19’ substitute ‘, 303Z19, 303Z53 or 303Z65’.
1B (1) Part 2 of the Proceeds of Crime Act 2002 (confiscation: England and Wales) is amended as follows.
(2) In section 7 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 82 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.
1C (1) Part 3 of the Proceeds of Crime Act 2002 (confiscation: Scotland) is amended as follows.
(2) In section 93 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 148 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.
1D (1) Part 4 of the Proceeds of Crime Act 2002 (confiscation: Northern Ireland) is amended as follows.
(2) In section 157 (recoverable amount)—
(a) in subsection (4)(c), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (4)(d), after ‘303Q(1)’ insert ‘or 303Z44(1)’.
(3) In section 230 (free property)—
(a) in subsection (2)—
(i) in paragraph (ea), for ‘or 10Z2(3)’ substitute ‘, 10Z2(3), 10Z7AG(1), 10Z7BB(2), 10Z7CA(3), 10Z7CE(3) or 10Z7DG(3)’;
(ii) in paragraph (f), for ‘or 303Z14(4)’ substitute ‘, 303Z14(4), 303Z32(1), 303Z37(2), 303Z41(4), 303Z45(3) or 303Z60(4)’;
(b) in subsection (3)—
(i) after paragraph (b) insert—
(ii) in paragraph (c), after ‘303Q(1)’ insert ‘or 303Z44(1)’;
(iii) after paragraph (e) insert—
(iv) in paragraph (f), after ‘10I(1)’ insert ‘or 10Z7CD(1)’.”
This amendment contains consequential and other amendments to Parts 1 to 4 of the Proceeds of Crime Act 2002 in relation to the civil recovery of cryptoassets.
Amendment 157, in schedule 7, page 230, line 24, at end insert—
“(1A) In section 278 (limit on recovery)—
(a) in subsection (7)(a), for ‘or 303Z14’ substitute ‘, 303Z14, 303Z41, 303Z45 or 303Z60’;
(b) after subsection (7A) insert—
‘(7B) If—
(a) an order is made under section 303Z44 instead of an order being made under section 303Z41 for the forfeiture of recoverable property, and
(b) the enforcement authority subsequently seeks a recovery order in respect of related property,
the order under section 303Z44 is to be treated for the purposes of this section as if it were a recovery order obtained by the enforcement authority in respect of the property that was the forfeitable property in relation to the order under section 303Z44.’”
This amendment contains a consequential amendment to section 278 of the Proceeds of Crime Act 2002 in relation to forfeited cryptoassets.
Amendment 65, in schedule 7, page 231, line 3, after “may” insert “, subject to subsection (7A),”.
This amendment and Amendments 66 and 67 amend inserted section 303Z17A of the Proceeds of Crime Act 2002 to provide that money may not be released under that section while forfeiture proceedings are ongoing in respect of the money.
Amendment 66, in schedule 7, page 231, line 13, after “may” insert “, subject to subsection (7A),”.
See Amendment 65.
Amendment 67, in schedule 7, page 231, leave out lines 25 to 36 and insert—
“(7) The release condition is met—
(a) in relation to money held in a frozen account, if the conditions for making an order under section 303Z3 in relation to the money are no longer met, or
(b) in relation to money held in a frozen account which is subject to an application for forfeiture under section 303Z14, if the court or sheriff decides not to make an order under that section in relation to the money.
(7A) Money is not to be released under this section—
(a) if an account forfeiture notice under section 303Z9 is given in respect of the money, until any proceedings in pursuance of the notice (including any proceedings on appeal) are concluded;
(b) if an application for its forfeiture under section 303Z14 is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.”
See Amendment 65. This amendment also replaces the release condition in inserted section 303Z17A(7) of the Proceeds of Crime Act 2002 to include changes for consistency with equivalent provisions in Part 5 of that Act.
Amendment 158, in schedule 7, page 235, line 5, at end insert—
“(20A) In section 386 (production orders: supplementary), in subsection (3)(b), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.”
This amendment contains a consequential amendment to section 386 of the Proceeds of Crime Act 2002 in relation to production orders and cryptoasset investigations.
Amendment 159, in schedule 7, page 236, line 11, at end insert—
“(30) In section 416 (other interpretative provisions), in subsection (1), after the entry for ‘confiscation investigation’ insert—
‘cryptoasset investigation: section 341(3D)’.”
This amendment contains a consequential amendment to section 416 of the Proceeds of Crime Act 2002 in relation to the meaning of “cryptoasset investigation” in Part 8 of that Act.
Amendment 160, in schedule 7, page 236, line 11, at end insert—
“3A In section 438 of the Proceeds of Crime Act 2002 (disclosure of information by certain authorities), in subsection (1)(f), for ‘or 3B’ substitute ‘, 3B, 3C, 3D, 3E or 3F’.
3B In section 441 of the Proceeds of Crime Act 2002 (disclosure of information by Lord Advocate and by Scottish Ministers)—
(a) in subsection (1), for ‘or 3A’ substitute ‘, 3A, 3C or 3F’;
(b) in subsection (2)(g), for ‘or 3B’ substitute ‘, 3B, 3C, 3D, 3E or 3F’.
3C In section 450 of the Proceeds of Crime Act 2002 (pseudonyms: Scotland), in subsection (1)(a), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.
3D In section 453A of the Proceeds of Crime Act 2002 (certain offences in relation to financial investigators), in subsection (5), at the end of paragraph (dc) (before the ‘or’) insert—
‘(dd) section 303Z21 (powers to search for cryptoasset-related items);
(de) section 303Z26 (powers to seize cryptoasset-related items);
(df) section 303Z27 (powers to detain cryptoasset-related items);’.”
This amendment contains consequential amendments to Parts 10 and 12 of the Proceeds of Crime Act 2002. The amendments relate to the disclosure of information obtained during cryptoasset investigations, the use of pseudonyms during such investigations and offences against accredited financial investigators exercising powers in connection with such investigations.
Amendment 161, in schedule 7, page 236, line 21, at end insert—
“Amendments to the Civil Jurisdiction and Judgments Act 1982
5 (1) Section 18 of the Civil Jurisdiction and Judgments Act 1982 (enforcement of UK judgments in other parts of UK) is amended as follows.
(2) In subsection (2)(g), for ‘or a frozen funds investigation’ substitute ‘, a frozen funds investigation or a cryptoasset investigation’.
(3) In subsection (4ZB)—
(a) after paragraph (b) insert—
‘(ba) a crypto wallet freezing order made under section 303Z37 of that Act;
(bb) an order for the forfeiture of cryptoassets made under section 303Z41 or 303Z45 of that Act;’;
(b) after paragraph (d) insert—
‘(da) a crypto wallet freezing order made under paragraph 10Z7BB of that Schedule;
(db) an order for the forfeiture of cryptoassets made under paragraph 10Z7CA or 10Z7CE of that Schedule.’
(4) In subsection (5)(d)(i)—
(a) after ‘(a)’ insert ‘, (ba)’;
(b) for ‘or (c)’ substitute ‘, (c) or (da)’.”—(Tom Tugendhat.)
This amendment amends the Civil Jurisdiction and Judgments Act 1982 to include provision about the enforcement of certain cryptoasset-related orders in different parts of the UK.
Schedule 7, as amended, agreed to.
Clause 143
Money laundering: exiting and paying away exemptions
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
In a most unusual role, I shall start this time. Clauses 143 and 144 expand the types of case in which businesses can deal with clients’ property without first having to submit a defence against money laundering suspicious activity report—a so-called DAML. The changes will reduce nugatory regulatory burdens on businesses and help focus private sector and law enforcement resources on proactive, high-value activity, while removing disproportionate delays to businesses and customers.
A DAML effectively freezes a transaction until the UK Financial Intelligence Unit in the National Crime Agency—the UKFIU—decides to provide consent for the transaction to go ahead. Alternatively, the UKFIU could refuse it and pursue further investigation. If the UKFIU does not respond within seven working days, the business can assume that they have consent and proceed with the transaction. That means businesses regularly waiting seven working days before being able to proceed with a transaction. Businesses cannot inform customers that the delay is due to a DAML, as doing so may amount to a criminal offence.
The volume of DAMLs submitted by businesses to the UKFIU rose by 80% to 62,341 in the last year that data was available, which is creating a disproportionate burden on staff in the regulated sector, as well as in the NCA and wider law enforcement. The clauses will ensure that we are taking action to handle those rising volumes and that the DAML reporting system is used proportionally.
The exemption created by clause 143 will apply when a business in the anti-money laundering regulated sector ends a relationship with a customer and pays away any money or property suspected to be the proceeds of criminal conduct. The clause enables the business to pay back money or property under the value of £1,000 without first submitting a defence against money laundering suspicious activity report to the UKFIU and without committing a money laundering offence.
DAMLs below £1,000 are of limited value to law enforcement. That is because £1,000 is the minimum amount for law enforcement to pursue an account freezing order under the civil recovery provisions, and because of the need to prioritise higher volume cases. As a result, DAMLs below £1,000 are rarely refused consent by the UKFIU, but they place a burden on reporters to submit.
The exemption created by clause 144 will apply when a person carrying out business in the anti-money laundering regulated sector suspects that only part of their customer’s property is the proceeds of criminal conduct. The clause enables the business to allow the customer access to their property without the business committing one of the principal money laundering offences or first submitting a defence against money laundering suspicious activity report. This is provided that the conditions of the exemption are met, including the condition that, as a minimum, the value of the suspected criminal property in the account is withheld when allowing a customer access to their funds.
Stephen Kinnock
According to the Government’s impact assessment, the purpose of clauses 143 and 144, which expand the scope of exemptions from money laundering offences, is to reduce the number of ineffective defence against money laundering reports submitted to the NCA’s financial intelligence unit. It is worth bearing in mind that the purpose of the reporting system is to enable regulated firms to notify the FIU when they are asked by a client to make a financial transaction that may amount to a money laundering offence. The FIU has seven days to review the report, and if it turns out that there is a connection to money laundering, it can ensure that appropriate enforcement action is taken.
The reports can, and often do, serve as a valuable means of identifying criminal activity. The Government’s wish to reduce the number of DAML reports is understandable, but we must not throw the baby out with the bathwater. It is important for the Minister to explain to the Committee how those measures are sufficiently targeted that they reduce the number of unnecessary or unhelpful reports without causing a similar reduction in reports that might help to identify serious crime.
Clauses 143 and 144 provide exemptions from money laundering offences for certain transactions involving property worth less than £1,000, and in cases where some but not all of a client’s assets may involve criminal funds. I would be grateful if the Minister would explain the Government’s reasoning in setting the relevant thresholds at the specific levels provided for in those clauses.
I want to touch on a couple of broader points. The Government are right that the SARs process is in need of considerable reform. There are many steps the Government could take to improve the quality of reporting in addition to the measures set out in those clauses. For instance, the Solicitors Regulation Authority published a report last month in which it noted that, in two thirds of the reports it reviewed, the firms making the report did not include the glossary codes that enable the NCA to triage reports effectively and ensure an appropriate enforcement response. Additionally, the SRA found that as many as a quarter of the DAML reports it reviewed failed even to describe the criminal conduct that was suspected. Those findings are clear evidence that many law firms do not have an adequate level of understanding of the laws they are expected to help enforce. The same may well be true in other regulated sectors.
Will the Minister set out what steps the Government are taking to ensure that regulated firms have a better understanding of their obligations under the law, and how official guidance might be improved to help firms to submit better quality reports? I point out that significant improvements could be made to the speed and efficiency of the SARs process by making use of new and emerging technologies. If the FIU could use more cutting-edge software applications and algorithms to help identify the most serious crimes, it would go a long way towards addressing the problems that the Government seek to tackle. Perhaps the Minister might comment on the Government’s work in that area.
Tom Tugendhat
I am delighted to respond to that. The rising volume of DAMLs being submitted has already had an impact on effectiveness. That is welcome, in that businesses are taking their responsibilities extremely seriously, and the UKFIU is responding appropriately when it receives them. Although, as the hon. Member quite rightly says, technology can help, the reality is that there is still an awful lot of work to be done. That is why these provisions are so reasonable.
The provisions are reasonable because property or criminal funds worth less than £1,000 are already exempt from asset seizures in different circumstances. It makes absolute sense to have a restriction on that in the Bill and apply the same threshold to allow the UKFIU to target, as much as possible, those serious money laundering accusations and investigations appropriately—and, indeed, to arrest more criminals.
Stephen Kinnock
I thank the Minister for that response. Would he care to comment on the feedback from the Solicitors Regulation Authority, which points particularly at the fact that many of the firms doing the reports were not including key information such as glossary codes and sometimes did not even describe the criminal conduct that they suspected? Is there something more that could be done so that the information at source was in a better state? Does he think that the feedback from the SRA could be a good basis on which to achieve that?
Tom Tugendhat
I am sure that having data at source in as clean and fluent a fashion as possible, so that it is complete and allows investigation, is absolutely essential. I am sure that solicitors will feel the responsibility to do that. I am grateful to the hon. Gentleman for raising that point.
Question put and agreed to.
Clause 143 accordingly ordered to stand part of the Bill.
Clause 144 ordered to stand part of the Bill.
Clause 145
Information orders: money laundering
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
Clause 145 amends the existing information order power in the Proceeds of Crime Act 2002 to bolster the UKFIU intelligence-gathering powers. Clause 146 addresses a gap in counter-terrorism legislation by mirroring those in the Terrorism Act 2000. The clauses will align the UKFIU more closely with the international standards of the Financial Action Task Force, known as FATF—including to me, actually—and enable greater collaboration with international financial intelligence units. That aids public safety in the UK and overseas, and furthers the UK’s efforts to combat illicit financial flows entering the UK economy.
FATF is the international body devoted to developing and promoting policies to combat money laundering and terrorist financing. As a member, the UK agrees to promote FATF’s anti-money laundering standards, which are expressed in the form of recommendations. FATF, the global money laundering and terrorist financing watchdog, evaluated the UK in 2018 and rated it only “partially compliant”. That rating was affected by the UKFIU’s limited ability to conduct operational strategic analysis in cases where a business has not already submitted a suspicious activity report.
Clause 145 amends the existing information order power by removing the requirement for a preceding suspicious activity report, or SAR, before an application can be made to a magistrates or sheriff court. Clause 146 mirrors that for counter-terrorism legislation. The information order will compel business in the anti-money laundering regulated and terrorist financing regulated sectors to provide information about a customer or client. That information will enable the UKFIU to conduct its operational strategic analysis functions by proactively gathering financial intelligence rather than relying on the reporting sector to have submitted information already. Further, the clauses will enable the UKFIU to better assist international counterparts to gather information, for example, relating to sanctions evasion and maximising the effort to prevent terrorist finances from entering the UK’s economy.
The information sought under an information order is designed for intelligence purposes only. To ensure the power is used appropriately, a code of practice must be made by the Secretary of State. The person making the application must have had regard to the code of practice when applying to the court for an information order. The measure has been developed collaboratively with the UKFIU.
Stephen Kinnock
I thank the Minister for including the provisions in the Bill, which should make it easier for the NCA to access the information that it needs to gather intelligence and conduct analysis of the range of threats that we face from money laundering and terrorist financing. The provisions in the clauses should also help to ensure that the UK is able to provide more effective assistance to law enforcement bodies in other countries in response to requests for information.
Given that so much economic crime is inherently an issue that cuts across international borders, it is absolutely right for the Government to do all that they can to enforce the law within our own borders and to help Governments in our partner countries overseas to do the same.
Question put and agreed to.
Clause 145 accordingly ordered to stand part of the Bill.
Clause 146 ordered to stand part of the Bill.
Clause 147
Enhanced due diligence: designation of high-risk countries
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
The clause amends the Sanctions and Anti-Money Laundering Act 2018 to allow the Treasury to directly publish and amend the UK’s high-risk third countries list on gov.uk.
Under the 2017 money laundering regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. High-risk third countries are those identified by the Financial Action Task Force as having poor controls and significant shortcomings in their anti-money laundering and counter-terrorist financing regimes.
Currently, a statutory instrument needs to be laid several times a year to update the UK’s list each time the FATF’s own list is amended. The clause will allow for more rapid updates to the list, helping the UK to be even more responsive to evolving money laundering threats by ensuring that risks are communicated and mitigated by the regulated sector as soon as possible. By removing the need to introduce legislation for each update, the change will also ease pressures on ministerial and parliamentary time, thereby responding to Parliament’s call to streamline the process—very much like this Committee.
Stephen Kinnock
Clause 147 raises a number of concerns for us, which I hope the Minister will be able to address. It aims to change the procedure for updating the Treasury’s list of countries designated as high risk due to serious deficiencies in their anti-money laundering and counter-terrorist financing systems, which was established by the Sanctions and Anti-Money Laundering Act 2018. The clause will enable the Treasury to update the list directly, without the need for regulations, in effect removing the opportunity for Parliament to scrutinise any changes to the list.
During the passage of the 2018 Act, there was cross-party consensus on the need for any UK list of designated high-risk countries to reflect international standards, primarily by mirroring the lists maintained by the Financial Action Task Force. The problem with clause 147 is that it appears to enable the Treasury to make any future updates to the UK list, even in ways that diverge from the FATF lists, without any opportunity for Parliament to scrutinise or debate the proposals. Given the zeal for deregulation that we have often seen from the current Government, it takes no great stretch of the imagination to foresee a situation in which the Treasury determines that the FATF lists are unduly stringent and that certain countries and territories should be removed from the UK’s list of high-risk countries, even in cases where issues identified by the FATF remain unresolved.
Looking at the relevant impact assessment, it seems that the intention is to enable Ministers to update the list “more swiftly” when needed, thus making the UK’s list more “responsive” to emerging developments than is possible under the current system. But even if the aim is reasonable, the methods are questionable. For one thing, the 2018 Act stipulates that regulations updating the list of high-risk countries are subject to the affirmative procedure, under which Parliament is given the opportunity to retrospectively review changes that have already been made by the time the regulations are published. Together with the fact that updates are generally needed no more frequently than once every three months, this does not seem to place an undue burden on Ministers.
The changes made by clause 147 do not seem proportionate to any identifiable problem with the current system. The Opposition therefore strongly encourage the Minister and his colleagues to revisit the clause, on the basis that a convincing case for the need to remove Parliament’s oversight of this process has not been made.
Tom Tugendhat
The idea of a kleptocrats list is an interesting one. It is not one I have heard before. If the right hon. Lady will forgive me, I will look into it and respond to her in writing; I have not thought about the matter, so I will have to give it some thought.
The list of high-risk third countries is based on the FATF list, which, as the hon. Member for Aberavon knows, has provided the basis for all the statutory instruments that have passed with no objection or issue. This measure will not save much ministerial time, if any at all, but it will save parliamentary time. Given how hard-pressed Parliament is to debate so many issues, I think it is a reasonable provision. Given the alignment between the UK regime and the international FATF standards, that seems to be a pretty standard change.
On the question of debating other areas, there is often cause to debate other countries’ inclusion or exclusion from such lists, and the Treasury, the Foreign Office and other Departments and organisations often have views. I am not sure this is the Bill in which to do that; this Bill is simply about correcting a slight bump in the road and speeding up the process.
The Chair
I call Neil Kinnock—I beg your pardon, Stephen. People used to do that to me and they always got it wrong.
Stephen Kinnock
Don’t worry, Mr Paisley—we could probably exchange notes on that at great length.
I thank the Minister for those points. I recall his time as chair of the Foreign Affairs Committee, when he pushed relentlessly and convincingly for parliamentary scrutiny of a whole range of key issues and decisions. Given that parliamentary scrutiny was built into the 2018 Act, it seems difficult to justify its deliberate removal from the process by this Bill. It seems like it would be good to have those guard rails in place to avoid the risk of somebody in the Treasury deciding at some point that big decisions should be made without any parliamentary scrutiny at all. Does he not agree that this is a real missed opportunity?
Tom Tugendhat
No, I do not. I always found that when I wanted to get parliamentary scrutiny as Chair of a Committee, I managed to find ways to do that—often through debates, in which the hon. Gentleman was a wonderful speaker—and to change Government policy by using not only Parliament, but the media and other forms of pressure. There is a difference between seeking to change Government policy on various aspects of areas that should really be considered as wider policy, and seeking to implement these changes, which are, let us be honest, rather technical and not issues of major parliamentary debate.
Question put and agreed to.
Clause 147 accordingly ordered to stand part of the Bill.
Clause 148
Direct disclosures of information: no breach of obligation of confidence
Tom Tugendhat
I beg to move amendment 122, in clause 148, page 136, leave out lines 22 and 23 and insert—
“(1) The protections set out in subsection (1A) apply in relation to a disclosure made by a person (‘A’) to another person (‘B’) if—”.
This amendment and Amendments 125 and 135 provide that disclosures mentioned in clause 148(1) do not give rise to any civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
The Chair
With this it will be convenient to discuss the following:
Government amendments 123 to 135.
Clause stand part.
Government amendments 136 to 142.
Amendment 167, in clause 149, page 138, line 8, at end insert—
“(vi) a firm or individual carrying on statutory audit work or local audit work,
(vii) an individual appointed to act as an insolvency practitioner,
(viii) a firm or sole practitioner providing to other persons accountancy services, or providing material aid, or assistance or advice, in connection with the tax affairs of other persons, or
(ix) an auditor, external accountant or insolvency practitioner as defined in Section 11 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.”
This amendment includes accountants in various roles in the indirect information sharing provisions set out in clause 149, allowing them to pass on information regarding suspicious activity.
Government amendments 143 to 152.
Clauses 149 to 152 stand part.
Government amendments 153 to 155.
Clause 153 stand part.
That schedule 8 be the Eighth schedule to the Bill.
Tom Tugendhat
Large amounts of financial data flow through the United Kingdom every hour. The majority relate to entirely legitimate and proper activity; however, a small proportion involve criminal activity. As hon. Members heard from several witnesses to the Committee, the sharing of information regarding criminal activity between businesses is currently constrained by duties of confidentiality. These clauses and the associated Government amendments address that constraint.
Clause 148 enables direct disclosure of information between two businesses in the anti-money laundering regulated sector for the purposes of preventing, investigating and detecting economic crime, without a breach of their obligation of confidence to their customers.
Tom Tugendhat
I am glad to have support from further down the Treasury Bench.
To request information, a business must have reason to believe that the other business holds information that will, or may, assist in carrying out its relevant actions. Relevant actions include deciding whether further customer due diligence is needed, restricting access to products, or terminating a business relationship with the customer as a result of the additional information obtained.
Amendments 122 to 135 amend clause 148 to expand the provisions to offer protection from civil liability owed by the person sharing information to the person to whom the disclosure relates. As the Committee heard when UK Finance gave evidence, the banking sector maintains that without greater protection, information is unlikely to be shared, as doing so creates limited benefit in comparison with the risk of potential protracted and expensive litigation from customers. Greater use of the provisions will make it harder for criminals to exploit UK businesses. We have listened to the sector and tabled these amendments.
Clause 149 enables indirect information sharing by certain businesses via a third-party intermediary, on a similar basis to elements of clause 148. A business may share information about a current or former customer whom they have already decided to take action against due to an economic crime risk—or who would have been subject to that decision were they still a customer—either by terminating a business relationship or by refusing or restricting access to a product or service. The business must be satisfied that sharing the customer’s information will assist other businesses in carrying out their relevant actions. As with clause 148, the Government have tabled amendments 136 to 141 and 143 to 151 to disapply civil liability for a person who discloses such information.
Government amendments 142, 152 and 155 extend the scope of the indirect information-sharing provisions to cover large and very large accountancy and legal businesses. The benefit of bringing those businesses within the scope of the provision is that those firms have experience of dealing with high-risk clients. Criminals are known to exploit the information gaps that currently exist between businesses in these sectors, and encouraging further information sharing creates greater opportunities to prevent economic crime.
Clauses 148 and 149 do not disapply any liabilities arising under data protection legislation. The hon. Member for Feltham and Heston tabled amendment 167, which would expand clause 148 to include the accountancy sector. I hope that she is reassured that the Government amendments that I have just described achieve that objective.
Government amendments 153 and 154 make express provision for aiding, abetting, counselling and procuring in the definition of economic crime. Schedule 8 sets out the offences that are included in the definition of economic crime for the purposes of direct and indirect disclosures of information, the Law Society’s fining powers, and the objectives of regulators of legal services. The schedule is divided into common-law and statutory offences. No new offences are created by the Bill; the schedule has been included because there is no existing relevant definition of economic crime. The schedule is essential to provide clarity and certainty about the meaning of economic crime, in order for individuals, regulators and businesses to use the disclosure of information provisions effectively and to properly apply the new measures relating to legal services.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Mr Paisley, and to speak to this rather large group. I thank the Minister for his comments, which I find reassuring. I will deliver my own remarks for the record, but his comments, particularly on our amendment 167, were helpful.
This important group of clauses and amendments relates to supporting disclosures to prevent, detect or investigate economic crime. The Minister is absolutely right about the concerns—raised by UK Finance specifically—that the clauses go a considerable way to addressing.
Clause 148 concerns direct disclosure of information and, as the Minister outlined, disapplies the duty of confidentiality owed by a business where the business making the disclosure knows the identity of the recipient and certain conditions—broadly outlined in subsection (1)—are met. The explanatory notes contain the example of a bank that identifies a transaction that it believes is irregular and wants further information from another party—perhaps more information on the identity of the payer or more clarity on the source of the funds. We understand why such information might be wanted and the importance of being able to get such clarity. In effect, clause 148, along with clause 149, about which I will say a few words separately, removes the civil liability for an institution in sharing that information with another entity for the purposes of detecting and preventing economic crime.
Given the concerns about the difficulties with information sharing, and the resistance that there has been to sharing information because of lack of clarity about the law or about where liability lies under data protection rules, these measures are welcome. They have perhaps taken longer to be introduced than we would have liked, but they are certainly welcome, and we hope that they will increase the detection of economic crime and reduce moves by those involved in it to seek to use our institutions to launder and hide money.
Although I welcome the removal of barriers to information sharing, I wonder whether the clauses give regulated sectors or actors so-called safe harbour as comprehensively as they might. Helena Wood of the Royal United Services Institute said in her evidence to the Committee:
“Although the provisions in the Bill will go some way towards increasing private-to-private information sharing and, in particular, the risk appetite in the banking sector, they really do not keep pace with the global standard. What we would like in the next economic crime plan”—
I think we are all hoping to see that soon; shortly is the word used in this Committee—
“is something much more ambitious. In many ways, I would say that while it is welcome, the Bill is a slight missed opportunity with regard to information sharing, given that it really does not push forward to this big data analytics model that others are moving towards.” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 90, Q170.]
Tom Tugendhat
I am sorry to hear that the hon. Lady was considered a risk to public safety, a danger or a threat to the nation in any way. She is none of those things; she is a highly valued Member of this House and a friend to many of us. I can only imagine the unwisdom of whoever it was who decided to terminate a relationship with her. I hope that the decision is being reviewed and that the person is now enjoying a holiday on the Falkland Islands.
It is worth pointing out that the comparisons that this has with other jurisdictions should be looked at carefully. Not every jurisdiction has the same application of the ECHR, GDPR or various other constraints on sharing information and protecting privacy that the UK has. In the Netherlands, the transaction monitoring scheme has so far involved only the sharing of business data, so there are various different ways in which these applications are not exactly applicable. It is worth pointing out that, under the provisions, an individual’s right to a basic bank account, as established by the Payment Accounts Regulations 2015, is unaffected.
That means that affected individuals will be able to continue to access basic accounts, providing their account is not being used or has not been used for criminal activity, or that maintaining the account would breach any other legal obligations under the money laundering regulations. Moreover, the clause stipulates that before information is shared about a customer, the sharer must have taken action against the customer, or would have if they were still a customer. As a result, no one will have information shared unless the bank has already decided to take action against them or would have decided to do so.
We do not foresee a significant increase in the number of new individuals being denied access to services. Certainly, the hon. Lady’s comments about her constituent should be viewed in that context. However, if there are individual cases that she feels that I—or, indeed, my hon. Friend the Member for Thirsk and Malton—can help with, I would be very happy to look at them, as I am sure my hon. Friend would be as well.
The forms of redress that the hon. Lady raises are important. That is where going through the Information Commissioner’s Office or the Financial Ombudsman Service, depending on the nature of the complaint, is important. She raised many other questions, and although I will not be able to get to them right now, I will be happy to write to her on some of those individual items.
Seema Malhotra
I thank the Minister for his comments. If he is happy to write to me, I would be grateful for that. Can I clarify whether that will also cover some of the questions I raised about the expected timing of sharing information and the procedures for those who may have been caught up inadvertently? Procedurally, we need to understand how they can be dealt with. Rather than Ministers having to deal with individual cases, we want a mechanism that will make the system work fairly.
Tom Tugendhat
The hon. Member is making a perfectly reasonable point. I agree, and I will write to her about those timings so they are clearly on the record and we understand what is being asked and what the expected timeframes are.
It is also worth saying that the warning condition is more active because a business has already taken or would have taken a decision where a person is a customer. That is different from the request condition, where it is sharing in response to a specific request. The two are not quite identical, but I hope that answers the hon. Lady’s questions. I will write to her shortly.
Amendment 122 agreed to.
Amendments made: 123, in clause 148, page 136, line 24, leave out ‘to which’ and substitute ‘in circumstances where’.
This amendment and Amendments 124, 126, 127, 128 and 130 extend the power to expand the kinds of business in relation to which the provision can apply, so that it can describe attributes of the person as well as the business.
Amendment 124, in clause 148, page 136, line 25, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 123.
Amendment 125, in clause 148, page 136, line 31, at end insert—
‘(1A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by A, or
(b) give rise to any civil liability, on the part of A, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 122.
Amendment 126, in clause 148, page 136, line 32, leave out ‘to’.
See Member’s explanatory statement for Amendment 123.
Amendment 127, in clause 148, page 136, line 33, after ‘(a)’ insert ‘where the business carried on is’.
See Member’s explanatory statement for Amendment 123.
Amendment 128, in clause 148, page 136, line 34, leave out ‘business of a description prescribed’ and insert ‘in circumstances prescribed, in relation to the business or the person carrying it on,’.
See Member’s explanatory statement for Amendment 123.
Amendment 129, in clause 148, page 137, line 12, leave out ‘A’ and insert ‘The protections set out in subsection (7A) apply in relation to a’.
This amendment and Amendments 131, 133 and 135 provide that the disclosures mentioned in clause 148(7) do not give rise to any civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
Amendment 130, in clause 148, page 137, line 12, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 123.
Amendment 131, in clause 148, page 137, line 14, leave out from ‘request’ to ‘R’ in line 15 and insert ‘if’.
See Member’s explanatory statement for Amendment 129.
Amendment 132, in clause 148, page 137, line 16, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 123.
Amendment 133, in clause 148, page 137, line 19, at end insert—
‘(7A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by R, or
(b) give rise to any civil liability, on the part of R, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 129.
Amendment 134, in clause 148, page 137, line 22, leave out from ‘applies,’ to the end of line 23 and insert ‘does not—
(a) give rise to a breach of any obligation of confidence owed by them, or
(b) give rise to any civil liability, on the part of R, to the person to whom the disclosed information relates.
This is subject to subsection (9).’
This amendment and Amendment 135 provide that use of information disclosed under clause 148(7) to enable a clause 148(1) disclosure to be made does not give rise to any a civil liability, on the part of the person making use of the information, to the person to whom the information relates. There is an exception for liabilities under the data protection legislation.
Amendment 135, in clause 148, page 137, line 25, after ‘contravene’ insert ‘, or prevents any civil liability arising under,’.—(Tom Tugendhat.)
See Member’s explanatory statement for Amendments 122, 129 and 134.
Clause 148, as amended, ordered to stand part of the Bill.
Clause 149
Indirect disclosure of information: no breach of obligation of confidence
Amendments made: 136, in clause 149, page 137, leave out lines 27 to 29 and insert—
‘(1) The protections set out in subsection (2A) apply in relation to a disclosure made by a person (“A”) to another person (“B”) if—’.
This amendment and Amendments 139 and 151 provide that the disclosures mentioned in clause 149(1) do not give rise to a civil liability on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
Amendment 137, in clause 149, page 137, line 30, leave out ‘to which’ and substitute ‘in circumstances where’.
This amendment and Amendments 138, 140, 141, 142, 144 and 147 extend clause 149 disclosures so they apply in relation to persons with a large or very large UK revenue who carry on legal or accountancy services in the regulated sector.
Amendment 138, in clause 149, page 137, line 39, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 137.
Amendment 139, in clause 149, page 138, line 1, at end insert—
‘(2A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by A, or
(b) give rise to any civil liability, on the part of A, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 136.
Amendment 140, in clause 149, page 138, line 2, leave out ‘to’.
See Member’s explanatory statement for Amendment 137.
Amendment 141, in clause 149, page 138, line 3, after ‘(a)’ insert ‘where the business carried on is’.
See Member’s explanatory statement for Amendment 137.
Amendment 142, in clause 149, page 138, line 8, leave out from ‘provider,’ to ‘by regulations’ in line 9 and insert—
‘(aa) where—
(i) the business carried on is business in the regulated sector within paragraph 1(1)(l) or (n) of Schedule 9 to the Proceeds of Crime Act 2002 (accountancy or legal services), and
(ii) the UK revenue of the person carrying on the business is large or very large for the relevant financial year (see subsection (10)), and
(b) in circumstances prescribed, in relation to the business or the person carrying it on,’.
See Member’s explanatory statement for Amendment 137.
Amendment 143, in clause 149, page 138, line 11, leave out from ‘to B,’ to end of line 14 and insert
‘the protections set out in subsection (5A) apply in relation to a further disclosure of that information made by B to another person (“C”) if—’.
This amendment and Amendments 145 and 151 provide that the disclosures mentioned in clause 149(4) do not give rise to a civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relate. There is an exception for liabilities under the data protection legislation.
Amendment 144, in clause 149, page 138, line 15, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 137.
Amendment 145, in clause 149, page 138, line 18, at end insert—
‘(5A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by B, or
(b) give rise to any civil liability, on the part of B, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 143.
Amendment 146, in clause 149, page 138, line 22, leave out ‘A’ and insert
‘The protections set out in subsection (7A) apply in relation to a’.
This amendment and Amendments 148, 149 and 151 provide that the disclosures mentioned in clause 149(7) do not give rise to a civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.
Amendment 147, in clause 149, page 138, line 22, leave out ‘to which’ and substitute ‘in circumstances where’.
See Member’s explanatory statement for Amendment 137.
Amendment 148, in clause 149, page 138, line 24, leave out from ‘person’ to ‘at’ in line 25 and insert ‘if’.
See Member’s explanatory statement for Amendment 146.
Amendment 149, in clause 149, page 138, line 28, at end insert—
‘(7A) The protections are that, subject to subsection (9), the disclosure does not—
(a) give rise to a breach of any obligation of confidence owed by R, or
(b) give rise to any civil liability, on the part of R, to the person to whom the disclosed information relates.’
See Member’s explanatory statement for Amendment 146.
Amendment 150, in clause 149, page 138, line 31, leave out from ‘applies,’ to end of line 32 and insert ‘does not—
(a) give rise to a breach of any obligation of confidence owed by them, or
(b) give rise to any civil liability, on their part, to the person to whom the disclosed information relates.
This is subject to subsection (9).’
This amendment and Amendment 151 provide that the use of information disclosure under clause 149(7) for the purposes of making a disclosure under clause 149(1) does not give rise to a civil liability, on the part of the person making use of the information, to the person to whom the information relates. There is an exception for liabilities under the data protection legislation.
Amendment 151, in clause 149, page 138, line 34, after ‘contravene’ insert ‘, or prevents any civil liability arising under,’.
See Member’s explanatory statements for Amendments 136, 143, 146 and 150.
Amendment 152, in clause 149, page 138, line 34, at end insert—
‘(10) In subsection (3)(aa) “relevant financial year”—
(a) for the purposes of subsection (1)(a), means the financial year immediately preceding that in which the disclosure by A is made;
(b) for the purposes of subsection (4)(a), means the financial year immediately preceding that in which the disclosure to C is made.
And, for the purposes of subsection (3)(aa), the question of whether a person’s UK revenue is large or very large for a particular financial year is to be determined in accordance with sections 55 to 57 of the Finance Act 2022 (calculation of UK revenue for the economic crime (anti-money laundering) levy).’—(Tom Tugendhat.)
This amendment include a definition of “relevant financial year” and explains how to determine if a person’s UK revenue is large or very large for the purposes of the new provision added by Amendment 142.
Clause 149, as amended, ordered to stand part of the Bill.
Clauses 150 to 152 ordered to stand part of the Bill.
Clause 153
Other defined terms in sections 148 to 151
Amendments made: 153, in clause 153, page 140, line 19, at end insert—
“(ba) constitutes aiding, abetting, counselling or procuring the commission of a listed offence, or”.
The amendment makes express provision about aiding, abetting, counselling and procuring in the definition of economic crime.
Amendment 154, in clause 153, page 140, line 21, after “(b)” insert “or (ba)”.
This amendment is consequential on Amendment 153.
Amendment 155, in clause 153, page 140, line 34, at end insert—
““financial year” means a period of 12 months ending with 31 March;”.—(Tom Tugendhat.)
This amendment adds a definition of “financial year” and is consequential on Amendment 152.
Clause 153, as amended, ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 154
Law Society: powers to fine in cases relating to economic crime
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 155 stand part.
Government new clause 47—Scottish Solicitors’ Discipline Tribunal: powers to fine in cases relating to economic crime.
Tom Tugendhat
His Majesty’s Government’s national risk assessment for 2020 assessed the legal services sector as being at high risk of exposure to money laundering. The crisis in Ukraine has highlighted that the sector is exposed to further-reaching risks, such as sanctions breaches. The Bill therefore contains measures that strengthen the legal sector’s response to economic crime.
Clause 154 removes the statutory limit on the Solicitors Regulation Authority’s financial penalty powers for disciplinary matters related to economic crime, as delegated by the Law Society. Currently, the SRA can direct a solicitor or traditional law firm to pay a penalty up to £25,000. The limit is set out in primary legislation and can be amended only by an order made by the Lord Chancellor. This measure will remove the need for the Lord Chancellor to make an order, thereby ensuring greater flexibility to, if required, amend penalty limits for disciplinary matters relating to economic crime.
New clause 47 gives the Scottish Solicitors’ Discipline Tribunal parity with England and Wales in respect of the fining powers available to it for economic crime-related solicitor misconduct. Currently, the SSDT may impose a maximum fine of £10,000. In comparison, the equivalent tribunal in England and Wales—the Solicitors Disciplinary Tribunal—has the power to impose an unlimited financial penalty. This change will provide the SSDT with fining powers that act as a proportionate deterrent against breaches of the rules and legislation related to economic crime, including offences linked to money laundering, terrorist financing and sanctions. The exercise of this power will be subject to the oversight of the Court of Session to ensure that the SSDT acts in an effective and proportionate way. The changes sought in clause 154 and new clause 47 are needed to ensure that the SRA and the SSDT have the enforcement tools required in the context of economic crime compliance.
Clause 155 enshrines in legislation the duty of legal services regulators to promote the prevention and detection of economic crime. Our legal sector is internationally renowned for its high standards of excellence and professional conduct. The vast majority of the sector is compliant with its economic crime duties. However, it is crucial that regulators have the right tools to effectively promote and monitor compliance. The clause puts it beyond doubt that it is the duty of legal services regulators to take appropriate action to ensure that their regulated communities comply with economic crime rules. It will give frontline regulators a clear basis for any supervision or enforcement action they may carry out to uphold the economic crime regime.
Alison Thewliss
My understanding is that the Law Society of Scotland has no particular objections to the amendments.
Tom Tugendhat
The hon. Member is asking about various of the different fining elements. Clearly, the fines discussion is a matter for the individual cases, and would be determined on a case-by-case basis, but I think that removing the cap, which, in modern terms, is actually relatively low—certainly, when compared with financial abuses and other forms of regulation—is entirely reasonable.
The Solicitors Regulation Authority does not, in any way, have any power to strike off a suspended solicitor, so the SDT remains an extremely important part of the disciplinary process. There are various different aspects at play here, but the proposals make good sense and are reasonable. I will happily write to the hon. Member on the issue he raised separately and come back to him about it later.
Stephen Kinnock
I thank the Minister for that clarification, and I am grateful for his offer to write with further details. On the point about using the Bill to prevent economic crime with respect to providers of legal services, but not for any other sector covered by the money laundering regulation, would he care to shed more light on the rationale for that decision?
Tom Tugendhat
The other sectors are already covered by the money laundering regulation. That element is focusing on legal services because that was a lacuna in the law.
Stephen Kinnock
I thank the Minister for that clarification. There is a broader scope to economic crime, not just a specific focus on money laundering, and that covers a wider range of aspects of economic crime, although there is an explicit objective in the Bill that it is limited to providers of legal services. I wonder why that broader scope will not be applied beyond the money laundering concerns.
Tom Tugendhat
The changes are being made and the new clause is important for exactly the reasons the hon. Gentleman has highlighted. The new clause will remove an obstacle with respect to the SRA exercising its judgment and punishing appropriately those who might be committing any number of different crimes, which I hope they will not be doing. The measure will give us a provision to enable us to deal with that. The reality is that much of the money laundering regulation has already been covered, along with different aspects of financial services. The proposals specifically address legal services and particular aspects. They are an important addition, and I am happy to support them.
Question put and agreed to.
Clause 154 accordingly ordered to stand part of the Bill.
Clauses 155 to 157 ordered to stand part of the Bill.
Clause 158
Power to make consequential provision
Question proposed, That the clause stand part of the Bill.
Tom Tugendhat
Indeed, and I am delighted to be called to speak to it.
The clause provides the Secretary of State with the power to make consequential amendments that arise from the Bill. The power is necessary to ensure that other provisions on the statute book properly reflect and refer to the provisions in the Bill once it is enacted and to ensure that there are no legislative inconsistencies. If regulations are made under the clause that do not amend primary legislation, they will be subject to the negative resolution procedure. If regulations are made under the clause that amend primary legislation, they will be subject to the affirmative resolution procedure. This, I hope, will provide the appropriate parliamentary scrutiny.
Seema Malhotra
I thank the Minister for his comments. May I clarify the process, Mr Paisley? In previous sittings, during each clause stand part debate the Minister has been called followed by the Opposition spokesperson. Perhaps that has had some variation, but it would be helpful to understand whether we need to do anything differently.
Dame Margaret Hodge
We have raised a number of amendments to the Bill during the course of consideration in Committee, many of which I consider to be technical and things that would improve the processes. All those amendments so far have been rejected. I wonder whether, rather than bringing us back at a later stage as the clause proposes, the Minister would undertake, together with his ministerial colleague, to look again at some of those amendments, which are really just practical, pragmatic amendments, with a view to bringing them back. Would he bring them back on Report?
Tom Tugendhat
I will answer the second question first, if I may. I am absolutely certain that my hon. Friend the Member for Thirsk and Malton and I will look with great interest at the suggestions that the right hon. Lady has made. As she knows, we share many similar ambitions. We will have a look at those suggestions with officials. Certainly, there are some that we think could improve the Bill—I do not think there is any great debate about that—and I will make sure that we keep her informed. Her contribution and help, not just today and on the Bill, have been enormous, and I pay enormous tribute to the work that she has done over many years in fighting money laundering and different forms of economic crime.
On this specific power, the hon. Member for Feltham and Heston raises a very important point, which is that the clause does give large consequential provision to the Government to change aspects of the Bill. I understand the concerns that she raises. The nature of the Bill, however, is that it has quite a consequential impact on other elements of legislation, as she herself has highlighted. Therefore there are knock-on elements that will no doubt require minor redrafting and changes at various different points as the Bill goes into law. I am afraid that is slightly the nature of these operations, as she understands extremely well. That is what this power is for.
It is worth saying that any significant or substantial changes that really do change the intent of the Bill should be brought back in primary legislation, because this is clearly a provision in order to enable the Bill to operate, not to change the intent that this House gives it.
Seema Malhotra
I thank the Minister for his comment, which puts that clarification on the record for successive generations of those who will sit in his seat—perhaps he will be promoted to higher office. It is important that that comment is on record, because we have to create legislation for not just today but tomorrow.
Tom Tugendhat
I beg to move amendment 43, in clause 159, page 144, line 21, at end insert—
“(ba) regulations under section (registration of qualifying Scottish partnerships), unless they are regulations under that section that only make provision that corresponds or is similar to provision made or capable of being made by a statutory instrument that is itself subject to annulment in pursuance of a resolution of either House of Parliament;”.
This provides for regulations under NC22 to be subject to the affirmative procedure unless they only make provision corresponding or similar to provision make by a statutory instrument that is itself subject to the negative procedure.
The Chair
With this it will be convenient to discuss Government new clause 22—Registration of qualifying Scottish partnerships.
Tom Tugendhat
Clause 159 provides that regulations made under the Bill are to be made by statutory instrument. The clause also sets outs the parliamentary procedure for how regulations under the Bill should be made, including situations in which legislation must be subject to the affirmative resolution procedure or the negative resolution procedure. The clause is a standard provision to enable regulations to give the intended effect to the measures in the Bill. It is necessary to ensure appropriate parliamentary scrutiny of such regulations.
Seema Malhotra
Clause 159 provides that regulations under the Bill are to be made by statutory instrument. To a large extent, we have had clarification that any subsequent changes will be made through the affirmative procedure in Parliament, enabling greater scrutiny and transparency over the Bill’s implementation. I am not sure if there is a list anywhere of all the regulation-making powers that have been specified in the Bill. I feel like there is probably a summary somewhere of all of those powers, and whether any are subject to the negative procedure. I think that would be a helpful review for the Committee to have.
New clause 22 allows regulations to be made about the registration of certain Scottish partnerships, and to apply law related to companies or limited partnerships. It will allow the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 to be amended or replaced in relation to those partnerships. We welcome the inclusion of amendment 43 alongside the new clause, which provides for regulations under new clause 22 to be subject to the affirmative procedure, unless they make provisions corresponding to provisions made by statutory instruments that are subject to the negative procedure. In light of my previous comments, I think it is healthy for us to clarify and have a clear summary of which are affirmative and which are negative, and the safeguards around them. That would ensure the transparency of regulation making subsequent to the passing of the Bill.
Kevin Hollinrake
It is a pleasure to speak with you in the Chair, Mr Paisley. I will speak briefly to amendment 43 and new clause 22, which are minor technical changes necessary due to the European Communities Act 1972 having been repealed. They give the Secretary of State the power to apply company or limited partnership law by regulations to Scottish qualifying partnerships, as well as to impose new requirements of Scottish qualifying partnerships not included in company or limited partnership law, such as identity verification. It allows the Government to retain the measures introduced by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 in relation to SQPs and to amend them in the future. Provisions about the registration of Scottish qualifying partnerships exist in the 2017 regulations, made using powers under now repealed section 2(2) of the European Communities Act 1972.
That has two consequences. First, there is no existing power to amend the regulations, other than by an Act of Parliament. Secondly, if not replaced under section 1 of the proposed retained EU law Bill, the 2017 regulations will be revoked at the end of 2023. This power will allow us to keep the existing requirements on Scottish qualifying partnerships and to add new ones. Without the amendment and new clause, it will not be possible to extend key measures introduced via the Bill, such as identity verification, to Scottish qualifying partnerships, thereby creating a dangerous loophole. I hope that my explanation has provided further clarity.
It is clear that regulations made under the Bill may make consequential, supplementary, incidental, transitional or saving provisions and regulations under specified clauses must be subject to the affirmative resolution procedure. I am sure we can write to the hon. Lady to set out exactly what those situations are.
Alison Thewliss
I am glad to see any loopholes getting closed, even if the amendment is sneaking in at the end of the Bill. It is good to see it. As I have said at many points in Committee, enforcement needs to be laid down on all these things, because at the moment all things to do with Scottish partnerships are not being enforced. People are not being fined for not complying with the regulations. I hope that it will result in some tightening up and some fines being issued—and, if required, in some people being jailed for not complying with the regulations as set out.
Tom Tugendhat
My hon. Friend the Under-Secretary has spoken to a lot of the issues, so I will just list clauses covered by the affirmative resolutions briefly—the others will be negative. That will include regulations under clauses 33, 35, 140(1), 141 and schedule 6, on powers to amend certain definitions relating to cryptoassets, clause 142 and schedule 7, on powers to amend certain definitions relating to cryptoassets and then clauses 143, 148, 149, 153 and 158. I am happy to write to the hon. Lady so that she has those details.
Amendment 43 agreed to.
Clause 159, as amended, ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned.—(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Sixteenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 22nd November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 22 November 2022 - (22 Nov 2022)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Minister for Security (Tom Tugendhat)
It is nice to see you this afternoon, Ms Elliott. I look forward to proceeding in order for some parts of this afternoon sitting.
Clause 160 details the Bill’s territorial extent. In preparing the Bill, both Ministers and officials have engaged extensively with their counterparts in the devolved Administrations to ensure that we tackle economic crime and strengthen corporate transparency across all of the United Kingdom. The measures in the Bill extend to England and Wales, Scotland, and Northern Ireland. Some of its provisions have a lesser extent, where they amend existing legislation that extends only to one or two different parts of the UK. In the opinion of the UK Government, the Bill makes some provision for areas within the devolved competence of Wales, Scotland and Northern Ireland. However, the Bill respects the devolution settlements and, where relevant, legislative consent motions are being sought from the devolved Administrations.
Clause 161 sets out procedural detail for the commencement of the Bill’s provisions. It stipulates the various dates when, and conditions under which, the various sections and subsections will come into force. The Secretary of State can make regulations that set the date for certain provisions to come into force. Different days may be appointed for different purposes. The Secretary of State can also make transitional or savings provisions for regulations made under certain clauses, as set out in the Bill. Any regulations made under the clause are to be made by statutory instrument.
Clause 162 establishes that the title of the Bill once it becomes an Act will be the Economic Crime and Corporate Transparency Act. The short title is a standard clause in any Bill.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Ms Elliott.
I have a few limited remarks to make as we approach the end of clause-by-clause consideration and before we move on to new clauses. As the Minister said, clause 160 extends the Bill to England and Wales, Scotland, and Northern Ireland. I was grateful for his comments about liaison with the Scottish Parliament and the Welsh Senedd. There are obviously current challenges in respect of the Northern Ireland Executive. I would be grateful for some clarity about how the engagement with the devolved Administrations is going, because it has been a theme, certainly during the earlier debates. It is important that we can have confidence that all the issues that are being raised in our deliberations are coming into the Bill.
Clause 161 sets out when the Bill’s provisions will come into force. I am sure the Minister will want to give assurances that that will be no later than is absolutely necessary, bearing in mind the urgency of the measures. Clause 162 establishes the short title and we welcome it.
Tom Tugendhat
Different devolved Administrations have been contacted in different ways. Some of them have been written to, and I have sought conversations with some, although that has not always been achieved because of other people’s diaries as well as my own. The conversation is ongoing and, although I hope the Bill will be passed soon, it will have to continue because many things are going to change over the coming years.
Question put and agreed to.
Clause 160 accordingly ordered to stand part of the Bill.
Clauses 161 and 162 ordered to stand part of the Bill.
New Clause 1
Change of addresses of officers of overseas companies by registrar
“In section 1046 of the Companies Act 2006 (overseas companies: registration of particulars), after subsection (6) insert—
‘(6A) Where regulations under this section require an overseas company to deliver to the registrar for registration—
(a) a service address for an officer of the company, or
(b) the address of the principal office of an officer of the company,
the regulations may make provision corresponding or similar to any provision made by section 1097B or 1097C (rectification of register relating to service addresses or principal office addresses) or to provision that may be made by regulations made under that section.’”.—(Kevin Hollinrake.)
Where an overseas company is required to provide a service address or principal office address for a director or secretary, this new clause enables regulations to be made conferring power on the registrar to change the address if it does not meet the statutory requirements or is inaccurate.
Brought up, and read the First time.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move, That the clause be read a Second time.
The Chair
With this it will be convenient to discuss the following:
Government new clause 2—Overseas companies: availability of material for public inspection etc.
Government new clause 3—Registered addresses of an overseas company.
Government new clause 4—Overseas companies: identity verification of directors.
Kevin Hollinrake
It is always a pleasure to serve with you in the Chair, Ms Elliott. Government new clauses 1 to 4 will introduce delegated powers allowing for the application of the Companies House reform measures elsewhere in the Bill to overseas companies registered in the UK. In this context, an overseas company is one that is incorporated overseas but that has a physical establishment or branch in the UK. Under long-standing provisions in the Companies Act 2006, that presence brings with it certain obligations to register information with Companies House.
New clauses 1 to 3 allow for the making of regulations requiring overseas companies that have established a physical presence in the UK to provide an appropriate address for the overseas company, their directors or other officers, to the same standard required of domestic companies incorporated here in the UK. The aim is the same—to ensure that addresses and email addresses on the companies register are accurate and that documents sent to them will reach the companies concerned or their officers.
New clause 4 allows the application, through regulations, of identity verification requirements to directors of overseas companies operating in the UK. Through that, the Government seek to ensure that companies governed by the laws of other jurisdictions that operate in the UK are subject to identity verification requirements that are introduced by the Bill and will apply to UK companies. Regulations under the power will include requiring the delivery of statements or other information to the registrar. They will also include exemptions from identity verification on national security grounds.
The application of identity verification obligations through secondary legislation will allow the Government to adapt ID verification requirements at speed. Overseas companies who operate within the UK are only within limited control of UK law. UK legislation affecting them therefore needs to adapt more quickly to their changing circumstances than primary legislation would allow for.
Seema Malhotra
It is a pleasure to speak to the new clauses. The Minister has outlined the rationale for them, which is to bring some of the rules around overseas companies more in line with some other changes being made in the Bill. We welcome that, but I have a few questions.
New clause 1 outlines that where an overseas company is required to provide a service address or principal office address for a director or secretary, regulations can be made conferring power on the registrar to change the address if it does not meet the statutory requirements or is inaccurate. Who might determine whether the address is inaccurate? Is the expectation that the registrar finds that out or is that just about if something happens to be found out by chance? Is there any more information on how the power might be used to determine that an address is inaccurate?
New clause 2 confers a regulation-making power to require overseas companies to register information. The new clause makes it clear that the regulations can provide for the information to be withheld from public inspection and can confer a discretion on the registrar. We have had similar debates in Committee already. We will keep coming back to the question of the use of powers and the reporting on the use of those powers, particularly where information may be withheld. Would this be an example of a new power on the withholding of information from public inspection where the number of times it is used ought to be reported on? That would not need to give away details about whom the power had applied to, but it would help give an overall view of how the powers in the Bill were being used.
Under new clause 3, new regulations would require overseas companies to provide and maintain an appropriate address and email address. Would those new regulations be subject to the affirmative procedure, assuming that they would be in secondary legislation rather than in the Bill? It was not fully clear to me whether some of these matters were included in the Bill or whether they were regulations to enable the measures to come in later. Will the Minister clarify that?
Kevin Hollinrake
I am happy to, and I thank the hon. Lady for her points. As we have said during similar discussions, the registrar will have access to information; most of the queries that she will follow up will have come through information received during the course of her duties. It does not make sense for Companies House to physically validate all addresses, but nevertheless information may well come to light through the registrar’s work or the requirement for other bodies to share information with her if they feel that inaccurate information is on the register. That is how we anticipate that information will come forward.
I will not revisit the issue of national security other than to say that the power will be used sparingly and that we do not know what we do not know, so it is important that we have a provision that might be necessary in future.
Regulations under new clause 4 will correspond to regulations applying to UK companies made and debated by Parliament under the affirmative procedure. The extension to overseas companies would therefore not require additional scrutiny by Parliament and the regulations will be subject to the negative procedure.
Question put and agreed to.
New clause 1 accordingly read a Second time, and added to the Bill.
New Clause 2
Overseas companies: availability of material for public inspection etc
“In section 1046 of the Companies Act 2006 (overseas companies: registration of particulars), after subsection (6A) (inserted by section (Change of addresses of officers of overseas companies by registrar) of this Act) insert—
‘(6B) Regulations under this section may include provision for information delivered to the registrar under the regulations to be withheld from public inspection.
(6C) The provision that may be made by regulations under this section includes provision conferring a discretion on the registrar.’”—(Kevin Hollinrake.)
Section 1046 of the Companies Act 2006 confers a regulation-making power to require overseas companies to register information. The new clause makes it clear that the regulations can provide for the information to be withheld from public inspection and that they can confer a discretion on the registrar.
Brought up, read the First and Second time, and added to the Bill.
New Clause 3
Registered addresses of an overseas company
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1048 insert—
‘1048A Registered addresses of an overseas company
(1) The Secretary of State may by regulations make provision requiring an overseas company that is required to register particulars under section 1046 to deliver to the registrar for registration—
(a) a statement specifying an address in the United Kingdom that is an appropriate address for the company;
(b) a statement specifying an appropriate email address for the company.
(2) The regulations may include provision—
(a) allowing an overseas company to change the address or email address for the time being registered for it under the regulations;
(b) requiring an overseas company to ensure that the address or email address for the time being registered for it under the regulations is an appropriate address or appropriate email address.
(3) The regulations may include—
(a) provision for information contained in a statement specifying an appropriate email address to be withheld from public inspection;
(b) provision corresponding or similar to any provision made by section 1097A (rectification of register relating to a company’s registered office) or to provision that may be made by regulations made under that section.
(4) In this section—
“appropriate address” has the meaning given by section 86(2);
“appropriate email address” has the meaning given by section 88A(2).
(5) Regulations under this section are subject to negative resolution procedure.’
(3) In section 1139 (service of documents on company), for subsections (2) and (3) substitute—
‘(2) A document may be served on an overseas company whose particulars are registered under section 1046—
(a) by leaving it at, or sending it by post to, the company’s registered address, or
(b) by leaving it at, or sending it by post to, the registered address of any person resident in the United Kingdom who is authorised to accept service of documents on the company’s behalf.
(3) In subsection (2) “registered address”—
(a) in relation to the overseas company, means the address for the time being registered for the company under regulations under section 1048A(1)(a);
(b) in relation to a person other than the overseas company, means any address for the time being shown as a current address in relation to that person in the part of the register available for public inspection.’”—(Kevin Hollinrake.)
Regulations under this new clause can require an overseas company to provide and maintain an appropriate address and appropriate email address. Broadly speaking, an address is appropriate if documents sent there will reach the company.
Brought up, read the First and Second time, and added to the Bill.
New Clause 4
Overseas companies: identity verification of directors
“After section 1048A of the Companies Act 2006 (inserted by section (Registered addresses of overseas companies) of this Act) insert—
‘1048B Identity verification of directors
(1) This section applies in relation to an overseas company that is required to register particulars under section 1046.
(2) The Secretary of State may by regulations make provision for the purpose of ensuring that each individual who is a director of such a company—
(a) is an individual whose identity is verified (see section 1110A), or
(b) falls within any exemption from identity verification that may be provided for by the regulations.
(3) The regulations may include provision—
(a) requiring the delivery of statements or other information to the registrar;
(b) for statements or other information delivered to the registrar under the regulations to be withheld from public inspection;
(c) applying section 167M (prohibition on director acting unless ID verified), with or without modifications;
(d) applying section 1110D (exemption from identity verification: national security grounds), with or without modifications.
(4) Regulations under this section are subject to negative resolution procedure.’”—(Kevin Hollinrake.)
Regulations under this new clause can impose identity verification requirements on the directors of overseas companies, corresponding to the requirements introduced by the Bill for directors of UK companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 5
Rectification of register: service addresses
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1097A insert—
‘1097B Rectification of register: service addresses
(1) The Secretary of State may by regulations make provision authorising or requiring the registrar to change a registered service address of a relevant person if satisfied that the address does not meet the requirements of section 1141(1) and (2).
(2) In this section—
“registered service address”, in relation to a relevant person, means the address for the time being shown in the register as the person’s current service address;
“relevant person” means—
(a) a director of a company that is not an overseas company,
(b) a secretary or one of the joint secretaries of a company that is not an overseas company, or
(c) a registrable person or registrable relevant legal entity in relation to a company (within the meanings given by section 790C).
(3) The regulations may authorise or require the address to be changed on the registrar’s own motion or on an application by another person.
(4) The regulations must provide for the change in the address to be effected by the registrar proceeding as if the company had given notice under section 167H, 279H or 790LC of the change.
(5) The regulations may make provision as to—
(a) who may make an application,
(b) the information to be included in and documents to accompany an application,
(c) the registrar requiring the company or an applicant to provide information for the purposes of determining anything under the regulations,
(d) the notice to be given of an application or that the registrar is considering the exercise of powers under the regulations,
(e) the notice to be given of any decision under the regulations,
(f) the period in which objections to an application may be made,
(g) how the registrar is to determine whether a registered service address meets the requirements of section 1141(1) and (2), including in particular the evidence, or descriptions of evidence, which the registrar may without further enquiry rely on to be satisfied that the address meets those requirements,
(h) the referral by the registrar of any question for determination by the court,
(i) the registrar requiring the company to provide an address to be registered as the relevant person’s service address,
(j) the nomination by the registrar of an address (a “default address”) to be registered as the relevant person’s service address (which need not meet the requirements of section 1141(1) and (2)),
(k) the period for which the default address is permitted to be the relevant person’s registered service address, and
(l) when the change of address takes effect and the consequences of registration of the change (including provision similar or corresponding to section 1140(5)).
(6) The provision made by virtue of subsection (5)(k) may in particular include provision creating summary offences punishable with a fine not exceeding level 3 on the standard scale or, for continued contravention, a daily default fine not exceeding one-tenth of level 3 on the standard scale.
(7) The regulations must confer a right on the company to appeal to the court against any decision to change the relevant person’s registered service address under the regulations.
(8) If the regulations enable a person to apply for a registered service address to be changed, they must also confer a right on the applicant to appeal to the court against a refusal of the application.
(9) On an appeal, the court must direct the registrar to register such address as the relevant person’s registered service address as the court considers appropriate in all the circumstances of the case.
(10) The regulations may make further provision about an appeal and in particular—
(a) provision about the time within which an appeal must be brought and the grounds on which an appeal may be brought;
(b) further provision about directions by virtue of subsection (9).
(11) The regulations may include such provision applying (including applying with modifications), amending or repealing an enactment contained in this Act as the Secretary of State considers necessary or expedient in consequence of any provision made by the regulations.
(12) Regulations under this section are subject to affirmative resolution procedure.’
(3) In section 1087 (material not available for public inspection), in subsection (1)(ga)—
‘(a) after “1097A” insert “, 1097B”;
(b) for “company registered office” substitute “registered office, service address”.’”—(Kevin Hollinrake.)
This new clause confers a regulation-making power to enable the registrar to change a person’s registered service address. It is based on section 1097A of the Companies Act 2006, which makes similar provision in relation to a company’s registered office.
Brought up, read the First and Second time, and added to the Bill.
The Chair
With this it will be convenient to discuss Government new clause 11—Power to amend disqualification in relation to relevant entities: NI.
Kevin Hollinrake
Through other provisions in this Bill, a disqualified individual is prevented from acting as a general partner of a limited partnership. However, that would only cover individuals who have been disqualified for their actions as directors in a company. We also need to be able to disqualify general partners for their actions within a limited partnership. Currently, that cannot be done because the Company Directors Disqualification Act 1986 applies only to directors of companies and other limited corporate entities such as building societies and NHS foundation trusts. We would like to ensure that general partners are subject to the same requirements as directors. New clauses 10 and 11 therefore provide powers to update the 1986 Act and the Company Directors Disqualification (Northern Ireland) Order 2002 to apply to limited partnerships, limited liability partnerships and Scottish partnerships.
Seema Malhotra
It is a pleasure to say a few words in support of new clauses 10 and 11. New clause 10 introduces new provisions allowing the Secretary of State to make regulations applying the Company Directors Disqualification Act to relevant entities. The new clause outlines that these relevant entities include limited partnerships and Scottish limited partnerships. New clause 11 has the same effect and applies the same principles to the context of Northern Ireland. We welcome the new clauses, especially given our calls in Committee to extend directors disqualification criteria to limited partnerships.
Kevin Hollinrake
I have nothing further to add.
Question put and agreed to.
New clause 10 accordingly read a Second time, and added to the Bill.
New Clause 11
Power to amend disqualification legislation in relation to relevant entities: NI
“(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.
(2) In Article 2(2) (interpretation), for the definition of ‘regulations’ substitute—
‘“regulations”, except in Articles 13D and 25D, means regulations made by the Department subject (except in Article 23(3)) to negative resolution;’.
(3) After Article 25C insert—
‘25D Power to amend application of Order in relation to relevant entities
(1) The Secretary of State may by regulations amend this Order for the purpose of applying, or modifying the application of, any of its provisions in relation to relevant entities.
(2) For that purpose, the regulations may in particular—
(a) extend the company disqualification conditions to include corresponding conditions relating to a relevant entity;
(b) limit the company disqualification conditions to remove conditions relating to a relevant entity;
(c) modify which company disqualification conditions can, in combination with each other, result in a person being disqualified under this Order;
(d) provide for any of the company disqualification conditions to result in or contribute to a person being disqualified from acting in a role or doing something in relation to a relevant entity.
(3) In this Article “the company disqualification conditions” means the conditions that can result in or contribute to a person being disqualified under this Order from acting in a role or doing something in relation to any entity.
(4) In this Article a “relevant entity” means—
(a) a limited partnership registered under the Limited Partnerships Act 1907;
(b) a limited liability partnership registered under the Limited Liability Partnerships Act 2000;
(c) a partnership, other than a limited partnership, that is—
(i) constituted under the law of Scotland, and
(ii) a qualifying partnership within the meaning given by regulation 3 of the Partnerships (Accounts) Regulations 2008.
(5) Regulations under this Article may make consequential, supplementary, incidental, transitional or saving provision.
(6) The provision which may be made by virtue of paragraph (5) includes provision amending provision made by or under either of the following, whenever passed or made—
(a) an Act;
(b) Northern Ireland legislation.
(7) Regulations under this Article are to be made by statutory instrument.
(8) A statutory instrument containing regulations under this Article may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.’”—(Kevin Hollinrake.)
This new clause allows the Secretary of State to make regulations applying the CDD(NI)O 2002 in relation to relevant entities, meaning that a person’s conduct in relation to relevant entities would lead to disqualification, and disqualifications in other circumstances would prohibit a person from acting in relation to relevant entities.
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
Required information about overseas entities: address information
“In the following provisions of Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (which refer to an entity’s registered or principal office) omit ‘registered or’—
paragraph 2(1)(c);
paragraph 5(1)(b);
paragraph 6(1)(d);
paragraph 7(1)(b).”—(Kevin Hollinrake.)
This new clause would mean that the required information that must be provided about an overseas entity, a corporate registrable beneficial owner or managing officer includes its principal office in all cases, rather than there being an option to provide its registered or principal office.
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss the following:
Government new clause 13—Registration of information about land.
Government new clause 14—Registration of information about managing officers: age limits.
Government new clause 15—Registrable beneficial owners: cases involving trusts.
Government new clause 21—Enforcement of requirement to register: updated language about penalties etc.
Kevin Hollinrake
All the new clauses relate to the register of overseas entities. New clause 12 will mean that the required information that must be provided about an overseas entity, a corporate registrable beneficial owner or a managing officer will always include its principal office, rather than there merely being an option to provide its registered or principal office. The new clause will improve the quality of the information provided and align with the information required about other types of legal entities.
New clause 14 will ensure that overseas entities that provide the details of a managing officer who is under the age of 16, or who is a legal entity, must also provide details of a person who is more than 16 years old. This is to ensure that there is a person who can be contacted about the overseas entity, in addition to the relevant person who verified the information. It is possible that in jurisdictions outside the UK, individuals younger than 16 may be allowed to act as company directors, secretaries or equivalents. Directors of UK companies are required to be at least 16 years of age, so the new clause provides consistency by requiring the contact details of someone who is at least 16 years of age.
New clause 21 will update the language about penalties for non-compliance in section 34 of the Economic Crime (Transparency and Enforcement) Act 2022 to reflect changes made by the Judicial Review and Courts Act 2022. It will ensure consistency with the wording used in other clauses in the Bill.
New clause 13 will require overseas entities to include the title number for relevant interests in land that they hold in their application for registration, both when providing an update and when applying to be removed from the register. Overseas entities that are already registered will be required to provide this information when they next provide an update or, if sooner, when they apply to be removed from the register. The collection of this information will improve the effectiveness of the register and will help law enforcement agencies with their investigations. The information will not be made publicly available because the Government do not consider that to be appropriate, given privacy concerns.
Let me turn new clause 15. In advance of the launch of the register, the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 were made. Regulation 14 specified the circumstances in which a legal entity trustee is deemed to be
“subject to its own disclosure requirements”.
By virtue of a legal entity trustee being a registrable beneficial owner, the overseas entity must provide the required information about the trust and persons connected to it, such as beneficiaries, settlors and interested persons.
Dame Margaret Hodge (Barking) (Lab)
This is an issue for clarification, because it impacts on whether we move our new clause 59. Will the information that we are now going to get about trustees and beneficiaries be made public? Will it be open to the public in the same way as other information about beneficial owners is open to the public? I ask because that is what our new clause would achieve.
Kevin Hollinrake
I will deal with that, if I can, as I go through. Essentially, trusts are often there to protect the identity of vulnerable persons, so I am not sure that the provision will do what the right hon. Member wants to do in her new clause, but we can probably discuss that when we discuss her new clause.
Kevin Hollinrake
Without regulation 14, if the corporate trustee were not subject to its own disclosure requirements, the overseas entity would have to “look through” the legal entity trustee to find a registrable beneficial owner higher up the chain of ownership. But in the situations we are talking about it is information about the trust that is wanted, rather than information about the ownership or control of the legal entity trustee. Currently, regulation 14 therefore ensures that Companies House, His Majesty’s Revenue and Customs and law enforcement agencies receive the information about the trust and persons connected to it, which I think may be the point that the right hon. Member raises and which is much more useful to meet the aims of the register.
New clause 15 goes further by ensuring that a legal entity acting as a trustee is always a registrable beneficial owner whether or not it is “subject to its own disclosure requirements” and even if there is another registrable beneficial owner further down a chain of ownership. This maximises the transparency in respect of the involvement of a legal entity trust in a chain of ownership.
The provisions also provide a power to expand the description of persons who are registrable beneficial owners where the overseas entity is part of a chain of entities that includes a trustee. It is appropriate to have a power to expand the description, given that there may be complex arrangements that attempt to circumvent the requirements. The provisions revoke regulation 14 because it is no longer needed.
Seema Malhotra
It is a pleasure to make a few remarks on the new clauses which, certainly from the way the Minister has outlined them, are welcome, in that they require more information and transparency around overseas entities. We welcome all the new clauses in that regard. I do not propose to go through them—the Minister went through them in considerable detail—but I have a few comments.
On new clause 13—in fact, in relation to all the new clauses—we welcome the additional transparency. I make the point again that a particular reason for that is the large-scale abuse that we know has occurred and occurs through these rather opaque offshore corporate structures.
On new clause 14, it is welcome to have the threshold at 16 years old, but I want to clarify what that means. Can there technically be a managing officer who is under 16 but an individual who is over 16 and is a contact on their behalf? It would be helpful to know whether there could still technically be an officer who was 12, 13 or 14. It would be useful to have clarity on that.
On closing the potential loophole of beneficial owners avoiding scrutiny by acting as a trustee, it is important to have the information. I want to clarify whether it should be the same amount of information about those who have been avoiding scrutiny as trustees. Will that information be published so that third parties can search it and investigate for themselves?
Kevin Hollinrake
As I understand it, somebody under the age of 16 could be the managing officer, but we still require somebody over the age of 16 to be contactable. That is how we square that particular circle. It is not in our gift to legislate for how other jurisdictions describe directors of companies.
Forgive me, but I missed the hon. Lady’s second point. If she could restate it, I will try to address it.
Seema Malhotra
My second comment was about trustee information. New clause 15 expands the definition of “registrable beneficial owners” in part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 in relation to an entity one of whose beneficial owners is a trustee, such that the beneficial owner may be included. There is also a power to expand that definition further. It looks like it is closing a potential loophole that enables beneficial owners to avoid scrutiny through acting as a trustee. The question was about whether the new information about trustees will also be published, whether there will be full transparency and whether it will be searchable by any interested parties.
Kevin Hollinrake
Okay. That was a similar point to the one made by the right hon. Member for Barking. No, we do not feel that is right. We do not believe that trust information should be made publicly available, given that trusts are often used to protect vulnerable people. I reassure the hon. Lady that that information will be shareable with HMRC, law enforcement and other persons with functions of a public nature once the relevant regulations have been made.
Question put and agreed to.
New clause 12 accordingly read a Second time, and added to the Bill.
New Clause 13
Registration of information about land
“In Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (required information), in paragraph 2—
(a) in sub-paragraph (1), after paragraph (g) insert—
‘(h) if the entity is the registered proprietor of one or more qualifying estates in land in England and Wales, the title number of each of them;
(b) if the entity is the registered owner of one or more qualifying estates in Northern Ireland, the folio number in respect of each of them;
(c) if the entity is—
(i) entered as proprietor in the proprietorship section of the title sheet for one or more plots of land that are registered in the Land Register of Scotland, or
(ii) the tenant under one or more leases registered in the Land Register of Scotland,
the title number of the title sheet, in respect of each of them, in which the entity’s interest is registered.’;
(b) after sub-paragraph (2) insert—
‘(3) In sub-paragraph (1)(h)—
“registered proprietor”, in relation to a qualifying estate, means the person entered as proprietor of the estate in the register of title kept by the Chief Land Registrar;
“qualifying estate” has the meaning given by paragraph 1 of Schedule 4A to the Land Registration Act 2002.
(4) In sub-paragraph (1)(i)—
“registered owner”, in relation to a qualifying estate, means the person registered in the register kept under the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) as the owner of the estate;
“qualifying estate” has the meaning given by paragraph 1 of Schedule 8A to the Land Registration Act (Northern Ireland) 1970.
(5) In sub-paragraph (1)(j)—
(a) “lease”, “plot of land” and “proprietor” have the meanings given by section 113(1) of the Land Registration etc. (Scotland) Act 2012;
(b) the reference to an entity’s being entered as proprietor in the proprietorship section of a title sheet is a reference to the name of the entity being so entered.’”—(Kevin Hollinrake.)
This new clause requires an overseas entity, when applying for registration in the register of overseas entities or providing an update, to include the title number etc for relevant interests in land held by it. For entities already registered, it will operate when they next provide an update.
Brought up, read the First and Second time, and added to the Bill.
New Clause 14
Registration of information about managing officers: age limits
“(1) Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (applications: required information) is amended as follows.
(2) In paragraph 6(1), after paragraph (f) insert—
‘(g) if the officer is under the age of 16 years old, the name and contact details of an individual who is at least 16 years old and is willing to be contacted about the officer.’
(3) In paragraph 7(1), for paragraph (g) substitute—
‘(g) the name and contact details of an individual who is at least 16 years old and is willing to be contacted about the officer.’”—(Kevin Hollinrake.)
This new clause means that, where an application for registration as an overseas entity is required to provide details of a managing officer, there will be a requirement to include the name of an individual who is at least 16 years old and is willing to be contacted about the officer (unless the officer is an individual of at least that age).
Brought up, read the First and Second time, and added to the Bill.
New Clause 15
Registrable beneficial owners: cases involving trusts
“(1) Schedule 2 to the Economic Crime (Transparency and Enforcement) Act 2022 (registrable beneficial owners) is amended in accordance with subsections (2) to (5).
(2) In paragraph 3 (legal entities), in paragraph (b), after ‘(see Part 3)’ insert ‘or is a beneficial owner of the overseas entity by virtue of being a trustee’.
(3) In paragraph 8 (beneficial owners exempt from registration), after paragraph (b) insert—
‘(ba) the person is not a beneficial owner of the overseas entity by virtue of being a trustee,’.
(4) For the heading of Part 6 substitute ‘Powers to amend this Schedule’.
(5) Before paragraph 25 insert—
‘Expansion of meaning of “registrable beneficial owner” where trusts in view
24A (1) The Secretary of State may by regulations amend this Schedule so as to expand the description of persons who are registrable beneficial owners of an overseas entity in circumstances where the overseas entity is part of a chain of entities that includes a trustee.
(2) For these purposes an overseas entity is part of a chain of entities that includes a trustee if there is a legal entity which is a beneficial owner of it by virtue of being a trustee.
(3) Regulations under this paragraph are subject to the affirmative resolution procedure.
Power to amend thresholds etc’.
(6) Regulation 14 of the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 (S.I. 2022/870) (description of legal entity subject to its own disclosure requirements) is revoked.”—(Kevin Hollinrake.)
This new clause expands the definition of “registrable beneficial owner” in Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 in relation to an entity one of whose beneficial owners is a trustee. There is also a power to further expand the definition.
Brought up, read the First and Second time, and added to the Bill.
New Clause 16
Material unavailable for public inspection: verification information
“In section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 (verification of registrable beneficial owners and managing officers), in subsection (2), after paragraph (c) insert—
‘(d) requiring the registrar not to make available for public inspection certain information delivered to the registrar by virtue of the regulations.’”—(Kevin Hollinrake.)
Section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 confers power to make regulations about identity verification. This new clause allows the regulations to provide that information provided under the regulations is protected from public inspection.
Brought up, read the First and Second time, and added to the Bill.
New Clause 17
Material unavailable for public inspection
“For sections 22 to 24 of the Economic Crime (Transparency and Enforcement) Act 2022 substitute—
‘22 Material unavailable for inspection
(1) The following material must not, so far as it forms part of the register, be made available by the registrar for public inspection—
(a) so much of any application or other document delivered to the registrar under section 4, 7 or 9 as is required to contain—
(i) protected date of birth information;
(ii) protected residential address information;
(iii) protected trusts information;
(iv) the name or contact details of an individual provided for the purposes of section 4(1)(d), 7(1)(e) or 9(1)(f) or paragraph 6(1)(g) or 7(1)(g) of Schedule 1;
(v) an overseas entity’s email address (see paragraph 2(1)(e) of Schedule 1);
(vi) any title numbers or folio numbers in respect of land (see paragraph 2(1)(h), (i) and (j) of Schedule 1);
(b) any information that regulations under section 16 provide is not to be made available for public inspection;
(c) the following—
(i) any application or other document delivered to the registrar under regulations under section 25 (regulations protecting material), other than information provided by virtue of section 25(4);
(ii) any information which regulations under section 25 require not to be made available for public inspection;
(d) any application or other document delivered to the registrar under section 28 (administrative removal of material from the register);
(e) any court order under section 30 (rectification of the register under court order) that the court has directed under section 31 is not to be made available for public inspection;
(f) any statement delivered to the registrar by virtue of section 1067A(3) or (4) of the Companies Act 2006 (delivery of documents: identity verification requirements etc);
(g) any statement made in accordance with regulations made by virtue of section 1082(2)(c) of the Companies Act 2006 (statement of unique identifier);
(h) any document provided to the registrar under section 1092A of the Companies Act 2006 (power to require further information);
(i) any email address, identification code or password deriving from a document delivered for the purpose of authorising or facilitating electronic filing procedures or providing information by telephone;
(j) any record of the information contained in a document (or part of a document) mentioned in any of the previous paragraphs of this subsection;
(k) any other material excluded from public inspection by or under any other enactment.
(2) In this section—
“protected date of birth information” means information as to the day of the month (but not the month or year) on which an individual who is a registrable beneficial owner or managing officer of an overseas entity was born;
“protected residential address information” means information as to the usual residential address of an individual who is a registrable beneficial owner or managing officer of an overseas entity;
“protected trusts information” means the required information about a trust (see sections 4(3), 7(3) and (4) and 9(3) and (4).
(3) Information about a registrable beneficial owner or managing officer does not cease to be protected date of birth information or protected residential address information when they cease to be a registrable beneficial owner or managing officer.
(4) Where subsection (1), or a provision referred to in subsection (1), imposes a restriction by reference to material deriving from a particular description of document (or part of a document), that does not affect the availability for public inspection of the same information contained in material derived from another description of document (or part of a document) in relation to which no such restriction applies.
(5) The registrar need not retain material to which subsection (1) applies for longer than appears to the registrar reasonably necessary for the purposes for which the material was delivered to the registrar.
23 Disclosure of protected information
(1) The registrar must not disclose protected date of birth information, protected residential address information or protected trusts information unless—
(a) the disclosure is permitted by section 1110F of the Companies Act 2006 (general powers of disclosure by the registrar), or
(b) the information is required to be made available for public inspection (as a result of being contained in a document, part of a document, or record to which section 22(1) does not apply).
(2) In this section the following have the meaning given by section 22(2)—
“protected date of birth information”;
“protected residential address information”;
“protected trusts information”.’”—(Kevin Hollinrake.)
This new clause replicates for the register of overseas entities a number of changes made by the Bill in relation to companies. It also extends the list of information unavailable for public inspection.
Brought up, read the First and Second time, and added to the Bill.
New Clause 18
Protection of information
“For section 25 of the Economic Crime (Transparency and Enforcement) Act 2022 substitute—
‘25 Power to make regulations protecting material
(1) The Secretary of State may by regulations make provision requiring the registrar, on application—
(a) not to make available for public inspection any information on the register relating to an individual;
(b) to refrain from disclosing information on the register relating to an individual except in specified circumstances;
(c) not to make available for public inspection any address on the register that is not information to which paragraph (a) applies;
(d) to refrain from disclosing any such address except in specified circumstances.
(2) The regulations may make provision as to—
(a) who may make an application;
(b) the grounds on which an application may be made;
(c) the information to be included in and documents to accompany an application;
(d) the notice to be given of an application and of its outcome;
(e) how an application is to be determined;
(f) the duration of, and procedures for revoking, any restrictions on the making of information available for public inspection or its disclosure.
(3) Provision under subsection (2)(e) or (2)(f) may in particular—
(a) confer a discretion on the registrar;
(b) provide for a question to be referred to a person other than the registrar for the purposes of determining the application or revoking the restrictions.
(4) Regulations under subsection (1)(a) or (1)(c) may provide that information is not to be made unavailable for public inspection unless the person to whom it relates provides such alternative information as may be specified.
(5) The circumstances that may be specified under subsection (1)(b) or (d) by way of an exception to a restriction on disclosure include circumstances where the court has made an order, in accordance with the regulations, authorising disclosure.
(6) Regulations under subsection (1)(b) or (d) may not require the registrar to refrain from disclosing information under section 1110F of the Companies Act 2006 (general powers of disclosure by the registrar).
(7) Regulations under this section may impose a duty on the registrar to publish, in relation to such periods as may be specified—
(a) details of how many applications have been made under the regulations and how many of them have been allowed, and
(b) such other details in connection with applications under the regulations as may be specified in the regulations.
(8) Regulations under this section are subject to affirmative resolution procedure.’”—(Kevin Hollinrake.)
This new clause replicates for the register of overseas entities the provision made by clause 87 of the Bill in relation to companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 19
Resolving inconsistencies in the register
“(1) Section 27 of the Economic Crime (Transparency and Enforcement) Act 2022 (resolving inconsistencies in the register) is amended as follows.
(2) For subsections (1) and (2) substitute—
‘(1) Where it appears to the registrar that the information contained in a document delivered to the registrar by an overseas entity in connection with the register is inconsistent with other information contained in records kept by the registrar under section 1080 of the Companies Act 2006, the registrar may give notice to the overseas entity to which the document relates—
(a) stating in what respects the information contained in it appears to be inconsistent with other information in records kept by the registrar under section 1080 of the Companies Act 2006, and
(b) requiring the overseas entity, within the period of 14 days beginning with the date on which the notice is issued, to take all such steps as are reasonably open to it to resolve the inconsistency by delivering replacement or additional documents or in any other way.
(2) The notice must state the date on which it is issued.’
(3) In the heading, omit ‘in the register’.”—(Kevin Hollinrake.)
This new clause makes changes for the purpose of resolving inconsistencies in information relating to overseas entities that corresponds to the changes made by clause 81 of the Bill in relation to companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 20
Administrative removal of material from register
“(1) In the Economic Crime (Transparency and Enforcement) Act 2022—
(a) for section 28 substitute—
‘28 Administrative removal of material from the register
(1) The registrar may remove from the register anything that appears to the registrar to be—
(a) a document, or material derived from a document, accepted under section 1073 of the Companies Act 2006 (power to accept documents not meeting requirements for proper delivery), or
(b) unnecessary material as defined by section 1074 of the Companies Act 2006.
(2) The power to remove material from the register under this section may be exercised—
(a) on the registrar’s own motion, or
(b) on an application made in accordance with regulations under section 28A(2).
(3) The Secretary of State may by regulations provide that the registrar’s power to remove material from the register under this section following an application is limited to material of a description specified in the regulations.
(4) Regulations under this section are subject to the negative resolution procedure.
28A Further provision about removal of material from the register
(1) The Secretary of State must by regulations make provision for notice to be given in accordance with the regulations where material is removed from the register under section 28 otherwise than on an application.
(2) The Secretary of State must by regulations make provision in connection with the making and determination of applications for the removal of material from the register under section 28.
(3) The provision that may be made under subsection (2) includes provision as to—
(a) who may make an application,
(b) the information to be included in and documents to accompany an application,
(c) the notice to be given of an application and of its outcome,
(d) a period in which objections to an application may be made, and
(e) how an application is to be determined, including provision as to evidence that may be relied upon by the registrar for the purposes of satisfying the test in section 28(1).
(4) The provision that may be made by virtue of subsection (3)(e) includes provision as to circumstances in which—
(a) evidence is to be treated by the registrar as conclusive proof that the test in section 28(1) is met, and
(b) the power of removal must be exercised.
(5) Regulations under this section are subject to the negative resolution procedure.’;
(b) omit sections 29 and 29A (application to rectify register and resolution of discrepancies).
(2) In section 1073 of the Companies Act 2006 (power to accept documents not meeting requirements for proper delivery), in subsection (6)(a), after ‘section 1094A(1)’ (inserted by section 82 of this Act) insert—
‘or any corresponding provision of any other enactment’.”—(Kevin Hollinrake.)
This new clause replicates for the register of overseas entities the changes that clause 82 of the Bill makes in relation to the register of companies.
Brought up, read the First and Second time, and added to the Bill.
New Clause 21
Enforcement of requirement to register: updated language about penalties etc
“(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In section 34 (power to require overseas entity to register if it owns certain land)—
(a) in subsection (4)(a), for ‘the maximum summary term for either-way offences’ substitute ‘a term not exceeding the general limit in a magistrates’ court’;
(b) omit subsection (5).
(3) In section 36 (meaning of ‘daily default fine’) after ‘applies for’ insert ‘the’.”—(Kevin Hollinrake.)
This new clause updates the penalty provision for the offence in section 34 of the Economic Crime (Transparency and Enforcement) Act 2022 to reflect changes made by the Judicial Review and Courts Act 2022. This ensures consistency with the language that clauses 136 and 137 introduce into the 2022 Act.
Brought up, read the First and Second time, and added to the Bill.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Seventeenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 24th November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 24 November 2022 - (24 Nov 2022)
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 9 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Stephen Kinnock (Aberavon) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. New clause 24, tabled by SNP Members, would add to the transparency of the companies register and enhance the ability of law enforcement to identify suspect registrations. It would do so by requiring the subscribers or initial shareholders of a company to provide information on the location of any bank account held either by the individual shareholders or in the name of the company itself.
The new clause reflects an acknowledgement of the realities that have been exposed by many of the recent leaks and investigative reporting by the media of the widespread criminal use of bank accounts registered in jurisdictions known for exercising minimal oversight over financial activity and for lax controls on money laundering offences. Given that the entire point of the Bill is to clamp down on the ability of criminals to exploit gaps in laws and regulatory approaches to economic crime across different countries, the Opposition sincerely hope that the Government welcome proposals that are intended to provide law enforcement with as much information as possible to facilitate the detection of economic crime. Requiring Companies House to record information on the location of relevant individuals’ bank accounts seems like an eminently reasonable measure that could make a valuable contribution to the fight against economic crime.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the hon. Member for Glasgow Central for the new clause, which raises an interesting point. I have concerns about the privacy issues involved in putting this information in the public domain, and I wonder whether she has considered that. We are potentially talking about personal bank accounts rather than company bank accounts.
A similar proposal to require the disclosure of bank account information relating to companies was included in the 2019 corporate transparency and register reform consultation, as the hon. Member mentioned. Respondents did not on balance support the proposal and the Government subsequently agreed that the proposal did not offer sufficient benefits to justify the additional burden being imposed on companies. There is also concern that there would be practical difficulties with implementation, such as the inability to confirm information provided, or to identify where it is missing, which would reduce the effectiveness of the proposal.
There are some other measures we can use. The European Union’s fifth anti-money laundering directive required the UK to build a centralised automated mechanism, a bank account portal, designed to help law enforcement and AML supervisors to access information on the identity of holders and beneficial owners of bank accounts and safe deposit boxes. Following the UK’s exit from the EU and the agreement of the trade and co-operation agreement in January 2021, the Government reviewed the case for building the portal. At that point, law enforcement did not believe there was a strong rationale for an alternative, centralised mechanism in order to support its work and the Government concluded that we should not build a bank account portal. UK money laundering regulations have been amended to remove redundant obligations.
I would be grateful if the hon. Member withdrew her amendment, but I would like to explore the issue further, certainly as it relates to company bank accounts, so we will perhaps return to it at a later stage.
Alison Thewliss
I thank the Minister for his consideration of this proposal. I would be interested to know what has changed since the previous consideration was arrived at that such provisions were not necessary. He suggests he will weigh that up and perhaps bring forward some amendments on Report, I beg to ask leave to withdraw the amendment.
Clause, by leave, withdrawn.
New Clause 26
Reporting requirement (objectives)
“(1) The Secretary of State must publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives under section 1081A of the Companies Act 2006 (inserted by section 1 of this Act).
(2) Each report must make a recommendation as to whether further legislation should be brought forward in response to the report.
(3) Each report must provide a breakdown of the registrar’s annual expenditure.
(4) Each report must provide annual data on the number of companies that have been struck-off by the registrar, the number and amount of fines the registrar has issued, and the number of criminal convictions made as a result of the registrar’s powers as set out in this bill.
(5) Each report must provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors.
(6) Each report must provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by Authorised Company Service Providers to the registrar.
(7) The first report must be published within one year of this Act being passed.
(8) A further report must be published at least once a year.
(9) The Secretary of State must lay a copy of each report before Parliament.”—(Seema Malhotra.)
This new clause would add a requirement on the Secretary of State to report on the powers available to the Secretary of State, the Department for Business, Energy and Industrial Strategy, and Companies House in relation to the registrar’s powers to achieve their objectives set out in clause 1.
Brought up, and read the First time.
Dame Margaret Hodge (Barking) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. I rise to make the simple point that the new clause is not a technical amendment; it is about an issue of principle. It is about transparency and accountability. It is not a provision that improves things at the margin; it is about making the legislation fit for purpose. Without it, the legislation will not be fit for purpose.
Throughout my history of learning about dirty money and money laundering, it has been absolutely clear to me that we have a range of tools already in legislation. As we do not have any accountability to Parliament as to how and whether those tools are employed, we do not know how effective we are in the battle against dirty money. Let me give three examples. There is now a new bit of legislation on unexplained wealth orders; it is the first time that I have known Ministers to agree to an annual report to Parliament. They agreed to it when we did the emergency legislation. I have been arguing for that for years, so I was pleased to see it, but until that moment we did not know, and we have not seen the report yet.
A better example is golden visas. We are still waiting for the report on golden visas, how they were abused, misused and used during that period, and who was let into the country on one. Another example is the amount of money that has been frozen from people who have been sanctioned by this Government. We do not have a clue how much that is. The Government put out a figure the other day for how much Russian state money had been frozen—£18 billion—but we do not have a clue how much money we have managed to get off some of the characters we know are sitting on billions.
If there is going to be effective legislation, we need clear transparency and proper accountability. That is something that the Opposition feel incredibly strongly about. We will be pressing the new clause to a Division, because it is a sensible, pragmatic and practical provision that should be in the Bill.
Kevin Hollinrake
I thank the hon. Members for Feltham and Heston and for Aberavon for tabling their new clause. I also thank the right hon. Member for Barking and the hon. Member for Glasgow Central for their contributions. I agree with much of what they said. As they know, I fully agree that Parliament should be regularly updated on the implementation and impact of this legislation. What gets measured gets done, and it is vital that we know what is being done with this legislation.
I will speak to new clauses 26 and 28 first, because I think there may be a duplication of things that exist already. Much of the information suggested by new clause 26, such as Companies House expenditure and the numbers of companies incorporated and struck off, is already published in the Companies House annual report. Companies House already reports publicly on its activities and its regular statistical releases on gov.uk. On new clause 28, through dissolution a company is brought to a point at which it ceases to exist and ceases to appear on the register. A company can seek its own voluntary strike-off, or it can be struck of compulsorily by the registrar. In principle, that process takes place when there is reason to believe that the company is no longer in operation or carrying on business. In both cases, statutory processes ensue whereby the public generally are informed that the dissolution is in train by publications in the Gazette. There are opportunities for third parties to intervene and object to a company being dissolved.
Concerns have been expressed that unscrupulous companies choose to give the impression that they are defunct in order to precipitate their dissolution and evade creditors. That concern is ultimately misplaced, as any assets left in a company following its dissolution will not be held by the company any more, and will be passed to the Crown, bona vacantia—as ownerless property. It is also important to note the effects of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which amended the Company Directors Disqualification Act 1986 by introducing a mechanism for disqualifying directors of dissolved companies.
It is also worth noting that the 1986 Act includes provision not only for disqualifying directors but for ordering disqualified directors to pay compensation. That provision is in section 15A of the Act and, as amended by the 2021 Act, covers directors of both insolvent companies and dissolved companies. If a director is disqualified and the conduct for which they were disqualified caused loss to the creditors of an insolvent or dissolved company, the director can be ordered to pay compensation either for the benefit of specified creditors or by way of a contribution to the assets of the company.
The Bill introduces a new circumstance under which the registrar might seek to strike off a company that persistently fails to provide an appropriate registered office address. I assure Members that the registrar will initiate dissolution in those particular circumstances only after having assessed the risks of doing so. The normal notification procedures, by way of the Gazette and Companies House webpages, will apply.
As noted, Companies House already makes data on company dissolutions regularly available. I question what benefit the reporting proposed by the new clause would add, as it is not clear to me that the information it covers would necessarily be available to the Secretary of State. However, I acknowledge the concern about the manner in which compulsory strike-off operates. I have asked my officials to advise me on the extent to which the Bill’s new information-sharing provisions might improve safeguards and transparency in this area. I am of course happy to engage further with Members on this topic in due course.
Most of the comments related to new clause 63. I absolutely agree that there needs to be a mechanism by which progress made on the implementation of the provisions in the Bill is reported to Parliament. There should be regular reporting on the registrar’s use of the new powers. I also accept that it is important to give Parliament an early opportunity to scrutinise how quickly Companies House implements the reforms.
I believe, however, that the new clause requires further consideration. As drafted, it has the potential to place unintended obligations on the registrar. For example, it will require the registrar to report on the imposition of financial penalties before the commencement date of the regulations. It also requires the registrar to indefinitely report on the implementation of the legislation, even if it is completed in the near future.
With the agreement of the Committee, I would like to ask my officials to consider the new clause further. I hope Members are reassured that we will give it consideration. If the new clause is withdrawn, we will have further discussions about what we might put in its place.
Seema Malhotra
I thank the Minister for his comments about the new clauses. I appreciate his response on new clause 63 and very much look forward to hearing from his officials about the proposed reports, but will he tell us when we will hear from them? None of us wants the measure to be lost in the course of proceedings, and we do not want it to be left to the Lords, so I would be grateful if he can tell us when he expects us to hear a response. Assuming that it will be positive, I am happy not to press new clause 63 to a vote.
On new clause 26, the Minister did not respond with the detail that I was expecting. I understand that some data is already published. We can have an argument about whether it is there, but it is easy for there to be a summary. If Parliament is looking at one document, it will want that data. It will want to review the later data in the context of the more procedural data that Companies House already publishes. I cannot see that it is onerous to publish a summary of data that already exists.
Seema Malhotra
My right hon. Friend is absolutely right; indeed, that is precisely where my concerns lay. The Minister simply talked about the relatively small part of the reporting requirement. If there were an argument as to whether to include it or not, my argument would continue to be that that is relevant to have in the context of the full reporting requirement that we are arguing for. There is not anywhere else in the legislation—unless the Minister can direct me to it—that will provide Parliament with such a report.
Kevin Hollinrake
Just to abbreviate the debate, much of the information in new clause 26 is already reported by Companies House in its annual report. I think it is being said that the key measures are the additional ones in new clause 63, which relate to what the Bill’s provisions will give effect to. I am happy to return to the Committee before Report to say where we feel the new clause needs to be addressed. If we do not do it at that point, the hon. Lady is welcome to table an amendment on Report.
Seema Malhotra
I thank the Minister. To clarify, he referred to coming back on new clause 63; my question is in relation to new clause 26 and whether and how the later subsections are all going to be covered by the Companies House annual report. It would be helpful if he responded to that, because currently I am not clear that they are all covered.
In new clause 26, we are asking for an assessment of whether
“the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives”
and about
“making recommendations as to whether further legislation should be brought forward in response to the report.”
Yes, there may be details elsewhere, but they could be summarised for the ease of use of the report. The new clause requires
“a breakdown of the registrar’s annual expenditure”
and
“data on the number of companies struck off”.
That information may well also be elsewhere. Will the Minister confirm whether
“the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors”
and so on is all going to published elsewhere?
Seema Malhotra
I thank my right hon. Friend for explicitly emphasising the importance of subsection (6). She is absolutely right. The Minister will be mindful of the importance of transparency in respect of the issues relating to incorporations by authorised company service providers. Will he confirm that all the subsections in new clause 26 will be explicitly covered elsewhere? If not, we will want to pursue the matter of how that information is going to be published by Companies House and the Secretary of State.
Kevin Hollinrake
Nobody is ignoring the comments that have been made. Nobody is keener than I am to make sure that there is proper scrutiny of what Companies House does with the powers. We should absolutely ensure that.
On the requirement for the Secretary of State to report on the use of the powers, any Secretary of State appointed by any Government, be they Labour or Conservative, will of course always review the powers needed and whether there is a need to legislate further. It is not right to dictate in legislation that the Secretary of State should do this, that or the other and I would not expect any Opposition to require that.
Companies House already reports on the number of companies incorporated and struck off—that is already in the annual report. It is an interesting point about corporate service providers; the right hon. Member for Barking has concerns in that regard, and I do too. I suggest that I should look at the matter further with officials and come back to the hon. Member for Feltham and Heston well in advance of Report—outside the tabling time—and if we are not going to do anything, she can table a similar new clause. If we are going to do something, that might address her concerns or she might need to go further. Those options are open to her and I hope she will give us time to try to address these matters to the House’s satisfaction.
Seema Malhotra
I thank the Minister for his comments. He has said he will review the issues addressed in new clauses 26 and 63 with his officials. There may well be areas in which, on further reflection, he agrees with us that more could be done.
On the Minister’s comment about the Secretary of State being able to introduce legislation at any time, the point that was missed was that we know the speed with which we have to respond to economic crime. If we think back to 2016, we can see that we did not act fast enough—we have not acted fast enough in the past six years—so there is strong merit in having a mechanism that speeds up any requirements for future legislation through a report that can be reviewed and followed up on.
If the Minister is committing to review the matter and come back to us, we accept that. We would like to be involved in the discussions, perhaps after he has had an initial discussion with his officials. If there is a way to move forward with consensus, perhaps prior to Report, that could be a positive way forward. I therefore beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 29
Report into the merits of a fund for tackling economic crime
“(1) The Secretary of State must produce a report into the merits of a fund for tackling economic crime.
(2) The report must consider the case for penalties paid to the registrar to be ringfenced and used solely for the purposes of tackling economic crime.
(3) The report must be laid before Parliament within six months of this Act being passed.”—(Dame Margaret Hodge.)
This new clause requires a report into the merits of a fund for tackling economic crime to be laid before Parliament.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Seema Malhotra
On a point of order, Sir Christopher, is it procedurally correct for my right hon. Friends the Members for Birmingham, Hodge Hill and for Barking to speak before I make my comments?
Kevin Hollinrake
Can I just say something from my own business experience? We had two very thorough inquiries from HMRC, which spent days in our office looking at our money laundering procedures. I am pleased to say that we passed the test, but HMRC really does take its job seriously.
Dame Margaret Hodge
I do not know whether I have the quote here from the previous HMRC permanent secretary—I will dig it up and send it to the Minister—but he actually said, in evidence to the Treasury Committee I think, that he did not quite understand why it was part of his job to do the supervision. I am not quoting him accurately, but the purport of what he said was that they see it as marginal and a sort of add-on—I think he used the word “add-on”—to their main function, which is to get the money in.
The position and reputation that professionals enjoy through membership of professional bodies is really important. Therefore, the professional bodies themselves should be taking steps to minimise and attack suspicious activity where it takes place, and they should be calling it out. It is in everybody’s interest to get the bad apples.
Let me give some evidence of the current failings as we see them. The 2021 review of OPBAS—the body responsible for all the professional bodies—found that 81%, or eight out of 10, were not supervising their members effectively. This review was done only on the legal and accountancy professions. Half the supervisors did not ensure that their members were taking timely action to improve their money laundering procedures where they were found wanting. A third of the supervisors did not have effective separation between the advocacy role and the supervision role, which I think is an important aspect. For a proper review, one would separate bodies undertaking supervision and bodies undertaking advocacy to ensure there is no conflict of interest.
Some 60% of the firms visited by the Solicitors Regulation Authority in 2021 were failing to comply fully with their duties to have adequate AML controls in place. OPBAS found that nine supervisory bodies of MLR are engaging in what it calls “low levels of enforcement”. The way in which those bodies respond when they find something going on is to have a quiet chat rather than issue fines and publicly censure lawyers for breaching the MLR rules. The highest ever AML fine for a law firm by the SRA was £232,500, and it was for Mishcon. If that fine had been levied by the FCA under similar powers, it would have been £5.4 million.
The Council for Licensed Conveyancers, another group of professionals who are active in this area, imposed zero fines, despite finding that two out of three of the firms it is responsible for supervising were non-compliant with AML regulations in 2019-20. To use another example, the Law Society of Northern Ireland imposed just one fine—of £1,750—in the year 2019-2020, despite it finding 228 cases of non-compliance. That is a considerable body of evidence, if I may say so, that shows that the current system is broken and not fit for purpose.
The Chartered Institute of Taxation, a group I work with a lot, found that a third of the firms visited were non-compliant, but only four firms were disciplined for failure to provide renewal forms by the required deadline and fined for failure to submit appropriate criminality check certificates or to deal with the action points that had been raised with them in the review by CIOT of their AML procedures. In three of the four disciplinary cases by CIOT, a financial penalty was imposed, and only in the fourth was the member suspended.
I know that the Government are looking at the supervisory framework but, as is the way with Governments, that could take forever. We want to implement these reforms swiftly, so we must have some assurance and confidence, particularly because of the outsourcing of the checks on individual companies, that the professionals will seek out the miscreants in their profession. We cannot wait for the review, to put it bluntly. With these measures, we have taken the least of all the options the Government have put forward and proposed it for legislation. If the Government, on reflection, want to come back with a tougher regime, that is fine, but at least we would have the minimum in place as we enact the legislation and the reform of Companies House. Our new clause says, “Action now. Toughen up the powers and duties of OPBAS—introduce greater transparency into the system, and comeback if that is needed.” We are suggesting new powers and duties for OPBAS. The power is
“to impose…financial penalties on Professional Body Supervisors that fail to…adopt an effective risk-based approach to anti-money laundering supervision…impose proportionate and dissuasive sanctions for non-compliance…and…separate their advocacy and regulatory functions.”
This is minimal, sensible and desperately needed now if we are to go ahead, with the speed that we all want, with the implementation of the legislation.
Alison Thewliss
I support the new clauses. The anti-money laundering supervisory duties are incredibly important, as they are part of firmly closing the door on economic crime. It is important that we use this opportunity to strengthen the powers in the Bill. Frankly, if we do not do it now, when will we get round to it again?
New clause 44 asks HMRC to prioritise its AML supervisory function. That seems sensible. I would note that some additional resources will be needed; the Treasury Committee’s economic crime report points to the fact that some 30,000 businesses fall into this bracket.
I note the ongoing review of OPBAS. I do not want the Minister to get ahead of the review, but it might be useful to get a perspective on the direction of travel. At the most extreme end of that review—the Committee heard evidence on this point recently—the Government could propose that OPBAS loses its AML supervisory function. It would be interesting to hear the Minister’s perspective on where he thinks the review will end up. It is quite awkward that the review does not tie in with the Bill’s timetable: the review is ongoing, we are legislating here and we do not quite know where it will end up.
I wonder whether the Minister could clarify a point that the FCA’s chief executive, Nikhil Rathi, could not clarify when he came to the Committee. The most recent report about the performance of OPBAS is dated September 2021. It feels to me that we are overdue a report on the effectiveness of OPBAS. Is the delay a result of the ongoing review or is there some other reason for it? The September 2021 report stated that:
“The vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach. Only a third of PBSs were effective in developing and recording in writing adequate risk profiles for their sector”.
The report also raised various other points about the effectiveness of OPBAS. It has been operating for several years now, but we still do not feel that it is doing what it should to supervise and ensure that the anti-money laundering responsibilities of those it supervises are carried out. If the Minister does not have information on the status of that report today, I would be perfectly content for him to write to me.
Maybe OPBAS has upped its game incredibly since the last report came out—we just do not know. That also hinders our approach to the Bill, because we do not know whether these functions are being adequately carried out. While the FCA chief executive was able to say that there has been improvement, he was not able to say what that improvement looks like. Have 100% of PBSs now implemented an “effective risk-based approach” or is it 50%, or somewhere in between? We just do not know.
It is important that we use all the opportunities we have in the Bill to up the resources for the FCA, OPBAS and HMRC to carry out their functions. As I say, anti-money laundering supervision is the key to ensuring we close the door on money laundering. Those bodies are meant to stop it, and if we do not tighten the legislation and provide the resource there is very little point having the Bill.
The Minister for Security (Tom Tugendhat)
I thank the right hon. Member for Birmingham, Hodge Hill and for Barking for their amendments, and I welcome the effort and energy they put into the oversight mechanisms that are so important in ensuring that the Bill is effective. That is the nice bit. They know what is coming next.
I do agree enormously on the importance of supervision, which has been emphasised, but I am afraid I cannot support new clause 44. Despite what the right hon. Member for Barking says, HMRC already has an anti-money laundering supervisory function and it does take its responsibilities extremely seriously. It supervises nine sectors and is the default supervisor for trust and company service providers where they are not already subject to supervision by the FCA or one of the 22 professional bodies.
Dame Margaret Hodge
I wish I had brought some of my previous notes with me. What evidence does the Minister have of that, apart from HMRC telling us that?
Dame Margaret Hodge
I am amazed that it did. Is there evidence of the number of visits or assessments carried out? I can remember a quote from the previous permanent secretary, who said, “It is not our core business.”
Tom Tugendhat
The core business of HMRC is raising money and ensuring that that money is clean. That is absolutely essential. Until HMRC works out whether or not the money is clean, it is hard to raise money. I would be hard pressed to describe my hon. Friend the Under-Secretary as a dodgy individual, but if he is going through these AML checks I think it is a good indication that HMRC is taking such matters very seriously. As I say, the checks are already being done and the responsibilities are held by branches of the Government, including HMRC and other professional bodies.
The amendments are therefore a duplication. The reality is that HMRC carried out 3,500 formal compliance inspections with businesses last year and issued over £2.5 million of penalties in 2021-22. That demonstrates that the business checks are not symbolic. They are not minor. They are extremely serious. HMRC takes them very seriously. I think the Government is entirely in agreement with the right hon. Lady that these checks need to happen, but the scale and type of reform to improve effectiveness and solve these problems is not yet clear. The Treasury will no doubt have many views when its formal consultation on the possible options opens. The consultation will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model. The right hon. Lady knows very well that we need to get this right, not just to be quick.
On new clause 72, I welcome the desire to strengthen the UK’s anti-money laundering regime. I also share the support for the work OPBAS does. However, it is not yet the right time for the proposed changes, and I cannot support the suggested amendment. In June of this year, the Treasury published a review of the UK’s anti-money laundering regime, which considered the performance of the supervisory regime, including the work of OPBAS. It concluded that although there have been significant improvements in recent years, further reform is necessary to ensure effective supervision across the regulated sector. The review set out four options for reform, ranging from strengthening OPBAS to structural reform to establish a new statutory supervisor. Further policy work to develop these options is already under way, and the Treasury has committed to publishing a consultation before a decision on the direction for reform is made. It would be wrong to preclude the ongoing policy analysis and public consultation by making the changes proposed by the amendment.
Dame Margaret Hodge
I heard the Minister’s words with gloom. Initially, the Government put out a consultation with four options, and to speed it up, we decided to go with the weakest of the options—the one to which there would be the least objections. What I think I just heard him say, which is so gloomy, is that the Government will now publish a further consultation. All this stuff in the Bill will come into being and we will have absolutely no assurance that proper checking, regulation and supervision will be carried out on company service providers.
Tom Tugendhat
As I say, this is really a matter for the Treasury, and it has committed to publishing a consultation before the decision is made. It would be wrong of me to preclude the ongoing policy analysis and public consultation by making—
Seema Malhotra
May I clarify whether the Minister has had any discussions with Treasury colleagues about the matter and raised his concerns? Have they acknowledged the need to act much faster?
Tom Tugendhat
I have had many conversations with Treasury colleagues in recent weeks and months on various aspects of the challenges that economic crime poses to the UK. Many of us are committed—in fact, the Treasury is very committed—to ensuring that economic crime is reduced in this country. The support that the Treasury has given in various different ways has resulted in many things, including a very successful operation conducted this morning by the Metropolitan police that resulted in the arrest of many people connected to economic crime. That may sound tangential on the grounds that it is about fraud, but the reality is that all of it is connected. We see a very strong overlap between money laundering, fraud and various other different forms of economic crime. The Treasury, unsurprisingly, is extremely committed to making sure that economic crime in this country reduces. The Home Office and the Department for Business, Energy and Industrial Strategy are absolutely committed to making sure that we considerably reduce the level of fraud in this country.
What is important now is to ensure that we make OPBAS as effective as possible, and that we look for some of the reforms that we have started to highlight, because that means that the changes required by the amendment will be unnecessary. I hope that we can focus on that aim.
I have just been given a statistic that records that in October 2022, HMRC named 68 estate agents that had breached anti-money laundering regulations, and fined them a collective total of £519,000. We can see that the supervision of estate agents is not just conducted by my hon. Friend the Under-Secretary but by many others around the country and is taken extremely seriously.
Dame Margaret Hodge
I hear what the Minister says, but I think we will just be setting up another duff register unless we get the regulation of those company service providers toughened up at the same time as we introduce the Bill. I want to press new clause 72 to a vote.
Kevin Hollinrake
I thank the hon. Member for his amendment. As he set out, new clause 50 would require all companies to have at least one person who ordinarily resides in the UK among their directors. The proposal has been considered and rejected before. I am aware that some other jurisdictions have similar provisions, but the UK has chosen not to enact that type of measure for two reasons. First, it goes against the long-standing principle that any legitimate global citizen can do business freely in the UK. If we mandate a UK resident director, we are effectively asking an overseas investor looking to set up a business here to have a UK business partner. That sounds to me very much like something that the Chinese state might do. We do not consider that it is right for our open economy.
Secondly, we are not persuaded that there are enforcement or accountability benefits that will lower levels of corporate abuse or economic crime. The reforms in the Bill, such as identity verification, intelligence sharing and greater information querying, will help to deliver much-increased transparency and accountability. That will help us to discover rogues faster, share their details more quickly, hold them to account and, where necessary, close down their businesses, or indeed ask questions of them before we even allow them to incorporate here.
It is my expectation, as the hon. Member for Aberavon has set out, that Companies House will work with the NCA and others to put in place the systems to raise red flags so that when we see applications to incorporate companies from individuals from certain jurisdictions, more questions will be asked. If the registrar is not persuaded by the responses, she may simply say no. The addition of a UK resident director will not provide additional value and I very much hope that the hon. Gentleman will withdraw his new clause.
Stephen Kinnock
I thank the Minister for his remarks. We are talking about how to make it as easy as possible for those red flags to be clear. If we were to do exception reporting, there may, of course, be a clear explanation in certain circumstances for why there is not a single UK-based company director and perfectly legitimate reasons for that. We think that it would be better to do the exception reporting on that basis, so that we are casting the net and identifying red flag areas because of the nature of the company directors and where the risk would appear to be.
I take it from the Minister’s remarks that there is not a great deal of room for negotiation on that point. However, we are trying to put forward a sensible and pragmatic solution. Can the Minister say any more about how to look through the telescope in terms of exception reporting? We argue that exception reporting could be conducted on the basis of explaining why there is not a single UK-based company director while maintaining the blanket provision that there should always be such an individual in order to minimise risk.
Kevin Hollinrake
That is exactly how we expect the process to operate. If there are red flags of concern—an exception report, as the hon. Gentleman calls it—the registrar can ask further questions and may deny that company the right to establish itself in the UK. I think those checks and balances are in place, and of course, as hon. Members have said, it is very important that those opportunities are used by the registrar. I am very keen to ensure that we have the opportunity to scrutinise the use of those powers.
Stephen Kinnock
I thank the Minister for those points. I see that we will agree to disagree on this. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 51
Registration requirements: UK-based assets held by overseas entity
‘(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.
(2) In Schedule 2—
(a) in sub-paragraph (a) of paragraph 2, for “and” substitute “or”;
(b) after sub-paragraph (a) of paragraph 2 insert—
(aa) is a beneficial owner of any UK-based assets held by overseas entity, and”.’—(Stephen Kinnock.)
The intention of this new clause is to broaden the scope of registration requirements for overseas entities, as set out in the Economic Crime (Transparency and Enforcement) Act 2022, to include the beneficial owners of any UK-based assets owned by an overseas company, as well as the beneficial owners of the company itself.
Brought up, and read the First time.
Stephen Kinnock
I beg to move, That the clause be read a Second time.
The purpose of the new clause is to close what appears to be a loophole in the current requirements on the registration of overseas entities that own property in the UK. The case for the new clause is simple. Under the current rules, as set out primarily in the Economic Crime (Transparency and Enforcement) Act 2022, a foreign company that owns property or land in the UK is required to declare the beneficial ownership of the company itself. It is, however, unclear whether it would also be required to disclose the ultimate beneficial owner of any property owned by that company.
In recent years, we have seen ample evidence of how easy it can be—
Kevin Hollinrake
I am trying to understand the new clause. How could someone be the beneficial owner of a company and someone else own the assets? If the beneficial owners own the company, how can a different beneficial owner own the assets?
Stephen Kinnock
According to our interpretation, schedule 2 of the 2022 Act is unclear about whether a company would be required to disclose the ultimate beneficial owner of any property owned by that company. Our worry is that there is a loophole in the law that talks about the beneficial owner but does not give us the tools to obtain disclosure of who is the ultimate beneficial owner of the property.
In recent years, we have seen ample evidence of how easy it can be for money launderers and the enablers of economic crime to exploit any grey area, perceived or actual, in the laws that apply to them. Therefore it is essential that the law is absolutely crystal clear on that point. It is about tightening up the law as it stands.
We already know that the beneficial ownership of property and other assets is often shrouded in layer on layer of corporate secrecy. In its official guidance and examples of best practice on beneficial ownership, the Financial Action Task Force draws a distinction between the ownership of a company on the one hand and the ultimate beneficial ownership of any assets held by that company on the other. The guidance makes it clear that they are not necessarily the same thing. One of the most salient differences is that although a company can be the legal owner of a property, the ultimate beneficial owner of that property will always be a natural person, or, in layman’s terms, a human being. It is not clear whether the current legal framework for the register of overseas entities is sufficiently clear on that point.
To make a significant difference in terms of transparency, the register must require all companies to disclose the ultimate beneficial owner of any UK property under their control. It must publish that information. I would be grateful to hear the Minister’s thoughts on whether the legislation currently provides an adequate degree of clarity. If he agrees that the requirements could be made clearer, I hope that we can trust that the necessary changes will be incorporated in the Bill, or set out in regulation.
Kevin Hollinrake
Again, I thank the hon. Gentleman for tabling the new clause. I understand what he is seeking to do, and I support him in that endeavour. I believe that the intent behind the new clause is the concern that assets other than land can be used for illicit purposes, but I am not sure that the new clause, as drafted, serves to address that.
As the hon. Gentleman knows, overseas entities are required to register beneficial owners with Companies House. Those registered as the beneficial owners of the overseas entity are the same persons as the beneficial owners that the new clause seeks to make registerable. Any assets held by the overseas entity are ultimately owned by those already required to register with Companies House.
Say an overseas entity owns a case of whisky, so we know who is the beneficial owner of that case. Who then owns the bottles of whisky in the case? It is the same owner as the one who owns the case. There is no separate owner—they either own the case of whisky, or they do not. I honestly do not think that the new clause would achieve what the hon. Gentleman wants it to achieve. If we think about yachts and other property, if we know the beneficial owner of the company, we also know the owner of the assets inside it. I hope that the hon. Gentleman will withdraw the motion.
Stephen Kinnock
I thank the Minister for that clarification. What rang alarm bells with us were the comments of the Financial Action Task Force, which drew the distinction between the ownership of a company and the ultimate beneficial ownership of any assets held by that company. The Minister has made his position clear, and, again, we just agree to disagree. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
Ordered, That further consideration be now adjourned. —(Scott Mann.)
Economic Crime and Corporate Transparency Bill (Eighteenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 24th November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 24 November 2022 - (24 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Economic Crime and Corporate Transparency Bill (Nineteenth sitting)
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 29th November 2022
(1 year, 5 months ago)
Public Bill CommitteesEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 29 November 2022 - (29 Nov 2022)
The Committee divided: - Ayes: 6 / Noes: 8 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to serve under your chairship, Mr Robertson, and to follow the hon. Member for Paisley and Renfrewshire North, who made a very important speech. New clause 69 would introduce new provisions to prevent the continued trading of companies repeatedly declared insolvent and the practice of phoenixing, which the hon. Member outlined. It states:
“A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar of companies, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding ten years.”
A company may be “substantially similar” to previous companies in terms of its name, registered office, proposed officers and so on. This would mean that there is more scrutiny, and questions are raised about whether a company should be able to continue trading.
It is very important, for the reasons we have outlined in Committee, to seek to protect the public and other businesses from unscrupulous operators effectively carrying on their business activity and going through the same cycle of building up debts, which leads to consumer issues, and simply disappearing and starting again. We must deal with that behaviour, which is a route through which economic crime takes place, and that is why we support the new clause. We will listen closely to the Minister’s response on how the Government propose to tackle the issue of phoenixing.
I note the similarity between the intentions of this new clause and new clauses 28 and 46, tabled by my hon. Friend the Member for Aberavon and I, which we have discussed. In different ways, all those new clauses would tighten up glaring loopholes around strike-off, insolvency and phoenixing that enable those who are participating in economic crime to avoid scrutiny. We welcome the new clause, and we look forward to the Minister’s response.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
It is a pleasure to serve with you in the Chair, Mr Robertson. I appreciate the spirit of the amendment, and I also appreciate the hon. Member for Paisley and Renfrewshire North describing this as an excellent Bill—a very constructive point—but one that needs tightening up; I understand his points and applaud the efforts made by him and other Opposition Members to do so.
I am fully aware of the devastating consequences that such issues have on businesses, suppliers, supply chains and our constituents. I have a case of a gentleman called Scott Robinson who repeatedly closed his investment business down. It was called TBO Investments at one point and then became Mount Sterling Wealth. He effectively took his clients with him, and people lost huge amounts of money. They had provided money for him to invest based on supposedly low-risk investments, but he was actually gambling that money in very high-risk investments, and he did that time and again. I really sympathise with the spirit of the amendment, and I am keen to look at not just phoenixing but other types of situation where people deliberately take risks like that that have devastating consequences for consumers and businesses in our constituencies.
Gavin Newlands
The Minister says he will look at this and is sympathetic to the issue. For clarity, does that mean a later stage beyond the Bill or at a later stage of the Bill?
Kevin Hollinrake
In my view, it needs further work rather than just plonking the new clause in the Bill. There is a wider issue here and I am pleased to see that he seems to acknowledge that. Certainly, a piece of work is needed to look at this in detail. There are some measures in place already—just the pre-pack arrangements subject to Committee scrutiny. I will come on to that in a second.
There are existing provisions in the Bill that provide safeguards against the fraudulent phoenixing behaviour that the new clause targets. Section 216 of the Insolvency Act 1986 makes provision for restriction and prohibition on the re-use of a company name when new companies are formed, which is an intrinsic feature of phoenixing and one that the hon. Gentleman addresses in his new clause. That provision will be complemented by the new powers contained in the Bill. For instance, the registrar may choose to exercise the power to compel the production of information to help her determine whether an application to incorporate a company complies with the proper delivery requirements. They will include that those named as prospective directors can lawfully act as such, which would not be the case if they were barred under the 1986 Act from acting as a director of a company using a prohibited name, and the registrar would be empowered to reject the incorporation application. Furthermore, the registrar will have greater power to direct companies to change their names if they deliberately mislead in their purpose. Such powers provide the registrar with a powerful tool when considering new company registrations.
The registrar will be able to examine and interrogate information already held and share data with law enforcement partners and other authorities. That will allow other key characteristics such as verified identities, the registered office, proposed officers and business activities to be critically assessed with intelligence received to spot patterns of phoenixing.
If adopted, the new clause would be largely duplicative of provisions already in place or those introduced by the Bill. It would also erode the registrar’s discretion in the application of their powers as envisaged. There will be some instances when companies are captured by the new clause and are not culpable, but are merely victims of a legitimate business failure trying to start their enterprise. For instance, the new clause mentions companies that have
“been subject to winding up procedures”.
In that situation, they may be companies that have not necessarily gone into liquidation. There might be other legitimate reasons that those procedures have taken place, which may not be reflective of something that might be considered phoenixing. So, the registrar must be allowed to apply their powers according to the facts and information available. As I have said, I am keen to look at that, including the pre-pack rules, to see where we can tighten up on the matter to make sure those instances are minimised. For all those reasons, I hope the hon. Member will withdraw his new clause.
Gavin Newlands
I thank the Minister for his response. The new clause was very much a probing amendment and the Minister points out one weakness. It is a small new clause for dealing with quite a big problem and I may look to table a much more rounded amendment on Report. With that, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 70
Bar on directors in breach of duties receiving public funds
“(1) A company with a director or directors which are in breach of the general duties outlined in Chapter 2 of the Companies Act 2006, or who have been found to have committed statutory breaches of employment law, may not receive Government provided funds or financial support, unless subsection (2) applies.
(2) A company whose director or directors meet the criteria outlined in subsection (1) may receive Government provided funds or financial support if such funds or support are provided solely and specifically for the direct benefit of the company’s employees.”—(Gavin Newlands.)
This new clause seeks to prevent directors who fail to comply with their duties as a company director or with employment law provisions from being able to access funds in instances where these funds are for the benefit of the company and not the company’s employees.
Brought up, and read the First time.
Seema Malhotra
This is a useful new clause, in the spirit of some of the new clauses that we have tabled on what should and should not be available to directors who are in breach of their duties, disqualified and so on. The new clause, tabled by our colleagues from the SNP, would introduce new provisions that bar directors who are in breach of their duties from receiving public funds. Under the new clause, a company with a director or directors who are in breach of the general duties outlined in the Companies Act 2006, or who have been found to have committed statutory breaches of employment law, should not receive Government-provided funds or financial support unless it is solely and specifically for the purpose of directly benefiting the company’s employees.
This is an important debate, and I would be interested in the Minister’s response. When taxpayers find out that their money goes towards effectively supporting or enriching directors who are in breach of the Companies Act, there will be a real question about what the Government can do to further disincentivise and not reward those who are in breach of employment law or other areas of legislation. We support the sentiments behind the new clause and the arguments being made, and I look forward to the Minister’s response.
Kevin Hollinrake
I thank the hon. Member for Paisley and Renfrewshire North for his new clause; again, I support the motivation behind it. Clearly, there are restrictions already. Where a director has failed to observe a specific duty under the Companies Act 2006, they will potentially find themselves liable to criminal sanction and disqualification. I accept the fact that we have not focused too much on that area in the past, but that is exactly why we are legislating in the Bill to make the registrar far more proactive in her work. Where an employer has committed a breach of employment law, the relevant statute will generally provide appropriate remedies either by way of a right of action for the worker—normally in an employment tribunal or the courts—or by way of state enforcement, or sometimes both.
The new clause seeks to isolate only two triggers for denying access to financial support. Although they may have merit as triggers, who is to say that there are no other matters of conduct on the part of either a company or its directors that might lead one to question the wisdom of awarding it taxpayers’ money? Obviously, that should be determined within the scheme rules. The hon. Gentleman pointed to a case in which a director was interlinked with four other companies. There are already restrictions on Government loans—covid loans, for example—which must be taken into account where there are interlinked schemes, and he is probably aware of that.
Seema Malhotra
It is a pleasure to speak briefly in support of the new clause tabled by my right hon. Friend the Member for Barking. It would amend the Proceeds of Crime Act 2002 such that any disclosure made as part of the suspicious activity reporting regime must include a risk rating. My right hon. Friend outlined very effectively the reasons why the new clause is important. Much of the evidence in our meetings at the outset of the Bill, which set out the context and stakeholder views, it was clear that the SARs regime was failing. The databases of referrals were going unreviewed and unlooked at, because the resources were not there. There was no effective means that we could see of prioritising SARs fed into the NCA.
SARs is an essential tool in our defence against money laundering, but if the system is not working, something needs to happen. Having an extra step in the process to help with prioritisation, look at risks and deal with those identified as higher risk would help, as my right hon. Friend outlined, to bring in quality, at a time when we know that quantity is the new battle. She said that the current estimate is three quarters of a million referrals, which is extraordinary. Given the scale and types of economic crime, the number of referrals is likely to get worse, not better. That is a good thing if we are starting to highlight and refer more cases as we start to clean up our systems. However, we then need to deliver on that; otherwise, the downside is that we will reduce confidence among those doing the referrals that anything will actually happen.
Nigel Kirby of Lloyds Bank said in his evidence to the Committee:
“I think the SARs regime and the Proceeds of Crime Act 2002 itself actually need—well, not necessarily to be turned upside down, but to be looked at as a whole.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 19, Q26.]
I think we have some agreement that the system itself is important, essential and necessary but that it needs wholesale reform to make it more efficient and effective and to ensure that it does what we ask of it.
The Minister for Security (Tom Tugendhat)
I thank the right hon. Member for Barking for the new clause. I will slightly gloss over one element and focus on something she mentioned several times—I always listen carefully to what she says—about the comparison between the FBI and the NCA. I take the comparison, but the NCA is not a direct comparator for the FBI. After all, the FBI includes the equivalent to MI5. It also includes counter-terrorism police and a lot of what we call regional organised crime units. It includes a lot of other areas of policing that simply do not come under the NCA’s budget, so the comparison of budgets is not apples and oranges; it is more like apples and cider—the bulk of one and the punch of the other are not quite the same. I hope the right hon. Lady will forgive me for saying that that is not entirely a fair comparison.
That said, the NCA does an enormous amount of good work and uses SARs in many different ways. I have the figure here: the UKFIU received and processed nearly 600,000 SARs in 2019-20. That has increased significantly every year. The action taken has resulted in about £192 million being denied to criminals in 2019-20, up 46% on the previous year. So this is something that we are already using heavily.
Dame Margaret Hodge
We all think that SARs is a helpful regime. I wonder whether the Minister has been given the information by the NCA. It got more than half a million SARs, but how much of that data did it use to get the millions that it got in? That is a heck of a lot of data, which should yield a huge amount of valuable information.
Tom Tugendhat
First, not every SAR leads to an actionable offence. Many of them are simply, and quite rightly, reports. They are reports because there are suspicions, but suspicion does not necessarily mean guilt. Many times these are companies that are taking on clients or that have clients who are suspicious, and they want to be sure they are doing the right thing so, responsibly, they report in. We should not confuse the absolute number of reports with a level of criminality. That would not be fair on the British population, those doing the reporting or the NCA, which is looking into these things.
Alison Thewliss (Glasgow Central) (SNP)
I did not mean to stop the Minister in mid-flow. He says that the number does not necessarily correlate to criminality. Is he concerned to hear that trust and company service providers have provided only 31 SARs, according to Graeme Biggar when he gave evidence to the Treasury Committee? A total of 31 seems impossibly low for the number of trust and company service providers, compared with what comes in from others.
Tom Tugendhat
The hon. Lady makes a fair point, but as she knows well that is not the point of the new clause, which is about the supervision of SARs and the ways in which they are checked and verified. That said, I have listened carefully to her and will have a look at that, because I do appreciate the point she makes. That said, I think these codes already enable the NCA to triage effectively, although if she has better ideas I am happy to listen and look at them further. However, I am to be convinced, because I think the Bill already addresses the areas she indicates. I get the point she is trying to make, but I am not sure that her suggestions would lead to a significant improvement on what is already there.
Dame Margaret Hodge
I will speak for a little longer on new clause 73, but hopefully we will get through the others more quickly. It is probably one of the most important new clauses that we have tabled. It sits with new clause 79, which we will come to a little later. If we can make progress on this issue, we will be putting some better meat on the bones of what is still quite timid legislation.
We all want to do all we can to prevent economic crime from occurring in the first place. Prevention and early intervention is obviously the best, cheapest and most effective way of tackling the problem of dirty money. We want to stop it happening in the first place. We also all know that much economic crime takes place because lawyers, company service providers, accountants, bankers or estate agents either enable or collude with bad actors, helping them or turning a blind eye to the things that they do, thus enabling money to be laundered, crime to be committed, and our systems to be used to commit financial crimes.
There is currently too little in our laws and regulations that will stop the enablers—accountants and all the others—supporting and enabling economic crime. Companies and individuals are not held to account for what they do. The new clause aims to put a halt to that. We need to reform our outdated corporate liability laws so that not only companies but senior managers can be prosecuted if they fail to prevent fraud, false accounting and money laundering. It is not because we want to have endless prosecutions, or to fill prisons with these enablers, but because the threat of criminal prosecution will act as the best and most vital deterrent in preventing professionals from helping criminals to launder and manage their dirty money.
As we have said time and again in Committee, most professionals act with integrity. Those professionals with integrity have absolutely nothing to fear from the new clause. Indeed, the majority, who act responsibly, should welcome the change, because it will help us to clean up their profession, get rid of the bad apples and restore our reputation as a trusted jurisdiction. The Minister knows very well—I am trying to find the right Minister—
Dame Margaret Hodge
Both Ministers know that reform has been promised, and delayed, for a long time. The 2015 Conservative manifesto committed to making it illegal for companies to fail to put in place measures to prevent economic crime. The 2017 Ministry of Justice consultation on corporate liability reform sat for three and a half years. Inexplicably, it found that there was not enough evidence to pursue reform. I can only imagine that the Ministry was strongly lobbied. It said there was not enough evidence despite the fact that 76%, or three out of four respondents, said that the identification doctrine, which we will come to, inhibits the holding of companies to account for economic crime, and that two out of three respondents thought that corporate liability reform would result in improved corporate conduct. Despite all that, the Ministry chose not to pursue reform.
We then got the Law Commission’s review in 2022. It found that the current situation was “highly unsatisfactory” and that, on the status quo on corporate liability, “the identification doctrine”—for fraud and money laundering, the way in which we determine whether the people involved represent the “directing mind and will” of the company and can therefore be held responsible—
“is an obstacle to holding large companies criminally responsible for offences committed in their interests by their employees.”
The commission said that the status quo is “unfair” and that if the law remains unchanged it
“will continue to enable large companies to be acquitted for conduct which would see small businesses convicted.”
It also stated that that
“could diminish confidence in the criminal law”
and, finally, that the status quo incentivises poor corporate governance and
“rewards companies whose boards do not pay close attention.”
Given all that, I cannot think of a stronger indictment of the status quo.
There are endless examples of where our failure to modernise our criminal liability law has led to failure in the courts. The Barclays bank action is probably the most infamous, or famous, of them all. In 2008, during the financial crisis, Barclays wanted to avoid nationalisation and entered into a deal with Qatar, from which it received more than £11 billion and a loan of £3 billion. The bank, however, also set up what was called an advisory service agreement—in a sense, as I can say under parliamentary privilege, it was a bribe—and, under it, £322 million was given to those who facilitated the deal between Qatar and Barclays bank.
The Serious Fraud Office tried to prosecute the bank and its chief operating officer with charges of conspiracy to commit fraud and charges involving “disguised commissions”—in my interpretation, bribes. The court threw out all the charges, saying that the alleged criminal dishonesty of senior officers “could not be attributed” to Barclays. So the chief executive could not be held responsible for what the bank did, because the chief executive was not the bank, but reported to the bank. It was a crazy judgment. The court also dismissed cases against other individuals, as they could not be defined as the “directing mind and will” of Barclays.
There was, then, a Barclays fiasco, but there were other examples, such as the LIBOR rate-rigging scandal. No criminal prosecutions were brought, although the individuals prosecuted gave evidence that their managers knew what they were doing, so the company itself was liable. If the Minister for Security will allow this comparison, the US brought criminal enforcement action against 12 of the banks in the LIBOR scandal—British banks—and extracted $3.4 billion in criminal fines. Other examples include HBOS—to which the Under-Secretary often refers—Serco and the tagging contract, London Capital & Finance, and so on and so forth.
In 2022, four parliamentary Committees called for the reform of corporate criminal liability legislation. In February 2022, the Treasury Committee urged the Government to
“act quickly in bringing forward any legislation flowing from the Law Commission’s review. In the meantime, corporate criminals will continue to be able to escape prosecution for economic crimes.”
I probably do not have to quote this one, as the Minister might remember it, but the Foreign Affairs Committee called for
“reform of outdated and ineffective corporate criminal liability laws which mean that it is difficult to hold large companies to account for economic crimes.”
Dame Margaret Hodge
Anyway, I thought it was a speech in favour of the intent of this new clause.
Failure to prevent offences have proved effective elsewhere, as the Minister himself has said. We use them to tackle bribery and tax evasion, and the Minister always raises the best example when he refers to what used to go on in the construction industry. In my youth, people would regularly have terrible accidents on construction sites, some of which were fatal. It was only when a duty was introduced for those who ran construction companies to ensure the health and safety of their workers in the workplace, meaning it would be a criminal offence if they failed to do so, that miraculously, overnight, deaths on building sites came almost to a 100% halt. We have lots of examples of where a failure to prevent does not end up with people being locked up but does change behaviour. That is what we are trying to do.
I have lots of examples of areas where the Bribery Act 2010 has been successful and this is not one. This is the last legislative opportunity we will have in this Parliament to put into effect something that Members across the House think is important. There is so much evidence from so many bodies emphasising the importance of this bit of legislation. I cannot see any argument for delay. Before they reached their great, really important roles on the Front Bench, both Ministers argued passionately, frequently and loudly for this reform. I hope they will accept the new clauses, together with new clause 79, on the identification principle. With the inclusion of those three new clauses, we can hold our heads up high and say that we have done good work in Parliament.
Alison Thewliss
I, too, rise to support the new clauses, which are incredibly important.
“Of all the measures we have talked about today, this would have the biggest effect in terms of cutting down on economic crime, because lots of our financial organisations are complicit when it suits their interests to be so.”—[Official Report, 13 October 2022; Vol. 720, c. 309.]
If the Under-Secretary recognises those words, it is because they are his own from just a few weeks ago, on 13 October 2022. What a long time it has been; here we are today at the end of November.
It is important that we use the new clauses as an opportunity. As the right hon. Member for Barking said, this is an opportunity to make this change now and get it right. It cannot be said that the Ministers present do not agree with the measures. The Under-Secretary argued for a failure to prevent economic crime offence not just on 13 October 2022 but on 7 July 2022 and 1, 22 and 28 February 2022, on 2 December 2021, on 9 November 2021, on 22 September 2021, on 18 May 2021, on 9 November 2020, on 25 February 2020, on 19 July 2019, on 23 April 2019, on 18 December 2018 and on 9 October 2018. Why have we got to the point today where he is arguing against something that he has argued for so consistently and repeatedly in this House?
Alison Thewliss
I will if the Minister can give me an explanation as to why he is not going to back the new clause.
Alison Thewliss
I suspect that if it goes to a vote, he will vote against the new clause, so he does not even need to argue against it. If it goes to a vote, he and his colleagues will vote against something that he has consistently and repeatedly supported in this House. He knows in his heart of hearts that this is the right thing to do. I am very interested to know whether, if the Government will not support the new clause—whether it goes to a vote or not—they will introduce something similar on Report. Both Ministers know that this is the right thing to do. The opportunity is here in the Bill. If the opportunity is there and the will is not, that leaves huge questions for the credibility of the entire Bill.
Tom Tugendhat
I am delighted to speak on the new clause. As the right hon. Member for Barking correctly identifies, it touches on many areas that my hon. Friend the Under-Secretary and I have spoken about on numerous occasions, and we are not alone in having done so. Section 172(1)(b) and (d) of the Companies Act 2006 speaks about the interests of employees and of the community being the responsibility of directors as well, so having an emphasis on directors’ responsibility in corporate legislation is not new. My hon. Friend the Under-Secretary has also spoken about it in building safety legislation, which the right hon. Lady cited.
There are many different examples of our recognition that the interests of the whole of society and of the whole United Kingdom are better protected when directors understand that they are there not simply to advance shareholder value, but to further the interests of the whole community of their employees and wider society in actions and responsibilities they undertake. Although I see all of the responsibility laid out and I take very seriously the point the right hon. Lady made, we still need to do a little bit of work on how this can be made to work. There are arguments, some of which hold water, about whether the 2017 money laundering regulations include elements that already cover some of these areas, and there are arguments about whether the Law Commission will want to look at different bits of this. I can assure the right hon. Lady that I will look at this extremely seriously, because she is absolutely right that the Bill offers an opportunity to introduce different reforms. I will look to make sure that any opportunity is fulfilled as quickly as possible.
Dame Margaret Hodge
I am grateful for that. The hon. Gentleman referred to the Companies Act 2006—I cannot remember which section. In the days when Tony Blair changed our jobs every year, I was lumbered with taking through the biggest Act in Parliament. We deliberately put that section in, in the face of massive opposition. At the time there was a front page story in the FT that said, “How dare you talk about any interest but shareholder interest?” But the provision has stood the test of time, I am pleased to say, and I am glad to hear him cite it.
I do not want to embarrass Ministers today by putting the issue to a vote. I know that they feel strongly about this, but so do we—really strongly. The Bill will not pass any litmus test of its potency if the new clause is not included. I know there will be resistance because the professions that would be subject to the new potential criminal liability are very strong in lobbying. They are probably strongly lobbying the Department for Business, Energy and Industrial Strategy, as well as the Treasury and other Government Departments. I say to Ministers that they have to resist that lobbying with every bone in their bodies, because this is not an attack on any profession. There ought to be a new offence that cleans up the profession, and we will pursue this issue right through every phase and stage of the Bill’s passage.
I want to say one final thing to the Minister. Of course we need to make the new clause work, but for goodness’ sake, we have the same offence in the Bribery Act and the tax evasion legislation, and it works perfectly well.
Kevin Hollinrake
The right hon. Lady makes a very important point about vested interests. We have previously discussed the influence of people who may not be keen on these kinds of clauses. I would say to anybody in the financial services sector who is making these claims that there are potentially huge benefits from preventing fraud across the board, because 70% of online fraud, which costs banks a lot of money, comes from platforms, and this kind of legislation could make the platforms responsible for removing content. So the sector could see benefits as well as potential new obligations.
Dame Margaret Hodge
I am grateful to the Minister for reinforcing my argument. I would add simply that the same is true of the online harms Bill. If we had director liability there, I think we would see a lot of the online harms disappearing, but that is for next week.
On how the new clause would work, we can mirror processes that take place in other bits of legislation. To say that it is already covered is a nonsense, because we would not have had the failure of the Barclays case and all the other cases that I cited to the Minister had we already put in place legislation that was appropriate for ensuring that companies and their directors are held to account. I will not put the matter to a vote, but this is a hugely important issue. I look forward to our debating it further at other stages during the course of the Bill. I wish Ministers well in their attempts to get it past the Government, but if they do not, Parliament will do so. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 75
The Economic Crime Committee of Parliament
“(1) The Secretary of State must by regulations establish a body to be known as the Economic Crime Committee of Parliament (in this section referred to as “the ECC”).
(2) The ECC will consist of nine members who are to be drawn both from the members of the House of Commons and from the members of the House of Lords.
(3) Each member of the ECC is to be appointed by the House of Parliament from which the member is to be drawn.
(4) The ECC will have the power to meet confidentially.
(5) The ECC may examine or otherwise oversee any regulatory, enforcement or supervision agencies involved in work related, but not limited to—
(a) tax avoidance and evasion by corporations;
(b) illicit finance;
(c) anti-money laundering supervision;
(d) tackling fraud;
(e) kleptocracy and corruption; and
(f) whistleblower protection.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Alison Thewliss
I wholeheartedly agree with the new clause. When the Treasury Committee looked at this issue, what struck me was that economic crime was nobody’s priority. Our report said:
“Economic crime seems not to be a priority for law enforcement. The number of agencies responsible for fighting economic crime and fraud is bewildering.”
If it is bewildering in that sense, it is bewildering to Parliament, too. This is a BEIS and Home Office Bill, yet it has huge Treasury implications and huge security implications, and that gets to the heart of why this new clause is so important. There needs to be a body in Parliament that holds all these agencies to account in one place. If BEIS does a little bit, and the Home Office does a little bit, and security does a little bit, and the Treasury does a little bit, there will not be the cohesive scrutiny of all those agencies that is needed. Committees could well be palmed off with different responses by different agencies, with nobody consistently holding them to account.
The work of the Treasury Committee is very wide ranging. We have two meetings a week, and that is not enough to cover all the issues we need to cover. Setting up a bespoke Committee that could build up expertise on this issue would allow for that accountability. It could meet in private if it needed to, although it would ideally meet in public. The point is that it would keep an eye on all the things that we have agreed to in the Bill, and we would be holding all these agencies and Ministers to account in a consistent way. The reports of the ECC would also, we hope, be taken seriously, and its recommendations implemented.
It is not really enough that the Treasury Committee or another Committee looks at economic crime every once in a while and sees how things are going. The Treasury Committee has done that previously, looking back at previous reports and asking, “How are things going now?” but there is not that week in, week out consistent scrutiny of what is happening. Without scrutiny and consistency, it is difficult to see how the Government will get this right. We are legislating here, but legislation cannot be put on a shelf and left; it has to be living legislation that is scrutinised on a regular basis. A committee of sort proposed in the new clause really would give Parliament a lot of power to ensure that these measures are implemented correctly and that the agencies responsible for economic crime, which affects all of our constituents, continue to be held to account.
Tom Tugendhat
The right hon. Member for Barking will not be surprised to hear that I am a huge fan of parliamentary scrutiny, not just of Government but of various issues that others have sometimes felt are not in the immediate remit of the scrutinising Committee. As she will be aware, I received some criticism when the Foreign Affairs Committee, which I was fortunate to chair, focused so clearly on economic crime in 2017-18—in fact, it was some of the first work that we did—because of the national security threat that it poses to the United Kingdom. Its importance in foreign policy is very clear.
The Treasury Committee has done an awful lot of extremely good work on this issue; over the years, it has done some excellent reports on economic crime. The Public Accounts Committee, the Justice Committee and others have also focused on economic crime at various points. However, while I completely understand the right hon. Lady’s argument, I cannot support the new clause, because it is simply not up to a Secretary of State to set up a Committee of the House. As she knows very well, that is a decision for the House; it would therefore not be appropriate to have that provision in the Bill.
I would add that there are various other elements that already scrutinise quite a lot of the agencies referred to. There is the Economic Crime Strategic Board, co-chaired by the Chancellor and the Home Secretary—I know it is within Government, but it is still a challenging body because it supervises the agencies of Government. Various other levels of scrutiny appear at different points, which help to oversee the function of the agencies and different elements that the Government are trying to deliver—that the ministerial element of the Government is trying to get the bureaucratic element of the Government to deliver. It is really important that we keep those intentions.
Dame Margaret Hodge
What we are seeking is scrutiny by the legislature. I take what he said, and will reflect on it. There is cross-party support for this concept; whether we have got it quite right is open to debate, and we will have to find another means of getting it debated in the House. On that basis, I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 76
Whistleblowing: economic crime
“(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—
(a) has occurred,
(b) is occurring, or
(c) is likely to occur.
(2) The Secretary of State must, within twelve months of the date of Royal Assent to this Act, set up an office to receive reports of whistleblowing as defined in subsection (1) to be known as the Office for Whistleblowers.
(3) The Office for Whistleblowers must—
(a) protect whistleblowers from detriment resulting from their whistleblowing,
(b) ensure that disclosures by whistleblowers are investigated, and
(c) escalate information and evidence of wrongdoing outside of its remit to another appropriate authority.
(4) The objectives of the Office for Whistleblowers are—
(a) to encourage and support whistleblowers to make whistleblowing reports,
(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,
(c) to provide information and advice on whistleblowing, and
(d) to act on evidence of detriment to the whistleblower in line with guidance set out by the Secretary of State in regulations.
(5) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.” —(Dame Margaret Hodge.)
Brought up, and read the First time.
Dame Margaret Hodge
I beg to move, That the clause be read a Second time.
This new clause relates to another issue on which there is cross-party support: reform of whistleblowing. It has been put together for me, although it is in my name, by the hon. Member for Cheadle (Mary Robinson), who leads the all-party parliamentary group for whistleblowing. I must put it on the record that she has been a fantastic campaigner in this area and an outspoken champion for the countless courageous individuals who have dared to speak out. As she rightly says, for most of those individuals whistleblowing has shattered their lives, with many losing their health and livelihood. What we are talking about here is really important.
Our new clause would introduce an office for whistleblowers, which would protect the whistleblowers and ensure that their disclosures are investigated and information provided is passed to the relevant authorities. In clause 4, we set out ways in which whistleblowers would provide that service. I think that the hon. Member for Thirsk and Malton is the Minister replying to this debate; I know that he is passionate about this topic, because he has said so on lots of occasions—most recently on Second Reading on 13 October, when he said:
“We do not protect or compensate whistleblowers, and that is wrong. Those people do the right thing and come forward but—not to put too fine a point on it —we hang them out to dry.”—[Official Report, 13 October 2022; Vol. 720, c. 309.]
He went on to say:
“It is pointless having lots of law enforcement people charging around not knowing where to look. Whistleblowers tell us where to look. Some 43% of all financial crimes are identified through whistleblowers, yet it is something we do not talk about. We do not just need more regulators; we need somebody to point us in the right direction. Regulators will always be watchdogs, never bloodhounds. We need the bloodhounds in the organisations who are willing to speak up if things are going wrong.”—[Official Report, 7 March 2022; Vol. 710, c. 121.]
Hear, hear to that, but let us have some action arising out of those passionate words.
Whistleblowing plays an absolutely key role in addressing economic crime, whether it is for money laundering or other crimes. Think of the Panama papers 2016—we would never have had them—or the Paradise papers, the Russian and Troika laundromats, the Azerbaijan laundromat, the FinCEN files and the Pandora papers. Let us look at just one of those—the Panama papers—which were 11.5 million legal documents held by the Panamanian law firm Mossack Fonseca. It basically made its money by creating offshore companies and bank accounts to launder and hide the money. The story was given to a German paper, then 370 journalists got involved in investigating the data, working in 80 countries.
Just think what came out of that. Twelve current and former world leaders were named in those papers. There was a $2 billion trail to Putin through his close friend Sergei Roldugin, known as Putin’s wallet. The money went all over the world, including into an upmarket ski resort in Leningrad owned by a company funded by this dirty money and where Putin gave his daughter a sumptuous wedding. The Icelandic Prime Minister resigned off the back of the papers. The Pakistani Prime Minister was removed from office due to allegations of corruption and fraud.
Through the leak, some £1.2 billion of tax revenue was restored to 23 national Governments. In the UK, there was an extraordinary list of the rich and powerful, from Kevin Keegan to Nick Faldo, Lewis Hamilton, Tiger Woods, Gary Lineker, Madonna, Keira Knightley, Simon Cowell, Nicole Kidman, the Barclay brothers, Stuart Gulliver of HBSC, and political figures like Arron Banks, Michael Ashcroft and the right hon. Member for North East Somerset (Mr Rees-Mogg). They were all named and exposed.
Going back to my Public Accounts Committee days, the work we did all came from whistleblowers in the area of economic crime. I referred earlier to the Goldman Sachs sweetheart deal. That emerged from a whistleblower—a lawyer working in His Majesty’s Revenue and Customs. We had a very frustrating session. We knew something was going on, and we interviewed the head of tax at HMRC, but he would tell us absolutely nothing. I then got a bundle of papers from a lawyer who was working there, and in that bundle was a sheet of paper that had on it two things. It said that a meeting was held by the head of law, and he had said that the head of tax had shaken hands on the deal, which the head of tax had denied at the Treasury Committee. He also said that the deal was unconscionable.
We called back the head of tax and head of law and interrogated them. They still said nothing. Then my hon. Friend the Member for Norwich South (Clive Lewis) said to me, “Put the guy on oath. He might tell you something.” That had never happened in a Select Committee. I turned to the clerk, who told me that I could put him on oath, and said, “Go and find a Bible.” It took them 20 minutes to find a Bible. But the point is that all that from a whistleblower led to the trail that I think has certainly ended up with me being on this Committee considering the Bill today.
What is so terrible about that story is that the then head of tax left public service, and I asked the person who became the permanent secretary in HMRC every time she appeared before the Committee, “Are you looking after that whistleblower? Is he okay?” She always gave me assurances that he was, but actually they raided his computer and telephone. His marriage broke up, and in the end life became so intolerable that he had to leave public office. It is one of the things I feel great shame about really—that I was not able even in that position to protect him, even though it was his revelations that enabled us to start discovering what was going on.
Whistleblowing helps everywhere. It is a vital way of revealing wrongdoing in all sorts of sectors. It was a child sex abuse whistleblower who helped reveal the child sexual exploitation in Rotherham. The NHS is full of workers who blew the whistle on things such as the lack of personal protective equipment. The Public Accounts Committee saw another example, relating to Serco, where a GP contract was done in Cornwall but they were lying about their performance. A whistleblower came to us, but Serco’s response was simply to rifle through everybody’s lockers to try to find out who the whistleblowers were. Serco was not interested at all in the fact that the information it provided was inaccurate, or in trying to improve the quality of the service.
Interestingly, whistleblowers in America are treated very differently, particularly on the issue of compensation. To give one example, in the JPMorgan case, there was a $45 million settlement after two whistleblower employees at a Georgia mortgage broker alleged that the bank had scammed a programme that was intended to make it easier for veterans to qualify for loans, and had submitted fraudulent claims to the Government. The whistleblowers were awarded $11 million. Facing the same charges, Wells Fargo later settled for $108 million. A whistleblower revealed massive robo-signing at the four banks that were the country’s largest mortgage providers. The companies had allegedly relied on a company called Docx to forge signatures on thousands of mortgage documents. The suit was settled for $95 million, and the whistleblowers received $18 million for helping to expose the fraud.
The Minister well knows the facts that I will give him now. In 2018, 40% of whistleblowers reported going on sick leave—that is the pressure in the workplace. Only 4% of whistleblowers who bring claims under the current legal structure succeed. Of the 1,041 whistleblower reports submitted to the FCA in 2021-22, only three have resulted in any significant action. The Minister must agree that enough is enough. We in this country cannot go on failing to treat whistleblowers with the respect, support and advice that they deserve. Our new clause starts the process of reform. It does not do everything—for example, it does not do financial compensation—but it is a start.
Finally, please do not just say, “We are looking at this.” Do not tell us you will come back. This is a once-in-a-lifetime opportunity.
Kevin Hollinrake
The right hon. Lady makes an interesting point about how compensation works in the USA. She will be aware that Protect, the most high-profile whistleblower organisation in the UK, is against a compensation scheme similar to that in the USA. There is good reason for that: very few whistleblowers in the USA actually get compensation, which is one of the flaws in the scheme. Does she agree that we must think carefully about how we introduce whistleblower reform? It needs to be well thought through, rather than simply rushed.
Dame Margaret Hodge
I agree that we have to think carefully, but setting up an office for whistleblowing, which is what our new clause would do, could be the start. We might get some proper expertise in there, so as to think through some of the more complex issues.
Minister, grasp the opportunity and agree with our proposal. It would set up a new office—a central place for any would-be whistleblower to come for advice. It would support regulation in organisations. It would be a central place for setting standards, monitoring, evaluating and reporting. It would ensure that those who inflict or suffer detriment will be properly held to account or properly compensated. An office for whistleblowers would drive up standards across both the private and public sectors, increase transparency and restore public confidence. Whistleblower discrimination is a global problem, and the new office would set a global standard here in the UK.
Alison Thewliss
We also support this important new clause. In a recent speech, the Minister said that 43% of all economic crime was identified by whistleblowers, which illustrates why the new clause belongs in the Bill. We all know from whistleblowers’ stories that doing the right thing comes often at a significant cost personally, professionally and financially. It is important that we do anything we can to support those whistleblowers and to make sure they feel comfortable to go ahead and do what they do to ensure that we are all protected. I look forward to hearing the Minister supporting the new clause, because he has supported it umpteen times in the past.
Kevin Hollinrake
I think this is the last occasion I have to address the Committee, so I thank all Members for their contributions. We have had very constructive debates throughout the days that we have looked at the Bill. I thank the officials for all their work in these areas.
Not for the first time, I am very sympathetic to the new clause and to the previous one on failure to prevent. Nothing I have seen or heard since I started as a Minister only a few weeks ago has changed my mind on the things I have said in the House and other places about the need for whistleblower reform and failure to prevent reform. There is no conspiracy behind the scenes here. There is a difference between arguing against the principle of something and arguing against the provisions of something. That is where we probably differ a little.
As the hon. Member for Glasgow Central said, I have said before that 43% is the stat for the discovery of financial crime. In my experience, it is much higher than that—about 100%. Everything I have dealt with has been brought to the attention of authorities through whistleblowers, not least Ian Foxley, my constituent who was very important to the case on GPT Special Project Management Ltd that the right hon. Member for Barking referenced. He was the bloodhound in that case. We need those bloodhounds.
Since taking over as Minister with whistleblowing in my portfolio, I have asked officials to prioritise this review and to get it moving properly, and that is what we have committed to do. There are differences in where we go with it: do we do something to address the cases like Ian Foxley’s and the others the right hon. Lady references? Sally Masterton addressed those cases. Do we do something longer term and more complex? It is either low-hanging fruit or something more radical.
My hon. Friend the Member for Cheadle has done fantastic work in this area. I am keen to engage with her and my hon. Friend the Member for Weston-super-Mare (John Penrose) to make as much progress as we can as quickly as we can. Ian Foxley’s case is interesting because he was prevented from getting compensation. He was very successful in getting that case highlighted and the authorities successfully prosecuted it, but he was denied compensation because the PIDA rules on what it describes as an employee did not cover his particular category. That is a relatively easy issue to fix and something I want to look at.
The other part of the current legislation is around prescribed persons. There are 80 prescribed persons at the moment: people to whom others can make a protected disclosure. We are extending that this week when I introduce a statutory instrument on extending the number of prescribed persons to whom whistleblowers can go to seek assistance. Indeed, some of those prescribed persons are in this room. Members of Parliament are prescribed persons, as are some Ministers, but so too are our agencies. That is probably my biggest concern.
I took the case of Sally Masterton, who was key to highlighting the HBOS Reading scandal, which I have referred to many times in Parliament, to the Financial Conduct Authority. When I asked Andrew Bailey, who was then the chief executive of the FCA, whether he had followed his own whistleblowing procedures in relation to Sally Masterton, who was terribly mistreated by Lloyds Banking Group, he refused to answer the question because I was not a relevant person, under the relevant legislation. That is quite astounding, when it was Parliament that legislated to introduce the whistleblowing protections in the first place.
There are things that we need to do quickly that would address many of the problems, but we have done much. We have improved the guidance on what a prescribed person needs to do. We have a requirement on people to make public annual reports on what they have done in terms of whistleblowers, but I am keen to hold regulators’ feet to the fire in this area. I ask the right hon. Member for Barking not to pre-empt the review that I am urgently undertaking, because she knows how serious I am. I would like to bring forward effective reform very quickly, and to effect change more quickly. I fear that the new clause would delay the reform, when we can make progress by other means.
Dame Margaret Hodge
I hear what the Minister says. I simply say to him that finding legislative time will be a battle, so I hope that he has some mechanism to get the reform through.
Kevin Hollinrake
There are things that we can do without primary legislation that could move much more quickly.
Dame Margaret Hodge
I hear that. This matter will be debated by others on Report. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 79
Identification doctrine
“(1) A body corporate commits an offence listed in Schedule 8 where the offence is committed with the consent, connivance or neglect of a senior manager or senior managers.
(2) An individual is a ‘senior manager’ of an entity if the individual—
(a) plays a significant role in—
(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or
(ii) the managing or organising of the entity’s relevant activities, or
(b) is the Chief Executive or Chief Financial Officer of the body corporate.
(3) A body corporate also commits an offence if, acting within the scope of their authority—
(a) one or more senior managers engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and
(b) the senior manager who is responsible for the aspect of the organization’s activities that is relevant to the offence — or the senior managers collectively — fail to take all reasonable steps to prevent that offence being committed.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Stephen Kinnock
We fully welcome the new clause, which we think is very important to ensure that all perpetrators of economic crime are caught and dealt with.
Tom Tugendhat
I merely point out that, while the new clause addresses many of the points that the right hon. Member for Barking has raised before, it also raises many of the same challenges. For that reason, I will object to it.
Dame Margaret Hodge
I will not at this point press the new clause to a vote, so I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 80
Forfeiture of recoverable property obtained through economic crime
“(1) Where the conditions in paragraph(2) are fulfilled, a notice may be served in accordance with subsection(4) by the Director of Public Prosecutions, the Director of Serious Fraud Office, or the Director General of the National Crime Agency (hereafter, ‘the Director’) upon the holder of an account held at a bank in the United Kingdom.
(2) The conditions mentioned in paragraph(1) are that—
(a) the Director has reasonable grounds to believe that property held in the bank account is recoverable property obtained as a result of an economic crime offence;
(b) in relation to the bank account or any property in the bank account, a consent request has been made to an authorized officer under Section 335 of the Proceeds of Crime Act;
(c) an authorized officer refused the consent requested;
(d) a court has granted an extension of a moratorium period for 186 days under section 336A of the Proceeds of Crime Act 2002; and
(e) a court has granted approval to the Director to serve the notice.
(3) A notice under this section shall be a notice by way of representation and shall—
(a) state the name of the holder of the bank account to whom it is addressed;
(b) specify the details of the bank account and of the property or part of the property in the bank account which in the opinion of the Director is recoverable property;
(c) state a date on which, and a place and time at which, the holder of the bank account is required to attend a hearing of the Court to show cause why the property so specified is not recoverable property and should not be forfeited; and
(d) be served on—
(i) the holder of the bank account, and
(ii) the bank at which the account in question is held,
and if an address for service on the holder of the bank account is not known, service on the bank only shall be taken as sufficient for the purposes of this paragraph.
(4) In this section and section [ Forfeiture of recoverable property obtained through economic crime: summary procedure ]—
(a) ‘economic crime offence’ means an offence listed in Schedule 8 of this Act; and
(b) ‘recoverable property’ has the meaning given in section 304 of the Proceeds of Crime Act 2002.”—(Dame Margaret Hodge.)
Brought up, and read the First time.
Stephen Kinnock
We welcome these new clauses, which would give effect to the Government’s stated intention to unlock the proceeds of crime held in bank accounts to fund law enforcement efforts to tackle economic crime. Their adoption would also optimise the potential of the defence against money laundering regime and streamline the process of UK law enforcement identifying tainted wealth and being able to seek its forfeiture.
Tom Tugendhat
I thank the right hon. Member for Barking. While I agree with the intent behind her new clauses, I argue that they narrow slightly the scope in which the state can already recover much of the proceeds of crime. While they attempt to simplify, the reality is that we are already recovering large sums. I am not saying that we could not do more—we certainly could—but I am not convinced that the new clauses would add significantly to existing legislation. Last year, for example, a record £115 million of proceeds of crime were recovered under existing powers.
Dame Margaret Hodge
That is not a brilliant argument, but I will pursue this issue on Report, as we are doing with other issues around seizing and freezing assets. I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Clause 84
Compensation for Victims of Economic Crime
‘(1) The Secretary of State must, no later than 90 days from the date on which this Act comes into force, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.
(2) The strategy may include provisions on the management and disposal of any assets realised by the government, or any body with law enforcement responsibilities in relation to economic crime, under relevant UK legislation.’—(Stephen Kinnock.)
This new clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime.
Brought up, and read the First time.
Alison Thewliss
If this is indeed the last opportunity I have to speak in the Committee, I thank the Ministers. I hope they have been listening closely to what we recommend and will bring back amendments on Report. I also thank my hon. Friend the Member for Paisley and Renfrewshire North for being so patient and helpful in supporting me throughout the passage of the Bill.
The new clause gets to the heart of the matter. Victims of economic crime often receive very little compensation but suffer greatly from the impact of the crime. It can be devastating for people, both financially and personally, and they are deeply affected by it for the rest of their lives, so anything that will go towards helping to compensate those victims seems like a sensible prospect.
Tom Tugendhat
As this is probably the last time I will speak in the Committee, I thank you, Mr Robertson. I also thank the right hon. Member for Barking for her input into the Bill not just today, but over many years and as Chair of the Public Accounts Committee. The way in which she has championed tackling economic crime, drawn the House’s attention to it, and focused the country on the real threats that we have faced has been impressive to us all, and I am personally enormously grateful to her. She certainly helped my work enormously when I chaired the Foreign Affairs Committee, and she has now helped to focus my work as a Minister. I am very grateful that I have had the privilege of working with her.
Dame Margaret Hodge
I forgot to thank you, Mr Robertson, for chairing the Committee and for showing such an interest in what we are doing. I also thank the Ministers and Members of all parties who have spoken and participated. I look forward to working further to get even more into the Bill.
Tom Tugendhat
If anybody thinks that I was trying to soft-soap the right hon. Lady in order to shut her up in future sittings, they do not know her very well. It would have not worked, and I have not tried it. All I have done is to pay credit to somebody who has definitely earned it. I also thank my fellow Minister and the Whips, who have got us through at lightning speed.
On the new clause, the powers in part 4 already increase the focus on victims. The compensation principles of the Serious Fraud Office, CPS, the National Crime Agency and others have committed law enforcement bodies to ensuring that compensation for economic crime is considered in every relevant case, including where there are overseas victims, so I believe that the Bill already focuses on many of the aspects that we have discussed. That said, we are coming to Report. As always, I will be listening, but I have yet to be convinced about the new clause, because I believe that it has largely been covered.
Stephen Kinnock
Has the Minister any thoughts on the international forums that have been set up—for example, the Russian Elites, Proxies, and Oligarchs Taskforce and the European Commission’s Freeze and Seize Taskforce. What contribution are the UK Government planning to make to those processes?
Tom Tugendhat
I can speak directly to that, because I have recently had a meeting about it with other Governments and other jurisdictions. So far, many people have come up with ways to freeze assets. That is not a particular challenge; the UK does so very actively. Seizing and forfeiting in totality is a different challenge, because it depends on ownership and on many aspects of common law jurisdiction that we would not want to understate. I assure the hon. Gentleman honestly that I have not given up on this, because compensation for the victims in Ukraine is the very least that we should expect, as he correctly identified. Ukraine’s inevitable victory, which is absolutely assured, leads us to start thinking about how we reconstruct that extraordinary country. It is clear that Russian state assets held abroad—some, sadly, are held in the UK—should go some way to contributing to that.
That said, how do we construct the legal arguments to ensure that that is possible? They need to be in keeping with British common law, for obvious reasons. We do not want a jurisdiction of forfeiture; we want a jurisdiction of law. There is more work to be done, therefore. We are working very closely with other common law jurisdictions, such as Australia, Canada and, indeed, the United States. There is an ongoing discussion, but it is not quite as straightforward as I would have hoped.
Stephen Kinnock
I have no further comments, and I beg to ask leave to withdraw the motion.
Clause, by leave, withdrawn.
New Schedule 1
Cryptoassets: terrorism
“Part 1
Amendments to the Anti-terrorism, Crime and Security Act 2001
1 Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist property) is amended as follows.
2 After Part 4B insert—
‘Part 4BA
Seizure and detention of terrorist cryptoassets
Interpretation
10Z7A (1) In this Schedule—
“cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically;
“crypto wallet” means—
(a) software,
(b) hardware,
(c) a physical item, or
(d) any combination of the things mentioned in paragraphs (a) to (c),
which is used to store the cryptographic private key that allows cryptoassets to be accessed.
“terrorist cryptoasset” means a cryptoasset which—
(a) is within subsection (1)(a) or (b) of section 1, or
(b) is earmarked as terrorist property.
(2) The Secretary of State may by regulations made by statutory instrument amend the definitions of “cryptoasset” and “crypto wallet” in sub-paragraph (1).
(3) Regulations under sub-paragraph (2)—
(a) may make different provision for different purposes;
(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.
(4) A statutory instrument containing regulations under sub-paragraph (2) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(5) In this Part—
“cryptoasset-related item” means an item of property that is, or that contains or gives access to information that is, likely to assist in the seizure under this Part of terrorist cryptoassets;
“senior officer” means—
(a) a senior police officer;
(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;
(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;
“senior police officer” means a police officer of at least the rank of superintendent.
Seizure of cryptoasset-related items
10Z7AA (1) An authorised officer may seize any item of property if the authorised officer has reasonable grounds for suspecting that the item is a cryptoasset-related item.
(2) If an authorised officer is lawfully on any premises, the officer may, for the purpose of—
(a) determining whether any property is a cryptoasset-related item, or
(b) enabling or facilitating the seizure under this Part of any terrorist cryptoasset,
require any information which is stored in any electronic form and accessible from the premises to be produced in a form in which it can be taken away and in which it is visible and legible, or from which it can readily be produced in a visible and legible form.
(3) But sub-paragraph (2) does not authorise an authorised officer to require a person to produce privileged information.
(4) In this paragraph “privileged information” means information which a person would be entitled to refuse to provide—
(a) in England and Wales and Northern Ireland, on grounds of legal professional privilege in proceedings in the High Court;
(b) in Scotland, on grounds of confidentiality of communications in proceedings in the Court of Session.
(5) Where an authorised officer has seized a cryptoasset-related item under sub-paragraph (1), the officer may use any information obtained from the item for the purpose of—
(a) identifying or gaining access to a crypto wallet, and
(b) by doing so, enabling or facilitating the seizure under this Part of any cryptoassets.
Initial detention of cryptoasset-related items
10Z7AB (1) Property seized under paragraph 10Z7AA may be detained for an initial period of 48 hours.
(2) Sub-paragraph (1) authorises the detention of property only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to that property as described in paragraph 10Z7AA(1).
(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—
(a) any Saturday or Sunday,
(b) Christmas Day,
(c) Good Friday,
(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or
(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.
Further detention of cryptoasset-related items
10Z7AC (1) The period for which property seized under paragraph 10Z7AA may be detained may be extended by an order made—
(a) in England and Wales or Northern Ireland, by a magistrates’ court;
(b) in Scotland, by the sheriff.
(2) An order under sub-paragraph (1) may not authorise the detention of any property—
(a) beyond the end of the period of 6 months beginning with the date of the order, and
(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).
(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).
(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.
(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—
(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and
(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.
(6) An application for an order under sub-paragraph (1) or (4) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the item of property to be further detained, that—
(a) there are reasonable grounds for suspecting that it is a cryptoasset-related item, and
(b) its continuing detention is justified.
(8) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the item of property to be further detained.
(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
(10) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.
Seizure of cryptoassets
10Z7AD (1) An authorised officer may seize cryptoassets if the authorised officer has reasonable grounds for suspecting that the cryptoassets are terrorist cryptoassets.
(2) The circumstances in which a cryptoasset is “seized” for the purposes of sub-paragraph (1) include circumstances in which it is transferred into a crypto wallet controlled by the authorised officer.
Prior authorisation for detention of cryptoassets
10Z7AE (1) Where an order is made under paragraph 10Z7AC in respect of a cryptoasset-related item, the court, sheriff or justice making the order may, at the same time, make an order to authorise the detention of any cryptoassets that may be seized as a result of information obtained from that item.
(2) An application for an order under this paragraph may be made, by a person mentioned in paragraph 10Z7AC(6), at the same time as an application for an order under paragraph 10Z7AC is made by that person.
(3) The court, sheriff or justice may make an order under this paragraph if satisfied that there are reasonable grounds for suspecting that the cryptoassets that may be seized are terrorist cryptoassets.
(4) An order under this paragraph authorises detention of the cryptoassets for the same period of time as the order under paragraph 10Z7AC authorises detention in respect of the cryptoasset-related item to which those cryptoassets relate.
Initial detention of cryptoassets
10Z7AF (1) Cryptoassets seized under paragraph 10Z7AD may be detained for an initial period of 48 hours.
(2) Sub-paragraph (1) authorises the detention of cryptoassets only for so long as an authorised officer continues to have reasonable grounds for suspicion in relation to those cryptoassets as described in paragraph 10Z7AD(1).
(3) In calculating a period of 48 hours for the purposes of this paragraph, no account is to be taken of—
(a) any Saturday or Sunday,
(b) Christmas Day,
(c) Good Friday,
(d) any day that is a bank holiday under the Banking and Financial Dealings Act 1971 in the part of the United Kingdom within which the property is seized, or
(e) any day prescribed by virtue of section 8(2) of the Criminal Procedure (Scotland) Act 1995 as a court holiday in a sheriff court in the sheriff court district within which the property is seized.
(4) This paragraph is subject to paragraph 10Z7AE.
Further detention of cryptoassets
10Z7AG (1) The period for which cryptoassets seized under paragraph 10Z7AD may be detained may be extended by an order made—
(a) in England and Wales or Northern Ireland, by a magistrates’ court;
(b) in Scotland, by the sheriff.
(2) An order under sub-paragraph (1) may not authorise the detention of any cryptoassets—
(a) beyond the end of the period of 6 months beginning with the date of the order, and
(b) in the case of any further order under this paragraph, beyond the end of the period of 2 years beginning with the date of the first order; but this is subject to sub-paragraph (4).
(3) A justice of the peace may also exercise the power of a magistrates’ court to make the first order under sub-paragraph (1).
(4) The court or sheriff may make an order for the period of 2 years in sub-paragraph (2)(b) to be extended to a period of up to 3 years beginning with the date of the first order.
(5) An application to a magistrates’ court, a justice of the peace or the sheriff to make the first order under sub-paragraph (1) extending a particular period of detention—
(a) may be made and heard without notice of the application or hearing having been given to any of the persons affected by the application or to the legal representatives of such a person, and
(b) may be heard and determined in private in the absence of persons so affected and of their legal representatives.
(6) An application for an order under sub-paragraph (1) or (4) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The court, sheriff or justice may make an order under sub-paragraph (1) if satisfied, in relation to the cryptoassets to be further detained, that condition 1, condition 2 or condition 3 is met.
(8) Condition 1 is that there are reasonable grounds for suspecting that the cryptoassets are intended to be used for the purposes of terrorism and that either—
(a) their continued detention is justified while their intended use is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(9) Condition 2 is that there are reasonable grounds for suspecting that the cryptoassets consist of resources of an organisation which is a proscribed organisation and that either—
(a) their continued detention is justified while investigation is made into whether or not they consist of such resources or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(10) Condition 3 is that there are reasonable grounds for suspecting that the cryptoassets are property earmarked as terrorist property and that either—
(a) their continued detention is justified while their derivation is further investigated or consideration is given to bringing (in the United Kingdom or elsewhere) proceedings against any person for an offence with which the cryptoassets are connected, or
(b) proceedings against any person for an offence with which the cryptoassets are connected have been started and have not been concluded.
(11) The court or sheriff may make an order under sub-paragraph (4) if satisfied that a request for assistance is outstanding in relation to the cryptoassets to be further detained.
(12) A “request for assistance” in sub-paragraph (11) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the property to be further detained, made —
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
(13) An order under sub-paragraph (1) must provide for notice to be given to persons affected by the order.
Safekeeping of cryptoasset-related items and cryptoassets
10Z7AH (1) An authorised officer must arrange for any item of property seized under paragraph 10Z7AA to be safely stored throughout the period during which it is detained under this Part.
(2) An authorised officer must arrange for any cryptoassets seized under paragraph 10Z7AD to be safely stored throughout the period during which they are detained under this Part.
Release of cryptoasset-related items and cryptoassets
10Z7AI (1) This paragraph applies while any cryptoasset or other item of property is detained under this Part.
(2) A magistrates’ court or (in Scotland) the sheriff may, subject to sub-paragraph (9), direct the release of the whole or any part of the property if the following condition is met.
(3) The condition is that the court or sheriff is satisfied, on an application by the person from whom the property was seized, that the conditions for the detention of the property in this Part are no longer met in relation to the property to be released.
(4) A person within sub-paragraph (5) may, subject to sub-paragraph (9) and after notifying the magistrates’ court, sheriff or justice under whose order property is being detained, release the whole or any part of the property if satisfied that the detention of the property to be released is no longer justified.
(5) The following persons are within this sub-paragraph—
(a) in relation to England and Wales and Northern Ireland, an authorised officer;
(b) in relation to Scotland, a procurator fiscal.
(6) If any cryptoasset-related item which has been released is not claimed within the period of a year beginning with the date on which it was released, an authorised officer may—
(a) retain the item and deal with it as they see fit,
(b) dispose of the item, or
(c) destroy the item.
(7) The powers in sub-paragraph (6) may be exercised only—
(a) where the authorised officer has taken reasonable steps to notify—
(i) the person from whom the item was seized, and
(ii) any other persons who the authorised officer has reasonable grounds to believe have an interest in the item,
that the item has been released, and
(b) with the approval of a senior officer.
(8) Any proceeds of a disposal of the item are to be paid—
(a) into the Consolidated Fund if—
(i) the item was directed to be released by a magistrates’ court, or
(ii) a magistrates’ court or justice was notified under sub-paragraph (4) of the release;
(b) into the Scottish Consolidated Fund if—
(i) the item was directed to be released by the sheriff, or
(ii) the sheriff was notified under sub-paragraph (4) of the release.
(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.
Part 4BB
Terrorist cryptoassets: crypto wallet freezing orders
Interpretation
10Z7B (1) In this Part—
(a) “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—
(i) exchanging, or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,
(ii) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
(iii) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets;
(b) “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—
(i) cryptoassets on behalf of its customers, or
(ii) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets;
(c) “cryptoasset service provider” includes cryptoasset exchange provider and custodian wallet provider.
(2) In the definition of “cryptoasset exchange provider” in sub-paragraph (1)—
(a) “cryptoasset” includes a right to, or interest in, a cryptoasset;
(b) “money” means—
(i) money in sterling,
(ii) money in any other currency, or
(iii) money in any other medium of exchange,
but does not include a cryptoasset.
(3) The Secretary of State may by regulations made by statutory instrument amend the definitions in sub-paragraphs (1) and (2).
(4) Regulations under sub-paragraph (3)—
(a) may make different provision for different purposes;
(b) may make consequential, supplementary, incidental, transitional, transitory or saving provision.
(5) A statutory instrument containing regulations under sub-paragraph (3) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
(6) For the purposes of this Part—
(a) a crypto wallet freezing order is an order that, subject to any exclusions (see paragraph 10Z7BD), prohibits each person by or for whom the crypto wallet to which the order applies is administered from—
(i) making withdrawals or payments from the crypto wallet, or
(ii) using the crypto wallet in any other way;
(b) a crypto wallet is administered by or for a person if the person is the person to whom services are being provided by a cryptoasset service provider in relation to that crypto wallet.
(7) In this Part—
“enforcement officer” means—
(a) a constable, or
(b) a counter-terrorism financial investigator;
“relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court, and
(b) in Scotland, the sheriff;
“senior officer” means a police officer of at least the rank of superintendent;
“UK-connected cryptoasset service provider” means a cryptoasset service provider which—
(a) is acting in the course of business carried on by it in the United Kingdom,
(b) has terms and conditions with the persons to whom it provides services which provide for a legal dispute to be litigated in the courts of a part of the United Kingdom,
(c) holds, in the United Kingdom, any data relating to the persons to whom it provides services, or
(d) meets the condition in sub-paragraph (8).
(8) The condition in this sub-paragraph is that—
(a) the cryptoasset service provider has its registered office, or if it does not have one, its head office in the United Kingdom, and
(b) the day-to-day management of the provider’s business is the responsibility of that office or another establishment maintained by it in the United Kingdom.
Application for crypto wallet freezing order
10Z7BA (1) This paragraph applies if an enforcement officer has reasonable grounds for suspecting that cryptoassets held in a crypto wallet administered by a UK-connected cryptoasset service provider are terrorist cryptoassets.
(2) Where this paragraph applies the enforcement officer may apply to the relevant court for a crypto wallet freezing order in relation to the crypto wallet in which the cryptoassets are held.
(3) But—
(a) an enforcement officer may not apply for a crypto wallet freezing order unless the officer is a senior officer or is authorised to do so by a senior officer, and
(b) the senior officer must consult the Treasury before making the application for the order or (as the case may be) authorising the application to be made, unless in the circumstances it is not reasonably practicable to do so.
(4) An application for a crypto wallet freezing order may be made without notice if the circumstances of the case are such that notice of the application would prejudice the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.
(5) An application for a crypto wallet freezing order under this paragraph may be combined with an application for an account freezing order under paragraph 10Q where a single entity—
(a) is both a relevant financial institution for the purposes of paragraph 10Q and a cryptoasset service provider for the purposes of this Part, and
(b) operates or administers, for the same person, both an account holding money and a crypto wallet.
Making of crypto wallet freezing order
10Z7BB (1) This paragraph applies where an application for a crypto wallet freezing order is made under paragraph 10Z7BA in relation to a crypto wallet.
(2) The relevant court may make the order if satisfied that there are reasonable grounds for suspecting that some or all of the cryptoassets held in the crypto wallet are terrorist cryptoassets.
(3) A crypto wallet freezing order ceases to have effect at the end of the period specified in the order (which may be varied under paragraph 10Z7BC) unless it ceases to have effect at an earlier or later time in accordance with this Part or Part 4BC or 4BD.
(4) The period specified by the relevant court for the purposes of sub-paragraph (3) (whether when the order is first made or on a variation under paragraph 10Z7BC) may not exceed the period of 2 years, beginning with the day on which the crypto wallet freezing order is (or was) made; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order is (or was) made.
(6) The relevant court may make an order under sub-paragraph (5) if satisfied that a request for assistance is outstanding in relation to some or all of the cryptoassets held in the crypto wallet.
(7) A “request for assistance” in sub-paragraph (6) means a request for assistance in obtaining evidence (including information in any form or article) in connection with some or all of the cryptoassets held in the crypto wallet, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an enforcement officer, to an authority exercising equivalent functions in a foreign country.
(8) A crypto wallet freezing order must provide for notice to be given to persons affected by the order.
Variation and setting aside of crypto wallet freezing order
10Z7BC (1) The relevant court may at any time vary or set aside a crypto wallet freezing order on an application made by—
(a) an enforcement officer, or
(b) any person affected by the order.
(2) But an enforcement officer may not make an application under sub-paragraph (1) unless the officer is a senior officer or is authorised to do so by a senior officer.
(3) Before varying or setting aside a crypto wallet freezing order the court must (as well as giving the parties to the proceedings an opportunity to be heard) give such an opportunity to any person who may be affected by its decision.
(4) In relation to Scotland, the references in this paragraph to setting aside an order are to be read as references to recalling it.
Exclusions
10Z7BD (1) The power to vary a crypto wallet freezing order includes (amongst other things) power to make exclusions from the prohibition on making withdrawals or payments from the crypto wallet to which the order applies.
(2) Exclusions from the prohibition may also be made when the order is made.
(3) An exclusion may (amongst other things) make provision for the purpose of enabling a person by or for whom the crypto wallet is administered—
(a) to meet the person’s reasonable living expenses, or
(b) to carry on any trade, business, profession or occupation.
(4) An exclusion may be made subject to conditions.
(5) Where a magistrates’ court exercises the power to make an exclusion for the purpose of enabling a person to meet legal expenses that the person has incurred, or may incur, in respect of proceedings under this Schedule, it must ensure that the exclusion—
(a) is limited to reasonable legal expenses that the person has reasonably incurred or that the person reasonably incurs,
(b) specifies the total amount that may be released for legal expenses in pursuance of the exclusion, and
(c) is made subject to the same conditions as would be the required conditions (see section 286A of the Proceeds of Crime Act 2002) if the order had been made under section 245A of that Act (in addition to any conditions imposed under sub-paragraph (4)).
(6) A magistrates’ court, in deciding whether to make an exclusion for the purpose of enabling a person to meet legal expenses in respect of proceedings under this Schedule—
(a) must have regard to the desirability of the person being represented in any proceedings under this Schedule in which the person is a participant, and
(b) must disregard the possibility that legal representation of the person in any such proceedings might, were an exclusion not made—
(i) be made available under arrangements made for the purposes of Part 1 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, or
(ii) be funded by the Department of Justice in Northern Ireland.
(7) The sheriff’s power to make exclusions may not be exercised for the purpose of enabling any person to meet any legal expenses in respect of proceedings under this Schedule.
(8) The power to make exclusions must, subject to sub-paragraph (6), be exercised with a view to ensuring, so far as practicable, that there is not undue prejudice to the taking of any steps under this Schedule to forfeit cryptoassets that are terrorist cryptoassets.
Restriction on proceedings and remedies
10Z7BE (1) If a court in which proceedings are pending in respect of a crypto wallet administered by a UK-connected cryptoasset service provider is satisfied that a crypto wallet freezing order has been applied for or made in respect of the crypto wallet, it may either stay the proceedings or allow them to continue on any terms it thinks fit.
(2) Before exercising the power conferred by sub-paragraph (1), the court must (as well as giving the parties to any of the proceedings concerned an opportunity to be heard) give such an opportunity to any person who may be affected by the court’s decision.
(3) In relation to Scotland, the reference in sub-paragraph (1) to staying the proceedings is to be read as a reference to sisting the proceedings.
Part 4BC
Forfeiture of terrorist cryptoassets
Interpretation
10Z7C (1) In this Part—
“cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(1));
“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));
“senior officer” means—
(a) a senior police officer;
(b) an officer of Revenue and Customs of a rank designated by the Commissioners for His Majesty’s Revenue and Customs as equivalent to that of a senior police officer;
(c) an immigration officer of a rank designated by the Secretary of State as equivalent to that of a senior police officer;
“senior police officer” means a police officer of at least the rank of superintendent.
(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.
Forfeiture
10Z7CA (1) This paragraph applies—
(a) while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, or
(b) while a crypto wallet freezing order made under paragraph 10Z7BB has effect.
(2) An application for the forfeiture of some or all of the cryptoassets that are detained or held in the crypto wallet that is subject to the crypto wallet freezing order may be made—
(a) to a magistrates’ court by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer, or
(b) to the sheriff by the Scottish Ministers.
(3) The court or sheriff may order the forfeiture of some or all of the cryptoassets if satisfied that the cryptoassets are terrorist cryptoassets.
(4) An order under sub-paragraph (3) made by a magistrates’ court may provide for payment under paragraph 10Z7CJ of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—
(a) the proceedings in which the order is made, or
(b) any related proceedings under this Part.
(5) A sum in respect of a relevant item of expenditure is not payable under paragraph 10Z7CJ in pursuance of provision under sub-paragraph (4) unless—
(a) the person who applied for the order under sub-paragraph (3) agrees to its payment, or
(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.
(6) For the purposes of sub-paragraph (5)—
(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (3) had instead been a recovery order made under section 266 of that Act;
(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations;
(c) if the person who applied for the order under sub-paragraph (3) was an authorised officer, that person may not agree to the payment of a sum unless the person is a senior officer or is authorised to do so by a senior officer.
(7) Sub-paragraph (3) ceases to apply on the transfer of an application made under this paragraph in accordance with paragraph 10Z7CE.
Forfeiture: supplementary
10Z7CB (1) Sub-paragraph (2) applies where an application is made under paragraph 10Z7CA for the forfeiture of any cryptoassets detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG.
(2) The cryptoassets are to continue to be detained in pursuance of the order (and may not be released under any power conferred by this Schedule) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.
This is subject to Part 4BD (conversion to money)
(3) Where an application is made under paragraph 10Z7CA in relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order—
(a) sub-paragraphs (4) and (5) apply, and
(b) the crypto wallet freezing order is to continue to have effect until the time referred to in sub-paragraph (4)(b) or (5).
(4) Where the cryptoassets are ordered to be forfeited under paragraph 10Z7CA(3) or 10Z7CE(3)—
(a) the cryptoasset service provider that administers the crypto wallet must transfer the cryptoassets into a crypto wallet nominated by an authorised officer, and
(b) immediately after the transfer has been made, the freezing order ceases to have effect.
(5) Where the application is determined or otherwise disposed of other than by the making of an order under paragraph 10Z7CA(3) or 10Z7CE(3), the crypto wallet freezing order ceases to have effect immediately after that determination or other disposal.
(6) Sub-paragraphs (4)(b) and (5) are subject to paragraph 10Z7CF and Part 4BD.
(7) The Secretary of State may by regulations made by statutory instrument amend this paragraph to make provision about the forfeiture of cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order.
(8) Regulations under sub-paragraph (7) may in particular make provision about—
(a) the process for the forfeiture of cryptoassets;
(b) the realisation of forfeited cryptoassets;
(c) the application of the proceeds of such realisation.
(9) Regulations under sub-paragraph (7) may—
(a) make different provision for different purposes;
(b) make consequential, supplementary, incidental, transitional, transitory or saving provision, including provision which makes consequential amendments to this Part.
(10) A statutory instrument containing regulations under sub-paragraph (7) may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.
Associated and joint property
10Z7CC (1) Paragraphs 10Z7CD and 10Z7CE apply if—
(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,
(b) the court or sheriff is satisfied that some or all of the cryptoassets are terrorist cryptoassets, and
(c) there exists property that is associated with the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in paragraph (b).
(2) Paragraphs 10Z7CD and 10Z7CE also apply in England and Wales and Northern Ireland if—
(a) an application is made under paragraph 10Z7CA in respect of cryptoassets,
(b) the court is satisfied that some or all of the cryptoassets are earmarked as terrorist property, and
(c) the cryptoassets in relation to which the court is satisfied as mentioned in paragraph (b) belong to joint tenants and one of the tenants is an excepted joint owner.
(3) In this paragraph and paragraphs 10Z7CD and 10Z7CE, “associated property” means property of any of the following descriptions that is not itself the forfeitable property—
(a) any interest in the forfeitable property;
(b) any other interest in the property in which the forfeitable property subsists;
(c) if the forfeitable property is part of a larger property, but not a separate part, the remainder of that property.
References to property being associated with forfeitable property are to be read accordingly.
(4) In this paragraph and paragraphs 10Z7CD and 10Z7CE, the “forfeitable property” means the cryptoassets in relation to which the court or sheriff is satisfied as mentioned in sub-paragraph (1)(b) or (2)(b) (as the case may be).
(5) For the purposes of this paragraph and paragraphs 10Z7CD and 10Z7CE—
(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and
(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.
Agreements about associated and joint property
10Z7CD (1) Where—
(a) this paragraph applies, and
(b) the person who applied for the order under paragraph 10Z7CA (on the one hand) and the person who holds the associated property or who is the excepted joint owner (on the other hand) agree,
the magistrates’ court or sheriff may, instead of making an order under paragraph 10Z7CA(3), make an order requiring the person who holds the associated property or who is the excepted joint owner to make a payment to a person identified in the order.
(2) The amount of the payment is (subject to sub-paragraph (3)) to be the amount which the persons referred to in sub-paragraph (1)(b) agree represents—
(a) in a case where this paragraph applies by virtue of paragraph 10Z7CC(1), the value of the forfeitable property;
(b) in a case where this paragraph applies by virtue of paragraph 10Z7CC(2), the value of the forfeitable property less the value of the excepted joint owner’s share.
(3) The amount of the payment may be reduced if the person who applied for the order under paragraph 10Z7CA agrees that the other party to the agreement has suffered loss as a result of—
(a) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or
(b) the making of a crypto wallet freezing order under paragraph 10Z7BB.
(4) The reduction that is permissible by virtue of sub-paragraph (3) is such amount as the parties to the agreement agree is reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) An order under sub-paragraph (1) may, so far as required for giving effect to the agreement, include provision for vesting, creating or extinguishing any interest in property.
(6) An order under sub-paragraph (1) made by a magistrates’ court may provide for payment under sub-paragraph (11) of reasonable legal expenses that a person has reasonably incurred, or may reasonably incur, in respect of—
(a) the proceedings in which the order is made, or
(b) any related proceedings under this Part.
(7) A sum in respect of a relevant item of expenditure is not payable under sub-paragraph (11) in pursuance of provision under sub-paragraph (6) unless—
(a) the person who applied for the order under paragraph 10Z7CA agrees to its payment, or
(b) the court has assessed the amount allowed in respect of that item and the sum is paid in respect of the assessed amount.
(8) For the purposes of sub-paragraph (7)—
(a) a “relevant item of expenditure” is an item of expenditure to which regulations under section 286B of the Proceeds of Crime Act 2002 would apply if the order under sub-paragraph (1) had instead been a recovery order made under section 266 of that Act;
(b) an amount is “allowed” in respect of a relevant item of expenditure if it would have been allowed by those regulations.
(9) If there is more than one item of associated property or more than one excepted joint owner, the total amount to be paid under sub-paragraph (1), and the part of that amount which is to be provided by each person who holds any such associated property or who is an excepted joint owner, is to be agreed between both (or all) of them and the person who applied for the order under paragraph 10Z7CA.
(10) If the person who applied for the order under paragraph 10Z7CA was an authorised officer, that person may enter into an agreement for the purposes of any provision of this paragraph only if the person is a senior officer or is authorised to do so by a senior officer.
(11) An amount received under an order under sub-paragraph (1) must be applied as follows—
(a) first, it must be applied in making any payment of legal expenses which, after giving effect to sub-paragraph (7), are payable under this sub-paragraph in pursuance of provision under sub-paragraph (6);
(b) second, it must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the forfeitable property and any associated property whilst detained under this Schedule;
(c) third, it must be paid—
(i) if the order was made by a magistrates’ court, into the Consolidated Fund;
(ii) if the order was made by the sheriff, into the Scottish Consolidated Fund.
Associated and joint property: default of agreement
10Z7CE (1) Where this paragraph applies and there is no agreement under paragraph 10Z7CD, the magistrates’ court or sheriff may transfer the application made under paragraph 10Z7CA to the appropriate court.
(2) The “appropriate court” is—
(a) the High Court, where the application under paragraph 10Z7CA was made to a magistrates’ court;
(b) the Court of Session, where the application under paragraph 10Z7CA was made to the sheriff.
(3) Where (under sub-paragraph (1)) an application made under paragraph 10Z7CA is transferred to the appropriate court, the appropriate court may order the forfeiture of the property to which the application relates, or any part of that property, if satisfied that what is to be forfeited—
(a) is within subsection (1)(a) or (b) of section 1, or
(b) is property earmarked as terrorist property.
(4) An order under sub-paragraph (3) made by the High Court may include provision of the type that may be included in an order under paragraph 10Z7CA(3) made by a magistrates’ court by virtue of paragraph 10Z7CA(4).
(5) If provision is included in an order of the High Court by virtue of sub-paragraph (4) of this paragraph, paragraph 10Z7CA(5) and (6) apply with the necessary modifications.
(6) The appropriate court may, as well as making an order under sub-paragraph (3), make an order—
(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or
(b) providing for the excepted joint owner‘s interest to be severed.
(7) Where (under sub-paragraph (1)) the magistrates’ court or sheriff decides not to transfer an application made under paragraph 10Z7CA to the appropriate court, the magistrates’ court or sheriff may, as well as making an order under paragraph 10Z7CA(3), make an order—
(a) providing for the forfeiture of the associated property or (as the case may be) for the excepted joint owner‘s interest to be extinguished, or
(b) providing for the excepted joint owner‘s interest to be severed.
(8) An order under sub-paragraph (6) or (7) may be made only if the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks it just and equitable to do so.
(9) An order under sub-paragraph (6) or (7) must provide for the payment of an amount to the person who holds the associated property or who is an excepted joint owner.
(10) In making an order under sub-paragraph (6) or (7), and including provision in it by virtue of sub-paragraph (9), the appropriate court, the magistrates’ court or the sheriff (as the case may be) must have regard to—
(a) the rights of any person who holds the associated property or who is an excepted joint owner and the value to that person of that property or (as the case may be) of that person’s share (including any value that cannot be assessed in terms of money), and
(b) the interest of the person who applied for the order under paragraph 10Z7CA in realising the value of the forfeitable property.
(11) If the appropriate court, the magistrates’ court or the sheriff (as the case may be) is satisfied that—
(a) the person who holds the associated property or who is an excepted joint owner has suffered loss as a result of—
(i) the seizure of the forfeitable property under paragraph 10Z7AD and its subsequent detention, or
(ii) the making of the crypto wallet freezing order under paragraph 10Z7BB, and
(b) the circumstances are exceptional,
an order under sub-paragraph (6) or (7) may require the payment of compensation to that person.
(12) The amount of compensation to be paid by virtue of sub-paragraph (11) is the amount the appropriate court, the magistrates’ court or the sheriff (as the case may be) thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(13) Compensation to be paid by virtue of sub-paragraph (11) is to be paid in the same way that compensation is to be paid under paragraph 10Z7CM.
Continuation of crypto wallet freezing order pending appeal
10Z7CF (1) This paragraph applies where, on an application under paragraph 10Z7CA in relation to a crypto wallet to which a crypto wallet freezing order applies—
(a) the magistrates’ court or sheriff decides—
(i) to make an order under paragraph 10Z7CA(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under paragraph 10Z7CA(3), or
(b) if the application is transferred in accordance with paragraph 10Z7CE(1), the High Court or Court of Session decides—
(i) to make an order under paragraph 10Z7CE(3) in relation to some but not all of the cryptoassets to which the application related, or
(ii) not to make an order under paragraph 10Z7CE(3).
(2) The person who made the application under paragraph 10Z7CA may apply without notice to the court or sheriff that made the decision referred to in sub-paragraph (1) for an order that the crypto wallet freezing order is to continue to have effect.
(3) Where the court or sheriff makes an order under sub-paragraph (2) the crypto wallet freezing order is to continue to have effect until—
(a) the end of the period of 48 hours starting with the making of the order under sub-paragraph (2), or
(b) if within that period of 48 hours an appeal is brought (whether under paragraph 10Z7CG or otherwise) against the decision referred to in sub-paragraph (1), the time when the appeal is determined or otherwise disposed of.
(4) Sub-paragraph (3) of paragraph 10Z7AF applies for the purposes of sub-paragraph (3) as it applies for the purposes of that paragraph.
Paragraphs 10Z7CA to 10Z7CE: appeals
10Z7CG (1) Any party to proceedings for an order for the forfeiture of cryptoassets under paragraph 10Z7CA may appeal against—
(a) the making of an order under paragraph 10Z7CA;
(b) the making of an order under paragraph 10Z7CE(7);
(c) a decision not to make an order under paragraph 10Z7CA unless the reason that no order was made is that an order was instead made under paragraph 10Z7CD;
(d) a decision not to make an order under paragraph 10Z7CE(7).
Paragraphs (c) and (d) do not apply if the application for the order under paragraph 10Z7CA was transferred in accordance with paragraph 10Z7CE(1).
(2) Where an order under paragraph 10Z7CD is made by a magistrates’ court, any party to the proceedings for the order (including any party to the proceedings under paragraph 10Z7CA that preceded the making of the order) may appeal against a decision to include, or not to include, provision in the order under paragraph 10Z7CD(6).
(3) An appeal under this paragraph lies—
(a) in relation to England and Wales, to the Crown Court;
(b) in relation to Scotland, to the Sheriff Appeal Court;
(c) in relation to Northern Ireland, to a county court.
(4) An appeal under this paragraph must be made before the end of the period of 30 days starting with the day on which the court or sheriff makes the order or decision.
(5) Sub-paragraph (4) is subject to paragraph 10Z7CH.
(6) The court hearing the appeal may make any order it thinks appropriate.
(7) If the court upholds an appeal against an order forfeiting any cryptoasset or other item of property, it may, subject to sub-paragraph (8), order the release of the whole or any part of the property.
(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the property is connected, the property is not to be released under this paragraph (and so is to continue to be detained) until the proceedings are concluded.
Extended time for appealing in certain cases where deproscription order made
10Z7CH (1) This paragraph applies where—
(a) a successful application for an order under paragraph 10Z7CA relies (wholly or partly) on the fact that an organisation is proscribed,
(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,
(c) the property forfeited by the order under paragraph 10Z7CA was seized under this Schedule on or after the date of the refusal of that application,
(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,
(e) a deproscription order is made accordingly, and
(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.
(2) Where this paragraph applies, an appeal under paragraph 10Z7CG against the making of an order under paragraph 10Z7CA, and against the making (in addition) of any order under paragraph 10Z7CE(7), may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.
(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.
Realisation or destruction of forfeited cryptoassets etc
10Z7CI (1) This paragraph applies where any cryptoasset or other item of property is forfeited under this Part.
(2) An authorised officer must—
(a) realise the property, or
(b) make arrangements for its realisation.
This is subject to sub-paragraphs (3) to (5).
(3) The property is not to be realised—
(a) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or
(b) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.
(4) The realisation of property under sub-paragraph (2) must be carried out, so far as practicable, in the manner best calculated to maximise the amount obtained for the property.
(5) Where an authorised officer is satisfied that—
(a) it is not reasonably practicable to realise any cryptoasset, or
(b) there are reasonable grounds to believe that the realisation of any cryptoasset would be contrary to the public interest,
the authorised officer may destroy the cryptoasset.
(6) But—
(a) the authorised officer may destroy the cryptoasset only if the officer is a senior officer or is authorised to do so by a senior officer, and
(b) the cryptoasset is not to be destroyed—
(i) before the end of the period within which an appeal may be made (whether under paragraph 10Z7CG or otherwise), or
(ii) if an appeal is made within that period, before the appeal is determined or otherwise disposed of.
(7) The question of whether the realisation of the cryptoasset would be contrary to the public interest is to be determined with particular reference to how likely it is that the entry of the cryptoasset into general circulation would facilitate criminal conduct by any person.
Proceeds of realisation
10Z7CJ (1) This paragraph applies where any cryptoasset or other item of property is realised under paragraph 10Z7CI.
(2) The proceeds of the realisation must be applied as follows—
(a) first, they must be applied in making any payment required to be made by virtue of paragraph 10Z7CE(9);
(b) second, they must be applied in making any payment of legal expenses which, after giving effect to paragraph 10Z7CA(5) (including as applied by paragraph 10Z7CE(5)), are payable under this sub-paragraph in pursuance of provision under paragraph 10Z7CA(4) or, as the case may be, 10Z7CE(4);
(c) third, they must be applied in payment or reimbursement of any reasonable costs incurred in storing or insuring the property whilst detained under this Schedule and in realising the property;
(d) fourth, they must be paid—
(i) if the property was forfeited by a magistrates’ court or the High Court, into the Consolidated Fund;
(ii) if the property was forfeited by the sheriff or the Court of Session, into the Scottish Consolidated Fund.
(3) If what is realised under paragraph 10Z7CI represents part only of an item of property, the reference in sub-paragraph (2)(c) to costs incurred in storing or insuring the property is to be read as a reference to costs incurred in storing or insuring the whole of the property.
Victims etc: detained cryptoassets
10Z7CK (1) A person who claims that any cryptoassets detained under this Schedule belong to the person may apply for some or all of the cryptoassets to be released.
(2) An application under sub-paragraph (1) is to be made—
(a) in England and Wales or Northern Ireland, to a magistrates’ court;
(b) in Scotland, to the sheriff.
(3) The application may be made in the course of proceedings under paragraph 10Z7AG or 10Z7CA or at any other time.
(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—
(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,
(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the cryptoassets belong to the applicant.
(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant or to the person from whom they were seized.
(6) This sub-paragraph applies where—
(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,
(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.
(7) The release condition is met—
(a) if the conditions in Part 4BA for the detention of the cryptoassets are no longer met, or
(b) in relation to cryptoassets which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.
(8) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, the cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
Victims etc: crypto wallet freezing orders
10Z7CL (1) A person who claims that any cryptoassets held in a crypto wallet in respect of which a crypto wallet freezing order has been made belong to the person may apply for some or all of the cryptoassets to be released.
(2) An application under sub-paragraph (1) is to be made—
(a) in England and Wales or Northern Ireland, to a magistrates’ court;
(b) in Scotland, to the sheriff.
(3) The application may be made in the course of proceedings under paragraph 10Z7BB or 10Z7CA or at any other time.
(4) The court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant if it appears to the court or sheriff that—
(a) the applicant was deprived of the cryptoassets to which the application relates, or of property which they represent, by criminal conduct,
(b) the cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the cryptoassets belong to the applicant.
(5) If sub-paragraph (6) applies, the court or sheriff may, subject to sub-paragraph (8), order the cryptoassets to which the application relates to be released to the applicant.
(6) This sub-paragraph applies where—
(a) the applicant is not the person from whom the cryptoassets to which the application relates were seized,
(b) it appears to the court or sheriff that those cryptoassets belong to the applicant,
(c) the court or sheriff is satisfied that the release condition is met in relation to those cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (5) has been made by the person from whom those cryptoassets were seized.
(7) The release condition is met—
(a) if the conditions for the making of the crypto wallet freezing order are no longer met in relation to the cryptoassets to which the application relates, or
(b) in relation to cryptoassets held in a crypto wallet subject to a crypto wallet freezing order which are subject to an application for forfeiture under paragraph 10Z7CA, if the court or sheriff decides not to make an order under that paragraph in relation to the cryptoassets.
(8) Cryptoassets are not to be released under this paragraph—
(a) if an application for their forfeiture under paragraph 10Z7CA is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cryptoassets are connected, until the proceedings are concluded.
(9) In relation to cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order, references in this paragraph to a person from whom cryptoassets were seized include a reference to a person by or for whom the crypto wallet was administered immediately before the crypto wallet freezing order was made.
Compensation
10Z7CM (1) This paragraph applies if no order is made under paragraph 10Z7CA, 10Z7CD or 10Z7CE in respect of cryptoassets detained under this Schedule or held in a crypto wallet that is subject to a crypto wallet freezing order under paragraph 10Z7BB.
(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—
(a) a person to whom the cryptoassets belong or from whom they were seized;
(b) a person by or for whom a crypto wallet to which the crypto wallet freezing order applies is administered.
(3) If the relevant court is satisfied that the applicant has suffered loss as a result of the detention of the cryptoassets or the making of the crypto wallet freezing order and that the circumstances are exceptional, the relevant court may order compensation to be paid to the applicant.
(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.
(6) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—
(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;
(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(7) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—
(a) in the case of a counter-terrorism financial investigator who was—
(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or
(ii) a member of staff of the City of London police force,
it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(8) If the cryptoassets were seized, or the crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.
(9) If an order under paragraph 10Z7BB, 10Z7CA, 10Z7CD or 10Z7CE is made in respect of some of the cryptoassets detained or held, this paragraph has effect in relation to the remainder.
(10) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7CK or 10Z7CL.
(11) In this paragraph “relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court;
(b) in Scotland, the sheriff.
Part 4BD
Conversion of cryptoassets
Interpretation
10Z7D (1) In this Part—
“converted cryptoassets” is to be read in accordance with paragraphs 10Z7DC and 10Z7DD;
“crypto wallet freezing order” has the same meaning as in Part 4BB (see paragraph 10Z7B(6));
“relevant court” means—
(a) in England and Wales and Northern Ireland, a magistrates’ court;
(b) in Scotland, the sheriff;
“relevant financial institution” has the same meaning as in Part 4B (see paragraph 10Q);
“UK-connected cryptoasset service provider” has the same meaning as in Part 4BB (see paragraph 10Z7B(7)).
(2) Paragraph 10Z7B(6)(b) (administration of crypto wallets) applies in relation to this Part as it applies in relation to Part 4BB.
(3) In this Part references to the conversion of cryptoassets into money are references to the conversion of cryptoassets into—
(a) cash, or
(b) money held in an account maintained with a relevant financial institution.
(4) For the purposes of Parts 2 to 4, converted cryptoassets detained under this Part are not to be treated as cash detained under this Schedule.
Detained cryptoassets: conversion
10Z7DA (1) Sub-paragraph (2) applies while any cryptoassets are detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG (including where cryptoassets are subject to forfeiture proceedings).
(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets detained pursuant to the order to be converted into money.
(3) The following persons are within this sub-paragraph—
(a) an authorised officer;
(b) a person from whom the cryptoassets were seized.
(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before they are released or forfeited (including the period during which an appeal against an order for forfeiture may be made).
(5) Before making an order under this paragraph the court must give an opportunity to be heard to—
(a) the parties to the proceedings, and
(b) any other person who may be affected by its decision.
(6) As soon as practicable after an order is made under this paragraph, an authorised officer must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.
(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.
(8) At the first opportunity after the cryptoassets are converted, the authorised officer must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account and held there.
(9) Interest accruing on the amount is to be added to it on its forfeiture or release.
(10) Where cryptoassets are converted into money in accordance with an order made under this paragraph—
(a) the cryptoassets are no longer to be treated as being detained in pursuance of an order under paragraph 10Z7AE or 10Z7AG, and
(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets.
(11) An order made under this paragraph must provide for notice to be given to persons affected by the order.
(12) No appeal may be made against an order made under this paragraph.
Frozen crypto wallet: conversion
10Z7DB (1) This paragraph applies while a crypto wallet freezing order under paragraph 10Z7BB has effect (including where cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order are subject to forfeiture proceedings).
(2) A person within sub-paragraph (3) may apply to the relevant court for an order requiring all of the cryptoassets held in the crypto wallet to be converted into money.
(3) The following persons are within this sub-paragraph—
(a) an authorised officer;
(b) a person by or for whom the crypto wallet is administered.
(4) In deciding whether to make an order under this paragraph, the court must have regard to whether the cryptoassets (as a whole) are likely to suffer a significant loss in value during the period before—
(a) the crypto wallet freezing order ceases to have effect, or
(b) the cryptoassets are forfeited (including the period during which an appeal against an order for forfeiture may be made).
(5) Before making an order under this paragraph the court must give an opportunity to be heard to—
(a) the parties to the proceedings, and
(b) any other person who may be affected by its decision.
(6) As soon as practicable after an order is made under this paragraph, the UK-connected cryptoasset service provider that administers the crypto wallet must convert the cryptoassets, or arrange for the cryptoassets to be converted, into money.
(7) The conversion of cryptoassets under sub-paragraph (6) must be carried out, so far as practicable, in the manner best calculated to maximise the amount of money obtained for the cryptoassets.
(8) At the first opportunity after the cryptoassets are converted, the UK-connected cryptoasset service provider must arrange for the amount of money obtained for the cryptoassets to be paid into an interest-bearing account nominated by an authorised officer and held there.
(9) But—
(a) the UK-connected cryptoasset service provider may deduct any reasonable expenses incurred by the provider in connection with the conversion of the cryptoassets, and
(b) the amount to be treated as the proceeds of the conversion of the cryptoassets is to be reduced accordingly.
(10) Interest accruing on the amount obtained for the cryptoassets is to be added to it on its forfeiture or release.
(11) Where cryptoassets are converted in accordance with an order made under this paragraph—
(a) the crypto wallet freezing order ceases to have effect,
(b) any application made under paragraph 10Z7CA(2) in relation to the cryptoassets which has not yet been determined or otherwise disposed of (including under paragraph 10Z7CD or 10Z7CE) is to be treated as if it were an application made under paragraph 10Z7DG(2) in relation to the converted cryptoassets, and
(c) any application made under paragraph 10Z7CF(2) in relation to the crypto wallet which has not yet been determined or otherwise disposed of may not be proceeded with.
(12) An order made under this paragraph must provide for notice to be given to persons affected by the order.
(13) No appeal may be made against an order made under this paragraph.
Conversion: existing forfeiture proceedings
10Z7DC (1) Where—
(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and
(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DA requiring the cryptoassets to be converted into money,
paragraph 10Z7DJ(1) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).
(2) Where—
(a) cryptoassets are forfeited under paragraph 10Z7CA or 10Z7CE, and
(b) before the cryptoassets are realised or destroyed in accordance with paragraph 10Z7CI, an order is made under paragraph 10Z7DB requiring the cryptoassets to be converted into money,
paragraph 10Z7DJ(2) applies in relation to the converted cryptoassets as if they had been detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG (and accordingly paragraph 10Z7CI ceases to apply).
(3) Where—
(a) an appeal may be made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and
(b) an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,
the appeal may instead be made under paragraph 10Z7DH (within the time allowed by paragraph 10Z7CG(4)) as if it were an appeal against the determination of an application under paragraph 10Z7DG.
(4) Where—
(a) an appeal is made under paragraph 10Z7CG(1) or (2) in relation to the determination of an application under paragraph 10Z7CA(2) for the forfeiture of cryptoassets (including where paragraph 10Z7CD or 10Z7CE applies), and
(b) before the appeal is determined or otherwise disposed of, an order is made under paragraph 10Z7DA or 10Z7DB requiring the cryptoassets to be converted into money,
the appeal is to be treated as if it had been made under paragraph 10Z7DH(1) in relation to the determination of an application under paragraph 10Z7DG for the forfeiture of the converted cryptoassets.
Detained cryptoassets: detention of proceeds of conversion
10Z7DD (1) This paragraph applies where cryptoassets are converted into money in accordance with an order under paragraph 10Z7DA.
(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the cryptoassets could, immediately before the conversion, have been detained under Part 4BA (ignoring the possibility of any extension of that period).
(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.
(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the relevant date; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the relevant date.
(6) In sub-paragraphs (4) and (5) “the relevant date” means the date on which the first order under paragraph 10Z7AE or 10Z7AG (as the case may be) was made in relation to the cryptoassets.
(7) An application for an order under sub-paragraph (3) or (5) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(8) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(9) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).
(10) A “request for assistance” in sub-paragraph (9) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
Frozen crypto wallets: detention of proceeds of conversion
10Z7DE (1) This paragraph applies where cryptoassets held in a crypto wallet subject to a crypto wallet freezing order are converted into money in accordance with an order under paragraph 10Z7DB.
(2) The proceeds of the conversion (the “converted cryptoassets”) may be detained initially until the end of the period that the crypto wallet freezing order was, immediately before the conversion, due to have effect under Part 4BB (ignoring the possibility of any extension of that period).
(3) The period for which the converted cryptoassets may be detained may be extended by an order made by the relevant court.
(4) An order under sub-paragraph (3) may not authorise the detention of the converted cryptoassets beyond the end of the period of 2 years beginning with the day on which the crypto wallet freezing order was made; but this is subject to sub-paragraph (5).
(5) The relevant court may make an order for the period of 2 years in sub-paragraph (4) to be extended to a period of up to 3 years beginning with the day on which the crypto wallet freezing order was made.
(6) An application for an order under sub-paragraph (3) or (5) may be made—
(a) in relation to England and Wales and Northern Ireland, by the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) in relation to Scotland, by a procurator fiscal.
(7) The relevant court may make an order under sub-paragraph (3) only if satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be further detained—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(8) The relevant court may make an order under sub-paragraph (5) only if satisfied that a request for assistance is outstanding in relation to the cryptoassets mentioned in sub-paragraph (1).
(9) A “request for assistance” in sub-paragraph (8) means a request for assistance in obtaining evidence (including information in any form or article) in connection with the cryptoassets, made—
(a) by a judicial authority in the United Kingdom under section 7 of the Crime (International Co-operation) Act 2003, or
(b) by an authorised officer, to an authority exercising equivalent functions in a foreign country.
Release of detained converted cryptoassets
10Z7DF (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.
(2) The relevant court may, subject to sub-paragraph (7), direct the release of the whole or any part of the converted cryptoassets if the following condition is met.
(3) The condition is that, on an application by the relevant person, the court is not satisfied that there are reasonable grounds for suspecting that the converted cryptoassets to be released—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(4) In sub-paragraph (3) “the relevant person” means—
(a) in the case of converted cryptoassets detained under paragraph 10Z7DD, the person from whom the cryptoassets mentioned in sub-paragraph (1) of that paragraph were seized, and
(b) in the case of converted cryptoassets detained under paragraph 10Z7DE, any person affected by the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.
(5) A person within sub-paragraph (6) may, subject to sub-paragraph (7) and after notifying the magistrates’ court or sheriff under whose order converted cryptoassets are being detained, release the whole or any part of the converted cryptoassets if satisfied that the detention is no longer justified.
(6) The following persons are within this sub-paragraph—
(a) in relation to England and Wales or Northern Ireland, an authorised officer;
(b) in relation to Scotland, a procurator fiscal.
(7) Converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained)—
(a) if an application for their forfeiture under paragraph 10Z7DG is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(b) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, until the proceedings are concluded.
Forfeiture
10Z7DG (1) This paragraph applies while any converted cryptoassets are detained under paragraph 10Z7DD or 10Z7DE.
(2) An application for the forfeiture of some or all of the converted cryptoassets may be made—
(a) to a magistrates’ court by, the Commissioners for His Majesty’s Revenue and Customs or an authorised officer;
(b) to the sheriff, by the Scottish Ministers.
(3) The court or sheriff may order the forfeiture of some or all of the converted cryptoassets if satisfied that the converted cryptoassets to be forfeited—
(a) are within subsection (1)(a) or (b) of section 1, or
(b) are property earmarked as terrorist property.
(4) But in the case of property which belongs to joint tenants, one of whom is an excepted joint owner, the order may not apply to so much of it as the court thinks is attributable to the excepted joint owner’s share.
(5) Where an application for forfeiture is made under this paragraph, the converted cryptoassets are to continue to be detained under paragraph 10Z7DD or 10Z7DE (and may not be released under any power conferred by this Part) until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded.
(6) For the purposes of this paragraph—
(a) an excepted joint owner is a joint tenant who obtained the property in circumstances in which it would not (as against them) be earmarked, and
(b) references to the excepted joint owner’s share of property are to so much of the property as would have been theirs if the joint tenancy had been severed.
Forfeiture: appeals
10Z7DH (1) Any party to proceedings for an order for the forfeiture of converted cryptoassets under paragraph 10Z7DG who is aggrieved by an order under that paragraph or by the decision of the court not to make such an order may appeal—
(a) from an order or decision of a magistrates’ court in England and Wales, to the Crown Court;
(b) from an order or decision of the sheriff, to the Sheriff Appeal Court;
(c) from an order or decision of a magistrates’ court in Northern Ireland, to a county court.
(2) An appeal under sub-paragraph (1) must be made before the end of the period of 30 days starting with the day on which the court makes the order or decision.
(3) The court hearing the appeal may make any order it thinks appropriate.
(4) If the court upholds an appeal against an order forfeiting the converted cryptoassets, it may, subject to sub-paragraph (5), order the release of some or all of the converted cryptoassets.
(5) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
Extended time for appealing in certain cases where deproscription order made
10Z7DI (1) This paragraph applies where—
(a) a successful application for an order under paragraph 10Z7DG relies (wholly or partly) on the fact that an organisation is proscribed,
(b) an application under section 4 of the Terrorism Act 2000 for a deproscription order in respect of the organisation is refused by the Secretary of State,
(c) the converted cryptoassets forfeited by the order under paragraph 10Z7DG were converted from cryptoassets which were seized under this Schedule on or after the date of the refusal of that application,
(d) an appeal against that refusal is allowed under section 5 of the Terrorism Act 2000,
(e) a deproscription order is made accordingly, and
(f) if the order is made in reliance on section 123(5) of the Terrorism Act 2000, a resolution is passed by each House of Parliament under section 123(5)(b) of that Act.
(2) Where this paragraph applies, an appeal under paragraph 10Z7DH against the making of an order under paragraph 10Z7DG may be brought at any time before the end of the period of 30 days beginning with the date on which the deproscription order comes into force.
(3) In this paragraph a “deproscription order” means an order under section 3(3)(b) or (8) of the Terrorism Act 2000.
Application of forfeited converted cryptoassets
10Z7DJ (1) Converted cryptoassets detained under paragraph 10Z7DD and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—
(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the safe storage of the cryptoassets mentioned in paragraph 10Z7DD(1) during the period the cryptoassets were detained under Part 4BA;
(b) second, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the conversion of those cryptoassets under paragraph 10Z7DA(6);
(c) third, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;
(d) fourth, they must be paid—
(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and
(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.
(2) Converted cryptoassets detained under paragraph 10Z7DE and forfeited under paragraph 10Z7DG, and any accrued interest on them, must be applied as follows—
(a) first, they must be applied in making any payment of reasonable expenses incurred by an authorised officer in connection with the detention of the converted cryptoassets under this Part;
(b) second, they must be paid—
(i) if forfeited by a magistrates’ court in England and Wales or Northern Ireland, into the Consolidated Fund, and
(ii) if forfeited by the sheriff, into the Scottish Consolidated Fund.
(3) But converted cryptoassets are not to be applied or paid under sub-paragraph (1) or (2)—
(a) before the end of the period within which an appeal under paragraph 10Z7DH may be made, or
(b) if a person appeals under that paragraph, before the appeal is determined or otherwise disposed of.
Victims etc
10Z7DK (1) This paragraph applies where converted cryptoassets are detained under this Part.
(2) Where this paragraph applies, a person (“P”) who claims that the relevant cryptoassets belonged to P immediately before—
(a) the relevant cryptoassets were seized, or
(b) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,
may apply to the relevant court for some or all of the converted cryptoassets to be released to P.
(3) The application may be made in the course of proceedings under paragraph 10Z7DD, 10Z7DE or 10Z7DG or at any other time.
(4) The relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant if it appears to the relevant court that the condition in sub-paragraph (5) is met.
(5) The condition in this sub-paragraph is that—
(a) the applicant was deprived of the relevant cryptoassets, or of property which they represent, by criminal conduct,
(b) the relevant cryptoassets the applicant was deprived of were not, immediately before the applicant was deprived of them, property obtained by or in return for criminal conduct and nor did they then represent such property, and
(c) the relevant cryptoassets belonged to the applicant immediately before—
(i) the relevant cryptoassets were seized, or
(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held.
(6) If sub-paragraph (7) applies, the relevant court may, subject to sub-paragraph (9), order the converted cryptoassets to which the application relates to be released to the applicant or to the person from whom the relevant cryptoassets were seized.
(7) This sub-paragraph applies where—
(a) the applicant is not the person from whom the relevant cryptoassets were seized,
(b) it appears to the relevant court that the relevant cryptoassets belonged to the applicant immediately before—
(i) the relevant cryptoassets were seized, or
(ii) the crypto wallet freezing order was made in relation to the crypto wallet in which the relevant cryptoassets were held,
(c) the relevant court is satisfied that the release condition is met in relation to the converted cryptoassets, and
(d) no objection to the making of an order under sub-paragraph (6) has been made by the person from whom the relevant cryptoassets were seized.
(8) The release condition is met—
(a) if the conditions in this Part for the detention of the converted cryptoassets are no longer met, or
(b) in relation to converted cryptoassets which are subject to an application for forfeiture under paragraph 10Z7DG, if the court or sheriff decides not to make an order under that paragraph in relation to the converted cryptoassets.
(9) If (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the converted cryptoassets are connected, the converted cryptoassets are not to be released under this paragraph (and so are to continue to be detained) until the proceedings are concluded.
(10) Where sub-paragraph (2)(b) applies, references in this paragraph to a person from whom relevant cryptoassets were seized include a reference to a person by or for whom the crypto wallet mentioned in that provision was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.
(11) In this paragraph “the relevant cryptoassets” means—
(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph, and
(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, some or all of the cryptoassets mentioned in sub-paragraph (1) of that paragraph.
Compensation
10Z7DL (1) This paragraph applies if no order is made under paragraph 10Z7DG in respect of converted cryptoassets detained under this Part.
(2) Where this paragraph applies, the following may make an application to the relevant court for compensation—
(a) a person to whom the relevant cryptoassets belonged immediately before they were seized;
(b) a person from whom the relevant cryptoassets were seized;
(c) a person by or for whom the crypto wallet mentioned in paragraph 10Z7DE(1) was administered immediately before the crypto wallet freezing order was made in relation to the crypto wallet.
(3) If the relevant court is satisfied that—
(a) the applicant has suffered loss as a result of—
(i) the conversion of the relevant cryptoassets into money, or
(ii) the detention of the converted cryptoassets, and
(b) the circumstances are exceptional,
the relevant court may order compensation to be paid to the applicant.
(4) The amount of compensation to be paid is the amount the relevant court thinks reasonable, having regard to the loss suffered and any other relevant circumstances.
(5) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an officer of Revenue and Customs, the compensation is to be paid by the Commissioners for His Majesty’s Revenue and Customs.
(6) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a constable, the compensation is to be paid as follows—
(a) in the case of a constable of a police force in England and Wales, it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a constable of the Police Service of Scotland, it is to be paid by the Scottish Police Authority;
(c) in the case of a police officer within the meaning of the Police (Northern Ireland) Act 2000, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(7) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by a counter-terrorism financial investigator, the compensation is to be paid as follows—
(a) in the case of a counter-terrorism financial investigator who was—
(i) a member of the civilian staff of a police force (including the metropolitan police force), within the meaning of Part 1 of the Police Reform and Social Responsibility Act 2011, or
(ii) a member of staff of the City of London police force,
it is to be paid out of the police fund from which the expenses of the police force are met;
(b) in the case of a counter-terrorism financial investigator who was a member of staff of the Police Service of Northern Ireland, it is to be paid out of money provided by the Chief Constable of the Police Service of Northern Ireland.
(8) If the relevant cryptoassets were seized, or the relevant crypto wallet freezing order was applied for, by an immigration officer, the compensation is to be paid by the Secretary of State.
(9) This paragraph does not apply if the relevant court makes an order under paragraph 10Z7DK.
(10) In this paragraph—
“the relevant cryptoassets” means—
(a) in relation to converted cryptoassets detained under paragraph 10Z7DD, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;
(b) in relation to converted cryptoassets detained under paragraph 10Z7DE, the cryptoassets mentioned in sub-paragraph (1) of that paragraph;
“the relevant crypto wallet freezing order”, in relation to converted cryptoassets detained under paragraph 10Z7DE, means the crypto wallet freezing order mentioned in sub-paragraph (1) of that paragraph.”
3 In Part 1, in paragraph 1(1) (terrorist cash), for “and 4B” substitute “to 4BD”.
4 In Part 4B (forfeiture of terrorist money held in bank and building society accounts), after paragraph 10Z6 insert—
“Victims etc
10Z6A (1) A person who claims that money in respect of which an account freezing order has been made belongs to them may apply to the relevant court for the money to be released.
(2) The application may be made in the course of proceedings under paragraph 10S or 10Z2 or at any other time.
(3) The court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant if it appears to the court that—
(a) the applicant was deprived of the money to which the application relates, or of property which it represents, by criminal conduct,
(b) the money the applicant was deprived of was not, immediately before the applicant was deprived of it, property obtained by or in return for criminal conduct and nor did it then represent such property, and
(c) the money belongs to the applicant.
(4) If sub-paragraph (5) applies, the court may, subject to sub-paragraph (7), order the money to which the application relates to be released to the applicant.
(5) This sub-paragraph applies where—
(a) the applicant is not the person from whom the money to which the application relates was seized,
(b) it appears to the court that the money belongs to the applicant,
(c) the court is satisfied that the release condition is met in relation to the money, and
(d) no objection to the making of an order under sub-paragraph (4) has been made by the person from whom the money was seized.
(6) The release condition is met—
(a) in relation to money held in a frozen account, if the conditions for making an order under paragraph 10S in relation to the money are no longer met, or
(b) in relation to money held in a frozen account which is subject to an application for forfeiture under paragraph 10Z2, if the court or sheriff decides not to make an order under that paragraph in relation to the money.
(7) Money is not to be released under this paragraph—
(a) if an account forfeiture notice under paragraph 10W is given in respect of the money, until any proceedings in pursuance of the notice (including any proceedings on appeal) are concluded;
(b) if an application for its forfeiture under paragraph 10Z2, is made, until any proceedings in pursuance of the application (including any proceedings on appeal) are concluded;
(c) if (in the United Kingdom or elsewhere) proceedings are started against any person for an offence with which the cash is connected, until the proceedings are concluded.
(8) In relation to money held in an account that is subject to an account freezing order, references in this paragraph to a person from whom money was seized include a reference to a person by or for whom the account was operated immediately before the account freezing order was made.”
5 In Part 6, in paragraph 19(1), at the appropriate places insert—
““cryptoasset” has the meaning given by paragraph 10Z7A(1);”;
““crypto wallet” has the meaning given by paragraph 10Z7A(1);”;
““justice of the peace”, in relation to Northern Ireland, means lay magistrate;”;
““terrorist cryptoasset” has the meaning given by paragraph 10Z7A(1);”.
Part 2
Amendments to the Terrorism Act 2000
6 The Terrorism Act 2000 is amended as follows.
7 In Schedule 6 (financial information)—
(a) in paragraph 6(1) (meaning of financial institution)—
(i) omit the “and” after paragraph (ha), and
(ii) after paragraph (i) insert—
(b) after sub-paragraph (1AA) insert—
“(1AB) For the purposes of sub-paragraph (1)(j), “cryptoasset exchange provider” means a firm or sole practitioner who by way of business provides one or more of the following services, including where the firm or sole practitioner does so as creator or issuer of any of the cryptoassets involved—
(a) exchanging or arranging or making arrangements with a view to the exchange of, cryptoassets for money or money for cryptoassets,
(b) exchanging, or arranging or making arrangements with a view to the exchange of, one cryptoasset for another, or
(c) operating a machine which utilises automated processes to exchange cryptoassets for money or money for cryptoassets.
(1AC) For the purposes of sub-paragraph (1)(k), “custodian wallet provider” means a firm or sole practitioner who by way of business provides services to safeguard, or to safeguard and administer—
(a) cryptoassets on behalf of its customers, or
(b) private cryptographic keys on behalf of its customers in order to hold, store and transfer cryptoassets.
(1AD) For the purposes of sub-paragraphs (1AB) and (1AC), “cryptoasset” means a cryptographically secured digital representation of value or contractual rights that uses a form of distributed ledger technology and can be transferred, stored or traded electronically.
(1AE) For the purposes of sub-paragraph (1AB)—
(a) “cryptoasset” includes a right to, or interest in, the cryptoasset;
(b) “money” means—
(i) money in sterling,
(ii) money in any other currency, or
(iii) money in any other medium of exchange,
but does not include a cryptoasset.
(1AF) The Secretary of State may by regulations amend the definitions in sub-paragraphs (1AB) to (1AE).”
8 In section 123 (orders and regulations), after subsection (6ZE) insert—
“(6ZF) Regulations under paragraph 6(1AF) of Schedule 6 may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”’—(Tom Tugendhat.)
Part 1 of this Schedule amends the Anti-terrorism, Crime and Security Act 2001 to make provision for a civil recovery regime in relation to terrorist cryptoassets. Part 2 of this Schedule amends the Terrorism Act 2000 to make provision about financial institutions and cryptoassets.
Brought up, read the First and Second time, and added to the Bill.
Bill, as amended, to be reported.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 24th January 2023
(1 year, 3 months ago)
Commons ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: Consideration of Bill Amendments as at 24 January 2023 - large print - (24 Jan 2023)
18:20 - The House divided: - Ayes: 232 / Noes: 296 - Question accordingly negatived.
18:37 - The House divided: - Ayes: 234 / Noes: 291 - Question accordingly negatived.
18:51 - The House divided: - Ayes: 233 / Noes: 290 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Government new clause 9—Disqualification on summary conviction: GB.
Government new clause 10—Disqualification for persistent breaches of companies legislation: NI.
Government new clause 11—Disqualification on summary conviction: NI.
Government new clause 12—A limited partnership’s registered office: consequential amendments.
Government new clause 13—Removal of limited partnership from index of names.
Government new clause 15—Reports on the implementation and operation of Parts 1 to 3.
New clause 16—Reporting requirement (objectives)—
“(1) The Secretary of State must publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives under section 1081A of the Companies Act 2006 (inserted by section 1 of this Act).
(2) Each report must make a recommendation as to whether further legislation should be brought forward in response to the report.
(3) Each report must provide a breakdown of the registrar’s annual expenditure.
(4) Each report must contain the details of the steps the Registrar has taken to promote the registrar’s objectives under this Act; and
(5) Each report must provide annual data on the number of companies that have been struck-off by the registrar, the number and amount of fines the registrar has issued, and the number of criminal convictions made, and of cases of suspected unlawful activity identified by the registrar as a result of the registrar’s powers as set out in this Act.
(6) Each report must provide annual data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors.
(7) Each report must provide annual data on the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar.
(8) Each report must detail all instances in which exemption powers have been used by the Secretary of State, as introduced by this Act.
(9) The first report must be published within one year of this Act being passed.
(10) A further report must be published at least once a year.
(11) The Secretary of State must lay a copy of each report before Parliament.”
This new clause creates an obligation on the Secretary of State to submit an annual report to Parliament on progress of the reforms in this Bill, data on the register, breaches, use of exemption powers by the Secretary of State and penalties imposed.
New clause 17—Checks on persons with significant control status—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 790LP (Offence of failing to comply with sections 790LI to 790LN) insert—
‘790LQ Duty to check person of significant control status
(1) This section applies when a registrable person’s identity is verified under section 1110A(1) and a risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to the registrable person.
(2) The registrar must take steps to ensure that the registrable person whose identity is being verified is a person with significant control over the company.
790LR Duty of registrar to cross-check identity of person with significant control
(1) This section applies where—
(a) the registrar has received—
(i) the information required by subsection (6) of section 853G (Duty to deliver shareholder information: certain traded companies), or
(ii) relevant membership information as required by subsection (2) of section 49 (Membership information: one-off confirmation statement) of the Economic Crime and Corporate Transparency Act 2023; and
(b) the risk assessment carried out under section 1062A(1A) has identified a matter of concern in relation to any of the information in paragraph (a).
(2) The registrar must carry out a further assessment to establish whether the people notified to the registrar as persons with significant control of the company are not people notified to the registrar as holding at least 5% shares of the company, and that the reason for the discrepancy is that the company is involved in economic crime.
(3) If following the assessment required by subsection (2) the registrar considers that there is a real risk that the people notified to the registrar as persons with significant control of the company are not people notified to the registrar as holding at least 5% shares of the company, the registrar must carry out the check required by subsection (4).
(4) If this subsection applies, the registrar must take steps to ascertain whether the people notified to the registrar as persons with significant control of the company are people notified to the registrar as holding at least 5% shares of the company.’”
This new clause creates a duty on the registrar to check whether the person declared as the “person of significant control” (PSC) does indeed have significant control of a company, by cross checking company records, on a risk-based approach.
New clause 18—Disclosure of control of 5% or more of shares in a public company—
“(1) This section applies to shareholdings in public companies as defined by section 4 of the Companies Act 2006.
(2) A person who controls 5% or more of the shares in a public company must declare this fact to the registrar.
(3) The duty in subsection (2) applies whether the person controls the shares directly or indirectly.
(4) The registrar may impose a penalty on any person who fails to comply with the duty in subsection (5).
(5) Subsection (6) applies where—
(a) a person has made declaration under subsection (2), and
(b) the registrar has identified a matter of concern under subsection 1062A(1A) of the Companies Act 2006 in relation to the person or the declaration.
(6) The registrar must—
(a) verify the identity of the person, and
(b) verify the number of shares the person claims to control.”
This new clause requires any person holding 5% or more shares in a public company to declare this fact, and empowers the registrar to penalise non-compliance.
New clause 19—Risk-based examination of accounts of dissolved companies—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1062A (analysis of information for the purposes of crime prevention and detection) insert—
‘1026B Risk-based examination of accounts of dissolved companies
(1A) In a case where the registrar’s risk assessment under section 1062A(1A) has identified a matter of concern in relation to a dissolved company, the registrar must examine the accounts of the dissolved company with a view to establishing whether any economic crime has been committed.
(1B) The registrar must share details of any evidence gathered under subsection (1A) with the relevant law enforcement agencies.’”
This new clause creates new duties for the registrar to examine the accounts of dissolved companies with a view to establish whether an economic crime has been committed, using a risk-based approach.
New clause 20—Fees and penalties—
“(1) Section 1063 (Fees payable to registrar) of the Companies Act 2006 is amended in accordance with subsections (2) to (4).
(2) Before subsection (1) insert—
‘(A1) The registrar must charge a fee of £100 for the incorporation of a company.
(B1) The Secretary of State must once a year amend the fee in subsection (A1) to reflect inflation.’
(3) In subsection (1)—
(a) after ‘fees’ insert ‘other than the fee in subsection (A1)’,
(b) in paragraph (a) after ‘functions’ insert ‘other than the incorporation of a company’.
(4) In subsection (5), in paragraphs (a) and (b) after ‘regulations’ insert ‘or subsection (A1)’.
(5) The Secretary of State must lay before Parliament a report examining the case for fees paid under section 1063 of the Companies Act 2003 being paid into a fund established for the purposes of tackling economic crime.
(6) The report must also examine the case for penalties received by the registrar under section 1132A of that Act being paid into the same fund.
(7) The report must be laid before Parliament within six months of this Act being passed.”
This new clause raises the fee to incorporate a company to £100 (amended annually for inflation), and requires the Secretary of State to report on the case for these fees, along with penalties received by the registrar, to be paid into a fund to be used for tackling economic crime.
New clause 22—Person convicted under National Minimum Wage Act not to be appointed as director—
“(1) The Company Directors Disqualification Act 1986 is amended as follows.
(2) After Clause 5A (Disqualification for certain convictions abroad) insert—
‘5B Person convicted under National Minimum Wage Act not to be appointed as director
(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.
(3) An appointment made in contravention of this section is void.’”
This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.
New clause 24—Application for administrative restoration to the register—
“In section 1024 of the Companies Act 2006 (application for administrative restoration to the register), for subsection (3) substitute—
‘(3) An application under this section may only be made by a former director, former member, former creditor or former liquidator of the company.’”
This new clause would make it possible for a creditor or liquidator to apply to restore a company administratively.
New clause 34—Report on the authorisation of foreign corporate service providers—
“(1) Within six months of the day on which this Act is passed, the Secretary of State must publish a report on the authorisation of foreign corporate service providers.
(2) The report in subsection (1) must include but is not limited to—
(a) the number of authorised corporate service providers with a head office based in a territory outside the United Kingdom,
(b) the number of foreign corporate service providers authorised as set out in section 1098I(1) of the Companies Act 2006, and
(c) the number of foreign corporate service providers identified in subsection (2)(b) by territory.”
This new clause creates an obligation for the Secretary of State to publish a report into the number of Authorised Corporate Service Providers with a head office based outside the United Kingdom and the number of foreign corporate service providers authorised by the regulations set out in new section 1098I(1) of the Companies Act 2006.
New clause 35—Supervisory functions of registrar—
“(1) The Companies Act 2006 is amended as follows.
(2) After section 1081A (inserted by section 1 of this Act) insert—
‘1081B Supervisory functions of registrar
(1) The registrar must carry out supervisory duties, and must uphold standards and compliance with money laundering and terrorist financing legislation.
(2) The Secretary of State must ensure that the registrar has adequate resources to enable them to carry out this new role.’”
This new clause seeks to make the Registrar an AML supervisor in their own right.
New clause 36—Integrity of the register—
“(1) The registrar must ensure that information set out in the register prior to the provisions of this Act coming into force is accurate, up to date, and meets the requirements set out in the Act.
(2) The duty under subsection (1) includes ensuring that each entry lists the unique identification number of the Director of a company.
(3) The registrar will also make an annual report to Parliament on the status of its work to update existing company registrations.
(4) The report under subsection (3) must include—
(a) information on how many existing company registrations the registrar has evaluated to check the accuracy of the information provided, and
(b) details of how many existing company registrations have still to be evaluated by the Registrar to check the accuracy of the information provided.”
This new clause seeks to ensure that existing company registrations contain accurate, up to date information. It also imposes a requirement for the Registrar to update Parliament on the progress of updating the register.
New clause 37—Prevention of continued trading for companies repeatedly declared insolvent—
“(1) A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding five years.
(2) For the purposes of subsection (1), ‘substantially similar’ can include, but may not be limited to, a company having the same or similar—
(a) name;
(b) registered office;
(c) proposed officers; or
(d) principal business activities
as another company.”
This new clause seeks to prevent companies from repeatedly becoming insolvent and then continuing to carry on the same business activities through a new company (the practice of “phoenixing”).
New clause 38—Bar on directors in breach of duties receiving public funds—
“(1) A company with a director or directors which are in breach of the general duties outlined in Chapter 2 of the Companies Act 2006, or who have been found to have committed statutory breaches of employment law or avoided taxation, may not receive Government provided funds or financial support, unless subsection (2) applies.
(2) A company whose director or directors meet the criteria outlined in subsection (1) may receive Government provided funds or financial support if such funds or support are provided solely and specifically for the direct benefit of the company’s employees.”
This new clause seeks to prevent directors who fail to comply with their duties as a company director or with employment law provisions and/or tax obligations from being able to access funds in instances where these funds are for the benefit of the company and not the company’s employees.
Amendment 104, in clause 1, page 2, line 13, at end insert—
“Objective 5
Objective 5 is to act proactively by—
(a) making full use of the information, intelligence and powers available to the registrar in order to identify issues of concern, and
(b) sharing information about any issues of concern with relevant public bodies and law enforcement agencies.
(4) In this section, an ‘issue of concern’ includes—
(a) inaccurate information,
(b) information that might create a false or misleading impression to members of the public,
(c) an unlawful activity.”
This amendment would insert a fifth objective requiring the registrar to act proactively.
Government amendments 1 to 9.
Amendment 108, in clause 62, page 46, line 41, at end insert
“and that the individual has signed a confirmation statement stating whether they already have a unique ID on the register.”
This amendment would add a requirement on ACSPs to confirm the individual they’re verifying has signed a confirmation statement stating whether they already have a unique ID on the register.
Amendment 101, page 46, line 41, at end insert—
“(2A) No verification statement may be made by an authorised corporate service provider until—
(a) the Treasury has laid before Parliament a report confirming that the Treasury’s reform of the UK’s anti-money laundering supervisory regime, as set out in the document entitled ‘Review of the UK’s AML/CFT regulatory and supervisory regime’ published by the Treasury in June 2022, has been completed and implemented; and
(b) the registrar has put in place a risk-based approach to review the work of authorised corporate service providers which includes spot checks of providers’ data to ensure providers are properly and accurately carrying out processes to verify identification documents and other data submitted by authorised corporate service providers.”
This amendment would ensure that Corporate Service Providers are not authorised to carry out ID verification until the consultation on anti-money laundering supervision announced by the Government is completed and implemented.
Amendment 103, in clause 63, page 52, leave out from line 20 to line 4 on page 53, and insert—
“1098H Duty to provide information
(1) The registrar must carry out a risk assessment in relation to any authorised corporate service provider to establish whether the verification of identity by the authorised corporate service provider is likely to give rise to a risk of economic crime.
(2) If the risk assessment identifies a real risk of economic crime, the registrar may—
(a) require an authorised corporate service provider to provide information to the registrar; or
(b) require a person who ceases to be an authorised corporate service provider by virtue of section 1098F—
(i) to notify the registrar;
(ii) to provide the registrar with such information relating to the circumstances by virtue of which the person so ceased as may be requested by the registrar.
(3) The registrar may require information to be provided on request, on the occurrence of an event or at regular intervals.
(4) The circumstances that may be specified under section 1098F(2) or 1098G(1) (ceasing to be an authorised corporate service provider and suspension) include failure to comply with a requirement under subsection (1)(a).
(5) A person who fails to comply with a requirement to provide information under this section commits an offence.
(6) An offence under this section is punishable on summary conviction by—
(a) in England and Wales a fine;
(b) in Scotland and Northern Ireland a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.”
This amendment creates an obligation on the registrar to carry out a risk assessment to establish whether the identity checks carried out by authorised corporate service providers are accurate and valid.
Government amendment 10.
Amendment 105, in clause 66, page 55, line 14, leave out “power” and insert “a duty”.
This amendment would ensure that all directors would be issued with a unique director identifier to be used for all their directorships regardless of whether they or an ACSP form the company.
Amendment 106, page 55, line 18, at end insert—
“(iii) To link the unique identifier to the person and to any other entries they have on the register under the same name or a different name.”
This amendment would allow the registrar to link all unique identifiers to any other entries the person has on the register whether under the same name or a different name.
Government amendments 11 and 12.
Amendment 102, in clause 89, page 68, line 37, at end insert—
“(1A) As part of the risk-based approach under subsection (1), the registrar must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.
(1B) Where the assessment identifies a matter of concern, the registrar must—
(a) carry out whatever further analysis it considers necessary; and
(b) share any evidence of unlawful activity it identifies with the relevant law enforcement agency.
(1C) For the purposes of this section, a ‘matter of concern’ includes—
(a) inaccurate information;
(b) information that might create a false or misleading impression; or
(c) evidence of economic crime.”
This amendment requires the registrar to carry out a risk assessment of the information it holds, and act on any matters of concern identified.
Government amendments 13 to 38.
Amendment 107, in clause 136, page 123, line 28, at end insert
“and,
(d) be published on the registrar’s website and remain published on the registrar’s website for a minimum of 20 years from the date on which it was first published.”
This amendment would require the limited partnership dissolution notice to be published on the registrar’s website and remain published for a minimum of 20 years.
Government amendments 39 to 43, 52 and 53.
Amendment 109, in schedule 2, page 172, line 40, at end insert—
“167GA Unique identification number for directors
(1) On receipt of notification of a person becoming a director, the registrar must allocate that director a unique identification number, unless such a number has already been allocated to that person.
(2) Any information supplied to the registrar under or by virtue of this Act about a person who has been allocated a unique identification number under subsection (1) must include that number.
(3) The Registrar should ensure existing registrations allocate a unique identification number to Directors.”
Government amendment 54.
Amendment 111, page 174, line 38, at end insert—
“167KA Limit on number of directorships held
(1) Where notice has been given to the registrar that a person (P) has become a director, the registrar may determine that P may not hold that directorship.
(2) The registrar may make a determination under subsection (1) if the registrar considers that P holds an excessive number of directorships.
(3) The factors that the registrar may take into account in making a determination under subsection (1) are the experience, expertise and circumstances of P, as well as the nature of the industry/company they are operating within and the time commitment their role as a director requires.
(4) If the registrar makes a determination under subsection (1), P may not hold office as a director of the company.”
Amendment 110, page 174, line 41, after “167G,” insert “167GA”.
This amendment would provide for penalties to apply to anyone failing to provide their unique identification number to the registrar.
Government amendments 55 and 56.
New clause 26—Beneficial owners in overseas territories—
“(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.
(2) In section 51, after subsection (5) insert—
‘(5A) The Secretary of State must ensure that the Order in Council under subsection (2) above comes into effect on date no later than 30 June 2023.’”
This new clause would amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories comes into force no later than 30 June 2023.
Government amendments 50 and 51.
Kevin Hollinrake
It is a pleasure to speak to the Government’s amendments to the Economic Crime and Corporate Transparency Bill. I know that all hon. Members agree with its core ambition to bear down on the kleptocrats, criminals and terrorists who abuse our open economy and, critically, to strengthen the UK’s reputation as a place where legitimate business can thrive.
Catherine West (Hornsey and Wood Green) (Lab)
I want to say at the beginning of proceedings how fantastic it is to have a Minister who deeply cares about the topic—we are expecting significant movement on amendments. On the UK’s reputation, Transparency International and other non-governmental organisations do important work in this area, including finding out about companies such as the Azerbaijani kleptocrats’ laundromat that had a slush fund of £2.9 billion, and its malign influence particularly on the Ukrainian war. Does he agree that it is not a moment too soon for the Government to tackle such issues?
Kevin Hollinrake
The hon. Lady gives me a significant reputation to live up to. She is right, however, that some of the things that we have seen, not least with regard to the Ukraine war, have been the catalyst for much of this overdue legislation. We are keen to bring forward exactly the measures she refers to.
The Bill contains a very considerable package of measures to deliver on our ambition. It includes the largest reform of the UK’s company registration framework in 170 years. Crucially, it provides transparency, exactly as the hon. Lady says, and affords and enables scrutiny. There are significant penalties—indeed, criminal penalties—for those, both individuals and their advisers, who seek to avoid that scrutiny. It also provides significant new powers for law enforcement and the private sector to protect the UK from fraud, international money laundering, illicit Russian finance and terrorist financing.
It is for this reason that I want to record my sincere thanks to all the right hon. and hon. Members who served on the Public Bill Committee. We had very constructive, frank and open debate—which I think should be welcomed on both sides and from both different perspectives—and really diligent scrutiny of the Bill. Their work has very much helped us to ensure that this legislation does not fall short of its important aims, and indeed has been improved as a result.
Layla Moran (Oxford West and Abingdon) (LD)
May I echo the voices of those saying how delightful it is to see the Minister at the Dispatch Box? I shall not say more than that.
On a similar matter, the Minister may be aware of the revelations this morning from openDemocracy about the UK Government helping the head of the Wagner group circumvent sanctions already imposed on it to sue a British journalist working for Bellingcat. Is he aware of this story, has an investigation been done into this story, and would he take this opportunity to condemn what would seem to be very egregious in that—how shall I put it—these are sanctions we have imposed, yet we are somehow not imposing them in practice? This is not right.
Kevin Hollinrake
I think it would be wrong to make any representations on any particular case, but seeking to enable somebody to avoid sanctions is entirely unacceptable, clearly. I am sure that those allegations will be looked into very carefully. We should definitely make sure that those are properly reviewed before we come to any firm conclusions, but in essence I agree with the principle behind the hon. Member’s statement.
Kevin Hollinrake
I will make a little progress, if I may. I appreciate that there are a large number of Government amendments, hence the need to make some progress. I would like to reassure the House that they are intended to ensure that the measures in the Bill will work as intended, and in most cases they reflect issues raised in Committee.
I will briefly summarise our amendments relating to parts 1 to 3 of the Bill. First, and importantly, our new clause 15 requires the Government to publish an annual report on the implementation and operation of parts 1 to 3, which includes reforms to Companies House.
Kevin Hollinrake
I will give way to the right hon. Member on that point, because her many speeches in Parliament have led to some of the changes we have made.
Dame Margaret Hodge
I am very grateful that the Government have listened to our representations on accountability. I would simply say to the Minister that there is also a new clause down on this issue—new clause 16, put together by Back Benchers from across the House and members of the all-party parliamentary groups—which has more detail. Would he be willing to incorporate the detail of that amendment into his new clause? At the moment, his new clause 15 seems a little vague, and we would just like to button it down a bit better.
Kevin Hollinrake
Again, we discussed this at length in Committee. The right hon. Member’s perspective is that we should be very prescriptive about how the registrar—Companies House—should operate and set out specific things it should do. We would prefer those at Companies House to do what they think is right. They are the experts at making sure the register is accurate, and we have given them the resources to do it, which is crucial. I think it is wrong to specify exactly how the registrar should do its job. We are parliamentarians, not experts in registers and Companies House.
Dame Margaret Hodge
I am extremely grateful to the Minister for giving way again. This is not telling Companies House what to do; it is the information that Parliament would want to hear. I think that, in discussions with him, he actually suggested we set out in greater detail the sorts of areas we wanted to cover, and that is what we have attempted to do in our new clause. It is not a question of instructing Companies House; it is a question of enabling Parliament to really hold Companies House to account on the breadth of issues for which it will be responsible.
Kevin Hollinrake
I am happy to respond to the right hon. Member’s new clause later when we have debated it. I have read it, and it sets out some interesting ways of doing this. I absolutely agree with the principle of Parliament holding Companies House to account, which is why we want it to report annually on the implementation and operation of this legislation. That is how I think we should do it. I think we want the same thing, and I am happy to have an ongoing discussion with her. Many of the things she has listed in her new clause are already reported on by Companies House, so I think it is important that we do not overly prescribe how Companies House should operate, in my view.
Liam Byrne
Let me echo the wide welcome that the Minister has received at the Dispatch Box. Has he had a chance to reflect on how the report that parliamentarians need actually stretches beyond the compass of Companies House to the business of tackling economic crime more generally? After this morning’s revelations, for example, it was said that a junior official in the Office of Financial Sanctions Implementation was the individual who signed off the new flexibility for one of Putin’s warmongers to fly over London lawyers in an attempt to silence English journalists in English courts. That is surely a matter of concern to the Minister and to all parliamentarians, and that is the kind of issue that could be surfaced in a more wide-ranging and forensic report, if he were able to publish it.
Kevin Hollinrake
Again, I think it would be wrong to comment on individual cases, but I take the right hon. Member’s point. In general terms, the UK sanctions regulations permit the OFSI to license reasonable legal fees. That is clearly something on which officials make decisions, rather than Ministers—I think it is important to say that—and the merits of any case are for the appropriate court to judge. However, he has certainly campaigned extensively for making sure that people cannot close down the raising of understandable concerns. In essence, I absolutely support that and the work on SLAPPs—strategic lawsuits against public participation—to which my hon. Friend the Member for Isle of Wight (Bob Seely) referred in introducing his ten-minute rule Bill earlier. So that is work in progress, rather than anything that relates specifically to this legislation.
We are taking a power to expand the registrar’s data-sharing ability. That will future-proof the legislation and provide scope to expand the data-sharing gateway, if needed. We are also strengthening the range of sanctions for non-compliance with the register of overseas entities. Our new clause 8 will mean that a director can be disqualified if they breach an obligation under part 1 of the Economic Crime (Transparency and Enforcement) Act 2022, ensuring a consistent approach to tackling non-compliance between that Act and the Companies Act 2006. Following discussions in Committee, we are also removing the power to exempt certain individuals from identity verification requirements, having concluded that it is not essential.
As well as those important amendments, we are making improvements to the limited partnership reforms. We will ensure that a limited partnership’s dissolution and deregistration is transparent and properly drawn to the attention of the public. There will be a legal requirement for these to be published on the Companies House website as well as in the Gazette. Again, this was discussed by Opposition Members in Committee.
Peter Dowd (Bootle) (Lab)
I understand that every year there are about 1,200 disqualifications of unfit directors. Does the Minister have any indication of how that number may expand? We have the qualitative element. How about the quantitative element?
Kevin Hollinrake
I did not quite hear the hon. Member’s whole point. Is it about the quality and quantity of information in Companies House?
Peter Dowd
No. There are about 1,200 disqualifications a year. How many more does the Minister believe may arise from this new legislation?
Kevin Hollinrake
We do not have the data to be able to say. It obviously depends on numerous factors. As I say, we are keen to give Companies House the resources it needs, which it currently does not have, to undertake this work. In many ways, this will prove a deterrent against people registering a company for nefarious purposes, rather than necessarily lead to many more disqualifications. It is the transparency element and the scrutiny that is the ultimate deterrent against using these corporate vehicles for the wrong purpose.
Partners of limited partnerships will also have to notify the registrar about a dissolution within 14 days of becoming aware, ensuring that the register can be kept up to date and accurate. New clause 12 clarifies the interactions of the limited partnership reforms with regulation of UK investment funds. That will ensure that the measures work as intended.
Amendments 30, 31 and 32 give the Northern Ireland Department for the Economy and Scottish Ministers powers to petition the courts to wind up a limited partnership registered in their jurisdictions, ensuring a cohesive approach across the devolved nations.
Liz Saville Roberts (Dwyfor Meirionnydd) (PC)
I join others in welcoming the Minister to his place.
Two of my constituents have lost their entire life savings as a result of Harewood Associates, a property investment company that went into administration having offered unregulated loan notes to the public. I therefore commend new clause 19. But in the meantime, I would appreciate it if the Minister could advise me on what course of action I might take to pursue that case further.
Kevin Hollinrake
It sounds like a matter for the Financial Conduct Authority, which does not directly relate to my portfolio, but that would be my first call as a constituency Member of Parliament. The case the right hon. Lady raises sounds very distressing for her constituents. If I can help in any way I will of course be happy to do so.
Mary Robinson (Cheadle) (Con)
I congratulate my hon. Friend on bringing this Bill forward and welcome him to his place. He knows of my concern that whistleblowing is not mentioned in the Bill, yet whistleblowers are key to exposing the type of crime we are talking about. In the implementation of the Bill, will he reconsider the role of whistleblowers and recognise how important their role is in this space? Will he also look at examples of good practice from around the world because existing whistleblowing laws—I know he agrees—are not fit for purpose?
Kevin Hollinrake
That may not be part of this Bill, but it is part of my portfolio, I am pleased to say. My hon. Friend and I have worked together to further the cause of whistleblowers on many occasions. I am keen to bring that forward quickly. We have work under way now that will lead to a review. I am keen to complete that work quickly and come up with some firm recommendations. I am also keen to look at international examples of best practice. She is keen to have an office for the whistleblower, for example. It is right to look at other jurisdictions to see how that is working elsewhere, which can inform our work. I am keen to make significant changes as quickly as possible.
I shall draw my comments to a close and listen to the rest of the debate. I am interested to hear about the amendments tabled by Members on both sides of the House. I am sure today’s debate will be as well considered and beneficial as those on the Bill thus far. I hope Members on both sides of the House will continue to support the measures in parts 1, 2 and 3, so that we can deliver these much-anticipated and much-needed reforms. They will help to protect our constituents and the country, and ensure that the UK remains a great place for legitimate businesses to thrive.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to follow the Minister and to speak to our amendments.
The Labour party has supported this important Bill’s passage in a cross-party spirit through Second Reading and Committee. I pay particular tribute to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Member for Birmingham, Hodge Hill (Liam Byrne) for their contributions during our proceedings. May I add my words of support? The Minister has a long track record on these issues and a reputation through the all-party group on anti-corruption and responsible tax and other campaigns, which I hope bodes well for further progress and amendments to the Bill. However, it was frustrating that in Committee the Government did not accept a number of amendments tabled by the Opposition and other Members that would have significantly strengthened the Bill even further. The Minister did agree to keep some issues under review, which we will pick up on today.
This long overdue second economic crime Bill is an opportunity to finally end Britain’s role as a global hub for dirty money, and to support honest businesses to trade and flourish, with better standards and more transparency, helping to level the playing field for businesses and co-operatives. I echo the Minister’s words on the importance of that in tackling terrorism, economic crime and illicit finance, and in cleaning up our economy in the way we all want to see.
The amendments we have tabled seek to ensure that the Bill goes further in areas including reporting and parliamentary scrutiny, strengthening the objectives of the registrar to see a more proactive role in preventing and detecting economic crime, and tightening up the authorisation and supervision of corporate service providers. Amendments scheduled for tomorrow include provisions on the failure to prevent economic crime and director liability.
Seema Malhotra
I thank the hon. Member for his intervention. Perhaps he is missing some of our argument around the central question, because it does not happen in all cases. We have not received any further information on the work and research that the Minister started during Committee on what happens with those directors, which he committed to follow up.
In our view, new clause 22 would strengthen the Bill. We are talking about people whom we hope to have trust in to undertake their responsibilities as a director. The Bill introduces a substantial amount of regulation about who can and cannot serve as a company director as a result of criminal or potentially criminal practices, so this feels like the right place for consideration of such a measure. I would be grateful for the Minister’s response. I am happy to give him forewarning that, subject to his response, we may well press the new clause to a vote.
New clause 24 calls for a creditor or liquidator to be able to apply to restore a company to the register administratively. Currently, if creditors, former creditors or liquidators wish to apply to restore a company, that is done through the court in what is often a complex and costly procedure that may well take 12 to 18 months or longer. In Committee, the Minister said that there ought to be a basis for a “less cumbersome” process for creditors and particularly for liquidators. We agree. Currently, when companies are struck off the register—that happens on average to about 400,000 companies a year—little is done to check whether fraud has occurred. As a side issue, the Minister may helpfully confirm whether directors of companies that have been struck off will also be subject to verification checks so that we do not have a period through which they may escape ID verification as Companies House looks to undergo those checks with existing directors.
The key issue is that unscrupulous directors can misappropriate the strike-off process to avoid scrutiny and rack up debts or sell company assets ahead of the company dissolution, absconding with the proceeds. The Minister said he appreciated the case for widening access to the less cumbersome process of administrative restoration, and he undertook to consider the matter further. If he does not agree to our new clause 24, I would be grateful if he would commit to bringing forward proposals during the passage of the Bill. This is a window of opportunity that we should not miss.
On new clause 34, the processes set out in the Bill rely on effective ID verification of company directors. There has been a debate as to whether that should be done in-house. The Government have chosen to use a model whereby authorised corporate service providers are trusted to undertake ID verification on behalf of Companies House and effectively certify that through a confirmation statement. The debate is ongoing on how that introduces risk into the process. Indeed, if the registrar can do only part of the verification and we need to use authorised corporate service providers, that only works if the ACSPs are known, trusted and effectively regulated.
New clause 34 seeks transparency reporting on the involvement of foreign corporate service providers in the two main routes by which they may be authorised to conduct ID checks and to incorporate a company in the UK that is registered with Companies House. Such a company being registered could have an office address in the UK; a postal address in the UK, with all the risks we debated in Committee; or an address abroad as an overseas company. The directors of the company registered in Companies House by the foreign corporate service provider may be living abroad and may never come to the UK. New clause 34 seeks to create an obligation for the Secretary of State to publish a report, first, into the number of authorised corporate service providers with a head office based outside the UK, by which we mean where the authorised UK subsidiary supervised by His Majesty’s Revenue and Customs is beneficially owned by a company that is outside the UK; and secondly, on the number of foreign corporate service providers authorised by regulations set out in proposed new section 1098I(1) of the Companies Act 2006, which is amended by clause 63.
Clause 63 enables the Secretary of State, by regulations, to authorise a person abroad to become a foreign authorised corporate service provider
“even if the person is not a relevant person as defined by regulation 8(1) of the Money Laundering Regulations”.
For example, they could be a lawyer or an art dealer. They would therefore not be supervised. Proposed new section 1098I(2) specifies that a
“‘relevant regulatory regime’ means a regime that, in the opinion”—
I stress, in the opinion—
“of the Secretary of State, has similar objectives to the regulatory regime under the Money Laundering Regulations”.
However, it does not specify any transparency on how that conclusion is reached. Clause 63 is a risk for a backdoor route to the authorisation of foreign corporate service providers—
Seema Malhotra
It is a risk—the Minister is shaking his head, so I am going to repeat it—for a backdoor route to the authorisation of foreign corporate service providers in a high-risk territory that falls outside money laundering regulations.
Seema Malhotra
I will just complete my point and then bring the Minister in if he wishes to intervene. I would be grateful if he could confirm why that is in the Bill in that way, and the extent of the safeguards that are in place. He will, I am sure, be mindful of the need for trust and confidence, and for transparency on who our corporate service providers are and for whom they are undertaking ID verifications, which we are then expected to trust. Subject to the Minister’s response, we intend to press this transparency reporting new clause 34 to a Division.
Kevin Hollinrake
I am grateful to the hon. Lady for giving way. It is not a backdoor to try to get around the legislation. I cannot think why she would think we would write 309 pages of legislation and then create a purposeful backdoor. On the reason for the measure, imagine an international free trade agreement, not with a high-risk jurisdiction—why would we do that?—but where the international partner had an anti-money laundering regime that we felt was equivalent to our own. We might consider it in that context. In no way, shape or form is this about creating a backdoor, and we would very much expect this sort of thing to be in the annual report to Parliament on the implementation and operation of the Bill.
Seema Malhotra
That is part of what we seek, but there is further to go. I know that amendments tabled by other colleagues also draw on the issue of phoenixing and the importance of preventing it. Checks on directors of companies that have been struck off and measures addressing the ease of administrative restoration are tools that we could employ to tackle phoenixing and protect customers along with other businesses and creditors.
Amendments 105 and 106 draw on a wider theme, which is that what we want in the Bill is duties, not powers. We want to see a clear outcomes focus. We want to legislate for things to be done, not for the potential for the registrar to do things—a very important distinction. First, amendment 105 specifies that it should be a duty, not a power, for the registrar to allocate a unique identifier to a director. Secondly, amendment 106 states that the registrar should ensure that the same unique identifier is used for that person in
“any other entries they have on the register under the same name or a different name.”
Thirdly, through amendment 108, we want to reduce the risk to the integrity of the register by tightening up the arrangements for the confirmation statement. A proposed director must confirm in writing either that they already have a unique director ID with the register under the same or a different name and state what it is, or that they do not yet have a unique ID. If an individual chooses to go by a different name, or may have dual citizenship and use a different passport for ID, or may even have a fake birth certificate suggesting a different date of birth, how will the registrar know? This is a protection for the system in the event that an individual is subsequently found to have lied about their identity.
I suspect that, broadly, we are in the same place when it comes to what is intended to happen through this legislation, but it would be helpful if the Minister could confirm that by answering a couple of questions. First, does he expect the registrar, under the arrangements that he has proposed, to issue a unique ID to each new director and to existing directors on the database, and should we understand that, for all intents and purposes, the power will operate in practical terms as if it were a duty? Secondly, in a search on the Companies House website, will clicking on a director’s name bring up all their directorships, linked internally by the unique ID, even if they go by different names in different companies? Perhaps the Minister would like to intervene in response to those two points.
Seema Malhotra
I thank the Minister for his confirmation. The legislation is not as tight as we would like it to be, but if he puts his intentions on record, that does take us a step further.
Amendment 107 would require a limited partnership dissolution notice to be published on the registrar’s website and to remain published for a minimum of 20 years. The Minister has previously said that he would like to explore with Companies House the feasibility and costs associated with introducing that requirement. I should be grateful if he confirmed that he has concluded those discussions, and tell us what decision he has reached.
New clause 20, which we support, concerns resourcing. It would raise Companies House fees to £100 to help to properly fund the fight against crime. The current fee of just £12 makes this country the sixth cheapest place in the world in which to set up a company. The Treasury Select Committee recommended a fee of £100. Will the Minister tell us what his plans are? Having a plan to resource Companies House is fundamental to achieving the goals of the Bill.
I thank Scottish National party Members for their amendments, whose arguments are similar to ours. In particular, we support new clause 36 and amendment 109, which deal with reporting and unique IDs—although we think that some minor changes might be made to new clause 36—and would also support any attempt to push them to a vote.
New clause 26, which is being debated today but will be subject to a decision tomorrow, would amend provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the UK’s overseas territories. There should be no double standards in the legal requirements for transparency of beneficial ownership across different parts of the UK, including the overseas territories. We have witnessed too many scandals involving money being laundered through territories for whose administration the UK is ultimately responsible to accept the idea that we must simply leave them to their own devices. According to the spin that the Government chose to put on the wording of the 2018 Act, its obligation had been met simply by the publication of a draft Order in Council, regardless of when, or even whether, such an order might actually come into force. The result is that we are here yet again, nearly five years later, still discussing how to ensure the implementation of registers to the same standards across all the UK’s territories. Surely it should not have been beyond the wit of Ministers, even in this Government, to have sorted this out by now. [Interruption.] With the exception of the Minister who is present today.
Kevin Hollinrake
My hon. Friend is making some valid points, as I would expect from the Chair of the Treasury Committee.
The Treasury Committee’s report does not say that we should adopt a fee of £100, but that
“A fee of £100 would not deter genuine entrepreneurs”.
I agree, but, as my hon. Friend says, the figure has been pulled out of thin air. It depends on what principle we follow, and the Government’s position is that Companies House needs to set out exactly what resources it needs to be able to perform its obligation to implement the objectives, from which we can decide how much money we need to raise. We will then look at the fees charged by Companies House. Members on both sides of the House have mentioned the incorporation fee, but an annual fee might raise more money. More work is needed with Companies House to consider this in the round before we come to a settled position. I would therefore rather not specify £100 in the Bill, for all those reasons.
Harriett Baldwin
I think I heard the Minister acknowledge that Companies House needs more resources, and that those resources should be raised not through a one-off fee when setting up a business but through ongoing registration fees. I also think I heard him say that he rather likes our proposal to increase the fees every year to reflect inflation. I think he substantially agrees with the thesis of new clause 20, so this is a great opportunity for him to endorse it so that Companies House is able to start budgeting right away.
I heard the Minister make the valid point that he wants to ensure the budget is worked from the bottom up, and that an arbitrary number should not be put into legislation. I have sympathy for his point of view, but I want him to understand the urgency of the matter. I want him to appreciate that we have waited long enough for this Bill, and that the Treasury Committee will therefore not allow this measure to be kicked into the long grass. We will continue to scrutinise progress, and we expect that progress to be urgent and rapid.
Dame Margaret Hodge
I welcome the Minister to his place. I enjoyed working with him for a number of years on the Back Benches. We have co-operated well, and I look forward to that co-operation continuing now that he is a Minister. I am pleased to be working closely with his successor at the all-party parliamentary group on fair business banking, the hon. Member for Barrow and Furness (Simon Fell), who has tabled a number of the amendments put forward by the APPG.
I join others in welcoming the Bill. I welcome the fact that we are having this debate. This could be legislation that fundamentally transforms the landscape that has enabled economic crime to flourish in the UK. It could be the moment when we, in Britain, through the decisions that we make here in Parliament, give a message loud and clear to the world that there will be zero tolerance of money laundering fraud and other economic crime in our country. It could be the moment when, by acting against economic crime, we lay the foundations that would enable our financial sector, and with it our economy, to flourish and grow. As I have often said, we will never achieve sustained economic growth on the back of dirty money, but we could achieve it as a trusted jurisdiction that openly and firmly rejects illicit finance. It could be all of those things.
The Bill before us is welcome; it enables us to have these debates and to legislate, but in its current form it fails in too many ways. First, as it currently stands, I fear that it cannot achieve its stated purpose. Omissions and loopholes mean that there is a real danger that we could be setting up a new Companies House that will fail. One library filled with dud information will simply replace another. Secondly, in my view and that of the all-party parliamentary group on anti-corruption and responsible tax, which we will certainly make clear in tomorrow’s debates on new clauses, the Bill is too cautious and unambitious in its scope. It fails seriously to tackle the challenge that we in Britain face because of the exponential growth of economic crime. It is worth the House remembering what that is. Every year, economic crime costs this country somewhere in the region of £300 billion. That is a conservative estimate—in fact, I think it is a gross underestimate. That is 14.5% of GDP.
To look at just the fraud element of that, reported fraud affects one in 11 adults. I have been a victim of fraud that I have never reported, and we all know that there are victims of fraud who do not report it. One in 11 adults are affected, so this is a massive issue. That figure of £300 billion is double what we spend on the NHS. We are talking about mega sums that get lost in the UK economy every year and impact on all sorts of things: the quality of our public services, the raising of taxes, the economy as a whole and the reputation of the UK. There is an endless impact, and we have to tackle it.
I ask the Minister, as we did in Committee, to put aside the natural instinct to resist amendments tabled by Back Benchers. Our purpose is simply to strengthen the Bill, so that when it is passed, it can support our shared mission across the House to eradicate money laundering, fraud and other economic crime. I urge him and the Government to support our amendments, and I hope that Members in the other place will reflect on our debates today and in Committee when they consider the Bill in detail over the coming weeks.
I welcome the new clause that the Minister has tabled in relation to the accountability of Companies House. However, if he were to accept new clause 16, tabled by my hon. Friend the Member for Feltham and Heston (Seema Malhotra), it would improve what he wants to do and the information that we in Parliament expect to receive about the performance of Companies House.
I warmly support all the new clauses tabled by members of the all-party group. As the right hon. Member for South Northamptonshire (Dame Andrea Leadsom) said, those measures would strengthen the duties of Companies House, which is really important; giving powers is one thing, but duties really matter. Those duties would ensure that we can validate the information contained in Companies House and that it has the integrity it needs to fulfil the purpose for which it is intended.
I look forward to tomorrow’s debate on important issues such as the reforms to corporate criminal liability, the strengthening of support for whistleblowers, tackling the growing problems associated with SLAPPs and introducing new powers that could help us to seize as well as freeze the assets that the Government control from people they have sanctioned.
I will focus my comments today on two sets of amendments that we in the all-party group are convinced are necessary to ensure that the reforms work and that the appropriate resources are in place to properly fund the reforms. Otherwise, our legislation is in danger of simply gathering dust on the shelves of the Library.
Kevin Hollinrake
I am always interested in what the right hon. Lady has to say. We have shown that we are willing to engage with her suggested amendments, although we perhaps draft them in a different way, and the debate we had in Committee has been useful and fruitful for both sides.
On the question of duties, which my right hon. Friend the Member for South Northamptonshire (Dame Andrea Leadsom) also referred to, I point Members to clause 1. It is very clear that the registrar
“must… seek to promote the following objectives.”
The first is to ensure that documents are delivered to the registrar. The second is to ensure that the documents delivered are accurate. The third is to ensure that those documents do not create a “false or misleading impression”, and the fourth is to minimise the extent to which companies and others carry out unlawful activities. That is a duty—the registrar must do those things—so Members’ concerns should be assuaged by that clause.
Dame Margaret Hodge
It is an important clause—I agree with the Minister on that—but equally, if we introduce a duty to ensure that persons with significant control of companies are who they say they are, it will strengthen the Bill. It will not undermine or contradict any of its clauses; it will simply strengthen it. With all my experience in this House as both a Minister and a Back Bencher, I know that if we are not very specific about what we place in legislation, we come back to it in subsequent years and regret that lack of determination. We see that particularly in our attempts to fight economic crime; so many times we think we have achieved something, then we come back and find it has not worked.
I turn to the first set of amendments that we in the all-party parliamentary group think are necessary, many of which have been tabled by the hon. Member for Barrow and Furness. We have tabled several amendments to create new duties on Companies House, rather than giving it powers, the most critical of which is about corporate service providers. If the Minister does not accept that, I predict that we will end up creating another database that is infected with falsehoods and errors, and will simply reinforce in people’s minds across the globe the growing acceptance that the UK is the best place to hide and launder dirty money.
Dame Margaret Hodge
My hon. Friend makes an important point, because we legislated last year to create a register of properties that are owned through corporations in foreign jurisdictions, but I understand that Companies House is having real difficulty in establishing it, because it is very difficult for it to assess the real beneficial owners of trusts and companies incorporated somewhere such as the British Virgin Islands. That is why the amendments tabled by the Labour Front Bench to ensure that company service providers are located here so that we have better control and supervision are hugely important.
Last week, as I am sure the Minister saw, Danske Bank agreed to forfeit $2 billion in the US courts as part of an agreement to resolve the criminal liabilities facing it. On top of that, civil litigation has led to a fine of more than $400 million and individual employees could yet be charged by the US courts. That is massive. It is worth reflecting on the words used in that court verdict, including that
“Danske Bank, the largest bank in Denmark, deliberately disregarded U.S. law of which it is well aware, facilitated the laundering of criminal and suspicious proceeds through the United States, and placed the U.S. financial network at risk, all in the name of its bottom line.”
The judgment also says that it
“lied and deceived U.S. banks to pump billions of dollars of suspicious and criminal funds through the U.S. financial system… If you want to use the U.S. financial system, you must play by the rules. If you don’t, we will hold you accountable.”
Kevin Hollinrake
The right hon. Member is raising a very important case, which she rightly says I have referred to on many occasions, and I welcome that fine. One of the things I know she will be debating tomorrow is corporate criminal liability, which I think would have a profound effect on companies willing to turn a blind eye to that, as Danske Bank did.
May I raise a couple of points about what the right hon. Member said earlier? It is always the Government’s position on this Bill that any overseas company service provider needs a UK branch and needs to be regulated by a money laundering supervisor. That is not something we were asked to do, but something we very much wanted to do.
On the point made by the hon. Member for Bootle (Peter Dowd), which the right hon. Member mentioned, about the register of overseas entities, the onus is on the entity itself to register the person who is the enterprise’s beneficial owner. If it does not do so—and it has to be done by the end of this month—it cannot sell or lease the property, and there are sanctions available such as fines, or potentially criminal prosecutions can be taken forward. That is the method of making sure we have such information.
Dame Margaret Hodge
On the last point, the Minister is right that such companies cannot sell or lease the property, but I think it is probably almost impossible to verify whether the data they provide is accurate, because it is based on the incorporation of an entity in a foreign jurisdiction. That is the problem, and as I understand it from discussions I have had with those at Companies House, it is a problem it is currently facing.
I think the Minister and I would both wholeheartedly endorse the words of the court in the United States—I hope he would; I am sure he would—but let us start by recognising the truth. UK limited liability partnerships and companies were the preferred vehicle for all those clients, most of whom were not Latvian at all but were called non-resident clients—the Russian kleptocrats, drug smugglers, people smugglers and all those sorts of people—who used the Latvian branch of Danske Bank. It was UK company formation agents who worked closely with that Danske Bank branch in setting up those shell British registered companies.
To give one example in today’s context, it was a UK registered company, registered by a UK company service provider that set up Lantana Trade with an address in Harrow, and that company then set up a bank account in the Latvian branch of Danske Bank. According to the whistleblower in the Danske Bank case, the real beneficial owner of that company, which of course has now been dissolved—surprise, surprise—was Igor Putin, Putin’s cousin. The real purpose of setting up that company was to launder money stolen from Russian citizens out of Russia, and our company service providers facilitated that.
We know from an analysis of the FinCEN files submitted to various Committees by the people we have mentioned before—Simon Bowers and Richard Brooks, two very good investigative journalists—that the UK stood out in the FinCEN files as the jurisdiction where there was the largest concentration of companies about which suspicious activity reports had been filed. Over 3,000—3,267—shell companies revealed in the FinCEN files were UK companies. We know that just four of the largest company formation agents in the UK were associated with over half of those 3,267 companies, and they were named in those leaks. We also know that an address in Potters Bar was used by over 1,000 companies featured in that body of leaks. So again, company service providers facilitated the creation of companies that then appeared in that massive FinCEN leak.
My final example comes from a story last week in The Guardian and concerns the infamous Mr Usmanov, the Putin ally whose wealth is said to amount to £14 billion—I have seen different figures in different publications. He claims to have divested himself of most of his UK assets before he was sanctioned on 3 March last year, seven days after Russia invaded Ukraine, but ever more evidence is emerging suggesting that while he has created companies and trusts, using our company service providers to do so, with nominee owners, nominee trustees, nominee shareholders, nominee directors, he remains the real beneficial owner and controller of his assets.
This concerns not just his homes—Beechwood house in Highgate, said to be worth over £80 million, or the 16th century Sutton Place estate in Surrey—but his investment in Everton football club, now bottom of the league. He claims to have sold his interest in the club to his friend and long-time colleague Farhad Moshiri. Our professionals helped to structure these transfers of assets; our company service providers were involved. Yet when Everton was interviewing potential managers after 2016—after he claims to have sold his interests, but before he was sanctioned—Usmanov was always there. According to The Guardian, one candidate to become Everton manager said Usmanov stated during the interview that he owned the club, and another candidate said Usmanov left him with the impression the club belonged to the tycoon. Even Frank Lampard said that when he attended his interview
“Mr Usmanov was on Zoom call with Mr Moshiri”.
I have chosen just three examples, but there are too many bad apples among our company service providers, the people we are proposing to entrust with providing verified, reliable data for the new Companies House register.
We also know that, as colleagues have mentioned, the current system for supervision is broken. The Treasury commissioned a report that found that 81% of the bodies responsible for the legal and accountancy sectors were not supervising their members effectively on anti money-laundering regulations.
Dame Margaret Hodge
I will give way to the hon. Member for Amber Valley (Nigel Mills) and then I will give way to the Minister.
Dame Margaret Hodge
If that has been proposed, it has not been proposed in the Bill. I am not hostile to that; it is a perfectly good suggestion. At the moment, all we have is a fee which we are trying to tie to inflation so it does not get caught up in annual arguments over priorities in the Budget. However, if there is a proposal, it would have been nice to see it. If there is a proposal to fund it in a different way, that would be great.
Kevin Hollinrake
My hon. Friend the Member for Amber Valley (Nigel Mills) has made absolutely the right point: as I said earlier, there are annual fees as well as incorporation fees, and we should look at both elements.
On the question of specifying a fee in the Bill, as the right hon. Member for Barking (Dame Margaret Hodge) says, we do not even know yet what duties will be required of the registrar, because the Bill has not yet passed through both Houses. The registrar may end up having more duties that will cost more to perform, so it is impossible to say right now what resources she will need. As the right hon. Lady says, we may discover further down the line that more will be required, so why would we set out the fee in the Bill rather than in regulations, where we can vary it more easily?
Dame Margaret Hodge
My simple response to the Minister is to invite him to share with us the current budget estimate for Companies House, if the Bill is enacted in its present form, and to tell us what that will mean. I just cannot believe that the information is not in the mix somewhere, but the Minister is not choosing to share it with us Back Benchers at this point.
Dame Margaret Hodge
Well, an estimate must be available, because we know where we are in the cycle. We know that somewhere or other this is being discussed. If the estimate changes, there is nothing to stop us changing the new clause at a later date.
More importantly, if 100 quid is too much, if the registrar does not need that much, or if the Minister wants to change the law and move from charging a fee on incorporation to charging an annual fee, I can see the logic of that, but presumably he would still have to come back to the House to put that in legislation—
Dame Margaret Hodge
Okay. But if the fee is too much, I still suggest that the Minister looks at subsections (5), (6) and (7) of new clause 20. We hope that he will set up an economic crime fund. Any surplus that results from raising the fee to 100 quid could then be well used by the NCA, the Serious Fraud Office or another agency with access to the fund. Our new clause would ensure that the money is ringfenced for use against economic crime, rather than being taken away by the Treasury and used for other purposes.
We also suggest that the Minister comes back to us on the issue of penalties to fund the fight against economic crime. Since 1984, all forfeiture proceeds in the USA have gone to an assets forfeiture fund. Just think what it will do with the $2 billion it has got out of the Danske Bank criminal settlement! We do not have that system in the UK: at the moment, something like 40% of the current fines and penalties go towards fighting economic crime. That is too little: it should be 100%.
There are precedents. The Information Commissioner has announced a new arrangement with the Department for Digital, Culture, Media and Sport whereby it can retain the money that it accesses through penalties to support its arguments and its work against the big tech companies. The Gambling Commission accepts contributions to compensate victims or payments to charity, rather than imposing a fine: that is another ringfencing hypothecation. Ofwat’s penalties levied against Southern Water were used to reimburse customers.
I have spoken for too long, Mr Deputy Speaker, but I have focused on two of the issues that I consider most critical among today’s group of amendments. That is not to say that the others do not matter—they do—but these are practical, common-sense proposals that are supported by the all-party group, and I know from conversations with Members that they command wide support across the Chamber. There is no badge of honour for Ministers in the Government if they fail to listen to their Back Benchers.
More importantly, we have to make this reform work. If we ignore these proposals, we will risk consigning much of the reform to the dustbin. The fight against economic crime is utterly vital. We all know that this is a once-in-a-generation opportunity. We know what the problems are, and we know that the solutions are multifaceted and complex. For heaven’s sake, let us work together and do what we can to make these reforms effective, efficient and fit for purpose. In that spirit, I will wait for the Minister to cheer me up by saying that he will accept these amendments from by Back Benchers of all political parties.
Kevin Hollinrake
It is always a pleasure to follow the hon. Member for Paisley and Renfrewshire North (Gavin Newlands), who referenced many of our debates in Committee. I thank hon. Members on both sides of the House for their kind words about my role in the Department and in taking forward this legislation. Let me first say that any reports of the death of my ambition in this area have been greatly exaggerated.
I will aim to respond to as many points as possible in the time allocated by my hon. Friends the Whips. Today we have seen broad agreement across the House on the importance of accountability to Parliament on the implementation of the reforms. I thank the hon. Member for Feltham and Heston (Seema Malhotra) for new clause 16 on this topic, and for her work in Committee. As she might understand, I feel that the new clause would duplicate the Government’s new clause 15, which would require the Government to produce for Parliament an annual report on the implementation operations of parts 1 to 3 until 2030.
I believe that the Government’s amendment is broader and capable of providing more information to assist parliamentary scrutiny. I welcome the suggestion in some areas of reporting that may be of interest. However, I do not believe that setting a prescriptive list of those in advance is the best way of achieving our intent. I fully subscribe to the view that no one goes to work to do a bad job, and I have every confidence that the registrar, given the requirements on her to oversee the integrity and accuracy of the register, will do that well and will ensure that those measures are reported to Parliament. I therefore respectfully ask the hon. Lady for Feltham and Heston not to press her amendment.
Seema Malhotra
I thank the Minister for giving way. Would he commit to a meeting with the right hon. Member for Barking (Dame Margaret Hodge) and me on this issue? It is not the case that my new clause duplicates the Government’s new clause. The new clauses are very complimentary and there is more to be done to make sure that we get this right.
Kevin Hollinrake
I am always happy to have a meeting with the hon. Lady—we met only last week to discuss her amendments and the Government amendments. Some of the things in her new clause are already reported to Parliament, such as the number of businesses struck off the register. It is important that we do not duplicate in this legislation things that are already being done, but I am always happy to have a meeting with her.
Seema Malhotra
The Minister has made the point today and in Committee about this data being collected and reported elsewhere, but that should make it easier to have a more comprehensive report, so that all the information on economic crime is in one place. Perhaps that is something we can pick up in the meeting that he has kindly agreed to.
Kevin Hollinrake
I am happy to have a meeting with the hon. Lady to discuss the different things that she thinks should be reported. Clearly, the annual report should be comprehensive and cover many of the matters that she raises.
Much has been made about creating duties and obligations for Companies House. As my hon. Friend the Member for Huntingdon (Mr Djanogly) said, we should not assume that these things will happen by right. Oversight by Ministers, Parliament, public and press is needed to ensure that these measures are properly implemented. Companies House is an Executive agency of my Department, and I can commit that it will be obliged by the Government to deliver on the policy intent and resourced to do so, which I will talk about in a second. Government new clause 15 is not just about process; it will ensure that Parliament is provided with reassurance on the further work that will be required after Royal Assent, such as the laying of secondary legislation or the development of IT.
Alison Thewliss
The Minister talks about the need for secondary legislation. Does he have an idea of the timescale for that coming before the House, so that we know how long it will be before things actually happen?
Kevin Hollinrake
I cannot give a fixed timescale for the regulations, but clearly the quicker we get the Bill to Royal Assent, the better. I am sure that the hon. Lady will assist with that; she has been very co-operative in the past, despite the lengthy debates we have had about various matters.
The Opposition’s new clause 16 would require the report to set out the number of fines issued by the registrar. Companies House not only already does that but goes much further, publishing annual data on the fines issued by the registrar broken down by type of company. For example, in the last financial year, 171 penalties of £1,500 were issued to companies registered in England and Wales for filing their accounts up to three months late.
I can reassure Members that it is the Government’s policy to issue unique identifiers to all individuals who will be required to verify their identity. That includes new and existing directors of companies, as well as anyone filing information with Companies House. These unique identifiers will mean that Companies House can link an individual’s verified identity across multiple data points, roles and company associations, to enable users of the register to search for an individual and find all relevant records.
Alison Thewliss
I made the point earlier about my name appearing in three places on the register, with three different addresses where I have lived at different points of my life. How will Companies House tell me that my entries have been consolidated, and how will it contact me?
Kevin Hollinrake
As the hon. Lady knows, the unique identifier will not be public, because we think that could increase the chances of fraud. It is already possible to search the Companies House database to a certain extent; for example, if she searches my name, my previous directorships all link together. We intend to improve the database by linking the hon. Lady’s name, year and month of birth, address and any other companies she may be associated with. That will link those records, to give a holistic overview of her company associations.
Seema Malhotra
Of course, the Minister will not want accounts to be inadvertently linked where there may be two people with the same name and, possibly, date of birth. Has he had any discussions with Companies House about writing to current directors to ask them to confirm whether they are on the register with any past addresses, to speed up the linking with the unique ID at the back end?
Kevin Hollinrake
That is an operational matter for Companies House; it is not for me as the Minister. The registrar clearly has a responsibility to ensure the integrity of the database, and how she seeks to do that will be up to her.
Amendment 101 is clearly key. The Government are committed to ensuring that the checks carried out by ACSPs are robust. ACSPs will be required to carry out checks to at least the same standard as the registrar, who will be able to query any suspicious information. The registrar will establish a robust scrutiny process with AML supervisors for onboarding ACSPs. If necessary, she can suspend or de-authorise an ACSP to exclude it from forming companies. The vast majority of accountants, lawyers and other agents who make filings on behalf of companies operate to high standards. It would be disproportionate to block them all from making such filings while the Treasury works through the reform of the supervisory regime—something that we all clearly want it to get right.
New clause 34 requires the Government to report on the number of foreign corporate service providers that have been registered at Companies House. Clause 63 gives the Secretary of State the power to permit the authorisation of foreign corporate service providers subject to equivalent AML regimes abroad. That is obviously in the context of a potential trade deal that is not currently on the table.
On amendment 104, tabled by the hon. Member for Feltham and Heston, I cannot agree with this fifth objective for the registrar. The Bill already places a legal duty on the registrar to seek to promote the objectives, which inherently demands proactivity. Tentative use of her powers would result in the registrar being in danger of failing to satisfy the duty.
On the accuracy of existing data, I thank the hon. Member for Glasgow Central (Alison Thewliss), whose new clause 36 would have the registrar ensure the accuracy and veracity of all register information prior to the commencement of the Bill’s reforms. Clearly, that constitutes many millions of pieces of information, with many thousands being added every day—the analogy of painting the Forth bridge springs to mind. If we were to do what she asks and the registrar were to fulfil the requirements of the new clause, it is unlikely that the beneficial reforms of the Bill would ever be realised, because of the duty it would place on the registrar.
Kevin Hollinrake
I have been told that I need to make progress, but I thank the right hon. Lady—my former partner in fighting economic crime—for her amendment on Companies House fees, which is clearly key. It is critical that the registrar is sufficiently funded to carry out her duties.
The right hon. Member for Birmingham, Hodge Hill (Liam Byrne) is wrong to say that the Bill does not provide extra resources to Companies House to implement the measures, because clause 90 sets out exactly what areas will be taken into account when fees are set. The Bill gives the Government more flexibility to increase the fees and charges by broadening the range of functions that can be funded through those fees. The Government are reviewing funding arrangements in the context of the reforms and are committed to ensuring that Companies House is fully resourced to perform its new role and functions. As I said earlier, Companies House levies a range of fees, not just the up-front charge on incorporation, and I confirm that we are exploring a range of options about how fees will evolve.
New clause 22, on the national minimum wage, tabled by the hon. Member for Feltham and Heston, seeks to ban those convicted under the National Minimum Wage Act 1998 from being appointed as directors. The national minimum wage enforcement team at HMRC, whose resources have been doubled over the last six years, as have the penalties for non-compliance, already refers appropriate cases to the Insolvency Service, which, as part of its normal remit, considers director disqualifications where appropriate. Indeed, three people were disqualified in 2021 for such transgressions.
I thank my hon. Friend the Member for Barrow and Furness (Simon Fell) for his new clause 18, which would require a person who controls more than 5% of the shares in a public company to disclose that information to the registrar. I very much note his concerns about shareholder transparency. However, we must balance transparency concerns and the benefits of having additional information against imposing undue burdens on businesses.
Dame Margaret Hodge
Will the Minister accept any of the amendments or new clauses brought forward by Back Benchers today?
Kevin Hollinrake
As the right hon. Lady knows, new clause 15, which we tabled today, is based on some of the debate we had and the ideas she brought forward in Committee. So I say to her that she should keep bringing forward the ideas, and we will certainly consider them.
The Companies Act already requires traded companies to maintain up-to-date lists of their shareholders and report any changes in shareholders above 5% on an annual basis.
New clause 37—and indeed amendment 112—on phoenixing, which was debated by the hon. Member for Paisley and Renfrewshire North (Gavin Newlands), requires the registrar to block the registration of companies that share common characteristics with more than three companies wound up in the preceding five-year period. Successive companies being wound up in this manner is known as phoenixing. We feel there are provisions that will be implemented through this Bill that will provide safeguards against such behaviour. Suitable coverage is already provided by the existing rules, and there are new powers in the Bill that give the registrar of companies a power to compel people to provide information in the context of the examination of information on the register, and to interrogate and share that data with other authorities.
Kevin Hollinrake
I am sorry, but I must conclude. I do apologise.
To conclude there, I thank all the Members who have spoken in today’s debate for their insights, and I am sorry if I have not spoken to their points directly. I call on the House to support the Government amendments, and I hope that the explanations I have given provide reassurance that their amendments are not needed to make the Bill and the implementation of the reforms effective.
Question put and agreed to.
New clause 8 accordingly read a Second time, and added to the Bill.
New Clause 9
Disqualification on summary conviction: GB
“(1) Section 5 of the Company Directors Disqualification Act 1986 (disqualification on summary conviction) is amended as follows.
(2) In subsection (1), for the words from ‘provision of the companies legislation’ to ‘the registrar of companies’ substitute ‘of the relevant provisions of the companies legislation’.
(3) For subsection (3) substitute—
‘(3) Those circumstances are that, during the 5 years ending with the date of the conviction, there have been no fewer than 3 relevant findings of guilt in relation to the person.
(3A) For these purposes, there is a relevant finding of guilt in relation to the person if —
(a) the person is convicted of an offence counting for the purposes of this section (including the offence of which the person is convicted as mentioned in subsection (2) and any other offence of which the person is convicted on the same occasion),
(b) a financial penalty of the kind mentioned in section 3(3)(aa) is imposed on the person, or
(c) a default order within the meaning of section 3(3)(b) is made against the person.’
(4) In subsection (4), omit paragraph (b) and the ‘and’ before it.
(5) For subsection (4A) substitute—
‘(4A) In this section “relevant provisions of the companies legislation” has the meaning given by section 3(3B).’”—(Kevin Hollinrake.)
This new clause replicates the effect of the amendments made by clauses 41(3) and 102(3) (which are left out by Amendments 7 and 15). The restructuring of the material is in consequence of NC8.
Brought up, read the First and Second time, and added to the Bill.
New Clause 10
Disqualification for persistent breaches of companies legislation: NI
“(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.
(2) In Article 6 (disqualification for persistent breaches of companies legislation)—
(a) in paragraph (1), for the words from ‘provisions of the companies legislation’ to the end substitute ‘relevant provisions of the companies legislation (see paragraph (3ZA))’;
(b) in paragraph (2), for ‘such provisions as are mentioned in paragraph (1)’ substitute ‘relevant provisions of the companies legislation’;
(c) in paragraph (3), after sub-paragraph (a) (but before the ‘or’ at the end of that sub-paragraph) insert—
‘(aa) a financial penalty is imposed on the person by the registrar in respect of such an offence by virtue of regulations under—
section 1132A of the Companies Act 2006, or
section 39 of the Economic Crime (Transparency and Enforcement) Act 2022,’;
(d) after paragraph (3) insert—
‘(3ZA) In this Article “relevant provisions of the companies legislation” means—
(a) any provision of the companies legislation requiring any return, account or other document to be filed with, delivered or sent, or notice of any matter to be given, to the registrar,
(b) sections 167M and 167N of the Companies Act 2006 (prohibitions on acting as director where identity not verified or where there has been a failure to notify a directorship), and
(c) sections 790LM and 790LN of the Companies Act 2006 (persons with significant control: ongoing duties in relation to identity verification).’;
(e) for paragraph (3A) substitute—
‘(3A) In this Article “the companies legislation” means—
(a) the Companies Acts,
(b) Parts 1A to 7 of the Insolvency (Northern Ireland) Order 1989 (company insolvency and winding up), and
(c) Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (registration of overseas entities).’
(3) In Article 25A (application of Order to registered societies), in paragraph (2)(c), for ‘Articles 6(1) and 8(1)’ substitute ‘Article 6(3ZA)(a)’.
(4) In Article 25B (application of Order to credit unions), in paragraph (3)(b), for ‘Articles 6(1) and 8(1) references’ substitute ‘Article 6(3ZA)(a) the reference’.”—(Kevin Hollinrake.)
This new clause replicates the effect of the amendments made by clauses 42(2) and 103(2) (which are left out by Amendments 8 and 16) and contains changes to ensure that a person can be disqualified for breaches of obligations under Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 etc.
Brought up, read the First and Second time, and added to the Bill.
New Clause 11
Disqualification on summary conviction: NI
“(1) Article 8 of the Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) (disqualification on summary conviction) is amended as follows.
(2) In paragraph (1), for the words from ‘provision of the companies legislation’ to ‘the registrar’ substitute ‘of the relevant provisions of the companies legislation’.
(3) For paragraph (3) substitute—
‘(3) Those circumstances are that, during the 5 years ending with the date of the conviction, there have been no fewer than 3 relevant findings of guilt in relation to the person.
(3A) For these purposes, there is a relevant finding of guilt in relation to the person if —
(a) the person is convicted of an offence counting for the purposes of this Article (including the offence of which the person is convicted as mentioned in paragraph (2) and any other offence of which the person is convicted on the same occasion),
(b) a financial penalty of the kind mentioned in Article 6(3)(aa) is imposed on the person, or
(c) a default order within the meaning of Article 6(3)(b) is made against the person.’
(4) Omit paragraph (4).
(5) For paragraph (4A) substitute—
‘(4A) In this Article “relevant provisions of the companies legislation” has the meaning given by Article 6(3ZA).’”—(Kevin Hollinrake.)
This new clause replicates the effect of the amendments made by clauses 42(3) and 103(3) (which are left out by Amendments 8 and 16). The restructuring of the material is in consequence of NC10.
Brought up, read the First and Second time, and added to the Bill.
New Clause 12
A limited partnership’s registered office: consequential amendments
“(1) Regulation 2 of the Alternative Investment Fund Managers Regulations 2013 (S.I. 2013/1773) (interpretation) is amended as follows.
(2) In paragraph (1)—
(a) at the end of paragraph (a) of the definition of ‘EEA AIF’ insert ‘(but see paragraph (1A) if the AIF is a limited partnership)’;
(b) at the end of the definition of ‘Gibraltar AIF’ insert ‘(but see paragraph (1A) if the AIF is a limited partnership)’;
(c) at the end of paragraph (b) of the definition of ‘UK AIF’ insert ‘(but see paragraph (1A) if the AIF is a limited partnership)’;
(d) at the appropriate places insert—
‘“established”: a reference to the place where an AIF is established (however expressed) is, in relation to an AIF that is a limited partnership, a reference to—
(a) the country in which the AIF is authorised or registered, or
(b) if the AIF is not authorised or registered, the country in which it has its principal place of business;’;
‘“limited partnership” means a limited partnership registered under the Limited Partnerships Act 1907;’.
(3) After paragraph (1) insert—
‘(1A) In the application of the definition of “EEA AIF”, “Gibraltar AIF” and “UK AIF” to an AIF that is a limited partnership, a reference to the AIF’s registered office is to be read as a reference to its principal place of business.’”—(Kevin Hollinrake.)
This new clause would mean that whether or not a limited partnership is an EEA AIF, Gibraltar AIF, UK AIF or established in the UK does not change solely because it complies with the new requirement introduced by clause 112 of the Bill to have a registered office in the UK.
Brought up, read the First and Second time, and added to the Bill.
New Clause 13
Removal of limited partnership from index of names
“After section 26 of the Limited Partnerships Act 1907 (inserted by section 138 of this Act) insert—
‘26A Removal of limited partnership from index of names
(1) The registrar must remove a limited partnership from the index of names as soon as reasonably practicable if the registrar—
(a) becomes aware that the limited partnership is dissolved (whether on the receipt of a notice under section 18, the publication of a dissolution notice under section 19(6) or otherwise), or
(b) publishes a deregistration notice under section 26 in respect of the limited partnership.
(2) If the registrar removes a limited partnership from the index of names, the registrar must include a note in the register of limited partnerships stating either—
(a) that the limited partnership has been removed from the index of names because of its dissolution, or
(b) that the limited partnership has been removed from the index of names because of its deregistration under section 26.
(3) The registrar must also publish a notice of the removal in the Gazette if the limited partnership is removed from the index of names other than following the publication of a dissolution notice under section 19 or a deregistration notice under section 26.
(4) Notes included in the register of limited partnerships in accordance with subsection (2) are part of the register of limited partnerships.
(5) A note may be removed if it no longer serves any useful purpose.
(6) In this section “the index of names” means the index kept by the registrar under section 1099 of the Companies Act 2006.’”—(Kevin Hollinrake.)
This new clause requires the registrar to remove a limited partnership from the index of names as soon as practicable following dissolution or deregistration. The registrar must place a note in the register when a limited partnership is so removed and publish a notice in the Gazette in certain circumstances.
Brought up, read the First and Second time, and added to the Bill.
New Clause 15
Reports on the implementation and operation of Parts 1 to 3
“(1) The Secretary of State must—
(a) prepare reports on the implementation and operation of Parts 1 to 3, and
(b) lay a copy of each report before Parliament.
(2) The first report must be laid within the period of 6 months beginning with the day on which this Act is passed.
(3) Each subsequent report must be laid within the period of 12 months beginning with the day on which the previous report was laid.
(4) But the duty to prepare and lay reports under subsection (1) ceases with the laying of the first report on or after 1 January 2030.” —(Kevin Hollinrake.)
This new clause imposes a duty on the Secretary of State to prepare and lay before Parliament reports about the implementation and operation of Parts 1 to 3.
Brought up, read the First and Second time, and added to the Bill.
New Clause 22
Person convicted under National Minimum Wage Act not to be appointed as director
‘(1) The Company Directors Disqualification Act 1986 is amended as follows.
(2) After Clause 5A (Disqualification for certain convictions abroad) insert—
“5B Person convicted under National Minimum Wage Act not to be appointed as director
(1) A person may not be appointed a director of a company if the person is convicted of a criminal offence under section 31 of the National Minimum Wage Act 1998 on or after the day on which section 32(2) of the Economic Crime and Corporate Transparency Act 2022 comes fully into force.
(2) It is an offence for such a person to act as director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company, without the leave of the High Court.
(3) An appointment made in contravention of this section is void.”’—(Seema Malhotra.)
This new clause would disqualify any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998, such as a deliberate refusal to pay National Minimum Wage, from serving as a company director.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateWednesday 25th January 2023
(1 year, 3 months ago)
Commons ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: Consideration of Bill Amendments as at 25 January 2023 - large print - (25 Jan 2023)
17:11 - The House divided: - Ayes: 220 / Noes: 290 - Question accordingly negatived.
17:27 - The House divided: - Ayes: 222 / Noes: 289 - Question accordingly negatived.
17:40 - The House divided: - Ayes: 221 / Noes: 289 - Question accordingly negatived.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Minister for Security (Tom Tugendhat)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Sir Roger Gale)
With this it will be convenient to discuss the following:
New clause 1—Disclosure of information in the public interest likely to be relevant to the investigation of economic crime—
‘(1) It is a defence to an action based on the disclosure or publication of information for the defendant to show that—
(a) the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, and
(b) the defendant reasonably believed that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime.
(2) Subject to subsection (3), in determining whether the defendant has shown the matters mentioned in subsection (1), the court must have regard to all the circumstances of the case.
(3) In determining whether it was reasonable for the defendant to believe that the disclosure or publication complained of was likely to be relevant to the investigation of an economic crime, the court must make such allowance for editorial judgement as it considers appropriate.
(4) For the avoidance of doubt, the defence under this section may be relied upon irrespective of whether the statement complained of is a statement of fact or a statement of opinion.”
New clause 2—Economic crime: power to strike out statement of case for abuse of process—
The court may strike out the whole or part of any statement of case which can be reasonably understood as having the purpose of concealing, or preventing disclosure or publication of, any information likely to be relevant to the investigation of an economic crime.”
New clause 3—Home Office review of the Tier 1 (Investor) visa scheme: publication—
Within a day of the passage of this Act, the Secretary of State must publish in full the findings of the Home Office review of the Tier 1 (Investor) visa scheme which relate to economic crime.”
New clause 4—Offence of failure to prevent fraud, false accounting or money laundering—
‘(1) A relevant commercial organisation (“C”) is guilty of an offence under this section where—
(a) a person (“A”) associated with C commits a fraud, false accounting or an act of money laundering, or aids and abets a fraud, false accounting or act of money laundering, intending—
(i) to confer a business advantage on C, or
(ii) to confer a benefit on a person to whom A provides services on behalf of C, and
(b) fails to prevent the activity set out in paragraph (a).
(2) C does not commit an offence where C can prove that the conduct detailed in subsection (1)(a) was intended to cause harm to C.
(3) It is a defence for C to prove that, at the relevant time, C had in place procedures that were reasonable in all the circumstances and which were designed to prevent persons associated with C from undertaking the conduct detailed in subsection (1)(a).
(4) For the purposes of this section “relevant commercial organisation” means—
(a) for the offence as it relates to false accounting and fraud, “relevant commercial organisations” are defined as—
(i) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),
(ii) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,
(iii) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or
(iv) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom, and
(v) for the purposes of this section, a trade or profession is a business;
(b) for the offence as it relates to money laundering, “relevant commercial organisations” are defined as—
(i) credit institutions;
(ii) financial institutions;
(iii) auditors, insolvency practitioners, external accountants and tax advisers;
(iv) independent legal professionals;
(v) trust or company service providers;
(vi) estate agents and letting agents;
(vii) high value dealers;
(viii) casinos;
(ix) art market participants;
(x) cryptoasset exchange providers;
(xi) custodian wallet providers.”
This new clause introduces a new criminal corporate offence for failure to prevent fraud, false accounting and money laundering, by aligning it with other corporate criminal offences.
New clause 5—Identification doctrine—
‘(1) A body corporate commits an offence of fraud, money laundering, false accounting, bribery and tax evasion where the offence is committed with the consent, connivance or neglect of a senior manager.
(2) An individual is a “senior manager” of an entity if the individual—
(a) plays a significant role in—
(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or
(ii) the managing or organising of the entity’s relevant activities, or
(b) is the Chief Executive or Chief Financial Officer of the body corporate.
(3) A body corporate also commits an offence if, acting within the scope of their authority—
(a) one or more senior managers engage in conduct, whether by act or omission, such that, if it had been the conduct of only one representative, that representative would have been a party to the offence; and
(b) the senior manager who is responsible for the aspect of the organization’s activities that is relevant to the offence — or the senior managers collectively — fail to take all reasonable steps to prevent that offence being committed.”
This new clause reforms the “identification doctrine”, so that a body corporate commits an economic crime offence where the offence is committed with the consent, connivance or neglect of a senior manager or senior managers.
New clause 6—Failure to prevent fraud, false accounting or money laundering: individual liability—
‘(1) A person (“S”) commits an offence if—
(a) at a time when S is a senior manager or corporate officer of a corporate body (“C”), S—
(i) takes, or agrees to the taking of, a decision by or on behalf of the corporate body as to the way in which the business of the corporate body is conducted, and
(ii) fails to take any steps that S could take to prevent such a decision being taken;
(b) at the time of the decision, S is aware of a risk that the implementation of the decision may lead to the commission of an offence of money laundering, fraud, false accounting, bribery or tax evasion; and
(c) the implementation of the decision causes C to commit such an offence.
(2) For the purposes of this section—
(a) an individual is a “senior manager” of a corporate body if the individual plays a significant role in—
(i) the making of decisions about how the entity’s relevant activities are to be managed or organised, or
(ii) the actual managing or organising of the entity’s relevant activities;
(b) “officer”, in relation to a body corporate, means—
(i) a director, manager, associate, secretary or other similar officer, or
(ii) a person purporting to act in any such capacity;
(c) in paragraph (b)(i) “director”, in relation to a body corporate whose affairs are managed by its members, means a member of the body corporate.
(3) A person guilty of an offence under this section is liable—
(a) on summary conviction—
(i) in England and Wales, to imprisonment for a term not exceeding 12 months (or 6 months, if the offence was committed before the commencement of section 154(1) of the Criminal Justice Act 2003) or a fine, or both;
(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum, or both;
(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum, or both;
(b) on conviction on indictment, to imprisonment for a term not exceeding 7 years or a fine, or both.”
This new clause introduces direct criminal liability for corporate officers who take a decision, or fail to take a decision, that knowingly results in an offence being committed.
New clause 7—Whistleblowing: economic crime—
‘(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—
(a) has occurred,
(b) is occurring, or
(c) is likely to occur.
(2) The Secretary of State must, within twelve months of the date of Royal Assent to this Act, set up an office to receive reports of whistleblowing as defined in subsection (1) to be known as the Office for Whistleblowers.
(3) The Office for Whistleblowers must—
(a) protect whistleblowers from detriment resulting from their whistleblowing,
(b) ensure that disclosures by whistleblowers are investigated, and
(c) escalate information and evidence of wrongdoing outside of its remit to another appropriate authority.
(4) The objectives of the Office for Whistleblowers are—
(a) to encourage and support whistleblowers to make whistleblowing reports,
(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,
(c) to provide information and advice on whistleblowing, and
(d) to act on evidence of detriment to the whistleblower in line with guidance set out by the Secretary of State in regulations.
(5) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.”
New clause 21—Civil recovery: costs of proceedings—
After section 313 of the Proceeds of Crime Act 2002 insert—
“313A Costs orders
(1) This section applies to proceedings brought by an enforcement authority under part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.
(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—
(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate, or
(b) the authority acted dishonestly or improperly in the course of the proceedings.”
This new clause extends the cap on adverse costs introduced by the first Economic Crime Act (Transparency and Enforcement) 2022 for Unexplained Wealth Orders, to all civil recovery orders.
New clause 23—Review of measures to prevent proceeds of economic crime entering the UK economy—
Within six months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of what further regulatory measures could be taken to prevent the circulation in the UK economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions.”
This new clause creates an obligation for the Secretary of State to report to Parliament on the merits of further regulatory measures for preventing the circulation in the economy of the proceeds of economic crime controlled by individuals or entities subject to sanctions.
New clause 25—Report into effectiveness of Act in addressing economic crime involving sanctioned individuals—
‘(1) The Secretary of State must, within six months of this Act being passed, lay before Parliament a report of a review into the effectiveness of the measures in this Act in addressing economic crime involving designated persons.
(2) The report must consider the case for further legislation to make provision for the seizing of assets of a designated person where there is evidence that the designated person has been involved in economic crime.
(3) In this section, “designated persons” has the meaning given in section 9 of the Sanctions and Anti-Money Laundering Act 2018.”
New clause 27—Compensation for Victims of Economic Crime—
‘(1) The Secretary of State must, no later than 90 days from the date on which this Act comes into force, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.
(2) The strategy may include provisions on the management and disposal of any assets realised by the government, or any body with law enforcement responsibilities in relation to economic crime, under relevant UK legislation.”
This new clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime.
New clause 30—Assets of Iranian officials obtained through economic crime—
Within six months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of regulatory measures to prevent the circulation in the UK economy of assets of Iranian officials which have been obtained through economic crime.”
New clause 31—Fund for the purposes of tackling economic crime—
In the Companies Act 2006, after Part 29 insert—
Part 29A
Economic Crime
993A Fund for the purposes of tackling economic crime
‘(1) The Secretary of State must by regulations establish a fund for the purposes of tackling economic crime.
(2) The regulations must specify the purposes for which the fund may be used, including funding the activities of law enforcement agencies in tackling economic crime.””
New clause 32—Review of definition of cryptoassets—
Within 18 months of the passage of this Act, the Secretary of State must lay before Parliament the report of a review of the adequacy of the definitions of cryptoassets contained in this Act.”
New clause 33—Economic Crime Committee of Parliament—
‘(1) The Secretary of State must by regulations establish a body to be known as the Economic Crime Committee of Parliament (in this section referred to as “the ECC”).
(2) The ECC will consist of nine members who are to be drawn both from the members of the House of Commons and from the members of the House of Lords.
(3) Each member of the ECC is to be appointed by the House of Parliament from which the member is to be drawn.
(4) The ECC will have the power to meet confidentially.
(5) The ECC may examine or otherwise oversee any regulatory, enforcement or supervision agencies involved in work related, but not limited to—
(a) tax avoidance and evasion by corporations;
(b) illicit finance;
(c) anti-money laundering supervision;
(d) tackling fraud;
(e) kleptocracy and corruption; and
(f) whistleblower protection.”
This new clause would oblige the Secretary of State to establish an Economic Crime Committee of parliament to examine and oversee regulatory, enforcement and supervisory action against economic crime.
New clause 39—Duty to report on economic crime resourcing and performance—
‘(1) The Director General of the National Crime Agency must—
(a) prepare a report on the resourcing and staffing of its work to counter economic crime, and its performance tackling economic crime, and
(b) send it to the Secretary of State as soon as practicable after this section comes into force.
(2) The Director General must prepare and send to the Secretary of State further reports on these topics annually.
(3) Each report must include, in particular—
(a) a report of the total annual budget and number of staff allocated to economic crime for each unit within the National Crime Agency,
(b) a report of the number of investigations, arrests, prosecutions and convictions relating to economic crime for each unit within the National Crime Agency, and
(c) a report of other relevant data including, but not limited to, cases per year broken down by both type and outcome; number of restraint or confiscation orders obtained; and value of assets confiscated.
(4) Reporting under subsection (3) must provide a breakdown between domestic economic crime and international economic crime. Reporting on international economic crime under subsections (3)(b) and (3)(c) must provide a breakdown by the income classification of the countries affected.
(5) The Director General must publish every report under this section—
(a) as soon as practicable after they send it to the Secretary of State, and
(b) in such manner as they consider appropriate.”
Section 6 of the Crime and Courts Act 2006 currently places a duty on the Director General of the National Crime Agency to make arrangements for publishing information about the exercise of NCA functions and other matters relating to the NCA, and publish information in accordance with those arrangements. This new clause inserts a new section that places a specific duty on the Director General to prepare an annual report on the NCA’s resourcing and performance relating to economic crime. The section stipulates the minimum information that the Director General must include in the report.
New clause 40—Report into options for corporate liability for economic crime—
‘(1) The Secretary of State must produce a report on corporate criminal liability for economic crime offences.
(2) The report must consider the merits of different models for corporate liability in respect of economic crime, including but not limited to—
(a) the respondeat superior model; and
(b) the failure to prevent model, insofar as it has not already been introduced by the enactment of this Act.
(3) The report must be laid before Parliament within six months of this Act being passed.
(4) In this section—
“the respondeat superior model” means a model for corporate criminal liability in which an entity is guilty of an offence if an employee or agent commits an economic crime offence—
(a) in the course of their employment or agency, or
(b) with an intent to benefit that entity;
“the failure to prevent model” means a model for corporate criminal liability in which an entity is guilty of an offence if a person associated with that entity commits an economic crime offence, intending—
(a) to confer a business advantage on that entity, or
(b) to confer a benefit on a person or other entity to whom the associated person provides services on behalf of the entity with which it is associated, except that the entity shall not be liable where the conduct was intended to cause harm to that entity,
unless the entity can prove that it had in place such prevention procedures as were reasonable in the circumstances, or that it was reasonable not to have any such procedures in place;
a person is “associated with” an entity if they are a person who performs services for or on behalf of that entity, including in, but not limited to, the capacity of an employee, agent or subsidiary.”
Government amendments 44 to 49, 57 and 58 to 100.
Tom Tugendhat
It is a pleasure to see you in your place, Mr Deputy Speaker, and it is the first time I have had the privilege of speaking under your chairmanship on these matters. It is also a pleasure to see so many of the usual faces on this matter. Many of us have gone over these questions in Committee and, actually, in the many years beforehand in various different ways, so it is an enormous privilege to be here. It is particularly a privilege to be speaking after the Minister my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) did such a brilliant job yesterday. I am only picking up where he left off, so I am afraid the second act will not be nearly as compelling as the first.
All those who participated in the Bill Committee gave enormous insights into various different perceptions of how we should be thinking about economic crime and corporate transparency. We have had many interesting debates, and I thank enormously those who have taken part in the various different ways. The fact that we have a two-day debate on Report speaks pretty clearly about the significant size and complexity of this Bill.
Yesterday, we debated parts 1 to 3, which cover Companies House reform and corporate transparency. Today, we turn our attention to parts 4 to 6. The clauses in part 4 create new powers that allow law enforcement to more quickly and easily seize and recover cryptoassets. The creation of the civil forfeiture power for cryptoassets will mitigate the risk posed by those who cannot be criminally prosecuted, but who use their funds to further criminality or for terrorist purposes. This did not prove to be particularly contentious in Committee.
In part 5 of the Bill, we are making it easier for businesses to share information more effectively with each other and with law enforcement to prevent and detect economic crime. We are also creating new exemptions to reduce unnecessary reporting by businesses carrying out transactions on behalf of their customers. We are also giving frontline legal services regulators enhanced enforcement powers to support them as they uphold the economic crime agenda within their regulated community.
I will briefly summarise the amendments we have tabled relating to parts 4, 5 and 6 of the Bill. Many of them address the debate that took place in Committee and will ensure that the Bill works as intended. I should acknowledge that the amendments are perhaps slightly greater in number than we would have liked. The vast majority—amendments 51 and 57 to 100—are minor technical or consequential amendments to ensure that the detail of the cryptoasset measures will work effectively and can be used as soon as possible. That reflects the technical detail of the subject area and the need to make the changes work for each of the jurisdictions of England and Wales, Scotland and Northern Ireland that are covered by the Proceeds of Crime Act 2002.
I now turn to the more substantive Government amendments. New clause 14 allows the Solicitors Regulation Authority to proactively request information from its regulated community for the purpose of monitoring compliance with the economic crime regime. It will enable the SRA to monitor and detect breaches of the rules and legislation related to economic crime, including offences related to money laundering, terrorist financing and sanctions.
Government amendments 44 to 47 to clauses 171 and 172 concern information orders. They seek to clarify the cases in which the information order power can be used and to provide clarity to operational partners about how they should be used. They will ensure that the power can be used only for the criminal intelligence functions of the National Crime Agency, and that when assessing a request for information from a foreign intelligence unit, the NCA must be satisfied that the information would support the FIU’s intelligence function.
Bob Seely (Isle of Wight) (Con)
On the SRA, will the Bill address the strategic lawsuits against public participation that we have been discussing for the last couple of days, or does it purely concern money laundering and other offences unrelated to SLAPPs?
Tom Tugendhat
The Bill is concerned only with economic crime and corporate transparency, and the regulations will cover only that. Many Ministers, including the Lord Chancellor, have spoken about SLAPPs—I will touch on them later—but the reality is that they require a separate jurisdiction and a separate Bill.
Government amendments 48 and 49 concern information sharing. In Committee, Opposition Members rightly pointed out that our proposed definition of large accountancy firms did not include insolvency practitioners, auditors and tax advisers. I thank them for that. These amendments will rectify that omission by expanding the scope of the indirect information sharing clauses to include those sectors.
In addition to the Government amendments, several other amendments on a broad range of topics will be debated today. As in Committee, I look forward to what I anticipate will be a lively but extremely well-considered debate. The contributions of all hon. Members who participated in earlier debates have helped to shape the Bill into an effective tool to tackle illicit finance and ensure that the UK is a great place to do legitimate business.
I know that there are places where hon. Members would like the Bill to go further and do more. Indeed, I am as keen as many of them to solve some of the outstanding problems that we all wish to address, but we need to ensure that those ambitions are delivered in the most effective way and that we use the appropriate legislative vehicles to ensure that they have the desired outcome. Limiting the scope to just economic crime can, in several cases, create more problems than it solves, and I assure right hon. and hon. Members that I have strenuously tested what can be effectively delivered within the scope of the Bill.
Dame Margaret Hodge (Barking) (Lab)
Will the Minister expand on that interesting point? How would any of the amendments on SLAPPs, a duty to prevent or seizing assets limit what could be done in future?
Tom Tugendhat
The question is at what stage do we bring a Bill forward—do we wait for it to be perfect or do we bring forward what we can get at a certain point? The right hon. Lady raises some interesting points. She knows my views on SLAPPS; indeed, in a former incarnation, I may have expressed them extremely clearly. She knows that we share views on asset seizures too. I should point out, however, that no common law jurisdiction has successfully solved the question of asset seizures, although many of us have tried and, indeed, some of us are in conversation with others to try to work out ways of doing it—forfeiture and seizure are not quite the same thing.
Mr Jonathan Djanogly (Huntingdon) (Con)
Will my right hon. Friend give way?
Tom Tugendhat
I will give way; I should have known that I was lining that up.
Mr Djanogly
Yes, because my right hon. Friend touched on asset seizures and tempted me. Of course, Canada has enacted an Act of Parliament that provides for freezing orders to be translated into seizing orders at the request of the Attorney General of Canada.
Tom Tugendhat
My hon. Friend is absolutely right, but he is also no doubt aware that there is much discussion in the Canadian legal community about whether those orders will be challenged in different ways and how exactly they will work. There is still a serious debate about the nature of translating from forfeiture to seizure.
Mr Djanogly
My right hon. Friend is generous in giving way again. All this law is new: our unexplained wealth orders were new, and they have been questioned in the courts, so that is not the question. The question is whether we have the guts to stand up and move on this issue, as the whole western world wants to see.
Tom Tugendhat
My hon. Friend is absolutely right, but I note that some hon. Members cheering would also cheer the provisions of the European convention on human rights that guarantee the right to private property and many of the areas that cause the difficulties that the UK has and Canada does not.
I do not deny that there is an enormous question for debate here and that many hon. Members would like to move quickly to seizure on many areas, but sadly, that may take a bit longer. One thing on which we all agree is that the UK’s place as a rule-of-law jurisdiction and as a home for justice, not just to ourselves but to many others around the world, is essential to our prosperity and to liberties around the world. It is therefore important to ensure that we correctly transfer from forfeiture to seizure, and recognise the rights and limits that we should respect.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
I salute the Minister’s leadership on much of this agenda when he was a brilliant Chair of the Foreign Affairs Committee. He will not, however, want to go down in history as the Minister for mañana. In his responses to the hon. Member for Huntingdon (Mr Djanogly), he has said that the timing is not right and we must wait for future Bills. Can he put our minds at rest and give us a sense of when we might expect a Bill to come forward to address the concerns of the hon. Member for Huntingdon?
Tom Tugendhat
The right hon. Gentleman is extremely kind about my former work and, typically, slightly less so about my current employ. He can be assured that, no doubt, it will be temporary, as it is for all occupants.
That matter has seized my attention and has been of some interest to me in further discussions in different areas. I will not put a time on it, because it is not my ministerial responsibility; the right hon. Gentleman will know from his time in Government that talking across other Ministers’ briefs does not always help to advance the case. I assure him, however, that it has come up frequently in conversation with an intent to bring something forward. As I said, the Lord Chancellor has spoken about it to highlight that it is an area where various elements of change are necessary, so I look forward to hearing the proposals as they come forward. I certainly do not think that the matter can wait. We have sadly seen SLAPPs used against such inspiring examples as Eliot Higgins and Catherine Belton, who have stood up for justice in this country and around the world.
Tom Tugendhat
I will not, because I am going to close.
Despite all the areas that we could have gone into, and would like to go into at a different time, the Bill is closely focused on economic crime and corporate transparency for the purpose of passing a series of measures that are essential to ensure that we keep our country safe and our economic jurisdictions clean.
Stephen Kinnock (Aberavon) (Lab)
We on the Opposition Benches have been clear that the Bill is long overdue. It has been painful to witness London becoming the world’s laundromat for dirty money with the National Crime Agency calculating that £100 billion of illicit finance flows through the UK every single year. Add to that the Government’s abject failure to properly scrutinise the issuing of golden visas to Russian oligarchs—seven now-sanctioned Russians were awarded such visas even after the invasion of Crimea in 2014—and we see a pattern emerging of Ministers failing to treat economic crime with the seriousness it deserves.
This legislation, which is finally wending its way towards the statute book five years after it was promised—and, let us face it, was only brought forward in response to Putin’s invasion—is a step in the right direction that we on these Benches support. However, it still falls short in a number of areas, as I will cover in my remarks.
Stephen Kinnock
As always, I agree absolutely with my right hon. Friend’s views on the matter. That cannot be beyond the wit of this place or the Government. I know there are legal complications around property and international law, but those are not insuperable. We cannot allow them to be insuperable because, with every day that passes, the people of Ukraine are suffering, and the barbaric acts of Vladimir Putin and his regime are not being held to account in a way that would contribute to the massive reconstruction effort that will be required for Ukraine. It is absolutely right that the person guilty of the crime should pay for the crime and that has to be the fundamental basis of our approach. We need urgency on this in the G20, the G7, and the United Nations. We need Ministers to get a grip of this issue so that we can do justice and deliver for the people of Ukraine, which we must do with great urgency.
The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)
New clause 27 is interesting. It is about setting up a fund for compensation of victims of economic crime. We have heard estimates that economic crime costs UK citizens £200 billion to £300 billion a year. How much will this cost and who will pay for it?
Stephen Kinnock
The Minister tempts me to write Labour’s manifesto right here at the Dispatch Box. It is an issue of principle: how will we ensure that victims of economic crime are compensated? Clearly, we cannot finalise in the Chamber today the quantum of that amount, but we did raise that in Committee and are open to discussing it with the Government. We hope that they will be open to having that discussion in the fullness of time.
Kevin Hollinrake
Will the hon. Member confirm that he is expecting the taxpayer to contribute to the fund? Is that what the new clause would effectively lead to?
Stephen Kinnock
No. This is based on a fund that is generated through fines and through accountability for those committing the crimes. It is along the lines of what I said about Ukraine: the people who commit the crime, rather than the victims, should be paying for the crime. How will we address that question now? If the Government think that the current system is absolutely fine and that there is justice and equity in the system, the Minister should come to the Dispatch Box and say that. However, if he thinks that there is a clear, principled and moral argument in favour of ensuring that the people who commit a crime should be made to pay for it, and that that should contribute to the compensation, we can have that conversation.
Sir Robert Buckland
I was going to spare the blushes of the Minister for Security, my right hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat) and the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), but my hon. Friend has said it for me, and he is right. They know that what I am saying does not just have force, but that they agree with it. That will no doubt carry great weight—
Tom Tugendhat
What I am enormously enjoying in this Session is the way in which Bills are being picked up and put down by different Ministers. When they are on the Front Bench, they do one thing; when they are on the Back Benches, they say another—sadly, that is the nature of our current political system. It is taking a little while, I admit, for many of us to realise quite how long it can take to get things through in government. Those who have been in government for many years are sharing their knowledge very generously.
Sir Robert Buckland
Well, my right hon. Friend must speak for himself. I will tell the House a story: I remember when the present Secretary of State for Defence, my right hon. Friend the Member for Wyre and Preston North (Mr Wallace), held the office of Minister for Security, which my right hon. Friend the Member for Tonbridge and Malling now enjoys. We used to have cross-governmental committee meetings—this was during the Government of my right hon. Friend the Member for Maidenhead (Mrs May)—and I remember having a very fierce argument with a very senior permanent secretary at the Treasury about this very issue. I will not name them, because that would be wrong, but they told me that there was concern about the proliferation of criminal offences in this area because somehow it would add more of a regulatory burden to business. I disagreed hotly with that civil servant then, and I disagree hotly now.
The Minister for Security now has a great opportunity. It is a great privilege as a Minister to get on with a job that others would have wished to finish. We have passed the parcel to him, and he can open it and enjoy the gifts within.
Alison Thewliss
One Minister is on his phone and the other—the hon. Member for Thirsk and Malton—is sitting at the back of the Chamber having a gab. This is not ideal, but perhaps the Minister has already heard what I have to say and does not want to hear it again.
“O, wad some Power the giftie gie us
To see oursels as others see us!”
Alison Thewliss
It is not, and it certainly will not be the last. It could be if the Minister accepted the amendments, but he is not going to do that, and he will keep hearing this speech until he does: that is the truth of the matter.
As other Members have said, there is a precedent for a “failure to prevent” measure. It is in the Health and Safety at Work etc. Act 1974 and the Bribery Act 2010, so the concept already exists, and there is no reason why it cannot be applied today. Even if the Government are saying, “We want to extend it to other areas”, that should not limit us today, when the Bill gives us the opportunity.
I also support new clauses 4, 5 and 6. The right hon. and learned Member for South Swindon made an important point about what senior managers have to do, which is also relevant to the Online Safety Bill. I rather like the definition of an offence committed with
“the consent, connivance or neglect of a senior manager.”
All those things contribute to economic crime. This is, if you will, a sin of omission, and we should take the opportunity to tighten up these loopholes. It is one thing to know about something that is happening, it is another thing to look the other way, and it is another thing not to do your job properly and allow that something to happen. This would cover all those eventualities.
New clause 7, in the name of the hon. Member for Cheadle (Mary Robinson) deals with whistleblowing. It is an excellent new clause which would enhance the Bill and offer protection to the very people who flag up these economic crimes. Whenever I think about whistleblowing, I remember a little cartoon that I saw many years ago showing a man sitting at a computer terminal in an office with a sign above his head saying, “Congratulations Frank, whistleblower of the month.” I understand that the cartoonist was Bill Proud. Every time I think about that, I think about the lack of protection offered to whistleblowers, and how much more the Government could be doing to ensure that those who do speak up are protected.
The organisation Protect says that it has offered advice on whistleblowing to 2,500 people a year, and that of those who have contacted it about their experiences, 65% have suffered some kind of detriment as a result of their whistleblowing. There is no incentive for many people to speak out when they see something wrong. They feel that they will lose their job or their promotion and will have to work somewhere else, and also that this might follow them around if they are seeking references for a new job. There is a real problem here, and the Government could, if they wished, deal with it in the Bill: it would make sense for them to do so.
I also support the cost cap suggested in new clause 21. Bill Browder spoke about this issue very powerfully during the Public Bill Committee evidence sessions. The balance is completely skewed to the side of the criminals and away from the Government, and away from the prosecutors and the agencies who want to take on these crimes but simply cannot afford to do so. Bill Browder said:
“What I have learned is that the law enforcement agencies effectively refuse to open criminal cases unless they are 100% sure that they can win without any tough fight on the other side.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 65.]
And what we have learned, even just this week, is that the other side can afford anything that allows them to support their case. Indeed, that was made clear in the exchanges on the urgent question on the Wagner Group earlier today. The other side are very well set up financially: they can afford the very best lawyers, while the prosecutors sit there with nothing in their armoury to take on these oligarchs and kleptocrats. That is not acceptable, and a cost cap such as the one suggested in new clause 21 would go some way to addressing it.
Bill Browder has also talked powerfully about the Magnitsky case. He produced a load of evidence about money that been stolen and laundered, being put through various accounts. He had traced all the money, some of which had ended up in the United Kingdom. When he presented the case to prosecutors, to the National Crime Agency and to various other agencies, they all refused to take it on. A crime has been committed, and we know who committed it and where the money ended up, but prosecutors here do nothing about it because it would cost them money that they might never see again. As a result, crimes go unprosecuted in the United Kingdom. It is unacceptable that, by failing to take on new clause 21 and other such measures that would cap costs, the Government are allowing this to continue.
I would support further measures on sanctions. Further to the urgent question, monitoring of sanctions and their effectiveness needs to be a lot tighter. Any sensible sanctions scheme would not have waivers for warlords.
I very much support the new clauses on the proceeds of crime and compensation for victims, for the people of Ukraine and indeed for the people of Iran, as has been suggested by the hon. Member for Oxford West and Abingdon (Layla Moran). Those measures are important. There are schemes such as the financial services compensation scheme, but in many cases that does not fully compensate, or compensate at all, those victims of economic crime. Appropriate compensation should be given, given the real and devastating effect that financial crime can have on our constituents. People who feel that they have been duped will carry that around for a long time, so compensation is important, and there is real need for finance both to fight the war in Ukraine and to rebuild that country thereafter.
Dame Margaret Hodge
I shall be very brief, because I took a lot of time in the House yesterday. I strongly support many of the new clauses being moved by Back Benchers across the Chamber today. If I can just say something about politics, this heartens me and shows that there are ways in which we can work together to pursue the national interest across the political divide. It breathes a bit of confidence and life back into the political process that we have all chosen to join in our careers, so I commend those individual Back Benchers who have put themselves forward and who are speaking today.
The proposals from the hon. Member for Cheadle (Mary Robinson) on strengthening the support for whistleblowing are hugely important. Whistleblowers are an essential part of our armoury in the fight against money laundering and fraud, and we know that, despite all the legal rights, they are not protected. People lose their jobs, their families get destroyed and they are left penniless. Therefore, the establishment of a capability that will do nothing other than protect and promote whistleblowers in the crucial work they do is really important, and I hope that it will be adopted.
The importance of legislating to tackle the abuse of our legal system by oligarchs and others, which the right hon. Member for Haltemprice and Howden (Mr Davis) has just talked about so eloquently, is also really important. I want to be blunt about this and say to those on the Government Front Bench that, if they do not accept this new clause, they will not get a Bill during this Parliament. I bet that is right, so for heaven’s sake let us use this opportunity to get this bit of legislation in. It does not cover everything we would like it to cover, but it will have an impact. It will also give us the experience to see whether we have got the legislation right. I am sure that all the lawyers who helped to draft these new clauses put their best brains into them, but if they have not got them right, we will be able to learn those lessons when we come to extend these measures beyond economic crime.
The right hon. and learned Member for South Swindon (Sir Robert Buckland) made an excellent contribution on the reform of criminal corporate liability, and I want to say something about that. It is not that we want to suddenly bang up a whole load of lawyers, accountants, companies, service providers and all those people who we know are the ones that facilitate or collude with much of the economic crime that takes place. Only the best preventive mechanism that we can think of will force a change of behaviour, and we are not doing that on the back of hope; we are doing it on the back of reality. We know from the Bribery Act 2010 and from the regulations on tax evasion and on health and safety at work that putting this sort of liability on individuals and corporations is the only way to transform behaviour. Last week’s amendment to the Online Safety Bill by the Conservative rebels showed the mood of the House, and I would urge Ministers to think about that. The mood of the House is to use this effective tool to try to transform behaviour in all spheres of life, whether in relation to online harms or to economic crime.
I hope that we will hear from the hon. Member for Huntingdon (Mr Djanogly) soon on the issue of “freeze not seize”. I know he is going to make a number of propositions, and I hope he will not mind if I say something about this. We have been working with an extensive group of lawyers to see whether we can move to a position where we do not just freeze the assets but seize them in order to repurpose them and, particularly in the current context, use them to support the reconstruction of Ukraine. We have finally got a chink in the armour in that regard, but let me say something else first. The lawyers we have talked to work with non-governmental organisations in this field, and the advice they give is always going to be slightly different from the advice that comes from the lawyers working in the Government service. I think we bring a new perspective, and I urge Ministers to listen to what we have to say. The chink is worth examining at this stage, even if we do not go for the further propositions, to show that we mean it when we say that we want to seize this money.
Tom Tugendhat
If the right hon. Lady can come up with a way to seize assets and use them for the purposes we have been discussing—notably for the reconstruction of Ukraine, but for other purposes, too—I am all ears. I have had long conversations with the representatives of Governments around the world, and I am yet to hear an idea that works. If she has one, I am happy to hear it.
Dame Margaret Hodge
This is not our idea. It comes from a recent seminar we held with lawyers who support the Royal United Services Institute and Spotlight on Corruption. I will leave it to the hon. Member for Huntingdon to expand on it, but I think it is a very interesting chink that we can exploit, although it is not the total answer.
A draft Bill is being prepared by another group of lawyers, but I do not think we can add it to this Economic Crime and Corporate Transparency Bill. I am sceptical that we will find a chance to introduce the draft Bill in this Parliament, but I assure the Minister that we will pursue it after this Bill has passed. I just hope the Government examine the chink we have identified and run with it.
New clause 21 on cost caps, which stands in my name, is part of the way in which we could better fund the enforcement agencies in their fight against economic crime while also preventing economic criminals from exploiting our legal system. At the moment, we have a “loser pays” law, which has two consequences. First, when our enforcement agencies embark on litigation and lose, there is a massive cost to the public purse. We saw that with the unexplained wealth order against Kazakhstan’s Nazarbayeva family. Subsequent investigative journalism suggested that the family told mistruths to the court, but that has never been rectified. Nevertheless, the costs vary from £1.5 million to £2 million.
The SFO took a similar case against Serco involving prisoners who were—I have forgotten the word.
Dame Margaret Hodge
I thank the Minister. I am having a senior moment.
The SFO had clearly prepared the case badly, but there was a discovery point that got the litigation thrown out of court, and a huge sum was claimed in costs. The cost to the public purse is enormous.
Kit Malthouse (North West Hampshire) (Con)
I understand the right hon. Lady’s point about the cost to the police and other authorities of failed investigations but, in my experience, much of the problem stems from the division of the spoils in those cases that succeed in securing the proceeds of crime. As she will know, the money is divided between the Treasury, the Home Office and the police.
When I was at City Hall, we tried to cut a better deal in which the police would effectively recover the full cost of a prosecution, and any profit would then be split, so that pursuing such prosecutions would be costless to the police. Tim Godwin was then deputy commissioner of the Metropolitan police, and his view was that the police would then have a strong case to invest even more in this line of investigation, and they would therefore have more success and there would be more money to go around for everyone. It is not necessarily the case that legislation will solve the problem. It is more to do with the deal between the police and the Government.
Dame Margaret Hodge
Indeed, and we considered an amendment in yesterday’s debate to address that specific issue, so that any funds arising from a confiscation order, or other such order, could be enjoyed by the enforcement agencies themselves, which would provide an additional incentive. We discussed last week’s Danske Bank settlement of criminal issues in the United States, from which the enforcement agencies received $2 billion. Just imagine the amount of enforcement activity that could be funded from that fee. We are timid in that regard, so I completely concur with the right hon. Gentleman on that.
The other argument in relation to cost caps is that the fear of facing huge costs if one fails in a case provides a disincentive to the enforcement agents to pursue as vigorously as one would like economic crime prosecutions. The Minister has said to me previously that there is no evidence to back that up, but I just do not buy that. A proper analysis of how people in the NCA, the Serious Fraud Office and other agencies think before they decide to pursue a prosecution would very quickly reveal that there is a disincentive. It is for those two reasons that we considered cost caps. The US is our model. Each party bears its own costs, which is much more effective. We heard figures yesterday—I will not repeat them because I have to get on—that the US gets much more money in and it does not cost as much to its enforcement agencies.
Those are the things that I wanted to cover. I hope that, in summing up, the Minister will please give us some concessions. I urge him to reflect on the degree of unanimity across the House and on the very senior figures on his own Back Benches who have chosen to work, in particular, with members of the two all-party groups to reach consensus. We do argue these things out. We come to a view after an extensive debate on a subject; it is never an open and shut case. Back Benchers are in a better position at present than those on the Front Bench, so I ask the Minister to listen to us because we may just be right and it would be good if there was a concession on something.
Tom Tugendhat
My apologies, Madam Deputy Speaker. For some reason I was under the impression that the hon. Member for Aberavon (Stephen Kinnock) would be speaking first.
Madam Deputy Speaker
Order. I think I should explain, for the benefit of Hansard, that the shadow Minister will be coming back on Third Reading. It is customary to go straight to the Minister, given that he moved the motion for the lead new clause.
Tom Tugendhat
I thought that we were to have the joy and the privilege of hearing from the hon. Member for Aberavon, who can never say too much in this Chamber, or indeed anywhere else—which is lucky, because he very rarely says too little.
It is a huge pleasure to have been here this afternoon. Members in all parts of the House have made extremely powerful points, but I will touch on just a few of them, because many have been covered at length and in detail on numerous other occasions. If Members will forgive me, I will deal straight away with a few of the matters that I think require immediate attention.
I thank my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) for tabling new clause 6 and for the way in which he has approached the area of corporate criminal liability, in which he and I agree that reform is required. That is why the Government commissioned a review by the Law Commission, which my right hon. and learned Friend cited and which showed a definite need to clamp down on economic crime conducted by commercial organisations. We have been working closely across Government and with prosecutors in carefully considering its recommendations and how improvements can best be made. It is vital that any reform can be used by law enforcement agencies, does not duplicate what already exists and avoids placing unnecessary burdens on legitimate businesses, but we must also operate within the constraints of the Bill.
I share my right hon. and learned Friend’s passion for change. I am immensely grateful for his thoughtful input, and I greatly value my engagement with him, and with other Members, on this issue. I can assure him that the Government intend to address the need for a “failure to prevent” offence in the other place, and I would welcome further discussion with him about the most effective way in which that can be done.
Sir Robert Buckland
I am extremely grateful for what my right hon. Friend has said, but may I gently press him on the issues of “failure to prevent”, fraud, money laundering and false accounting offences—I accept that they may well have to be separate—and a further discussion on the identification doctrine? If so, I will not need to press my new clauses to a vote.
Tom Tugendhat
My right hon. and learned Friend is certainly more learned than me, and I will certainly be listening to his views. There are a number of areas that I am sure we will be able to discuss, and I am sure we will reach a conclusion that is acceptable to all sides.
Dame Margaret Hodge
I am grateful for the assurance that an amendment will be introduced in another place, but may I also have an assurance that it will cover both corporations and individual directors?
Tom Tugendhat
The right hon. Lady knows very well that I would find it impossible not to listen to her. I look forward to seeing how we can return to this issue. The Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), will no doubt wish to have a strong input as well, so I shall say no more at this stage.
Let me now touch on the question of whistleblowers, and pay enormous tribute to my hon. Friend the Member for Cheadle (Mary Robinson), who has been a friend of many of us for a number of years since she was first elected and who has championed, consistently and clearly, the need for an office for whistleblowers. She is absolutely right: what the country needs is an office for whistleblowers, and what we need to do is ensure that we have the updates to the legislation that she so correctly highlighted. The establishment of such an office would, however, be a significant undertaking. It would have major financial applications owing to its size, it would require significant staffing, and, as matters stand, it might duplicate the role of regulators without the same level of sector expertise. I know that my hon. Friend had the opportunity to meet my hon. Friend the Under-Secretary of State earlier this week to discuss her new clause and plans for the review, which I understand will be set out soon, I hope that the meeting was constructive.
Mary Robinson
I have indeed had a meeting with the Under-Secretary to discuss this. There is a long way to go on it and I am steadfast about setting up the office for whistleblowers. However, the conversations have been constructive, I am grateful to Ministers and I will not be pressing my new clause to a vote.
Tom Tugendhat
I am grateful to my hon. Friend for that and to the Under-Secretary for having had those conversations. He knows my support for her interest in this important matter.
Clearly, many amendments have been tabled today. The last point I wish to make before we move on to Third Reading is that the Government listened an awful lot on this Bill. Many of us, including myself and the Under-Secretary, who have been taking it through this place, have been listening extremely carefully, for many reasons. One of those reasons is that we picked this up, as many people do, a long way down its process of drafting and through its progress through this House. No doubt there are areas where all of us could tweak, adjust, test and push, but we think that the Bill offers major progress on the situation where we began; I am delighted that that point was shared across this House. So although there are areas where we could have further discussion—I am sure the other place will have criticisms and comment, and we will have improvements and additions—we feel that this Bill, as it stands, is a vast improvement on where we are. Although there is progress to be made, and there always will be, we believe that the Bill marks a useful point of progress for our country in fighting economic crime.
Question put and agreed to.
New clause 14 accordingly read a Second time, and added to the Bill.
New Clause 3
Home Office review of the Tier 1 (Investor) visa scheme: publication
“Home Office review of the Tier 1 (Investor) visa scheme: publication
Within a day of the passage of this Act, the Secretary of State must publish in full the findings of the Home Office review of the Tier 1 (Investor) visa scheme which relate to economic crime.” —(Layla Moran.)
Brought up, and read the First time.
Question put, That the clause be read a Second time.
Tom Tugendhat
I beg to move, That the Bill be now read the Third time.
I will briefly thank a few people on my behalf and on behalf of the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake). I must thank my noble friend Lord Callanan, the Minister for Business, Energy and Corporate Responsibility, who continues to do so much to support the Bill and has been a great help. I also thank the Home Office Minister, Lord Sharpe of Epsom, who is a fantastic asset to our Department.
I thank my right hon. Friend the Member for East Hampshire (Damian Hinds) and my hon. Friend the Member for Sutton and Cheam (Paul Scully), who helped so much to prepare the Bill. Furthermore, I thank my hon. Friend the Member for Watford (Dean Russell), who ably shepherded the Bill through its early parliamentary stages, and the Lord Commissioner of His Majesty’s Treasury, my hon. Friend the Member for North Cornwall (Scott Mann), and his team for their excellent assistance, particularly when he courageously stood in and answered on behalf of the Department in a brief moment of surprise—mostly to him. I also thank the Home Secretary and the Secretary of State for Business, Energy and Industrial Strategy for their contributions.
Sir Robert Neill (Bromley and Chislehurst) (Con)
I thank the Minister for his positive response to the amendments tabled by my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and others in relation to the reform of corporate criminal responsibility. That is welcome. Will he take on board the importance of including in that the reform of the identification principle, which is a major bar to corporate prosecutions? The Justice Committee has called for that more than once in its recent reports, and it is supported by the current and previous Directors of Public Prosecutions and the current and previous Directors of the Serious Fraud Office.
Tom Tugendhat
I thank my hon. Friend the Chair of the Justice Committee. As he knows, this is an area of great interest and for further discussion, which we are indeed looking at taking forward.
I finish by saying an enormous thank you to the Bill team, who are in the Box today—Tom Ball and the rest of the clan—who have done a fantastic job on Burns night, of all times. Because it is a time for us to find that we are no longer wee and tim’rous beasties, but are instead going to look for that fair trojan of the human race, the “puddin’-race”—forgive me—I look forward very much to being freed of the Dispatch Box and skipping off to the whisky and the haggis. On that, Mr Deputy Speaker, thank you.
Mr Deputy Speaker (Mr Nigel Evans)
Lucky Minister. I call the shadow Minister.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateMonday 27th March 2023
(1 year, 1 month ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: HL Bill 96-I(a) Amendment for Grand Committee (Supplementary to the Marshalled List) - (27 Mar 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Johnson of Lainston
Member’s explanatory statement
Objective 2 currently focuses on the accuracy and completeness of documents delivered to the registrar. The amendment would expand it to refer to the accuracy and completeness of the register more generally. This would, for example, be relevant not only to the acceptance of documents for registration but also to their removal.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, I draw the Committee’s attention to my interests as set out in the register, including as a director and person with significant control of AMP Ventures Ltd and as a person with significant control and shareholder of several other companies. I do not believe that any of these is prejudicial to my role in today’s debate. If anything, they increase my passion for the important objectives of this Bill: strengthening the UK’s business environment for the law-abiding majority while closing the doors to rogue actors.
This Bill will deliver significant reforms to the role of Companies House, making the biggest change to our system of registering companies in over 170 years. It makes significant amendments to the Companies Act 2006, the largest single Act on the statute book. It will affect the more than 500,000 companies established every year in the UK and the 5 million companies currently on the register, which have grown from 3.5 million since the last major company transparency reforms in 2015. That is quite a significant amount and no doubt bears the attention deserved in this debate.
It is therefore vital that these reforms are designed and implemented properly, both so that law enforcement can undertake its responsibilities effectively and to ensure that they benefit business and that any burdens are proportionate. I am confident that the Bill will achieve this balance and set a sensible framework that works for the benefit of businesses while bearing down on those who seek to abuse our open economy.
If noble Lords will allow, I will express my gratitude to Members in the other place, who greatly contributed to the scrutiny and improvement of this Bill as it passed through their House, not least the honourable Members for Feltham and Heston, for Aberavon and for Glasgow Central, the right honourable Member for Barking and my honourable friends the Members for Barrow and Furness and for Weston-super-Mare.
I am also grateful to Members of this House for their invaluable contributions at Second Reading and for the further views that many of them have provided since to me and my noble friend Lord Sharpe. I see that several of them will speak to amendments today. I am also grateful for the constructive engagement of Members on the Opposition Front Bench throughout and look forward to continuing to work with them. It strikes me that all the amendments proposed today and all the work we have done across this House have the same intentions. That is important. We are working together to create a better company system in this country. My thanks also go to my noble friend Lord Callanan for all his past work on these reforms as the previous Minister for this Bill, to Minister Hollinrake, my colleague at the Department for Business and Trade, and to the Security Minister for bringing this Bill through the other place so effectively.
I very much look forward to the constructive debate that we will have over the coming weeks. I am sure that all noble Lords are as keen as I am to get this important legislation on to the statute book, including delivering the long-awaited reforms to Companies House that we will discuss today. As I set out at Second Reading, I hope that all noble Lords are fully aware of the opportunity before us to make a hugely meaningful difference to businesses, law enforcement and our citizens. I trust that we can count on the continued support of the House to deliver this.
I am delighted to be starting Committee by talking to government Amendments 1, 3 and 56, which amend Clauses 1 and 81. I will start with Amendments 1 and 3. The new registrar objectives introduced by Clause 1 are a key aspect of this Bill. They are designed to empower the registrar and the activities of Companies House, acting as a clear and purposeful signal of the manner in which new and existing powers under the Companies Act will be exercised. They will embolden Companies House to be the proactive gatekeeper that many have long wished it to become.
Government amendments 1 and 3 are designed to expand the scope and reach of one of the objectives. Amendment 1 should be warmly welcomed by those who have criticised Companies House as merely the repository of an accumulation of inaccurate, misleading and potentially fraudulent information. While powers in the Bill allow the registrar to revisit and, where appropriate, remove information that ought never to have found its way on to the register that she holds, this amendment will make it absolutely clear that she must endeavour to address that historical legacy.
Amendment 3 recognises and addresses the fact that the registrar is the custodian of registers other than the register of companies. Objective 2 already puts a duty on the registrar to seek to promote the accuracy of information that is already on, or delivered with a view to being put on, the register and to seek to ensure that the register contains everything that it ought to contain. This amendment makes it explicitly clear that this applies to all the registers that she keeps, such as the register of persons of significant control and the register of overseas entities.
Government amendment 56 expands on the registrar’s new ability, introduced by Clause 81, to require information to be provided to her in order for her to determine certain matters. Importantly, it will allow the registrar to require information to determine not only whether the documents delivered to her meet the “proper delivery” requirements in respect of such things as content, form, authentication and manner of delivery but whether the underlying trigger event for the filing has really happened. For example, this amendment will ensure that the registrar can compel the production of information to determine whether a form sent in to report the appointment of a director was genuinely triggered by a real appointment and was not simply a fraudulent attempt to dupe the registrar into recording an appointment that never happened. I beg to move Amendment 1 and hope that noble Lords will support Amendments 3 and 56.
The Deputy Chairman of Committees (Lord Geddes) (Con)
My Lords, before opening this debate, I advise the Grand Committee that, if Amendment 1 is agreed to, I will not be able to call Amendment 2, due to pre-emption.
Lord Macpherson of Earl’s Court (CB)
My Lords, I support the amendment in the name of the noble Lord, Lord Agnew. I declare my interest as chairman of C Hoare and Co. I apologise for not being here at Second Reading. I had a good excuse: a very bad dose of flu.
I have two brief points. First, legislation on its own does not change an institution—I worked in the Treasury for 30 years and saw many institutions come and go—but it can be really helpful in supporting the leadership of that institution to change its character and the way in which it works. I believe the amendment in the name of the noble Lord, Lord Agnew, would support the leadership in bringing that about.
My second point draws on my experience of seeing through a lot of reform to financial services regulation. I think it is fair to say that the lesson of the 2000s was that tick-box regulation really does not take you very far; a proportionate, risk-based approach is the answer. I believe that the amendment in the name of the noble Lord, Lord Agnew, very much goes with the flow of better regulation.
Lord Johnson of Lainston (Con)
I really thank noble Lords for their contributions. Not for the first time in this House I am surrounded by people who know far more than I do about the subject, with business gurus such as my noble friend Lord Leigh, who gave us the benefit of his many decades of wisdom. It is extremely helpful. As I say, everything that has been said today is mirrored in the emphasis of the Government’s broad objectives, so we are working collaboratively here. I hope your Lordships do not mind me going through each different point—I hope I can answer them all.
Lord Clement-Jones (LD)
I just interrupt the Minister before he goes much further. I have been listening very carefully to what he has to say, but he seemed to imply that a risk-based approach could lead to box-ticking. Surely, a risk-based approach is the very antithesis of box-ticking.
Lord Johnson of Lainston (Con)
I appreciate that intervention. Our view is that if we legislate specifically for a risk-based approach, on top of what we believe is already a risk-based approach, we are not achieving our goals. The concern from the Government’s point of view—and mine, as someone who has registered companies with Companies House—is that you end up box-checking. The Bill is designed to ensure that the registrar is responsible for ensuring the integrity of the register and minimising criminal activity. In my view, those are the core functions of the registrar and the activity of Companies House, so we already have what one would describe as a risk-based approach built in. We feel very comfortable that this ambition, which is what this is all about, is well built into the legislation and will be the core function of the registrar—this is the essence of it—and we believe this to be well represented. Clearly, the ambition of the registrar will be to take a risk-based approach to her activities. We may be arguing over the same point, but I take it very seriously and am happy to consider it with more thought. As I said, this has been drafted effectively to encompass the concepts and points raised by noble Lords.
I believe I have covered most of the points raised. My last point was raised by the noble Lord, Lord Clement-Jones: we are trying to create the registrar as a proactive gatekeeper. That is at the core of the Bill’s ambition. We welcome input on how we can ensure this is done more specifically.
Lord Agnew of Oulton (Con)
My Lords, if my noble friend wants my amendment not to be moved, would it be possible for the registrar to write to us to explain her philosophy and how she is going to make this huge change to delivering a risk-based approach? I am very reassured by his comments, but having been in the trenches of government for 12 years, I just know that the reality is a long way from wise words in a process such as this. A simple letter to us saying, “This is my philosophy, what I am doing and how I am training people to cope with this enormous change”, would be very reassuring.
Lord Johnson of Lainston (Con)
I thank my noble friend for that comment, and I entirely agree that it would be extremely useful to have such a letter from the registrar. I take very seriously the comments about a cultural change at Companies House. We should be aware of where we are coming from. Not to repeat or labour the point, but Companies House is today simply a repository for information; it could practically be a static website. Having said that, in the conversations that I have had with Companies House, I have been very impressed by the tone of the officials I have spoken to there in terms of their determination to crack down on criminal activity around companies and Companies House. They currently make referrals to law enforcement agencies; they are not blind to the issues that present themselves, but they do not have the powers to do what we want them to do.
This Bill gives the registrar and her agents the concomitant powers to execute exactly on this mission that we wish. They talk boldly of a cultural change in Companies House, which we expect, as well as a technological change and a significant resource improvement—and under other amendments we will discuss the resourcing of Companies House. I feel confident that we are going to see a magnitudinous alteration in the relationship between the number of companies and number of directors performing their functions appropriately and providing relevant information to boost the economy, as soon as, or soon after, this Act is enabled—if I have got my terminology right.
Lord Coaker (Lab)
I would be grateful for a clarification. Can the Minister say something about the language being used? My noble friend Lord Browne also picked up on this point. It is not that it is wrong, but why in Clause 1 do objectives 3 and 4, for example, talk about minimising risks or the extent? What I suggest in my amendment is acting proactively to prevent. It is about that sense of purpose and that cultural change, whereby the registrar actively seeks out unlawful activity and actively seeks to inform law enforcement to do something about it. It is not a clash of view but, in talking about cultural change, would not a language change help the Government in delivering what they want?
Lord Johnson of Lainston (Con)
I thank the noble Lord for his comments. I do not want noble Lords at any point to think that I am being defensive in any way, as we are having a collaborative debate around the objectives of trying to improve company law and registration of companies and the integrity of the information stored at Companies House.
Objective 1 is pretty clear in referring to
“any person who is required to deliver a document to the registrar does so”,
and objective 2 is very clear and specific in saying
“to ensure that documents delivered to the registrar are complete and contain accurate information”.
They are unambiguous points—that is very clear. There is no question about there being some grey area around that. But with regard to objective 3 and
“creating a false or misleading impression to members of the public”,
clearly that is relatively subjective statement. It is clear that we have made efforts in this Bill to ensure that company names, for example, cannot be used to be misleading, and additional powers have been placed with the Secretary of State to ensure that companies have to change their names—but there is an element of subjectivity around a company name. To some extent, it is not totally prescriptive. Objective 4 then says,
“to minimise the extent to which companies and others … carry out unlawful activities, or … facilitate the carrying out by others of unlawful activities”.
These are complicated areas, in which, as the noble Lord, Lord Coaker, said, issues around forensic accounting, and so on, have been raised. Nothing is necessarily as straightforward as it seems. The principle here is to try to reduce the crime clearly to zero—so if the registrar reduced levels of criminal activity to a certain percentage, which they felt were somehow in a target range and then stopped their work, we would consider that to be entirely inappropriate. At the same time, they have a very clear objective, which is to minimise financial misconduct and criminality. That flexibility enables the registrar to perform her functions appropriately.
Lord Garnier (Con)
I do not want to prolong this debate because, although it is fascinating, it is something that can be dealt with in the period between now and Report. Perhaps my noble friend could, with his officials, run through the dictionary to find a slightly punchier verb. We all know what “minimise” means—to reduce to a minimum. I take the point that the noble Lord, Lord Coaker, is making. A slightly more aggressive approach to criminal activity or people’s misconduct in using the Companies House system is probably required. It is just a tweak in the language; we are not going to World War III over this—it is just a question of going back, having a look at a dictionary and seeing if they can find a slightly more aggressive word.
Lord Faulks (Non-Afl)
So that the Minister does not have to answer questions seriatim, as it were, I endorse that. I am not sure that I have heard persuasive objections to the amendment tabled by the noble Lord, Lord Coaker. I understand what he says about risk-based, but sharing information with relevant public bodies and law enforcement agencies surely does not tie the registrar’s hand in any way. It must be remembered that while we can all applaud what has happened in Companies House and the change in culture that will follow, this is really a second attempt to tie things up. We should not forget that there was the first economic crime Bill, before the Minister came to his post, where much was promised, so this is the final word on it and the time to crystallise where we are on those things. Objective 5 is another step. If the Minister is saying that Companies House is coming a long way and it is further step to ask it to do this, that is an answer, but I do not think it is an answer that satisfies the Committee.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s comments. I do not believe that I suggested at any point that this was not baked into the cake of what Companies House is expected to deliver. I would be delighted to have further dialogue with Members around this but, in my humble opinion, the entire Bill is designed to ensure that the registrar takes a risk-based approach to ensuring the integrity of the information at Companies House. I am very comfortable on that, and the Government are very clear on it. We are wary of having duplicative statements in the Bill because that causes more complications when we are trying to create the enforcement regime and the integrity regime that we want to bring to bear.
On the key clauses and the language therein, I am certainly happy to consult my dictionary as noble Lords suggest. I am sorry that I was unable to bring one with me. It would be unusual for us to be quite so prescriptive in part 3 of the four objectives. I am delighted to have further conversations if noble Lords feel that that would be more helpful in setting the right cultural change at Companies House, but I am wary of being too prescriptive. I hope this is not misunderstood by Members of this Committee, but we want to avoid a box-ticking exercise because that is exactly what criminals like, as they can then navigate the system. We want to allow the registrar and her officers to use their judgment because that will lead to far better outcomes when it comes to achieving the mission that all of us are embarking on together.
Lord Browne of Ladyton (Lab)
On a plain reading of this clause, the registrar is being required to promote these objectives, but in objective 4 she is being required not to prevent but
“to minimise the extent to which”
crimes can be committed. What is the problem about setting an objective that she is to prevent, and Parliament is telling her that is the objective we want her to have but recognising of course that perfection is very seldom found in these situations? Why do we set an objective that is less than what we really want? There is no question that Parliament wants these crimes prevented, not minimised.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s comment. We have discussed this at some length. I am personally very comfortable defining further the usage of “minimise”, but the intention is very clear. This is not about “minimising” criminal activity to a so-called acceptable percentage; it is ultimately to eradicate it entirely. I am sure there are good reasons why this language has been used, in order to enable an element of flexibility and facilitation for this Bill to operate effectively. I am sure noble Lords will sympathise with me when it comes to legal drafting of text, but the assurances around this Bill are that it should do exactly what we want it to do. I ask noble Lords not to press their amendments and I commend Amendment 1.
Lord Johnson of Lainston
“(2) In Objective 2 the reference to “the register” includes any records kept by the registrar under any enactment.”Member’s explanatory statement
This amendment ensures that Objective 2 as amended applies not only in relation to the register of companies but also in relation to any other registers and documents kept by the registrar under legislation.
Lord Ponsonby of Shulbrede (Lab)
My Lords, this is a wide-ranging group of amendments which focuses mostly on the amount of information given about subscribers, founding shareholders and limited companies when registering a company and ongoing shareholders. The amendments in the names of the noble Lords, Lord Vaux and Lord Agnew, are aimed at making it transparent whether subscribers and shareholders are holding shares on their own behalf or on behalf of others.
Currently, information about subscribers is very limited. The amendment in my noble friend’s name, and other Back-Bench amendments, are aimed at helping provide more information. The amendment would require the nationality and country of residence of subscribers. There has been a huge increase in the number of shell companies with directors based abroad. This is one step we can take to increase transparency and fight against the UK’s reputation for tolerating dirty money. The theme of this group as a whole is increasing transparency; there are various specific amendments with that aim in mind. I beg to move.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for accommodating this intervention. I thought it would aid noble Lords in having a productive debate if I set out up front the intention of the government amendments in this group, given that it contains a significant number and, as I understand it, the amendments in the name of the noble Lord, Lord Vaux of Harrowden, seek to build on them.
The government amendments seek to further strengthen transparency of shareholder data on the company register. I hope they will reassure noble Lords that the Government take this topic very seriously. A core purpose of the register of companies is to provide details of company ownership. However, users of the register have reported some problems with the way in which company ownership data is recorded. That is why the Bill contains measures to increase the usefulness of the information held on the shareholders, subscribers and guarantors—also known as members—of companies.
The Government appreciate the concerns expressed during the passage of the Bill by expert witnesses and parliamentarians about member information. However, I stress that we are also mindful of stakeholder concerns about imposing disproportionate burdens on businesses. The 2019 corporate transparency and register reform consultation proposed that non-traded companies, such as companies that are not listed on any regulated market, be required to collect the usual residential address and date of birth of their members. Consultation responses were mixed, and the Government concluded that the case had not adequately been made for the collection of the information, given the potential burden on businesses.
The Government consider that the approach taken with these amendments balances competing stakeholder concerns proportionately. The amendments will help to ensure that the policy intent of provisions in the Bill and the Companies Act 2006 are met without imposing undue burdens on business before further consultation is carried out.
Amendment 31 inserts a new clause into the Bill, which will amend the Companies Act 2006 to create an express requirement that old information must be retained where it changes. So, if a member’s name, address or shareholding changes, that old information must be retained for as long as the Companies Act 2006 allows. That is currently implied by other sections of the Companies Act 2006, but the law is unclear. For example, Section 121 states that an “entry” relating to a former member of a company may be removed from the register after the expiration of 10 years from the date on which he ceased to be a member. The retention of old information should already be current practice as it is in a company’s own interests to retain such information for audit purposes. Retrospective disputes relating to votes, dividends, and tax could all hinge on who owned shares at a point in time.
The new clause inserted into the Bill by Amendment 31 will also amend the Companies Act 2006 to provide powers to companies to ensure that member information is provided and kept up to date. The amendments also provide duties for members to provide their information and keep it up to date. There are offences for companies and members failing to comply with the new requirements without a reasonable excuse. That will ensure that the requirements are taken seriously by both companies and members and will enable more effective enforcement activity.
Amendments 6, 31, 34, 59 and 66 restructure existing provisions in the Bill that in turn amend the Companies Act 2006. They also provide powers to strengthen the regime by regulations. The powers allow regulations to require more information to be provided and to ensure that any new personal information is protected as appropriate. That would allow the Government to act swiftly to require more information to be provided if it is deemed proportionate to do so—again, following further consultation. Equally, law enforcement agencies may identify additional types of information that the registrar could require the collection of, which would help them in the prevention and detection of crime.
If new information is later required, it may not be appropriate for it to be made available for public inspection or disclosed except in specified circumstances—for example, if regulations later require a person’s personal email address to be provided, as that could have unintended consequences with spam mail and so on. These amendments ensure that personal information can be protected where appropriate, applying the principles from similar provisions in the Companies Act 2006 and this Bill to these measures.
I want to highlight that the power in new Section 113C could be used to limit any additional information requirements to companies that are not traded on any listed market, as those companies are already subject to similar disclosure requirements. That would reduce the burden on business, in line with the proposals in the 2019 consultation.
These amendments set up the framework for the policy intent to be met and leave the heavy lifting to regulations, once consultation has been carried out. The Government consider that to be an appropriate balance, as all regulations will be subject to the affirmative resolution procedure such that Parliament will have its say when those regulations are made.
The Government intends to remove Clauses 2, 4, 46 and 47 from the Bill because the provisions of those clauses are amended and/ or incorporated into the new clauses that I have described. Amendments 35 to 38, 60 to 62 and 67 allow the provisions to be sequenced more coherently and make consequential drafting tweaks.
I hope that noble Lords will support the amendments, and I look forward to the rest of this debate.
Lord Vaux of Harrowden (CB)
My Lords, I shall speak to Amendments 7, 8, 32 and 33 in my name. Before I start, I hope the Committee will not mind if I point out that my name is pronounced “Vawks”. It is astonishing how many different pronunciations of a four-letter word it is possible to come up with. I should also remind the Committee of my interest in the register as a non-practising chartered accountant.
I thank the Minister for arranging to meet me to discuss the various amendments that I have tabled and for his engagement so far. Like, I think, everyone in the Room, I support everything that the Government are trying to achieve with this Bill. My amendments to the Companies House section try to make it more effective in achieving the Government’s stated aim, which the Minister explained at Second Reading is to
“bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide”.
He went on to say that:
“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business.”
I think we all agree with that, but the Bill remains weak in improving transparency.
At Second Reading the noble Lord also said that the Bill would be
“helping to ensure that we know the real people acting for, and benefiting from, companies.”
The Bill makes some improvements in that respect, but it is pretty thin gruel and is not likely to make any real practical difference unless it is strengthened. That is what I am trying to do with these amendments, which I have tabled as amendments to the government amendments.
Lord Clement-Jones (LD)
My Lords, I think I need to say very little given the barrage we have heard. These Benches firmly support the amendments of the noble Lord, Lord Vaux, and congratulate him on putting up with the mispronunciation of his name on such a consistent basis. I expect that the noble Lord, Lord Faulks, has exactly the same problem, so there is a commonality across the Benches here. The noble Lord, Lord Agnew, talked about “heavy lifting” and others have talked about “very light requirements”. Those who have argued for the amendments have made a very strong case, not least my noble friend Lord Wallace of Saltaire on the implications for overseas territories and revealing beneficiaries there. Transparency is the essence of what we are trying to achieve here.
I think we all agree that one of the core competencies of Companies House needs to be expertise in verifying the identity of applicants, whether subscribers or members, and so on. Identity verification, which we will discuss throughout Part 1, will be a vital tool in the policing of the sector if it is to be successful and should be a core competence of what we might call the new model of Companies House. There is some doubt about how far this is being, in a sense, outsourced to others. These amendments make it absolutely clear, particularly as regards nominees, that it should be the applicant and Companies House which make sure that we know who we are dealing with here. It has several distinct advantages and, as everyone has emphasised in this debate, is not an onerous requirement.
Lord Johnson of Lainston (Con)
I thank noble Lords for their amendments. The Government appreciate their intent but consider that we already have the powers we need in the Bill to address the substance of these concerns. Following on from comments from my noble friend Lord Faulks and the noble Lord, Lord Clement-Jones, we are not discussing the verification of corporate providers. I think there is a significant amount of discussion to be had on that a bit later.
I totally agree about the importance of the transparency of the records and understanding who the beneficial owners of companies are—that is the whole point of much of the work we are undertaking today. On the comments of the noble Lord, Lord Vaux, about the ownership level of 25%, in a private company you have to have your identity verified if you are a director, own 25% or more of the company or are a person with significant control. To clarify, the 25% level does not denote a person with significant control. Somebody who has one share can be a person with significant control, and it is the company’s duty to report who they are. It is extremely important to make that clear in this discussion.
I was not in this great House for the previous piece of legislation, the debate on which has resulted in this new piece of legislation, but I am very aware of the importance of understanding who stands behind the companies—as has rightly been said, to quote myself, the people acting for and benefiting from companies. The 25% level does not denote a person with significant control, and companies suffer significant penalties—the penalty regime, which I am happy to share with noble Lords, is substantial and at the very core of this process.
Lord Vaux of Harrowden (CB)
The noble Lord is quite right: there is the question of being able to influence or control the company other than through shareholdings, but he referred to penalties and so on. How many times has anyone been penalised for failing to provide information about being a person with significant control when they did not hold 25%?
Lord Johnson of Lainston (Con)
That is exactly the sort of question that should be asked; I look forward to returning to this Committee with the answer, as I unfortunately do not have it at my fingertips. However, I know that Companies House continues to do a great deal of investigation into these matters, even before this Act has come into place.
The noble Lord, Lord Vaux, also raised an important point in saying that it is too easy and cheap to create a company and that the 1855 principles around the corporate veil are a privilege. At the time, they were considered a great risk to the economy, abrogating people of their personal responsibilities and liabilities to the debts of their businesses. It caused great debate, as noble Lords may remember—looking around the Room, not all noble Lords will, but some may. It is important to understand that it comes with privileges and obligations.
Having done a great deal of investigation into this Act, of the 4.8 million companies on the register, I would have thought that many should not be limited companies; it is not necessary for a sole trader or a small partnership to have a company, so I have a degree of sympathy for upgrading the entire concept of what a limited company is and what sort of information should be provided. It may be important, philosophically, to look at it in that way, rather than simply saying, “Here are a very large number of companies; if we impose undue obligations on them, that will be unfair or overly burdensome to businesses.” It is not unreasonable to look at the picture in the round.
Having said that, we undertook a variety of consultations and feel that the way this Bill has been drafted gives us the security to understand who the beneficiaries of companies are and the requirements of companies to record that information and link those individuals across the information processes and systems in Companies House to ensure that we have integrity of data. To require all shareholders to verify their identity would be unnecessarily burdensome for many thousands of companies and, potentially, millions of small shareholders who are simply passive holders of a business.
I would not like my comments to be taken in the wrong way—perhaps in the way that “minimise” has been taken—but we are making a significant change to the way that companies are established in this country and to the sorts of information levels that we require from businesses to ensure the integrity of data at Companies House, in what both individual directors, persons with significant control or corporate service providers and companies have to provide. It is very important that we do not lose sight of the fact that this country is one of the easiest places to do business in the world. Our wealth comes from our entrepreneurial nature and the importance of having a company structure, system and process that does not place unnecessary burdens where they will not necessarily add value.
I am, however, very open to further conversations to ensure that the philosophy presented here matches our ambition, which is to ensure that we understand who benefits from companies and who is behind them.
Lord Vaux of Harrowden (CB)
The noble Lord has explained the onerous nature of verifying the identity of every shareholder, which I accepted in part when I spoke. We will come back to that issue on Amendments 39 and 43. However, he has not talked about whether and why a shareholder making a simple statement as to whether they are holding the shares on their own behalf—and if they are not, on whose behalf they are—is particularly onerous. I am afraid that I do not see why it should be.
Lord Johnson of Lainston (Con)
The company is obliged to register if there is a person with significant control or someone with more than 25%. If it is not truthful in that registration, it will be committing an offence.
Lord Vaux of Harrowden (CB)
But that is different from any shareholder having to make the positive statement: “I am”—or “I am not”—“holding the shares on my own behalf”. It is very different from, “I’ve got 25% and therefore I have to make some disclosures”. Why is it a problem for an individual shareholder to say, “I’m holding these shares on my own behalf”, or “I’m holding them on behalf of somebody else”? I am sorry, but I really do not see why that is difficult or onerous. It is a very different thing from the 25% threshold that the Minister just mentioned.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s intervention. I expect some of this comes down to nominee companies and the roles that they perform on shareholder registers, but I am happy to look in more detail at this point. We had the good fortune to have a conversation about this some days ago and came to the conclusion that it was certainly worth further investigation to ensure that anyone who puts information on to the Companies House website has to ascertain whether they are acting on behalf of other people. However, I believe, and very much hope, that the answer will lie in the depths of the legislation.
My noble friend Lord Agnew’s amendment is very similar. I hope I have covered this point, particularly in relation to the PSC framework already in place.
I turn to Amendment 5, and thank the noble Lord, Lord Ponsonby, for his helpful replacement of the noble Lord, Lord Coaker, in speaking to it. The amendment would require a memorandum of association to include the nationality and country of ordinary residence of each subscriber. A memorandum of association is a memorandum stating that the subscribers wish to form a company, and they agree to become members of that company. Their names are then entered into the company’s register of members.
This amendment, if I may be so bold, would not require the same information to be provided by persons who later become members. Frankly, it is considered that that would create inconsistency between the information requirements of members who were subscribers and other members. The Government consider that any new information requirements should be consistent between the two.
The Government appreciate the intent behind the amendment, but we consider that this would be better addressed by consulting stakeholders about what additional information, if any, it would be proportionate to require every company to provide about all its members, rather than just subscribers who are individuals. To reinforce that point, we would look to consult stakeholders about what additional information it would be proportionate to require.
This Bill, and government amendments to it, provide the powers to require additional information to be provided via regulations. This discussion can happen on an ongoing basis, and we welcome that. The government amendments that I outlined earlier signal our willingness to review the position on this issue, albeit having first consulted stakeholders, given the potential burdens involved. I know we all agree about the importance of keeping the legislation sensible so that it does not impinge on our entrepreneurial spirit and the creation of companies in this country. That is absolutely right, and noble Lords would expect the Government to consult in ensuring that we get the right information registered in the right way. I hope this reassures the noble Lord and that he will withdraw his amendment.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank all noble Lords who have spoken in this relatively short but important debate. I make it clear to the Minister that I do not think anyone contributing to this discussion was questioning the underlying philosophy of the Bill. Indeed, we were trying to enhance its underlying philosophy, which is to provide greater transparency about who the ultimate beneficial owners of all these companies are.
The Minister’s response to the various amendments was about disproportionality. He said that they would put disproportional burdens on smaller companies, that personal information may be made available, and that people should be protected from spam, promoters and so on. I do not think anyone is questioning that. Various amendments put forward by various noble Lords try to increase transparency and to stop people being able to hide behind layers and layers of nominee companies.
I was drawn to what the noble Lord, Lord Vaux, said: “Having to lie in public is very different from just keeping quiet”. That is a very sound principle to operate on. He also made the point that identifying shareholders should be the same as identifying directors or people with significant control. That is a second principle behind his amendments.
Lord Johnson of Lainston
“Information about subscribers
(1) The Companies Act 2006 is amended as follows.(2) In section 9 (registration documents)—(a) after subsection (3) insert—“(3A) The application must contain—(a) a statement of the required information about each of the subscribers to the memorandum of association (see section 9A),(b) a statement that none of the subscribers to the memorandum of association is disqualified under the directors disqualification legislation (see section 159A(2)),(c) if any of them would be so disqualified but for the permission of a court to act, a statement to that effect, in respect of each of them, specifying—(i) the subscriber’s name,(ii) the court by which permission was given, and(iii) the date on which permission was given, and(d) if any of them would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect, in respect of each of them, specifying—(i) the subscriber’s name, and(ii) the date on which it was issued and by whom it was issued.”;(b) after subsection (6) insert—“(7) In subsection (3A)(c) “permission of a court to act” means permission of a court under a provision mentioned in column 2 of the table in section 159A(2).”.(3) After section 9 insert—“9A Required information about the subscribers(1) The required information about a subscriber who is an individual is—(a) name;(b) a service address.(2) The required information about a subscriber that is a body corporate, or a firm that is a legal person under the law by which it is governed, is—(a) corporate or firm name;(b) a service address.(3) In subsection (1) “name” means the individual’s forename and surname.(4) Where a subscriber is a peer or an individual usually known by a title, that title may be stated in the application for the registration of the company instead of the subscriber’s forename and surname.(5) The Secretary of State may by regulations—(a) amend this section so as to change the required information about a subscriber; (b) repeal subsection (4).(5) Regulations under this section are subject to affirmative resolution procedure.”.(4) In subsection 10 (statement of capital and initial shareholdings), omit subsection (3).(5) In subsection 11 (statement of guarantee), omit subsection (2).”Member’s explanatory statement
This expands the information that an application for the formation of a company must include about the subscribers and confers a power to amend that information (similar powers currently exist in sections 10(3) and 11(2) of the Companies Act 2006). The clause also incorporates material from Clauses 2 and 4.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on the amendments to Clause 40 that appear in the Minister’s name.
Lord Johnson of Lainston (Con)
My Lords, I begin by apologising for my lack of fluidity in the procedures of Committee stage—I have not taken such a complex and important Bill through before, so I am grateful for noble Lords’ indulgence and apologise for any confusion caused.
I speak now to the set of government amendments in this group: Amendments 9 to 12, 25 to 30, 40 and 41. These will replace existing Clauses 36 and 38. They create a completely new type of sanctions measure in the Sanctions and Anti-Money Laundering Act 2018 called “director disqualification sanctions”. It will be unlawful for a designated person subject to this new measure to act as a director of a company. These amendments improve and extend the existing clauses, which prohibit individuals who are subject to the asset freeze sanctions measure from acting as directors of companies. Instead of automatically applying director disqualification status to individuals who are subject to an asset freeze only, this amendment allows Ministers to apply the new measure on a case-by-case basis using the existing designation procedure within the Sanctions and Anti-Money Laundering Act 2018. That will ensure that the measure can be better targeted at those designated persons who are acting, or could act, as directors. It provides the Foreign, Commonwealth and Development Office with flexibility as to when to apply it and does not limit it in applying it only to people subject to an asset freeze. That is standard practice for our other designation-based sanctions measures, such as asset freezes and travel bans.
It will be for the Foreign Secretary to decide when and how to deploy the measure, alongside the full suite of other sanctions measures. For instance, this measure could be applied on its own or alongside an asset freeze, travel ban or other measures. While other countries may be able to prevent designated persons from acting as company directors through the effect of other prohibitions, we will be the first country to introduce this as a specific type of sanctions measure.
The amendment will utilise the procedures set out in the Company Directors Disqualification Act 1986 to disqualify the designated person from directorship of UK companies. An individual subject to this new measure will commit an offence if they act as a director of a company or take part in the management, formation or promotion of a company.
As with existing sanctions measures, the relevant authority will be able to issue a licence to an individual to allow them to undertake activity that is otherwise prohibited. This may be necessary, for instance, where the individual needs to continue to act as a director for a short period of time in order to wind down the company. Additionally, the Secretary of State can by regulations create exceptions to provide more general carve-outs from the sanction.
Information about individuals who are subject to this new sanction, and any relevant licences, will be published on the director disqualification register maintained by Companies House, as well as on the UK sanctions list. This will ensure that the use of the sanction is transparent. It will also make the information more easily accessible. Members of the public will be able to find all the relevant information on the existing register, and will not have to search unfamiliar sources to access information on disqualified directors.
Introducing this new director disqualification sanctions measure will be an important addition to the UK’s sanctions armoury. I beg to move Amendment 9 and very much hope that noble Lords will support the other government amendments in this group.
Lord Agnew of Oulton (Con)
My Lords, I shall speak to my amendment on designated persons. The Minister is already dealing with this issue in some of his own amendments, but I stress that mine would be a slight tweak to the system that would have enormous power over the very few people who would be impacted. Last year only 1,200 people were designated for the Russian activities—across the whole world, not just by us—so we are talking about low numbers of thousands of people relative to the 5 million on the register. We also know that some of these bad actors got wind of their designation before it happened and were able to reorganise their financial affairs, so the horse had well and truly bolted by the time we rumbled into action. This slight amendment would give much more transparency into what these people were doing and allow the enforcement agencies to act accordingly.
Lord Wallace of Saltaire (LD)
My Lords, I note that these various amendments cover England and Wales, Scotland and Northern Ireland, but the UK financial system very much includes Jersey and Guernsey for a great many company formations and associated company forms. I wonder whether at this stage the Minister could explain whether or not the disqualification of persons from being directors within the UK will in time apply to the Crown dependencies, or whether one will still be able to act as a director for companies formed in the Crowd dependencies while disqualified within the UK.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s comment about the Crown dependencies. I am happy to confirm that this debate develops the specific answer to his question. My assumption would be that they fall under the register of overseas entities and the requirements placed around them, but I will confirm that. The noble Lord makes a very valid point. It would be peculiar if we did not include the Crown dependencies of Jersey and Guernsey in our legislation. My assumption is that they are well covered, and I hope that is the case.
I thank my noble friend Lord Agnew of Oulton for his Amendment 24. I assure him that I do not think it is necessary to achieve his intentions. Provisions in the Bill already allow Companies House proactively to share data more widely for purposes connected with its functions. Data sharing will also be permitted to assist public authorities with exercising their own functions. This will include government bodies such as OFSI, which is part of His Majesty’s Treasury, the National Crime Agency and so on. Examples of data sharing could be for the purpose of confirming the accuracy of data provided to the registrar to ensure the register is kept up to date or for passing on intelligence to law enforcement agencies to minimise criminal activity.
Companies House will operate a risk-based approach targeting its efforts primarily in those areas where information and intelligence gleaned through new data-sharing powers and through Companies House’s own systems and processes suggest that particular scrutiny is warranted. The Government believe that this amendment, while well intentioned, is overly prescriptive and would lead to Companies House having to share potentially irrelevant and unnecessary information with OFSI and NCA. This would be an inefficient use of government resources and could lead to more serious intelligence that needs to be shared being missed. Although Companies House already works very closely with government departments, including HM Treasury’s OFSI and law enforcement agencies, this Bill will strengthen these existing relationships through enhanced data-sharing provisions.
This amendment seeks to impose a duty on the registrar only with regard to material information, which it leaves undefined. The imposition of such a vague duty could lead to confused and ineffective results and underlines the importance of the registrar being able to share data using a risk-based approach. Furthermore, information about individuals who are subject to this new sanction and any relevant licences will be published on the director disqualification register maintained by Companies House as well as on the UK sanctions list to ensure that the use of the sanctions measure is transparent. Discussions about implementing the new sanctions measure, including data sharing between Companies House, the Department for Business and Trade and the Foreign, Commonwealth and Development Office, are already under way to ensure that the new measure is effective. For the reasons set out above, I ask my noble friend not to move his amendment.
Lord Johnson of Lainston
“(7) Where any of the persons named as directors would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, the statement must also include a statement to that effect, in respect of each of them, specifying—(a) the person’s name, and(b) the date on which the licence was issued and by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
Lord Johnson of Lainston
(c) if any of them would be so disqualified by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect, in respect of each of them, specifying—(i) the person’s name, and(ii) the date on which the licence was issued and by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
Lord Johnson of Lainston (Con)
I greatly thank the noble Baroness, Lady Blake, for speaking in this debate and for tabling Amendment 13, to which I will now respond. All these amendments are concerned with directions issued to a company by the Secretary of State requiring it to change its name under provisions already in the Companies Act 2006 and added to that Act by virtue of the Bill.
I am very sympathetic to some of the background comments relating to this amendment, but we feel that it is better to allow an element of flexibility around the time it takes a company to change its name. There is already a 28-day target point, and it is right that the Secretary of State has the opportunity to extend that.
Noble Lords in the Committee who have been involved in company management will know that sometimes, in order to have a formal resolution, there are certain requirements of notice periods for boards, which can be 30 days. For the businesses I have been involved in, that tended to be common practice; you can have a special resolution, but it is more important that the change happens and that we do not necessarily set arbitrary timelines, which could cause other issues at a later date.
I am very comfortable with having a further discussion with the noble Baroness and her colleagues about this in case something has been missed in the debate. Ultimately, I believe that we have set the right level of activity requirements and that allowing the Secretary of State to have the flexibility would be more appropriate given the ambitions we are trying to achieve.
The second element of the amendments—I am not sure whether they were spoken to, but they were certainly proposed so it is worth covering them briefly because they are part of the debate—is the requirement for the Secretary of State to publish details of any directions. Directions are issued to companies by the Secretary of State rather than the registrar so they do not form part of the company register, which is a record of information provided to the registrar by companies and material issued to companies by the registrar. We do not believe it would be appropriate to depart from that principle. However, to repeat commitments made at earlier stages of the Bill, we would be happy to examine on a case-by-case basis the appropriateness of annotating the register where name change directions have been issued. I therefore ask the noble Baroness to withdraw her amendment.
Baroness Blake of Leeds (Lab)
I thank the Minister. I was indeed referring to all the amendments in the group. I note his offer of further conversations to make sure that we have absolutely nailed down the clarification that we are seeking and beg leave to withdraw the amendment.
Lord Clement-Jones (LD)
My Lords, I have very little to add to what my noble friend said. This is clearly a bit of a curate’s egg and Amendment 23 is a good start, but there are objections to it, which were very well set out by the noble Lords, Lord Leigh and Lord Vaux. As my noble friend said, it is quite usual to use professional offices as a registered office. I hope the Minister will acknowledge that new subsection (2) in Clause 29(3) is not as good as it should be and that he will take on board some of the points made about Amendment 23. Then, we would be in a much better place.
Lord Johnson of Lainston (Con)
I thank the noble Lords, Lord Vaux and Lord Leigh, the noble Baroness, Lady Blake, and the noble Lords, Lord Thomas and Lord Clement-Jones, for their contribution to the debate on this issue.
The Government’s view is that Clause 29 already introduces a revised Section 86 to the Companies Act 2006 in an effort to introduce a definition of what constitutes an acceptable and effective address for a company’s registered office. The amendment seeks to define the opposite: what would not represent an appropriate address. I hope your Lordships will agree with the following argument for why that is unnecessary.
I begin with the suggestion that PO box addresses be explicitly forbidden. We do not believe there is a need for this. A PO box address cannot be an address at which deliveries can be acknowledged, nor an address to which a sender can be assured that what is sent will find its way to the hands of a company representative. It is therefore clearly not an appropriate address—we very much agree with the noble Baroness on that.
I turn to the “reasonable suspicion” element of the amendment. Where the registrar has reasonable grounds to suspect that the company does not have permission to use an address, she will almost inevitably conclude that the conditions that I have just mentioned will not be capable of being met and, again, she will be within her rights to reject or force the company to change it as appropriate.
The other element of the amendment would prevent companies having their registered office address anywhere other than their main place of business. There are, frankly, many reasons why a company may choose to separate the two, so this could be problematic for many companies. That includes, for example, particularly small enterprises that carry out businesses from home but choose to register the company at the premises of their accountant in order to protect their residential address details, which I think we would agree is perfectly reasonable. We have been at pains elsewhere in the Bill to introduce measures to extend, where appropriate, the ability to suppress addresses that the public have access to which might jeopardise the safety or security of individuals. There are elements of the amendment that we believe would run contrary to those aims.
I hope the Committee will be reassured that new Section 86 will be an effective means by which to monitor and police the accuracy of company address information and that the noble Baroness will feel able to withdraw her amendment. As a final point, I personally have great sympathy with the ambitions of the amendment to make sure that the right address is being provided for the company register, but I hope I have laid out the reasons why the processes that the Government have put in the legislation should be sufficient to ensure that real addresses are given and other protections are employed.
Lord Faulks (Non-Afl)
Personally, I am convinced by what the Minister has said about the substitute for Section 86. I just have one query. It creates an offence whereby a person is guilty on summary conviction. The offence appears to be committed by a company and
“every officer of the company who is in default.”
Could the Minister help with who the statute envisages will be an officer of the company who is in default?
Lord Johnson of Lainston (Con)
I appreciate that comment. I will come back to the noble Lord with more detail, if that is possible.
Baroness Blake of Leeds (Lab)
I thank noble Lords for their comments, and I thank the Minister for his explanation. We will of course take those comments away and consider them, but at the moment I feel that there is still room to explore this issue and perhaps come up with another form of wording to take forward at a future stage. As I said earlier, the emphasis on reflecting the fact that the onus is on a business to prove that it is legitimate will need to run through all this. With those comments, and in anticipation of future discussions, I beg leave to withdraw the amendment.
Lord Johnson of Lainston
“Power to impose director disqualification sanctions
(1) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.(2) In section 1 (power to make sanctions regulations), in subsection (5), after paragraph (a) insert—“(ab) impose director disqualification sanctions (see section 3A);”.(3) After section 3 insert—“3A Director disqualification sanctions(1) For the purposes of section 1(5)(ab) regulations “impose director disqualification sanctions” if they provide for designated persons (see section 9) to be persons subject to director disqualification sanctions for the purposes of—(a) section 11A of the Company Directors Disqualification Act 1986, and(b) Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.(2) As to the effect of such provision, see—(a) section 11A of the Company Directors Disqualification Act 1986, and(b) Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.”(4) In section 9 (“designated persons”)—(a) in subsection (1), for “3 and 4” substitute “3 to 4”;(b) in subsection (3), after “3,” insert “3A,”.(5) In section 15 (exceptions and licences), after subsection (3) insert—“(3A) Where regulations provide for designated persons to be persons subject to director disqualification sanctions for the purposes of section 11A of the Company Directors Disqualification Act 1986 and Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002, the regulations may—(a) create exceptions from subsection (1) of that section or paragraph (1) of that Article;(b) confer power on an appropriate Minister to issue a licence to authorise a designated person to do anything that would otherwise be prohibited by subsection (1) of that section or paragraph (1) of that Article.(3B) Regulations may, as respects any licences provided for under subsection (3A), make any provision mentioned (in relation to licences) in subsection (3).””Member’s explanatory statement
This Clause would allow an appropriate Minister to designate a person as subject to “director disqualification sanctions” for the purposes of section 11A of the Company Directors Disqualification Act 1986 and Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
Lord Johnson of Lainston
“Disqualification of persons designated under sanctions legislation: NI
(1) The Company Directors Disqualification (Northern Ireland) Order 2002 (S.I. 2002/3150 (N.I. 4)) is amended as follows.(2) After Article 15 insert—“15A Designated persons under sanctions legislation(1) It is an offence for a person who is subject to director disqualification sanctions to act as a director of a company or directly or indirectly to take part in or be concerned in the promotion, formation or management of a company (but see paragraph (2)).(2) Paragraph (1) does not apply—(a) to the extent that an exception from paragraph (1) has been created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, or(b) to anything done under the authority of a licence issued by virtue of section 15(3A) of that Act.(3) It is a defence for a person charged with an offence under this Article to prove that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they engaged in that conduct.(4) In this Article “person who is subject to director disqualification sanctions” means a person who under regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 is a person subject to director disqualification sanctions for the purposes of this Article (see section 3A of that Act).”(3) In Article 18 (criminal penalties)—(a) omit “15,”;(b) for “and” substitute “; and any person guilty of an offence under this Article or Article 15 or 15A”.(4) In Article 19 (personal liability for company’s debts where person acts while disqualified)— (a) in paragraph (1)(a), after “Article 15” insert “, 15A”;(b) omit the “or” at the end of paragraph (1)(a);(c) after paragraph (1)(b) insert “, or(c) as a person who is involved in the management of the company, they act or are willing to act on instructions given in contravention of Article 15A or section 11A of the Company Directors Disqualification Act 1986.”;(d) after paragraph (1) insert—“(1A) A person who is subject to director disqualification sanctions (within the meaning of Article 15A) and is involved in the management of a company is not personally responsible under paragraph (1)(a) for all of the relevant debts of a company if the person proves that they did not know and could not reasonably have been expected to know that they were subject to director disqualification sanctions at the time at which they were so involved.”;(e) in paragraph (3)(b), after “(1)(b)” insert “or (c)”.”Member’s explanatory statement
This Clause provides that any person who has been designated as being subject to director disqualification sanctions will be committing an offence if they act as a director etc. in NI, unless they have been issued with a licence or unless an exception applies.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI)(which are inserted after Clauses 36 and 38).
Lord Johnson of Lainston
“Register of members: information to be included and powers to obtain it
(1) The Companies Act 2006 is amended as follows.(2) In section 112 (the members of a company), at the end insert—“(4) Where an individual’s name is entered in a company’s register of members but is not in the form required by section 113A, that does not affect the person becoming a member of the company by virtue of subsection (2).”(3) For the italic heading “General” at the beginning of Chapter 2 of Part 8 substitute “Duty to keep register”.(4) In section 113 (register of members)—(a) for subsection (2) substitute—“(2) There must be entered in the register, in respect of each person who is a member—(a) the required information (see sections 113A and 113B), and(b) the date on which the person was registered as a member.(2A) Where a person ceases to be a member there must be entered in the register the date at which the person’s membership ceased.”;(b) in subsection (3), omit “, with the names and addresses of the members,”;(c) in subsection (5), after “show a single” insert “service”;(d) in subsection (6), omit “, with the names and addresses of the members,”;(e) after subsection (6) insert—“(6A) Where any of the information required to be entered in a company’s register of members changes—(a) that does not relieve the company from the obligation to include the old information in the register if it has not already done so,(b) the old information must be retained in the register until its removal is authorised by section 121 or by court order under section 125, and(c) a note must be included in the register recording the date on which the information changed and the date on which the change was entered in the register.”;(f) in subsection (7), after “If” insert “, without reasonable excuse,”.(5) After section 113 insert—“113A Required information about members: individuals(1) The required information about a member who is an individual is—(a) name;(b) a service address. (2) In this section “name” means forename and surname.(3) Where a member is a peer or an individual usually known by a title—(a) any requirement imposed by section 113D or 113E, or by a notice under section 113F, to provide their name may be satisfied by providing their title instead;(b) the title may be entered in the register of members instead of their forename and surname (and references in any enactment to the name of a person entered in a company’s register of members are to be construed accordingly).113B Required information about members: corporate members and firmsThe required information about a member that is a body corporate, or a firm that is a legal person under the law by which it is governed, is—(a) corporate or firm name;(b) a service address.113C Power to amend the required information(1) The Secretary of State may by regulations—(a) make provision changing the required information about a member for the purposes of this Chapter;(b) repeal section 113A(3).(2) The provision that may be made in regulations under subsection (1)(a) includes provision amending this Chapter.(3) The consequential provision that may be made in regulations under subsection (1)(a) by virtue of section 1292(1) also includes provision amending section 51 of the Economic Crime and Corporate Transparency Act 2023.(4) Regulations under subsection (1) are subject to affirmative resolution procedure.113D Duty on new members to notify required information(1) A person who becomes a member of a company must provide the company with the required information about the member (see sections 113A and 113B).(2) Subsection (1) does not apply if or to the extent that—(a) the person has already provided the information to the company, or(b) the person becomes a member of the company on its incorporation and the information is contained in the application for the registration of the company.(3) A person must comply with this section within the period of two months beginning with the date on which the person became a member.113E Duty on member to notify changes to required information(1) A person who is a member of a company must give notice to the company of any change in the required information about the member (see sections 113A and 113B).(2) The notice must specify the date on which the change occurred.(3) A person must comply with this section within the period of two months beginning with the date on which the change occurred.113F Power for company to require information from members(1) A company may, for the purposes of ensuring that its register of members includes the information that it is required to include, require a member or former member of the company to provide any of the required information about the member or former member (see sections 113A and 113B). (2) The notice must require the recipient to comply with it within the period of one month beginning with the date on which the notice is given.113G Failure to comply with section 113D , 113E or 113F(1) A person who, without reasonable excuse, fails to comply with section 113D or 113E commits an offence.(2) A person who, without reasonable excuse, fails to comply with a notice under section 113F commits an offence.(3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum;(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum.113H Basic false statement offences in connection with sections 113D to 113F(1) A person commits an offence if, in purported compliance with section 113D or 113E and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(2) A person commits an offence if, in purported compliance with a notice under section 113F and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on summary conviction in England and Wales, to a fine;(b) on summary conviction in Scotland, to a fine not exceeding level 5 on the standard scale;(c) on summary conviction in Northern Ireland, to a fine not exceeding level 5 on the standard scale.113I Aggravated false statement offences in connection with sections 113D to 113F(1) A person commits an offence if, in purported compliance with section 113D or 113E, the person makes a statement that the person knows to be misleading, false or deceptive in a material particular.(2) A person commits an offence if, in purported compliance with a notice under section 113F, the person makes a statement that the person knows to be misleading, false or deceptive in a material particular. (3) Where an offence under subsection (1) or (2) is committed by a firm, the offence is also committed by every officer of the firm who is in default.(4) A person guilty of an offence under this section is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction—(i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding 12 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum;(iii) in Northern Ireland, to imprisonment for a term not exceeding 6 months or a fine not exceeding the statutory maximum (or both) and, for continued contravention, a daily default fine not exceeding one-fifth of the statutory maximum.Duty to keep index of members”.(6) Section 115 (index of members)—(a) is moved to after the italic heading “Duty to keep index of members” inserted by subsection (5) of this section, and(b) is renumbered section 113J.(7) In that section as renumbered—(a) in subsection (1), for “names of the members of the company” substitute “names or titles of the members of the company (to be known as “the index of members’ names”)”;(b) for subsection (3) substitute—“(3) The index must include the same details of a person’s name or title as are entered in the register of members.”(8) Before section 114 insert—“Inspection etc of register and index of members”.(9) Before section 121 insert—“Removal of entries from register of members”.(10) In section 123 (single member companies)—(a) in subsection (1), omit “, with the name and address of the sole member,”;(b) in subsection (2), omit “, with the name and address of the sole member”;(c) in subsection (3), omit “, with the name and address of the person who was formerly the sole member”.(11) In section 771 (procedure on transfer being lodged), after subsection (1) insert—“(1A) The company may not register the transfer under subsection (1)(a) unless satisfied that it has the information that it is required to enter in its register of members in relation to the transferee.””Member’s explanatory statement
This Clause confers a power to amend the information that must be kept in a company’s register of members. It also creates an express duty for companies to retain old information about members (eg former address information).
Lord Johnson of Lainston
“(1) The Secretary of State may by regulations—(a) require a company to refrain from using, or refrain from disclosing, individual membership information except in circumstances specified in the regulations;(b) confer power on the registrar, on application, to make an order requiring a company to refrain from using, or refrain from disclosing, individual membership information except in circumstances specified in the regulations.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring a company to refrain from using or disclosing membership information, whether or not a member applies for protection.
Lord Johnson of Lainston
Member’s explanatory statement
This severs the link between the operation of Clause 51 and the commencement of Clause 46. The appointed day could be later than the commencement of Clause 46, allowing a company more time to obtain the information it has to provide to the registrar.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Ponsonby, for that summation. I am very grateful to noble Lords for the powerful reason which they bring to bear on these amendments. The Government are delighted to have more discussions around how we ensure that we have full knowledge of people who have control of companies and of companies’ beneficiaries. I believe that the Bill as it stands gives us that level of security. The Government would be reluctant to set arbitrary levels in terms of that above a certain percentage one should have additional registration information, but I am happy to have a discussion around those principles, if that is helpful.
If people do not have confidence in Companies House, we will not have achieved part of our goal, which is to give people a sense of that the data has integrity and is true. The whole point about this exercise is to make sure that people put the right data in so that we know who the people are who are behind businesses and people can trust that information. I am very sympathetic to this discussion, which is extremely important.
To balance this, I say that this is about helping businesses function better in a lawful environment. One can go to the ultimate degree in terms of requirements for information and verification that do not necessitate greater degrees of security but cause significant burdens for businesses. This is not simply about satisfying our desire for excess information simply for the sake it; it must be linked to whether this is going to help us achieve our basic goals, which is to understand who owns these businesses, who is behind them and who is benefiting from them. With that in mind, I am open to having further discussions, as my colleagues would be.
Lord Agnew of Oulton (Con)
I thank the Minister for his offer to have an ongoing conversation about this, because that is how you achieve the best results in these things. This very formal and rigid process of trying to look at individual clauses in isolation does not solve the problem. We have had several clauses this afternoon that all mesh together with one objective, which is to improve transparency. I take my noble friend Lord Leigh’s point about creating a bureaucratic system that impacts adversely on thousands of decent people, particularly small businesses. However, the transaction of changing car ownership in this country, where you have an asset worth a few thousand pounds, it is a very simple process. You fill in a change of ownership form, you send it to the DVLA, and the job is done—so to the point made by my noble friend Lord Faulks, I do not believe that we have to create a bureaucratic system to get transparency.
I remind noble Lords of the downside of not having this information. A case study was given to me by Members in the other place. The awful ammonium nitrate explosion in Beirut a couple of years ago killed and wounded hundreds of people. It was eventually uncovered that the company that owned the warehouse was a British-registered company, Savaro Ltd, but it was almost impossible to find out who the shareholders of that company were and to get to grips with who were the people who caused that terrible accident.
There is a lot more to this issue. As someone who has created a lot of small businesses in my career, I do not want a heavy hand on this, but light-touch regulation done well is the answer. I urge my noble friend to have an open conversation with Members here as a way of solving the problem in a business sense, not in this very formal way.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s summation. Again, I hope that the Government have demonstrated today that the principles of the Bill conform to the expectations and desires of this Committee. Clearly, there are details that require further discussion, and that debate will help propagate the ambitions and values that we are trying to inject into the Bill. I am grateful for the comments but, in this instance, I ask my noble friend to withdraw his amendment, given that we will have further discussions to try to ascertain the right levels and what burdens we should impose on business to achieve our outcomes.
Lord Johnson of Lainston
“(f) if the person would be disqualified under the directors disqualification legislation by virtue of section 11A of the Company Directors Disqualification Act 1986 or Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002 (designated persons under sanctions legislation) but for the authority of a licence of the kind mentioned in that section or Article, a statement to that effect specifying—(i) the date on which the licence was issued, and(ii) by whom it was issued.”Member’s explanatory statement
This amendment is consequential on new Clauses (Power to impose director disqualification sanctions), (Disqualification of persons designated under sanctions legislation: GB) and (Disqualification of persons designated under sanctions legislation: NI) (which are inserted after Clauses 36 and 38).
Lord Johnson of Lainston
“False statements about persons with significant control
(1) Schedule 1B to the Companies Act 2006 (enforcement of disclosure requirements in relation to persons with significant control) is amended as follows.(2) In paragraph 13, in sub-paragraph (1), omit paragraph (b) and the “or” before it.(3) In paragraph 14, in sub-paragraph (1), omit paragraph (b) and the “or” before it.(4) After paragraph 14 insert—“False statements: basic offence14A_(1) A person commits an offence if, in purported compliance with a notice under section 790D or 790E or in purported compliance with a duty imposed by section 790G or 790H, and without reasonable excuse, the person makes a statement that is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, an offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable on summary conviction—(a) in England and Wales, to a fine;(b) in Scotland, to a fine not exceeding level 5 on the standard scale;(c) in Northern Ireland, to a fine not exceeding level 5 on the standard scale.False statements: aggravated offence14B_(1) A person commits an offence if, in purported compliance with a notice under section 790D or 790E or in purported compliance with a duty imposed by section 790G or 790H, the person makes a statement that the person knows is misleading, false or deceptive in a material particular.(2) Where the person is a legal entity, an offence is also committed by every officer of the entity who is in default.(3) A person guilty of an offence under this paragraph is liable—(a) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both);(b) on summary conviction— (i) in England and Wales, to imprisonment for a term not exceeding the general limit in a magistrates’ court or to a fine (or both);(ii) in Scotland, to imprisonment for a term not exceeding twelve months or to a fine not exceeding the statutory maximum (or both);(iii) in Northern Ireland, to imprisonment for a term not exceeding six months or to a fine not exceeding the statutory maximum (or both).””Member’s explanatory statement
This is about the provision of false or misleading information about persons with significant control. The current offences require the prosecution to prove knowledge or recklessness in all cases. The amendment replaces that with a strict liability offence (not dependent on knowledge) and an aggravated offence (where there is knowledge).
Lord Johnson of Lainston (Con)
My Lords, I apologise if I have not followed the procedure correctly, but I am grateful to our Deputy Chairman of Committees for her guidance in getting us to the right place.
The purpose of Amendment 42 is to align the drafting of the false statement offences in the Companies Act with the equivalent offences in Section 15 of the Economic Crime (Transparency and Enforcement) Act 2022 and the amendments made by Clause 161 of the Bill. This will ensure the same approach to misconduct by a UK company or an overseas entity.
The current offences require the prosecution to prove knowledge or recklessness in all cases. The amendment replaces those offences with a strict liability offence not dependent on knowledge, and an aggravated offence where there is knowledge. The amendment also removes the need for the prosecution to prove recklessness in any case.
The amendment inserts new paragraph 14A into Schedule 1B to the Companies Act 2006. New paragraph 14A introduces a basic offence, where a person makes a statement that is misleading, false or deceptive in a material particular without a reasonable excuse.
The amendment also inserts new paragraph 14B into Schedule 1B to the Companies Act 2006. New paragraph 14B introduces an aggravated offence, where a person makes a statement that the person knows to be misleading, false or deceptive in a material particular. The penalties are more severe to reflect the knowledge of misconduct. If any of the three offences is committed by a legal entity, the offences are still also committed by every officer of the entity who is in default. I believe the noble Lord, Lord Faulks, raised that point. I am not sure whether there was confusion about whether it related to this part rather than an earlier part, but I would be delighted to clarify that point later.
The penalty for the basic offence is a fine. The penalty for the aggravated offence is up to two years’ imprisonment, or a fine, or both. The level of fines and prison sentences a person will be liable for are the same as for the equivalent offences in Clause 161 of the Bill. This amendment ensures that equivalent offences can be prosecuted in the same way, with the same penalties applied for non-compliance, whether the misconduct relates to an overseas or a UK entity. I beg to move.
Lord Ponsonby of Shulbrede (Lab)
This has been an interesting debate—and a very lawyer-heavy debate —on the juxtaposition of “strict liability” with “reasonable excuse”. I can claim some knowledge here as a sitting magistrate in that I deal with those sorts of things quite regularly, frequently with respect to knife crime and traffic matters. It is a conundrum; it is worth examining further and I hope the Minister will take it further.
The noble Lord, Lord Clement-Jones described this as above his legal pay grade. Talking as a magistrate, I am an unpaid legal practitioner. Nevertheless, the Minister should take up the invitation of members of the Committee to look at this further. I can see that it is open to confusion, and I also take the point made by the noble Baroness, Lady Bowles, about putting other officers in default. I hope that the Minister will take these comments in the spirit in which they were made and that there may be further opportunity for discussion on the points raised.
Lord Johnson of Lainston (Con)
I greatly appreciate the input from noble Lords. Knowing my record over the last hour, I will probably vote against this in any event.
I shall just explain this in my own words, if noble Lords will tolerate my lack of legal expertise. The point was that, until this amendment, you had to prove—I welcome interventions from noble Lords if they feel that I am straying into their legal territory—either dishonesty or recklessness, rather than simply misfiling, in order for there to be a prosecution, which set a very high bar for prosecution. As I understand it, a number of important prosecutions—which is the whole principle for us being here—failed because they were unable to prove that exceptionally high bar.
This therefore makes it an offence to misfile which, as has been rightly pointed out, is a statutory event. However, it would seem to be unreasonable that, if you accidentally put your address down as “46B” when it should be “46C”, you then receive a two-year prison sentence or indeed a significant fine. It is right in this instance that “reasonable excuse” is brought to bear.
Lord Vaux of Harrowden (CB)
Unfortunately, I do not think that is a “reasonable excuse”; that would not be a “material particular”.
Lord Johnson of Lainston (Con)
I am delighted that the noble Lord pointed that out; that is certainly true. I think noble Lords understand the direction of travel in the intent of this amendment. It is important; it is not simply tidying up. There are some elements of making sure that penalties relating to overseas entities relate to companies registered in the United Kingdom, but, following consultation with department officials, it seems to me that this is a very important part of the Bill. I do not support dropping it at this stage, but I am very comfortable having further conversations about it. I would be grateful if the Committee gave me a few moments to consult my team on the specifics about how to proceed. I want to make sure that we have a sensible and reasoned debate but that I do not get the process wrong regarding amendments to the Bill.
Lord Clement-Jones (LD)
The appropriate procedure would be for the Minister to withdraw it, and then move an amendment on Report. We would be very happy if the Minister came back on Report.
Lord Johnson of Lainston (Con)
At this stage, I believe it would be appropriate to consider further the amendment.
Lord Clement-Jones (LD)
May I just clarify for the Minister that it would be very unfortunate if he pressed his amendment? If he pressed it and lost it in Committee, I do not think he could bring back exactly the same amendment on Report. That is the rule: he would have to bring back something different on Report, even if all the officials and legal advice said that it was a perfectly sound clause—he may well get advice on that. I suggest that he withdraws it so that we do not have to vote against it.
The Deputy Chairman of Committees (Baroness Garden of Frognal) (LD)
My Lords, I advise that, if the amendment is voted against, it is negatived.
Lord Johnson of Lainston (Con)
My Lords, I am extremely grateful to noble Lords for their input. I hope they felt, over the last few hours of very productive debate, that the intentions of this Government and the speakers in this debate are entirely aligned: to try to create the right structure for Companies House and the right penalties and compliance regime. Given that, and my gratitude to the Committee for the constructive discussion, I beg leave to withdraw this amendment, with the understanding that we may easily return with something identical on Report, having followed a good degree of debate and discussion on that point.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 18th April 2023
(1 year ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: HL Bill 96-III Third marshalled list for Grand Committee - (18 Apr 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
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Lord Ponsonby of Shulbrede (Lab)
My Lords, I think the consensus continues. I thank the noble Lord, Lord Leigh, for introducing this group. As he said, this set of amendments really repeats those spoken to earlier, but in this case concerns micro-entities. He made the points about either accidentally or deliberately tagging wrongly, and that not seeming a substantial argument against increasing its use. As the noble Lord, Lord Fox, said, companies are well used to producing and presenting accounts in different media and ensuring that they are presented consistently across them. This tool should extend their use.
I also agree with the noble Lord, Lord Leigh, and others that the Clause 54 stand part debate in the name of the noble Lord, Lord Sarfraz, is not appropriate for the Bill. As others have said, micro-companies are not actually that small. Some numbers have been presented, but the figure I have is that 1.3 million micro-entity accounts were filed in 2019-20, the largest proportion of accounts filed with Companies House. The figures I have are of a turnover of less than £632,000 on a balance sheet of £316,000 with 10 or fewer employees. Over the years, I have been involved in a number of businesses of that sort of size, but they can and do sometimes grow into much larger businesses. There needs to be consistent tracking of these companies to see where they have come from and make predictions about where they might go, so I agree with the point on that made by the noble Lord, Lord Leigh.
Other noble Lords agreed with this point, so I hope that the Minister will resist the argument that Clause 54 should not stand part, if the noble Lord, Lord Sarfraz, chooses to speak to it, and is sympathetic to the amendments from the noble Lord, Lord Leigh.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, I draw attention to my interests as set out in the register of interests, including as a director and person with significant control at AMP Ventures and as a shareholder of several other businesses and companies. I do not believe I have any personal conflicts represented today.
I also thank all Members of the Committee who participated in our useful and instructive discussions over the past month or so. I am sorry that the Easter break we enjoyed sort of broke our continual discussions, but I hope that we will reinstigate them in the near future. I am fully available over the next few days, particularly before the next series of Committee amendments and over this process, to make sure that the House collaborates together to reform Companies House for the first time in nearly 100 years, and that we bring to bear the crucial reforms that will enable us to have a transparent business environment that allows businesses to flourish and the data that they provide to Companies House to be used more effectively to create greater wealth and private enterprise in this country. I hope that, in my actions, noble Lords see my desire to collaborate very closely with all your Lordships to ensure that we all reach the same end.
Baroness Bowles of Berkhamsted (LD)
Regarding the position of micro-entities, I spent a great deal of my time as a micro-entity in a partnership. I did not avail myself of limited liability provisions but, when people do avail themselves of the privilege of limited liability, they must recognise that there is an extra public interest requirement upon them because they have been freed from the prospect of personal ruin. Nowadays, we tend to forget about that balance—that bargain—and I just put in a plea that that is not forgotten. There is a bit of a quid pro quo for limited liability when it comes to transparency because you have to protect the public from otherwise unscrupulous people who just willy-nilly go easily bankrupt.
Lord Johnson of Lainston (Con)
I am grateful to the noble Baroness for her intervention. In discussions about the Bill, that philosophy has been raised. I may have mentioned on our previous day in Committee—I certainly mentioned it in private—that, given the very large number of companies registered in this country, one has to ask whether they are all necessary for the function that they purport to perform. Many individuals may be better off as sole traders or in other forms of partnership that do not need to go through these registration processes.
I am also aware of the privileges that limited liability offers, as a result of which there is a fair exchange in terms of the amount of information to be released. I absolutely agree with these principles that we have discussed. However, in this specific instance, it is absolutely right to have a thorough and deep consultation to make sure that through our actions we are not prohibiting people from running legitimate businesses and at the same time compromising their personal privacy or security. That is a sensible debate to have. The point, which is not necessarily specific to this amendment, is about the information that we collect. The Government are absolutely committed to ensuring that we collect the right amount of information so that we can increase fundamental corporate transparency and reduce abuse of the system.
Lord Leigh of Hurley (Con)
I thank my noble friend for his reply and repetition of some of the remarks he was kind enough to make at our last meeting. He has prompted me to remind the Committee, for the record, of my commercial interests, as noted on the register, which include directorships and shareholdings of micro-entities. I will read Clause 73 again more carefully, and we might return to this on Report if I am not satisfied with that explanation.
On the micro-entity point, the noble Lord, Lord Ponsonby, is right. Those bands are correct, but it is two out of three: one could have a small balance sheet and a small number of employees but a huge turnover and be under the net. I was going to make the same point as that raised by the noble Baroness, Lady Bowles of Berkhamsted: that is the bargain that a proprietor of a limited company makes with the public. You are protected by limited liability, but there must be disclosure. In fact, as I understand it, the information has to be prepared and disclosed to HMRC in pretty much the same format, so there is no extra burden in submitting it to Companies House. With that, I beg leave to withdraw my amendment.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Vaux of Harrowden, for his Amendments 48 and 54, my noble friend Lord Agnew of Oulton for his Amendments 49 and 51, the noble Lords, Lord Cromwell and Lord Fox, and the noble Baroness, Lady Bowles, for their Amendment 50A, the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendments 50B and 51A and the noble Lord, Lord Coaker, for his Amendment 52. I hope I have that right. I will try to cover everything in order this time. These amendments all relate to authorised corporate service providers, known as ACSPs. I am grateful for all the contributions to the debate.
I will cover one point made by my noble friend Lord Naseby on the difference between “foreign” and “worldwide”. Foreign is if you are headquartered abroad; worldwide is if you operate in a large number of jurisdictions. I hope that clarifies that point.
I will start with Amendment 48. The question asked was why not? Why not publish the name of the authorised corporate service provider against its verification? One noble Lord suggested that it would be good advertising for the authorised corporate service provider to attach itself. I am sure that many of them will be delighted to attach themselves to noble Lords’ names when they receive the unique identification number. We have to hope that is the case.
I asked that question myself: why not? Why would it not be sensible to have the name of the verifier next to the entry? I would like to have further discussions with noble Lords about how this can be achieved. The Government do not believe that putting this into primary legislation will be helpful, given the complexities around administering this process.
There are also some specific areas where identities need to be kept discreet so there may be complexities around the process of identifying the ACSP in the sense that there would not be a verified identity to—
Lord Johnson of Lainston (Con)
If noble Lords will allow me to continue with my train of thought before intervening, the difficulty I have is in finding too many justifications as to why it would not be sensible for us to have a full consultation on and review of why we do not want to put the name of an ACSP next to the identity that it has verified.
I welcome the input from the Committee and our discussions on this issue but it is not necessarily as simple as accepting this clear amendment. It is important for the Government to make sure that we have not missed anything but, in principle, having a further discussion around this matter and seeing whether there is a way to ensure that the corporate providers can be clearly identified, with the verification of the individuals in Companies House, seems to be something that we should look at very closely.
I have had private conversations with a number of the speakers in today’s Committee proceedings in which I have been clear about what I am trying to achieve, which is exactly this: an increase in transparency; making sure that bad actors are clearly identified; and making sure that patterns of poor behaviour can be measured and assessed effectively. However, I hope that noble Lords will respect my position on the Bill and the amendments that we are discussing, including my reluctance to support this amendment and the other associated amendments in a specific sense. I would want to make sure that we did this right but noble Lords have my commitment to look deeply into the possibility of ensuring that the proposals that have been discussed today are brought to bear in how we manage the verification and listing of ACSPs.
Lord Vaux of Harrowden (CB)
I am grateful to the Minister for his qualified support. I would be interested to understand why the Government decided to go along with this recommendation for the overseas entities register and are resisting it, at least to some extent, for the domestic Companies House. I am not sure that I understand why the two things should be different at all.
Lord Johnson of Lainston (Con)
I am always grateful to the noble Lord, Lord Vaux, for his interventions. As I said, we are looking forward to having a full discussion about this issue in our proceedings over the next few weeks. From my personal point of view, it is right that there is a higher degree of transparency and it is absolutely right that we should look closely at trying to ensure that the identity of the verifier is also linked to the verification of the identity.
Lord Garnier (Con)
I was interested in the intervention from the noble Lord, Lord Vaux. I have been listening carefully to what my noble friend the Minister has been saying. When we have these further discussions, either in Committee or elsewhere, could he kindly come with a few reasons to support the arguments that he is currently putting forward? I do not get the impression that the cogs are quite meeting here. I know that the Minister is under some constraint because this Bill has been pushed here from the other place by the Secretary of State, but I would be interested in getting to grips with the underlying rationality that supports the words that the Minister is uttering. I do not intend to be rude—I hope that I am not coming across as such; it is probably my fault for being obtuse—but I am missing bits that might encourage me to think that we are moving forward.
Lord Johnson of Lainston (Con)
I thank my noble and learned friend for his intervention, as always. I am sorry if my words have not been clear enough. I hope that, over the next few weeks as the Bill proceeds through the House, we will have conversations that will allow us to come to a sensible conclusion on this issue. In trying to justify why we should not publish the name of an ACSP against the verified identity, we will of course provide reasons. The point is that we should have a sensible, legitimate discussion about this. It is not for me at this Dispatch Box to come up with a variety of reasons or excuses because this is an important point that we want to look into with great seriousness.
Lord Cromwell (CB)
I can perhaps come partially to the aid of the Minister by pointing out, and I do not want to be partisan, that if for some reason that we are all looking forward to hearing about it is felt that companies which are registering—these ACSPs—are right to be shy about having their name attached, I point out that Amendment 50A requires those companies simply to notify the registrar of how many companies they have registered and the codes that they have used. That will throw up the sorts of patterns that the crime agencies are very interested in. For example, if registering body X has registered 3,000 companies in a year or 300 companies under a particular code which is of interest, that will emerge very quickly from the data, even if it is not necessary for some reason to attach the name of the company to the companies it has registered, which I think, in line with my noble friend Lord Vaux’s amendment, it should be, but I appreciate that we are going to discuss that later. I want to draw to the Minister’s attention that the statistics that will enable those who are interested to focus on what companies are being registered by whom in what sectors would still emerge without having to attach the name of the registration body to the company.
Lord Johnson of Lainston (Con)
I thank the noble Lord for his intervention. I would like to clarify my point, which is that this is a very relevant point raised by a number of noble Lords in the Committee. I have been doing a great deal of investigation into this point over the past few weeks and have great sympathy with the sentiments expressed about making sure that the bodies that verify identity can be tracked in some way, in public as much as in private, because I feel that to be very important.
However, there may be technical points that I have overlooked, so I am reluctant to commit today to accepting an amendment, as noble Lords can imagine. It would be inappropriate for me to do so, but I hope noble Lords can hear from my clear words the commitment that we make to see whether the principle around this amendment could be made possible as we look into how the Bill will develop over the forthcoming period, so I greatly thank the noble Lord, Lord Vaux, for his amendment, and I look forward to having discussions over the next few weeks to see how we can find a way to try to implement the philosophy of the principles.
Lord Browne of Ladyton (Lab)
I rise to press the Minister to answer my question about the consultation and what ACSPs asked for in relation to this. I am confident that the Minister will have that discussion and include everyone in it. It is very clear what his inclination is, but I will add one testing question, which I think is important. If an ACSP wished to have its identity associated with its professional, accurate and helpful work and to have that association with the business that is being registered known publicly, would the Companies Act, as amended, facilitate that? Would it be allowed to do that? Would it be allowed to publicise who it is or are we forcing anonymity on everyone who does this work and not allowing their name to be associated with sterling, world-class work?
Lord Johnson of Lainston (Con)
I thank the noble Lord for that point. I am intrigued about whether or not that is true. That is why I think it is important that we look into this in detail to ensure that it can be done properly and that we are making legislation that improves accountability and transparency. Without repeating myself, I hope noble Lords feel comfortable that we have made a significant and serious commitment to see what we can do about this point, and I will take a personal interest in this.
I will move on to the point about standard industrial classification, which has just been raised, and Amendment 50A, put forward so well by the noble Lord, Lord Cromwell. I greatly thank him for his amendment and, again, agree with the intention to increase transparency.
Baroness Bowles of Berkhamsted (LD)
On that same point, following on from what the Minister said about the vast majority of these organisations being good, trustworthy and so on, is it that the risk of one mistake being associated with them, because their name would be available, means that people would not want to do it? I asked this associated question: what is the consequence or penalty for getting an identification verification wrong? I made the parallel with the rental side of things, where landlords are expected to be able to know whether they are looking at forged documents and that kind of thing. Are we trying to protect the reputations of organisations in case they make the odd mistake but it blows them out of the water? I am still grasping for reasons but I wondered whether that was part of the response. It is the inverse of what the Minister was referencing.
Lord Johnson of Lainston (Con)
I appreciate the noble Baroness’s intervention. I do not have an answer to the question as to whether there was concern over reputational damage but I personally do not see that as a particularly significant reason to withhold one’s identity. If you are an auditor of a corporate account, your name is public. As I am sure we have found with some auditors relating to some national political parties, their embarrassment will be palpable but at least it will be public for us all to see.
To answer the noble Baroness’s other point on penalties, just so she is aware, it is an offence falsely to confirm the identity of an individual. I am unable to make comparisons with the private landlord sector but it is very clear that falsely identifying an individual would be a serious offence. That is part of the legislation we are providing for.
On Amendment 50A, I consider that the measures included in and added to the Bill provide a significant amount of transparency. I will come on to discuss that in a moment. To look at the process that allows an individual to become an authorised corporate service provider, they have to be supervised under the money laundering regulations. They are already required under those regulations to take appropriate steps to identify and assess the risk that their customers would have on their business. Although I understand the noble Lord’s intention, I do not think that this is the right place to consider publishing information about risk assessment processes. In our view, it is beyond the role of the registrar to gather and store this information, or to question it.
The right place to consider the quality of risk assessments is through money laundering supervision. Supervisors are already empowered to compel this information and take enforcement action against firms found to be non-compliant. I have well heard the comments around the money laundering process and whether the supervision regime is adequate. A review is being undertaken at the moment, which is raised in one of the amendments we are about to cover. It makes sense to include discussion of how ACSPs are monitored in that review.
I turn to the suggestions from the noble Lord, Lord Cromwell, around standard industrial classification, or SIC, codes and the publication of this information. SIC codes allow Companies House to track what a business does and are used primarily to indicate emerging trends and the strength of the UK economy. I support the noble Lord’s intention to have clear information about the activities that companies are undertaking. Through the Bill, the Government are extending the requirement to provide a SIC code to limited partnerships. As my noble friend Lord Leigh rightly pointed out, such provision is already obligatory for companies. Companies House already runs reports on how SIC codes are being used and will be capable of filtering these to show only the SIC codes of companies that were registered by ACSPs, for example. I therefore consider that requiring ACSPs to provide this information as well would be duplicative.
I also consider it disproportionate to require ACSPs to provide annual reports to the registrar on the SIC codes associated with the companies that they have registered. It is possible that thousands of ACSPs will be registered and it would not be possible for these reports to be regularly monitored. This is a concern in terms of the cost and burden to Companies House.
Furthermore—this is a very relevant point for me that has been made; it does not negate the necessity to assess the process of SICs but it is important in the context of this debate—a company’s SIC code can and often does change. There is a great deal of—I do not necessarily know the right word—greyness about how people classify their business activities. In my investment career, I looked at a tank company that was classified as a consumer discretionary and I saw a military defence business that had a lingerie subsidiary. I am still trying to work out whether that was related to distracting the enemy but the point is that, in many cases, it is very difficult to be absolutely certain about the occupation or classification of a business.
On noble Lords’ comments about companies obfuscating their actions, this amendment does not necessarily provide a solution. It is not necessarily the role of ACSPs or Companies House to determine the specific validity of every claim made; that would be extremely difficult, particularly where there are grey areas around activities. That change may or may not be presented by an ACSP; it would be unreasonable to expect an ACSP to be responsible for monitoring this.
I am therefore not clear what benefits this amendment would bring and request that the noble Lord does not press it, but I am happy to have a further discussion about SIC codes if they fall within the Department for Business and Trade, which they probably do. At the same time, I am happy to have further discussions with noble Lords about the review of money laundering processes and the supervision environment.
Lord Cromwell (CB)
I very much look forward to those discussions and certainly do not want the reporting burden here to be the straw that breaks the camel’s back. However, is the Minister saying that, if we have a problem with companies misallocating their codes, it is up to the company or the registration body to determine the code? If the registration body is deliberately miscoding companies, we have a problem. If companies are foolishly misqualifying themselves, we have a different type of problem. Either way, we have a problem, but the Minister seems to be saying that there is no problem in either case. Could he just confirm that situation?
Lord Johnson of Lainston (Con)
I appreciate the noble Lord’s intervention. As far as I am aware—I am comfortable to be corrected, as I am surrounded by so many experts in this area—it is the company that classifies itself, rather than the ACSP. If that is not correct, I will certainly come back to noble Lords. I repeat that we are happy to look at the issue of industry classification, which is very important in understanding the growth of the economy, new industry classifications and how businesses are performing, at the very least—separate from the opportunity it will give Companies House to assess high-risk areas.
I understand Amendment 50B in the name of the noble Lord, Lord Coaker, but I cannot support it. Information on the money laundering and terrorist financing risks associated with the TCSP—trust or company service provider—sector is already published in the national risk assessment of money laundering and terrorist financing. Risk assessment undertaken by firms on their clients can be shared with money laundering supervisors who are responsible for reviewing them as part of their supervision of TCSP policies, controls and procedures.
With respect to the proposal to provide information about the fees that they charge, I remind noble Lords that ACSPs are themselves businesses or consultants which are a part of a market economy. In our view, it would not be reasonable to expect ACSPs to disclose this information. There is nothing in the Bill which would oblige an individual to have their identity verified by an ACSP. Individuals will be at liberty to decide whether to pay any fee that an ACSP decides to charge, or to use the service that will be provided by Companies House. I am confident that, if a prospective customer considers an ACSP’s fees too high, we can trust them to vote with their feet.
Amendment 51A, also in the name of the noble Lord, Lord Coaker, is well intentioned. To some extent, we have already covered this, but I will go through these points to make sure that we are complete. I do not agree that the amendment would add value. There are over 600 SIC codes which are used to inform economic trends. Trying to adapt their usage for the purpose of fighting economic crime is unlikely to be successful. I am unclear as to how the Government would determine which SIC codes would be classified as “high risk” or how they could be applied fairly. Perfectly legitimate lower-risk businesses would almost certainly be inappropriately labelled high-risk. I hope that I have covered the other points relating to standard industrial classification codes.
I am grateful to the noble Lord, Lord Vaux, and the noble Baronesses, Lady Bowles and Lady Bennett, for Amendment 54. As I said, I hope that I have covered the points raised in enough detail to satisfy noble Lords present today that there will be a significant amount of work and inquiry in relation to that amendment.
Amendment 49, in the name of the noble Lord, Lord Agnew of Oulton, is about blocking the use of ACSPs until HMT’s supervisory reforms have taken place. It would be disproportionate to block all ACSPs from carrying out identity checks while the Treasury works through its reforms to the supervisory regime, which, as I said, I hope will conclude around the summer of this year. It would have a disproportionate effect on the thousands of high street accountants and solicitors, and their business clients, who operate entirely legitimately. I remind the noble Lord that ACSPs will be required to carry out checks to at least the same standard as the registrar and that she will keep an audit trail of their activity and will be able to query any activity that she thinks suspicious. She will be able to share information with the ACSP’s supervisor and suspend or deauthorise an ACSP, preventing it from conducting identity verification.
A delay in allowing ACSPs to carry out identity checks could also impact other areas of reform; for example, limited partnerships will be required to make certain filings via an ACSP and may wish to have their identity checks done simultaneously by an ACSP. The Bill already provides in Clause 65for secondary legislation to be made which would allow spot checks to be carried out by the registrar under Section 1098H. I am confident that, if any rogue agents slip through the net, they will soon be spotted by Companies House, which will have the powers to take appropriate action. In all honesty, I see no merit in delaying ACSPs making identity checks and beginning this important process of bringing transparency and clarity to the register at Companies House.
Lord Wallace of Saltaire (LD)
Does the Minister think that there is a case for there being some form of regulation of ACSPs, or does he think that that is not needed?
Lord Johnson of Lainston (Con)
I am very grateful for the noble Lord’s intervention, as with all interventions today. The ACSPs are already supervised by the money laundering supervisory authority. Should there be a discussion over some type of more effective oversight of ACSPs, in the view of this Committee? We will no doubt discuss that in the future. But as it stands, they are regulated and if any noble Lord is involved with such a business—if they have a financial services business or have been involved in financial services—they will know the strength of the regulator and the fear in which decent, law-abiding firms hold their regulator when it comes to enacting the necessary practices to perform their duties and tasks.
The final amendment that I have in my notes is Amendment 52, tabled by the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake. It would require a report on foreign ACSPs to be made one year after this Act is passed. I do not consider this amendment to be necessary, the main reason being that colleagues in the other place have already agreed to the addition of Clause 187, requiring the Secretary of State to prepare reports on the implementation and operation of Parts 1 to 3 of the Bill and to lay a copy of them before Parliament within six months of the Act being passed and every 12 months thereafter. Since authorised corporate service providers are provided for in Part 1, they should already be captured.
For the reasons given, therefore, I do not support these amendments. I ask the noble Lord, Lord Vaux, to withdraw Amendment 48.
Lord Leigh of Hurley (Con)
Captivated as I was by the Minister’s mellifluous tones, I am not quite clear if he is saying that he is prepared to write to us about proposals for SIC codes or to meet us or both. I totally accept that it is within the scope of the Bill and certainly within the scope of the purpose of the Bill, but it is an extra exercise, an extra burden. None the less, I wonder whether he feels it is something he could take on.
Lord Johnson of Lainston (Con)
I am grateful to my noble friend for raising this point, and I hope I have not overpromised. Personally, I am very keen to make sure that every part of the Bill is discussed and I am very happy to ensure that the comments we have raised in this debate today are passed on to the right office, which in this case is the Office for National Statistics, which falls under the Treasury rather than the Department for Business and Trade. I am sure it will welcome involving itself in this discussion.
I would like to make a correction: the consultation on the money laundering oversight regime will begin in the summer, not conclude in the summer. I apologise for that.
Lord Fox (LD)
I do not want the Minister to leave this process with the concept that we are entirely satisfied with his answer on the regulation of ACSPs because of the multiplicity of those regulators and, frankly, the variability of those regulators, never mind the absence of any structure or template, which the amendment proposed by the noble Lord, Lord Agnew, suggests. I hope the Minister can continue to keep that in his list of things to think about at the end of this session.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for that comment.
Lord Cromwell (CB)
Will the Minister clarify something? I am sorry that I hesitated, but I am sort of in shock. Has the Minister just told us that he is not going to have consultations with us about so many of these points, but we are going to be talking with the Office for National Statistics about them?
Lord Johnson of Lainston (Con)
I hope that the noble Lord did not misunderstand my point. I think I referenced the fact that I assumed that SICs would fall under the Department for Business and Trade, but it turns out that that is not the case. I was mistaken in my knowledge of departmental structures and it turns out that they are under the Office for National Statistics, which is under the Treasury, so it would be wrong for me to suggest too much consultation on account of the fact that that is not my department. However, I have committed to making sure that we have further discussions around this. It is clearly very important, and if we are to make the function of SICs work properly, they need to be seen as effective and useful, so I am very comfortable to commit to ensure that a suitable discussion is held around that. I would be delighted to make sure that the relevant officials are brought before noble Lords to have a further discussion around how that can possibly be effected, but clearly I cannot commit another department to a specific activity.
Lord Cromwell (CB)
Will the Minister be joining those discussions or is he absenting himself from them?
Lord Johnson of Lainston (Con)
I thank the noble Lord for the point. I very much look forward to those discussions. I would have to be dragged away from such discussions, unless it turns out that it would be inappropriate that I should attend any part of them.
Lord Cromwell (CB)
I cannot promise to drag the Minister anywhere, but I, too, look forward to those discussions.
Lord Agnew of Oulton (Con)
The Minister very comprehensively dismissed my amendments, but earlier in the debate he committed to thinking much more carefully about bringing much more transparency to the regime that oversees ACSPs. I just want to make sure that is the case. I also want to offer a couple more anecdotes about why I believe this is so important.
The former chief executive of HMRC Sir Jonathan Thompson questioned the role of HMRC in regulating these people. He did not understand, or was not prepared to accept, that anti-money laundering duties were part of the core activities of HMRC. I gave earlier examples of the failings of oversight by HMRC. The Financial Action Task Force review stated that there were “significant weaknesses” among all supervisors, and specifically recommended that HMRC should consider
“how to ensure appropriate intensity of supervision”.
My point is that Companies House is going to be relying on what I believe to be a broken regulator at the moment. I am not suggesting that we create a new regulator, but that is why the risk assessment in Amendment 51 is so important. Who is minding the minders? At the moment, nobody seems to be. It is all moving at a glacially slow pace, and we keep being told that everything is okay, but I do not think that everything is okay. I accept that the protocol is that I do not move my amendment, but I would like a slightly stronger commitment from my noble friend that he really is going to kick the tyres on this and lift a few drain covers, if I can mangle my metaphors.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s mixed metaphors. I hope I have been clear that the process of making sure that the ACSPs operate in an environment that is trusted and clear is at the root of much of the activity we are discussing today. I will certainly make myself available for further inquiry but, as I hope I have made clear, ACSPs are regulated by the money laundering supervisory authorities and a review of that important process will begin in the summer.
Lord Vaux of Harrowden (CB)
My Lords, I thank all noble Lords who have spoken in this fairly long debate for their support. Once again, consensus seems to have broken out in the Committee, which must be a good thing.
The noble Lord, Lord Agnew, dramatically set out the scale of this problem. We all stand around it. Like him and the noble Lord, Lord Fox, I must confess that I thought the Minister was rather complacent in his views on the efficacy of the anti-money laundering regulations as they stand. The Treasury review is welcome; it has been hanging around and talked about for quite a long time now. The fact that it is only starting in the summer is somewhat alarming. We need to fix what is a broken system. In talking to the Institute of Chartered Accountants, it surprised me by telling me that the vast majority of accountancy firms are not regulated by it. This is not consistent and really does not work well; it is an area that we have to improve.
At the outset of today’s debate, the Minister said that he is open to constructive and practical suggestions for improvement. We are all grateful for that. In this group, we have a number of simple suggestions that would add little or no burden on either the registrar or business and could make a genuine practical difference. The Minister was quite right when he said that the vast majority of ACSPs are diligent and honest, and that it is an important industry. It is worth repeating that. I am sure that that vast majority would like to see the poor minority driven out of the business so that it stops giving it a bad name.
I am disappointed that the Minister cannot accept some or all of these amendments today, I must say, but I am grateful for his confirmation that he will consider them seriously. I look forward to the promised discussions that he has agreed to have. On that basis, for now—although I am absolutely certain that we will come back to this issue on Report—I beg leave to withdraw my amendment.
Lord Garnier (Con)
We had a great deal of fun working out which part of the identified person’s anatomy should form the main part of the photograph. I am happy to say that the noble Lord, Lord Ponsonby, has obviously learned from that hideous experience. This seems an altogether better set of proposals.
Lord Johnson of Lainston (Con)
I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for Amendment 50. As has been discussed, it seeks to require that the new identity verification process includes the use of photographic ID issued by a recognised authority. Although I welcome our shared ambition to ensure that identity verification will be a robust process, I am concerned about noble Lords’ proposed approach to limit the acceptable documents in primary legislation. Under Clause 64 of the Bill, the procedure for identity verification, including what evidence will be required, will be set out in secondary legislation.
I apologise, as always, for not answering noble Lords’ questions. The noble Lord, Lord Vaux, raised how I dodged his question the first time. I hope I am not dodging it a second time but I would be delighted to write to noble Lords with some further information on the specific detail that is required for identity verification. Let me be very clear: we assume that it will include a photograph. However, I will come on to explain why that may not necessarily be the case in every instance.
Setting this out in secondary legislation will allow for flexibility and ensure that the technical detail of the identity verification process can be adapted to meet evolving industry standards and technological developments. Parliament will have the opportunity to scrutinise these regulations via the affirmative procedure. I assure noble Lords that, for the majority of individuals, photographic ID will be used. The primary identity verification route will be via the so-called “selfie verification” method, which will involve the person providing documents such as a passport or driving licence. The person undergoing identity verification will take a photograph or scan of their face—my noble and learned friend Lord Garnier may be pleased by this specificity—and the identifying document. The two will be compared using likeness-matching technology, and the identity verified.
However, I am concerned that the proposed amendment would exclude individuals who do not have photographic ID. Restricting the acceptable documents could inadvertently discriminate against a number of people and raises equality concerns. For example, would it be fair for the law to prevent individuals setting up a company simply because they do not have a passport or a driving licence? Should an individual who has owned the freehold of their home for decades via a company now be forced to apply for photographic ID despite there being no other statutory requirement to have one? This is why, for individuals who cannot provide such documentation, there will be alternative options available. I assure the Committee that these will be robust and proportionate.
Most importantly, all providers will conduct checks in line with the cross-government identity proofing framework—the GPG 45—which will be comparable to verification checks conducted elsewhere in government. Under the GPG 45 framework, a combination of non-photographic documents, including government, financial and social history documents, can be accepted to achieve a good-level assurance of identity. ID documentation from an authoritative source such as the financial sector or local authorities is also recognised under the cross-government identity proofing framework and is routinely used to build a picture of identity.
For the reasons I have set out, I hope that noble Lords will understand the philosophy of my approach and agree that requiring in primary legislation that an individual provide official photographic ID to verify their identity would be unnecessarily restrictive and potentially unfair. I am afraid that I must therefore ask the noble Lord to withdraw his amendment.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I thank the Minister for that serious answer to the amendment that I have just moved. I am also grateful that he has said that the Government’s intention is to harmonise the identity-checking methods across a number of different parts of the government process, if I can put it like that. I acknowledge that the technology for identifying individuals is evolving and that photography itself is not the end of the story; that part of the identification process is evolving as well. I will reflect on the Minister’s answer to that point. I need to look at other pieces of legislation and see whether the way in which identity is going to be checked is explicitly put on the face of the Bill in other Bills. Nevertheless, as I have said, I thank the Minister for the serious way in which he has answered the points that I have raised. I beg leave to withdraw my amendment.
Baroness Bowles of Berkhamsted (LD)
I will speak briefly on this amendment because key to it is: what is the purpose of the unique identifier? Perhaps like the noble Lord, Lord Vaux, I thought that it was like the resource identifier that you use for searching. I know that if you search on my name, you do not find all my directorships. I keep amending my name to try to make sure that they are all the same, but you still cannot find them in Companies House, so I was thinking that it was a better way than names of finding out all the companies that people were involved in, and so on.
I can see that, if it is more of a login approach, that might be different, but that then begs the question: is there not a better way of identifying companies and individuals that works on the searches? If you are searching to see whether somebody is doing something in a different company, or how many directorships they have, simply going by name means that too often there are minor variations, and it will not flag up what you are looking for. Like the noble Lord, Lord Vaux, I am curious about what the purpose of this identifier is, and therefore why it is confidential.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Vaux, for his Amendment 53. Unique identifiers are unique codes allocated on an individual basis. The Bill will allow unique identifiers to support the effective operation of identity verification, such as allowing Companies House to link an individual’s verified identity across multiple roles and companies. I like to look at it as operating as a username. That is important; it is not a public but a private number that the individual will have allocated to them.
I reassure the noble Baroness, Lady Bowles of Berkhamsted, and the noble Lord, Lord Vaux of Harrowden, that this amendment is not necessary to achieve the objectives that they have described—although I am concerned about the noble Baroness’s difficulty in tracing herself in the records of Companies House. This will be a good test as to whether the systems work. Companies House will be making changes to how members of the public view the register so that, although the unique identifiers themselves will not be public, it will be possible to see accurately connections between individuals and entities. That is the central point of the reforms being made to Companies House. This includes how many companies for which an individual is a director or person with significant control.
From my own experience of using the Companies House database, I come up under the various different forms of my name: D Johnson, Dominic Johnson, DRA Johnson or whatever it may be. It works in that instance, but it is absolutely right for noble Lords to be concerned about whether the system will work. We have undertaken to make sure that it does. It is the cornerstone of our activities and everything that the Bill points towards.
Regulations made under Section 1082 will govern the use of unique identifiers. We intend to prevent individuals from having more than one unique identifier, as the name denotes, and anyone submitting a statement with an incorrect unique identifier will commit a false filing offence. Furthermore, the primary purpose of a unique identifier is to allow its owner to communicate securely and privately with Companies House; as I said, it should be looked upon as a username. Unique identifiers can be considered personal data so making them public could expose the registrar to data protection breach risks, in the same way that it would be inappropriate to publish individuals’ national insurance numbers.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment enables the registrar to require a person to provide information not only to determine whether the document is properly delivered but more generally to determine whether it is a document that must be registered.
Lord Johnson of Lainston
“(1A) The Secretary of State may by regulations make provision requiring the registrar— (a) not to make available for public inspection any information on the register relating to an individual;(b) to refrain from disclosing information on the register relating to an individual except in specified circumstances.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring the registrar to refrain from using or disclosing information relating to an individual irrespective of whether the individual makes an application.
Lord Vaux of Harrowden (CB)
My Lords, I intended to sign Amendment 72, but I was beaten in the stampede to support it, which must in itself say something about the quality of the amendment. Amendment 64 in the name of the noble Lord, Lord Coaker, is very similar. Like others, I think that both include important elements and it would be great to try to combine the best of both when we get to Report.
I shall not repeat what has already been said, but it does seem that adding this level of transparency into the system must help in ensuring that we have got this right. During the debates on ECB 1, the previous economic crime Bill, the noble Lord, Lord Callanan said:
“When we introduced the provisions on PSCs—persons with significant control—in relation to UK companies, we had to make some iterative changes to that, as it became evident over time that aspects were not working as effectively as we had hoped”.—[Official Report, 14/3/22; col. 44.]
The best way to see if things are not working as effectively as we had hoped is transparency and reporting, so I hope the Minister can accept this very simple and sensible amendment to promote that level of transparency.
With permission, I will make one addition to the list of items to report on set out in the amendment. Given the importance of the ACSPs to the process, as we discussed in the previous group, I think it would be useful to include some statistics on the number of ACSPs that have approved, both UK and foreign, who they are regulated by and the number which are suspended. With that addition, I add my support to these amendments.
Lord Johnson of Lainston (Con)
As always, I offer my thanks to noble Lords for their participation and to the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 64. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier and the noble Lord, Lord Cromwell, as well as the noble Baroness, Lady Bowles, for their Amendment 72—if I have got that correct. These amendments address reporting requirements in similar ways and are very relevant and important.
I agree that it is important that Parliament is informed about the implementation and delivery of these reforms. That is why the other place agreed to add an amendment to this effect on Report, which noble Lords have discussed. Companies House already reports on many of the items set out in these new amendments and, in many cases, actually goes much further, either through its annual report or via quarterly and annual statistical releases. Legislating to duplicate this, given the new reporting duty at Clause 187, seems unnecessary.
It is important that any report is holistic and of use to Parliament and the wider public. It should provide the necessary context to facilitate an informed view of performance, which would be difficult based solely on the raw data that these amendments propose. However, I agree that some of the new items of data identified in these amendments could be of interest. The noble Lord, Lord Vaux, raised some specific points, which I believe are already covered in part in some of the quarterly filings. In any event, if they are not, they are certainly worthy of discussion. I am happy to explore with Companies House officials how they might incorporate these into their reporting without the need for this statutory requirement.
It may be worth returning to some of the comments from the noble Lord, Lord Coaker, to cover some of the key points raised. Under Amendment 72, each report must
“provide annual data on … the number of cases referred by the registrar to law enforcement bodies and anti-money-laundering supervisors”.
As I understand it, this is already enabled via the Commons amendment and is expected to be included. Also in Amendment 72, each report must provide annual data on
“the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar”.
These incorporations are published quarterly via the statistical release. The amendment says that each report must
“detail all instances in which exemption powers have been used by the Secretary of State”—
which is also covered by the government amendment—and
“confirm that the registrar has sufficient financial resources to meet its objectives”.
The registrar’s resources will continue to come from fees, which will be set according to how much activity Ministers want to be undertaken. Also, each report must
“provide annual data on … the number of companies that have been struck off by the registrar”
and
“the number and value of fines”.
Removals from the register are already reported on quarterly. The number and value of late-filing penalties are published in annual management information tables.
That just gives the Committee reassurance that there is already a great deal of detail published, and we will be looking to publish more. I look forward to a discussion with noble Lords on specific areas that we can cover; I am sure that my officials are looking forward to those discussions. This is all about the sort of data we provide that allows us to run an effective and transparent company system in this country. But I am very reluctant to legislate specifically, according to these amendments, given what I have said and our commitment to making sure that we are publishing useful information.
I will cover the comments from some of your Lordships relating to the supposed sunsetting of requirements to report. As I understand it—I may have misunderstood, but I hope I have not—the purpose of the clauses on six-month and annual reporting relates to the implementation of changes in Companies House that will bring it up to the standards at which we wish to see it operating. At that point, the reports will be included in annual and/or regular reports. It is not that reporting ends, but that it becomes commonplace to report on the data rather than necessarily on the changes that we are instigating to Companies House. I am happy to clarify that further, if my description was not accurate enough.
Baroness Bowles of Berkhamsted (LD)
Clause 187 says
“on the implementation and operation”.
Therefore, I hoped there would be ongoing commentary and reporting on the operation. I accept that the sunset clause implies that it is about transient stuff, but if the operation—it must be the ongoing operation because it might break down; we do not know—is included in other reports, I would be satisfied. If it is not, I suggest that we need to keep Clause 187 going.
Lord Johnson of Lainston (Con)
I appreciate the noble Baroness’s point. As I said, the sunsetting effectively becomes business as usual, which is provided for to enable Companies House to report according to the criteria that have been established. I am happy to discuss what data it is useful to provide. That is a very important and relevant point. My assumption is that it will evolve over time to some extent, but we can be pretty comfortable that a great deal of information is already provided. It might be useful for us to assess that and then engage in further discussions with officials. We are very open-minded on the data provided. I am reluctant to legislate for this, since we are trying to make data useful rather than simply a legislative process.
Lord Agnew of Oulton (Con)
Is the Minister suggesting that he will clarify the noble Baroness’s point? The wording in Clause 187(1) it quite specific in saying “operation”. Is he saying that he wants this to drop away as part of the sunset clause, but that another report will endure and he will discuss it with us to ensure that it is fit for purpose for the longer term?
Lord Johnson of Lainston (Con)
I believe we will have further discussions on that point, yes.
Baroness Bowles of Berkhamsted (LD)
When the Minister replied to me he used the word “data” rather than “operation”. There is a difference between data and operation. This might not be something that he can instantly resolve, but the ongoing concern is about not just the data but the operation of Companies House. Those are two different things.
Lord Johnson of Lainston (Con)
I thank the noble Baroness for that point. There are two separate components to that, one of which is the data and/or requirements tabled in these amendments, which are relevant to understanding the activities of Companies House and ensuring that we have a comprehensive assessment of what they are. The second point is that there is the assumption that, over the next six or seven years, Companies House will have reached its operational capability to deliver on providing the relevant data, so we have a good deal of time to assess whether that has been achieved. There is a potential for Companies House to achieve its ambitions before 2030, at which point it would settle into business as usual reporting.
Lord Vaux of Harrowden (CB)
My Lords, this discussion about how we fight economic crime would be an awful lot easier and better informed if we had seen the Government’s national fraud strategy, which I believe was supposed to be with us at the back end of last year. Perhaps the Minister might like to find out when we might finally see it.
Lord Johnson of Lainston (Con)
My Lords, I thank your Lordships, as always, for this very passionate debate. I am struck, after however many pleasant hours we have been together debating in Committee, by the convinced passion and determination of Peers on all sides. An Economic Crime and Corporate Transparency Bill might be considered a dry, technical matter for specific and weighty thought, but the reality is that this is an emotive subject. It is important for all noble Lords to know the Government’s shared passion for stamping out illegal activity and economic crime in this country. From my point of view, it is extremely costly to the economy to enable financial crime to be enacted in the UK. It is not invisible, and every crime has a victim. I hope all noble Lords understand that my personal passion and that of the Government are allied in trying to make a Bill that is practical, will achieve its goals and will allow businesses to flourish.
I would also like to apologise. The noble Lord, Lord Faulks, mentioned the meeting which many officials here attended yesterday. I was unable to attend that meeting, for which I sent my apologies. That was the only morning that I have been away in the past six months. I hope all noble Lords will feel comfortable in contacting me directly to arrange further formal or informal meetings.
I now turn to the amendments. I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 65 on fees and penalties. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier, the noble Lord, Lord Cromwell, and the noble Baroness, Baroness Bowles, for their Amendments 69, 70, 71, which address the economic crime fund and the retention of fees by economic crime enforcement agencies. I also thank my noble friend Lady Altmann for her Amendment 106E on fees and an economic crime fund.
I shall attend initially to the fees and penalties element. The level of Companies House fees has been the subject of much speculation, and I know from our conversations and the amendments in this group that noble Lords have a significant interest in this. At no point do the Government believe, or could anyone in all seriousness believe, that £12 is a reasonable amount for setting up a company. People have suggested that if a commercial organisation cannot afford whatever arbitrary figure one may wish to pick—it could be £50, £100, £150 or £500—for the creation of a limited liability company, it should question whether a limited liability company is the right structure in which to operate.
However, it is very important that fees are set via regulations and that the Government have flexibly over the right level of fee, which has not yet been established. I was grateful to my noble and learned friend Lord Garnier for confirming his view that that is the most appropriate way to set fees. The fee will be determined following an analysis and appraisal of the volume of investigation and enforcement activity to be undertaken, the associated cost base, the timelines for recruitment and systems development and other factors which we have raised in this important debate. We are currently finalising our modelling but are increasingly confident that we can fully fund the reforms, including creating around 400 new roles at Companies House, while keeping fees low. Current estimates from Companies House suggest fees of no more than around £50.
I draw noble Lords’ attention to the annual administration fee. There is an establishment fee for setting up a company and then there is an annual fee, which is currently £13—it is more expensive to register your firm annually than it is to set it up in the first place. I am not entirely sure how we reached those figures, but we are not looking to enshrine a minimum level of fee in primary legislation because to do so would severely restrict flexibility which may be required at a future date. Fees will continue to be reviewed on a regular basis to ensure that they are providing the level of funding that Companies House needs. Companies House is able to retain incorporation fee income under current arrangements between it and HM Treasury, with the arrangement reviewed periodically. That is important. The current intention is that the fees will be used to pay for Companies House, so a raised fee is absolutely right. It is estimated to be used for the functioning of Companies House.
Lord Agnew of Oulton (Con)
Will my noble friend clarify the annual filing fee? He mentioned that the one-off fee will go up to around £50. Can he give us any sense about the second fee? I think it is more important because it is regular income. I think the stock of new companies will drop because of this legislation. It will stop very small actors, as we have discussed—the plumber, the painter or whatever—and bad actors will not come in, so annual new registrations will drop, but that is why the filing fee is very important. Will the Minister give the Committee some indication?
Lord Johnson of Lainston (Con)
I thank my noble friend. We do not have an estimate for the annual registration fee so I would not like to speculate on it, but clearly it would be raised to a level commensurate with the £50 initial fee. The Government set the fee levels, as is appropriate under legislation, but they will come from the recommendation from Companies House. We will look very closely to ensure that it has enough income to perform the functions that we want it to perform. I do not think it is anything more complicated than that.
I have had many enjoyable debates about what the fee should be. To some extent, we can enjoy those debates but they are slightly speculative. What is important is that the Government have the flexibility to ensure that the right level of fee is charged and to change that if necessary. I do not think that anyone in this Committee would disagree fundamentally with that principle. Setting a minimum fee level does not seem reasonable, given the flexibility that we wish to retain.
Baroness Altmann (Con)
Can my noble friend explain to the Committee what advantage the Government believe would flow from having low fees for incorporation? There seems to be an idea that we need to raise it to £50 only, as though there is some benefit in having a low fee—I am not sure in what terms, given that the EU average is €300, the US cost is between $570 and $1,400 and the BVI charge £1,000. In the Government’s view, why would there be an objection to going with the Treasury Select Committee recommendation, for example, of at least £100? It would not mean that they could not charge more. It seems to be the general view of the Committee that £100 would not be an unreasonable minimum, at least, for this incorporation fee. The annual fee can always be set in a different way.
Lord Johnson of Lainston (Con)
I appreciate my noble friend’s intervention. It is probably a good thing that we will be cheaper than the EU when it comes to registering a company; we could call it a Brexit dividend. Without being facetious, this is about giving the Government flexibility to ensure that they charge the right amount. I have no personal view on whether it should be £75, £100 or £125; we can have this debate all evening, and I have great sympathy with it. The point is that I do not believe that anyone in this Committee is suggesting a significant change in the volume of cost for either establishing a business or registering it, so it is absolutely right that we should consult widely and make sure both that the right amount is charged and that we have the flexibility to change it one way or the other, if appropriate.
Lord Fox (LD)
This has turned into something of a Dutch auction. We have lost sight of the purpose of this group of amendments, which is to look through the telescope from the other end. This is about enforcement: how much money will be needed by the enforcement authorities to enforce the Act? Does the Minister agree that the current level of enforcement with the current legislation is inadequate? If so, what will change to fund the organisations to create adequate enforcement? If it will not happen through the measures being discussed in this group of amendments, how will it? That point was made by various noble Lords in the Committee. It is the nub of the answer that we are seeking from the Minister.
Lord Johnson of Lainston (Con)
I am grateful for the noble Lord’s intervention. If I may, I will come to my conclusion before answering those important points. The Government need to continue setting fees via regulations. I would personally be very reluctant to try to set any minimum floor. The assumption will be that the right amount of fees will be set and they will be higher than currently charged. Estimates from Companies House suggest around £50. We are happy to have discussions about that as we go forward but I ask the noble Lord to withdraw his amendment.
Lord Browne of Ladyton (Lab)
Has any thought been given to the possibility—I know that the Government like this sort of structure—of having an independent fee review body that looks at all this and makes recommendations? The Government could still set the fee but there would be an independent group of experts looking at the objectives that we have set ourselves. Is it too late to put some provision like that into this piece of legislation? I know that the Government like reviews.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord, Lord Browne, for suggesting the creation of another authority but, in this instance, I would be reluctant to do that. As I said, I have noted his comments very carefully, and I will be happy to have further discussions with noble Lords around this issue. I am sure it will be a matter of debate, but the important point is that I do not believe that we should be setting minimum costs by legislation. It would be completely impractical and would remove the flexibility and purpose.
I now come to the economic crime fund and economic crime enforcement agencies Amendments 69 and 71 tabled by the noble Lord, Lord Agnew, and the economic crime fund Amendment 106E tabled by my noble friend Lady Altmann, which are very relevant. As we have discussed—and I take this view personally—we can have as many rules and regulations as we want, but if they are not enforced properly, they will have no value. That is why when noble Lords come to me with new ideas—there is an ever-bubbling font of new ideas—for new regulations, strictures and penalties that could be imposed upon businesses to reduce economic crime, I sometimes push back. I say that it is not necessarily about introducing new regulations and rules but about making sure we have the resources, focus and capabilities successfully to prosecute existing crimes.
That is at the core of my next comment: the Government are committed to ensuring that law enforcement agencies have the funding they need. The combination of the 2021 spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. The levy applies to the AML-regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24. I believe that the levy is expected, or targeted, to raise £100 million. I am not sure whether that figure is confirmed; I will come back to noble Lords if it is wildly inaccurate.
In addition to this, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability. Under the asset recovery incentivisation scheme mentioned already by the noble and learned Lord, Lord Garnier, and some other noble Lords, receipts that are paid into the Home Office are split 50:50 between central government and operational partners, based on their relative contribution to delivering receipts.
Proceeds from fines issued by Companies House are placed into the Consolidated Fund, which is used for financing the expenditure of government departments on important public services. The proposed amendments would see the incorporation fees, all fees paid under regulations made under Section 1063 of the Companies Act and all penalties paid under regulations made under Section 1132A of that Act being surrendered into an economic crime fund. This would be contrary to the fundamental principle that the fees are paid for the benefit of incorporated status and would fall foul of long-established Treasury rules preventing fees being used to fund activities that may be completely unconnected. I am happy to be corrected, but I do not believe that this is pushing back against the concept of hypothecation. The point is simply that these are fees to be paid for a service, and it would not be appropriate for them to be directed to another function.
This would also encompass almost the entirety of Companies House’s income, leaving it with no resources, and it would require funding from elsewhere, primarily from the taxpayer, so going completely against what many noble Lords, this Government and I want, which is to use the fees to pay for the functioning of Companies House. The fees would then go into a fund, so we would have to pay for Companies House on top of that. I am sure that is quite clear. The Government do not believe it is appropriate to place the burden of funding Companies House on the taxpayer, and this would be contrary to the fundamental principle that the fees are paid for the benefit of incorporated status.
I would like to attend now to some comments made by the noble Lord, Lord Browne.
Lord Wallace of Saltaire (LD)
My Lords, I do not know whether the Minister is familiar with the Home Office practice on this. The Home Office has a very clear practice of full-cost charging for visas for entry to this country. I think it now costs £2,000 to £3,000, for example, for the spouse of a British citizen returning to this country to get settled status in Britain. If some parts of government are now insisting on full recovery of costs, perhaps this is a model that could be applied here as well.
Lord Johnson of Lainston (Con)
I thank the noble Lord; that is exactly what I am saying. The whole point about the fees is that they are charged in order to pay for Companies House; that is precisely the same principle. Unless I have misunderstood the intervention, this goes directly against the amendment that introduces a fund that has to be paid for by the fees levied on people who are setting up companies or annually registering.
I want to attend to a point made by the noble Lord, Lord Browne. He said—rightly—that the whole point of this legislation is not to profit or make money from it but to stop the bad practice happening in the first place. The fines and penalties to be issued by Companies House are designed to drive a change in behaviour, not be a revenue-raising tool. I was grateful to my noble and learned friend Lord Garnier for raising the point around how these fines could or should be used. It is possible to suggest that the same situation happens with speed cameras. The theory there is that we want to reduce speed on the roads, not raise revenue—at least, that is my personal opinion.
Lord Johnson of Lainston (Con)
I do not have an interest to declare there, I might add. Using fines to fund other activities results in the perverse scenario of that funding being dependent on behaviour that we are actively trying to stop. I strongly believe that, in many ways, the principles we are talking about are negated by a well-intentioned concept: trying to make sure that there is enough money so that our law enforcement agencies are properly funded in order to achieve their ambitions.
Given the limitations that I have set out—this goes to the point about providing a report—I am not convinced that there would be merit in providing a report on the prospect of a fund or, indeed, providing for a fund. I hope that noble Lords understand my conclusion here.
Lord Agnew of Oulton (Con)
I am sorry to intervene but I just want to say something. The Minister agreed with all of us that the crime-fighting agencies need to be properly funded but he did not explain how that will happen because he does not accept that we should hypothecate. He gave some good examples of other situations where it was about not the hypothecation but the use of revenue for activities that were not part of the original source and funding litigation. In June last year, the Information Commissioner announced a new arrangement with DCMS in which it could keep some of its civil monetary penalties to fund it to take on large technology companies. All I am trying to do is ensure that we will have the resources to take on these bad actors.
The Minister and my noble and learned friend Lord Garnier mentioned ARIS. As I said earlier, the funding has declined by 35% in five years—that is without inflation—yet the problem is getting worse. I do not expect the Minister to come back to us on this tonight but I am looking for some reassurance around how we are going to fund these things properly because we are not doing so at the moment. Everybody seems to be in denial and the Minister has offered me no assurances that we are going to deal with this.
Lord Johnson of Lainston (Con)
I greatly appreciate my noble friend’s intervention. I hope that I have made clear to the Committee the importance that this Government place on fighting economic crime.
If I may—I am not sure of the protocol—I wish to question my noble friend’s intervention. He said that the asset recovery incentivisation scheme has seen a considerable drop in the monies deployed to law enforcement over the recent period. However, I have a figure here: since 2006-07, just under £1.3 billion—that is based on nominal values and not adjusted for inflation—has been returned to Proceeds of Crime Act agencies to fund further asset recovery capability and work that protects the public from harm. In 2021-22, £354 million was recovered under the Proceeds of Crime Act, of which £298 million was paid into the ARIS pot. So I certainly will research the figures given to me by my noble friend.
The point is that we are looking to provide funding of £400 million over the spending review in order to focus on fighting economic crime. I am happy to have further debates around this issue but I hope that I have made my point in relation to these amendments, minimum fee levels and creating a fund out of the fees, which would be completely contrary to the ambitions that we have set in our legislation around Companies House.
Lord Coaker (Lab)
My Lords, I have to say that there is a bit of work to be done on this group of amendments before Report. The Minister certainly failed to convince me and I am sure he failed to convince many, if not everyone, on the Committee. There is a real problem here. There is a problem with raising the fee and what it should be. The Government say that it is a matter for us and then came up with the figure of £50, which I think is inadequate. There we go; there clearly needs to be discussion about that on Report. I take the point that a number of noble Lords have made that the fee is not just to fight economic crime but for the additional responsibilities that Companies House will have. That is very clear.
Lord Johnson of Lainston
“(1) The Secretary of State may by regulations—(a) require a company to refrain from using, or refrain from disclosing, relevant PSC particulars except in circumstances specified in the regulations;(b) confer power on the registrar, on application, to make an order requiring a company to refrain from using, or refrain from disclosing, relevant PSC particulars except in circumstances specified in the regulations.”Member’s explanatory statement
This brings the drafting of the amendments made by Clause 89 into line with the drafting of the amendment to Clause 49, page 33, line 19 that appears in the Minister’s name.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 20th April 2023
(1 year ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: HL Bill 96-III(a) Amendments for Grand Committee (Supplementary to the Third Marshalled List) - (20 Apr 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Baroness Blake of Leeds (Lab)
I will respond to the comments made by the noble Lord, Lord Wallace, in moving his Amendment 68. I was very struck, looking back at the comments from Second Reading. He very forcibly talked about the international dimension and how important it is, and the fact that the international dimension in the Bill generally is thin; I think those were the words he used. I think we all knew that we would require amendments to look at this area. I am keen to understand from the Minister what actually is being proposed.
We talk a great deal about collecting data, but one of the rules of thumb I have always worked with is that data is of use only if it is open and transparent, there is a responsibility for the data to be analysed and, where things are held up as being untoward, appropriate action is taken.
I do not want to draw out the debate, but this could be an opportunity for the Minister to give us an update about the progress made since the Government launched the register of overseas entities on 1 August. What is the Government’s assessment of the success of the register and of the beneficial ownership registration being set at 25%? Do we know whether many companies are avoiding this by spreading out shares throughout a family? We know that there were significant concerns about nominee arrangements being used to disguise true beneficial owners. What is the Government’s assessment of this, now that the register has been introduced, and will they use the regulation-making powers in the existing economic crime Act to address this?
I anticipate a full response to the issues raised by the noble Lord, Lord Wallace. I would like to understand and am seeking reassurance that the Government are putting arrangements in place. As we have heard, the scale of the co-operation is quite significant. It needs constant review, and it needs to relate to finance, trade and crime. I look forward to the Minister’s response.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
I thank noble Lords very much. It is a great pleasure to be here again to continue this valuable and important inquiry into how to make our company structures more transparent, fairer and more effective for our long-term business needs.
I thank the noble Lord, Lord Wallace of Saltaire, for this amendment. Over the next few hours, I hope to cover many of the points raised and clarify further points from our discussions earlier this week. Specifically on this amendment, I hope it will be of some reassurance to noble Lords that Companies House already has excellent relationships with overseas counterparts—it is important to emphasise that. It works closely with authorities in the Crown dependencies and overseas territories on the implementation of the register of overseas entities.
The noble Baroness, Lady Blake, asked about the progress of the register of overseas entities in relation to UK companies and, specifically, property ownership. We have come a long way: I think we are now 75% to 80% registered. Some overseas entities have not fulfilled our requirements, and I am happy to send a note to Peers about that. This changes regularly but it is a minority, which is important. I am pleased about that, and we are grateful for the collaboration of the Crown dependencies and overseas territories.
As a government Minister it is important that I say that, if you listened only to this debate and did not have any experience of the outside world, you may be forgiven for thinking that every single authorised corporate service provider, Crown dependency and overseas entity was somehow engaged in and designed for criminal undertakings, which we all know is not the case. It is important that I state that many of these measures and the discussions we are having are about a very small minority of bad actors and that the overall industry is worth while and valuable. The principles around high-quality corporate service provision, Crown dependencies managing their own affairs and how companies are structured are very much to be celebrated and embedded. What we are doing here is making sure that there is transparency and legitimacy. I want to make sure that is on the record.
Earlier today I met a former regulator from one of our Crown dependencies, who was surprised at the tone that some noble Lords are taking in the debate, given what he had done with his own regulator in his Crown dependency. He felt that it had set the standard—a higher standard, maybe, than some other Crown dependencies. He felt that they had lessons to teach us in the United Kingdom. We ought to be aware of this. I do not want to belabour the point, but it is important to get the tone right and make sure that the messages are clear.
Lord Fox (LD)
I took it as an implicit, or rather an explicit, criticism of His Majesty’s Opposition, us and others who have spoken to amendments to the Bill that we somehow regard the whole industry as corrupt. I would take the Minister to task and suggest that he reads Hansard for the previous session, where I made it clear that that is not our view—and I know it is not the view of His Majesty’s Opposition. The fact is that we are speaking about bad actors because the whole purpose of the Bill is to deal with them. It can be taken on faith, but perhaps we have to say it every time, that we consider bad actors to be a minority of players in this sector, but they are the purpose for which the Bill has been brought forward.
Lord Johnson of Lainston (Con)
I greatly appreciate the comments from the noble Lord, Lord Fox; I am so glad that he said that. I do not mind if some friction is sometimes required in order to make sure that the messages are heard loud and clear. I am glad that the noble Lord has reaffirmed his position, that of his party and that of the main opposition party. We all agree on this, but it is important because I was picked up on it today. It sounds as if we are at war with a legitimate sector and the legitimate concept of how to structure companies, which are at the very core of our capitalist system and have created so much wealth for us. I am glad that we are united on this point.
I was asked by the noble Baroness, Lady Blake, about the number of entities that have registered with the register of overseas entities. I have a figure of 27,000, which represents a high level of compliance. I hope that figure satisfies her request, but I would be happy to publish further figures or to answer her in writing on that.
Lord Coaker (Lab)
I will just reinforce the point that the noble Lord, Lord Fox, made. To be honest, I do not think the Minister was implying that we were condemning the whole of business, but the noble Lord, Lord Fox, made an important point. The Committee is trying to say that, overall, we all support the Bill but we want to ensure that it is effective, understandable and enforced. In challenging the Government, we seek not to undermine business but to improve what most of us regard as a reasonable Bill.
The only other point I make to the Minister is that—I think we all accept this—public opinion is frustrated about what it sees as a lack of action in respect of certain bad business practices, such as the laundering of money. Lots of fraud and economic crime takes place but is not seen as a priority by the state—irrespective of whether you mean Labour, the Liberal Democrats, the Conservatives, the Scottish nationalists or whoever—which does not take this seriously. I suggest to the Government that, if I were a government Minister, I would parade much more powerfully than the Government have done that we are trying to ensure that public anger is assuaged by the fact that we are no longer prepared to see Russian money used in the way it has been nor to see bad practice, which means, frankly, that good business is undermined.
This is the point made by the noble Lord, Lord Fox. Good businesses, which represent the majority of the country, want something done about bad business because it undermines them. This is a really important point; I think it is the point that the Minister was trying to make. This is a good Bill but it needs to be improved. From what he has said to us, I think the Minister will take on board many of the comments that have been—and will be—made and change the Bill. But it is also about saying, “Of course the majority of business is good, but there is bad practice out there and it needs sorting out”. Good business wants that to happen as much as members of this Committee do.
Baroness Blake of Leeds (Lab)
To follow on from those comments, my comment will be very much in the same vein. We need to bring this part of the conversation into the general understanding that if we are to be successful, there has to be a root and branch reform of Companies House and the way in which it works. We need a massive cultural shift. Moving away from being a passive receiver of information to a dynamic analyser of data will be quite a step. It speaks to the need for resource to make sure that everything we are doing can be delivered. I emphasise the comments that have been made: of course we want this to succeed, but I am sure that everyone will understand our calling for more information and calling out opportunities to improve what is before us. Significant improvements can be made as we move forward.
Following on from what the noble Lord, Lord Agnew, said, we need to make sure that we do not follow the law of unintended consequences by introducing new measures and then creating new loopholes which will let bad actors fall through the net. We need to triple-check everything proposed through these measures to ensure that that cannot happen. As we have all said throughout this debate, the best way is to make sure that the data is transparent and can be viewed and seen. There have to be ways to introduce safeguards so that sensitive matters can be protected as and when they occur. It cannot be outside the bounds of possibility to make these improvements and move forward in a way that gives greater protection to all those involved.
Lord Johnson of Lainston (Con)
I thank the noble Baroness, Lady Blake, for those well-expressed sentiments. I hope the Committee knows my passion for these important reforms. I apologise for not declaring my interests at the beginning of this debate, as I should have. We have had so many different meetings it is easy to forget. It is important that I declare them because I do own companies, I have set companies up and I have been a participant in LLP structures and so on—although I do not believe I am now; please refer to my entry in the register. There is no conflict in my mind; if anything, I hope that gives me quite a good perspective on how these structures can be used for good but also by bad actors.
On the importance of eradicating corruption in our economy, there is, potentially, no greater value that a person can engage in than allocating capital to the highest point of return. That may sound a bit cynical and clear-cut but the point is that the effective functioning of our economy is what gives us the goods, services and quality of life that allow us to exist in harmony and happiness. Corruption, which we are trying to eradicate, is extremely invidious in allowing us to have successful economic growth and, in many cases, it is invisible. It is also assumed to be victimless, which is not the case: it is highly corrosive to our economy and every crime has a victim, even if they are not immediate or apparent.
Our determination to eradicate corruption and economic crime is at the core of our agenda to make our economy work better to provide better lives for our citizens. The noble Lord, Lord Coaker, raised a good point when he said that the public demand this. That is absolutely right. If one believes, as I do, in business and capitalism, and the power of capitalism to do good, if it is being distorted, that destroys our foundation and means that we do not have the true legitimacy to carry on effectively legitimate affairs, because they are conflated with illegitimate affairs.
I am completely dedicated to this mission and am grateful to all noble Peers. I am very glad that we have put on record our group support, if I can call it that, for an industry that, as we have discussed, is incredibly valuable and performs enormously important functions for companies that work in it. It is important; I am happy to state that.
Given this opportunity, I will go back over some of the statistics. The noble Lord, Lord Faulks, raised the issue of compliance. This has been well flagged; there was an assumption, perhaps, that the compliance rate is low. It has taken time for these overseas entities to register themselves. The population of entities in scope is around 32,000 but it is assumed that some of them—perhaps as much as 10%; let us say around 2,500—are dormant, defunct, in the process of being wound up or just part of the general churn of overseas entities. We now have 28,000 entities that have complied with our requirements; that is a high level if one assumes that, as I said, 2,500 or so are probably part of natural churn. So we are already looking at a non-compliance rate of maybe 1,500 to 2,000 companies out of 30,000—I know that I am making estimates; I would be happy to write to the Committee with specific numbers.
Lord Vaux of Harrowden (CB)
The Minister might be coming on to this but, when he says “compliance”, that means an entity has made a filing; it does not necessarily mean that the filing itself is compliant. The statistics that would be interesting for us are those on what the beneficial holdings behind these entities look like. Are they trusts? Are they opaque companies? It would be helpful to know that. Also, what has Companies House done—and what is it doing—to follow up on those that seem to be unduly opaque?
Lord Johnson of Lainston (Con)
I appreciate that intervention. As I said, I would be happy to write with specific information as I do not have details on all 28,000 registered businesses.
The point I want to make, which is important, is that a very large number of overseas entities have registered and, we assume, sent in information that can be confirmed and will lead to them being compliant. That is quite a high number; it allows us to focus. That is the point. The question was about what happens to the 1,500 to 2,000 or so companies that have not registered. Well, they cannot transact; they cannot participate in transactions in this country. Their assets are untransactable, which, in my view, negates the value of those assets to a significant degree. In effect, they are compelled to register and comply if they want to get their money out; that is important. Clearly, the next phase is to do the work on the companies that have registered to ensure that the information we have is accurate. We then have to make sure of why those companies that have not registered have not done so. Sometimes, there are perfectly legitimate reasons why that would be the case but, on the whole, we have made significant process.
Following our discussion earlier in Committee and the sensible points from the noble Lord, Lord Wallace—I have been glad to discuss them with my colleagues—let me say that compliance and law enforcement are at the crux of this issue. There is no point in bringing in any of this legislation—not even a single line of it—if it will not be enforced and overseen properly. My view has often been that sometimes we may not need new legislation but we need to enforce properly the legislation that we have, where a great deal of our effort will be far more effective.
Lord Faulks (Non-Afl)
I am grateful to the Minister for his clarification about the level of compliance. If will press him on one point. Last week we were provided with a useful series of notes that made this point, among others:
“Public registers allow multiple eyes to interrogate data, including the absence of data, to inform a risk-based approach to investigation and enforcement”.
I think that what the Committee would like to know is this: now that there is this compliance, who are those “multiple eyes” and what are they doing with the information that was thought necessary to eradicate some of the kleptocracy that has clearly been identified?
Lord Johnson of Lainston (Con)
I greatly appreciate the noble Lord, Lord Faulks, flagging so well the sentence that I was about to deliver. I would like to investigate further, personally as a Minister and for the benefit of this Committee, a more detailed assessment of the crime-fighting efforts that we will employ around this.
I have some good information to impart to the Committee, which to some extent answers the questions. I have particularly looked into the comments by the noble Lord, Lord Wallace, about the UAE and so on. We have signed an anti-corruption pledge or framework with the UAE in the last few years. We have in the Foreign, Commonwealth and Development Office—
Lord Johnson of Lainston (Con)
Can I just finish this particular flow of information, because I will cease to remember it if I do not get it out? I believe we have 12 Foreign Office crime experts located around the world. One of them is in the UAE, for example, and we work very hard with those countries that sit on the so-called grey list. It is important to note this. I am aware, as a Minister and a consumer, that the value and brand of a jurisdiction are extremely important. It is not effective for companies to operate easily in jurisdictions that have been classified as at risk or on the grey list.
There is clearly a hierarchy of regulatory power or brand, with the UK at the very top. When dealing with international companies, I personally always look at where a company is registered. If it is registered in the UK, we hope that the brand will grow to be even more enhanced; if it is registered in a jurisdiction about which you have doubts or that has been highlighted as at risk, it makes a significant difference to how you treat that information and the brand of that business.
Lord Agnew of Oulton (Con)
Given my noble friend the Minister’s commitment to give us some data on the whole disclosure exercise that has happened following the first economic crime Act, he mentioned that there has been a high level of compliance. We are all delighted with that, but my worry—to the point made earlier by the noble Lord, Lord Vaux—is what that actually means.
Transparency International estimates that there are at least 7,000 entities on which no light at all will be shed. In my example, JTC (Suisse) SA is a registered overseas entity. We now have that information but it means absolutely nothing, because beneath it is a cascade of other entities that we seem to have no visibility on. When the Minister puts together his reporting suite, can he let us know how many are essentially just a number or a name on a piece of paper?
Perhaps I should have raised this earlier, but in our very useful briefing with officials on Monday they explained that the ROE was set up specifically for property, and therefore a lot of the enforcement was around property assets. Property—real estate—is of course a much easier concept to deal with than the rest of the things we are talking about in commerce. A piece of paper or digital ownership of a share is much harder. I am interested to know what enforcement will happen for those much more invisible assets.
Lord Johnson of Lainston (Con)
I am constantly grateful to my noble friend Lord Agnew for his interventions and thoughtful input. I am pleased to say that we have to look forward—unfortunately not today, but maybe next week—to the section on crypto assets and similar assets. I believe that we have made great headway; this is technical and complex, and we welcome interventions and input from this Committee and anyone else that will allow us to more effectively police that area. I am very much on my noble friend’s side on this. It was certainly worth him mentioning that the register of overseas entities relates to property, which is true. I cannot comment on the specific case that he raises, but the assumption is that the data will be checked and verified. The whole point is that a registered overseas entity has to conform to our people with significant control regime and so on. That will allow us to make that assessment. I will confirm to the Committee what we are going to do in terms of reporting against that data.
As I say, there was a discussion earlier in the week about the budgetary allocations for economic crime fighting. It is very important that we show this House, and the nation at large, how much money the Government are putting into this area and how seriously we take it. I am proud of our record and want to put together a strong case to show your Lordships what we are doing. Can more resources be allocated to anything? All of us here have experience, if we have been in government, and of course it is possible. But the fact is that if I look magnitudinously over the last few years at the attention placed on this subject and the money put into it, it is a completely different story from, say, 2010—and for good reasons. It has become crucially apparent that the world has changed, and we need to react to that.
Lord Vaux of Harrowden (CB)
The noble Lord is right that it is sometimes necessary to protect the privacy of individuals. I do not think anyone in the Room would argue otherwise, but it is true that trusts can be and are used to hide real beneficial ownership. The noble Lord will correct me if I am wrong—I apologise for not having the Act in front of me—but I recall that a process within the Act allows entities to apply for their information not to be on the public register. That should cover the privacy issue. The default should be that the information is on the register. If the entity has applied for the information not to be and Companies House has accepted its reason as valid, that is fine, but the default should surely be that the information is public.
Lord Johnson of Lainston (Con)
I appreciate the noble Lord making that comment, which I will come on to but, if the Committee does not mind, I would like to correct some of my statistics. Slightly fewer than 28,000 of our overseas entities have registered, although it is very nearly that. My officials want me to be accurate, so that I never mislead this august Committee. I should also be specific about the PSC regime relating to registered overseas entities. As noble Lords know, but were kind enough not to pick me up on, they have a separate regulatory regime, which is similar to it but not actually called that. I apologise and hope that has been corrected.
Baroness Blake of Leeds (Lab)
It would be helpful if we were regularly updated on the number of overseas entities that have registered, with a running total. Otherwise, we keep having to come back and it is not clear where we are in the process.
Lord Vaux of Harrowden (CB)
I would also be grateful if the Minister could answer the question about whether there is a process for privacy.
Lord Johnson of Lainston (Con)
I am just coming on to that. The noble Baroness, Lady Blake, is right to ask for there to be a running total, because a further 717 overseas entities have complied in the recent period since my own figures were updated—so it would be quite useful to see how that is going. I would also like to separate the comments of the noble Lord, Lord Vaux, about the ability to keep some information private from the presumption of this Bill, which is the presumption for privacy for trusts rather than it being the exception.
This matter was well debated in the other place during the passage of the Bill—I am sure that some of your Lordships have had the opportunity to read that debate—but the question was what level of information should be published. Let us remember that all this information is collected by Companies House, so it is on record. In terms of crime fighting, it will be fully available to Companies House for the processes that all companies are obliged to undergo. It is perfectly reasonable to have a debate about what level of transparency there should be when it comes to publishing information. As I said before an intervention, it may also be appropriate for there to be a presumption of privacy for small, micro-entity information, given that some of those very small businesses are in effect people’s private wealth.
We should not conflate the work that we are trying to do here on Companies House, corporate transparency and reducing crime with some of the powerful principles around privacy, investment, family and protection, which are not irrelevant. It is important that we have a debate about this. The Government have committed actively to explore levels of information that should be published. The Treasury is very specific on my mandate in this discussion. I am not mandated to commit to any level of transparency above and beyond what we are already doing, which is a significant change, yet, at the same time, I can, and am keen to, commit to further debate about the level of transparency.
Lord Garnier (Con)
My noble friend’s own Amendment 76H is in a different group to this one, but it is likely that we will debate it later today. By then, he may not have had time to take further advice about the default position that we would like to see; that is, everything should be made open unless there is a good reason for it not to be. I was struck by the expression that he used a moment ago, particularly when dealing with micro-companies, that the default position should be one of confidentiality—“secrecy” is an emotive word—in favour of the micro-company and its owners as opposed to the other way around.
We are looking for a general rule, a general default position, that there should be openness unless there is a very good reason for there not to be—and, as my noble friend pointed out, there will be occasions when there is a very good reason not to have an open-source register. Is my noble friend in a position, even if he is not able to do so later this afternoon when government Amendment 76H comes to be debated, to amend or clarify the Government’s position? Can he assure us that Report will be the occasion when this further debate will be held? To say that there will be opportunities for a debate about the default position does not pin it down to a particular date or time. My noble friend will know, and the usual channels will know, that time is precious and Governments can often find an excuse, based on inconvenience, not to allow a debate that is required to take place.
Lord Johnson of Lainston (Con)
I thank my noble and learned friend for that point. Going back to the comment the noble Baroness, Lady Blake, made about the statistics on registered entities, I understand that there is a website that tracks this, which the Committee can log on to each day to see progress. We will send that link around to encourage your Lordships to look at it, but at the same time we will make sure that we provide more information about the statistics.
I cannot commit to a debate on trust transparency at this stage, but what I can commit to is that the Government are exploring this topic, which I think is separate to some of the discussions we are having. I would like to clarify my own point, which the noble Lord raised, about micro-entities and the assumption of publishing. I believe that the assumption is that the information would be published. My point was that I think it is perfectly reasonable to have differing views over this on account of areas such as privacy, if I can have a personal view as a Minister. I am very happy to have a debate about whether there is a discussion to be had around privacy for micro-entities publishing all their information, given how personal that can be. I think it is perfectly legitimate for trusts, in many instances, to be considered private affairs, so long as the authorities themselves have the transparency of information that they need.
Lord Cromwell (CB)
To pick up on the noble and learned Lord’s point about consultation, I am sure we have all welcomed the multiple times that the Minister has referred to further discussion and further consultation about topics raised today and on the previous day of debate. I think we would welcome the chance to get our diaries out fairly soon and see when those discussions could actually take place.
The other separate and more pedantic point I wanted to make is that I think the Minister said—I agree with him largely on privacy, by the way—that the trusts are repositories of assets and do not transact business, although I am ready to be corrected. I am not sure that that is a fair representation. I think that many trusts own companies and the trustees run the companies and businesses that are held, as it were, in a holding group.
Lord Johnson of Lainston (Con)
I am not surprised that the noble Lord and a Member of this Committee has corrected me on that specific point; my tone may have been misunderstood. However, I hope he understood what I was trying to get at when I differentiated trusts from corporate entities or corporations themselves. They do business, and they must be regulated. If I could differentiate my language again, between a debate and a discussion, I am very keen to have a discussion with Members of this Committee about this matter, so we can certainly get diaries out and find a time over the coming weeks to look into this in more detail. It is a very important debate to have, and I would welcome as many participants in the industry as possible to join us in that discussion.
Given what I have said and the fact that this is being actively explored by the Government, please do not think that this discussion is somehow being shut down. As I say, this policy area is controlled by the Treasury, and it is very specific about that. I am comfortable that we will have the powers in this Bill to have the flexibility to ensure that we can, when the decision is taken, provide the right amount of transparency around trusts. As a result, I ask the noble Lord to withdraw his amendment.
Lord Agnew of Oulton (Con)
My Lords, with very deep reluctance, I will withdraw it, but I want to leave on the record that the self-proclaimed “very good” Amendment 76H could be truly excellent if the Government added the simple two-line sentence that I have offered in my amendment. I suggest that there are rarely times in legislation where so much can be achieved with so little and so quickly.
Baroness Blake of Leeds (Lab)
With apologies, as I am not sure whether this is an appropriate time to raise this, but given that our amendment refers to the Sanctions and Anti-Money Laundering Act, perhaps the Minister can explain what sensitive negotiations and discussions, as the noble and learned Lord, Lord Garnier, mentioned, have taken place and the reasons for the disappointing progress. It would be helpful to have a better understanding of why we have not been able to progress.
Lord Johnson of Lainston (Con)
I greatly appreciate the noble Baroness’s comment. I would be delighted to go through this in as much detail as I can. I am very aware, as a Minister in the department and someone guiding this legislation through, as a Peer in this House and as a member of the public, of the issues the Crown dependencies and overseas territories have when it comes to reputational issues surrounding financial probity. It has been well reported and widely discussed. I am very happy to comment on that and to come back to the Committee with more information on the specific work we are doing.
If noble Lords allow me to go through my notes, I should be able to answer some of the questions. I am very grateful to the Committee for the complimentary clerking advice we received from my noble and learned friend Lord Garnier and the noble Lord, Lord Faulks, although, since they both seem to have been educated in exactly the same way, I am not quite sure why they did not both have the same answer. That might be something to revisit.
I thank the noble Lords, Lord Coaker and Lord Wallace, who I have named in my brief, for their amendments; of course, the noble Baroness, Lady Blake, spoke to her part. Before I respond to the amendments, it will be useful for me to set out the long-standing constitutional relationship that exists between the UK Government and the Crown dependencies and overseas territories, although I do not want to repeat the very helpful comments made by noble Lords, particularly my noble and learned friend Lord Garnier.
The Crown dependencies and overseas territories are not part of the UK. It may seem obvious to state that, but it is very important. They are separate jurisdictions with their own democratically elected Governments responsible for their domestic affairs, including in these areas. The noble Lord, Lord Wallace, raised the National Security Bill, which I am advised would be more relevant since we are responsible for the national security of the Crown dependencies and overseas territories, or at least many of them—I am receiving reassuring nods. It would have been appropriate, in that instance, for there to have been some mention of them in the legislation. I will explain why there is no mention of the Crown dependencies and overseas territories in this Bill.
I make very clear my sympathy with the principles expressed in this debate. I cannot remember the exact phrase that the noble Baroness, Lady Bennett, used because the metaphor was very mixed, but it was something about there being no point shutting the stable door if we leave the barn door open. I very much agree with that principle; it would seem peculiar to go to all these lengths to make our system right if there were a backdoor through a Crown dependency or overseas territory, but I do not believe that will be the case. I assure the Committee that anything that happens in the UK has to have the additional level in terms of the equivalent regulatory framework to the PSC register, whatever the framework is so called, and so on.
We have a great deal of protection around us, but we should be aware of the fact that the Crown dependencies and dependent territories make their own laws in these areas. There is a well-established constitutional convention that the UK does not legislate for the Crown dependencies on domestic matters or otherwise intervene without their consent, except in very limited circumstances. I am sure that the noble Lord, Lord Faulks, would be comfortable talking to this, but it really is in very limited circumstances. We should be aware of that and very respectful of it, since we do far better collaborating in a more powerful way to ensure that our frameworks are meshed together so that we learn from and support each other rather than being heavy-handed, even in this specific and practical sense. Furthermore, the UK Government also recognise the long-established practice that the UK does not legislate on domestic responsibilities for the overseas territories without first consulting them, other than in exceptional circumstances.
I am grateful for the thrust of these amendments. On Amendment 73A, tabled by the noble Lord, Lord Coaker, I am aware that beneficial ownership registers in British Overseas Territories and Crown dependencies have long attracted significant interest from across the House, as I said earlier, and in general from the public. But it is worth mentioning that, when these types of amendment were tabled to Bills several years ago, we were in a very different place. The point is that all inhabited overseas territories and the Crown dependencies have now committed to introduce publicly accessible registers of company beneficial ownership.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I agree with everything that has been said. I too was going to allude to the case of the SNP and to make the point about auditors resigning before they are replaced. That is obviously a warning sign. I am intrigued to hear the Minister’s response. It seems such a practical suggestion. I will leave it at that, because the ball is in his court.
Lord Johnson of Lainston (Con)
I thank my noble friend and guru Lord Leigh for his Amendment 73AA, and the noble Lords, Lord Fox and Lord Ponsonby, for their contributions. I assure my noble friend that this amendment is not necessary. The Government hear his comments loud and clear but, as with all outings at this Dispatch Box as a Minister, I am unable to give the purity of the answer that we might all prefer to hear.
However, I will say that the Government are taking forward reforms to audit and corporate governance regulation separately following the publication last year of our response to the White Paper consultation on restoring trust in audit and corporate governance. The White Paper considered the information that must be provided to Companies House when an auditor leaves office, so this covers the point about the auditor leaving office rather than necessarily the appointment of a new one; that is a core point that has been raised and heard. The Institute of Chartered Accountants in England and Wales—many noble Lords in this Room have declared an interest as being a member of that august body so they will know this already, although I am not—has raised with my officials the lack of up-to-date information on the Companies House register about the appointment of new auditors.
The Government are therefore already considering how the public record might be improved in respect of appointments of auditors, including possibly via a combination of notifying the appointment when it is made, as well as updating the register if needed as part of the annual confirmation statement. We covered the point about the auditor stepping down or leaving office. This could work in much the same way that it does for the identities of company directors, which I believe will satisfy this Committee. There are already secondary legislative powers in the Companies Act 2006 on the content of the confirmation statement, and amendments to this framework are already being considered as part of the implementation of the Government’s White Paper proposals on restoring trust in audit and corporate governance.
I hope that satisfies the Committee and I therefore ask my noble friend kindly to withdraw his amendment.
Lord Leigh of Hurley (Con)
I thank my noble friend. I am not surprised by his response, although one would have thought that a Bill on corporate transparency might stretch itself this far. In answer to what we might call the Vaux-Fox syndicate, when an auditor resigns, the company has to notify the Registrar of Companies of that within 14 days. I think it is a criminal offence not to do so, for both the company and the officer. That is pretty tight; it is just what is in the notice and making sure we are aware of what is going on thereafter. However, given the reassurances from my noble friend that the Government are beavering away day and night on the audit reform, I beg leave to withdraw my amendment.
Lord Johnson of Lainston
(b) in subsection (8), at the appropriate place insert—““disqualified under the directors disqualification legislation”—(a) in relation to a statement about a person delivered to the registrar for England and Wales or Scotland, means that the person falls within any of the entries in the first column of Part 1 of the table in section 159A of the Companies Act 2006;(b) in relation to a statement about a person delivered to the registrar for Northern Ireland, means that the person falls within any of the entries in the first column of Part 2 of that table.””Member’s explanatory statement
This amendment removes a requirement to make a statement in circumstances that can in fact never exist and is otherwise consequential on the amendments to page 94 and page 96, line 20, which are tabled in the Minister’s name.
Lord Johnson of Lainston (Con)
My Lords, I will speak first to government Amendments 73B to 73E, 73G to 73J, 73N, 74A and 74B—I hope I have read them out in the correct order—on the application of disqualification provisions to general partners and registered officers. I believe these amendments are very uncontentious but stand ready to be corrected by noble Lords in this Committee.
These amendments clarify certain parts of the Bill concerning disqualified officers in limited partnerships. They ensure that the restrictions introduced by the Bill on disqualified persons in relation to companies, which noble Lords will recall were debated and agreed on the first day in Committee, will apply correctly and coherently in the context of limited partnerships.
Specifically, Amendments 73B, 73C and 73G adapt the definition of a disqualified person, as inserted by the Bill under the Companies Act 2006, to general partners and registered officers. This will determine how a disqualification under the directors disqualification legislation affects the ability to be a general partner, or a registered officer of a corporate general partner in a limited partnership, and prevents disqualified persons being registered as such by the registrar. If I can summarise them correctly, they basically mean that if you are disqualified as a company director you cannot be a general partner of a limited company, and vice versa—which obviously makes great sense, because for some reason that was not necessarily the case.
Amendments 73B, 73D to 73F, 73N, 74A and 74B remove triggers or references concerning situations that cannot, in fact, exist and replace them with clearer text. This is because the Bill currently provides for general partners and registered officers to retain their management role if they are disqualified but have a court’s permission to act. However, unlike the position for companies, the law does not currently allow the courts to disqualify a person from acting in the capacity of a general partner or registered officer. Consequently, no court is allowed to grant permissions to act in such a capacity despite disqualification. If you cannot be disqualified, you cannot be permitted to act if disqualified, if that is the correct summary.
We do, however, intend to make changes related to this in secondary legislation so that people can be disqualified from acting as a general partner of a limited partnership and so that a court can grant permissions for disqualified general partners to act in limited partnerships where appropriate. We have discussed this and, historically, there are cases in which permissions for disqualified general partners and persons are required to facilitate necessary corporate transactions.
Section 7A of the Limited Partnerships Act 1907 and the powers in Clauses 149 and 150 allow regulations to be made to apply provisions concerning companies, including the director disqualification legislation, to limited partnerships. This includes allowing disqualified individuals to be disqualified from acting as a general partner and be given permission to act in a limited partnership. However, until these regulations are made, it is essential that the primary legislation reflects the current state of the law and is clear. These amendments, I hope the Committee will agree, achieve that. They are needed as they will remove provisions relating to court permissions, which, as I stated earlier, cannot be applied. Amendments 73B, 73E, 73H and 73J will also ensure that this change is reflected in the statements that must be delivered to the registrar in relation to the status of a general partner and a registered officer.
Finally, Amendments 73H and 73J ensure that the meaning of “disqualified” is properly applied in respect to the general partners’ ongoing duty to take any steps necessary to ensure that a disqualified general partner is removed from the partnership. This group of amendments is therefore necessary to ensure clarity regarding the definition of disqualified, and the obligations on individuals in relation to disqualified general partners and registered officers. They will make the legislation clearer and stop bad actors partaking in the management of limited partnerships.
Amendments 76A to 76G concern extending the application of the company director disqualification legislation to other entities in Northern Ireland. Currently, Clause 150 of the Bill gives the Secretary of State the power to amend the Company Directors Disqualification (Northern Ireland) Order 2002 in relation to relevant entities in Northern Ireland. On reflection, because this power will be used to amend a piece of Northern Irish legislation in a devolved area, these amendments extend the power to amend the order to the Department for the Economy in Northern Ireland. They also require the Secretary of State to obtain consent from the department before making any amendments. The amendments tabled will not result in a change in policy or in the intended use of these regulations.
I therefore believe that these are reasonable amendments. They will enable the continuation of collaborative working across the devolved nations while upholding the balance of devolved law. I believe that they are uncontentious; I have had the opportunity to discuss them broadly with noble Lords here. I very much hope that we can move on this and that noble Lords will support the various amendments I have proposed so that we can continue in our work debating other issues.
Lord Fox (LD)
My Lords, I have just a couple of questions for the Minister. First, can he confirm that, in seeking to define a disqualification more clearly and explicitly—I think that is what he said—the intention is not to change that definition but merely to codify it? Secondly, in what circumstances does the Minister envisage a disqualified director being allowed, in essence, to be reinstated? In what circumstances do the Government think that might be necessary, so to speak?
Lord Johnson of Lainston (Con)
The concept of disqualification does not change. As I am sure noble Lords are aware, these amendments simply bring historical legislation in line and tidy up some points in the Bill that apply to the provision on directors acting as qualified directors when they have been disqualified but cannot actually be disqualified under the original legislation. There is not enough coherence in what happens between limited partnerships and companies. If an individual, whatever you wish to call them—a general partner, a director or so on—is disqualified, they should not be able to be a corporate person in another corporate entity, however you wish to describe it; I think we all agree with that. These amendments clearly bring consistency here. There are no changes to any expectations; this is just good practice and, as I say, tidies up important areas of consistency.
On when a director or limited general partner would be enabled to continue in operation, this would relate specifically to discharging vital duties to ensure that a company could be wound up or, if necessary, some form of share sale or transfer could be authorised. This measure is necessary to ensure that. As I understand it, the Secretary of State directs exceptions to disqualification; I will correct that if I am mistaken. It happens in exceptional circumstances; the cause is normally that specific things need to be done to release assets, make payments, et cetera. A good example is that, if a board was disqualified for good reason but there were suppliers that needed to be paid, it would not be unreasonable for one of the disqualified directors to be able to pay the suppliers. It is specific, the idea being that, once you have disqualified a director, they are disqualified although, according to this amendment, they may be enabled to perform specific functions. That is logical and common sense.
I believe that concludes my proposal.
Lord Johnson of Lainston
“(3) A general partner in a limited partnership is “disqualified under the directors disqualification legislation” if— (a) where the limited partnership is registered in England and Wales or Scotland, the general partner falls within any of the entries in the first column of Part 1 of the table in section 159A of the Companies Act 2006;(b) where the limited partnership is registered in Northern Ireland, the general partner falls within any of the entries in the first column of Part 2 of that table.”Member’s explanatory statement
This amendment makes it clear that only the first column of the table in section 159A of the Companies Act 2006 is relevant to determining whether a general partner is disqualified under the directors disqualification legislation. This is because a disqualified general partner cannot be given permission to act.
Lord Johnson of Lainston
“(a) who is one of the general partner’s managing officers,(b) who is not disqualified under the directors disqualification legislation (see subsection (8)), and(c) whose identity is verified (within the meaning of section 1110A of the Companies Act 2006).”Member’s explanatory statement
This amendment is consequential on the amendment to page 93, line 36, which is tabled in the Minister’s name. That amendment introduces a new definition of “disqualified under the directors disqualification legislation” that applies for the purpose of section 8A of the LPA 1907.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment removes a requirement to make a statement in circumstances that can in fact never exist.
Lord Johnson of Lainston
“Power to make provision about winding up
After section 29 of the Limited Partnerships Act 1907 (inserted by section 130 of this Act) insert—
“29A Power to make provision about winding up(1) The Secretary of State may by regulations make provision in relation to the winding up of a limited partnership under section 28 or 29 that corresponds or is similar to any provision of the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 (including any provision of that Act or Order that relates to the allocation of jurisdiction or distribution of business between courts in any part of the United Kingdom).(2) Before making regulations under subsection (1) the Secretary of State must—(a) obtain the consent of the Department for the Economy in Northern Ireland, so far as the regulations relate to limited partnerships registered in Northern Ireland; (b) obtain the consent of the Scottish Ministers, so far as the regulations relate to limited partnerships registered in Scotland.(3) The provision that may be made by regulations under subsection (1) by virtue of section 35(1) includes provision amending, repealing or revoking provision made by or under either of the following, whenever passed or made—(a) an Act;(b) Northern Ireland legislation.(4) Regulations under this section are subject to the affirmative resolution procedure.””Member’s explanatory statement
This amendment would mean that the Secretary of State can make provision corresponding or similar to any provision of the Insolvency Act 1986 or the Insolvency (Northern Ireland) Order 1989 to govern the winding up of limited partnerships under new section 28 or 29 of the Limited Partnerships Act 1907.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on the amendments to page 95, line 23 and page 95, line 39, which are both tabled in the Minister’s name.
Lord Fox (LD)
I will be very brief. I think that your Lordships need once again to thank the noble Lord, Lord Agnew, for his ability to get around the issues. This is a genuine issue around seeking to obfuscate the ownership of particular assets. The noble Lord seemed to have some confidence that the Minister will help us on this. The point here is that this is a genuine issue about which the Government should genuinely be concerned.
This extends beyond fraud. We were talking about trusts. One of the issues that came up after the Grenfell Tower disaster was that people found they could not know who owned the accommodation they were living in because of the protections that we have been discussing today. So they could not have a realistic conversation about whether their landlord would make their residence safe again. That is another issue, which is separate from this Bill, but it gives lie to the point that this is used to hide ownership for a variety of different reasons.
I look forward to the Minister achieving the optimism that the noble Lord, Lord Agnew, just expressed. I also thank the noble Lord for introducing the phrase “natural person”, which I have not come across before. Is that a legal definition of a human? That would be an interesting and useful thing to know for the future. With that, we on these Benches fully support these amendments.
Lord Johnson of Lainston (Con)
As always, I am grateful to noble Lords for their contributions to this debate. I have been reassured that, for the purposes of this debate, a “natural person” is a human. There was nodding behind me in the Box, which is reassuring.
Lord Johnson of Lainston (Con)
Do we have some artificial intelligence in the Civil Service Box? I think that we have natural persons’ intelligence. While I have this opportunity—I am sure that I say this on behalf of the Committee—I would like to say that the officials behind this Bill are extremely hard-working and focused; they have done everything they can to deliver a very complex piece of legislation. They have been very helpful to me and my colleagues personally and to the Ministers taking the Bill through the other place. I hope noble Lords feel that they have interacted with them appropriately. I know that they continue to stand ready to support us as we craft what I think is a magnitudinous piece of legislation that will have significant positive ramifications in the decades ahead.
I turn to the amendments presented by my noble friend Lord Agnew. I have taken advice on elements of them and their technical relevance to the Bill so, when the noble Lord, Lord Coaker, suggested that they were somehow not relevant, that was a private, legal and specific statement; it was not a philosophical one. They are very relevant to the Bill and at the core of much of what we are trying to establish: who is behind the companies and corporate entities?
The comment from the noble Lord, Lord Fox, about the ownership of property following the Grenfell Tower tragedy is a very good example. We hope that the reforms that we are making will ensure that we know who is behind corporate activity and ownership of property in this country. We have made huge strides in doing so and the Bill is very important. That is not to say that it cannot be improved but, where we feel we are including these principles, we do not suggest that noble Lords unnecessarily improve it further or confuse it. I rely to some extent on the draftsmen who advised me on this; I hope that the Committee sees this as well intentioned, in the way it is being presented.
I will first speak to Amendment 74. I commend my noble friend’s intention to increase the transparency of limited partnerships. I stress again that there is a difference between a limited partnership in Scotland, a limited partnership in England, Wales and Northern Ireland, a limited liability partnership across the United Kingdom and a limited company. They all operate slightly differently in the different jurisdictions. Please bear this in mind, as we have drafted this legislation to ensure that we have transparency across all the different concepts and principles in the right way.
I know that my noble friend Lord Agnew shares the same concerns that Dame Margaret Hodge has expressed previously. I have had the privilege of meeting her personally, as well as hearing her views, which have been extremely helpful in informing my knowledge base around this debate.
The proposed new clause would duplicate the Scottish Partnerships (Register of People with Significant Control) Regulations 2017. Scottish limited partnerships have legal personality, as noble Lords will know, which means that, among other things, they are able to own assets, enter into contracts and hold bank accounts. This results in a greater degree of opacity around Scottish limited partnerships, which is one of the features that the Bill is specifically designed to tackle.
However, as noble Lords will know, English, Welsh and Northern Irish limited partnerships are required to register with Companies House. While they are, they do not possess a legal personality separate from that of their partners. This means that it is the general partners themselves who transact on behalf of the partners. One of our senior officials likened it to a marriage, if that helps to clarify that point, in the sense that, if you are married and you own a home, the marriage does not own the home, nor does the couple; the partners—the husband and wife—own the property. I hope that that makes it clearer to some extent; it certainly did for me, although I will not go into my own home ownership percentages during this debate.
I stress that this Government completely agree with the principle that we should have greater transparency over who is managing and controlling a limited partnership. There is much in the Bill that will achieve exactly that. This is very important. I know that my noble friend Lord Agnew and the noble Lords, Lord Coaker and Lord Fox—indeed, all noble Lords in the Committee—take this extremely seriously. In fact, it is the core principle of the Bill, which includes, to go back to the specific moment, a range of measures that will make it mandatory for limited partnerships to submit a much greater range of information about their partners, including their current and former names, addresses and dates of birth.
The general partners of limited partnerships who have management responsibility—there is, of course, a difference—will be required to have their identities verified. Where a general partner is a corporate entity, it must name a managing officer with a verified identity who can be contacted about the limited partnership. That is very important as well and goes significantly further.
Lord Agnew of Oulton (Con)
Can my noble friend confirm that all the information he has just listed will be available for public inspection so that we do not get back into this cul-de-sac of my earlier concerns?
Lord Johnson of Lainston (Con)
I believe that I can confirm that but I will ensure that those facts are properly presented. It is clearly helpful for us to be specific on that.
Lord Coaker (Lab)
If somebody fails to comply properly with registering their PSC, that is a criminal offence, as I understand it. Can the Minister confirm that failing to register the PSC properly is a criminal offence? Secondly, what are the penalties for that offence?
Lord Johnson of Lainston (Con)
I am going through a slightly different point in this amendment, if the noble Lord will forgive me. I can confirm that it is a criminal offence. There is a published tariff that varies according to jurisdiction. If noble Lords do not mind, we will present that. I believe that there might be sections of the criminal tariffs in the Bill, but it is important as this is criminality. Perhaps one of the noble Lords in the Committee will be able to extract the tariff from the Bill but I will certainly write to noble Lords. They are significant penalties and fines; it is more than six months in prison in some jurisdictions. It depends on whether it is tried in Scotland and so on. I do not have all those details to hand but we will clarify that.
This is very serious. Criminality in the corporate world is an important element of what we are trying to prevent. As noble Lords know, we will discuss the “failure to prevent” principles in the next day of Committee. It changes significantly, as has been seen to be successful, in jurisdictions such as the United States of America. As the noble Lord has raised before in terms of public participation in our belief in a liberal, democratic, property-owning capitalist system, it is felt that, if we do not punish the perpetrators of financial crimes and it is felt that they are getting away with it, through either their being unable to easily prosecuted or their not being punished severely, it brings the system into disrepute and causes significant long-term philosophical and societal damage.
We look across the Atlantic at the United States and feel that it takes a different view. Financial crime is treated there as serious and significant crime, and commensurate penalties go with it. The case of Madoff was raised, where the initial tariff was a pretty significant landmark sentence—many hundreds of years, if I am not mistaken. It was certainly over 100 years or close to it, which obviously shows the principles by which that country approaches this point. While we are not operating under similar tariffs, it is important that we see criminal acts in financial crimes as significant. The tariffs around that need to reflect it, but I am happy to provide further information.
Perhaps I may finish this piece, because I hope it is relatively straightforward and that Committee members will be reassured by what we are doing. We will not support this amendment and I will ask the noble Lord to withdraw it, but the principles around making sure that we have transparency and identifiable actors in corporate structures are clearly made.
On the case of the two month-old married individual who was registered as a beneficial owner of the entity that my noble friend Lord Agnew cited, the point actually raised is that it has been recorded. It will certainly now be possible, if not essential—to some extent, with a situation as significant as that, it should have been possible—that Companies House now investigates that type of registered entry. I raise that in the sense that we are trying to ensure that the information is provided, which will set off alarm bells and allow for inquiry. We cannot prevent people from false entry. What we can do is to ensure that the penalties are there to discourage it, the investigative powers and data-scraping are sufficient to enable us to pursue it, and the data we have is clean and clear.
I do not have too long to go on these two amendments, if noble Lords will indulge me. I wish to stress to my noble friend Lord Agnew that this Government completely agree with the principle that we should have greater transparency over who is managing and controlling a limited partnership. There is much in this Bill which will achieve exactly that. The Bill includes a range of measures that will make it mandatory—I restate this—for limited partnerships to submit a much greater range of information about their partners, including their current and former names, addresses and dates of birth.
The general partners of limited partnerships will be required to have their identities verified. The PSC regulations apply to certain legal entities, including incorporated bodies such as companies and LLPs, and are about exposing who controls them. This can be otherwise unclear, given the corporate structure of those entities. While companies and partnerships share many similar characteristics, they are nevertheless fundamentally different. A limited partner, for example, does not have voting rights in the way that a shareholder does and, unlike an LLP, there is nothing in law which would force a limited partnership to have a written partnership agreement—I think this dates back to the 1880s—though many will have one.
As I have said, partnerships in England, Wales and Northern Ireland are registrable business relationships, not separate legal personalities. As such, they cannot be beneficially owned in the same way that companies and LLPs can. It would take a fundamental review of partnership legislation more broadly to apply beneficial ownership-style transparency measures to English and Welsh, and Northern Irish, limited partnerships in the way that my noble friend intends. For these reasons, I ask my noble friend to withdraw his amendment but I am very comfortable about discussions to ensure that he and any other members of the Committee are comfortable that what we are doing achieves these ends.
Amendments 75 and 76, also tabled by my noble friend Lord Agnew, would require limited partnerships and limited liability partnerships to have at least one partner who is a natural person. The Government consulted extensively on the reforms to these corporate structures. It was clearly found that corporate partners can be a legitimate and critical part of certain UK fund structures, allowing them to operate effectively. While I understand the intent of these amendments and share the desire to tackle opaque chains of corporate partners in partnerships, as with companies, having discussed the principles of these structures, it is difficult to suggest that now would be an appropriate time to make such a change.
Clause 144 already contains powers which will enable restrictions to be placed on corporate partners, as with corporate directors of companies. However, limited partnerships and limited liability partnerships have very different corporate structures to companies. Therefore we must have careful consideration and consultation is needed before any restrictions are made.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on the amendment to page 95, line 23, which is tabled in the Minister’s name.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on new section 29C of the Limited Partnerships Act 1907 which is inserted by new Clause (Winding up of limited partnerships: concurrent proceedings)(which is inserted after Clause 130 of the Bill).
Lord Johnson of Lainston
Member’s explanatory statement
This amendment allows the Department for the Economy to make regulations under new Article 25D of the Company Directors Disqualification (Northern Ireland) Order 2002.
Lord Johnson of Lainston
“Registration of information about trusts
(1) Paragraph 8 of Schedule 1 to the Economic Crime (Transparency and Enforcement) Act 2022 (required information) is amended as follows.(2) In sub-paragraph (1), for paragraphs (d) to (f) substitute—“(d) the specified details of each beneficiary under the trust;(e) the specified details of each settlor or grantor and, in relation to any settlor or grantor that is a legal entity, the specified details of any person who at the time at which the trust is settled—(i) is a registrable beneficial owner in relation to that entity (if it is overseas entity), or(ii) would be a registrable beneficial owner in relation to the entity if that entity were an overseas entity;(f) the specified details of any interested person under the trust and the date on which they became an interested person.”(3) After sub-paragraph (1) insert—“(1A) In sub-paragraph (1)(d) to (f)“the specified details”—(a) in relation to a person who is an individual, means—(i) name, date of birth and nationality;(ii) usual residential address;(iii) a service address;(b) in relation to a person that is a legal entity, means— (i) name;(ii) principal office;(iii) a service address;(iv) the legal form of the entity and the law by which it is governed;(v) any public register in which it is entered and, if applicable, its registration number in that register.”(4) In sub-paragraph (2), for “sub-paragraph (1)(c)” substitute “sub-paragraphs (1)(c) and (1A)(a)”.”Member’s explanatory statement
This clause extends the information that must be provided in connection with the registration of overseas entities where a person is a beneficial owner by virtue of being a trustee.
Lord Johnson of Lainston (Con)
My Lords, I shall speak to government Amendments 76H, 77A, 77B, 77E, 77F, 77G, 77H, 77J, 77K and 77L, on the register of overseas entities provisions in Part 3 of the Bill—I am just checking that I read out the right amendments.
Lord Johnson of Lainston (Con)
I thank noble Lords; at this stage, I feel that we are operating as one team to make sure that we are creating good legislation, which is very important. I am grateful to all Members of the Committee for their helpful interventions and constructive collaboration as we come to the conclusion of the Companies House section of the Bill.
The register of overseas entities—“the register”—was created by the Economic Crime (Transparency and Enforcement) Act 2022, which I will refer to as “the 2022 Act”. This was expedited through Parliament as part of the government response to Russia’s invasion of Ukraine, as I am sure all noble Lords are aware. Overseas entities owning land in the UK must provide information about themselves and their beneficial owners to Companies House in order to retain their ability to freely transact with their land or property, which noble Lords have already discussed in some detail.
These requirements are retrospective. Overseas entities owning land in England and Wales from 1 January 1999, and in Scotland from 8 December 2014, must register with Companies House. A transitional period of six months was provided. The register went live on 1 August 2022 and the transitional period ended on 31 January 2023. At the time that the register opened, there were an estimated 32,000 overseas entities in scope, which noble Lords have discussed. Well over 27,000 entities are now registered. Given the emerging finding that a number of entities registered as proprietors may now be dissolved or struck off and the inherent challenge of contacting overseas entities, we think that this is a high compliance rate. Overseas entities seeking to acquire land or property since 5 September 2022 must provide an overseas entity ID number issued by Companies House or their application to any of the UK’s three land registries will be rejected.
I turn to the related amendments and shall speak first to government Amendments 76H, 77A, 77E, 77F, 77G, 77H, 77J and 77L, which require overseas entities that had to register on the register of overseas entities by 31 January 2023, in particular where there is a trust involved, to provide further information to the register of companies in order to counter avoidance. I believe that this amendment was raised earlier in Committee proceedings in relation to trust transparency, which, as I hope to explain, is not specifically accurate. However, noble Lords will be pleased with our efforts to ensure that we are always aware of ways in which companies can use loopholes to create avoidance and by how firm we are intending to be. As I have said, Amendment 76H is a very good amendment and I hope your Lordships share the Government’s view of that.
Overseas entities owning land in the UK are required to provide details about their beneficial owners to Companies House. Where a beneficial owner has this status because they are the trustee of a trust, the entity is required to also provide information about the trust. The kinds of arrangements that are used to hold property in the UK can be complex and difficult to penetrate, none more so than arrangements that include one or more trusts in the ownership chain.
The Government heard a lot of concern about trusts during the passage of the 2022 Act and have done so again during the passage of this Bill. The Government have listened, and this set of amendments is designed to address some of those concerns. The amendments are complex, as are the structures they seek to look through. They have been tabled to ensure that those entities that are associated with a trust cannot circumvent the requirements.
Where there have been changes to the beneficial owner of an overseas entity, to the beneficiaries of a trust, or to which trust owns the overseas entity between 28 February 2022, which is the date the Act was first published, and 31 January 2023, the end of the transitional period, these amendments require the entity to provide additional information. If changes have been made in a deliberate attempt to avoid transparency requirements, they will have been futile because under these amendments the overseas entity will be required to provide the information anyway.
Although information about trusts is not publicly available, it is a valuable and rich source of data for law enforcement agencies, including HMRC. These amendments will enhance the information held about trusts associated with overseas entities and prevent those seeking to disguise their involvement in property-owning arrangements from doing so. The amendments also make a number of consequential changes to the Act so that the new provisions can be properly inserted into the Act.
Amendment 77L provides a power for the Secretary of State to make regulations to exclude certain registrable beneficial owners from these anti-avoidance provisions. The purpose of providing this power is to ensure that the new provisions do not impose undue burdens on businesses. For example, many overseas entities holding UK land are in turn owned by large, legitimate pension funds which are trusts. It would be disproportionate to expect large pension funds to report every change in beneficiary for the relevant period, as I am sure we are all aware. The overseas entities in question will still be required to provide information about the pension fund trust and to update that information annually. The new requirements will strengthen the regime and demonstrate our intent to leave nowhere to hide.
Amendment 77A ensures that an overseas entity cannot remove itself from the live register without providing any scheduled annual update. This will help to prevent any attempt to circumvent the disclosure requirements by selling up and applying to remove the entity—I notice that the noble Lord, Lord Vaux, is nodding enthusiastically—from the register without providing the required information. This strengthens the updating requirements further and will increase the robustness of the register.
When an overseas entity is removed from the live register, the information relating to it will remain publicly visible, but there will no longer be a requirement to update it on an annual basis, as seems sensible. An entity can successfully apply for removal only if it has disposed of all its land and property assets in the United Kingdom. I hope that noble Lords will welcome and support these amendments.
Amendment 77K amends the power in Clause 166 of the Bill to provide a consent mechanism for devolved Administrations. We have included in Clause 166 a power to amend the Economic Crime (Transparency and Enforcement) Act 2022 in line with amendments made by Part 1 of the Bill to the Companies Act 2006, which relate to corresponding provisions in the 2022 Act. This power has been included to ensure that, as far as possible, we maintain consistency between the two Acts and in the way in which Companies House operates its registers.
When the 2022 Act was passed, it required legislative consent from the Scottish Parliament and the Northern Ireland Assembly because some of its provisions engaged areas of devolved competence. We have provided for Scottish Ministers or the Department of Finance in Northern Ireland to consent to any regulations made under this power that engage areas of devolved competence in Scotland and Northern Ireland respectively, as with the similar mechanisms in the amendments linked to winding-up of limited partnerships. This is a bespoke solution for this specific regulation-making power. I trust that noble Lords will support this amendment.
Lord Coaker (Lab)
My Lords, I will very briefly support the remarks made by the noble Lords, Lord Faulks and Lord Fox, and the amendments tabled by the noble Lord, Lord Vaux. I look forward to the Minister’s response.
I also broadly welcome the Minister’s amendments. I have just one question, on Amendment 77L, to which I am sure there is an easy answer. It says:
“In this Schedule ‘the relevant period’ means the period … beginning with 28 February 2022 … ending with 31 January 2023”.
How were those dates arrived at?
Lord Johnson of Lainston (Con)
I appreciate the input of all noble Lords in this Committee. That period comprises the implementation, when the Act came into force, and the compliance date. Effectively, the law announced that you had to be compliant by a certain date. There is a seven-month lead-in time and the Government are concerned that people used that time to avoid the date at which they have to declare. We are, in effect, backdating the transparency, which is very sensible. I hope the noble Lord supports that.
Lord Vaux of Harrowden (CB)
There are two elements to my amendments. One is that, if there is a change of beneficial ownership, it should be registered within 14 days, in the same way as the PSC works, because of the way that the Act works in relation to the ownership of property, the inability to dispose of property and, therefore, the risk to a potential buyer if they did not know that the company should have given an update. The second is based on the transaction. If there is to be a transaction, the information must be updated before then, which gets around the issue that the noble Lord, Lord Callanan, quite rightly raised last time. So there are two elements: one is the 14 days—we should keep the thing up to date at all times, regardless of whether there is a transaction—and the second is that we should update it if there is a transaction.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for that further clarification. As I said, I am very aware of our desire to make sure that the register is clear and transparent, and to make sure that people, corporations, individuals and beneficiaries cannot move ownership and obfuscate the intention of transparency. What I will say is that there has to be a record of activity during the year. It is not a snapshot but a story in terms of beneficial ownership, so any beneficial ownership change has to be catalogued in that period of time.
Lord Vaux of Harrowden (CB)
That may be true, but Companies House is informed of it only at the end of the 12-month period. Therefore, the point remains that if you register a company on 1 January, change the beneficial ownership on 2 January and then do lots of transactions on 3 January, 4 January, 5 January or whatever, you can then tell Companies House that it has changed on 31 December. It could have changed multiple times in that period.
Lord Johnson of Lainston (Con)
I was coming on to make that point. I do not disagree with the philosophy of the noble Lord’s points; my point is that it is reasonable to look at this from every angle. I think that is right. We do not want to create hasty legislation, certainly not at the Dispatch Box, so I am very reluctant—as your Lordships can imagine—to support an amendment that would put me in that position. I am not unreluctant at all to try to intellectualise further how we make sure that there is a sufficient degree of transparency of overseas entities’ beneficial ownership, without putting at risk the necessary level of confidence that transactors have to have over the compliance of the transacting party. I mean no disrespect to the noble Lord by my phraseology, but it may sound like a good idea to bring these changes to bear, but I am advised that it is more complicated than it looks and it may not give us the security or transparency that we wish.
Lord Fox (LD)
I think we welcome the tone of the Minister’s comments to some extent. I wonder whether he expects to have completed the intellectual and practical investigation of this in time for Report, so as to bring forward amendments of the Government’s own making that address the issue he has signed up to intellectually. Or do the Government feel that there would be some other vehicle to deliver this?
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Fox, for his question, which I am not able to answer as conclusively as he might wish. There may be alternative mechanisms to approach this if so desired, and if the Government believe it is the way forward and the House decides accordingly. I hope the Committee will forgive my language at the Dispatch Box and that they hear the tone of—
Lord Agnew of Oulton (Con)
I am sorry to interrupt my noble friend but, given that he is now embarking on an intellectual journey on this subject and that we are not sure when that journey may conclude, I want to add a couple of nuances. First, he is right to ask what the unintended consequences are of introducing a new step. I accept that that needs to be challenged but, to give a simple example, if you are buying a property and the conveyance has dragged on a while, I think the buyer is required to carry out further searches at the last minute to ensure that a new Tube line has not suddenly been announced under the building they are buying. There is a mechanism to do it.
The other area of interest to me goes back to the point I made earlier about the great things that have been achieved with the register of overseas entities, with its high level of compliance. None the less, Transparency International thinks that there may be up to 7,000 entities and that, although we might know their names, we do not know what they really are. The proposal of the noble Lord, Lord Vaux, would flush them out before the sale. I am sure that HMRC might be very interested in a lot of these organisations, so there would be a beneficial element which has not necessarily been thought about at the moment. I would like my noble friend to add to that to his contemplation.
Lord Faulks (Non-Afl)
To add further to the intellectual challenge, and in support of what the noble Lord, Lord Agnew, said, when you transfer land quite a lot of formalities have to be gone through, in terms of conveyancing and the like. We are just talking about another formality that needs to be complied with. I do not understand that to be particularly onerous and it is consistent with what is expected. An event-driven matter was what we raised in our report; I am not sure that it should come as a great surprise that we think this is a sensible idea.
Lord Johnson of Lainston (Con)
As I hope I have illustrated, my enthusiasm for intellectualisation is paramount, even after an enjoyable light afternoon of committee debate. If I may expand further on the difference with the legislation relating to overseas entities and other types of purchase, using my noble friend Lord Agnew’s concept about the bus route or discovering moments before one buys a house that they are going to build past it some terrible thing—I was going to say a high-speed rail line, but of course we are enthusiastic here about building high-speed rail lines in this country—that is not the same thing at all.
Here, we are talking about the concept of overseas entities and the whole principle around this is to ensure that non-compliant entities are unable to transact. That is the only way to make this process workable. It is not a question of caveat emptor or something that can be corrected later, or whatever. This will prevent a transaction from happening. If a noble Lord purchases something—we were hearing earlier about the noble Lord, Lord Wallace, going to Battersea Power Station to purchase himself a downsized retirement villa, which seemed to be an upgrading, certainly for the Johnson household—is it reasonable to have a situation in which you cannot be sure whether the party you are dealing with is compliant?
I can see the noble Lord, Lord Vaux, waiting to leap up from his seat to tell me how it is possible. If it is possible to find a solution to this principle, I would be happy to have a discussion, but I am extremely reluctant to make a decision at the Dispatch Box.
Lord Vaux of Harrowden (CB)
I do not think anyone disagrees with the Minister. I said as much when I introduced my amendments, as I am conscious that the way that the Bill works means that there is a risk to the purchaser. We need to make sure that does not happen, and I have attempted to deal with it with these amendments. If that does not work, I am open to discussions, but it would be helpful to hear the Minister confirm, as I think I understand it, that he is sympathetic to the concept of making sure that the register is updated on a timely basis. That is the core thrust of these two amendments—a way to get around that and solve the very problem that the Minister is talking about. Therefore, I am looking for confirmation that he is sympathetic to keeping the register updated, if it is possible to do that and if we can solve the property ownership problem and bring it into line with the PSC rules.
Lord Johnson of Lainston (Con)
As always, I am grateful to the noble Lord, Lord Vaux, for his comments. I just repeat the point that we have been involved in markets where there has been misregulation. If it is believed that you cannot, in effect, undertake a transaction with a registered overseas entity because it is not possible to confirm compliance, whether Companies House is able—
Lord Vaux of Harrowden (CB)
The Minister is just repeating what he said before. I am looking for something more. The thrust of these amendments is that the register should be updated more regularly than annually. It should be updated when the information changes. Is he sympathetic to that and will he accept something along those lines, as long as we can find a solution to the property ownership issue?
Lord Johnson of Lainston (Con)
I hope noble Lords will forgive me if I thought myself entitled to a small preamble to my answer. Simple yes or no answers at the Dispatch Box are rather blunt instruments for creating finely tuned legislation. Noble Lords would not respect that process if that was the case.
I hope I am not repeating but clarifying the point, for me and my officials as much as for the Committee. What is worrying the Government, and should worry us all in this Room, is the chilling effect of our regulation. We must make sure that we balance our intended ambitions with the need to ensure that business functions properly. That is what this is about. If it does not do that, it will counter the effect that noble Lords want. That is the concern.
I am coming to answer the noble Lord’s question, if he will indulge me for a few more minutes. The question of non-compliance, which is at the core of this legislation, is not the same as a caveat emptor, additional, post-purchase risk. It is totally different. If the concept of these amendments makes it difficult to be assured of the compliance of a registered overseas entity, it makes it very difficult to welcome them. If it is possible, I am open to having a discussion around ensuring a timely mechanism—I do not wish to commit to anything specific—for matters of key interest, which are more than recorded data but are relevant to the intentions that we will bring to bear in our Bill and can be managed appropriately. I am always open to discussions about how we can make that process more transparent, cleaner and easier to manage. With that very clear commitment, I ask the noble Lord to withdraw his amendment.
Lord Vaux of Harrowden (CB)
The Minister has not actually addressed Amendment 77AA, which is an amendment to his Amendment 77A. I apologise for amending his amendment again.
Lord Johnson of Lainston (Con)
If the noble Lord will allow me, I will turn to my notes on Amendment 77AA. I thank all noble Lords for their valued contributions during this debate, as I have done consistently. I know that the register of overseas entities remains an issue of keen interest to all of us—it is at the core of much of the well-placed description from the noble Lord, Lord Coaker, of public anger at what has happened over the past decades—not least the noble Lord, Lord Faulks, who I know was involved in the issues in the debate two years ago now, I believe, and others who led the pre-legislative scrutiny of the original draft legislation.
Lord Vaux of Harrowden (CB)
I am not sure that the Minister has done so because, as things stand, as I understand it, all his amendment requires is the information that is already required—that is, the annual statement. In other words, there are no statements that have not been made. Even if no pending statements are required, information can still be up to a year out of date. The whole point of this is to try to ensure that, at the point of deregistration, the information is fully up to date and has been completely updated before that happens. It is the same as when you sell a property. Even if there are no updates pending, that information could be up to a year out of date.
Lord Johnson of Lainston (Con)
I apologise to the noble Lord if I have got this wrong but, as I understand it, to be given approval to be removed from the register, an entity has to provide final information. If that is not correct, I will certainly return to the noble Lord. I am looking at my officials to see whether I have misinterpreted this but I am very grateful to noble Lords in assisting us in ensuring that we have drafted our legislation properly.
Lord Fox (LD)
Further clarification on that would be very helpful because I have lost track of where we are on that. However, I have another question for the Minister. He has on a number of occasions talked about the chilling effect. Could he enlighten us, perhaps in writing, as to how that is measured or assessed? If it is by anecdote, how many anecdotes are required to know that there is a chilling effect? If it is by objective determination, I would like to know what that objective determination is. If it is by consultation—the Minister has mentioned a number of times on a number of occasions that there has been detailed consultation but I have been unable to find any evidence of that—I think your Lordships would be pleased to be told where they can find the results of that consultation. All this would help us to understand a little bit how decisions are being made on what to put into and what not to put into the Bill.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for that point. It inspires and helps us to come to good conclusions. We have consulted widely on a wide range of issues to ensure that we come to the right conclusions in this legislation. We also rely on the good counsel, great knowledge and intellectual capabilities of noble Lords in this Committee to help us draft, shape and form our legislation.
On the question of how we decided whether something may have a chilling effect, clearly that is a figure of speech—perhaps it has no place in such an intellectual crucible as this Room—but I reassure the noble Lord that if someone have a significant counterparty risk they will not be able to make a transaction. There are numerous organisations, companies, corporates and individuals that simply will not transact if they feel that there is no transaction security.
Lord Fox (LD)
I think I was minded to recognise that. What I was interested to receive was the input that the Minister is using to make that point—in other words, for the results of the consultations to which the Minister has referred to be shared more widely than simply the Minister’s circle and team. As far as I can tell, they have not been published. I am quite happy to keep them confidential if they need to be, but for us to empathise properly with the point that the Minister is making we need to be singing from the same hymn sheet.
Lord Johnson of Lainston (Con)
I appreciate that comment; I had not thought about that. We have not done a government impact assessment that could be published, such as the ones relating to the trade Bills that I have worked on, but if we can provide useful feedback on how we have come to some of our conclusions it would be helpful to do that. I would have thought that, in the lead-up to this, noble Lords would have made inquiries from some of the key sectors to gain good information from them, as we have.
I know for a fact that not every element, clause or amendment has been specifically consulted on because that would be impractical but, broadly speaking, we have received a great deal of information, as I understand it. My noble friend Lord Leigh’s amendment, on the publication of auditor changes, which we discussed earlier, came from our consultation with whatever august body of auditors it was that we discussed. As all noble Lords here know, I am comfortable being as open as possible. However, if I may, I will bring us to a conclusion because I would like to finish our last piece of business today, without a cost to democratic scrutiny.
I will attend to the comment from the noble Lord, Lord Vaux, about Amendment 77AA. I refute his point that this information can be a year old because that cannot be the case. The application for removal must contain information about the state of affairs at the date of the application. I do not mean to be pugnacious, but I believe that I am correct in saying that, in terms of removal from the register, the information that the noble Lord wishes to see—as we do—to prevent exactly the sorts of things that he is talking about will be there. I am very happy to double-confirm after the debate that, broadly speaking, I am right in my commitment. I would not like to give false promises, but the assumption—I have been reassured by officials during this debate—is that we are in line.
Lord Coaker (Lab)
May I just make one point about process? I think my noble friend Lord Ponsonby made this point earlier, and we have just heard it again. On quite a large number of occasions the Minister has said that he will write, provide reassurances, come back to Peers, and share letters, information, how various conclusions have been arrived at and what consultations there have been. I know that the Minister and his officials will do that but, to help move us to Report, I ask them to reflect on how to do all that in as short a period of time as possible to allow those of us who want to to consider what happened in Committee and the various conclusions. That is important so that we have a manageable Report and we deliver the sort of Bill that we want.
Lord Johnson of Lainston (Con)
I am grateful to the noble Lord for those points. As I have made clear, I hope noble Lords do not think that I am kicking the can down the road.
Lord Coaker (Lab)
I honestly do not think that the Minister is doing that; I was just trying to stress to him the importance of that process.
Lord Johnson of Lainston (Con)
Fair enough; I totally agree. Our officials are very much working on making sure that we have not missed anything. Please forgive us if we do, but I do not believe we will. My point about further discussion, as I say, is that I am convinced we are correct and there is no need for this amendment. I am convinced that we have the information that will be provided at the time of removal from the register—but I am always cautious to make sure that the exact specificity of my comments is backed up in facts. If that is not the case, I am very comfortable coming back to the Committee and being clear about it. With that in mind, I ask noble Lords not to press their amendments.
Lord Johnson of Lainston
“Applications for removal
(1) Section 10 of the Economic Crime (Transparency and Enforcement) Act 2022 (processing of application for removal) is amended as follows.(2) In subsection (2), after “land” insert “and there are no updates pending”.(3) In subsection (3), after “land” insert “or there is an update pending”.(4) After subsection (3) insert—“(3A) For the purposes of subsections (2) and (3) an update is pending if—(a) an update period for the entity has ended and the entity has not yet complied with the duty under section 7 in respect of that period, or(b) the entity is required to deliver information under Schedule 6 but has not yet done so.””Member’s explanatory statement
This requires the registrar to refuse an application for the deregistration of an overseas entity if it has not yet filed an update or certain other information that is due.
Lord Johnson of Lainston
“Verification of registrable beneficial owners and managing officers
(1) Section 16 of the Economic Crime (Transparency and Enforcement) Act 2022 (verification of registrable beneficial owners and managing officers) is amended as follows.(2) In subsection (2)—(a) after paragraph (a) insert— “(aa) about how the information is to be verified (including provision about the kinds or sources of evidence to be used);(ab) about the standard to which verification is to be carried out;”;(b) after paragraph (b) insert—“(ba) about the records that must be kept in connection with verification;”;(c) after paragraph (d)(inserted by section 156 of this Act) insert—“(e) about the information that must be provided to the registrar to enable the registrar to monitor compliance with any requirements imposed by the regulations.”(3) After subsection (2) insert—“(2A) Regulations under this section may create offences in relation to failures to comply with requirements imposed by virtue of subsection (2)(ba) or (e).(2B) The regulations must provide for any such offence to be punishable—(a) on summary conviction in England and Wales, by a fine;(b) on summary conviction in Scotland, by a fine not exceeding level 5 on the standard scale;(c) on summary conviction in Northern Ireland, by a fine not exceeding level 5 on the standard scale.””Member’s explanatory statement
This amendment makes it clear that regulations about verification can make provision about how it is carried out and the standard to which it is carried out. It also allows requirements imposed about the retention of records etc to be enforced by the creation of a summary-only offence.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on Schedule (Overseas entities: further information for transitional cases), which is inserted before Schedule 6.
Lord Johnson of Lainston
“Overseas entities: further information for transitional cases
Schedule (Overseas entities: further information for transitional cases) (overseas entities: further information for transitional cases) amends the Economic Crime (Transparency and Enforcement) Act 2022 to impose further duties on overseas entities to deliver information to the registrar.”Member’s explanatory statement
This introduces Schedule (Overseas entities: further information for transitional cases).
Lord Johnson of Lainston
“(2) The Secretary of State must obtain the consent of the Scottish Ministers before making regulations under this section that contain provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The Secretary of State must obtain the consent of the Department of Finance in Northern Ireland before making regulations under this section that contain provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill in the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State under section 8 of the Northern Ireland Act 1998.”Member’s explanatory statement
This amendment requires the Secretary of State to obtain consent before making regulations under clause 166 that contain provision within the legislative competence of the Scottish Parliament or the Northern Ireland Assembly.
Lord Johnson of Lainston
“SCHEDULE 5A OVERSEAS ENTITIES: FURTHER INFORMATION FOR TRANSITIONAL CASES1_ The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.2_ In section 16 (verification of registrable beneficial owners and managing officers), in subsection (1), after paragraph (c) insert—“(d) complies with the duty under Schedule 6 (duty to deliver further information about transitional period).”3_ After section 43 insert—“43A Duty to deliver further information for transitional casesSchedule 6 (duty to deliver further information for transitional cases) imposes further duties on overseas entities to deliver information.”4_ After Schedule 5 insert—“SCHEDULE 6 DUTY TO DELIVER FURTHER INFORMATION FOR TRANSITIONAL CASESApplication of this Schedule1_(1) This Schedule applies in relation to an overseas entity if—(a) the entity—(i) is registered as an overseas entity when this Schedule comes into force or has been so registered at any earlier time, and(ii) was registered as the proprietor of a relevant interest in land in England and Wales or Scotland at any time during the relevant period, or(b) the entity has committed an offence under paragraph 5 of Schedule 3 or paragraph 10 of Schedule 4 (duty to register as overseas entity in certain transitional cases).(2) For the purposes of sub-paragraph (1)—(a) an overseas entity is registered as the proprietor of a relevant interest in land in England and Wales if the entity is registered in the register of title kept under the Land Registration Act 2002 as the proprietor of a qualifying estate within the meaning of Schedule 4A to that Act;(b) an overseas entity is registered as the proprietor of a relevant interest in land in Scotland if the entity—(i) is entered, on or after 8 December 2014, as proprietor in the proprietorship section of the title sheet for a plot of land that is registered in the Land Register of Scotland,(ii) in relation to a lease that was recorded in the General Register of Sasines or registered in the Land Register of Scotland before that date is, by virtue of an assignation of the lease registered in the Land Register of Scotland on or after that date, the tenant under the lease, or(iii) is the tenant under a lease that was registered in the Land Register of Scotland on or after that date.(3) Expressions used in sub-paragraph (2)(b) are to be construed in accordance with section 9(11) and (12).(4) In this Schedule “the relevant period” means the period—(a) beginning with 28 February 2022; (b) ending with 31 January 2023.Duty to deliver statements and information2_(1) The overseas entity must deliver to the registrar—(a) any statements or information required by—paragraph 3 (changes in beneficial ownership of overseas entity),paragraph 4 (information about trusts and changes in beneficiaries under trusts),paragraph 5 (information about changes in trusts in which beneficial owners trustees),(b) a statement that the entity has complied with paragraph 8 of this Schedule (duty to take steps to obtain information), anything required by regulations under section 16 (verification of information) to be delivered to the registrar, and(d) the name and contact details of an individual who may be contacted about the statements and information.(2) If an overseas entity is registered as an overseas entity when this Schedule comes into force it must deliver the statements and information required by this Schedule—(a) at the same time as it delivers the statements and information required by section 7 on the first occasion after the end of the period of 3 months beginning with the day on which this Schedule comes into force, or(b) if it applies under section 9 for removal before then, at the same time as it delivers the statements and information required by that section.(3) If an overseas entity is not registered as an overseas entity when this Schedule comes into force it must deliver the statements and information required by this Schedule within the period of 3 months beginning when it comes into force.Information about changes in beneficial ownership3_(1) The overseas entity must deliver to the registrar the statement in row 1 of the following table or the statement and information listed in row 2.
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a registrable beneficial owner during the relevant period. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a registrable beneficial owner during the relevant period. | 1. The required information about each person who became or ceased to be a registrable beneficial owner during the relevant period, or so much of that information as the entity has been able to obtain. 2. The date on which each of them became or ceased to be a registrable beneficial owner if the entity has been able to obtain that information. |
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust during the relevant period. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust during the relevant period. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each person who became or ceased to be a beneficiary under the trust during the relevant period, or so much of that information as the entity has been able to obtain. 2. The date on which each of them became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information. |
This requires overseas entities to deliver to the registrar further information about events occurring during the period beginning on 28 February 2022 and ending with 31 January 2023.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 25th April 2023
(1 year ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: HL Bill 96-V Fifth marshalled list for Grand Committee - (25 Apr 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and the amendment in the name of Lord Sharpe of Epsom at page 207, line 11 amend inserted section 131ZB of the Proceeds of Crime Act 2002 (realisation of confiscated cryptoassets) to provide that only the sheriff may make an order under that section requiring confiscated cryptoassets to be realised.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, we now move to the Home Office clauses of the Bill and the amendments associated with them. I reiterate the thanks previously expressed by my noble friend the Minister for Investment to everyone who has participated in the scrutiny of the Bill to date, not least noble Lords who either met us to discuss the Bill or spoke during the first few days in Committee. I also reiterate my thanks to my noble friend Lord Johnson of Lainston for shepherding the first three parts of the Bill through Committee. They comprise sizeable and vital measures to make our country, businesses and citizens safer.
The amendments in this group concern the confiscation and recovery of crypto assets. Amendments 77M, 77N, 77P to 77Y, 77YA to 77YF, 78A and 78B—there are a lot of them—make a series of small and technical changes to measures in the Bill to ensure that it works as effectively as possible. They include amendments to ensure that the measures will function effectively in the context of the Scottish courts and will mirror existing asset recovery powers so that immigration officers can utilise the crypto-asset forfeiture powers. These amendments provide greater clarity to existing measures in the Bill and remain wholly in line with the original policy’s intent. I hope that noble Lords will support these amendments and I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I support the noble Lord, Lord Fox, in his amendment to make sure we have a review point quite soon after this Bill. I acknowledge my noble friend Lady Altmann’s point about the strange context to put this in, but given that we have this Bill on the table, it would be very easy to put in a reference point because the climate for this asset is moving enormously fast. Between November 2021 and November 2022, the value of bitcoin fell by $2 trillion, which is not far short of the UK’s total annual GDP, although it has recovered a little since then. This is a vast sum of theoretical money that is swilling around, and we do not yet really understand how to manage it, so I strongly support the noble Lord, Lord Fox.
Lord Sharpe of Epsom (Con)
My Lords, I thank noble Lords for the points that have been raised in this debate so far, and I specifically thank the noble Lord, Lord Fox, for tabling Amendment 78. I also thank him for his kind words about the detailed technical briefing that he received from officials on these provisions, and I am glad it proved valuable.
The proposed clause seeks to impose a duty on the Secretary of State to lay before Parliament a report reviewing the definitions of crypto assets contained in the Bill within 18 months of its passage. We believe this is unnecessary. The definitions in the Bill are in line with existing definitions in the Proceeds of Crime Act 2002 and the Terrorism Act 2000 and follow the approach recommended by the joint Treasury, Financial Conduct Authority and Bank of England Cryptoassets Taskforce: Final Report in 2018—I imagine that goes some way towards answering the questions asked by the noble Lord, Lord Ponsonby.
As to the issue of UK-connected firms raised by the noble Lord, Lord Fox, the provisions enable the seizure of crypto assets from wallets and firms. They were developed with partners and were based on operational insights and are valuable and necessary. These definitions will be reviewed whenever and as often as needed. There is general agreement that the world is moving at an incredibly fast pace, and therefore there is a provision in the Bill for the Secretary of State to amend the definitions of crypto assets in future through regulations which will be subject to debate in Parliament.
To go into a little more detail on future-proofing, the specific delegated powers allow the Secretary of State to amend definitions associated with crypto assets as part of these new crypto-asset confiscation and civil recovery regimes. The definitions in the confiscation and civil recovery provisions reflect those already in POCA, TACT and other linked legislation. Home Office officials will be working closely with law enforcement agencies to monitor the effectiveness of the crypto-asset powers post-implementation and, if necessary, the Government would look to update crypto-asset definitions. Noble Lords made very good points about the pace of change, and this legislation recognises that. The regulation- making power is intended for the express purpose of being able to respond dynamically to changes in technology or criminal behaviour rather than at arbitrary points in time.
The noble Lord, Lord Ponsonby, asked about stable- coins and decentralised finance. He mentioned emerging technologies in the crypto-asset ecosystem. This Bill caters for criminal abuse of these as far as is practically possible. For example, stablecoins are captured by our definition of crypto assets. However, the definitions have been developed in consultation with industry so as not to stifle legitimate innovation.
Having mentioned “legitimate innovation”, I heard what my noble friend Lady Altmann had to say on the subject and she made some very good points.
I hope this provides reassurance that the definitions of crypto assets will remain subject to review with the ability to be updated in a responsive way. The provision to amend the definitions of crypto assets would be used appropriately and afford Parliament the opportunity for scrutiny, so I ask the noble Lord not to move his amendment.
Lord Sharpe of Epsom
Member’s explanatory statement
See the amendment in the name of Lord Sharpe of Epsom at page 206, line 39.
Lord Sharpe of Epsom
“RECOVERY OF CRYPTOASSETS: SEARCHES, SEIZURE AND DETENTION”Member’s explanatory statement
This amendment replaces the title of inserted Chapter 3C of Part 5 of the Proceeds of Crime Act 2002.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and the amendment in the name of Lord Sharpe of Epsom at page 310, line 41 clarify that references in paragraphs 10Z7CL and 10Z6A of Schedule 1 to the Anti-terrorism, Crime and Security Act 2001 (forfeiture of terrorist property) to a freezing order are to a current freezing order.
Lord Sharpe of Epsom
“Money laundering: offences of failing to disclose
(1) The Proceeds of Crime Act 2002 is amended as follows.(2) In section 330 (failure to disclose: regulated sector)— (a) subsection (7A) is moved to after subsection (7B) and is renumbered subsection (7C);(b) after that subsection as moved and renumbered, insert— “(7D) Nor does a person commit an offence under this section if—(a) the information or other matter mentioned in subsection (3) consists of or includes information that was obtained only in consequence of the carrying out of a status check under section 40 of the Immigration Act 2014 or an immigration check under section 40A of that Act or both, and(b) but for the information so obtained the person would not have reasonable grounds for knowing or suspecting that another person is engaged in money laundering.”(3) In section 331 (failure to disclose: nominated officers in the regulated sector), after subsection (6A) insert—“(6B) Nor does a person commit an offence under this section if—(a) the information or other matter disclosed to the person under section 330 consists of or includes information that was obtained only in consequence of the carrying out of a status check under section 40 of the Immigration Act 2014 or an immigration check under section 40A of that Act or both, and(b) but for the information so obtained the person would not have reasonable grounds for knowing or suspecting that another person is engaged in money laundering.””Member’s explanatory statement
This creates a defence for people who fail to report money laundering if their knowledge or suspicion is based on information supplied under a status or immigration check. The defence applies where, but for that information, the person would not have reasonable grounds to know or suspect money laundering.
Lord Sharpe of Epsom (Con)
My Lords, I will speak first to the government amendments in this group. The first of these is Amendment 78C. This is intended to avoid unnecessary burdens on business from having to submit the same information for immigration purposes and under the SARs regime. The new clause creates a defence for people who fail to report money laundering if their knowledge or suspicion of money laundering arises solely as a result of an immigration check carried out using data supplied by the Home Office.
Under the Immigration Act 2014, banks and building societies are required to check whether their existing account holders or applicants for a current account are disqualified persons. Should banks match any of their existing customers against the disqualified persons list—the DPL—they will be required to notify the Home Office. At the same time, a match against the DPL could also trigger a requirement under the Proceeds of Crime Act 2002 to submit a suspicious activity report, known as a SAR, to the NCA. This would require banks and building societies to report the same information twice, placing a financial and administrative burden on both them and the NCA.
By creating a defence against the offence of failing to report in Section 330 or Section 331 of POCA when the suspicion is solely the result of an immigration check using information provided by the Home Office, we will essentially remove the requirement for banks and building societies to submit a SAR under those circumstances. This will help mitigate the burden of such reports and the potential for dual reporting in the case of existing accounts. This amendment modifies existing POCA obligations and provides certainty on reporting requirements; failure to provide this certainty risks reporters taking a risk-averse approach to reporting and continuing to overreport.
I turn to Amendments 78D and 78G, tabled by the Government. These amendments ensure that applications for information orders can be made only where an authorised NCA officer reasonably believes that the foreign Financial Intelligence Unit—FIU—is requesting the information for strategic or operational intelligence analysis.
These amendments seek to address concerns from stakeholders that information orders could be used for purposes beyond those for which they are intended—specifically, that they may otherwise be used by foreign FIUs to circumvent existing intelligence and information-sharing procedures, under mutual legal assistance processes, by using the information shared through the information order as evidence in legal proceedings. Although information-sharing between international FIUs is crucial to combating economic crime and terrorist financing at an international level, a foreign partner should use existing mutual legal assistance processes if they wish to request evidentiary material from the UK. This is because the mutual legal assistance process is tightly regulated and has appropriate procedures and safeguards in place for sharing information of this kind. This amendment is essential to ensure that the information order measures in the Bill work as intended and that applications made for the orders are proportionate and justified.
Amendment 78E amends Section 339ZH of the Proceeds of Crime Act to remove the extension of the definition of money laundering to include predicate offences. The inclusion of these offences in the definition of money laundering would have broadened the scope of the clause beyond its intended purposes. We will rely on the existing definition of money laundering in Section 340 of the Proceeds of Crime Act 2002; this will ensure there is a consistent definition of money laundering across the Act. The exclusion of predicate offences from the definition does not affect law enforcement’s ability to investigate or pursue cases of money laundering. It is for these reasons that I ask the Committee to support this government amendment.
Amendments 78F and 78H are small amendments to Section 339ZL of the Proceeds of Crime Act 2002 and Section 22F of the Terrorism Act 2000, allowing certain preliminary steps in relation to making a code of practice under these provisions, such as consultation on the draft code of practice, to be carried out prior to Royal Assent. This amendment will also bring the duty to issue a code into force on Royal Assent, ensuring that we avoid any unnecessary delays in laying a code of practice and operationalising the powers.
I hope that those explanations have provided further clarity on why these government amendments are needed, and I ask the Committee to support them. I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I speak in favour of my own amendment, which is part of this group—Amendment 86, which is about asking for prioritisation of SARs reporting. Just to set the scene for noble Lords, according to the UK Financial Intelligence Unit, the praetorian guard of the NCA in this respect, there were 901,000 SAR reports in 2021-22, 70% of which related to banks. That is a number far in excess of what institutions can meaningfully deal with, so huge opportunities are being missed.
The Home Office itself has just produced its own report, called Transparency Data: Accounting Officer Memorandum: Suspicious Activity Reports (SARs) Reform Programme, published on 24 February, just a few weeks ago. It accepts that there are at least four problems in our management of the SAR regime:
“Inconsistent levels of compliance reporting in some parts of the regulated sector … Insufficient human resource capacity within the UKFIU which limits their ability to analyse financial intelligence or engage with partners to improve the quality of SARs … Under-utilisation of SARs by law enforcement … Legacy IT systems which cause inefficiency and ineffectiveness throughout the regime”.
That is in the words of the Home Office, from literally only a few weeks ago. What is so frustrating is that the Government have been talking about this for at least four years. In April 2019, a strategic outline business case for the programme was reviewed by the Home Office. An economic crime plan was produced in July 2019 and then the full business case was subsequently reviewed and approved by the Home Office in April 2021. Yet we still do not seem to have a lot of action.
All my amendment is trying to do is to push the machine to get on with this. Of course, the Minister will ask me not to press the amendment, but I would ask him whether, in so doing, he can give us a date—maybe not today but in writing to the Committee—by when all this stuff will start to happen, because we are missing huge opportunities to identify economic crime. My simple proposal is to triage the SARs, so that the shortage of resource, which no doubt will remain for a while, can at least be concentrated on areas of greatest risk to our system.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I support the comments that have already been made. As the noble Lord, Lord Agnew, has said, he is really asking the Government to triage the SARs, for some way of managing the overwhelming amount of data which is reported. The only little glimpse of this I have in my other role as a magistrate is that we deal with proceeds of crime applications at magistrates’ court level, and it is not that unusual—I have dealt with it myself—where you are talking about potentially billions of pounds. But we are just seeing one very small snapshot of that in the particular application that we see in the magistrates’ courts. I am very well aware that these are immensely complicated situations to deal with, but just from listening to the speech of the noble Lord, Lord Agnew, I think he is, as he said, really just pushing the Government to try and get on with their own plan. It would be very useful for this Committee to hear what the Government are planning to do and to come up with a timetable to try and impact on this problem. Other than that, I support the amendments.
Lord Sharpe of Epsom (Con)
My Lords, I once again thank noble Lords who have spoken in this debate. I have listened with considerable interest to the points that have been raised. I am particularly grateful to the noble Lord, Lord Fox, for going against his natural instinct and supporting the Government.
I thank my noble friend Lord Agnew of Oulton for his Amendment 86, which would create a requirement for risk rating for submissions of suspicious activity reports, known as SARs. As my noble friend acknowledges, SARs intelligence is a critical tool in our ability to identify, disrupt and recover the hundreds of millions of pounds which underpin the most serious and organised crime in the UK. However, it is often not possible for reporters of SARs to assess the level of risk related to a SAR, or the underlying offence associated with the report, when it is submitted to the National Crime Agency. That is because the reporter may not have a complete picture of information on which to make such a rating. This could lead to potentially inaccurate information being submitted to the NCA if this were a requirement, as well as additional burdens on reporters that would distract resources from tackling economic crime.
Furthermore, the NCA already has procedures in place to enable reporters to alert specific concerns. It has issued an online guidance of glossary codes to reporters, which can be included in their reports and which allow them to label a SAR with a specific concern. These glossary codes can, for example, relate to suspicions of vulnerable children, human trafficking, or firearms offences, and enable the National Crime Agency to triage the reports so they can be allocated appropriately.
In addition, the SARs reform programme is delivering major reforms to the legacy SARs IT, to enable better analysis and exploitation of SARs intelligence to deliver law enforcement outcomes to disrupt criminals. As my noble friend has gone into more detail on this subject, I will answer in more detail generally about resource allocation and what have you.
We are increasing capacity within law enforcement to analyse and act on SARs intelligence. This will include 75 additional officers in the NCA, which will almost double capacity. Some 45 of these officers are already in post, and the milestone for recruiting the remaining 30 is the end of this financial year 2022-23. The programme has also provided more than 20 new financial investigators in the regional organised crime units dedicated to SARs analysis. These new staff are already delivering operational results from SARs intelligence, including the recovery of criminal assets—£380,000 to date this year, with approximately another £1 million frozen; I will come back on to some numbers in a second—and also identification and arrest of previously unknown organised crime group members.
In terms of the IT systems, a new SARs digital service, including data analytics, which will replace legacy IT implemented more than 20 years ago, is on its way. The first elements of the new SARs IT systems, which are for bulk reporter submission, were delivered in early 2021, to enable organisations to submit large volumes of SARs—bulk reporters—to begin testing the new systems. To ensure consistency of service, de-risk delivery and ensure the protection of the public, the end-to-end SARs digital service will be delivered in stages. The new SARs online portal and bulk submission system is shortly due to go live. This will be followed by further releases, which will replace the current SARs IT used by the UK Financial Intelligence Unit, law enforcement agencies and other government departments. My noble friend was quite right to bring up the subject, and I hope that provides some clarity as to what is being planned.
The noble Lord, Lord Vaux, asked about the additional number of SARs. The NCA received and processed 573,085 SARs in 2019-20. The number of SARs submitted increases significantly every year. Action taken as a result of these SARs saw £191,637,824 denied to criminals in 2019-20, which is an increase of about 46% on the previous year’s figure. SARs are analysed by the NCA for priority risks and then actioned accordingly. The majority of the reports are also made available to more than 75 law enforcement agencies and used in a variety of ways. This was recognised in the Financial Action Task Force’s mutual evaluation of the UK in 2018. We recognise that we could do more and are committed to the SARs reform programme, which aims to improve our ability to analyse SARs and for law enforcement to take action on them when appropriate.
The noble Lord, Lord Vaux, also asked why Amendment 78E is being tabled now. The original draft used a definition of money laundering based on a global standard from FATF—the Financial Action Task Force. The new definition ensures that the definition of money laundering is consistent with the rest of POCA. A predicate offence in the context of money laundering is an offence that leads to proceeds of crime being generated which then become the subject of a money laundering offence. The inclusion of these offences in the definition of money laundering in this clause would effectively include any criminal activity, thereby broadening the scope of the clause beyond its intended purpose. The exclusion of predicate offences from the definition does not affect law enforcement’s ability to investigate or pursue cases of money laundering.
I believe that I have answered all the specific questions. Once again, I thank all noble Lords who participated in this short debate. I ask my noble friend Lord Agnew not to press his amendment.
Lord Sharpe of Epsom
“(b) an authorised NCA officer has reasonable grounds to believe that the request was made only for the purpose of assisting the foreign FIU to conduct one or both of the following—” Member’s explanatory statement
This amendment amends inserted section 339ZH(6B)(b) of the Proceeds of Crime Act 2002 (information orders: foreign FIUs and money laundering) to ensure that information orders can only be granted where an authorised NCA officer reasonably believes that the foreign FIU is requesting the information for the purpose of conducting operational or strategic analysis.
Lord Sharpe of Epsom
“(b) an authorised NCA officer has reasonable grounds to believe that the request was made only for the purpose of assisting the foreign FIU to conduct one or both of the following—”Member’s explanatory statement
This amendment amends inserted section 22B(6B) of the Terrorism Act 2000 (information orders: foreign FIUs and terrorist financing) to ensure that information orders can only be granted where an authorised NCA officer reasonably believes that the foreign FIU is requesting the information for the purpose of conducting operational or strategic analysis.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I agree with all the points that have been made by noble Lords. When on the previous group the Minister read out the figures recovered, they were derisory compared to the amount of dirty money that it is speculated is washing around the systems for which we are responsible. The whole thing is extremely important. The noble Lord, Lord Agnew, speaks with great authority on this matter. He is an insider and, as the noble Lords, Lord Fox and Lord Vaux, said, this is a way of getting proper enforcement into the Bill so it has proper teeth and so that HMRC can reprioritise not just tax generation but its work against money laundering. We support the amendment.
Lord Sharpe of Epsom (Con)
My Lords, once again I thank all noble Lords who have spoken, and I particularly thank my noble friend Lord Agnew for his amendment. While the Government agree whole- heartedly on the critical role that supervision must play in tackling economic crime, we cannot support the proposed new clause. HMRC already has an anti-money laundering supervisory function, and it takes its responsibilities very seriously. HMRC supervises nine sectors and is already the default supervisor for trust or company service providers when they are not already subject to supervision by the Financial Conduct Authority or one of the 22 professional body supervisors. The proposed amendment would duplicate these provisions and to that extent it is unnecessary. Furthermore, it could make HMRC responsible for all anti-money laundering supervision, potentially cutting across existing regulatory relationships, such as that between the major banks and the FCA. HMRC takes its money laundering supervisory responsibilities very seriously.
My noble friend raised a number of issues regarding face-to-face compliance and so on. He said that the number of face-to-face compliance visits dropped from 1,265 in 2018-19 to just 289 in 2021-22, but these figures are misleading because the overall number of interventions was greater, with the total number increasing from 1,396 in 2018-19 to 3,725 in 2021-22. Although these figures include a mass-targeted exercise checking for business risk assessments and other key documents in 2021-22, the total would still have increased from 1,396 to 2,329 without that. A range of factors caused the variation in face-to-face intervention levels from 2018-19 levels including, as my noble friend noted, pandemic issues, the impact of recruiting and training —I will come on to that in a second—with a large number of new officers and differing resource levels needed to support different types of interventions. In 2022-23, HMRC carried out more than 3,000 interventions, of which more than 900 were face-to-face. It also issued more than 750 penalties to non-compliant businesses and refused more than 400 applications to register. HMRC’s anti-money laundering function is carried out by its fraud investigation service and works alongside other teams in this section and across government and law enforcement to maximise its impact.
My noble friend asked whether it is true that HMRC is failing to meet a legal requirement to register businesses within 45 days of application, with a reduction from 78% to 70% meaning that nearly one-third are operating outside the scope of supervision. Nearly one-third of applicants are outside the scope of supervision while their applications are being determined. Businesses are under supervisory scrutiny during the application process, and HMRC’s risk-based approach means that businesses from the highest risk sectors are prioritised. The highest-risk sectors are money services businesses and TCSPs, which cannot begin carrying out relevant activity until HMRC has determined that they are fit and proper. There are some cases where it is not possible to process an application within 45 days, for example, if waiting for important information from an overseas agency. However, there have been particular challenges that caused delays that HMRC regrets, including issues with its computer system, but I understand that significant progress has been made recently and that HMRC is now much closer to achieving the 45-day turnaround for all but the most tricky cases.
The Government are clear that further reform of the anti-money laundering supervision system is needed, but the best scale and type of reform to improve effectiveness and solve the problems that have been identified is not yet clear. His Majesty’s Treasury will issue a formal consultation on the possible options by the end of June 2023. Implementation timelines will depend on the outcome of this consultation.
My noble friend Lord Agnew and the noble Lord, Lord Vaux, asked about HMRC’s performance as a supervisor. A senior manager independent of the supervision team carries out a robust annual assessment of HMRC’s supervision against OPBAS standards. The process currently under way to deliver the next self-assessment has also involved an assurance team from HMRC’s customer compliance group to add a further layer of scrutiny and independence to the process. This assessment must necessarily highlight any problems and areas where HMRC can improve its supervision. Those issues include needing to recruit and train large numbers of new officers—again, to address the question from my noble friend—and some inconsistencies in performance across the unit. However, the 2021-22 assessment judged that HMRC is effective and compliant in its obligations under the money laundering regulations and as set out in the OPBAS sourcebook, driving up performance despite the pandemic. The assessment also highlighted numerous strengths, including well-structured risk assessments, use of multiple supervisory tools in a risk-based approach and a robust registration process. On recruitment, HMRC’s supervision team is larger than it has ever been now, totalling more than 400 staff.
All this will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model of supervision. Pre-empting this through an amendment of this type risks generating exactly the type of confusion over responsibilities that I think my noble friend seeks to avoid. I therefore hope that he is able to withdraw his amendment.
Lord Vaux of Harrowden (CB)
I have to say that I am becoming increasingly concerned as we go through this process that, every time we raise concerns about things, we are told that everything is fine. That is what we are being told now—that HMRC is doing a really good job of the ML regulation. The truth is that we have massive quantities of money laundering going through the UK market, and in many cases that is enabled by people who are regulated by the HMRC—a lot of the small entities particularly. So there is a problem, and we keep being told that it is not that serious. It worries me substantially that we are not really taking this seriously or trying to solve the serious problem that this country has. We have become a laughing stock and are known as the “London laundromat”. It is embarrassing.
Can I ask a supplementary question? As I mentioned before, the ACSPs are going to be performing the verification processes, which are not actually going to be covered by the anti-money laundering regulations. The people doing it have to be registered with an anti-money laundering regulator, but the regulators themselves do not actually have any process set out for ensuring that the verification processes put in this Bill are covered. How do we bridge that gap?
Lord Sharpe of Epsom (Con)
I have to say to the noble Lord that I did not anywhere say that the Government say that everything is under control and perfectly fine. As the noble Lord will be aware, the anti-money laundering regulations themselves are due to be looked at.
The second part of his question relates to why HMRC does not supervise the TCSPs properly, allegedly —but it does.
Lord Vaux of Harrowden (CB)
I am looking forward to when this Bill goes through and becomes an Act as to the verification processes being put in place by the Bill by the ACSPs.
Lord Sharpe of Epsom (Con)
Ah, the noble Lord said ACSPs—my apologies. I misheard an acronym. In that case, I shall have to write on that, because I do not know the answer.
Baroness Blake of Leeds (Lab)
I thank everyone for the extraordinary debate that we have had on this issue today. I continue in the vein of looking for optimism in the outcomes of some of the discussions that we have had. I pay particular tribute to Members of this House who have joined Members of the other place in relentlessly pursuing this issue, to the extent that there is now a far greater understanding—not only in Parliament but in the wider country and the communities particularly affected—about the issue of SLAPPs, which perhaps a year or two ago was not understood at all.
To start by going back to the very basics, SLAPPs are, as we know, strategic lawsuits against public participation, abuses of the legal system, generally by the super-rich—and, it is important to remember, they are intended to harass, intimidate and financially and psychologically exhaust one’s opponent. I am not sure that that element has quite come through, although everyone is fully aware of it. We have talked today about this practice being embedded in the system and its close relationship to the scourge of economic crime. In other debates that we have had on the Bill so far, we have highlighted the real extent of economic crime facing this country. All of us have an obligation and commitment to come together to work out how we are going to deal with it.
As we have heard, the use of SLAPPs has been linked to Russian oligarchs. That is inevitable, given what has happened over the past year, particularly with regard to looking at ways to prevent journalists from reporting on their links to economic crime, with particular reference to the war in Ukraine. As we have seen, SLAPPs are not only used by those committing economic crime, but the amendments proposed here narrow the definition to those concerned with suppressing information on economic crime. The wider point which we need to take on board is about the serious concerns that SLAPPs are now being used to suppress democracy globally. It is important to put it as far as this.
I am sorry that the noble and learned Lord, Lord Garnier, has had to go, but I would like to say to him that his attempt to reassure us on the numbers has not had that effect at all. It has been clearly stated that the small numbers that reach court highlight and emphasise the problem that we have.
I shall go on to ask the Minister to comment on the view coming from the other place that SLAPPs are under a separate jurisdiction and therefore should be under a separate Bill. We have heard some great arguments as to why we should look at these amendments seriously and incorporate them into this Bill.
I thank all noble Lords who have spoken to their amendments and clearly given us a full understanding of the purpose behind them and how they will contribute to the overall objective. From our position on these Benches, we look forward to engaging in full and detailed conversations as to how, as I suspect will be necessary, we present further amendments on Report. We support the principle of the Government bringing forward effective legislation and will continue to call out this issue wherever it occurs, whether on this estate or elsewhere, when anyone in a position of influence puts undue pressure on someone to make sure that important matters do not see the light of day.
I want to highlight some of the reasons why feelings are running so high. We need to understand and remember the severe power imbalance between the claimant and the defendant. In this context, journalists and media outlets are put at a disadvantage from the outset, as we have heard today. Defending a legal case can, as we know, be prohibitively expensive and a huge drain on resource. As we need to emphasise every time we speak about this, SLAPPs can create significant financial jeopardy for journalists and media outlets, with legal costs starting to accrue long before cases get anywhere near reaching court.
Putting ourselves in the place of those who have been subjected to this, I think that the process of defending a legal case in this sphere can feel like punishment: a fear of devastating financial impact, potential loss of savings, their homes, pensions and livelihoods if a case goes to court. The effort in putting a case together involves massive distraction from the work that people are trying to do. As others have said—it is a serious charge but one we should take seriously—this is having the impact of undermining the basis of democracy.
We have talked about how libel laws in the UK are weighted, but we also need to emphasise the issue of libel tourism. It remains an issue in the UK. The bar to bring a case here is problematically low, and the use of privacy and data protection laws is increasing. We need to consider that SLAPPs in the UK are often pursued against individuals rather than the organisation they work for, which undermines the resources available to mount an adequate defence.
One of the themes running through all our discussions on the Bill is the reputational damage to London and, therefore, the country. London’s obvious position as a global hub for the super-rich has compounded the problem. We must make sure that clients cannot use threats of legal action to clean up their image and remove unfavourable information from the public domain. There has been insufficient recognition by the UK Government and official bodies of the connection between protecting media freedom and countering corruption.
Returning to the personal, I suggest that other factors include the psychological impact of intimidation and harassment on those subject to legal challenges. That has not been sufficiently recognised, and such things lead to a massive impact on mental health.
Will the amendments before us today tackle those issues? I think that is a subject for further discussion, but the main question that has been put repeatedly from across the Committee today is whether the Government are serious about measures to end these practices. We had some optimism in July last year when there seemed to be a commitment that legislative reform measures would come forward, but where are they? Are they being moved forward? Will the Government follow through by supporting the measures proposed in amendments to the Bill?
We have heard that this is a serious issue. It is urgent for so many reasons that we have discussed today. My last question for the Minister is: will the Government take this opportunity to act, recognising how urgent the situation is, and meet with us to discuss ways that we can move this important matter forward?
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)
My Lords, I warmly thank all noble Lords who have spoken in this debate and who have spoken to me directly on this issue. I also thank noble Lords for the enormous amount of thought and consideration that has been put into this issue by those who have spoken. There is significant strength of feeling across the Committee on this important issue. I begin by providing an assurance that the Government share those concerns and that it is clear to the Government that we should take legislative action against SLAPPs. As the Government have set out, for many reasons that have been mentioned in this debate, we are firmly committed to legislating effectively, comprehensively and without undue delay on this issue.
Noble Lords will not necessarily be entirely happy when I say that we do not think this Bill is the correct vehicle for tackling this issue. There are essentially two reasons for that. One is that here we are dealing with economic crime. I take my noble and learned friend Lord Garnier’s technical point about the scope of the Bill, but the major issue here is that, even if we were to put in an amendment to this Bill, it would still be too narrow because we are not covering matters that are not economic crime, such as freedom of expression, political interference, national security and so forth. The Government’s preference would be to handle the entire landscape of SLAPPs in one place, and that is not this Bill.
Lord Agnew of Oulton (Con)
The Minister talks about introducing some SLAPPs legislation “without undue delay”, but there is no possibility of a timetable to introduce that. We are only 15 or so months away from a general election, and the legislative timetable is jammed solid already. There is no fixed slot for it to come in. I utterly reject the idea that the Government want the perfect to be the enemy of the good: “We are going to do everything in one Bill”. Why not do this bit now, which will take very little parliamentary time? As the noble Lord, Lord Cromwell, said, it will deal with probably 80% of the problem, because we know that shutting down debate on economic crime is probably our biggest problem. When in 10 or 15 years’ time—this point was made by the noble and learned Lord, Lord Thomas—the Government finally find the perfect moment, although some of us will be dead by then, they could then repeal the relevant clauses of this Bill and do it all in one bit. But I utterly reject the pathetic excuse that this is not the right moment. I ask my noble and learned friend to be a little more straightforward in his commitment.
Lord Bellamy (Con)
My Lords, I entirely understand the frustrations felt by my noble friend Lord Agnew and others. It is not to be ruled out that we could find an appropriate legislative vehicle for this matter before the next general election. That is not to be ruled out. However, I cannot today go further than to say that this issue will be brought forward by the Government when parliamentary time allows. That is normally a long-grass phrase—kicking it into the long grass. I regard it today, and say it today, as a short-grass phrase because I am not at the moment giving up on having legislation relatively soon, but I can give absolutely no commitment on that matter.
Lord Thomas of Cwmgiedd (CB)
I ask the noble and learned Lord, as a little test of this commitment, is there is a draft Bill? If there is one, his assurance is really wonderful but, without one, is it not just a phrase for the long grass?
Lord Bellamy (Con)
I can tell your Lordships that the Government have not been idle in preparing possible drafts to deal with this matter, and I am very happy to keep in close contact with noble Lords between now and Report on progress and to discuss as widely as we need to how we should approach this matter.
Lord Cromwell (CB)
What the Minister is saying is potentially helpful. His initial statement was almost verbatim what we got at Second Reading and in previous Bills. I could almost set it to music now, I have heard it so many times, but we seem to be getting somewhere. Will he clarify whether he is happy to continue discussions with us about these Bills, which, apparently, the non-idle Government have been working on or about a possible amendment to this Bill? Will he clarify which one we are addressing here?
Lord Bellamy (Con)
It is the former. The second point here is that the Government are not happy, for reasons that I shall now, I hope, go into a little detail about, about the actual amendments being proposed here. I preface that by saying that we should not overlook the fact that there is one enormous conceptual issue behind all this, which is the question of access to justice. This is probably the first time that anyone has ever legislated against someone bringing something to court, which is something that we need to stop and think about. Where is the balance? If I may say so, reference has been made to the rule of law, and it is somewhat ironic to say that we must uphold the rule of law by penalising someone who seeks access to justice. That is a very difficult area, and we need to find a balance. The Government would like to explore further how that balance is to be found because, in the Government’s respectful view, it is not yet found in the amendments before the Committee today.
Lord Cromwell (CB)
I think that we are actually in agreement on that, and I hope that I made it clear earlier that what we need to do is to work together to get this right with critical friends, including the noble and learned Lord, Lord Garnier, who will bring a forensic examination of whether the work is right, but I go back to an earlier comment that this is difficult. Yes it is, but it is not impossible.
Lord Bellamy (Con)
I entirely accept that it is not impossible and, to take the phrase of a noble Lord earlier, that it is actually doable. I think that it was the noble Lord, Lord Cromwell, who used that phrase.
Baroness Bennett of Manor Castle (GP)
My Lords, I was hoping that someone with a great deal more legal knowledge than me would rise to speak, but I feel that I need to challenge the Minister’s comment that this proposal is unprecedented. Other noble Lords will be able to say more, but we have a process of law about vexatious litigants who are unable to bring cases. There is a whole set of rules there, and there are rules in the family courts that eventually stop cases being brought. So it is not the case that this is something that has been miraculously conjured out of the air that does not exist in any form whatever in the legal framework.
Lord Bellamy (Con)
My Lords, on that last point I had primarily in mind the amendments that seek to criminalise bringing cases before the courts, which is the subject of some of the amendments.
Lord Fox (LD)
I am sorry. I appreciate the access that the Minister is giving us. I am really following up the point that the noble and learned Lord, Lord Thomas, made. The Government are not being inactive. Can the Minister tell us how many people are in the dedicated team that is currently pursuing this issue? It is complicated, as he pointed out, and Government do want to get more depth on this, so how many people are now working on this, and when does he think they might actually come up with something that could then go into a draft Bill? In a sense, what is the timetable and what is the amount of horsepower that is going into that timetable?
Lord Bellamy (Con)
I am afraid I cannot give the noble Lord a timetable. I cannot tell him how many people are working on it, but I can tell him that important work is being done. I am not in a position, and I very much regret that, to go further than that today, but I am prepared to keep in close touch with your Lordships between now and Report to share progress and thoughts on whether there is a legislative vehicle that can conveniently—and soon—be introduced.
Lord Cromwell (CB)
I am sorry. I will press the Minister a little more on that. When will we first hear from him on that update on progress?
Lord Bellamy (Con)
Can I write to the noble Lord, Lord Cromwell, on that point?
Baroness Blake of Leeds (Lab)
Can I ask that we are all included in the correspondence?
Lord Bellamy (Con)
Absolutely. I will write to everybody after this debate and try to elaborate a little on what I have said. I hope noble Lords understand that in terms of my boss, I recently had a change of personnel, and it takes a little while to allow the dust to settle, if I may put it like that.
The only other thing I would respectfully draw noble Lords’ attention to, and I fully accept there is a certain amount of controversy as to how big this problem is, is that the Solicitors Regulation Authority issued a warning notice on 28 November 2022, which led to that authority undertaking investigations in relation to SLAPP complaints, so we are not without a regulatory instrument to at least hold the line until we are able to legislate. That, as far as one can tell, has had a salutary effect on the practical consequences of SLAPPs. It is not the case that nothing has been done.
Lord Thomas of Gresford (LD)
My Lords, the Minister said that the amendment which I have put forward criminalises access to justice. It does not do that; it criminalises a threat of litigation that is unwarranted and known to be unwarranted without reasonable excuse. It is perfectly simple, but I would be very unhappy to leave this Room today with the thought that the Minister has in mind that my amendment is criminalising access to justice.
Lord Bellamy (Con)
My Lords, perhaps I expressed myself a little loosely. Let me put it like this: in the Government’s view, this is not an area where we should introduce the criminal law, whether it is in relation to pre-litigation or in any other respect in terms of litigation. One is faced with a very basic question of when is something that is a robust and justifiable approach to litigation in a pre-action letter a threat. That is not straightforward, in the Government’s view. The Government’s view is that this is not a matter where the criminal law should intrude.
Baroness Stowell of Beeston (Con)
My Lords, I am sorry to interrupt my noble and learned friend, but his reference to the Solicitors Regulation Authority prompts me to ask him a couple of questions. He makes reference to access to justice and to the Government being nervous about legislating in a way that would call that into question. As I said at the start, the amendments that I have tabled, Amendments 87, 88 and 89, are directed at the Solicitors Regulation Authority. As my noble and learned friend has already said, it issued a notice recently to reinforce the fact that this kind of activity is unacceptable.
My amendments seek to codify that yet further and give it the power, which it does not feel it has sufficiently clearly in law, to act when a solicitor is conducting themselves in a way that could be supporting somebody trying to prevent proper inquiry into what could be economic crime. I am struggling because I understand the argument my noble and learned friend is making about parliamentary time and the Government wanting to legislate for this in the round, but I also know as a former business manager that it is very difficult for any individual government department to be confident, even if it wants and hopes to be able to legislate in the way he is indicating that he and his department do, because the timetable is not in its control.
There is frustration in this context because we know that this is about only economic crime and that we are proposing amendments that would tackle only economic crime, as the noble Lord, Lord Cromwell, has said several times—maybe this is a bigger issue than even the SRA is telling me. This would make a difference none the less. In my humble view—I am not a lawyer—I do not think we are proposing anything that would limit people’s access to justice. When my noble and learned friend goes back to his department, even if he cannot make any kind of commitment at the Dispatch Box today, which I understand, could he at least have a conversation with others that is a bit more open-minded than his colleagues seem to have been on this matter up to this point?
Lord Bellamy (Con)
I thank my noble friend for that intervention. I can certainly have that conversation. I do not want to give the impression that the Government are close-minded. We are very prepared to legislate and have said that we are willing; the question is finding the right vehicle. I will deal with my noble friend’s amendments in a moment. When I said a moment ago that there are issues around access to justice, I meant no more than that. We have to be very careful in talking about approaching a court and whether that is in some way unprofessional, subject to sanctions or otherwise criticisable.
As far as the Government can see—if I may think aloud—there are probably two essential mechanisms to deal with this, one of which is in part reflected in some of these amendments, although the Government would not entirely agree with how it is put. One is an early disposal mechanism and the other, critically, is a cost protection measure so that people are not exposed to costs. As has been said many times, the risk of having to pay the costs is the real imbalance. Those are two general thoughts that, I hope, illustrate that the Government are not closing their mind to this. We are thinking about it and hope to come forward with a comprehensive, balanced solution, but today I cannot say exactly when.
With that background, I will deal with the specific amendments, which the Government are sympathetic to but cannot accept. On Amendment 80 from the noble Lord, Lord Thomas, as I have already said, new criminal offences should be created with care. That is especially true when targeting professionals with responsibility for assisting persons to achieve access to justice. There is a risk of inadvertently undermining access to justice in that way and the Government’s view, as I have said, is that a criminal approach in this area is not correct and would in any case create quite a lot of difficulties around proof beyond reasonable doubt, the concept of reasonable excuse, et cetera. Criminal offences need to be clear and we are very reluctant to see a new criminal offence created. That is our position on Amendment 80—it is too far-reaching. On that basis, I ask the noble Lord, Lord Thomas, in due course to withdraw it.
Baroness Stowell of Beeston (Con)
Briefly, I urge my noble friend to look at the correspondence I have had with the SRA specifically about the Bill. The SRA makes it clear that what I am proposing by way of these amendments would give greater clarity to the fact that SLAPP cases which relate to economic crime would also not be subject to the current cap but would benefit from that cap being lifted, which the Government are seeking to do. To put it another way, my amendments are trying to make sure that the intention of what is already in the Bill is achieved in the way that the SRA is asking for.
Lord Bellamy (Con)
Indeed. I respectfully suggest to my noble friend that she may have copied the letter to which she refers to the Home Office and the Ministry of Justice recently.
Baroness Stowell of Beeston (Con)
It was also copied to the Minister’s office.
Lord Bellamy (Con)
Indeed. I suggest that I meet with my noble friend and we go through it with a fine-toothed comb. I am happy to meet with anybody else who wants to go through particular amendments with a fine-toothed comb and see where we are, because there is no point in arguing about things where we are ad idem.
The same point arises on Amendment 89, which relates to POCA—I pronounce it “poker”, but others pronounce it “pocker”—and Section 327 of that Act. Amendment 89 aims to stop corrupt claimants using their criminal property to pay their legal fees. Our view on Section 327 of POCA is that that is already effectively covered because it makes it a criminal offence for anyone to convert, conceal or transfer criminal property, so the payment for legal services using criminal property is already a crime. I am led to believe that the Solicitors Regulation Authority will shortly publish new guidance on the application of POCA in relation to solicitors’ responsibilities in that respect. So our position on our amendment is that it is already covered, but again, let us discuss this in detail so that we can get it right. Formally speaking, for those reasons I ask my noble friend in due course not to press her amendment today.
I am grateful to the noble Lord, Lord Cromwell, for his Amendments 105 and 106, and for the care and attention that he has devoted to this. Again, the Government’s position is that these amendments do not quite cut the mustard, if I may put it that way.
As drafted, Amendment 105, which seeks to create a new defence, would cut across several other areas of jurisprudence. There is a common law public interest defence for a breach of confidence, and a very careful balancing, in Section 4 of the Defamation Act 2013, as to when you can have a public interest defence in defamation cases. This kind of provision should not be rushed through without a careful examination of its side effects on other legislation and potential unintended consequences. Neither does the amendment quite attack what the Government would suggest is the main problem, which is not whether you have a defence but whether you have the money to fight it in the first place. You need some cost protection to be built into the SLAPPs framework.
The same point applies to Amendment 106 on the power to strike out. There are already powers to strike out, and the noble Lord makes it clear that we need to clarify those powers—but one cannot get away from the fact that, typically speaking, a strike-out application is very expensive and complicated, because you are trying to throttle a case at the beginning and the court is having to go through a great deal of work to get there. In the end, a strike-out will probably not be effective in achieving what the noble Lord seeks to achieve. We share the objective, but we are not sure that this is the right way to do it.
While we are sympathetic to the sentiment behind the amendments, from a technical point of view, the Government do not think that they are quite right. Unscrupulous claimants could exploit all this by ensuring that the process remains very complicated, long and burdensome. That is the Government’s position on these amendments. I repeat that I am very happy to engage so far as I can in a dialogue with noble Lords to see whether we can make further progress on the technicalities of this issue and look for a proper legislative vehicle in which to carry it forward.
Baroness Bennett of Manor Castle (GP)
I do not believe the Minister addressed the point that I and a number of other noble Lords raised about the international dimension of this, and the UK’s position in the international framework. Noble Lords may have seen that the noble Baroness, Lady Kennedy of The Shaws, was joined in this Committee by some guests, one of whom was Sebastien Lai, the son of Jimmy Lai, who was a victim of what has been labelled lawfare by the Chinese state in Hong Kong. We are also seeing British institutions being used as a weapon for that lawfare. Does the Minister acknowledge that there is a true international reputational issue and that the whole rule of law across the world is under attack?
Reflecting on what the Minister said, I think we heard something of a hint about the Government’s thinking that cost protection could be one way of addressing this issue. That fails to address the point made by the Labour Front Bench and others that, even if there is cost protection, an enormous amount of time, energy and stress goes into a case. Even if you are able to take away the financial threat, you are taken away from doing other journalism if you have to spend months engaging in a case.
Lord Bellamy (Con)
I thank the noble Baroness. I am perfectly prepared to accept that there is an international aspect. The Solicitors Regulation Authority is on the case, it has issued its warning notice—fired its warning shot—and that is having an effect, so it is not as if the position is not being tackled. The question is about legislation, and the need to get it right from a rule of law and an access to justice point of view. There is a conflict here, as the noble Lord, Lord Vaux and the noble and learned Lord, Lord Garnier, pointed out. One has some misgivings about this because, as was also said earlier, journalists are not always right, and one must bear that in mind. If you have ever been on the receiving end of the tabloid press as a defendant, you will know that they still have not inconsiderable power if you have no money to defend yourself.
Lord Cromwell (CB)
If I may say so, one of the formative experiences of my childhood was being on the receiving end of tabloid journalism, and it is something I will never forget. That does not alter my commitment to getting this right.
I am encouraged by the Minister saying that my amendments do not quite cut the mustard—“do not quite” is a pretty good score in my book. I agree with him that early access will be a key feature of the right answer here, and cost protection, depending on what form it takes, is potentially helpful. He constantly prays in aid access to justice is a big issue, and I agree that the definitional issue of a SLAPP is very important. However, in the conversations he has promised to have, I would want him to make a distinction between harassment and denying the right to justice. Denying the right to justice, the ability to go to court if you wish, is not what I am about—I am about where people have no intention of going to court if they can possibly avoid it but are simply harassing people who want to bring economic crimes into the light. The Minister has given us a hint that there is a government Bill in draft here. I am taking that in good faith; I hope that faith will be well placed and that we will see it soon.
Lord Bellamy (Con)
Again, I thank the noble Lord for his remarks. The key problem is to distinguish access to justice from harassment. It is quite difficult, but it can be done. That is my answer to that question. On where the Government are, as I said before, we are working on drafts, but I cannot go any further than that until I know whether there is a legislative vehicle and which it can be. I am sorry not to be able to commit the Government at the Dispatch Box today any further than that but, as I said, I am hoping—and I can only express as a hope—that this is a short-grass and not a long-grass issue.
Baroness Bennett of Manor Castle (GP)
My Lords, I apologise to the Committee, I perhaps should have declared my position as co-chair of the All-Party Parliamentary Group on Hong Kong in my last intervention.
Lord Bellamy (Con)
Just to clarify, as I said, the Government’s position is that it is not appropriate to introduce a criminal offence in relation to access to justice. It is not a question of just having another offence. Access to justice is a very important area, and we are on a slippery and possibly Orwellian slope if we start saying that it is criminal for someone to go to the law on some point. It is a very difficult area—that was all I said.
Lord Thomas of Gresford (LD)
So, according to the Minister, it is not criminal for a person to threaten litigation, with all the expense and worry that that involves and the way that it crimps the investigation of crime. He is saying that it is not unlawful and should not be criminal. There are criminal offences that cover conduct far less morally bankrupt than that, which is what I hope we shall discuss with the Minister before Report. For the moment, I beg leave to withdraw my amendment.
Baroness Blake of Leeds (Lab)
I do not have an enormous amount to add but I thank the noble and learned Lord, Lord Etherton, for his comments and for the full explanation of the amendments before us in this group.
I will add a concern about the removal of the schedule naming the offences. Perhaps we will need to have a better understanding of why that would be an advantage, but I remain to be convinced on that point. On Amendment 90, I do not have much to add to the comments made by the noble Lord, Lord Fox, which lead to a need for greater clarification before we can move on from this.
Lord Bellamy (Con)
Once again, I am grateful to noble Lords who have spoken in the debate. I will first take Amendments 81 to 84, tabled by the noble and learned Lord, Lord Etherton.
Whereas our lengthy debate earlier in the day was directed at expanding the Bill, this is directed at narrowing it. It may not be a total surprise if I say that the Government are not very happy about proposals to narrow the scope of the Bill. As was said, these amendments arise, apparently, with the support of the Law Society and the Bar Council. The Government met the Law Society and the Bar Council on a number of occasions and the question of the definition of economic crime was gone into in some detail, and one is a little surprised to see that this matter is being persisted in.
The list of the offences in Schedule 9 is very close to the list of offences in the Crime and Courts Act 2013, which applies to deferred prosecutions in various cases, which are often relevant in financial matters, and, although not exactly the same, they are based on that definition.
The other introductory comment that I would, if I may, make is that, while the overwhelming bulk of the legal profession upholds the highest standards, much of this Bill would have been unnecessary were that true of all legal professionals. It is against that background that the Government are reluctant to run the risk of introducing loopholes into the Bill by reducing the scope of Schedule 9.
The first point to note is that the definition of economic crime in Clause 180 and Schedule 9 applies right across the Bill and includes the information-sharing measures in Clauses 175 and 176. Those measures, for example, entitle bank A, when it receives from bank B a large sum of money, to ask bank B whether it is a proper transaction, so there is information-sharing between financial institutions. Clause 176 enables a financial institution to notify a platform, for example, that it has concerns about particular transactions or clients. These are pretty essential powers in the Bill, and the definition of economic crime applies to those powers as well. In the Government’s view, it would not be desirable to have two definitions of economic crime across the Bill as a whole.
The definition applies to other legal services measures in Part 5 of the Bill, which amend the Solicitors Regulation Authority fining limit and information provisions. So for consistency and ease of understanding, the Government’s position is that it is sensible to have a single definition of economic crime through the Bill, and not reduce that definition at this stage. Just to make an illustration, there was some suggestion that introducing the word “theft” would go a bit too far. It may in a certain situation be quite difficult to say whether something was fraud or theft—it might well be both—but it is not the sort of argument that the Government feel that one should get into. Having worked with the Law Society of England and Wales and the Bar Council on these matters, the Government have clarified in the Explanatory Notes which offences are likely to be most relevant to the financial sector. They have not excluded them, but they have indicated that fraud, money laundering, terrorist financing, bribery, and any offences under regulations made in relation to money laundering are likely to be the ones that the profession should concern itself with most in practice. But it is important that regulators should not be unduly constrained in the ambit of the definition of economic crime in this Bill.
I can reassure noble Lords that all the existing safeguards that apply to regulators under public law principles, including what is proportionate and fair, continue to apply. Section 3 of the Legal Services Act provides that the Legal Services Board must have regard to the principles of transparency, accountability, proportionate action and consistency and target only those cases where action is required. The new objective in relation to economic crime fits within that framework. One is to an extent tilting at windmills here to try to reduce the scope of this major piece of legislation designed to tackle the very serious problems that noble Lords have now debated at length. On that basis, I shall ask the noble Lord in due course to withdraw his Amendment 81 and not press his other amendments.
I turn to Amendment 90, which affects the regulatory objective. The essential aspect of the amendment is that the objective is too wide and that we should spell out that it is all subject to legal professional privilege. Those are the essential points that were made.
I will take the point about legal professional privilege first. The Government entirely accept and agree with the noble and learned Lord that legal professional privilege is a fundamental principle of English law. It protects the confidentiality of communication between a lawyer and client in terms of legal advice, and ensures complete fairness in legal proceedings in terms of litigation privilege, for example. However, the Government are not able to accept the amendment for the following reasons.
Economic Crime and Corporate Transparency
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 27th April 2023
(1 year ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: HL Bill 96-V Fifth marshalled list for Grand Committee - (25 Apr 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Sharpe of Epsom
“Failure to prevent fraudFailure to prevent fraud
(1) A relevant body which is a large organisation is guilty of an offence if, in a financial year of the body (“the year of the fraud offence”), a person who is associated with the body (“the associate”) commits a fraud offence intending to benefit (whether directly or indirectly)—(a) the relevant body, or(b) any person to whom, or to whose subsidiary, the associate provides services on behalf of the relevant body.(2) But the relevant body is not guilty of an offence under subsection (1)(b) if the body itself was, or was intended to be, a victim of the fraud offence.(3) It is a defence for the relevant body to prove that, at the time the fraud offence was committed—(a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or(b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.(4) In subsection (3) “prevention procedures” means procedures designed to prevent persons associated with the body from committing fraud offences as mentioned in subsection (1).(5) A “fraud offence” is an act which constitutes—(a) an offence listed in Schedule (Failure to prevent fraud: fraud offences) (a “listed offence”), or(b) aiding, abetting, counselling or procuring the commission of a listed offence.(6) For the purposes of this section a person is associated with a relevant body if—(a) the person is an employee, agent or subsidiary of the relevant body, or(b) the person otherwise performs services for or on behalf of the body. (7) Whether or not a particular person performs services for or on behalf of a relevant body is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the body. (8) Where a relevant body is liable to be proceeded against for an offence under subsection (1) in a particular part of the United Kingdom, proceedings against the body for the offence may be taken in any place in the United Kingdom.(9) Where by virtue of subsection (8) proceedings against a relevant body for an offence are to be taken in Scotland—(a) the body may be prosecuted, tried and punished in a sheriff court district determined by the Lord Advocate, as if the offence had been committed in that district, and(b) the offence is, for all purposes incidental to or consequential on the trial or punishment, deemed to have been committed in that district.(10) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine;(b) on summary conviction in England and Wales, to a fine;(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(11) In this section—“relevant body” means a body corporate or a partnership (wherever incorporated or formed);“sheriff court district” is to be read in accordance with the Criminal Procedure (Scotland) Act 1995 (see section 307(1) of that Act).(12) In this section “financial year”—(a) in relation to a UK company, has the meaning given by the Companies Act 2006 (see section 390 of that Act);(b) in relation to a relevant body that is not a UK company means—(i) any period in respect of which a profit and loss account of the relevant body is required to be made up (by its constitution or by the law under which it is established), whether that period is a year or not, or(ii) if the body is not required by its constitution or the law under which it is established to draw up a profit and loss account, a calendar year.”Member’s explanatory statement
This clause together with new clauses (Fraud offences: supplementary) to (Failure to prevent fraud: miscellaneous), Lord Sharpe of Epsom’s amendments at page 173 lines 21, 33, 36 and 37 and page 315 line 20 and new Schedule (Failure to prevent fraud: fraud offences) provide for a new offence of failure to prevent fraud.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, in moving government Amendment 84A, I will also speak to other government amendments in this group, which create a failure to prevent fraud offence. I first thank the many noble Lords in Committee today for their continued engagement on these amendments and corporate criminal liability more generally. These conversations have been robust but constructive, and I am sure that we will have a lively debate today.
Let me start by reiterating the Government’s commitment to reform of corporate criminal liability— CCL—and to tackling fraud. That is why, in 2017, the Ministry of Justice issued a call for evidence; then, in November 2020, the Government commissioned the Law Commission to explore further this area. The Law Commission report was published in June last year. The Government have been reviewing the report and its extensive consultation and working with relevant stakeholders, including prosecuting agencies, to explore options for reform. My ministerial colleagues and I are of course also grateful for the extremely helpful insight and input from various noble Lords in this House and Members in the other place.
The tabling of these amendments to introduce a new failure to prevent fraud offence is a major and tangible demonstration of action. This offence will crack down on fraudulent practices by corporations. It is one part of the Government’s wider fraud strategy, due for publication shortly. Under the new offence, a large organisation will be liable to prosecution where fraud was committed by an employee, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. The new offence will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees. We are giving law enforcement and prosecutors the powers they have asked for to tackle organisations that defraud consumers, other businesses, investors and the taxpayer.
The offence has been designed to drive change and facilitate prosecutions without duplicating existing regulation or placing unnecessary burden on legitimate business. It will therefore apply only to large organisations, to avoid disproportionate burdens on small and medium-sized enterprises. A strong UK economy must be an environment that supports people to open and grow businesses. Of course, we encourage small organisations to take steps to prevent fraud and learn from the guidance that the Government publish. There are also existing powers to prosecute them and their employees if they commit fraud, but we need to keep the burden on business in check. The new offence covers fraud and false accounting, while keeping money laundering responsibilities contained under the existing regulatory regime. This ensures that the offence is targeted, focused on offences most likely to be committed by corporations and where prevention can have the most impact, and not duplicative of existing regimes.
The amendments include a statutory duty to publish guidance to set out what would be considered reasonable fraud prevention procedures, making the expectations on business clear. There have been cross-party calls for this measure, both in this House and the other place. I look forward to debating the detail today, but I trust that your Lordships will overall welcome and support these amendments, to ensure that we tackle fraud in corporate bodies. I beg to move.
Amendment 84AA
Lord Coaker (Lab)
I said everyone on the Committee —with the possible exception of the noble Lord. I was talking about how people feel about the Bill as drafted, with the carve-out for small and medium-sized enterprises. The noble Lord was referring to something that might include not the small but the medium, and that is a matter for debate, but the general view of the Committee was that the Government’s current carve-out is not acceptable. Where you put the threshold—whether you apply to a little sweet shop at the end of the road with a turnover of a few thousand pounds the same regulation you apply to a multinational company—could be sorted out in regulations, and if we saw them, we could suggest that they take into account the small sweet shop to which the noble Lord referred.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords—too numerous to mention—who have participated in this debate, and I shall try to address all the points put to me, but I apologise if I do not name everybody individually.
I feel I should declare an interest: I have owned and been a director of small businesses, not all of them successful—like my noble friend, Lord Leigh—and to my noble and learned friend Lord Garnier, I declare an interest as a tall man.
I will start with the amendments linked specifically to failure to prevent offences. I welcome the broad support today for the government amendments, which would, I emphasise, cover all sectors, and that includes telecoms companies. I hope that they deliver most of what the other amendments intend. However, I have noted that concerns remain. Obviously, I listened to the debate very carefully, including on the scope and reach of the new offence.
Before I turn specifically to the amendments, I reassure my noble friend Lady Morgan that the fraud strategy really is imminent. She is absolutely right: I am really keen to see it. I say to my noble friend Lord Leigh that his point about accounting principles was very interesting, but the design of the definition of large companies comes from the Companies Act 2006.
I note the wider offence lists put forward in Amendments 96, 97, 98 and 99, tabled in the names of my noble and learned friend, Lord Garnier, my noble friend Lord Agnew, the noble Lord, Lord Faulks, and the noble Baroness, Lady Bennett of Manor Castle. In particular, noble Lords seek to ensure that money laundering is covered by the new failure to prevent offence. The Government have consulted with law enforcement and prosecutors, and we are satisfied that all the priority offences have been included.
We have carefully examined the wider offence list and determined that they are not appropriate to include because they would duplicate existing regimes, cause repetition with other existing offences, are too broad or relate to preparatory offences. It is also worth noting that the Law Commission report published in June 2022 agrees with this. It highlighted that Part 2 of Schedule 17 to the Crime and Courts Act 2013, as Amendment 98 suggests, while a good starting point for considerations, would be too broad.
I turn to the proposed failure to prevent money laundering offence, as in Amendment 99, tabled by my noble and learned friend Lord Garnier. The UK already has a strong anti-money laundering regime which requires regulated sectors to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious civil and criminal penalties if they fail to do so.
A failure to prevent money laundering offence would duplicate the systems, controls and penalties of the existing regime. Furthermore, it would extend anti-money laundering obligations to organisations with very low risk, which would be disproportionate. Any necessary anti-money laundering measures can be implemented through the existing regime. The Law Commission agreed with this point, noting that any offences to cover breaches of money laundering would create additional positive duties on organisations which would overlap with the duties under the anti-money laundering regime.
The Government’s review of the UK’s anti-money laundering regime, published in June 2022, concluded that existing regulatory requirements allow for businesses to take a risk-based approach to their obligations, meaning their compliance activities can be targeted at areas of highest risk of money laundering and terrorist financing. The review also committed the Government to further analysis and public consultation to identify the best path for reform of the anti-money laundering supervisory regime. Further improvements to the UK’s anti-money laundering framework are therefore best targeted by strengthening and improving the existing regime, rather than by the creation of a new parallel regime. The Government have already committed to undertake further consultation on the anti-money laundering supervisory regime and continue to review the anti-money laundering framework.
Amendment 99 in the name of my noble and learned friend Lord Garnier also proposes a failure to prevent sanctions evasion offence. The UK can already impose a range of criminal and civil penalties against corporations and individuals for breaches of UK sanctions. Powers were strengthened last year when we moved civil penalties for financial sanctions on to a strict liability basis. Introducing a failure to prevent offence would duplicate the existing regime. On the scope of the offences, government Amendment 84B contains a power in secondary legislation to update the list when required.
I turn to Amendments 84AA, 84CA, 84CB and 84CC, on the threshold for the new offence, tabled by the noble Lord, Lord Fox. I thank him for talking me through his concerns last week and I note that most other noble Lords have supported its intention. I will endeavour to set out the Government’s position on this. Our analysis shows that small businesses would be disproportionately affected by the costs of complying with a failure to prevent fraud offence. The total cost to small and medium-sized enterprises would amount to billions of pounds in year one and hundreds of millions in each subsequent year. This would significantly increase the cost of the measure, which is £98.5 million per annum with the threshold included. An affirmative power—
Lord Vaux of Harrowden (CB)
If the Government have done some analysis on that, could they share it with us? That would be very helpful.
Lord Sharpe of Epsom (Con)
I am happy to investigate whether that is possible. If it is, I will do so.
An affirmative power to add a threshold in future, as proposed by the noble Lord’s amendments, would have limited impact on this burden, with the highest costs already borne should the offence apply to smaller organisations in year one. It is also important that we consider the cumulative compliance cost for SMEs across multiple government regulations, rather than seeing these fraud measures in isolation. Excluding SMEs from the new offence does not mean they can get away with fraud; powers already exist to prosecute small companies, their owners and their employees for criminal acts. It is currently easier to hold these companies to account than larger organisations with complex structures.
The Government’s proposed failure to prevent fraud offence will strengthen powers to tackle fraud by large organisations, ensuring that companies with the biggest customer bases which risk causing the most harm take extra steps to prevent fraud.
We will keep the threshold under review and can amend it through secondary legislation, if required. I know that some noble Lords argue that this power should be used the other way. However, given the potentially chilling impact on small businesses, I hope that noble Lords will agree that it is better to understand the impact on large companies once the measures are implemented, as my noble friend Lord Leigh has highlighted—as well as any trickle-down effect on smaller companies—before applying it more widely. The regulation-making power in the Government’s Amendment 84C enables this approach. The Government therefore firmly consider that the proposed failure to prevent fraud offence strikes an appropriate balance between the crime prevention benefits and the burden placed on business.
Lord Browne of Ladyton (Lab)
I apologise to the Minister; I should have intervened slightly earlier. If the Minister has data on the likely cost of the extension of the provisions in the Government’s amendment to small and medium-sized enterprises, I think that all Members of the Committee would like to see it, including how it could be disaggregated. To make a proportionate decision, surely it would need to be accompanied by the Government’s estimate of the loss to small and medium-sized enterprises caused by fraud. Given the scale of fraud in this country, it must be significant. Personally, I would like to have the opportunity to compare what this is likely to cost against what fraud already costs small and medium-sized enterprises.
Lord Sharpe of Epsom (Con)
The noble Lord makes a good point. As I have said, I will endeavour to find some more figures and share them more broadly. I do not know whether it will take into account the precise analysis that the noble Lord seeks, but the fraud strategy is imminent and it would be strange to publish a strategy without saying what the strategy is there to address. Once again, I am piling all my faith into the fraud strategy—possibly misplaced faith, who knows?
Lord Agnew of Oulton (Con)
Can my noble friend confirm the figure the noble Lord, Lord Macdonald, put forward: that about 99% of businesses will be excluded? That was the figure that I found, but I would like to hear that from the Minister, as well as whether he thinks that is proportionate in the carve-out.
Lord Sharpe of Epsom (Con)
I am afraid that I cannot confirm that. I do not know, but I will find out.
I will go back to Amendment 100 and talk about the identification doctrine. As noble Lords are aware, prosecuting corporates for serious crimes is challenging, largely as a result of the identification doctrine. This principle dictates that the acts and minds of the individuals who represent the directing mind and will are treated as the acts and minds of the corporate itself. In practice, it can be difficult to determine the “directing mind and will” of a corporation. Large and sometimes opaque governance structures make it challenging to identify a senior manager in charge of specific operations. This means that the current law applies unfairly to smaller business. As set out at Second Reading, the Government are fully committed to addressing this problem and to bringing forward legislative reform to achieve it. However, as noble Lords are aware through the amendments that they have tabled, whereas the identification doctrine currently applies to all crimes, the scope of this Bill can permit reform only for economic crime offences. I am as frustrated about that as other noble Lords.
While this amendment would improve the law for economic crimes, it would not remedy the current issues faced by prosecutors for all other sectors of criminal law. However—and I take a partial deep breath here for my noble and learned friend Lord Garnier—given our shared overall ambitions for reform, I would welcome further conversations ahead of Report on this subject. My officials are working through the list of offences with practitioners to determine whether the offences can be reformed without impacting the wider criminal law. My noble and learned friend will also be aware that we are committed to introducing reforms that can be effectively used by prosecuting agencies over a broad range of business. I am sure that he will also agree that is vital that any unintended consequences or risks be identified and understood. I hope that noble Lords are satisfied that the Government are absolutely committed to reform in this area, but that we want to ensure that any reform can be effectively utilised.
Turning to Amendment 101—
Lord Macdonald of River Glaven (CB)
Before the Minister moves to another area, the figure I gave that SMEs account for 99.9% of all companies and business organisations in the UK comes from government statistics—namely, business population estimates for 2022.
Lord Sharpe of Epsom (Con)
I thank the noble Lord for that information; I will come back on that.
Lord Sharpe of Epsom (Con)
Absolutely; I shall get my abacus out. I turn to Amendment 101 on senior managers’ liability for failing to prevent economic crime, also tabled by my noble and learned friend Lord Garnier.
I agree that it is important that individuals, particularly the most senior ones, do not go unpunished for their involvement in committing economic crimes. Prosecutors already have a range of powers at their disposal to pursue decision-makers who enable or commit criminal offences in a corporate setting. This includes the power to prosecute individuals for substantive offending. For example, last year an individual was jailed for 12 years following a Serious Fraud Office investigation into a £226 million fraud.
Additional powers also exist which enable senior managers and directors to be prosecuted where they consent or connive in fraud, theft, money laundering or bribery. A director or manager who is convicted on the basis of their consent, connivance or neglect can be dealt with accordingly by the courts, including being sentenced to imprisonment. Also, under the Serious Crime Act 2007, a person, including a senior manager, is liable for encouraging or assisting the commission of a criminal offence. That includes fraud, false accounting or money laundering—the offences captured by the amendment tabled by my noble and learned friend Lord Garnier. The individual found to be encouraging or assisting the commission of the offence can be prosecuted in the same way as if they commit the offence itself.
This amendment seeks to extend liability for senior managers on a lower basis for culpability than is normally provided for. It would allow a senior manager who takes a decision to be imprisoned for taking that decision, even if the offence is the action of a rogue employee. That would place a disproportionate burden on corporations and their senior management, which is likely to deter legitimate business from seeing the UK as a fair and safe place to conduct business. This amendment is therefore not appropriate.
The noble Lord, Lord Coaker, asked about extraterritoriality. Our approach is focused on cutting crime in the UK and protecting UK victims. As he noted, the powers have sufficient extraterritorial extent to do this, even if the perpetrators or the organisation is based outside the UK. Other countries can take steps to prosecute fraud under their own law. As for the precise mechanics of how it would work, it would be on a case-by-case basis, so it is pointless to speculate.
The noble Lord also asked for more detail about guidance. As he knows, we intend to publish guidance setting out reasonable prevention procedures before the offence of failure to prevent fraud comes into force. It will give organisations clarity about what they need to do. It is important that we engage and consult the right stakeholders in this process and that we engage further with the organisations this will impact. Once the Bill has received Royal Assent, we will start engaging with law enforcement, prosecutors, relevant government departments, public sector organisations, trade associations for businesses, other organisations in scope and other experts to draft the guidance.
We anticipate that the guidance will follow similar themes to those seen in many regulatory regimes—albeit that in this case they are not requirements—and to guidance for existing failure to prevent offences. This includes regular risk assessments to establish the level and type of fraud risks to be addressed; establishing fraud controls and due diligence processes designed to prevent fraud or spot it in the early stages before the offence is carried out; leadership and training to ensure that employees implement controls and create a culture within the organisation that does not accept fraudulent practices as a route to boosting performance and profits; and monitoring and review to ensure that procedures remain effective. I am happy to hold further discussions on this subject at the noble Lord’s convenience.
Lord Sandhurst (Con)
I was waiting to hear the tenor of my noble friend’s response. He opened by saying that a relevant body includes a telecoms company. That is not my point. A telecoms company is obviously likely to be a relevant body. My complaint is that those within scope include only associated persons and not the fraudster who actually makes money indirectly or directly by paying charges to the telecoms company. That target is missed altogether by this Bill and the Online Safety Bill. Is it the intention that telecoms companies will continue to have no responsibility at all for spoof calls and so on?
Lord Sharpe of Epsom (Con)
We will come on to this in more detail on a later group. Perhaps we should leave the detail of this debate until the third group, which we will get to at some point.
Lord Vaux of Harrowden (CB)
The Minister referred earlier to questions about groups of companies and the fact that an employee of a subsidiary would still be an associate of a holding company. That does not address the question that I was asking. Are the thresholds in Amendment 84C on an individual entity basis or a consolidated basis? There is a big difference between the two. A group could happily have a small subsidiary and say, “An employee of that did it, so we are off the hook”.
Lord Sharpe of Epsom (Con)
I appreciate the point that the noble Lord was making and apologise for not addressing it more directly. I will refrain from answering that now and will write. I think I know how it is done, but I am not an accountant and I do not want to say something that he will pick apart. If he will indulge me, I will write on that subject with greater clarity to make sure that I am not making a mistake.
I thank all noble Lords for their participation in this debate and for their patience as I have taken them through a fairly long speech on the Government’s positions on these issues. We agree that reform is needed and, as we have made clear, the Government’s amendments represent a major step in delivering it. I hope that further explanation has reassured noble Lords on why we have presented the amendments with the scope and reach that they contain, and that the Government are committed to reform of the identification doctrine. I therefore very much hope that noble Lords will support the government amendments and not seek to move their own.
Lord Leigh of Hurley (Con)
I appreciate that my noble friend is at the Home Office, but none the less can he give us a commitment that the Government will look again at the definitions used in the Government’s clause for SMEs? I appreciate that they come from the Companies Act 2006, which themselves were cut and pasted from EU regs, but now that we are out of the EU we are free to choose definitions that suit our circumstances and our institutes’ accounting standards.
Lord Fox (LD)
My Lords, I think I was right at the very beginning not to speak for long on this set of amendments. Your Lordships filled in for me very adequately and expertly.
The Minister came back with a couple of points that I want to refer to. He explained that aspects of the amendments from the noble and learned Lord, Lord Garnier, were not necessary because there would be duplication. It would be helpful for us to understand that duplication. Perhaps between now and Report he could provide a list of all the prosecutions that have happened with the existing legislation, proving that the new legislation would not be necessary, so that we can understand that his point is correct.
He also talked about the chilling effect on small companies. This legislation is designed to chill fraud. Taking up the challenge set by the noble Lord, Lord Leigh, about his perfectly innocent sweet shop, legislation that excludes that sweet shop will also exclude all the other small companies that are perpetrating fraud. The skill is in the proportionate application of this legislation. To pick up the point made by the noble Lord, Lord Coaker, it is also about the proportionate advice that is being given. Not all companies are getting the same level of advice on how they should approach this legislation. There is no one-size-fits-all approach, as my noble friend Lady Bowles said.
Lord Sharpe of Epsom
“Fraud offences: supplementary
(1) The Secretary of State may by regulations amend Schedule (Failure to prevent fraud: fraud offences) by—(a) removing an offence from the list in the Schedule, or(b) adding an offence to that list.(2) The power in subsection (1) is exercisable by the Scottish Ministers (and not by the Secretary of State) so far as it may be used to make provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The power in subsection (1) is exercisable by the Department of Justice in Northern Ireland (and not by the Secretary of State) so far as it may be used to make provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State.(4) An offence added under subsection (1)(b) must be—(a) an offence of dishonesty,(b) an offence that is otherwise of a similar character to those listed (on the passing of this Act) in paragraphs 1 to 6 of Schedule (Failure to prevent fraud: fraud offences), or(c) a relevant money laundering offence.(5) The Secretary of State may from time to time by regulations restate Schedule (Failure to prevent fraud: fraud offences) as amended by virtue of subsections (1) to (3) (without changing the effect of the Schedule).(6) For the purposes of section (Failure to prevent fraud) (1), where a fraud offence is found to have been committed over a period of 2 or more days, or at some time during a period of 2 or more days, and that period of days straddles the beginning of a financial year of the relevant body in question, the fraud offence must be taken to have been committed on the last of those days.(7) In this section “relevant money laundering offence” means an offence under any of the following sections of the Proceeds of Crime Act 2002—(a) section 327 (concealing etc);(b) section 328 (arrangements);(c) section 329 (acquisition, use and possession).” Member’s explanatory statement
See the explanatory statement for new clause (Failure to prevent fraud).
Lord Sharpe of Epsom
“Section (Failure to prevent fraud): large organisations
For the purposes of section (Failure to prevent fraud) (1) a relevant body is a “large organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence—
Turnover Balance sheet total Number of employees | More than £36 million More than £18 million More than 250. |
See the explanatory statement for new clause (Failure to prevent fraud).
Lord Sharpe of Epsom
“Offences under section (Failure to prevent fraud) committed by partnerships
(1) Proceedings for an offence under section (Failure to prevent fraud) alleged to have been committed by a partnership must be brought in the name of the partnership (and not in that of any of the partners).(2) For the purposes of such proceedings—(a) rules of court relating to the service of documents have effect as if the partnership were a body corporate, and(b) the following provisions apply as they apply in relation to a body corporate—(i) section 33 of the Criminal Justice Act 1925 and Schedule 3 to the Magistrates’ Courts Act 1980;(ii) section 18 of the Criminal Justice Act (Northern Ireland) 1945 (c. 15 (N.I.)) and Schedule 4 to the Magistrates’ Courts (Northern Ireland) Order 1981 (S.I. 1981/1675 (N.I. 26));(iii) sections 34(2), 66(6AA) and 72D(2) of the Criminal Procedure (Scotland) Act 1995.(3) A fine imposed on the partnership on its conviction for an offence under section (Failure to prevent fraud) is to be paid out of the partnership assets.”Member’s explanatory statement
This amendment supplements new clause (Failure to prevent fraud).
Baroness Altmann (Con)
I too add my support, as a further person in the sanctioned party. I congratulate the noble Lord, Lord Alton, on moving this amendment and on his excellent speech. I also congratulate him on all the work he does in some most important areas.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Alton of Liverpool, for his amendment and for his kind words. I echo the words of my noble friend Lady Altmann about his work in so many areas. I also thank the others who have spoken in this brief debate—the noble Baroness, Lady Bennett, the noble Lords, Lord Fox and Lord Coaker, and my noble friend Lord Leigh.
I reassure the noble Lord that the Government are sympathetic to using frozen funds to assist with Ukrainian reconstruction. Currently, government authorities have the powers to utilise various enforcement tools to investigate breaches of sanctions and, in criminal cases, to confiscate relevant assets. As has been noted, that has resulted in over £18 billion of Russian assets being frozen in the United Kingdom.
The Government are also considering lawful routes to making Russian assets available for Ukrainian reconstruction. We must ensure that any solution is legal, safe and robust, and we will continue to work with G7 partners to make progress.
Lord Faulks (Non-Afl)
Before the noble Lord sits down, during the passage of the first economic crime Bill, when the question of sanctions was discussed, much reference was made to the very lengthy Explanatory Notes which accompanied that Bill—the longest I have ever seen—particularly as regards the human rights implications of depriving people of their assets in the sort of way that the noble Lord, Lord Alton, envisages in his amendment, in particular A1P1 of the European convention and various other rights. Is it part of the Government’s position that the sort of suggestions made in this amendment are in fact stymied or may be frustrated by the provisions of the European convention and the Human Rights Act?
Lord Sharpe of Epsom (Con)
The noble Lord has strayed into an area with which I am not familiar. I shall have to write to him.
Lord Alton of Liverpool (CB)
My Lords, I think that the whole Committee would be interested to see the reply that the noble Lord receives from the Minister on that point.
I thank all noble Lords who participated in this short debate, including the noble Baroness, Lady Bennett, and the noble Lords, Lord Faulks and Lord Coaker, and thank the noble Lord, Lord Leigh, and the noble Baroness, Lady Altmann, for their brief but helpful interventions. I thank her especially for her personal remarks.
On Tuesday, some noble Lords will have seen sitting with me in the strangers’ area at the back of our proceedings a young man called Sebastian Lai. His father, Jimmy Lai, is incarcerated in a prison in Hong Kong. He had confiscated from him Apple Daily. He was a journalist, media owner and the leading voice for the pro-democracy movement in Hong Kong. Imagine how that family feel as their father, a British citizen, languishes in a jail in Hong Kong—likely, at the age of 75, to die there—knowing that some of those responsible for what has happened to him and who have brought about his incarceration in what is, and I use the word deliberately, a complete corruption of the once illustrious legal system in Hong Kong, have properties, portfolios and massive assets in the United Kingdom. It is high time that we took this issue even more seriously than we have hitherto.
I was not saying this for purely rhetorical reasons earlier—I mean it when I say that I know that the Minister is passionate about people such as Jimmy Lai and the terrible things that have happened in Hong Kong. I was pleased that he did not rule out the possibility that we might be able to overcome some of the issues, particularly around proportionality, which he raised and which we discussed yesterday—and maybe the need for other safeguards, perhaps to deal with the issue that the noble Lord just raised. I hope that, therefore, he will agree to a meeting with some of the legal team that I have met from Spotlight on Corruption, RUSI and the others to which I referred earlier. Sanctions must not just be about virtue signalling—they have to be real and have the teeth to which we have referred in today’s debate.
I am grateful that the noble Lord has not ruled out doing more, but I hope that what more we do will be truly effective and that we will pause and consider further action between now and Report. Perhaps a meeting could even be arranged in the margins of this Committee, where we can discuss this together, for those who are genuinely interested in finding a solution. Perhaps we could invite some of the Members from another place who are so interested in this issue, too. I know that the Committee has a lot of other business to attend to. On that basis, I beg leave to withdraw the amendment.
Lord Sharpe of Epsom
“20A_ An offence under section (Failure to prevent fraud) of this Act (failure to prevent fraud).” Member’s explanatory statement
This amendment is supplementary to new clause (Failure to prevent fraud). It adds the new offence of failure to prevent fraud to the list of offences that constitute “economic crime” for the purposes of clauses 175 to 178.
Lord Sharpe of Epsom
“SCHEDULE 10FAILURE TO PREVENT FRAUD: FRAUD OFFENCESCommon law offences
1_ Cheating the public revenue.2_ In Scotland, the following offences at common law—(a) fraud;(b) uttering;(c) embezzlement.Statutory offences
3_ An offence under any of the following provisions of the Theft Act 1968—(a) section 17 (false accounting);(b) section 19 (false statements by company directors etc).4_ An offence under any of the following provisions of the Theft Act (Northern Ireland) 1969—(a) section 17 (false accounting);(b) section 18 (false statements by company directors etc).5_ An offence under section 993 of the Companies Act 2006 (fraudulent trading).6_ An offence under any of the following provisions of the Fraud Act 2006—(a) section 1 (fraud);(b) section 9 (participating in fraudulent business carried on by sole trader);(c) section 11 (obtaining services dishonestly).”Member’s explanatory statement
This new Schedule sets out the list of “fraud offences” for the purposes of new clause (Failure to prevent fraud).
Lord Coaker (Lab)
My Lords, given the time of day, I shall make a brief comment. I agree with Amendments 91 and 94. On Amendment 94, spoken to by the noble Baroness, Lady Morgan, I ask the Minister directly: why would he not ensure that this Economic Crime and Transparency Bill currently before Parliament did exactly what Amendment 94 suggests? It just does not seem logical. If the Minister and the Government do not do it, this will have been a missed opportunity, and we will come back to this issue and ask why we did not do it now. The amendment is reasonable and makes perfect sense and no doubt the Minister agrees with it, but it needs the Government to say, “We’re going to do it”. If it is flawed then the government lawyers can sort it out, but it is a perfectly reasonable amendment and, in my view, the Government should have no difficulty in accepting it. With that brief comment, I will sit down.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Morgan of Cotes for their amendments on failure to prevent economic crime, and all noble Lords who have spoken in this debate.
I hope that my comments during our debate earlier today will have provided some reassurance on the Government’s ambitions to take action in this area, including the introduction of a new offence of failure to prevent fraud. These amendments obviously cover some of the same ground so I will seek not to repeat myself too much on issues such as the scope and threshold of the Government’s amendments but to focus more on what I understand to be the wider thrust of Amendments 91 and 94.
Before I get on to that, I reassure the noble Lord, Lord Vaux, that the fraud strategy is a couple of hours closer. I remind noble Lords that there is an all-Peers drop-in session on 9 May to discuss the three Bills that are currently under way through Parliament: this Bill, the Online Safety Bill and the Financial Services and Markets Bill. That will bring some of the discussions together, as suggested by my noble friend Lady Morgan. I refute the allegation that the Government are not doing very much. Those three Bills themselves prove that we are indeed intent on fixing many or all of the problems that have been identified—the Government of course take these problems seriously.
I turn to the amendments in this group. The Government’s offence does not extend to services that facilitate fraud—that is, companies whose services are misused by third parties to carry out fraud. Examples include social media and telecoms companies whose services are used to promote fraudulent schemes, as has been pointed out, and banks and crypto exchanges, which fraudsters use to process the payments. If these companies or their employees commit fraud, they will be in scope, but not where their services are misused by others.
The Government agree that companies that facilitate fraud, even if they are not complicit in the offending, must do more to prevent and detect it. In doing so, they can protect their customers and the wider public from fraud, which, as has been discussed at length, causes significant damage to wider society and individuals —we must not forget them. However, we intend for this to be achieved by seeing through existing plans for regulatory and voluntary activity, rather than by creating a new offence which risks duplicating those existing approaches.
Amendment 91, tabled by the noble Baroness, Lady Bowles of Berkhamsted, proposes a regulatory duty to prevent economic crime, enforced by regulators. In relation to organisations that commit fraud, we can achieve a similar effect that incentivises organisations to put fraud controls in place through the Government’s approach: an offence enforced by law enforcement. Our approach allows all sectors to be in scope, not just regulated bodies, and is less resource-intensive for business and the public sector than establishing new regulatory approaches. In relation to the facilitation of fraud, I reassure the noble Baroness, Lady Bowles, that action is already under way to tackle this. I will address some of the sectors mentioned in today’s debate and Amendment 91, which I hope will provide some further reassurance.
The Online Safety Bill will require all in-scope tech companies, including social media companies, to take action to tackle fraud where it is facilitated through user-generated content or via search results. They must put in place systems and processes to prevent users encountering fraudulent content through their platforms and to swiftly remove any such content available through their platform. Without wishing to single out any particular company for attention, I reassure my noble friend Lady Morgan that Airbnb, which she referenced, would of course be in scope.
Additionally, there will be a duty on the largest social media and search engines requiring them to prevent fraudulent adverts appearing on their services. The Bill gives Ofcom, as regulator, robust enforcement powers, allowing it to impose significant financial penalties on services that do not fulfil its duties. Ofcom will publish codes of practice to set out further details on what platforms must do to meet their duties under the Online Safety Bill.
The “failure to prevent” offence operates in a similar way to the Online Safety Bill, by setting out reasonable steps to be taken, with the ability to fine companies that fail to fulfil their duties. Expanding the “failure to prevent fraud” offence in the ECCT Bill to cover facilitation of fraud would create duplication for tech companies, which would have to follow two parallel regimes in relation to facilitation of fraud, potentially creating confusion for businesses.
Noble Lords also raised the role of telecoms companies, including the content of messages passed over their networks. The telecoms industry is already extensively regulated by Ofcom, which is active in encouraging the industry to tackle scam calls and texts, including through regulation and guidance. This includes new measures that will take effect shortly to tackle the spoofing or disguising of UK telephone numbers from overseas. As it should be, the telecoms industry has been an active partner in the fight against scams, with broadband and mobile providers signing up to the Home Office’s Telecommunications Fraud Sector Charter and committing to work with the Government to reduce the use of their networks by criminals.
However, it is important to recognise that telecoms operators are not able to view the content of messages passing over their networks. While they employ sophisticated algorithms to identify and block hundreds of millions of fraudulent or scam messages and calls, the rapid evolution of threats creates challenges to pre-emptive action. This means that a facilitation offence could potentially have a disproportionate effect on the industry and the operation of telecommunications in the UK.
Amendment 91 also references the Financial Conduct Authority. The FCA is working closely with banks and other financial institutions to reduce the role they play in facilitating fraud and to identify further controls that can be put in place to protect the public from scams. In addition, the Payment Systems Regulator is introducing new requirements for financial institutions to reimburse fraud victims, which will create strong incentives to improve fraud controls, as noted by the noble Lord, Lord Vaux.
In respect of the Solicitors Regulation Authority, noble Lords will be aware from Tuesday’s debate that Clause 183 of the Bill already inserts a regulatory objective in the Legal Services Act 2007, focusing on promoting the prevention and detection of economic crime. This measure affirms the duties of the regulators, the Legal Services Board and the regulated communities to uphold the economic crime agenda.
The noble Lord, Lord Vaux, also referenced the Institute of Chartered Accountants in England and Wales. Amendment 91 also references that organisation and other relevant regulators of accountants. As I said, I am aware that several noble Lords have declared their association with that organisation.
As noble Lords will be aware, ICAEW is a professional and supervisory body for chartered accountants. Its work in areas regulated by law—for example, audit, anti-money laundering, local audit, investment business, insolvency and probate—is monitored by oversight bodies such as the Insolvency Service, the FCA, the Office for Professional Body Anti-Money Laundering Supervision, the Civil Aviation Authority and the Legal Services Board. ICAEW has been proactive in the industry fight against fraud, leading the sector in negotiating and delivering the Accountancy Fraud Sector Charter, published in 2021, and is an active member of the counter-fraud community, contributing to all levels of governance across the threat landscape. It is a co-signatory to the Economic Crime Plan and associated actions.
As I set out in our earlier debate, the offence introduced via the Government’s amendments covers fraud and false accounting, while keeping money-laundering responsibilities contained under the existing regulatory regime. That ensures that the offence is targeted, focused on offences most likely to be committed by corporations and where prevention can have the most impact and not duplicative of existing regimes.
I note the wider offence lists put forward under the noble Baroness’s amendment, but—as we debated at length earlier today—we are satisfied through discussions with law enforcement and prosecutors that all the priority offences have been included. There is a power in secondary legislation to update the list when required. We have also touched on the issue of the threshold in the government amendment that means it applies—at least initially—only to large organisations. As I set out earlier, this is to avoid disproportionate burdens on small and medium-sized enterprises and ensure our economy encourages people to open and grow businesses. Of course, we encourage small organisations to take steps to prevent fraud and there are, as I mentioned in an earlier group, existing powers to prosecute small organisations and their employees if they commit fraud, but we need to keep the total regulatory burden in check.
There have been cross-party calls for the Government’s failure to prevent fraud offence both in this House and in the other place, as well as across civil society. The Government have listened and introduced amendments. In addition to the legislative measures proposed, the Government continue to work closely with regulators and wider sectors to tackle fraud and set out the actions expected of industry. I am afraid that the Government therefore view these amendments as duplicative of measures already being taken forward—
Lord Vaux of Harrowden (CB)
I am a little confused, because we seem to be talking now about the previous amendments, where an associate of the body commits fraud with the intention to benefit the body, which is a very different thing to the amendments we are looking at at the moment. The situations we have been talking about—the scams, and so on—would not, as I think we established fairly clearly in debate on the first group, be covered by that. Will the Minister please address the issue of scams and what these amendments are trying to address, rather than the rather different offence that was created by the first group of amendments?
Lord Sharpe of Epsom (Con)
My Lords, I think I have already addressed that a little earlier when I was talking about the various codes that we are asking telecoms companies to sign up to via Ofcom. I am wrapping up now, so I am bringing it all together—or attempting to.
The Government therefore view these amendments as duplicative of measures already being taken forward and not achieving their intentions. I of course commit to read page 22, in answer to my noble friend, but I ask the noble Baroness, Lady Bowles, and my noble friend Lady Morgan not to press their amendments.
Baroness Morgan of Cotes (Con)
I thank my noble friend very much for what he said; I will read it very carefully. I wanted to wait for the end of his speech, but he mentioned a meeting that is being held on 9 May to bring together at least three pieces of legislation and, who knows, we might even have had the fraud strategy by that point and be able to talk about that. I suggest that he looks at that meeting the other way round and, as I suggested, go through the different types of fraud—they will not be exhaustive—and work out what the Government think the relevant legislation is tackling. Then we will be able to see what the gaps are. I think one of the gaps is exactly what the noble Lord, Lord Vaux, just said, which is where services are being used to perpetuate fraud that are definitely not caught by the Government’s proposed amendment. That would enable us to have a much better informed debate before and at Report about whether we will really use the opportunity of this Bill. I invite my mobile friend to say that he will ask officials to work that way round: looking at the frauds and then seeing what the Government have already proposed to tackle them.
Lord Sharpe of Epsom
My noble friend will be aware that this will be a cross-departmental meeting, and I have not seen the proposed agenda, but I will certainly take her comments back. I meant to say that the noble Lord, Lord Vaux, made reference to the technical meeting he had on the Online Safety Bill, and I obviously extend the offer of a similar meeting, if anyone else would like it.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 9th May 2023
(1 year ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: HL Bill 96-VII Seventh marshalled list for Grand Committee - (9 May 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
“Sanctions enforcement: monetary penalties
(1) In section 143 of the Policing and Crime Act 2017 (interpretation), in subsection (4) (meaning of “financial sanctions legislation”), in paragraph (f)—(a) the words from “contains” to the end become sub-paragraph (i);(b) at the end of that sub-paragraph insert—“;(ii) makes supplemental provision (within the meaning of section 1(6) of that Act) in connection with any prohibition or requirement mentioned in sub-paragraph (i).”(2) The Sanctions and Anti-Money Laundering Act 2018 is amended as follows.(3) In section 17 (enforcement), in subsection (9), in paragraph (a), after “(2)” insert “or makes supplemental provision in connection with any such prohibition or requirement”.(4) After section 17 insert—“17A Enforcement: monetary penalties(1) The provision that may be made by virtue of section 17(2) (enforcement of prohibitions or requirements) includes provision authorising a prescribed person to impose a monetary penalty on another person if satisfied, to the prescribed standard of proof, that the other person has breached a prohibition, or failed to comply with a requirement, that is imposed by or under regulations.(2) Regulations authorising the Treasury to impose a monetary penalty in respect of a breach or failure for which the Treasury could impose a monetary penalty under Part 8 of the Policing and Crime Act 2017 may not be made unless the regulations also make provision of the kind mentioned in section 17(9) to disapply Part 8 of that Act in respect of that breach or failure.(3) Regulations authorising the imposition of a monetary penalty may make provision that, in determining for the purposes of the regulations whether a person has breached a prohibition, or failed to comply with a requirement, any requirement relating to the person’s knowledge or intention is to be ignored. (4) Regulations authorising the imposition of a monetary penalty must provide that—(a) a person is not liable to such a penalty in respect of conduct amounting to an offence if—(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) the person has been convicted of that offence in respect of that conduct, and(b) no proceedings may be brought against a person in respect of conduct amounting to an offence if the person has been given such a penalty under the regulations in respect of that conduct.(5) Where regulations authorising the imposition of a monetary penalty authorise a prescribed person to determine the amount of the penalty, the regulations must provide for a maximum penalty.(6) The maximum penalty may be a prescribed sum of any amount or may be calculated in accordance with the regulations.(7) In this section—“conduct” means an act or omission;“regulations” mean regulations under section 1.””Member’s explanatory statement
This clause makes it clear that Treasury can impose monetary penalties under the Policing and Crime Act 2017 for breaches of provisions that are supplemental to financial sanctions and that regulations made under section 1 of SAMLA 2018 can include provision conferring power to impose monetary penalties.
The Minister of State, Foreign, Commonwealth and Development Office (Lord Goldsmith of Richmond Park) (Con)
My Lords, I rise to move Amendment 91A in the name of my noble friend Lord Sharpe of Epsom.
The Government take the enforcement of their sanctions regimes seriously. Ensuring that we have a firm basis for enforcement action is especially important given the unprecedented sanctions measures that we have implemented in response to Putin’s illegal invasion of Ukraine last year.
There are various methods to enforce UK sanctions, one of which is the imposition of civil monetary penalties, also known as CMPs, which are fines levied by the Government for breaches of sanctions. CMPs do not require a criminal prosecution and involve far less cost to the justice system than criminal prosecutions. To date, the Office of Financial Sanctions Implementation, which is known as OFSI and is part of His Majesty’s Treasury, has levied nine CMPs totalling more than £20 million since it was set up in 2016. The UK Government’s ability to impose CMPs is likely to factor in the calculations of those seeking to breach sanctions for financial gain.
This amendment is part of the Government’s work to strengthen enforcement across our UK sanctions regimes. The new clause will amend the Sanctions and Anti-Money Laundering Act 2018—SAMLA—to provide express provision in relation to the imposition of CMPs. New Section 17A of SAMLA clarifies and reinforces the broad enforcement powers contained in Section 17 of SAMLA, that:
“Regulations may make provision … for the enforcement of any prohibitions or requirements imposed by regulations”.
The amendment also strengthens the basis for CMPs to be imposed by the Treasury under the Policing and Crime Act 2017 for offences that are supplemental to financial sanctions. Again, this is a clarificatory amendment. While criminal and civil enforcement options are already in place, this measure provides clarity on the Treasury’s power to impose a CMP for such offences. The amendment also provides for the Policing and Crime Act 2017 to be disapplied where the Treasury has the power under both sanctions regulations and the Policing and Crime Act to impose CMPs in respect of prohibitions or requirements.
Of course, putting these powers on a firmer footing is worth while only if we invest the necessary resources to make use of them. In the recent Integrated Review Refresh, the Prime Minister announced a new £50 million economic deterrence initiative which will improve our sanctions implementation and enforcement. This will maximise the impact of our trade, transport and financial sanctions, including by cracking down on sanctions evasion. It will also be used to prepare the Government for future scenarios where the UK may need to deter or respond to hostile acts.
I hope that noble Lords will support this amendment. I beg to move.
Lord Alton of Liverpool (CB)
My Lords, there has been a change of Minister since we discussed this matter last week when we had a curtain-raiser on Amendment 85, which I moved in Grand Committee. It is always good to see the noble Lord, Lord Goldsmith, in his place; indeed, he had to answer the debate initiated in this Room last week by the right reverend Prelate the Bishop of St Albans. He also had to answer the question about how sanctions can be used to deter autocrats and flag British values against the values of authoritarian regimes; we discussed that issue at some length. As one would expect, the noble Lord gave a competent and welcome reply.
I notice, however, that the Minister’s noble friend Lord Johnson is sitting alongside him—
Baroness Blake of Leeds (Lab)
I will add some brief comments. I thank noble Lords for their contributions. I would like to understand whether this is adequate in terms of the opportunity that we now have. We know that if we miss this opportunity now, the risk is that it will not come round again for a long time. As we have heard, the situation is desperate and there have been enormous failings. I ask the Minister who will monitor the success of this and, assuming that the amendment is agreed, whether we will have an opportunity in future to understand whether it is having the desired impact.
The point has been well made: looking at other countries and other collections of companies around the globe that are grappling with this issue, are we missing a trick? Is there more that we could do at this stage? Context is everything. We have heard about the gaps that exist and the fact that too many people are getting away with not fully complying with the sanctions. We as a country need to take that very seriously. I would appreciate the Minister’s response to those questions, for clarification.
Lord Goldsmith of Richmond Park (Con)
I thank noble Lords for their contributions to this short exchange. I will start by addressing some of the points raised by the noble Lord, Lord Alton, who, as I have said many times—we seem to find ourselves in the same debates—is an indefatigable champion for human rights and has shone the light so often on abuses in China, Hong Kong and beyond. It is worth putting that on the record again. I am afraid that I cannot tell him what was raised in discussions between the Foreign Secretary, the Prime Minister and representatives of the CCPIT. I do not have that record, but I will try to uncover an answer for him in due course; I know that my colleagues will have taken a note of his question.
The noble Lord and the noble Lord, Lord Fox, are right to point to the scale of this amendment. A new package is not being introduced; that is not what this amendment is about. That is not to say that changes are not required or that no more can be done with the tools that have been assembled by the Government, not least through SAMLA, but this amendment is just a tidying-up exercise; it is about removing ambiguity. It will not answer the calls that we have heard from speakers in this debate, but it is not designed to. We have the tools that we need. As I mentioned, we now have SAMLA and the ability to tailor a specific sanctions regime using secondary legislation. The noble Lord, Lord Alton, is right that we should focus on using those tools to the maximum effect. There are plenty of places, organisations and people who perhaps ought to be on the sharp end of that sanctions regime. I cannot go into detail—I do not think that any Minister can or would—about any potential future sanctions, not least because doing so and highlighting them now would reduce their impact, but we are always looking to update the—
Lord Alton of Liverpool (CB)
I am grateful to the Minister. Will he look again at a proposal that a number of us have put before the House at various times for some degree of parliamentary oversight of the so-called Magnitsky sanctions? At the moment, they are opaque. Often, they seem very random and arbitrary: some are chosen and some are not. There may be good reasons for that. I recognise that we cannot sit in an open committee and discuss these things but, in camera, there is no reason at all why a Joint Committee of both Houses or one of our senior Select Committees, such as the House of Lords International Relations and Defence Committee, which is charged with looking at issues of genocide, for instance, should not be able to look at the details of sanctions and how and why they are imposed. I do not expect a straightforward reply from the Minister now, but will he give an assurance that he will look again at the way in which this regime is determined?
Lord Goldsmith of Richmond Park (Con)
The noble Lord makes an important point. I cannot answer it, because it is not an area over which I have any direct responsibility, as he can probably tell. However, it would be beneficial somehow to design a mechanism which would allow greater oversight. I do not know what that would look like, because there are risks associated with it. If the targets of any particular sanctions regime became aware in advance, we know what would happen. It is not an easy problem to solve, but in principle what the noble Lord has just said makes a lot of sense. If there is a way of doing so and injecting a bit more transparency—but not too much, for all the obvious reasons—I would certainly support that.
It is also worth saying that sanctions are just one tool that we have. For example, in relation to Hong Kong, as noble Lords know, we opened the doors of this country to a very large number from Hong Kong who were looking for safety and a home, where their fundamental rights would be respected. We created a bespoke immigration channel and suspended the UK- Hong Kong extradition treaty indefinitely. We extended the arms embargo that has applied to mainland China since 1989 to include Hong Kong—and so on. This is one tool in our arsenal; it is not the only tool.
I make one further point in relation to something raised by the noble Lord, Lord Alton, on the distinction between freezing and seizing. While I cannot provide him with a detailed answer—that is going to have to come from another Minister—I can tell him that the Government are sympathetic to proposals to use frozen funds to assist in the reconstruction of Ukraine following the bombardment that it has received from Vladimir Putin. The Government are actively looking at options continually to improve transparency around those assets that are held by—
Baroness Kramer (LD)
Just for clarification, the Minister said that there was an intention to use frozen funds for the reconstruction of Ukraine. I fully support that idea, but is it legal without a seizure?
Lord Goldsmith of Richmond Park (Con)
I have said that there are “proposals”. It is something that has been proposed, but I am not sure that I can use the word “intention”. If there is a way in which those frozen assets can be used to rebuild Ukraine, it is something that the UK Government will look very seriously at—but it is not something that the UK alone will be doing.
Lord Fox (LD)
To make the necessary legislation, the Government would need a Bill in which to do it, and this would seem to be the Bill that is tailor made to have those discussions. Could the Minister encourage colleagues to use this Bill as the medium by which the seizure process may be made legal?
Lord Goldsmith of Richmond Park (Con)
I thank the noble Lord, but I do not know what the legislative mechanism would look like to make that possible. I am afraid that it is something that I am going to have to—
Baroness Altmann (Con)
I thank my noble friend for giving way. I realise that he is in a somewhat difficult position, but I add my encouragement to him to discuss with colleagues the possible amendments that we have laid—
Baroness Altmann (Con)
Yes, Amendment 85 would allow seizure of assets with a view, one hopes, eventually to being able to use them to reconstruct Ukraine in this case, but for other purposes as well. It would be an ideal way to pave the way for this to happen.
Lord Goldsmith of Richmond Park (Con)
The noble Baroness makes a similar point. It is not for me to determine the legislative or other route for achieving the possibility of using those frozen assets. It is something that I know that the Government are looking at and are sympathetic to, but I cannot go into any further details, because it is not an area where I have any particular expertise or authority. But I know that the Government are looking closely at the possibilities of doing so and recognise that there is a huge value in doing so, if we can.
Lord Alton of Liverpool (CB)
My Lords, I shall not intervene again on this, but I am extremely grateful to the Minister. To return to the point that the Minister’s noble friend Lady Altmann has just made, to those who took part in the debate on Amendment 85 last week, which would do some of things that he has just described, it was suggested that we might have a chance to meet the noble Lord, Lord Sharpe, again before Report. It would be helpful if the Minister could at least in principle assure us that such a meeting will take place with those who participated in that debate last week. Other noble Lords and noble Baronesses, such as the noble Baroness, Lady Kramer, could be invited as well—those who are interested and are Members of the Committee—to see whether we can build on Amendment 85 to do some of the things that I was very pleased to hear the Minister just say that the Government are keen to do.
Lord Goldsmith of Richmond Park (Con)
As the noble Lord knows, I have not had an opportunity to consult my noble friend Lord Sharpe, but I am delighted to volunteer him for such a meeting—I am sure he will be very happy.
I will move on briefly to the question about who will monitor—I am so sorry; I cannot remember who made the point. The answer is that a government department is responsible for that, so if it is a financial sanction, HMT will be responsible for ensuring that it is working and successful, and if it is transport, it will be the Department for Transport, and so on.
This is a small but important change to ensure that we have a firm basis for enforcement action. It will provide greater clarity and reinforce those enforcement powers by making them explicit, removing ambiguity. The amendment should also demonstrate that the UK Government take their sanctions enforcement responsibilities seriously, and we will continue to intensify our enforcement of those sanctions. I hope that noble Lords will support it.
The Minister of State, Department for Business and Trade (The Earl of Minto) (Con)
My Lords, I first draw attention to my interest as set out in the register, as a non-executive chairman of Not Another Bill Limited. Secondly, I want to thank noble Lords for their warm welcome to the hot seat, which is much appreciated.
I am pleased to be able to represent the Department for Business and Trade in my new role as Minister of State. I thank all noble Lords for their inputs into the debates so far and express my pleasure at being able to speak today on this amendment. I also thank my ministerial colleague and noble friend Lord Johnson of Lainston, who is indeed in Hong Kong, for his support in preparation for today’s debate.
Moving on to the Bill itself, I thank the noble Baroness, Lady Kramer, for raising the important matter of whistleblowing. As a former co-chair of the All-Party Parliamentary Group for Whistleblowing, she has continuously highlighted the important role that whistleblowing plays in shining a light on wrongdoing. The Government have a significant interest in ensuring that our whistleblowing framework is robust. An effective whistleblowing framework is a vital part of the UK’s ability to tackle corruption and all forms of economic crime and illicit finance. As these acts are by their very nature often covert, those working for an organisation can be a key source of intelligence for authorities.
My concern with this amendment, however, is two-fold. First, these reforms risk duplicating elements of the existing framework, leading to a confused landscape, and potentially at considerable cost. As I understand it, this position was explained by my noble friend, Lord Callanan, during Second Reading of the noble Baroness’s Protection for Whistleblowing Bill in December last year. So I will not go into detail here but, just to recap, the Government are concerned about how such an office would interact with the role of regulators. As has been mentioned, a new body could also come at a considerable cost, as it would require significant staffing resources, with diverse expertise across sectors, to enable it to carry out these functions effectively.
Secondly, it would be premature to make legislative change ahead of the review of the whistleblowing framework, which everybody has mentioned. The review, which the Government launched on 27 March this year, will examine the effectiveness of the whistleblowing framework in meeting its intended objectives—that is, to enable workers to come forward to speak up about wrongdoing and to protect those who do so against detriment and dismissal.
The noble Baronesses, Lady Kramer and Lady Altmann, asked whether the review will consider the merits of establishing an office for the whistleblower. The review will consider evidence related to the effectiveness of the whistleblowing framework in meeting its intended objectives. This is to enable workers to come forward to speak up about wrongdoing, and to protect those who do so against detriment and dismissal. As the right reverend Prelate explained, proper protection is needed against terrible misery and personal risk.
The review will consider a number of topics that are central to the whistleblowing framework. These include: how workers are defined for whistleblowing protections; the availability of information and guidance for whistleblowing purposes; and how employers and prescribed persons respond to whistleblowing disclosures, including best practice. The research for the review will conclude in autumn 2023. The full terms of reference for the review are published on GOV.UK.
There have been a number of very specific questions. I think that I have written down all those on data so, if it is all right with noble Lords, I shall respond swiftly in writing to some of the specific questions that were asked. There is no doubt that there is a lot of data behind this amendment; it is important that proper answers are provided.
Lord Browne of Ladyton (Lab)
I thank the Minister for giving way. On 2 December, I asked the noble Lord, Lord Callanan, whether he could provide the data on the performance of regulators and other prescribed persons in relation to whistleblowing, specifically asking the same question that I asked the Minister. He did not answer it then and he has not written to me. Does this data exist? I suspect that it does not.
The Earl of Minto (Con)
I do not know whether it exists; if it does, I shall find out and let the noble Lord know. I think it must exist, but we will have to see. The other important issue was the expense of going to a tribunal, which is a very serious issue. My understanding is that the review will certainly take that into consideration.
Not long after taking office, my ministerial colleague the parliamentary Under-Secretary of State, Kevin Hollinrake MP, committed during the Public Bill Committee in the other place to get this review moving. We have followed up on this commitment and continued to deliver on whistleblowing policy. On 17 October last year, the Government laid before Parliament the most recent update to the prescribed persons order. This came into force in December and is a significant improvement to the framework, adding six new bodies and all Members of the Scottish Parliament to the list of bodies and individuals that a worker can blow the whistle to. I hope that demonstrates to noble Lords that the Government are very serious about whistle- blowing.
I welcome the continued constructive engagement on this topic, and I know that Minister Hollinrake has valued the discussions to date with parliamentarians and organisations representing whistleblowers in preparing for this review. However, this amendment could create a confused landscape for whistleblowing, potentially at considerable cost. It would also pre-empt the ongoing review of the existing framework. I therefore respectfully ask the noble Baroness, Lady Kramer, to withdraw it.
Baroness Kramer (LD)
My Lords, I thank all noble Lords who have spoken in this superb debate. I thank the noble Baroness, Lady Altmann, and the right reverend Prelate the Bishop of St Albans for giving those personal examples. They bring home to people the experience that we are trying to deal with, so that people can relate to them and ask “Would I be brave enough? Would I let this happen to me and my family?” and understand why whistleblower protection is so important.
There were some specific questions. First, if ever I have seen a red herring, this question of cost must be it. In the United States, the Office of the Whistleblower has turned into a profit centre for the US Treasury, because the number of cases it can drive through and the consequences of remuneration, fines and compensation have meant that it not only covers its costs but can return substantial amounts to the Treasury. The Minister is most welcome to get the latest figures on those. I do not have them in front of me, but he will be able to access them very easily. So cost is not the issue.
We are often told that we will need an enormous, monstrous octopus of an office. That is not what we are talking about. We need a place where people can go and know that their disclosure is absolutely safe. As other noble Lords have said, including the noble Lord, Lord Cromwell, people want to know that there is genuine follow-up on the issue. He asked how the language of my amendment on investigation would work. It would work by acting through the regulators. I have had many a conversation with regulators and, interestingly, they are all desperate for something like the Office of the Whistleblower, because dealing with whistleblowing is completely outside their standard remit—how they structure themselves and hire their personnel. This creates that exchange with the Office of the Whistleblower as a director of the information to the regulator. That dynamic gives us the assurance that there will be action. The office can chivvy if action does not follow.
The noble Lord, Lord Cromwell, also asked how the office of the whistleblower would protect individuals from detriment. This is a very abbreviated amendment because it has to come within the scope of the Bill. My Private Member’s Bill deals with the issue in far greater detail, but the logic of it is basically that, when the office determines that a whistleblower has received detriment, it will be able to order the employer—although this applies to all whistleblowers, so it is a broader picture—to provide compensation. However, if that employer or company decided that the compensation was inappropriate, it could take the office of the whistle- blower to the First-tier Tribunal. But in that case, facing each other, you would have the institution of the office of the whistleblower and the institution of the employer or organisation on the other side. You would not have the David and Goliath situation of a poor, lonely whistleblower who has already spent all their savings and is borrowing money to continue their case facing an employer which can afford to pay for the best counsel in the country and continue to drag out the entire process on appeal after appeal. So it changes that dynamic.
I refer noble Lords back to my Private Member’s Bill. I have always said that I am not precious about exactly how all this is done, but the core principles of it need to be seized and taken. I am sad that the Minister again uses the term “workers”, because there are so many people who blow the whistle, including contractors, suppliers and customers, and they are all often subject to retaliation and blacklisting—and that matters.
I think that I have covered most of the questions that were asked, but I would be glad to continue this conversation off-piste rather than take up more time in Committee today. This is an absolutely fundamental issue. One opportunity in this Bill is to echo how it has been done in the United States, where the Office of the Whistleblower is set within a financial services regulator structure, and this amendment would enable that to happen—or there is the alternative to going to a much broader office of the whistleblower. When you talk to the regulators dealing with education, the National Health Service, nuclear waste or whatever else, they will all say, “For goodness sake, can you take this burden of dealing with whistleblowers off my shoulders? I really need a professional and focused organisation sucking in this information and making sure that I get what I need to act as a regulator”. I can assure the Minister that, while none of them says it publicly, he will find that, privately, the regulators are very much in support of this kind of arrangement. I beg leave to withdraw the amendment.
Lord Leigh of Hurley (Con)
My Lords, I am prompted to rise by the words of the noble Lord, Lord Trevethin and Oaksey. I think he was referring to Amendment 106C, which we will come on to later this afternoon and which would extend the costs cap beyond UWOs. In the certainty that my noble friend the Minister will seek to ensure that Amendment 106C is agreed to, let me simply say that the amendment we are debating now, in the names of the noble Lord, Lord Faulks, and my noble and learned friend Lord Garnier, would be complementary and extremely helpful to Amendment 106C.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I thank noble Lords for proposing their amendments. I thank the noble Lord, Lord Coaker, for moving Amendment 93 on behalf of the noble Lord, Lord Hunt of Kings Heath. I also thank the noble Lord, Lord Faulks, for Amendment 95, which was spoken to by my noble friend Lord Young. Both amendments relate to reports connected with unexplained wealth orders, henceforth known as UWOs.
I turn first to Amendment 93, which would require the Government to lay annual reports on UWOs where the property has been obtained through economic crime and taken from vulnerable adults. Economic crimes not only result in financial gain for criminals but leave a trail of suffering. They inflict financial and personal loss, including on the most vulnerable members of our society, which this amendment importantly recognises.
Lord Fox (LD)
The Minister set out some interesting statistics. It is clear that UWOs have been accountable for a very small proportion of the total amount of money recovered. The Minister referred to them as a powerful tool. Is he satisfied that UWOs are reaching their potential, in which case we would conclude that they are relatively insignificant compared to the other tools in the hands of enforcement, or are UWOs failing to meet their potential and not as powerful as they could be? Clearly, they are not generating very much money compared to all the other tools available to the enforcement agencies.
Lord Sharpe of Epsom (Con)
I am not sure that the question is entirely valid with regard to generating money. The fact is that, since their introduction in 2017, four of these have been issued in relation to assets with a combined value of £143 million. In October 2020, property worth an estimated £10 million was recovered, following the use of a UWO, as I have already said. As for whether the scheme is succeeding or failing, it is not for me to say. I am unable to do so, because I do not have access to the operational decision-making that goes into issuing them, and so on. These are operational matters.
Lord Fox (LD)
I accept that it is not for the Minister to say; who does say whether they are succeeding or failing?
Lord Sharpe of Epsom (Con)
I have already said that we will publish a number of reports on this on 1 September, so I would hope for some more clarity then, but I shall endeavour to find out more information and report back to the noble Lord.
Lord Leigh of Hurley (Con)
I share the disappointment expressed by other noble Lords. When UWOs first came out, I was very pleased to see them. They are a classic accountancy tool to establish what is going on in respect of an individual who may have accumulated wealth in an unexplained way. It is incredibly disappointing to learn that so few have been issued with, frankly, teeny sums of money, given the nature of the world that we are discussing. Can my noble friend take back our concerns to his colleagues and, in particular, ask whether targets could be set for the coming year on the number of UWOs that might be issued and the amount of funds that they might realise?
Lord Sharpe of Epsom (Con)
I am certainly happy to take my noble friend’s concerns back but, as regards targets, that would invite me to stray into operational matters, which I will not do.
Lord Coaker (Lab)
I thank the Minister for his reply, although I also share that disappointment. I should have thought that the focus of the noble Lord, Lord Young, speaking on behalf of the noble Lord, Lord Faulks, and the noble and learned Lord, Lord Garnier—as I am speaking on behalf of my noble friend Lord Hunt—was to ask the Government to bring a report, even if that is not the appropriate way of doing it, and say to them that the operation of UWOs is simply not working as they expected. It is perfectly reasonable for a Minister of the Crown, while of course not interfering with the operational independence of the police or any other law enforcement agency, to look at the legislation and see whether it is working as the Government expected. Clearly, it is not, so it would be a perfectly reasonable response to say that nine applications, four cases and the odd bit since is simply not what anybody would have thought acceptable or thought would happen.
This happens with legislation; even if we had the Government of our dreams, laws would be passed that did not function or operate in the way we would want—but that is the purpose of Committees such as this. This is where, to be frank, Ministers listen to what is said and respond that they will take the matter back and that it is unacceptable, rather than come off saying that it is one tool in the box of government in dealing with the issue.
The Minister had a pop at me. I was only using the facts that are available in a government document called Fact Sheet: Unexplained Wealth Order Reforms. If the facts I am giving the Minister are wrong then, frankly, the Government should have updated the facts, because this is what all of us use in these debates. I have not made it up—I have read the Government’s material. The Minister then turns around and says that the noble Lord, Lord Coaker, has not got it right, because the up-to-date figures are X, Y and Z against POCA. It might have been helpful to have the key facts.
Again, I read out,
“the Proceeds of Crime Act 2002 is a complex and technical Act and reform requires careful consideration and consultation”.
Then the Minister had a go at me and laid out four Acts of Parliament that have been done since. Why were they not included in the key facts? It would have been helpful to everyone to understand the way in which it had been reformed to see whether it is now working and functioning as the Government want it to. I do not have five floors of civil servants providing me with a brief that says there are four pieces of legislation which have updated and improved it. The serious point is that, when I and other members of the Committee depend on the government document setting out the key facts in relation to what we are discussing, it should be up to date. That is the only point I want to make.
I do not know whether the figure that I was going to use is out of date. A number of members of the Committee made the point to the Minister that, if it is hundreds of millions that have been recovered over a number of year, that is peanuts. The reason I say it is peanuts—the Minister will correct me if I have got this wrong—is that Fact Sheet: Unexplained Wealth Order Reforms says under the heading “Key Facts”
“Serious and organised crimes … for example”—
and lays out various things—
“are estimated to cost the UK economy £37 billion per year”.
That is not my figure. The key facts document published by His Majesty’s Government says it is £37 billion a year. I should have thought that the response to what are clearly probing amendments about reports would be, “It is £37 billion a year, we are getting a few hundred million there, we are getting £100 million there, £50 million there”. Why are we not making more of a dent into what we all, including the Minister, regard as simply and utterly unacceptable? The Minister will think it is unacceptable that we have that.
Of course, I shall not move the amendments, but I hope the Minister will take back the bureaucratic point about ensuring that the key facts documents that we use in our deliberations are updated. I hope that he will also talk about the point that unexplained wealth orders were brought in as a way for the Government to address the problem, which the noble Lord, Lord Young, and others mentioned, that huge sums of money surround individuals who have no legal way of explaining how on earth they got them.
I shall raise one other point, because it drove me mad when I was a Member of Parliament and before that a local councillor. On estate after estate, on housing area after housing area, it drove people who went to work mad to look down the road and see somebody who did not go to work driving a Ferrari, or something like that. At an individual level, that is exactly what all of us feel more generally about what is happening nationally and internationally, where people are playing the system. The vast majority of law-abiding business men and women and businesses conform to the law, pay their taxes and do their best—but £37 billion a year is lost to fraud. In answer to the noble Lords, Lord Fox and Lord Young, and me, the Minister talked about getting £10 million here and £100 million there. I am pleased that we got that, but it is peanuts compared to the amount of money that we are talking about. I hope the Minister can take that back—
Lord Sharpe of Epsom (Con)
As the noble Lord has drawn on the key facts document, it is important for me to provide a bit of clarification. It was published on 4 March 2022 for the previous Bill, not this Bill. Those numbers were correct at the time of publication. On UWOs, they have been applied for—I have said how many times—and two of the applications have been made since the Government reformed the UWO regime last week, which I should have said while I was answering noble Lords. Perhaps that provides a bit more clarity. On the key facts, the three floors of civil servants are in the clear.
Lord Leigh of Hurley (Con)
My Lords, I rise briefly to urge the Minister to not allow the concept of a tier 1 investor visa scheme to be rubbished. This country has benefited enormously from foreign direct investment. I have seen a large number of UK small and medium-sized businesses benefiting from individuals coming to and living in the UK and putting money into and running the businesses, and those businesses flourishing thereafter. It is an important part of what we offer overseas investors, if done correctly.
I am a little disappointed that the noble Lord, Lord Fox, seemed to imply—and probably stated it; I may have missed it—that the reason that this information has not been published is that the Home Secretary is worried about disclosure of people who may have made donations to the Conservative Party. I do not think that is in the spirit of the debate; I do not think it is correct. The noble Lord laughs, but it is particularly surprising from the Lib Dems, which took money from Michael Brown, to make allegations like that, and it is a shame because I think there is great consensus in the Committee about the purpose and merits of the Bill.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords, who have made some extremely thought-provoking points in this debate. I will do my best to address them all.
Scrutinising the activity of government is obviously a key function of Parliament, and of course the Government are entirely supportive of it. I reassure the noble Lord, Lord Browne, that this particular part of the government machinery is always grateful for any help that is offered and will receive it in that spirit. However, the amendments in this group are unnecessary, as they are duplicative of existing reporting arrangements and scrutiny structures.
On investor visas, I take my noble friend Lord Leigh’s points. If done in the right way, they are potentially an important engine of economic growth—that should be acknowledged. Of course, we should not forget that they were introduced by a Labour Government and maintained during the coalition years. However, on Amendment 102, tabled by the noble Lord, Lord Wallace of Saltaire, and moved by the noble Lord, Lord Fox, I am aware that there are concerns about how the now-closed tier 1 investor route operated—in particular, that it was used by those relying on funds that had been illegitimately acquired and those who may have posed a wider risk to the UK’s national security.
It was because of those concerns that the Government committed in the first place to the review of the visas issued under the route between 2008 and 2015. As has been acknowledged, the Home Secretary made a Written Ministerial Statement on 12 January setting out the findings of that review. This included that the review had identified a minority of individuals connected to the tier 1 investor visa route who were potentially at high risk of having obtained wealth through corruption or other illicit financial activity or being engaged in serious and organised crime. The Statement of 12 January represents the Government’s substantive response to the commitment to undertake a review and publish its findings, including its findings in respect of economic crime.
Obviously, there was a delay; we are aware that considerable time elapsed between the commissioning of the review and the setting out of those findings. However, delay is regrettable but not unreasonable when issues of national security are at stake. Let me expand on that a little, if I may. It would have been preferable had the review been able to include more information about specific individuals but we have had to act sensibly and responsibly with regard to the UK’s national security; this includes striking the right balance between setting out the review’s broad findings and observing the constraints on disclosing sensitive details, which must be withheld, at the request of our operational partners, to protect our border and the vital work of our law enforcement agencies.
The noble Lord, Lord Fox, raised the subject of party-political donations. Without getting into a slanging match on this subject, I think it is worth restating that UK electoral law already sets out a stringent regime of spending and donation controls that prioritise transparency and safeguard the integrity of our elections. All political parties recognise that third-party campaigners and candidates must record their election spending and report it to either the Electoral Commission or their local returning officer. This information is all publicly available. The measures in the Elections Act 2022 also updated the political finance regulatory framework by increasing transparency and fairness and strengthening the controls against ineligible foreign spending on electoral campaigning. That is a fairly comprehensive transparency regime concerning the funding of political parties.
The House has considered similar amendments to other legislation, most recently during the passage of the National Security Bill. As before, the Government’s view is that this amendment is not necessary. The Government have set out the key findings of the review of the operation of this route and have acted to close it. I therefore ask the noble Lord, Lord Fox, to withdraw the amendment.
Baroness Bennett of Manor Castle (GP)
My Lords, the Minister suggested that it was the inability to identify individuals that meant that some aspects of the report could not be released. I think that everyone understands the retraction of names where necessary, but surely that would not prevent the release of absolute figures rather than a summary of the figures.
Lord Sharpe of Epsom (Con)
As I said, it was also to do with the disclosure of sensitive details related to operational partners—the sorts of things that protect our border and the work of law enforcement agencies.
I thank the noble Lord, Lord Fox, for tabling Amendment 104, to which I will now speak. The impact of fraud and economic crime affects the whole of our society. The cost of fraud to the UK runs into the billions and is assessed by the National Crime Agency to be the most common crime type in England and Wales. We take this threat type seriously and have delivered a strengthened approach to reduce its impact. Obviously, as I referenced, the fraud strategy is one part of that; I will come back to it in a moment. The NCA currently leads the national response to serious and organised crime, including economic crime. As predicted, the NCA’s director-general is accountable to the Home Secretary and, through the Home Secretary, to Parliament.
The agency already publishes an annual plan and an annual report. The annual plan sets out how it intends to exercise its functions in co-ordinating the operational response to serious and organised crime, having regard to the Home Secretary’s strategic priorities and the director-general’s operational priorities. The annual report details its performance over the previous financial year, including efforts to tackle economic crime. The NCA also reports annually on the impact of suspicious activity reports in tackling economic crime and, as I set out earlier in response to Amendments 93 and 95 in the previous group, in respect of UWOs. Given this current reporting and the potential for duplication, the Government do not believe that this amendment is required at this time, so I ask the noble Lord, Lord Fox, not to press it.
I thank the noble Lord, Lord Coaker, for his Amendment 106B. Before I get into the amendment itself, let me say that I take the noble Lord’s points about the diversity of response to the sorts of crime that are being discussed. Of course, that partly reflects the diversity of the crimes being investigated, as he will be aware. The fact is that this is a fast-moving, rapidly evolving space; there is no doubt that the operational response to it reflects that particular set of circumstances.
Lord Coaker (Lab)
Does that committee do an annual report? How often does it meet?
Lord Sharpe of Epsom (Con)
I do not know. I will find out and write to the noble Lord. For now, I hope he will accept that it is not the role of the Government to set up parliamentary committees and so will not seek to press his amendment.
I turn now to Amendment 106EB concerning the Serious Fraud Office. Once again, I thank the noble Lord, Lord Coaker, for tabling this amendment, which would require the Government to lay in Parliament an annual report on the Serious Fraud Office. The effectiveness of the agencies tasked with fighting economic crime, including the SFO, is of critical importance and of interest to both Houses. That is why the SFO annual report and accounts—these set out much of the information in which the noble Lord is interested—are routinely laid in Parliament.
The law officers of England and Wales superintend the SFO. They oversee the performance of the SFO, including steps that they can take to improve that performance. Through the superintendence process, the law officers identified the need to expand the SFO’s pre-investigation powers, a change that appears in Clause 185 of this Bill. The law officers take steps to ensure transparency, including participating in Attorney-General’s Questions in the other place; publishing summaries of minutes from SFO ministerial strategic boards online; and addressing issues promptly through Written Ministerial Statements.
This is complemented by the work of HM Crown Prosecution Service Inspectorate, which inspects the SFO and publishes its findings alongside a set of recommendations. HMCPSI recently published an inspection of the SFO’s case progression—that is, the organisation’s ability to deliver its cases efficiently and effectively. Given our previous discussions, the tone of the debate and the views expressed, I understand that the intention of this amendment is to probe the Government on the resourcing of the SFO.
The noble Lord, Lord Faulks, made a very interesting point; he may have noticed that I wrote my note on the wrong page when I referred to it earlier. I am coming back to it now; it is an interesting idea and I will definitely take it back. There is a process in place to recruit a new director-general of the SFO. I would imagine that acute matters, human resources and future resources are a part of the remit for that person but the noble Lord certainly makes an interesting point. To go back to a conversation during a debate that the Lord, Lord Browne, and I had last week, my personal point of view is that it is about time we all sat down and started to think about recruitment in law enforcement more generally.
Lord Agnew of Oulton (Con)
Given that my noble friend the Minister is going to take the comments made by the noble Lord, Lord Faulks, on recruitment back, I encourage him to look at the report by Andrew Cayley KC, Chief Inspector of the Crown Prosecution Service, who has also done a report recently. Some of the problems in the SFO are case workers not being paid enough, churn and so on, which led to the collapse of the case against G4S. There is big piece of work there that we could be doing stuff with.
Lord Coaker (Lab)
What is the Government’s view on whether the SFO is working?
Lord Sharpe of Epsom (Con)
Those are good questions; I will come on to them.
Funding and resourcing is a subject that is covered in the fraud strategy. I will not go over the details. At the most recent spending review, the SFO received an uplift to its core budget that is supporting its operations. In addition, the SFO continues to have access to reserve funding to fund specific high-cost cases if needed. This enables the SFO to obtain additional funding for any case that exceeds 4% of the core vote funding for the year.
My noble friend Lord Agnew and the noble Lord, Lord Coaker, referred to the G4S case. Obviously, it is always disappointing when a case has to be brought to an end before it is concluded but, like other agencies, the SFO is right to end an investigation or prosecution when it is no longer in the public interest. The SFO has acknowledged that there were disclosure challenges in the case that was closed earlier this year, R v Morris, Preston and Jardine. The SFO has made good progress on implementing the disclosure changes recommended by Sir David Calvert-Smith and Brian Altman KC in their independent reviews, published last year. The Crown Prosecution Service Inspectorate, the agency that inspects the SFO, has been asked to expedite a planned review of SFO disclosure, which will provide further independent assurance of the SFO’s processes.
Further to that, in Economic Crime Plan 2, which was published on 30 March, the Government set out their intention to explore reforms to the disclosure system to ensure that it supports a fair criminal justice system because cases that are lost on procedural grounds are, as noble Lords have noted, a loss to victims, taxpayers and, of course, society.
The noble Lord, Lord Coaker, just asked me whether the Government have faith in the Serious Fraud Office. The answer is yes.
Lord Sharpe of Epsom (Con)
I would say that it is the same thing; perhaps we can debate that as well.
The Serious Fraud Office investigates and prosecutes the most complex cases of fraud, bribery and corruption. That is a very challenging remit. It has delivered some outstanding outcomes. For example, last year, it secured the conviction of Glencore for bribery and corruption in five countries, with the company ordered to pay £280 million—the highest ever ordered in a corporate criminal conviction in the UK—as well as eight convictions for five cases of fraud and bribery worth more than £500 million. It consistently recovers some of the largest amounts of proceeds of crime, despite being a fraction of the size of many other national agencies.
It is also important to note the SFO’s role in fighting economic crime globally. In the last financial year, the SFO took steps to assist overseas jurisdictions in their investigations by working on more than 60 incoming money-laundering requests. I think that the statistics answer the question—yes, we have faith, and yes, it is working. I hope that my explanations have provided some reassurance. I therefore ask the noble Lord not to press his amendment.
I turn to the final amendment in this group, Amendment 106EA, again tabled by the noble Lord, Lord Coaker. I come to this amendment last as it seeks to bring into one amendment much of what the other amendments in this group also attempt. I will not repeat myself too much here, especially considering how long I have gone on so far. The amendment would require the Government to issue a report on the performance of agencies and departments in tackling economic crime. However, I can assure noble Lords that this is already being done. As I have mentioned, the Government, regulators and law enforcement already regularly give evidence to parliamentary committees. The National Crime Agency is required under the Crime and Courts Act to publish an annual report and lay it before Parliament, further adding to the available scrutiny of operational bodies. The Government already conduct a range of threat and risk assessments to develop our understanding of economic crime. The NCA’s national strategic assessment assesses the economic crime threats facing the UK on an annual basis. As required under the money-laundering regulations, the UK also conducts periodic national risk assessments of money laundering and terrorist financing, which provide an overview of the risks and likelihood of an activity occurring. We have already discussed in detail the establishment of a fund to tackle economic crime so I will not repeat that debate again.
Regarding the amendment’s calls for a strategy on tackling economic crime, this March, the Government published Economic Crime Plan 2. Through 43 actions, it sets out how the public and private sectors will work together to transform the UK’s response to economic crime. Obviously, the fraud strategy is a part of that overarching economic crime strategy.
As regards the quality of the data in the fraud strategy, which was referenced by the noble Lord, Lord Browne, I have just had a quick flick through and it is more recent than six years. I should also reassure the noble Lord that one of the commitments in the fraud strategy is to improve the quality and collection of data, so this can be regarded as a baseline.
There are numerous ways in which the Government report on their performance with regard to tackling economic crime. This amendment is duplicative of them and therefore unnecessary. I ask the noble Lord to withdraw his amendment.
Lord Fox (LD)
My Lords, we are indebted to the noble Lord, Lord Coaker, for his amendments because they have inspired an interesting debate. The Minister has made a spirited defence of the Government’s position on this issue, but the very fact that these questions are being asked—and by a lot of people, not just the people in this Room—indicates that there is a lot of work for the Government to do in order to placate, explain or perhaps improve what is going on out there. The key element, which was highlighted earlier, is the alphabet soup of different agencies all interlinking in what is going on. The Minister has made a big effort in trying to calm nerves but I do not think that those nerves are calmed. Although the amendments will undoubtedly be not be moved, there is work to do; hopefully, the Minister has got that message from the nature of this debate.
I refer back to Amendment 102. Clearly, it ruffled some feathers. I note that in 2022 it was the Conservative Government who saw fit to withdraw this scheme because they felt that there were serious issues. We know that of the 6,000 such issues, a minority were problematic, but we still do not know exactly how many. I want to address the point made by the noble Lord, Lord Leigh that there is some use to encourage inward investment. This scheme clearly went off the rails, but by publishing the report properly, we would know how to encourage it without causing the issues that the Government clearly felt were sufficient to close the scheme. I am comfortable that I was not overstating the problem. The problem was there and the Government identified it, but now we have an issue in that we do not know the full scope of the problem.
In his response on party finance, the Minister referred to national security. The fact that there are issues is well covered. The Minister should know—I am sure that he does—that amendments to the National Security Bill that sought to enhance the scrutiny of the source of political donations have been thrown out by the Commons, so some of the things that the Minister said are not strictly there. There is still an issue between this House and the Commons when it comes to the National Security Bill and party funding, and it remains ongoing. I think that was the issue that my noble friend was anxious to state.
On the subject of the report and the reference to party funding, I remind noble Lords that I said that it makes it difficult not to conclude that there are embarrassing issues to hide because the report was not published. If there is no problem, as I am sure noble Lords believe, there is no reason not to publish the report. It is the non-publishing of the report that causes suspicion. That is the point that I was trying to make.
With that, I beg leave to withdraw Amendment 102.
Lord Ponsonby of Shulbrede (Lab)
My Lords, this has been a very interesting debate; it is the first debate in which we have spoken on a more international level. As we heard in our earlier debates, a large proportion of the quantity of money involved in fraud—well over 90%; probably 99%—has an international element; that is at the core of so much of the fraud with which we are dealing.
I congratulate the noble Lord, Lord Oates, on the way in which he introduced this group. I found his introduction rich and compelling. He set out things very fully. The other noble Lords who have spoken have talked about the aspirational nature of this amendment. I do not think that that is a criticism. It is good to hear about the other countries that are already taking a lead in trying to get the IACC set up.
From the Labour Party’s point of view, I have looked at what David Lammy has said on this matter. He has spoken about working internationally—I know that my noble friend Lord Hain led the work on that when he was a Foreign Office Minister—and promised that an incoming Labour Government would fight against dirty money in the UK by creating a transatlantic anti-corruption council alongside the US, EU and other allies. That is a different model from the one proposed in these amendments.
I do not want to stand here as an opposition spokesman saying that we are against what the noble Lord, Lord Oates, and the noble Baroness, Lady Bennett, are proposing but there are other potential models for bearing down on corruption. I listened with some interest to what the noble Lord, Lord Faulks, said about the practicalities of doing this and using legislation such as this to do everything we can on a domestic level, and internationally where we already have direct interest, to bear down on this huge level of corruption. Nevertheless, I thank the noble Lord for introducing this amendment.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Hain, and the noble Baroness, Lady Bennett, for their amendments in this group. I also thank all noble Lords for speaking in this debate.
I turn first to Amendment 103, which was tabled by the noble Lord, Lord Hain, but spoken to by the noble Lord, Lord Oates. If I may, I associate myself with the remarks of the noble Lord, Lord Ponsonby: the noble Lord, Lord Oates, made an incredibly powerful and eloquent case in moving this amendment 103, which also spoken to by the noble Baronesses, Lady Bennett and Lady Wheatcroft. Ensuring that those who are responsible for the most egregious acts of corruption are held to account is obviously vital. There should be no tolerance towards those who steal from the public to satisfy personal greed. The Government wholeheartedly endorse the premise that this amendment seeks to advance. The international community can and must do more to deter and punish acts of corruption.
The Government are taking robust action to ensure that the UK leads by example. That is why, in March, we published the second public-private economic crime plan, to which I referred in our debate on the previous group of amendments, which outlines ambitious actions to prevent the UK’s open economy being exploited by criminals and corrupt actors. The Government are also developing a new UK anti-corruption strategy to build on the progress made by the previous strategy and outline a refreshed approach to tackling corruption and illicit finance both in the UK and internationally.
The recently published fraud strategy also sets out the Government’s commitment to raise the priority of fraud on the international stage. We will drive forward global action through developing stronger relationships with international partners, culminating in a global fraud summit chaired by the Home Secretary and held in the UK next year. The summit will bring together leaders from Governments, law enforcement and the private sector to announce the ambition to deliver a comprehensive and co-ordinated approach to tackling fraud over the next five years.
The Government have consistently invested in efforts to bring those responsible for corruption to justice. The international corruption unit in the National Crime Agency is a specialist capability that investigates corruption cases with UK links.
Baroness Bennett of Manor Castle (GP)
On the summit, the problem with ideas such as that put forward by the noble Lord, Lord Ponsonby, about a transatlantic council or similar, is that it would be focused on global north countries. Can the Minister assure me that there will be full representation of global south countries at the summit he just outlined and that the UK will provide resources to ensure that some of the least developed countries, which are some of the biggest victims of this, are also able to participate in that summit?
Lord Sharpe of Epsom (Con)
I cannot provide that reassurance; I do not know who will be involved, but I will endeavour to find out and will write.
I shall return to where I was in my speech. In addition, the UK leads and hosts the International Anti-Corruption Coordination Centre—the IACCC—which brings together specialist law enforcement officers from multiple agencies around the world to tackle allegations of corruption. The IACCC has helped to secure convictions in high-profile money laundering cases, including in Malaysia and Angola. In 2022 alone, the IACCC identified more than £380 million of stolen and hidden assets.
I forgot to mention part of my previous paragraph. Since 2006, 30 people and companies have been convicted of corruption offences and more than £1.1 billion of stolen assets have been frozen, confiscated or returned to developing countries. That is in relation to the international corruption unit in the NCA.
Lord Browne of Ladyton (Lab)
I am conscious that I did not contribute to the debate on this, but is it too late to get the word “anti-corruption” into the communique for the pending G7, which takes place between 17 and 23 May in Hiroshima? That word is nowhere in the Foreign Ministers’ communique on 19 April after they met, I think, in Japan. The communique covers almost everything in which one can imagine we would be interested in involving those countries that share our values, but that is not there.
Lord Sharpe of Epsom (Con)
The noble Lord will not be surprised to know that I do not know, but I will ask.
The Government will endeavour to update your Lordships’ House on their plans for progressing international action on corruption in due course. I hope the noble Lord, Lord Hain, and the noble Lord, Lord Oates, on his behalf are reassured by the Government’s commitment to combatting corruption. We look forward to further discussions on this subject and to setting out our plans in further detail at an appropriate time. I therefore ask the noble Lord to withdraw his amendment.
Turning to Amendment 106A, tabled by the noble Baroness, Lady Bennett, the Government care deeply about tackling tax evasion and avoidance. My ministerial colleagues continue to work closely with the various sub-committees that sit within the UN’s Economic and Social Council. However, standard-setting powers on tax currently sit within the Organisation for Economic Co-operation and Development’s inclusive framework and global forum, and the UK believes that this is the mechanism best placed to deliver consensus-based reforms aimed at tax avoidance and evasion.
The inclusive framework and the global forum have wide and diverse memberships of more than 140 and 160 countries respectively. Furthermore, the OECD holds strong technical expertise in matters of international tax avoidance and evasion, and a potential UN convention on global tax evasion as envisaged by this amendment would duplicate and be likely to hinder the OECD’s work. This would delay the co-ordinated global response and effort to address tax evasion and avoidance and combat harmful tax practices, as well as creating divergence in international tax standards.
Having said that, the UK will engage constructively with the upcoming report by the UN Secretary-General. We want to find ways to improve international co-operation, as I have said, but to do that we want to ensure that this captures the full range of existing mechanisms for international tax co-operation and considers creatively how they could be improved better to meet developing countries’ needs. We have submitted evidence to the UN Secretary-General demonstrating these points.
Having said all that, obviously I ask the noble Baroness not to move her amendment.
Lord Oates (LD)
My Lords, I thank all noble Lords who have spoken in this debate; I particularly thank the noble Baronesses, Lady Wheatcroft and Lady Bennett, for their support. I am sympathetic to the amendment tabled by the noble Baroness, Lady Bennett. I am grateful to the Minister and the noble Lord, Lord Ponsonby, for their thoughtful responses. I am disappointed by the Minister’s conclusion, obviously, but I hope that, as he suggested, we can continue those discussions going forward.
I want to reassure the noble Lord, Lord Faulks, that my purpose was not to come as a critic of the Government. Indeed, I highlighted commitments made by the Government in the Integrated Review Refresh and I commend the Minister for Development and Africa on his real focus. He understands how important this is. Overseas development assistance is nothing compared to getting this right.
I am not sure that I share his views on the International Criminal Court and other international criminal tribunals. One of the great proponents of this international anti-corruption court is retired Justice Richard Goldstone. He was the chairman of the international criminal tribunal on the former Yugoslavia, which convicted a number of key figures including Ratko Mladić and Radovan Karadžić. It does have impact. We should be aware that, even for the non-signatories of the ICC, it has consequences. It has consequences for President Putin that he has been indicted, such as consequences on whether he can travel to BRIC countries that are signatories to that court.
On the charge of being aspirational, I plead entirely guilty. You cannot get real change in the world unless you are aspirational. Of course, as I said in my opening speech, this amendment is not a panacea; it is one tool. One of the most important things, as the noble Lord, Lord Faulks, said in his remarks, are the enforcement powers that we have in the UK, which, in my view, we are not using as much as we should be. I hope that, through this Bill and other means, we will do much more on enforcement.
As we have heard in the previous debate and amendments, this is really about the mechanisms to enforce lots of things; it is not about the laws. There are loads of laws on this stuff generally; it is about enforcement mechanisms. The international court would be another enforcement mechanism but, of course, we need enforcement mechanisms at home.
With that, I thank everybody who has taken part in the debate and I beg leave to withdraw the amendment.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I support this amendment. As the noble Lord, Lord Agnew, said when he introduced it, cost exposure for prosecuting authorities can pose a real hurdle to their pursuing those prosecutions. As he also said, the Rubicon has been crossed in allowing cost capping, which the Government did in March 2022. This amendment has real legs—if I can use that phrase—and I hope the noble Lord presses the matter further, perhaps at later stages of the Bill.
I too was at the briefing with Bill Browder. I am currently reading his second book, having read his first, and it is compelling reading. He is a very brave man. I also agree with the comments made by the noble Baroness, Lady Bowles. I think she said: the precedent and the need are there, and the solution is here. I agree with those sentiments.
Finally, I thank the noble Lord, Lord Trevethin and Oaksey, who set out, interestingly, that some judges in the civil courts have developed their own law on this matter regarding the enforcement agencies not necessarily having to bear all their costs. He gave an interesting example of a further precedent, if you like. I too will be interested to hear the Minister’s response to that. The matter will be considered very carefully with regard to the later stages of the Bill.
Lord Sharpe of Epsom (Con)
My Lords, I thank my noble friend Lord Agnew for tabling this amendment and all noble Lords for the points they have raised in this debate. Again, I reassure the Committee that the Government take economic crime very seriously and are taking the necessary steps to ensure that enforcement agencies can tackle illicit financial activities while upholding the fundamental principles that govern our entire civil justice system.
In civil legal proceedings the loser generally pays the legal costs of the winning party, as has been acknowledged. The “loser pays” principle is a fundamental pillar on which the whole basis of civil litigation operates. It helps to ensure that only stronger cases are brought and that the winning party is able to recover reasonable costs of vindicating their case, save for in exceptional circumstances, to ensure access to justice for individuals with very limited resources. While important, civil recovery proceedings brought by enforcement agencies are not so exceptional as to warrant undermining the “loser pays” principle.
Several noble Lords have raised with me, and during this debate, the changes made to the unexplained wealth order regime by the Economic Crime (Transparency and Enforcement) Act 2022. These amended provisions in the Proceeds of Crime Act—POCA—introduce “costs protection” for enforcement agencies in cases of UWOs, unless they act unreasonably. This aimed to remove barriers to the use of UWO powers by relevant law enforcement teams. This was done on the basis that they were exceptional and likely to be low in volume in comparison to other types of civil recovery and, furthermore, that the relevant cost rules would be positioned as a novel and unique proposal, thereby maintaining the overall integrity of the “loser pays” principle in all other civil recovery proceedings. In the last five years, agencies with civil recovery powers—the Crown Prosecution Service, the National Crime Agency, the Serious Fraud Office, the Financial Conduct Authority and HM Revenue and Customs—have not paid any adverse costs for civil recovery proceedings.
There is also no guarantee that the introduction of further costs protection would lead to enforcement agencies pursuing more cases, as they report that each case must be assessed on its own merits considering numerous factors independent of costs liability, including gathering sufficient evidence to pursue a case and internal resourcing capability.
It is also worth bearing in mind that the Civil Procedure Rules, which guide the courts in procedural matters—I think this goes some way to answering the points raised by the noble Lord, Lord Oates—
Baroness Bowles of Berkhamsted (LD)
As I interpret what the Minister has said, if the regulator is taking the costs risk into account, that means it will take into account the question: am I up against a really wealthy opponent? Therefore, we will not have equal justice. You are saying that if the person from whom you are trying to recover the asset is particularly wealthy, they will be able to string out the process and do more appeals. That increases your costs risk and, therefore, the wealthy will not be pursued as much as the less wealthy. That is a very bad precedent and another reason why the amendment in the name of the noble Lord, Lord Agnew, is surely needed.
Lord Sharpe of Epsom (Con)
The noble Baroness makes an interesting point. I was talking about unexplained wealth orders in respect of the Economic Crime (Transparency and Enforcement) Act 2022. To go over that again, it aimed to remove barriers to the use of UWO powers by relevant law enforcement teams, but it was done on the basis that these were exceptional and likely to be very low in volume in comparison to other types of civil recovery. I do not think that is inconsistent with the argument about this amendment.
Going back to the procedural rules, which guide the courts in procedural matters, these enable judges to use their discretion to limit legal costs in certain circumstances. In appropriate cases, they may be used by agencies when pursuing asset recovery cases and are therefore a more suitable way of limiting costs liability in the few circumstances where this may be needed rather than through wholesale reform of the loser pays principle in civil recovery.
The amendment would overturn the very basis on which the entirety of civil costs and funding is built. It would negatively affect every other category of civil litigation, all for minimal, if any, financial savings in a very limited number of cases—
Lord Agnew of Oulton (Con)
Could my noble friend explain why this overturns precedence, while the Act last year on unexplained wealth orders does not? That is why I am so confused.
Lord Sharpe of Epsom (Con)
My Lords, I think I have already explained it, but I will endeavour to do so in greater detail in writing, if that is acceptable.
In a very limited number of cases, law enforcement would be involved. If parties in civil litigation do not fear having to pay adverse costs, it risks encouraging spurious and unmeritorious claims. On this basis—and I will write—I ask my noble friend to withdraw his amendment.
Lord Agnew of Oulton (Con)
I thank my noble friend the Minister for his explanation. I am afraid that I do not accept it, but I understand the convention that I need to withdraw my amendment. However, I will need to bring this back on Report; it is fundamental to our attempts to get a grip of economic crime in the system. I ask the Minister to reflect not only on my comments but those of other Peers who have supported the amendment and, indeed, the noble Lord, Lord Trevethin and Oaksey, who has come up with yet another example that I was not familiar with.
I was clear in my amendment that there is absolute protection against overreach by government agencies that are seen to act unscrupulously, so I do not accept that there is a risk. We know that we are not going to fund these agencies properly. Common sense tells us that they have to do a very careful risk analysis of any case they take on. If they think they have less than an 80% chance of winning it, they will not do it. I know that from my own experience as a Minister. Time and time again, early on in my career as the Academies Minister when I was trying to root out fraud there, I was told that the risks were too high and that we did not have the budget if we lost the case. It is not complicated.
I urge my noble friend the Minister to reconsider. My noble friend Lord Leigh was right—when we heard from Bill Browder a few weeks ago, he was adamant that, if there is one thing this Bill should do, it is to bring in this costs cap so that we can weaponise the agencies to go after economic crime. I beg leave to withdraw my amendment.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateThursday 11th May 2023
(12 months ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Amendment Paper: HL Bill 96-VII Seventh marshalled list for Grand Committee - (9 May 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Migration and Borders (Lord Sharpe of Epsom) (Con)
My Lords, I thank the noble Lord, Lord Coaker, for this amendment. Of course, the Government take the compensation of victims of economic crime very seriously, as it is crucial for limiting the harm of these ruthless crimes.
The noble Lord referred to the fraud strategy. I will come back to that in a second. Of course, the object of that exercise, as well as going after stolen money, is to prevent it happening in the first place. So this has to be considered in the round. These are obviously anti-crime measures, as well as enforcement and mitigation measures.
I completely agree with the noble Lord, Lord Fox: fraud is an attack on growth and we should bear in that in mind. Fraud and the reimbursement of fraud, as we know, costs the banks many billions a year already under the existing arrangements, which I will come back to. Clearly, somebody has to pay for that and it is not easy for society to bear, never mind the banks themselves.
Asset recovery powers under the Proceeds of Crime Act 2002 already provide the court with the ability to prioritise the payment of compensation orders to victims. We have had extensive conversations on all manner of asset seizures and reimbursements, including on the Ukraine question, to which the noble Lord, Lord Fox, just referred. I have absolutely no doubt that those conversations will continue. We are looking at the situation that he described, which developed, as I understand it, overnight. I do not know the details—we will find out.
The Government are legislating, through the Financial Service and Markets Bill, to remove any regulatory barriers to the Payment Systems Regulator making reimbursement mandatory for victims defrauded through the faster payments system. We are therefore already taking active steps to improve compensation routes and consider that there are already means of redress available.
Having said that, I also point to the fraud strategy, which the noble Lord, Lord Coaker, referred to. There is only one relatively small paragraph on this but if he goes to page 24, he will see that the City of London Police
“are also working with the private sector on a limited pilot to explore whether civil debt recovery and other powers can recover more of victims’ money. As this pilot develops, we will review whether there are further civil enforcement powers that could be applied to fraud”.
I will come back to that in more detail, obviously, but clearly it is very much at the pilot stage at the moment. That is explicit in the text. But the interests of victims are being actively considered via the fraud strategy. Again, there is more to be said on that, which I will do shortly.
As I have said before in Grand Committee, victims’ interests are at the heart of the new powers introduced by Part 4 of the Bill, which will allow applications for stolen crypto assets or funds in accounts to be released to victims at any stage of civil forfeiture proceedings. This will ameliorate the negative impacts of criminal conduct, including economic crime.
More widely, and I have referred to this from the Dispatch Box in the Chamber, victims need to have the confidence and trust to come forward to report fraud and to know that their case will be dealt with. That is why we are providing £30 million to the City of London Police to upgrade Action Fraud, which, as noble Lords will know, has not been widely applauded in this House. The new service will use the latest technology to drastically improve reporting and support for victims and provide far greater intelligence to policing, which will allow greater prevention and disruption at scale. The upgrade is already happening. It will be fully operational in 2024 and we are implementing consistent support for victims across England and Wales by expanding the National Economic Crime Victim Care Unit, to which I have also referred.
Where there are overseas victims in bribery, corruption and economic crime cases, the Serious Fraud Office, Crown Prosecution Service and National Crime Agency compensation principles have committed law enforcement bodies to ensuring that compensation is considered in every relevant case, and to using whatever available legal mechanisms to secure it where appropriate.
The Government are also fully committed to utilising suitable means to return the proceeds of corruption to their prior legitimate owner and/or to compensate victims, in line with international obligations under the UN Convention against Corruption. This is set out in detail in the Government’s Framework for Transparent and Accountable Asset Return.
Of course, the private sector also has responsibility for the protection of its customers, and we are increasing that further. Victims of unauthorised fraud, where payment has been taken without the victim’s permission, are already reimbursed by payment service providers. The contingent reimbursement model code has improved the reimbursement by payment service providers of victims of authorised fraud where a fraudster has manipulated the victim into approving the payment.
On the subject of PSPs, the right reverend Prelate made a good point about consumers becoming more savvy. I recently read in a briefing—I cannot remember whether it comes from the Fraud Strategy or some other current initiative—about the level of information sharing by PSPs, which will enable potential victims to identify the platforms that tend to be the most used. If they can be appropriately savvy when looking at those platforms and, perhaps, a little more suspicious and questioning, that will help enormously in stopping this happening in the first instance. I will come back with more detail on that, because I cannot quite remember under which regime that sits.
On the contingent reimbursement model, in 2021, £583 million was lost to APP scams. According to UK Finance data, the faster payment system was used in 97% of APP scams by volume in 2021. Under the contingent reimbursement model code, which is the voluntary scam reimbursement code signed by several major banks, the level of reimbursement is just over 50% of total APP scam losses for those signatory firms. Following PSR action, we expect that consumers will be reimbursed more consistently and comprehensively.
I realise that there is a lot more work to do on this. Clearly, the picture is fast evolving, as I am sure all noble Lords would acknowledge. There is clear intent on the part of the Government to make sure that victims are front and centre in the current regimes and all future planning. With that, I hope that the noble Lord, Lord Coaker, feels reassured and able to withdraw his amendment.
Lord Coaker (Lab)
I thank the Minister for that response. I am somewhat reassured, because I believe he has his own personal commitment to this. However, as with many amendments that we have discussed here, you get the feeling that it needs a bit of a boost a surge of urgency.
There is clearly a lot of good will and a lot of good government policy. There is nothing in particular wrong with the Fraud Strategy, which has some really good stuff in it, but the example that the Minister gave from page 24, which was perfectly reasonable, is a pilot. It does not say, “We will change the law”, but “we will review” what the pilot tells us, whereas, if you go back to the much stronger commitment at the beginning of the Fraud Strategy, it gives you some expectation that something will happen. It does not say, “We will review” but “We will ensure”—which is the sort of language that people want to hear—that
“victims of fraud are reimbursed and supported”.
It does not say, “We will review the law” but
“We will … Change the law so that more victims of fraud will get their money back”.
I get what the Minister said—that it is a pilot and a review, which is good—but a pilot and a review is not the same as what is promised in paragraph 7 on page 4 of the Fraud Strategy. We are talking about colossal sums of money and, as the right reverend Prelate the Bishop of St Albans pointed out to us, people are embarrassed; large numbers do not know what their rights are under the current law and cannot get their money back. That is the reality. The simple question for the Government, who I am sure want to improve it—there is no doubt about that—is: what five practical things will it mean? We cannot change the past, but we could do something about the future.
I also take the Minister’s point that this is about prevention, too. I absolutely accept that; we need double authentication and so on. I thank the right reverend Prelate the Bishop of St Albans for his support and helpful comments in this short but important debate. I also thank the noble Lord, Lord Fox, for reminding us that businesses and enterprises are also subject to fraudulent activity and that this is about them too. That was an important point to make.
To conclude, I thank the Minister for his response but ask him to speak to his department about how we get that surge of energy into the Bill and make what the Fraud Strategy says a reality so that we make a real difference. With that, I beg leave to withdraw my amendment.
Lord Coaker (Lab)
I was not going to say very much but I have been provoked by what the noble Baroness, Lady Bennett, and the noble Lord, Lord Agnew, have said.
I very much support the thrust of what the noble Baroness, Lady Kramer, said. One wonders why transparency is such a difficult notion for the Government. I suspect that the Minister will send up smoke by saying that we are all in favour of freeports, that they are a great way of generating employment, and so on. It is certainly what I would say if I were him—that freeports are a great thing for creating jobs and that we should not stand in the way of free enterprise, which is developing enterprise zones in some of the most difficult and challenging areas in the country. However, this is not about that—it is about transparency and knowing how this is funded—so I hope that the Minister does not send up smoke. The issue is transparency; the noble Baroness, Lady Kramer, was right to point that out.
I will not repeat the list from the noble Baroness, Lady Bennett, of concessions and allowances made to ensure that businesses can operate—perhaps in an area that they would not operate in—as that is something for the Minister to discuss.
On what the noble Lord, Lord Agnew, said, has the Minister had discussions with the noble Lord, Lord Johnson? Is it right that the Government are considering some concessions? Is that what the Minister is going to tell us—that he is going to go away and talk to the noble Lord, Lord Johnson, about what we have just been informed about? Is there hope for this amendment or will the Minister just reject it? Is it something that we will hear more about as we go to Report? Will we get a government amendment on transparency around this issue, if not from the Minister then from the noble Lord, Lord Johnson?
With those questions, I will listen to the Minister with care.
Lord Sharpe of Epsom (Con)
I thank the four noble Lords who have spoken in this debate. I also thank the noble Baroness, Lady Kramer, for her Amendments 106EC and 106ED. Amendment 106EC would require an overseas entity to apply for registration in the register of overseas entities if it is operating in a freeport. Amendment 106ED would require an overseas entity to apply for registration in the register of overseas entities if it is operating in an investment zone tax site. I thank the noble Lord, Lord Coaker, for his eloquent support for freeports.
Lord Coaker (Lab)
Can I clarify that I was saying what I thought the Minister would say, not what I think?
Lord Sharpe of Epsom (Con)
It was spot on so I suspect that the noble Lord has nobbled my notes at some point.
The economic merits of and progress in delivering freeports and investment zones remain at the heart of the Government’s levelling-up agenda, and good progress is being made. However, that is not quite within the scope of this Bill, so I will focus on the core points raised in relation to corporate transparency and illicit finance. I will endeavour to answer the questions asked of me while noting, as my noble friend Lord Agnew has, that this is not necessarily my specialist subject.
Turning first to Amendment 106EC, I am assured that, throughout the bidding prospectus and subsequent business case processes, freeports were required to set out how they will manage the risk of illicit activity. I will go into this in some detail because it is important and, as I am not a specialist in this subject, I asked for extra detail. These plans were approved by officials in the Border Force, HMRC, the NCA and other relevant crime prevention bodies, including the Home Office, the police, the Department for Transport and DLUHC.
At business case stages, freeports are required to commit to further requirements to mitigate risk. That includes commitments to the OECD’s code of conduct for clean free trade zones and they were required to establish robust local governance structures in place to monitor risk and ensure effective co-operation between relevant bodies with remits to prevent illicit activity. In most cases, that included most of the bodies I have already referenced—the police, NCA, and so on. Those plans were approved by officials who have responsibility for security and preventing illicit activity across government, and they are also required to carry out an annual audit of security each year to ensure that these structures remain effective and the risk mitigations remain robust and relevant. These audits will be reviewed by the Government annually.
Freeport status in no way undermines or weakens existing port security arrangements. Special customs status, which has been noted, builds on, rather than radically departs from, facilitations available elsewhere in the UK, and is available only on specific customs sites within the wider freeport footprint. These are secure sites administered by a specially authorised customs site operator—CSO. CSOs are required to obtain AEO or equivalent authorisation from HMRC, an international gold standard for safety and security, and remain subject to robust ongoing oversight from HMRC. Freeport customs sites therefore uphold the UK’s high standards on security and preventing illicit activity and should not be conflated with some entirely different international free trade zones.
I hope I have been clear that the Government require each freeport governance body to undertake reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site. As I have said, freeports uphold the UK’s high standards on security, safety, workers’ rights, data protection, biosecurity, tax avoidance and evasion, and the environment. They are subject to the same legislation and regulation to protect them as the rest of the country. To impose additional requirements on businesses investing in freeport tax sites would directly undermine the objective of freeports: to facilitate investment and regenerate some of the most deprived areas of the UK. The Government therefore do not think it is proportionate to impose this additional cost and administrative burden on freeports compared to elsewhere in the UK, which would also risk acting as a disadvantage for bringing in investment.
I turn to investment zones. The Chancellor announced in the Autumn Statement that the investment zones programme was being refocused to catalyse the development of clusters in areas in need of levelling up in order to boost productivity, growth and jobs. At the Spring Budget, the Government announced eight areas in England that it had identified to co-develop an investment zone proposal with the Government, with a view to agreeing proposals by the end of the year, subject to requirements being met. The Government will work with these places to co-develop proposals, ensuring that the same high standards that are required for freeport tax sites are met for any investment zone tax sites designated.
Given the early stages of policy development on investment zones, it is too early to set out the governance arrangements in any detail. However, I am clear that businesses within investment zone tax sites will need to comply with the same laws and high standards regarding transparency as any other business investing in the UK. I am also afraid that both amendments would duplicate existing requirements on UK-registered businesses. If a business in either a freeport or an investment zone, once established, is a UK-registered company, it is already bound by the requirements to report its people with significant control to Companies House. This information is publicly available on the Companies House register.
It would also partially duplicate the requirements of the register of overseas entities. Any overseas entity owning, buying or leasing land or property in a freeport or an investment zone, once established, would be required to give information about their beneficial owners to Companies House. This information is also available to the public and would help law enforcement track down those abusing freeports for money laundering or other nefarious purposes. In both cases, all information held by Companies House is available to law enforcement, even information which is not publicly available; for example, the information about trusts.
I also draw noble Lords’ attention to the far-reaching impact of the amendments, which refer to “businesses operating” in free ports and zones. A “business” goes beyond companies and similar corporate entities and includes, for example, sole traders; “operating” is also an imprecise term. Let us imagine a truck of goods arriving at a freeport: the amendment would require the freeport governance board to determine the beneficial ownership of the haulage company owning the truck as well as the beneficial ownership of every business whose goods are being carried on that truck. One company may own the truck and another the trailer, both are caught. Under this scenario, even the delivery driver bringing sandwiches to the businesses located in the zone would be impacted by the amendment. I am sure that was not the noble Baroness’s intention and she will say that it could be improved at the drafting stage, but it is worth pointing that out.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment is consequential on new clause (Fraud offences: supplementary) and ensures that the requirement that regulations under the Bill must be made by statutory instrument only applies to regulations made by the Secretary of State.
Lord Sharpe of Epsom (Con)
My Lords, these government amendments concern commencement and cut across several clauses. Amendments 106F, 106H and 107A are consequential on the regulation-making powers introduced by the new clause headed, “Fraud offences: supplementary”, which is one of the Government’s new clauses introducing a failure to prevent fraud offence. Amendments 106G and 107B, and the proposed new clauses to be inserted by Amendments 109 and 110, replace Clause 191 with a new commencement clause and a separate transitional provision clause. The clauses are being separated into two to make the commencement provisions easier to follow and avoid having one long and complex commencement provision.
They include a number of small, technical changes to ensure that the commencement provisions in the Bill work as effectively as possible and bring the devolution aspects of the commencement powers into line with previous similar legislation. They also bring into force, on Royal Assent, procedures in the Bill about the codes of practice which will govern the strengthened information order powers. This will ensure that those powers can quickly start to be used. Certain money laundering reporting measures are also being commenced on Royal Assent: the exemption for “exiting and paying away” and the new defence against failure to report, which we debated earlier in Committee. That will give certainty to businesses about their reporting duties as soon as the Bill is passed.
I hope noble Lords will support these amendments. I beg to move.
Lord Fox (LD)
My Lords, I will speak very briefly—I am sure the Minister will be glad to know that. I am intrigued by Amendment 109 because it complicates the process of bringing the Bill into being quite a lot. There are a lot of moving parts set out in Amendments 109 and 110 for the Bill to start to be effective. The simple question is: from start to finish—from Royal Assent to when everything is working and all parts are moving—what is the Government’s estimate as to long it will take to fulfil all the steps set out in these amendments?
Baroness Blake of Leeds (Lab)
I too will speak very briefly. I note the comments about consultation with devolved authorities. Given concerns about the extent of consultation in other areas, can the Minister reassure us that it is adequate, and deemed adequate by the devolved authorities? That is a clear theme running through some of the legislation.
We have discussed—we will revisit it, I am sure—the issue of failure to prevent and the specific mention of large organisations. We understand that keeping it to large organisations will not capture a broad enough spectrum of the businesses that we are covering. Having said that, I recognise that this is a tidying-up exercise. With further amendments we might revisit some of the issues at a future stage, but I would be grateful if the Minister could respond to those comments.
Lord Sharpe of Epsom (Con)
I thank noble Lords for their brief comments. In answer to the noble Lord, Lord Fox, about when the powers in the Bill will be brought into force, obviously I speak with authority only for the Home Office measures in the Bill. Certain measures in the Bill that are necessary to issue codes of practice will come into force on the day of Royal Assent, as will some of the money laundering reporting measures that we discussed previously in Committee. It is our intention for some of the remaining measures to be brought into force in autumn. This is subject to obtaining Royal Assent before summer.
The operalisation of these powers is a priority for the Government and our law enforcement partners. That is why we have taken steps to provide pre-commencement consultation for a number of measures in the Bill, to facilitate it coming into force as early as practically possible.
Some of the Companies House reforms will require consequential changes, including secondary legislation and guidance. Certain reforms, such as identity verification, will also require system development following Royal Assent. Some changes will be implemented almost immediately but others will take longer. We cannot commit to precise dates at present but work on implementing the measures is already under way at Companies House. Companies House is an executive agency of the Department for Business and Trade and there are various governance mechanisms to hold the agency to account on those reforms.
As I mentioned previously, these amendments are technical. They are designed to ensure that the Bill is effective and to make changes following amendments debated previously in Committee.
Before I wind up, I thank all noble Lords for their participation in the Committee, in particular the Front Benches. It has been a lively, extremely interesting and well-informed Committee. It will certainly improve the Bill over the course of its passage through Parliament. I thank my officials for the constructive spirit in which they have engaged with all interested Peers. From a personal point of view, I also thank them for guiding me through some fairly tricky questions. I hope that noble Lords are satisfied with the amendments.
Lord Sharpe of Epsom (Con)
My profuse apologies to the noble Baroness, Lady Blake. I am assured that all discussions have taken place with the devolved Administrations and that they are all content with it.
Lord Sharpe of Epsom
“(2A) For regulations made under this Act by the Scottish Ministers, see section 27 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10) (Scottish statutory instruments).(2B) Any power of the Department of Justice in Northern Ireland to make regulations under this Act is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This amendment is about the classification of certain instruments made by the Scottish Ministers or the Department of Justice in Northern Ireland.
Lord Sharpe of Epsom
“Commencement
(1) Except as provided by subsections (2) to (5), this Act comes into force on such day as the Secretary of State may by regulations made by statutory instrument appoint.(2) The following come into force on the day on which this Act is passed—(a) this Part;(b) any provision of, or amendment made by, Parts 1 to 5 so far as it confers a power to make regulations or relates to the exercise of the power;(c) paragraph 1 of Schedule 7 so far as it inserts section 303Z25 into the Proceeds of Crime Act 2002;(d) paragraph 16 of Schedule 7 so far as it relates to that section;(e) section 168 so far as it relates to the provisions mentioned in paragraphs (c) and (d);(f) section 170;(g) section (Money laundering: offences of failing to disclose);(h) section 172(12) and (13);(i) section 173(13) and (14).(3) Section 187 comes into force at the end of the period of 2 months beginning with the day on which this Act is passed.(4) The following come into force (so far as not brought into force by subsection (2)(b)) on such day as the Scottish Ministers may by regulations appoint after consulting the Secretary of State—(a) Part 2 of Schedule 6, and(b) section 167 so far as it relates to that Part.(5) The following come into force (so far as not brought into force by subsection (2)(b)) on such day as the Department of Justice in Northern Ireland may by order appoint after consulting the Secretary of State—(a) Part 3 of Schedule 6, and(b) section 167 so far as it relates to that Part.(6) No regulations may be made under subsection (1) bringing into force any of the following provisions, so far as they extend to Scotland, unless the Secretary of State has consulted the Scottish Ministers—(a) Schedule 7, and(b) section 168 so far as it relates to that Schedule.(7) No regulations may be made under subsection (1) bringing into force any of the following provisions, so far as they extend to Northern Ireland, unless the Secretary of State has consulted the Department of Justice in Northern Ireland—(a) Schedule 7, other than paragraphs 6(7), 10 and 11, and(b) section 168 so far as it relates to that Schedule, other than paragraphs 6(7), 10 and 11.(8) No regulations may be made under subsection (1) bringing into force section (Failure to prevent fraud) unless the Secretary of State has published guidance under section (Guidance about preventing fraud offences)(3).(9) Regulations under subsection (1) or (4), and orders subsection (5), may appoint different days for—(a) different purposes, and (b) where regulations under subsection (1) appoint a day for the coming into force of any provision of Schedule 7 or 8, different areas.(10) A power of the Department of Justice in Northern Ireland to make an order under subsection (5) is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This amendment leaves out Clause 191 and inserts a replacement commencement Clause that provides for additional provisions to come into force at Royal Assent and for consultation requirements to apply in relation to certain cryptoasset provisions. See also the new transitional provision Clause to be inserted after Clause 191.
Lord Sharpe of Epsom
“Transitional provision
(1) The Secretary of State may by regulations made by statutory instrument make transitional or saving provision in connection with the coming into force of any provision of this Act, other than a provision mentioned in section (Commencement) (4) or (5).(2) The Scottish Ministers may by regulations make transitional or saving provision in connection with the coming into force of a provision mentioned in section (Commencement) (4). (3) The Department of Justice in Northern Ireland may by order make transitional or saving provision in connection with the coming into force of a provision mentioned in section (Commencement) (5).(4) The power to make regulations under subsection (1) or (2), and the power to make orders under subsection (3), includes power to make different provision for—(a) different purposes, and(b) where regulations under subsection (1) make provision in connection with the coming into force of any provision of Schedule 7 or 8, different areas.(5) Transitional provision and savings made under subsections (1) to (3) are additional, and without prejudice, to those made by or under any other provision of this Act.(6) A power of the Department of Justice in Northern Ireland to make an order under subsection (3) is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This new Clause contains the powers to make transitional provision that were previously in Clause 191. It also includes additional powers for the Scottish Ministers and the Department of Justice in Northern Ireland to make transitional provision and savings in connection with the coming into force of certain cryptoasset provisions.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 20th June 2023
(10 months, 3 weeks ago)
Lords ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: HL 138-I(a) Amendments for Report (Supplementary to Marshalled List) - (20 Jun 2023)
17:50 - Division on Amendment 16 - Ayes: 218 / Noes: 175 - Amendment 16 agreed.
19:14 - Division on Amendment 72 - Ayes: 172 / Noes: 153 - Amendment 72 agreed.
19:29 - Division on Amendment 73A - Ayes: 171 / Noes: 151 - Amendment 73A agreed.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Johnson of Lainston
Member’s explanatory statement
This brings the wording of objective 3 into line with objectives 1 and 2.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, before we begin proceedings, I draw your Lordships’ attention to my interests as set out in the register of interests, including as a director and person with significant control of AMP Ventures Ltd, a person with significant control of Cigarkeep and as a shareholder of several other companies, including a previous shareholder and person of significant control of Somerset Capital Management. As I have set out before, I believe these interests serve only to increase my enthusiasm for this Bill to ensure that the UK remains the best place to start and grow a business while driving dirty money out of the UK. It is at the absolute core of this Government’s mission that we help legitimate business thrive.
I express my gratitude for the vast amount of engagement that has taken place since we concluded Committee in May, and the constructive way in which your Lordships have worked with me, my noble friend Lord Sharpe, my noble and learned friend Lord Bellamy, and all our exceptionally hard-working officials to ensure this Bill reaches its full potential. I am pleased that the Opposition Front Benches remain supportive of the intentions of the Bill and that they desire to ensure it works effectively. I am particularly grateful for the focus they have brought to bear on the drafting of the new objectives for the Registrar of Companies and for the constructive dialogue they have had with the registrar and me in recent weeks. I also give particular thanks to my noble friends Lord Agnew of Oulton and Lord Leigh of Hurley and the noble Lord, Lord Vaux of Harrowden, for their scrutiny of the Bill and their amendments on shareholder transparency, authorised corporate service providers and the register of overseas entities, which we will debate shortly.
Before I turn to the government amendments in this group, I briefly remind the House of the key principles of this Bill. It builds on last year’s Economic Crime (Transparency and Enforcement) Act, which contained key measures to help crack down on dirty money, including from Russia and other foreign elites abusing our open economy. That Act introduced reforms to the UK’s sanctions framework and to unexplained wealth orders and it provided for the introduction of the register of overseas entities.
Forming a key part of the wider government approach to tackling economic crime and sitting alongside the recently published economic crime plan, this Bill will further tackle economic crime, including fraud and money laundering, by delivering greater protections for consumers and businesses, boosting the UK’s defences, and allowing legitimate businesses to thrive.
I direct noble Lords to read the economic crime plan, if they have not already done so, as it contains a significant set of actions. Soon after the plan came out, our Home Office colleagues supplemented it with the launch of the new fraud strategy and in the coming months the Treasury will consult on the future of the anti-money laundering supervisory framework. These are relevant points because they fit within the debate today. My own department will conclude its review of the whistleblowing framework. This is a lot of activity and rightly so, because economic crime is a growing issue and affects people of all backgrounds and businesses large and small.
This Bill will make an immediate difference to real people. For example, we have discussed the problems of fraudsters creating companies using an individual’s or business’s personal details or address without their consent, including to obscure ownership and control of a company. Innocent citizens have been left seriously distressed by huge volumes of post for fake companies arriving through their letterbox and finding to their horror that their credit reference scores have suffered because they have been appointed a director of a debt-ridden company without their knowledge. The Bill introduces safeguards to put an end to these issues.
Elsewhere, the Bill provides vital new powers to underpin our law enforcement agencies; for example, over crypto assets, and to address corporate criminal liability. The powers supplement the £400 million package the Government have allocated to tackle economic crime over the spending review period, including support for the National Economic Crime Centre, reform of suspicious activity reporting and upgrading the Action Fraud service.
The Bill also supports our national security by making it harder for kleptocrats, criminals and terrorists to engage in money laundering, corruption, terrorism financing, illegal arms movements and ransomware payments. We have continuously sought to improve the Bill as it has progressed through Parliament. As noble Lords will know, the Government have tabled a number of significant amendments to be considered at Lords Report stage, including on strategic lawsuits against public participation, corporate criminal liability, the role of authorised corporate service providers and the transparency of information on trusts on the register of overseas entities. We believe these present a significant, meaningful package of measures that demonstrates that we have listened carefully to the concerns of this House.
Yet, throughout the passage of this Bill, it has also been essential to hold uppermost in our minds the fact that the vast majority of businesses are entirely law-abiding, and that the 350 or so pages of the Bill as it now stands and the dozens of secondary regulations which will follow it represent a lot for the business community to grapple with. The reforms in this Bill will touch every company in the country—nearly 5 million of them. The Government have worked very hard to ensure that, despite the length of the Bill, the burdens it will place on businesses are slight. As the FSB has tweeted today:
“The Economic Crime Bill must work for small businesses”.
The estimated net direct cost to the business community of the package of reforms to Companies House is less than £20 million a year. Indeed, these reforms will underpin systems changes that will improve the user experience for company directors. Elsewhere, the Home Office measures in Part 5 will reduce the reporting burdens on businesses, enabling the private sector to work with law enforcement more efficiently and effectively.
I am therefore extremely pleased that we have been able to maintain the support of the business community as the Bill has progressed. Indeed, the Institute of Directors very recently said:
“The UK is rightly seen as a country which champions high standards of business conduct. The IoD welcomes this legislation as a measure that will help maintain the integrity of the UK business system”.
However, that support cannot be taken for granted. As we reach the concluding phases of the Bill’s passage, I hope that noble Lords will work with the Government to ensure that what emerges is an Act which works for the law-abiding majority at a time when so many businesses and businesspeople are under strain. We are doing a great deal, and we need to bed it in and monitor how this will affect businesses before going significantly further.
Turning to the reforms in Parts 1, 2 and 3, which we will debate today and which are the responsibility of my department, I say that noble Lords will know that these measures will fundamentally change the role of Companies House, transforming it from a passive recipient of the data it receives to a proactive gatekeeper that upholds the integrity of the companies register—the most significant reform to the UK’s framework for registering companies in some 170 years. This, of course, means significant changes for Companies House as an organisation—to its systems, processes and culture. Investment in new capabilities is already under way, with a £63 million allocation to Companies House across the spending review period and the creation of some 400 new roles to ensure delivery of the registrar’s new objectives. Furthermore, through additional investment of up to £20 million of allocated spending on economic crime, new anti-money laundering intelligence teams are being created at both Companies House and its close partner the Insolvency Service to tackle the misuse of UK companies, corporate entities and property.
Having met with the registrar, Louise Smyth, several times in recent weeks—I express my gratitude to her and her team for their time; I am sure noble Lord will join me in doing so—I am convinced that she is well aware of both the challenges and opportunities this brings. These are transformative changes that will require a step change in the capabilities and practices of Companies House staff and its systems and users.
I hope that noble Lords who joined our session with the registrar and her team a fortnight ago share my conviction that the registrar and her team will rise to these challenges. Those who attended heard how, even before the reforms reach the statute book, Companies House is breaking new ground with HMRC, the National Crime Agency and others to maximise the power of its data to tackle criminality. The amendments we are about to debate get to the core of these changes.
I turn first to the government amendments in this group, starting with Amendments 1 and 2. The Bill introduces a wholly new set of objectives for the registrar. These are: to ensure that any person who is required to deliver a document to the registrar does so and that the requirements for proper delivery are complied with; to ensure that documents delivered to the registrar are complete and contain accurate information; to ensure that records kept by the registrar do not create a false or misleading impression to members of the public; and to prevent companies and others carrying out unlawful activities or facilitating others carrying out unlawful activities. These objectives were warmly welcomed across the House, as were the amendments tabled in Committee to broaden and strengthen the scope of those objectives.
However, in the interesting and lively debate we had on the subject in Grand Committee, it was apparent that a number of noble Lords felt we could have been more ambitious in the tone the registrar’s objectives set. Mindful of the need to strike a balance between that which is sensibly aspirational and what is simply unachievable, we have looked closely at the drafting once more.
I recall that the language of “ensuring” found your Lordships’ favour in the context of the first two objectives, concerning compliance and accuracy respectively. I trust, therefore, that the House will similarly support our amendment to replicate that language in objective 3, which is concerned with the risk of register records creating a false or misleading impression to members of the public. Instead of tasking the registrar “to minimise that risk”, the intention is that she will now have the more stretching objective “to ensure” that it does not happen. Furthermore, we understand the strength of feeling on the wording of the fourth objective and recognise that noble Lords wanted an alternative to “minimising” the extent of companies’ and others’ unlawful activities.
We have been cautious here for good reason, not wishing to subject the registrar to either unrealistic expectations or the risk of unnecessary legal challenge. However, following dialogue with the registrar, we have resolved to replace the wording
“minimise the extent to which”
with “prevent” in objective 4. I know that the noble Lords, Lord Coaker and Lord Fox, in particular, felt strongly about that point. I hope these amendments will be welcomed as a further demonstration both that we have listened to the views of the House and of the commitment on the part of both the Government and the registrar to improve the quality of register information and work proactively in combating economic crime.
I turn to government Amendments 46 to 48, 51, 54 to 56, 64, and 80 to 82. Companies legislation contains various regulation-making powers allowing the Secretary of State to delegate duties and functions to the Registrar of Companies. For efficient administration, there are instances where it is appropriate for such powers to allow the Secretary of State to confer on the registrar discretion as to how she discharges her statutory duties.
We have identified various new delegated powers within the Bill where such discretion would be beneficial to efficient delivery. The common thread linking them is that they determine, at a high level, how various statutory mechanisms for applications, notifications and appeals to the registrar shall be established through secondary legislation. Although we strive to establish the parameters of such mechanisms as precisely as possible, operational experience shows that sometimes being overprescriptive can hinder efficient administrative delivery.
The primary legislation is not consistent. In some cases, it allows the registrar discretion on all aspects of processes, in other cases only some aspects, and in others, none. These amendments will give the Secretary of State the ability to delegate consistent discretions. These will cover matters such as who she gives notice to when she exercises her powers, periods allowed for certain objections and what material is required to substantiate applications and objections.
Briefly, on government Amendment 40, the Bill provides the registrar with new powers to examine and query applications for company incorporation and restoration and verify certain information. Although it is expected that this will significantly improve the integrity of the register, it is inevitable that criminals will try and, in some cases, succeed in finding ways to circumvent these checks and file under false, deceptive or misleading pretences.
Existing powers, further enhanced by the Bill, allow for the removal of false information from the register—for example, directors’ names and registered office addresses. However, the circumstances in which the registrar can, by her own action, remove a company itself from the register through the process of strike-off are limited. She must be satisfied that the company is no longer operating and is effectively defunct. Forming that judgment and seeing the process to a conclusion is a relatively lengthy process, involving various statutory notification obligations.
It will be immensely beneficial for the registrar to be able to act more quickly than current processes allow. This amendment will allow the registrar to act expeditiously where there is reasonable cause to believe that the incorporation or restoration of a previously struck-off company is based on a false premise. This will mean that she can act much more quickly to expunge potentially fraudulent companies from the register.
Finally, this group contains several minor and technical amendments to Parts 1 and 2 to correct drafting errors or ensure that the drafting works properly—namely, government Amendments 3, 4, 18 and 38. Amendments 3 and 18 correct cross-references in Clause 4 and Schedule 2. Amendment 4 changes the definition of “the registrar” in Clause 30 so that it does not refer to the Companies Act—which is itself not defined. Amendment 38 corrects a mistake in Section 1082(1) of the Companies Act 2006 by spelling out that the power conferred by that subsection is exercisable by regulations—that this was always the intention is clear from the subsequent subsections.
In combination, these amendments will further improve the registrar’s objectives and powers, enabling her to better fulfil her new role. I therefore hope that your Lordships will support these amendments and I beg to move.
Baroness Blake of Leeds (Lab)
My Lords, I add my thanks to the Ministers for their regular updates, and the access we have had to their officials. The ability to meet the team from Companies House was particularly helpful and instructive. I too believe that we have a better Bill before us.
Having said that, we must not forget the scale and severity of the consequences of actions of bad actors, particularly the exposure of the public to fraud, nor the victims, who have suffered so appallingly over many years. As we know, the Ukraine war has brought all these issues to a head, necessitating a swift response. I thank everyone involved for responding positively to some of the many proposals that we have put forward.
I will refer particularly to Amendment 2, with regard to the fourth objective. It would be wrong of me not to mention the fact that the noble Lord, Lord Coaker, as has been mentioned, was very forceful in his views that the objective surely must be to prevent unlawful activities rather than to minimise them, as was the earlier wording. I also welcome the change to the third objective, and the increase in the ability of the registrar to strike off companies and take swift action. Again, I think that running through this is the emphasis on the ability to act quickly with clarity.
I acknowledge the amendments in the name of the noble Lord, Lord Agnew, which would bring in a framework of intervention criteria to assist the registrar, and particularly Amendment 57, which recognises the sheer scale of the task ahead of Companies House and seeks full, regular scrutiny. I want to put on record our concern about the sheer scale of the task ahead of Companies House and make it plain that we must communicate to everyone involved that there is a fallback position and that it can come back if the resources are not adequate for the job it has in hand. The scale of change it has to go through, from being a receiver of information to a proactive partner, is quite significant.
I again thank the Ministers involved for their openness and for having moved on a number of our suggestions.
Lord Johnson of Lainston (Con)
I am extremely grateful to all noble Lords who participated in this debate. I shall answer their questions in order.
The financial guru, my noble friend Lord Leigh of Hurley, pointed to Amendment 40. He is right that it does not specifically mention submitting misleading information—this is related specifically to the filing of accounts—but I believe that the Companies Act enables the Secretary of State to issue a winding-up order if there are materially inaccurate filings in the accounts. I am happy to write to him specifically on that issue.
I am grateful to my noble friend Lord Agnew for his comments. I am extremely pleased to come back to the noble Baroness, Lady Blake, about the objectives. We had long and specific discussions about the difference between the words “minimise” and “prevent”. I think the House understood clearly from my approach that I was being carefully guided by our legal advisers. It is right that we should be, and it is also right that we found a word that would be suitable in how the noble Baroness saw the Bill being presented. We want to make sure that we get the language right. It is important that we have remained in our current function to ensure that there is flexibility for the registrar to perform her duties while at the same time sending the appropriate signal.
The noble Baroness, Lady Bennett, rightly commented on the need to continue to review the situation as we see it. I hope that the noble Baroness has been reassured by my attitude to the Bill as it has progressed through the stages in this House. My point was to ensure that we do not deluge businesses with unnecessary obligations at this stage before we know how this process will transpire. I am also very aware of the dangers of being too prescriptive. Technology changes and the activities of criminals change, and it is important that we assess the situation as it stands and work out how to ensure that we can confront those challenges as and when they arise.
I turn specifically to the amendment tabled by my noble friend Lord Agnew, Amendment 57. Reporting by Companies House is an extremely important element of its activities, and I agree that it is important that Parliament is informed about the implementation and delivery of the reforms that we are undertaking. That is why the Government brought forward an amendment in the other place to that effect, which is now Clause 187. I am aware of the comments made about the cultural and operational changes linked to Companies House’s new responsibilities. I hope that through meeting the registrar we felt a sense of reassurance that the head of investigations is extremely dedicated to his task. We believe that the amount of money we are applying to Companies House and the fees, which we will discuss later, will amply cover expenditure, and could be increased if necessary. It is up to Companies House to ensure that it presents to the Government its funding requirements to ensure that it can do its job and perform its tasks.
It might be helpful for me from the Dispatch Box to go through some of the points formally so there is a record of what we expect Companies House to report when it has finished reporting on what it is intending to do—the inputs—and then turn our attention to the outputs, which is the difference between what it is obliged to report to Parliament for the first three years of operation, I think, and what we then expect to be business as usual.
From the discussions with Companies House to date, I can commit that, subject to the successful implementation of the necessary information systems, early reports will cover items such as: the number of documents rejected for not being properly delivered or for a discrepancy; rejected incorporations and name changes; the number of documents removed from the register for being inaccurate, incomplete or fraudulent; and the number of times the querying power is used and the resulting actions taken by Companies House. We are also looking into how we might report on the number of times Companies House has shared data with other organisations and vice versa. I would be happy to explore with Companies House officials how they might incorporate some of the new items in this amendment into its reporting without the need for this statutory requirement, and of course we listen to all sides of the House about other areas where noble Lords feel it would be beneficial for Companies House to report.
Lord Johnson of Lainston
“Objective 4 is to prevent companies and others from—(a) carrying out unlawful activities, or(b) facilitating the carrying out by others of unlawful activities.”Member’s explanatory statement
At the moment the registrar’s fourth objective is to minimise the extent to which companies and others carry out unlawful activities etc. This amendment makes it an objective to prevent companies and others from carrying out unlawful activities etc.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a cross-reference in Clause 4 of the Bill.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment changes the definition of “the registrar” so it does not refer to the Companies Acts (which is itself not defined).
Lord Johnson of Lainston
Member’s explanatory statement
This amendment makes it clear that a person who is subject to director disqualification sanctions will be so subject both for the purposes of section 11A of the Company Directors Disqualification Act 1986 and for the purposes of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
Lord Johnson of Lainston (Con)
My Lords, the amendments in this group relate to the new director disqualification sanctions measure introduced in Committee. This measure created a completely new type of sanction in the Sanctions and Anti-Money Laundering Act 2018 called director disqualification sanctions. It will be unlawful for a designated person subject to this new measure to act as a director of a company. I welcome the support this measure received from this House in Committee.
Government Amendments 5 to 11 address some technical drafting concerns raised by Northern Ireland officials. The amendments clarify that the definition of a
“person who is subject to director disqualification sanctions”
encompasses disqualification for the purposes of the Company Directors Disqualification Act 1986, which applies in England, Wales and Scotland, and the Company Directors Disqualification (Northern Ireland) Order 2002, which applies in Northern Ireland. This does not alter the legal consequences of the measure but simply clarifies that the definition relates to both Great Britain and Northern Ireland legislation.
The amendments also make clear that the Department for the Economy in Northern Ireland will now be required to maintain information about individuals subject to the new director disqualification sanction in the department’s register of disqualified directors. This mirrors the requirement for the Secretary of State to update the UK-wide director disqualification register, ensuring consistency between GB and NI legislation.
Lastly, these amendments clarify when a designated person, or a person acting on the instructions of a designated person, is responsible for the debts of a company. The current drafting does not address the liability of a third party who acts on the instructions of a designated person. These amendments therefore specify the circumstances in which a third party acting under instructions from a designated person may be liable and clarifies the defences that may relieve the designated person or the third party from personal liability.
The amendments mean that a person will not be responsible for debts incurred when they could not reasonably have known they were subject to director disqualification sanctions. And a third party who acts on instructions that were given by a person who they did not know was subject to director disqualification sanctions, or who they reasonably believed was acting under the authority of a licence, will similarly not be responsible. As a package, these amendments improve the coherence of the new director disqualification sanctions measure.
Government Amendments 52 and 53 amend Clause 101 of the Bill, which inserts new Section 1132A into the Companies Act 2006. Government Amendment 83 inserts into the Bill after Clause 169 a new clause which amends Section 39 of the Economic Crime (Transparency and Enforcement) Act 2022. Both new sections allow the Secretary of State to make regulations which confer power on the registrar to impose a financial penalty on a person if satisfied, beyond reasonable doubt, that the person has engaged in conduct amounting to an offence. These amendments align the drafting with the drafting of Clause 202 of this Bill, which inserts new Section 17A into the Sanctions and Anti-Money Laundering Act 2018. These amendments mean that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing, or if a person has been convicted of an offence. At the moment, it is the other way around, so criminal proceedings cannot be continued once a penalty is imposed. This is clearly unhelpful, as without amendment, prosecutors’ discretion to prosecute could be infringed upon.
Government Amendment 50 relates to the setting of Companies House fees. It will allow the Secretary of State to take into account additional costs incurred, or likely to be incurred, in relation to the new disqualified directors sanction which the Bill is introducing. Specifically, this amendment will ensure the costs of delivering the licensing function for this sanction can be covered by Companies House fees. Without this amendment, the costs of this licensing regime would fall on the taxpayer. We have made great strides through this legislation to require those that benefit from incorporated status to contribute towards maintaining the integrity of the register and a healthy business environment. It therefore seems reasonable for this to extend to the funding of the licensing regime that enables sanctioned directors to remain compliant and continue lawfully to carry out certain activities within the limitations set out in the licence.
I hope noble Lords will support these amendments. I beg to move.
Lord Fox (LD)
My Lords, again this is a group of amendments with which we can thoroughly agree, which is a nice position to be in. Government Amendments 5 to 11 speak for themselves in the sense of tidying up the situation in Northern Ireland. The one amendment that is worth dwelling on a little bit is government Amendment 50, which gets to the point around resources and having sufficient resources for Companies House to be able to do what it needs to do.
There is a certain irony that, if the Companies House team is successful, there will be fewer companies on the register. So one of the things they will need to consider about fees is that they will be reducing the number of companies or the amount of income that will come per company. One of the issues in setting them is that, if estimates of 5% of companies being fraudulent are right, there will be 5% fewer companies paying the annual renewal. Some people, and some organisations, put that number much higher, so I suggest that the Government think about the success that Companies House will hopefully have in order to set a fee that does not become self-defeating if it removes companies.
The more companies the team removes from the register, the less money Companies House receives in annual renewal. That is the point I am making. I am assuming that this number will come quite soon after this Bill becomes an Act, and it would be useful for the Minister to update us on when we think the secondary legislation will come, because, clearly, Companies House and others will rely on this money for planning ahead. I am assuming the money goes to Companies House and not the Treasury, but perhaps the Minister could confirm that.
If the Minister could say a little around the operation of Amendment 50, that would be helpful—so that I understand it even if everybody else already does. He could say a little about how much money and how changeable it will be in the event that more money is needed to support the drive to remove criminality from our companies. I think that everything else is broadly very welcome.
Lord Ponsonby of Shulbrede (Lab)
My Lords, we agree with all the amendments in this group. This group is all government amendments which make minor changes to ensure that penalties align with previous legislation, that they are taken into account when setting fees and that penalties do not stop criminal proceedings, as the noble Lord explained introducing the amendments.
I take the point the noble Lord, Lord Fox, made about Amendment 50. I presume fees can be updated as the situation evolves regarding the number of companies on the register. Nevertheless, we support this group of amendments and look forward to the Minister’s response to the questions asked by the noble Lord, Lord Fox.
Lord Johnson of Lainston (Con)
As always, I am extremely grateful to noble Lords for their interventions and the points raised in debate.
I turn to government Amendment 50. It is not a technical point, but it would not, in my view, be a point of significant consequence. It is just to ensure that when the Secretary of State has a licensing regime for directors who have been disqualified but whom she may require to perform a director’s duties, such as winding up a business—it is practical to allow disqualified directors in some instances to perform certain functions—the cost for administering that process is met by the fees. I do not imagine that would be a significant component of the Companies House fees. This is a tidying-up point more than anything else. It just means that the taxpayer does not have to pay the bill. If I am wrong in my expectations, I will certainly correct that for the House, but I do not think that is the case. It is a technical point.
We have discussed at great length what we feel the Companies House fees should be. I do not think there is a single similar opinion; every noble Lord in this House has a different view on the exact amount to the nearest 50p it should cost to register a company and to reregister it or confirm the registration each year. The fact is that Companies House now has a licence to propose its budget, which must be agreed. That budget will be met through the fees charged to companies using its services.
The noble Lord, Lord Fox, raised a good point. It is anticipated that some companies will leave the register. I hope that there will not be a significant number of companies forced to leave the register because they are not legitimate companies, but it is right that this investigative power will encourage those companies that should not be on the register to leave. The quantum of the number of companies—I think there are nearly 5 million companies—at any reasonable fee rate, which the discussions established is between £50 and £100, would allow there to be ample funding for Companies House.
To answer the question the noble Lord, Lord Fox, asked about what happens to any excess money raised by fees, there is only one place excess money raised by anything in this great nation of ours goes: His Majesty’s Treasury. We would clearly wish to avoid that. We would rather make sure that the fees were set at the right level.
To end on a serious note, we are not looking to have a fee rate. This is why the Government have been careful not to hypothecate fees for Companies House activity with other activities. It is not right, in our view, to charge legitimate businesses excess amounts of money to cover other things unrelated to their Companies House registration. We have tried to set this in the right fashion. I think this will result in the right outcome. I hope very much that the House will support what are seen as largely technical amendments.
Lord Johnson of Lainston
(i) the instructions are given by a person whom they know at that time to be subject to director disqualification sanctions (within the meaning of section 11A),(ii) the giving of the instructions does not fall within any exception from section 11A(1) created by virtue of section 15(3A) of the Sanctions and Anti-Money Laundering Act 2018, and(iii) the instructions are not authorised,(but see subsection (3A)).”Member’s explanatory statement
This amendment ensures that a person who acts on instructions that were given by a person that they did not know was subject to director disqualification sanctions would not be responsible for all of the relevant debts, and is otherwise consequential on my amendment to page 27, line 16.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment makes it clear that a person who is subject to director disqualification sanctions will be so subject both for the purposes of section 11A of the Company Directors Disqualification Act 1986 and for the purposes of Article 15A of the Company Directors Disqualification (Northern Ireland) Order 2002.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment means that only non-traded companies are required to keep old information about their members (eg old addresses).
Lord Johnson of Lainston (Con)
My Lords, before we turn to the amendments tabled by my noble friend Lord Agnew of Oulton and the noble Lord, Lord Vaux of Harrowden, I shall briefly outline government Amendments 12, 13, 14 and 15 in this group. Clause 46(4) amends Section 113 of the Companies Act 2006, including by inserting new subsection (6A). This will require all companies to retain information about a member in their register of members where it changes, and to note the date on which the information changed and was entered into the register by the company. The requirements apply only prospectively, not retrospectively. The government amendments target the scope of this requirement, so it applies only to non-traded companies, to ensure that excessive burdens on traded companies with large numbers of shareholders are avoided.
However, these amendments do include a power for the Secretary of State to make regulations which allow for a full or partial reversal of this scope restriction, allowing this requirement to retain old information and note the dates of changes to also be applied in future to traded companies, should it be judged to be useful and proportionate. In considering all the amendments in this group, I remind noble Lords that the UK already has one of the most open and accessible shareholder registers in the world. Disclosure of shareholder information is far from a global norm. In fact, the UK is one of relatively few international countries to have any publicly available shareholder information for companies not listed on its stock exchange. Noble Lords will know that many countries do not even disclose major shareholders or beneficial owners publicly.
The UK led by example with its public register of PSCs. We were the first G20 nation to institute such a register, back in 2016, and we have been a strong voice ever since in promoting the importance of collecting and sharing beneficial ownership information. Numerous jurisdictions, including the EU, the US and Australia, have been influenced by our approach. But a responsible Government must weigh carefully the benefits of further transparency regulations, and the inevitable rules, forms and penalties that would follow, against the costs and impact. The Government support the publication of accurate and useful shareholder information and we are one of the most open countries in the world in this respect—but do we need to go further, and if so how far? What really are we seeking to achieve?
There are over 10 million shareholders of UK companies. At a time when this Government are looking to reduce regulatory constraints on business, even small cost changes to shareholder obligations could very quickly add up to a large drag on our economy. I ask noble Lords to reflect carefully on the value of the amendments we are about to discuss. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I shall speak to the amendments in this group in my name, Amendments 16 and 17. I should remind the House of my interest in the register as a non-practising member of the Institute of Chartered Accountants in England and Wales. I also take the opportunity, since it is the first time I have spoken so far, to thank the various Ministers and their officials, and indeed the registrar and her staff, for their constructive engagement and the generosity they have shown with their time. The engagement process on the Bill has been exemplary. We are helped by the fact that this is generally agreed to be a fundamentally good Bill: we are all on the same side here, just trying to ensure that it is as good as it can be.
These two amendments are designed to improve the transparency of ownership of our companies, to ensure we know who really owns or controls them. I remind the House of the words of the Minister at Second Reading:
“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business”.—[Official Report, 8/2/23; col. 1250.]
I think we all agree with that.
One of the classic ways to hide the real ownership of a company is through the use of undisclosed nominee arrangements, where a shareholder is named on the register but is in fact holding the shares on behalf of another person. At present, while the company must try to identify any persons with significant control, or PSCs, according to the guidance, all it really needs to do is look at its shareholder register: if there is no shareholder with 25% or over, it can reasonably conclude that there is no person of significant control. For example, if a company has five shareholders, each with 20%, the company can reasonably conclude that there is no person with significant control that needs to be named or verified.
However, what if those five shareholders were in fact holding the shares on behalf of a single third party? That third party would then control 100%. There is an obligation under the PSC rules for that third party to tell the company, but a dishonest actor probably would not do so. The problem is that there is no obligation for the person who is acting as the nominee to disclose that fact, which makes it far too easy for a dishonest actor to hide their identity. The company has the right to ask the nominees, but, remember, the company in my example is controlled by the dishonest actor—so it will not do that. If it is asked, it can point to the fact that it has followed the guidance, having checked its register and not found anyone with a share of 25% of more. In fact, all the dishonest actor has to do to hide their ownership is find five willing people who are prepared to have their name on the shareholder register and hold the shares on behalf of the dishonest actor. There is no comeback for these nominees. They have no obligation to disclose.
Where does one find five such willing people? I suggest that noble Lords would find it interesting to google “nominee shareholders”. They will find pages and pages of businesses that will do this, with few questions asked, for around £200 to £300 a year. They advertise specifically that the nominee service is for the purpose of hiding the true identity of the shareholder. In passing, it is worth saying that many of the people offering such services are the same people who will be the authorised corporate service providers and will carry out the ID verification under this Bill. That introduces an interesting conflict, but I stress: under the current proposals, these people will be doing nothing wrong.
Amendment 16 aims to close this loophole by making it a requirement for shareholders to state, as well as their name and address, whether they are—or, importantly, are not—acting as a nominee. If they are acting as a nominee, they would have to provide the name and address of the person on whose behalf they are holding the shares. I said that it was important that they should state that they are not holding the shares on behalf of someone else; that is because they would then have to lie actively if they are a nominee but do not disclose it. I believe that there is a real difference between lying actively and just keeping quiet passively—that is, turning a blind eye, as has happened all too often in the past.
This simple step of making people declare whether they are a nominee should make it much more difficult for dishonest actors to find people willing to act as nominees. They will need to find someone who is willing actually to lie on the record rather than just to keep quiet. Having this information will make it much easier for companies to identify hidden PSCs. Knowing which shares are held by nominees will also assist Companies House and organisations such as Transparency International to focus their attention where the risk is greatest.
We have heard the Minister telling us that we have to be careful not to create too great a burden on legitimate businesses. I agree with him, but I do not think that this would do that. Shareholders already have to provide their name and address. I struggle to understand why it would add any material extra burden to have to make a simple declaration—perhaps even as simple as ticking a box—and to provide the details of the actual beneficial owner. I really do not see that as adding any significant additional effort. In any event, there are significant benefits that arise from a company structure; it really cannot be too much to ask that the beneficial owner of the shares is disclosed in return for having those benefits.
I turn now to my second amendment in this group, Amendment 17. The Bill introduces a welcome identity verification requirement for persons with significant control, but that applies only to shareholders who own 25% or more. I should say that I know the Minister will correct me on that point, because it also applies to those who might have below 25% of the shares but otherwise exert control. He would be right, but in practice the 25% level is the driver. As my previous example shows, it is quite easy to structure a company so that there is no apparent 25% shareholder. There is certainly a legitimate debate to be had over where the correct level to trigger identity verification should lie, but I do not hear many people arguing that it should be as high as 25%.
Amendment 17 would reduce the level to require identity verification from 25% to 5%. Why 5%? There are a number of precedents. For UK listed companies, 3% shareholdings must be disclosed, with an exemption for fund managers, who must disclose at 5%, so 5% is deemed of sufficient importance for all listed companies to disclose. The rules around entrepreneur relief, which gives a reduction in capital gains tax payable on a disposal, state:
“A company is your personal company if you hold at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in the company”.
So tax rules consider that 5% gives sufficient influence for the company to be treated as your personal company, and there is a high degree of consistency supporting a 5% level. As I say, though, there is potentially a debate to be had about that level.
Again, I am sure we will hear that we should not create an undue burden on innocent parties, so let us consider the impact of that. I understand that the average number of shareholders for UK companies is two, so for the average company the amendment would create no additional burden; they already have to verify the identity of their shareholders. It would apply only where a more complex shareholder structure has been created with a greater number of shareholders. Yes, it would create a little more work for them, but in fact it would only increase the maximum number of ID verifications required by a company from a maximum of four to a maximum of 20, which should be easily manageable. We are not talking about companies having to verify hundreds of IDs.
Both these amendments would make a significant difference to the transparency of the register, helping to ensure—to get back to the Minister’s words that I referred to earlier—that we make it more difficult for criminals to use anonymous or fraudulent shell companies. I will listen carefully to what he has to say in response, but I give notice that I intend to divide the House on at least Amendment 16 unless he is able to provide very strong assurances.
Baroness Blake of Leeds (Lab)
I thank the Minister for his comments on the government amendments. We support Amendments 16, 17 and 19. They would significantly help improve the integrity of the register. This issue has been raised in amendments throughout the passage of the Bill. While we welcome many of the other changes that the Government have made and the manner in which they have collaborated with colleagues to make the Bill stronger, the issue of nominees represents a weak point in the Bill. We must know which bad companies and actors are acting fraudulently in order to fight fraud, corruption and economic crime.
A point that has repeatedly been made is that, as things stand, shareholder information is incomplete. It is difficult to identify the real owners of certain companies, which reduces the reliability of shareholder information published by Companies House, which we are all determined to improve. That undermines the corporate register as a whole.
As I said, we support Amendments 16, 17 and 19. I was struck by the comments of the noble Lord, Lord Agnew, about the cost of fraud to the economy, which we need to keep front of mind when we are told to be concerned about the cost of putting these measures in place. I confirm that, if the noble Lord, Lord Vaux, is minded to test the opinion of the House on Amendment 16, these Benches will support him.
Lord Johnson of Lainston (Con)
I thank the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Agnew of Oulton for their amendments. If noble Lords allow me to, I will just set the scene.
We have made some significant advances in understanding who is behind a company and who is running these organisations, which is at the core of these measures. By understanding who the people with significant control are, we will be able to crack down on crime and the dirty money going through the system. That is at the core of it, as far as we are concerned; any other changes around that are fundamentally peripheral.
On a comment made by the noble Lord, Lord Vaux, a nominee is obliged to declare if they acting on behalf of a person with significant control, as is the company collecting the data. If they are acting as a nominee in a collective way to achieve a threshold of 25% or above, or acting as a person of significant control, that nominee has to declare themselves a person of significant control. There is no additional benefit from changing the rules to see how people who stand as nominees are listed as such. It is important for me, for Companies House, for this Government, for the House and, frankly, to reduce crime with this Bill to understand who is behind the companies, and these measures do that.
My concern, if we try to track every move, is that we will bring into the criminal and penalties regime a large number of people who do not necessarily know that they have to register—for example, if they are a registered nominee on behalf of a very small shareholder. We are concerned that we may go too far at this stage. We need to see how the work that Companies House does develops before expanding the regime.
I stress that the work that we have done on PSCs is at the core of the Bill. Most of the government amendments reframe the existing PSC information gathering and disclosure rules to make them clearer and to work more effectively with a centrally held PSC register. This may be covered a little later, but it is worth noting that it is not necessarily for the company to hold the register of PSCs any more; the registrar will now hold this information centrally.
The amendments we are proposing make provision to require more information to be provided by UK companies concerning the transparency of their ownership, including full explanations to be given by companies which claim they are exempt from the PSC requirements, and for notifications to be made to the registrar where a company believes it has no PSC. That is a relatively unique point but it is certainly possible, and so the company has to then explain why it has none. Every company will have a person of significant control listed and registered de facto; if it does not, it will have to explain why that is the case.
My noble friend Lord Agnew rightly pointed out that the average number of shareholders is two—I think it is actually 2.2. If you look at the 4.8 million or so companies that are registered and add up the numbers of companies with one, two or three shareholders, from memory—no doubt my officials will correct me—you would account for 80% of all companies, at around 4.1 million or 4.2 million. Some 3.7 million companies are held by one shareholder, who will automatically be a person of significant control. If you have two shareholders, the assumption is that you will probably have two shareholders with significant control, and so on. You are looking at a relatively small number of shareholders in the 10 million or so shareholders of the 4.8 million or so companies who would not necessarily fall, specifically and immediately, without debate, into the PSC legislation.
I turn to Amendments 19 and 16, put forward by my noble friend Lord Agnew and the noble Lord, Lord Vaux. I have some specific text about the improvements we are going to make to the Bill, and I will read it out to make sure I get the wording right on what we believe we can take to Third Reading. I stress that we welcome greatly the work we have done in this area, and I hope the noble Lord, Lord Vaux, sees the spirit with which I have entered into the debate, particularly around the issue of classifying who is a nominee and who is not. The Government have great sympathy with the intention around that, and I will come on to talk about it in a moment.
As I say, these amendments are not ones that we would be keen to accept. I do not believe they achieve their intent, and they risk disproportionate burdens on legitimate actors and Companies House. The Government considers that further amendment is not warranted because the provisions in the person with significant control framework already require the whole process of disclosure of a PSC behind a nominee. To reaffirm, if a nominee does not declare that they are acting on behalf of a PSC, or becomes a PSC on account of their nominee holdings, then they are committing an offence. I believe the company is also required to collect the information, so there are a number of tiers around this structure.
I emphasise to noble Lords one more time how the existing requirements achieve what we in this House want to achieve. Where a company sees that it has a shareholder with over 25% of the shares or voting rights, or otherwise knows or has reasonable cause to believe the shareholder may fall under the definition of a PSC, the company is obliged to check with the shareholder whether they are in fact a PSC, and the shareholder is obliged, on pain of criminal sanction, to respond.
It is worth mentioning to the House that we talk at length about the 25% threshold but, as the House well knows, a person with significant control can own one share in a shareholding of a billion shares and would still be registered as the PSC if they controlled the business. This legislation is quite well crafted, if I may say so, to ensure that we catch the people who are exercising control over these businesses.
I repeat that the shareholder is obliged, on pain of criminal sanction, to respond. If the person responds to deny that they are a PSC, despite meeting the share-ownership voting rights threshold for qualification, the implication is that they are holding the shares as a nominee for a PSC. Under the Bill, shares held by a person as nominee for another are treated as held by that other and not by the nominee for the purposes of assessing who a company’s PSCs are. That is an important point, and I hope it gives noble Lords some reassurance.
The Bill gives companies the power to require third parties to provide information about the PSC they are holding the shares for. The nominee commits an offence if they fail to respond or give a false statement in response. Amendments I will bring forward at Third Reading will make it easier to prosecute these offences—I will come on to this momentarily. The Government’s position is that it would not be proportionate to require all shareholders to state whether they are nominees or to provide information about who they are holding the shares for. If a company had cause to believe a minority shareholder knew who its PSCs were, the company already has the power to require the shareholder to provide that information.
If noble Lords’ proposals became law, they would be difficult to enforce effectively, and it is unlikely that bad actors would comply with the new requirements. This measure would create a large and expensive haystack with few, if any, needles to find inside. It would therefore serve only to impose new undue burdens on the law-abiding majority, which the Government are actively seeking to avoid. As several noble Lords heard directly from Companies House executives earlier this month, gathering more and more information on shareholders would risk diverting its resources away from material intelligence work and more harmful cases and into more administrative work. An important point to emphasise is that we want Companies House to focus on running an effective companies register and on catching the criminals who are abusing our system.
I am sure that noble Lords who have greater experience than me in this House—looking around, I cannot see one with less experience sitting on the Benches—will know that, if we make too prescriptive legislative statements for these operational entities, they can easily become distracted by the minutiae to try to get to the nth degree and, because of the implementation of the legislative processes placed upon them, not necessarily focus on the core tasks. I repeat again my sympathy and empathy with noble Lords putting these amendments forward. However, I am extremely concerned that they would place undue burdens on individuals, and in particular on Companies House, which would then be distracted from its duties. At the same time, we believe that we have brought in a strong framework which will ensure that we deter crime while allowing legitimate businesses to function.
I appreciate noble Lords’ concerns that the current framework may not always lead to the disclosure of all PSCs, and that having further information about minority shareholders acting as nominees could in theory be useful to help flush out undeclared PSCs. However, the Government’s position is that there is no evidence that any additional benefit would outweigh the costs to all companies and that the totality of measures in the Bill, such as the registrar’s new objectives and powers, will serve better to deter non-compliance and flush out such persons.
I now come to the undertaking to bring forward amendments at Third Reading. The amendment in the name of the noble Lord, Lord Vaux, has stressed the importance of the transparency of ownership and control of companies. The Bill already makes great strides forward in this area, as I am sure the noble Lord knows. However, after further review of the PSC framework and the changes made to it by the Bill, the Government have identified a number of necessary improvements, and I undertake to bring forward amendments to address this at Third Reading.
The current legislation allows companies to maintain their own PSC registers and to then notify the registrar of changes to those locally held registers. The Bill changes that framework so that after it is brought into force the registrar will maintain a central PSC register for all companies. Most of the amendments will reframe the existing PSC information-gathering and disclosure rules to make them clearer and work more effectively with a centrally held PSC register.
The amendments will include provisions which will enable those persons thought to be PSCs to confirm that they are, and to confirm their details before those are published. The amendments will also make provision to require more information to be provided by UK companies concerning the transparency of their ownership, including for explanations to be given by companies which claim they are exempt from the PSC requirements, and for notifications to be made to the registrar where a company believes it has no PSC. The amendments will align the drafting of false statement offences relating to the PSCs of UK companies with other similar offences in the Bill.
I regret that these amendments could not be finalised for Report, but, given the strength of feeling that noble Lords have demonstrated today on ensuring that this legislation is as robust as possible, I trust they will welcome them. We of course stand ready to engage with noble Lords on these amendments ahead of Third Reading.
Finally, on Amendment 17, put forward by the noble Lord, Lord Vaux, my officials have analysed what the cost to businesses would be should identity verification requirements extend beyond directors, PSCs and filers. As I mentioned to noble Lords, the individuals—as in the numbers of companies covered—will be broadly covered, in my estimation, to the tune of about 80% of the number of people who are single shareholders or shareholders of companies containing one, two or three, and then of course all the other companies, in theory except in rare circumstances, would have PSCs associated with them. The verification process will be deep and significant, and will cover many millions of people who will be required to formalise their identity through these processes.
This analysis estimates that introducing identity verification for all shareholders in non-traded companies could have a net annual direct cost to business of up to around £150 million. I will say that again, so that noble Lords may hear it: we believe that these measures, if introduced, could have a net annual direct cost to business of up to around £150 million. The costs and methodology have been published on GOV.UK, and I am happy to share them directly with noble Lords, if that would be of use.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 46, page 35, line 29.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a cross-reference in Schedule 2 to the Bill.
Lord Johnson of Lainston
“Use or disclosure of profit and loss accounts for certain companies
(1) The Companies Act 2006 is amended as follows.(2) After section 468 insert—“468A Use or disclosure of profit and loss accounts for certain companies(1) The Secretary of State may by regulations make provision requiring the registrar, on application or otherwise—(a) not to make available for public inspection profit and loss accounts, or parts of them, delivered to the registrar under—section 443A (micro-entities), orsection 444 (other small companies);(b) to refrain from disclosing such accounts, or parts of them, except in specified circumstances.(2) Regulations under subsection (1) which provide for the making of an application may make provision as to—(a) who may make an application;(b) the grounds on which an application may be made;(c) the information to be included in and documents to accompany an application;(d) the notice to be given of an application and of its outcome;(e) how an application is to be determined;(f) the duration of, and procedures for revoking, any restrictions on the making of information available for public inspection or its disclosure.(3) Provision under subsection (2)(e) or (f) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application or revoking the restrictions.(4) The circumstances that may be specified under subsection (1)(b) by way of an exception to a restriction on disclosure include circumstances where the court has made an order, in accordance with the regulations, authorising disclosure.(5) Regulations under subsection (1)(b) may not require the registrar to refrain from disclosing information under section 1110F (general powers of disclosure by the registrar).(6) Regulations under this section may in particular confer a discretion on the registrar.(7) Regulations under this section are subject to affirmative resolution procedure.”(3) In section 1087 (material not available for public inspection), in subsection (1), after paragraph (bb) insert—“(bba) the following— (i) any application or other document delivered to the registrar under regulations under section 468A (regulations protecting profit and loss accounts for certain companies);(ii) any information which regulations under section 468A require not to be made available for public inspection;”.”Member’s explanatory statement
This allows the Secretary of State to make regulations requiring the registrar not to disclose profit and loss accounts for micro entities and other small entities. The regulations might cover all such accounts or only accounts relating to certain descriptions of company (see section 1292 of the Companies Act 2006).
Lord Johnson of Lainston (Con)
My Lords, government Amendment 20 will give the Secretary of State the ability to make regulations to specify what aspects of the profit and loss account delivered by companies that qualify as micro-entities or small companies might be withheld from public inspection. Such regulations would also set out the parameters and circumstances in which the information may be withheld.
Currently, Section 468 of the Companies Act gives us the power to specify the form and content of the profit and loss account that is to be delivered to Companies House. However, it does not provide us with the power to collect information and then withhold it from public inspection. Making the profit and loss accounts of micro-entities and other small companies available to the public benefits users of the register, such as credit agencies. It is a highly valuable data source and would aid the detection of economic crime.
We are of the firm belief that the Bill’s provisions requiring such accounts to be delivered to Companies House are important additions to transparency requirements. We know that the minimal requirements that currently exist make incorporating as a micro-entity, or as another small company, open to abuse by those who wish to present a false picture of a company’s financial position. However, I am mindful of the concerns raised by some noble Lords and stakeholders about the potentially negative impacts on privacy and competition for small business owners; they point to the risk that increased transparency might lay SMEs open to unwelcome commercial pressures.
We have also received some correspondence from small business owners who are concerned that publishing accounts will, in effect, reveal their personal salary. For example, the director of a small accountancy company from London wrote to us to complain that publishing their profit and loss account would let their neighbours and competitors know what they earn. The owners of a small company from Shoreham-by-Sea have written to us to express their discomfort with their earnings being viewed by clients and subcontractors, who might seek to gain commercial advantage with the information. The Federation of Small Businesses today tweeted:
“Requirements to declare profits and losses would leave small firms open to a high level of risk. … Commercially sensitive information could be used against them by competitors and suppliers”.
To recap, we are not looking not to collect this information; we are looking to ensure that there is a full review in terms of what level of information we publish.
Following Royal Assent to the Bill, and prior to exercising this power, the Government will consult further with business groups, credit lenders, the accountancy sector, enforcement agencies and others to understand what, if any, information should be withheld from the public register. The amendment therefore gives the right level of flexibility to enable the Government to formulate a balanced approach between the information required to be included on the public register and the privacy of small businesses. I beg to move.
Lord Leigh of Hurley (Con)
My Lords, we have discussed this concept of disclosure at earlier stages. Of course, if a person does not want anything disclosed, they could become a sole trader or a limited liability partnership or a partnership, in which case very little, if anything, needs to be disclosed. My question and concern is just to understand the approach that government will take to this. Is it the intention just to give a blanket exemption for, perhaps, companies in defence or companies with complicated IP or companies in sensitive sectors? Is it to respond to those who make the request generally in the affirmative or to ask further questions to determine why a company should be exempted from disclosure? If a company simply asks to be exempted because it does not want its competitors to know, will that open the floodgate to everybody to do the same? I am not sure that “because we don’t want our competitors to know” is a particularly good reason, to be honest. I am therefore a little nervous about this clause, particularly because it is a bit vague. It just talks about regulations, and Section 1292 of the Companies Act 2006 is just an empowering section on regulations. We are opening the door very wide, and I hope that the Minister, in due course, will be able to give us some very clear guidance on what the Government have in mind.
Lord Johnson of Lainston (Con)
I thank my noble friend Lord Leigh and the noble Lord, Lord Vaux, for their comments. It is absolutely right that we have this brief discussion about this point. Just to reaffirm, the intention of the amendment is not to suppress information or increase opacity. It is to give the opportunity to be discretionary in terms of what is published and what is not published. Section 468 of the Companies Act provides us with the power only to prescribe the format that small and micro entity accounts are received in but not to differentiate between what is received and what is included on the public register. The first point, therefore, is that it just gives flexibility, which, I think, noble Lords will agree is sensible.
The second point is that we have received a number of representations from small and micro-entities that are naturally concerned about the publishing of information that relates specifically to their own wealth. There is concern that they may be open to a higher degree of fraud and that they will receive undue commercial pressures as a result of, say, a landlord being able to see what their turnover is and so adjusting their rent upwards accordingly, and so on. The point is that I am speculating.
If noble Lords will allow me to say so, the intention of this amendment is to allow us the flexibility to consult broadly with all stakeholders—I listed clearly that these include credit lenders, enforcement agencies, small businesses, micro-entities and others—in order to work out what the right level of information is. It may be all of it, but this amendment certainly gives the Secretary of State, in some situations and for some specific cases, an opportunity not to publish this information, although it will still be retained by Companies House. That flexibility is absolutely right; it is right that this House allows the Secretary of State that level of flexibility. It is also right that this House will no doubt engage in a meaningful and useful debate on levels of transparency, but at least we now have flexibility.
Lord Johnson of Lainston
Member’s explanatory statement
This has the effect that the registrar is required to make verification statements available for public inspection. A “verification statement” is the statement that an authorised corporate service provider is required to make to confirm that it has verified an individual’s identity.
Lord Johnson of Lainston (Con)
My Lords, as we discussed in Committee, identity verification is at the heart of the reforms in this Bill. It is essential that the framework for this is robust and reliable, including the role of authorised corporate service providers. I am therefore grateful for noble Lords’ continued input to ensure that the Bill is as effective as possible in this area, making sure that we really know who is interacting with Companies House.
This group of amendments contains several measures to strengthen arrangements, including in response to sensible suggestions put forward by the noble Lord, Lord Vaux of Harrowden, and my noble friend Lord Agnew of Oulton. This is a significant package of measures from the Government to improve the Bill and address the concerns of the House. I very much hope that the House will therefore support these amendments.
I turn first to government Amendments 21 and 22. This group of amendments relates to the verification statements that authorised corporate service providers, known as ACSPs, must deliver to the registrar when they verify an individual’s identity. Amendment 21 will require that all verification statements are made publicly available on the register. This responds directly to concerns raised by Members of both this House and the other place—including the noble Lords, Lord Vaux and Lord Fox—by increasing the transparency of the verification checks carried out by ACSPs. The statements will be made public.
Amendment 22 requires ACSPs to specify their anti-money laundering supervisor—or supervisors if they have more than one—on the statement. It also enables the Secretary of State to make further provisions regarding the contents of the statements via regulations so that this can be adapted if there is ever a need for different information to be available in the public domain. These regulations will be subject to the affirmative procedure to ensure appropriate scrutiny. Our intention is to align ACSP verification statements with those required for overseas entities under Section 16(2) of the Economic Crime (Transparency and Enforcement) Act 2022. Given that this area was previously discussed in Committee, I very much hope that noble Lords will support these amendments.
I turn now to government Amendments 34, 35 and 37. Reflecting on contributions made by noble Lords in Committee, for which I express my gratitude, my officials have been scrutinising the ACSP framework and looking for ways to strengthen it. Amendment 34 therefore clarifies that regulations can be made that impose duties on ACSPs to provide information to the registrar where this relates to monitoring compliance with any requirements under any part of the Companies Act 2006. This includes the requirement to carry out identity checks to the correct standard. It removes any ambiguity in the original drafting, ensuring that the information that can be requested is not limited to information relating specifically to Clause 64 only.
This is important as it means that there is no uncertainty regarding the use of the power to make ACSPs provide information on the identity checks that they carry out, the detail of these checks being in Clause 63. Tightening up the wording in this manner therefore ensures that the registrar will have the right tools to monitor ACSP compliance—something that the Government take very seriously. We want only legitimate actors to perform these identity checks and make filings on behalf of others.
Baroness Blake of Leeds (Lab)
I rise just to add our support for the amendments. I emphasise the concern that has been raised in Amendment 93 from the noble Lord, Lord Agnew, in terms of recognising the significant function that HMRC has. I listened to the noble Lord, Lord Leigh, with interest. I think there is some issue with looking at the two functions equally and making sure there is no conflict between them.
Lord Johnson of Lainston (Con)
I thank all noble Lords who have spoken during this debate, and I am grateful, personally, for the kindness they have shown to me as a new Minister on this Bill over the last few months. I am grateful for the high degree of collaboration and the sense of common purpose that all Members of this House have shown in trying to create a truly effective Bill to change—after 170 years—Companies House and what it can do for companies and to eradicate crime at the same time. I thank all noble Lords, my officials and the Government for the work we have done together.
However, we have not finished; we are only half way through. I thank my noble friend Lord Agnew for his Amendment 33. I appreciate the strength of feeling, but we would not wish to impose a duty on Companies House to carry out, as he has described, risk assessments. All ACSPs must be supervised for anti-money laundering purposes, and supervisors will already carry out risk assessments on them. I am aware of the concerns surrounding the supervisory regime, and I can confirm that the Treasury will publish a consultation on its structural reform. I believe this is to take place within the next month, which is very important and will be welcomed by this House and help inform further debate.
As I have just set out, the Government have tabled amendments to strengthen the ACSP regime, enabling Companies House to act if it has knowledge that a person is not fit and proper to carry out the functions of an ACSP, and to strengthen the registrar’s powers to request information. We are enabling the registrar to focus her attention on high-risk ACSPs rather than making it a duty to do so. A duty would reduce her operational flexibility—for example, inadvertently preventing her spot-checking the identity verification done by lower-risk ACSPs. We engaged with the registrar fruitfully on this subject only a few weeks ago. It is for these reasons that I urge my noble friend not to move his amendment.
I turn to Amendment 93. While the Government agree wholeheartedly on the crucial role that supervision must play in tackling economic crime, we are not keen to support this amendment. Under money laundering regulations, HMRC already has anti-money laundering supervisory functions and it takes them very seriously. HMRC is one of 25 supervisors of the money laundering regulations, alongside the Financial Conduct Authority, the Gambling Commission, and 22 accountancy and legal professional bodies. HMRC supervises around 30,000 businesses across nine sectors.
HMRC’s anti-money laundering supervisory function is resourced through the fees that it collects from the businesses it supervises, and these fees are solely for use by HMRC’s anti-money laundering supervisory function. HMRC attaches great importance to its anti-money laundering work, including its supervisory function. For example, in 2022-23, HMRC carried out over 3,200 anti-money laundering compliance interventions, including desk-based reviews and face-to-face visits. It also refused 439 applications to register from businesses considered inappropriate or unsuitable. The number of staff working on supervisory activity has more than doubled from 197 in 2018 to 397 in 2023; in 2022-23, they issued a total of 770 penalties, totalling £5.5 million. Specifically, £1.2 million of this amount came from trust or company service providers.
HMRC also works to help businesses understand the risk of money laundering. In 2022-23, its relevant web pages saw nearly 475,000 hits and it issued 850,000 alerts to businesses telling them about changes to law, inviting them to webinars or raising awareness of emerging risks.
The proposed amendment would duplicate the work that HMRC already does. It could make HMRC responsible for all anti-money laundering supervision, when Regulation 7 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 states that certain persons are subject to supervision by certain supervisors. For example, it states that
“the FCA is the supervisory authority for … credit and financial institutions”.
So it would not make sense to mandate that HMRC supervises them. HMRC would not necessarily have the expertise that it would need to supervise all sectors—for example, lawyers or large-scale financial institutions—and it would cut across existing regulatory relationships such as those between the banks and the FCA.
In conclusion, I urge noble Lords once more to support the government amendments that I outlined earlier, which address specific concerns raised during our debates. I believe they will deliver our shared ambition for a robust ACSP framework.
Lord Johnson of Lainston
“(2A) A verification statement must also specify the authorised corporate service provider’s supervisory authority or authorities for the purposes of the Money Laundering Regulations.(2B) The Secretary of State may by regulations make further provision about the contents of verification statements (including provision amending this section).”Member’s explanatory statement
This amendment requires a verification statement to specify the authorised corporate service provider’s supervisory authority or authorities. It also confers a regulation-making power to make further provision about the contents of verification statements.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on my amendment to page 59, line 36.
Lord Johnson of Lainston
Member’s explanatory statement
This ensures that the registrar can obtain information about compliance with provisions such as new section 1110B of the Companies Act 2006 (see Clause 63), including from former authorised corporate service providers (including suspended providers).
Lord Johnson of Lainston
“(zi) after “may” insert “by regulations”;”Member’s explanatory statement
This amendment corrects a mistake in section 1082(1) of the Companies Act 2006 by spelling out that the power conferred by that subsection is exercisable by regulations (that this was always the intention is clear from the subsequent subsections).
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 69, page 64, line 10.
Lord Johnson of Lainston
“Registrar’s power to strike off company registered on false basis
(1) The Companies Act 2006 is amended as follows.(2) After section 1002 insert—“Registrar’s power to strike off company registered on false basis1002A Power to strike off company registered on false basis(1) The registrar may strike a company’s name off the register if the registrar has reasonable cause to believe that—(a) any information contained in the application for the registration of the company, or in any application for restoration of the company to the register, is misleading, false or deceptive in a material particular, or(b) any statement made to the registrar in connection with such an application is misleading, false or deceptive in a material particular. (2) In subsection (1) the reference to an application includes any documents delivered to the registrar in connection with the application.(3) The registrar may not exercise the power in subsection (1) unless—(a) the registrar has published a notice in the Gazette that, at the end of the period of 28 days beginning with the date of the notice, the name of the company mentioned in the notice will, unless cause is shown to the contrary, be struck off the register and the company will be dissolved, and(b) the period mentioned in paragraph (a) has expired.(4) If the registrar exercises the power in subsection (1), the registrar must publish a notice in the Gazette of the company’s name having been struck off the register.(5) On the publication of the notice in the Gazette the company is dissolved.(6) However—(a) the liability (if any) of every director, managing officer or member of the company continues and may be enforced as if the company had not been dissolved, and(b) nothing in this section affects the power of the court to wind up a company the name of which has been struck off the register.”(3) In section 1024 (application for administrative restoration to the register), in subsection (1), for the words from “section” to the end substitute “—(a) section 1000 or 1001 (power of registrar to strike off defunct company), or(b) section 1002A (power of registrar to strike off company registered on false basis).”(4) In section 1025 (requirements for administrative restoration), for subsection (2) substitute—“(2) The first condition is that—(a) in the case of a company struck off the register under section 1000 or 1001, the company was carrying on business or in operation at the time of its striking off;(b) in the case of a company struck off the register under section 1002A, at the time of its striking off, the registrar did not have reasonable cause to believe the matter set out in section 1002A(1)(a) or (b).”(5) In section 1028A (administrative restoration of company with share warrants), in subsection (1), for “or 1001” substitute “, 1001 or 1002A”.(6) In section 1029 (application to court for restoration to the register), in subsection (1)(c)—(a) omit the “or” at the end of sub-paragraph (i);(b) after that sub-paragraph insert—“(ia) under section 1002A (power of registrar to strike off company registered on false basis), or”.(7) In section 1030 (timing for application to court for restoration to the register), in subsection (5)(a), after “company)” insert “or section 1002A (power of registrar to strike off company registered on false basis)”.(8) In section 1031 (decision on application for restoration by the court), in subsection (1)—(a) after paragraph (a) insert—“(aa) if the company was struck off the register under section 1002A (power of registrar to strike off company registered on false basis) and the court considers that, at the time of the striking off, the registrar did not have reasonable cause to believe the matter set out in section 1002A(1)(a) or (b);”; (b) in paragraph (c), for “other case” substitute “case (including a case falling within paragraph (a), (aa) or (b))”.”Member’s explanatory statement
This Clause amends the Companies Act 2006 to confer on the registrar a power to strike off a company where the company was registered on a false basis, and makes provision for restoration of such a company to the register.
Lord Johnson of Lainston
“(1A) In section 9 (registration documents), omit subsection (3).”Member’s explanatory statement
This is consequential on the other amendments made by Clause 69.
Lord Johnson of Lainston
Member’s explanatory statement
This allows officers as well as employees or authorised corporate service providers to deliver documents on behalf of a disqualified person.
Lord Johnson of Lainston
“(4A) Regulations under this section may in particular confer a discretion on the registrar.” Member’s explanatory statement
This amendment enables any provision made by regulations under new section 1094A of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on my amendment to Clause 88, page 76, line 11.
Lord Johnson of Lainston
“(ba) any function of the Secretary of State under or in connection with regulations under section 1 of the Sanctions and Anti-Money Laundering Act 2018 that make provision in connection with licences of the kind mentioned in section 15(3A) of that Act;”Member’s explanatory statement
This enables fees set under the Companies Act 2006 to be set at a level to cover the Secretary of State’s costs in connection with licences for people who are subject to director disqualification sanctions under the Sanctions and Anti-Money Laundering Act 2018.
Lord Johnson of Lainston
“(1A) In section 243 (permitted disclosure by registrar), for subsection (6) substitute—“(6) Regulations under subsection (4) may in particular confer a discretion on the registrar.(6A) Provision under subsection (5)(d) may in particular provide for a question to be referred to a person other than the registrar for the purposes of determining the application.””Member’s explanatory statement
This amendment enables any provision made by regulations under section 243 of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) ”Member’s explanatory statement
This amendment and my other amendment to Clause 101 would mean that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing; at the moment it is the other way around so that criminal proceedings cannot be continued once a penalty is imposed.
Lord Johnson of Lainston
“(4C) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097A of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(11A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097B of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(11A) Regulations under this section may in particular confer a discretion on the registrar.” Member’s explanatory statement
This amendment enables any provision made by regulations under section 1097C of the Companies Act 2006 to confer a discretion on the registrar.
Lord Johnson of Lainston
“(3) In this section “the Companies Acts” has the meaning given by section 2(1) of the Companies Act 2006.”Member’s explanatory statement
This amendment inserts a definition of “the Companies Acts” into the Limited Partnerships Act 1907.
Lord Johnson of Lainston (Con)
My Lords, the amendments in this group relate to Part 2, which includes a number of reforms to prevent the abuse of limited partnerships. These measures are incredibly significant and will enable fundamental change in the transparency of limited partnerships while maintaining their crucial position as legitimate vehicles for doing business. They are the biggest changes to the legal framework for limited partnerships since the Limited Partnerships Act 1907.
We must keep in mind that limited partnerships, including Scottish limited partnerships, facilitate legitimate and important commercial activity. They are used across the UK in a variety of sectors, particularly in the private equity and venture capital industry, as well for a variety of other purposes, such as oil and gas exploration and production and real estate.
The measures in the Bill were formulated after several rounds of consultation to deliver the right balance of more transparency without undermining the use of these structures by legitimate business. The British Private Equity and Venture Capital Association reports that, in 2021, £17.3 billion was invested into UK companies from private equity and venture capital, with nine in 10 investments directed at small to medium-sized enterprises. We do not want to disrupt this activity, nor the 2 million or so people who are employed by companies backed by private equity and venture capital who use these vehicles.
Before I turn to the government amendments, it may be helpful to clarify a few points about the structure and principles of limited partnerships. These are business associations made up of one or more general partners who are responsible for the management of the partnership, and one or more limited partners who cannot partake in management and whose liability is limited to the amount they invest. In the Bill, to achieve more clarity over limited partnerships and those who have influence and control over the partnership, the Government have rightly focused on creating more transparency over the partners, and specifically the general partners. The Bill already ensures that, in future, we will know the names, addresses and dates of birth of all partners in a limited partnership, and all of this information will need to be confirmed at least annually. It is important to have these points in mind before we turn to the amendments tabled by my noble friend Lord Agnew.
In the meantime, I have a handful of minor government amendments to Part 2, which concerns limited partnerships—Amendments 58, 59, 60 and 61. These are required, in the most part, to correct drafting errors, by adding missing definitions and removing ones which are not essential. Amendment 60 is a minor change to the information that has to be delivered by general partners of a limited partnership when they give their annual confirmation statement. It means that a notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified. I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I shall speak to my Amendments 63, 69 and 70. Again, I am grateful to my noble friend the Minister for his engagement and for his detailed letter to me recently to allay many of my concerns.
The Bill goes a long way to deal with the opacity of LLPs and LPs. It is very important that we regard them as similar in the level of transparency needed as we would consider for a company. We know there have been plenty of examples in the past where they have been used as a front for a lot of very bad activity.
I am not going to press my amendments today, and I thank my noble friend the Minister for his amendments. He has said to me that the Government plan to bring forward some work very soon after the Bill. I would be quite interested if he could just give us some sense of the timescale for this work. His brief said:
“Following Royal Assent, the Government intend to bring into force provisions to require a company director to be a natural person, with limited exemptions for corporate directors”.
If my noble friend could give us a timeline for that, I would be most grateful.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment removes the definition of a term that is no longer used in the section.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment means that notice changing a general partner’s registered officer must be delivered at the same time as a confirmation statement, if the registered officer is not ID verified.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a mistake. A statement under 8R(4) is not required to confirm that an individual is an individual whose identity is verified.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 91, page 77, line 34.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Clause 142, page 138, lines 18 to 25.
Lord Johnson of Lainston
“Information about changes in beneficiaries under trusts
(1) Schedule (Duty to deliver information about changes in beneficiaries) (duty to deliver information about changes in beneficiaries) imposes further duties on registered overseas entities to deliver information.(2) The amendments made by paragraph 2 of Schedule (Duty to deliver information about changes in beneficiaries) do not apply in relation to any statements or information delivered to the registrar under section 7 of the Economic Crime (Transparency and Enforcement) Act 2022 during the period of 3 months beginning when that paragraph comes fully into force.”Member’s explanatory statement
This introduces the new Schedule to which it refers and makes transitional provision.
Lord Johnson of Lainston (Con)
My Lords, as noble Lords well know, the Economic Crime (Transparency and Enforcement) Act 2022 created a new register of overseas entities, requiring overseas companies owning or buying property in the UK to give information about their beneficial owners to Companies House. The register launched successfully on 1 August 2022, and companies in scope that already owned property had until 31 January 2023 to apply for registration. As of 18 June, more than 28,000 entities out of some 30,000 had registered, which represents a very good rate of initial compliance. Since 1 February, all non-compliant companies have been restricted in their ability to sell, lease or raise finance over their land; this remains the case until they comply. Companies House is beginning the process of assessing cases for additional action. This second economic crime Bill we are debating today makes a number of changes to further strengthen the register.
I will speak first to Amendment 85, a fairly minor amendment that the Government have tabled to strengthen the register. Schedule 6, which was inserted into this Bill in Committee, sets out the anti-avoidance measures that we debated a few weeks ago. These measures require that beneficial owners must report every change in beneficiary for the relevant period to Companies House. The anti-avoidance measures are effectively time limited because they impose a requirement on overseas entities to make a one-off submission to Companies House as part of their annual update. The Government have decided that it is therefore appropriate to limit the time within which the power related to them can be exercised; this demonstrates the Government’s intention to use the power only for the purposes that I described during our previous debate. The measures include a power to exclude descriptions of beneficial owners from the requirement to comply with Schedule 6. As I set out in Committee, this power will be used to exclude structures such as large pension trusts, where this requirement would be disproportionately burdensome.
Furthermore, turning to Amendment 86, because regulations made using this power may engage issues of devolved competence in Scotland, we have inserted a mechanism to ensure that Scottish Ministers must be consulted before regulations are made, if those regulations would be within Scottish legislative competence. These minor changes to the power will have no impact on the effectiveness of the anti-avoidance measures. I hope noble Lords will agree that they are appropriate.
During the passage of this Bill many concerns have been expressed about the use of trusts. I note that my noble friend Lord Agnew of Oulton has tabled Amendment 89, which would require Companies House to publish information about trusts that is obtained for the register of overseas entities but that is not available for scrutiny. The Government have tabled a number of amendments that are intended to address concerns in this area.
Amendment 71 will strengthen the reporting requirements and close a potential gap in the information provided to Companies House. Overseas entities registered on the register of overseas entities are required to update annually the information that they have provided to Companies House. They must provide an update that includes all in-year changes to the entity’s beneficial owners. Where the entity is associated with a trust, only a snapshot of the trust information is currently required to be provided with the annual update. This leaves a small risk that a beneficiary determined not to be registered might use convoluted means to ensure that they are not a beneficiary at the time of the update but become so immediately afterwards.
We have discussed this issue at length, and I hope noble Lords are pleased with the amendment that we are bringing forward at this time. It will ensure that in-year changes to beneficiaries must be reported to Companies House in the same way as is required for beneficial owners. There is nowhere to hide. Information supplied to Companies House via this amendment will be required to be verified along with all the other information that is being provided.
The amendment also includes a power for the Secretary of State to make exceptions to the duty to provide the in-year beneficiary information. This power will be used to exempt structures such as large pension fund trusts, where it would be disproportionate to expect them to provide every change that occurs in a given period. A number of multinational corporations use trust structures for their pension funds. One example we are aware of, which is a British multinational, is a fund registered on the register of overseas entities with over 8,000 beneficiaries. There are numerous and regular changes to the beneficiaries in circumstances such as this and the Government consider it unreasonable to expect such structures to deliver the new information that will be required.
Before regulations under this power are made, the Secretary of State must consult the Scottish Ministers and Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence. A number of consequential amendments, Amendment 76, 77 and 84, are also required so that the new provisions work as intended.
I turn to government Amendment 78. We have listened to the strength of feeling among parliamentarians, on all sides and in both Houses, that information about trusts supplied to Companies House as part of the registration of an overseas entity should not be withheld from public inspection. I stress that all the information held by Companies House about trusts is available to HMRC and law enforcement bodies. While the Government remain of the view that, in most circumstances, it is appropriate to withhold information about trusts, good arguments have been made that more transparency is required. In particular, it would seem appropriate to allow certain people, such as investigative journalists, to access the information under certain circumstances.
That is why we are tabling an amendment to create a regulation-making power by which the Secretary of State can set out details of who may apply to access trust information, how to apply and the circumstances in which an application can be made. To achieve this, we will also need to widen the scope of the protection regime in Section 25 of the Economic Crime (Transparency and Enforcement) Act to allow for people who are involved in trust arrangements—settlors, beneficiaries et cetera—to make an application. This does not require an amendment to this Bill as it can be achieved via regulations using the Section 25 power.
The Government intend to use this new power to provide a mechanism for access that is as straightforward as possible. My officials will work with Transparency International and other stakeholders and prepare regulations as soon as possible. I am happy to commit to keeping interested Peers informed and involved. Minister Hollinrake and I will keep a close eye to ensure that the processes Companies House put in place off the back of these regulations are indeed straightforward.
There will be some information that will not be appropriate for release, such as the day of date of birth of a person or their usual residential address. These will remain protected. In addition, given that most trusts are family affairs, and many are set up for minors or other vulnerable people, there may be other reasons why a given piece of information may not be suitable for release.
Before regulations under this power are made, the Secretary of State must consult with the Scottish Ministers and the Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence.
Finally, this group contains minor and technical Amendments 87 and 88. I hope that these amendments, in addition to the mechanisms already in place on the register of overseas entities, will provide sufficient reassurance to noble Lords and I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I have submitted Amendments 72 and 73 in this group.
Amendment 72 is designed to close an anomaly that arose in part because of the rushed nature of the emergency first Economic Crime Act. Unlike any other corporate register that I can think of, the register of overseas entities is required to be updated only annually. In contrast, the register of persons with significant control of UK Companies must be updated within 14 days of the company becoming aware of the change. This does matter. It means that the register can be as much as a year out of date, with changes potentially made to who owns or controls the overseas entity in the meantime.
The purpose of the register is to ensure that we know who owns UK property, so this anomaly creates a very real gap. There is a risk, for example, that an innocent third party could unknowingly find themselves buying a property from a sanctioned individual, thus allowing that sanctioned individual to realise and export the value of the property. By the time the register is updated, perhaps many months later, the money will be long gone.
There was a rather technical reason why we could not close this anomaly at the time of the first Act. The main penalty for failing to update the register is that property transactions cannot be registered. That would create a risk for an innocent buyer, if the register had to be updated within 14 days, because the innocent buyer could not know whether or not the company was in breach, and therefore the innocent party might not be able to register the transaction.
Lord Ponsonby of Shulbrede (Lab)
My Lords, we too will support the amendments if they are pressed by both noble Lords in due course.
The government amendments in this group are technical in nature and address the issues to do with overseas trusts, trust transparency and various anti-avoidance mechanisms.
I am glad to hear about the wonderful meals that the noble Lord, Lord Wallace, has had in Switzerland over the years, but I am sure that you learn a lot from those sorts of experiences about the sophistication of the types of arrangements which we are talking about.
As usual, the noble Lord, Lord Vaux, has done the House a favour, and we will support Amendment 72 if he presses it to a vote. He is proposing a practical solution to a current anomaly in the register, which he explained very fully. I know that the noble Lord, Lord Agnew, has been working tirelessly on the issues to which he just spoke, and if he indeed chooses to press his Amendment 73A to a vote, we will support him there as well.
Lord Johnson of Lainston (Con)
I thank noble Lords for their input to this important debate and, as always, I thank the noble Lord, Lord Vaux, and my noble friend Lord Agnew.
I will first attend to the matter of information transparency in respect of trusts on the register. It is important to clarify a few points. First, this information is being recorded at Companies House, so at no point are trusts or individuals able to conceal the information from law enforcement authorities or from the registrar, and that is an incredibly important point that noble Lords made. We are not discussing here about not collecting information or about not enforcing the collection of information—the liabilities and penalties that go with non-application of the information. We are talking about the publication of information, and it is important that we make that clear.
Secondly, we have listened carefully to all sides of this House and have introduced an additional amendment to enable interested or relevant parties to access the information held at Companies House on these trusts. This was not initially in the Bill either in the other place or here but, after very sensible discussions with myself—I hope noble Lords will agree that they were sensible—it is absolutely right that there is an opportunity for people to access the register. That is an important point again; I would not like this debate to be one-sided. This is not a situation where a Government are somehow trying to protect people or to allow them to obscure their assets or to commit crimes through opacity. This is about a workable system that allows our economy to function but at the same time provides essential safeguards that no Member of this House would like to see derogated. We have introduced a public interest access amendment, which will enable investigative journalists and other specific entities to access and make inquiries as to the beneficial ownership of trusts.
My noble friend Lord Agnew made an inquiry as to the use of the word “may” in giving permissions. As I understand it, that is simply the legal term that is used in these cases. I am happy to seek further advice around that but I do not think that necessarily changing one word would make the difference that my noble friend seeks. The important point is that we have made this commitment. This is a dramatic change from two months ago, when we started having these conversations. The Government as a whole, and many individuals within that Government, are extremely keen to see transparency brought to bear on this register and to enable people access to trust beneficiaries. There has been a fruitful and deep debate about it.
Lord Johnson of Lainston (Con)
My apologies, it is the register of overseas entities. I thank the noble Lord for the correction.
I can see where the noble Lord is coming from here, but I think we have to be quite careful. Perhaps I might be allowed to go through some specific points which may help this House come to a better conclusion, and then the final point is relatively brief.
It remains the case that the Government do not believe that these amendments will achieve their aim without causing additional burdens on both overseas entities and third parties, or without adding a further layer of risk and complexity for third parties transacting with the entity. Again, I stress my significant sympathy with the noble Lord for this amendment and with the people who support this amendment. Personally, I am extremely desirous of making sure that we have timely information that could be presented, but there are specific technical reasons why we would resist this. However, we would be delighted to have further conversations. It is important that the Government get the balance right between ensuring that we know who the beneficial owners of these entities are and continuing to provide a welcoming investment environment. I would not underestimate the need for a simple structure that enables people to use our systems as company structures in order to do business here and in the rest of the world.
In England and Wales, the Land Registry estimates that it receives around 3,000 applications each month affecting titles registered to overseas entities. Around two-thirds of these are registrations of leases, transfers or charges. Each of these transactions would trigger the proposed requirements. This is the point of having to register at each transaction. Even if the update is simply a statement confirming that there are no changes to report, the statement must be verified each time, filed at the right time and repeated if the completion date of the transaction changes. That is important to note, because anyone who has been involved in a property transaction knows that the transaction date can change regularly and I do not think it is necessarily proportionate for these entities, particularly when we have made it very clear—and this is thanks to the interventions of noble Lords on all sides of the House—that we are ensuring that the history of activity in these trusts is properly recorded, so there is, as I believe the noble Lord, Lord Fox, said, nowhere to hide. Also, 14 days is considered to be a challenging timeframe within which to require an update, especially given that it is required to be verified before submission to Companies House. Again, I sympathise with the concept, but the practicalities and mechanics of this are believed to be highly impractical.
As I have mentioned, some overseas entities would have to make many updates each year. Any noble Lords who have bought a property will know that completion dates can change, which can be very frustrating. Every time they change you would be required to provide the register with further information no more than 14 days before the new completion date and have that information verified. This would be burdensome.
My officials have also informed me that, in discussions on this amendment, while the Law Society understood the purpose of the amendment, it also highlighted how onerous it could be in least some situations. It expressed serious concerns about the drafting of the amendment relating to the provision of a statement no more than 14 days before the completion date of a transaction. The Law Society of Scotland, in discussion with my officials, also expressed reservations—so we have the Law Society and the Law Society of Scotland expressing significant reservations. I do not think any noble Lord in this House would want to go against the significant reservations of either the Law Society or the Law Society of Scotland, which have significant concerns about the potential negative impact on the Land Register of Scotland and people transacting with overseas entities.
I believe that this amendment would be disproportionate. We have made significant changes to how activities are reported, so that no one can hide in the accounts of these entities, which previously they could, by selling and buying during the process of the annual update. I ask the noble Lord, Lord Vaux, not to move his amendment.
I thank the noble Lord, Lord Vaux, for tabling Amendment 73. It relates to scenarios in which land is held by an overseas entity under a nominee arrangement. For example, a trust can instruct a law firm to act on its behalf as a nominee and the law firm therefore appears on the register in its capacity as the registered beneficial owner of the overseas entity holding the land. The overseas entity is required to provide information about its beneficial owners to Companies House. However, in this case, because the law firm nominee is not a trustee of the trust that has instructed it, no information about the trust is required to be provided.
We agree that this gap in the requirements should be closed. I thank the noble Lord for his input and, along with Transparency International, for bringing it to our attention. However, the drafting of the amendment is not quite right, so I cannot accept it today. Instead, the Government will undertake to table an amendment to address this gap at Third Reading. I trust this will satisfy the noble Lord. and respectfully ask him not to move his amendment.
Lord Johnson of Lainston
“(ba) any application or other document delivered to the registrar under regulations under section 23(1A) (disclosure of protected trusts information);”Member’s explanatory statement
This means that applications or other documents delivered to the registrar under new section 23(1A)(inserted by my other amendment to Clause 162) are not to be made available for public inspection as part of the register of overseas entities.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to insert a new Schedule before Schedule 6.
Lord Johnson of Lainston
“24 Consultation about regulations under section 23(1) The Secretary of State must consult the Scottish Ministers before making regulations under section 23 that contain provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(2) The Secretary of State must consult the Department of Finance in Northern Ireland before making regulations under section 23 that contain provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State under section 8 of the Northern Ireland Act 1998.””Member’s explanatory statement
This requires the Secretary of State to consult before making regulations about the disclosure of protected trusts information (see my amendment to Clause 162, page 152, line 16) if that provision would be within the legislative competence of the Scottish Parliament or Northern Ireland Assembly.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment is consequential on my amendment to page Clause 163, page 153, line 21.
Lord Johnson of Lainston
“(4A) Regulations under this section may in particular confer a discretion on the registrar.”Member’s explanatory statement
This amendment enables any provision made by regulations under new section 28A of the Economic Crime (Transparency and Enforcement) Act 2022 to confer a discretion on the registrar.
Lord Johnson of Lainston
“Financial penalties: interaction with offences
In section 39 of the Economic Crime (Transparency and Enforcement) Act 2022 (financial penalties), in subsection (4)—(a) for paragraph (a) (but not the “and” at the end) substitute—“(a) no financial penalty may be imposed under the regulations on a person in respect of conduct amounting to an offence if—(i) proceedings have been brought against the person for that offence in respect of that conduct and the proceedings are ongoing, or(ii) the person has been convicted of that offence in respect of that conduct,”;(b) in paragraph (b), omit “or continued”.”Member’s explanatory statement
This amendment provides that regulations must provide that no financial penalty may be imposed on a person in respect of whom criminal proceedings are ongoing; at the moment it is the other way around so that criminal proceedings cannot be continued once a penalty is imposed.
Lord Johnson of Lainston
“SCHEDULE 5A DUTY TO DELIVER INFORMATION ABOUT CHANGES IN BENEFICIARIES1_ The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.2_(1) Section 7 (updating duty) is amended as follows.(2) In subsection (1)(a) and (b), for “statement and information mentioned” substitute “statements and information mentioned”.(3) In subsection (3)—(a) omit the “and” at the end of paragraph (a);(b) at the end of paragraph (b) insert “, and(c) the statement in row 1 of the table set out in subsection (4A), or the statement and information listed in row 2 of that table.”(4) In subsection (4)—(a) omit the “and” at the end of paragraph (a);(b) at the end of paragraph (b) insert “, and(c) in the case where the information provided under subsection (1)(b) includes information that a person who ceased to be a registrable beneficial owner was a trustee, the statement in row 1 of the table set out in subsection (4A), or the statement and information listed in row 2 of that table.”(5) After subsection (4) insert—“(4A) This is the table referred to in subsections (3)(c) and (4)(c)—
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust at a time during the update period when the trustee was a registrable beneficial owner of the overseas entity. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each such person, or so much of that information as the entity has been able to obtain. 2. The date on which that person became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information.” |
Statement | Information | |
1 | A statement that the entity has no reasonable cause to believe that anyone became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | |
2 | A statement that the entity has reasonable cause to believe that at least one person became or ceased to be a beneficiary under the trust at a time during the relevant period when the trustee was a registrable beneficial owner of the overseas entity. | 1. The information specified in paragraph 8(1)(d) of Schedule 1 about each such person, or so much of that information as the entity has been able to obtain. 2. The date on which that person became or ceased to be a beneficiary under the trust, if the entity has been able to obtain that information.” |
This requires an overseas entity that has a beneficial owner who is a trustee to provide information about changes in beneficiaries under the trust that take place during an update or other period (rather than just providing a snapshot of the beneficiaries at the end of the period).
Lord Johnson of Lainston
“(1A) No regulations may be made under sub-paragraph (1) after the end of the period of two years beginning with the day on which the Economic Crime and Corporate Transparency Act 2023 is passed.”Member’s explanatory statement
This provides that the power to make regulations under new paragraph 9 of Schedule 6 to the Economic Crime (Transparency and Enforcement) Act 2022 (exclusion of descriptions of registrable beneficial owner) cannot be used after the end of the period of two years beginning with the day on which the Bill receives royal assent.
Lord Johnson of Lainston
“““the Companies Acts” has the meaning given by section 2(1) of the Companies Act 2006;”Member’s explanatory statement
This amendment inserts a definition of “the Companies Acts” into the Economic Crime (Transparency and Enforcement) Act 2022.
Lord Johnson of Lainston
“(1A) In section 21 of the Land Registration etc. (Scotland) Act 2012 (application for registration of deed), the subsection (5) inserted by the Economic Crime (Transparency and Enforcement) Act 2022 is renumbered subsection (4A).”Member’s explanatory statement
This amendment renumbers a provision to avoid two subsections which were inserted into a section by different Acts at around the same time from having the same subsection number.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 27th June 2023
(10 months, 2 weeks ago)
Lords ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: HL Bill 138-II Second marshalled list for Report - (23 Jun 2023)
19:15 - Division on Amendment 110 - Ayes: 179 / Noes: 176 - Amendment 110 agreed.
19:35 - Division on Amendment 125A - Ayes: 176 / Noes: 160 - Amendment 125A agreed.
19:55 - Division on Amendment 129 - Ayes: 164 / Noes: 150 - Amendment 129 agreed.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Sharpe of Epsom
That the Bill be further considered on Report.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I put on record my thanks to my noble friend Lord Johnson of Lainston, who took the Bill through its first day of Report last week, and my noble and learned friend Lord Bellamy for his work in the run-up to today’s debate. I extend my thanks to noble Lords for the constructive debate we have had so far on the Bill, both in Committee and in separate meetings. This collaboration has resulted in comprehensive and much-needed legislation—
The Deputy Speaker (Baroness Bull) (CB)
Would the Minister like to move that we move on to this item of business before he moves his first amendment?
Lord Sharpe of Epsom
“(10) The Secretary of State may not make regulations under subsection (7) unless the Secretary of State has—(a) consulted the Scottish Ministers and the Department of Justice, and(b) given a notice containing the relevant information to the Scottish Ministers and the Department of Justice.(11) Consultation under subsection (10)(a) must include consultation about any effects that the Secretary of State considers the regulations may have on—(a) a person in Scotland or Northern Ireland (as the case may be) applying for the forfeiture of cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order, and(b) a sheriff or court in Scotland or a court in Northern Ireland (as the case may be) considering such an application or making an order for such forfeiture. (12) In subsection (10)(b) “relevant information” means—(a) a description of—(i) the process undertaken in order to comply with subsection (10)(a) in relation to the Scottish Ministers or the Department of Justice (as the case may be), and(ii) any agreement, objection or other views expressed as part of that process by the Scottish Ministers or the Department of Justice (as the case may be), and(b) an explanation of whether and how such views have been taken into account in the regulations (including, in a case where the Secretary of State proposes to make the regulations despite an objection, an explanation of the reasons for doing so).”Member’s explanatory statement
This amendment provides for certain consultation requirements to apply before regulations may be made under inserted section 303Z42(7) of the Proceeds of Crime Act 2002 (forfeiture orders).
Lord Sharpe of Epsom (Con)
As I was saying, I put on record my thanks to my noble friend Lord Johnson of Lainston and my noble and learned friend Lord Bellamy, but I also extend my thanks to all noble Lords for the constructive debate we have had so far on the Bill, both in Committee and in separate meetings. It is nice to be able to say that more than once. This collaboration has resulted in comprehensive and much-needed legislation. As my noble friend Lord Johnson set out, the Government listened to the views of the House during the passage of the Bill and have moved to address many of its concerns in the amendments tabled for Report.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I reiterate what the noble Baroness, Lady Altmann, and the noble Lord, Lord Fox, have said: there has been a co-operative approach to this Bill, which I think will make it a better Bill. I was going to make exactly the points that the noble Lord, Lord Fox, has just made about the need to build in a way of feeding back to Parliament, particularly given that crypto assets are a very turbulent technology; it is a very turbulent industry. We know about the criminality endemic within these types of so-called assets. The point has been made by the noble Lord, Lord Fox, that Parliament needs to find a way, through flexibility and feedback, to make sure that the appropriate regulations are kept in place.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords for their brief points in this debate. Broadly speaking, I agree with all the points that have been made. It is important to maintain a high level of flexibility, because this is a very fast-moving space technologically as well as with regard to the use of these assets in the broader economy and for other purposes. I agree with everything that has been said. Obviously, these amendments allow us to maintain a high degree of flexibility, so I ask noble Lords to support them. There is not much point in saying anything else at this point.
Lord Sharpe of Epsom
(3) Provision made by virtue of sub-paragraph (2) may in particular refer to a list of countries published by the Financial Action Task Force as it has effect from time to time.”Member’s explanatory statement
This removes the power to make regulations about enhanced customer due diligence by reference to a list of high-risk countries published by the Treasury. Instead it allows regulations to refer to a list of countries published by the Financial Action Task Force (the regulations could also refer to that list subject to specified exceptions).
Lord Sharpe of Epsom
(a) in subsection (2), for the first “which” substitute “made during the period of 6 months beginning with the day on which the Economic Crime and Corporate Transparency Act 2023 is passed if the instrument”; (b) in subsection (9), for the words from “if” to the end substitute “if they only make provision prescribing high-risk countries by virtue of paragraph 4(2) of Schedule 2”.Member’s explanatory statement
This amendment means that regulations made within 6 months of royal assent are subject to the made affirmative procedure if all they do is make provision about countries in relation to which enhanced customer due diligence measures are required to be taken; regulations made after that period are subject to the draft affirmative procedure.
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)
My Lords, I am very grateful to the House and to all noble Lords who have spoken in today’s debate and in earlier debates. If I may say so, I think we have collectively changed our minds, or developed our thoughts, in various respects as a result of a collective effort, for which the Government are grateful. I am particularly grateful to those noble Lords who have engaged outside the Chamber: the noble Lords, Lord Faulks, Lord Ponsonby and Lord Cromwell, the noble and learned Lord, Lord Thomas, the noble Baroness, Lady Stowell, and others, have all contributed most constructively to the debate. There is clearly a great deal of strength of feeling on the issue of SLAPPs. It is therefore with some optimism that I hope the amendments I am about to move formally will be accepted: Amendments 102, 103, 137, 141, 142 and 143.
I will first make a general remark. In civil litigation generally, parties are not necessarily evenly matched. One may have more private resources than the other; one may be legally aided while the other is not. That is a fact of life, but one relies on the rules of procedure and the good sense of the judge to see fair play, bearing also in mind the inherent power of the court to strike out a claim for abuse of process. But when we come to SLAPPS—short for strategic litigation against public participation, a rather unwieldy phrase—two additional factors come into play. This is probably common ground in this House. In addition to the possible imbalance of power between the parties, the two additional factors are, first, the right to free speech, which is essentially what this legislation protects, and secondly the public interest in full and frank disclosure of wrongdoing.
Effectively, to use the courts or the threat of litigation as a means of preventing free speech and possibly covering up wrongdoing is a particular kind of abuse of process. It may well be that the power to control such behaviour already exists under the inherent direct jurisdiction of the courts—as I think my noble and learned friend Lord Garnier may have observed earlier—but the Government wish to put that issue beyond doubt and to put a stop to SLAPP-type tactics. We cannot allow the misuse of our legal system to suppress public interest investigations and reports. On the other hand, we have to safeguard access to justice in the measures that we take, so there is a balance to be struck here. The Government respectfully suggest that this Bill finds that balance.
I will first take the definition of SLAPPs. What is a SLAPP claim? It has a number of components. First, it will be one where the complainant has acted, or intended to act, to restrain the defendant’s exercise of their right to freedom of speech. The defendant will typically be a journalist. Secondly, the exercise of that right is a matter relating to economic crime—this is necessarily limited at the moment to economic crime because of the scope of the Bill—and for a purpose related to the pursuit of the public interest in combating such economic crime. Lastly, the claimant will have misused the litigation to cause harm to the defendant, in the circumstances defined in the clause.
For such SLAPP claims there will be several protections. First, there is the early dismissal test. The claimant will have to establish that they are more likely than not to succeed at trial. Normally, if you try to strike something out, it is you who has to establish that, but if it is a SLAPP claim, the burden is reversed and the claimant must establish that they are more likely than not to succeed at trial. That is an important change in the onus.
Secondly, there is the costs protection of the defendant, who will not have to pay the costs, even if there is eventually an adverse outcome at trial. On pre-litigation tactics, raised on a number of occasions by the noble and learned Lord, Lord Thomas, and others—it is a very fair point—in the Government’s view the costs protection and the reversal of the burden of proof very largely draw the sting of those threats. The journalist can sit back and say, “Well, do your worst. I’m protected on costs and by the change of the onus”, so the teeth are drawn from the attempt to suppress the publication of wrongdoing.
In addition—I will come to this in a moment—there are the powers of the Solicitors Regulation Authority to pursue the solicitors through its disciplinary procedures. With those protections, there is a very substantial assault by this legislation on SLAPPs. The Government’s view is that the courts will have the necessary tools and guidance from Parliament to deal with SLAPP lawsuits aimed at stifling freedom of speech and preventing journalists exposing economic crime.
As to the points rightly raised by the noble Lord, Lord Cromwell, that we should have gone further and so forth, the Government’s view is that we can always improve the shining hour—of course we can—but here we have, to use the words of the noble Lord, a good chunk of what is necessary. The Government’s view is that, at the moment, these provisions go far enough. As far as Scotland is concerned, discussions are continuing with our Scottish counterparts—it is a separate legal jurisdiction—and the same is true in Northern Ireland, so those matters will be pursued in due course. But the Government ask the House to accept that the provisions of this Bill as framed cut the mustard, if I may use the expression.
Of course, SLAPPs are broader than just economic crime. In answer to the question of the noble Baroness, Lady Blake, and others, the Government will come forward with completing the jigsaw as soon as a suitable legislative vehicle appears. At the moment, we are engaged in what, in another context, is called horizon scanning, to see when we can find a legislative vehicle that will do the job. This is not something the Government are going to forget about, and nor would this House allow us to do so. As soon as we can do it, we will get on to it.
It is entirely true that we now need the Civil Procedure Rules to back this up. The Civil Procedure Rule Committee will no doubt proceed as fast as it can; it is well-versed in ensuring that there are appropriate rules to make sure that legislation can have its proper effect in the courts. I have no control over the timetable of the Civil Procedure Rule Committee, but the message from this House is to get on with this as fast as we can. Indeed, if I may quickly refer to the comments of the noble and learned Lord, Lord Thomas, of course we need, as he suggests, quick, cheap and flexible procedures. One would hope that those will be developed judicially by senior judges, and that this legislation will have the desired effect. The Government have every confidence in the ability of the courts to put into effect what is the clear will of Parliament.
I turn to Amendment 94, in the name of the noble Lord, Lord Faulks. With regret, the Government, although sympathetic to the amendment’s objectives, do not feel that it would be right to criminalise access to justice in the way proposed. As the noble and learned Lord, Lord Garnier, pointed out, we have got rid of criminal libel. We have a balance to strike here. It would be very strong to say that it is, or is potentially, a criminal offence to commence proceedings in the courts. The courts have to be open. In the Government’s view, the balance to be struck here is civil, not criminal. Creating a criminal offence with such a broad application to tackle what is, in essence, a civil matter would be inappropriate. We do not have the evidence to support such a development. It would be entirely inappropriate to create a criminal offence that would not be very clearly defined and would potentially prevent access to justice—apart from, of course, establishing the criminal instead of the civil standard, which we are essentially dealing with here.
The creation of a criminal offence would go far beyond the Government’s measures and, I think, would mark a departure from other jurisdictions, to which some reference has been made. I might be wrong, but I do not know of one that has made this kind of activity a criminal offence. In the light of those comments, I invite the noble Lord to withdraw the amendment.
Amendments 125H and 125J were tabled by my noble friend Lady Stowell. I thank her again for her constructive engagement on the Bill. These amendments seek to allow the Solicitors Regulation Authority to set its own fining limit for cases of professional misconduct relating to abusive litigation brought forward to suppress reporting on economic crime.
Clause 195 removes the statutory limit on the level of financial penalty that the Law Society, which delegates the matter to the SRA, may impose, and a similar provision applies to the Scottish Solicitors’ Discipline Tribunal. The intention that my noble friend expresses is shared by the Bill, but the Government’s view is that the current drafting of these clauses, which already captures disciplinary matters relating to economic crime, covers the matters to which my noble friend referred. If the SRA can demonstrate that an abusive litigation case breached a rule specifically for economic crime or
“purposes relating to the prevention or detection of economic crime”,
that should permit it to use its new fining powers, so my noble friend’s amendments are, in the Government’s view, unnecessary.
I assure my noble friend that the Government’s intention is that this measure allows the SRA to impose fines above £25,000 against solicitors and law firms that fail to comply with the rule by taking part in or facilitating abusive litigation, whether or not such cases reach court or are struck out, provided that the SRA can establish a link between this type of misconduct and the prevention or detection of economic crime. This legislation is directed not just to cases that come to court but to pre-action threats and actions to deal with attempts to intimidate.
Lord Etherton (CB)
I tabled all the amendments in this group. I am very grateful to those who have added their names to them: the noble Lords, Lord Verdirame, Lord Pannick and Lord Anderson of Ipswich. I am also very grateful to the Minister, the noble and learned Lord, Lord Bellamy, for meeting me and senior representatives of the Law Society and of the Bar Council to discuss what is now Clause 197.
All these amendments relate to the new regulatory objective in Clause 197 that amends the Legal Services Act 2007 by inserting for the Legal Services Board a new objective:
“promoting the prevention and detection of economic crime”.
As I said in Committee, this proposed new regulatory objective is extraordinarily wide and imprecise. The meaning of the word “promoting” lacks any clarity or certainty. It raises legitimate concerns about a potential lack of proportionality and overregulation by regulators, and about a lack of evidential risk as to those sectors most likely to come into contact with economic crime—for example, advisers rather than advocates. And even in the area of advisers, it is hardly likely to involve experts in the environment or town planning.
As the MoJ’s impact assessment of the new regulatory objective makes clear, the front-line regulators of the legal profession are already implicitly under a duty to ensure that lawyers are not breaching economic crime rules. The provisions in Clause 197 are merely to make explicit what is already implicit, and it is important that the Legal Services Board and the front-line regulators understand that this is the case.
The definition of economic crime for the purposes of Clause 197 is provided in Clause 187(1) by mean of cross-reference to Schedule 10, which contains a long list of statutes. This provides no focus on what is really at issue and should be the concern of regulators. That is spelled out clearly in my Amendment 95—namely,
“the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation”.
This lack of focus could well promote overregulation and a lack of proportionality.
What is needed is a clear statement from the Minister, which I would very much welcome today, on the following. First, regulators must understand that this is not a new regulatory duty but one that states explicitly what is already implicit. Secondly, there should be a focus on the particular criminal activity which is relevant: fraud, false accounting, money laundering and offences under any binding sanctions regime. Thirdly, there is a need for evidence-based regulation according to evidence of risk in particular areas of work and practice, as I described, such as transactional work rather than contentious and court-based work, and areas of advisory work which might be relevant in which economic crime might well occur. Fourthly, there will also be a need for proportionality by regulators. Fifthly, the regulators must understand, as the Minister said before, that there is to be no interference with the principle of legal professional privilege. Finally, there is a need for consultation with the profession to ensure that the new objective successfully tackles economic crime in the proportionate and evidence-based way I have described.
I hope the Minister will be able to make those points clear to the profession to enable a proper regulatory framework to work. I beg to move.
Lord Bellamy (Con)
I thank the noble and learned Lord, Lord Etherton, for his engagement on this topic throughout the Bill and for his remarks today. I briefly reiterate that the definition of economic crime is deliberately widely drawn. It applies not only to the regulatory objective but to several other clauses of the Bill, including the information-sharing measures between various financial institutions at Clauses 182 and 183. The Government do not believe that restricting that definition would be right.
It is true that there is a long list of offences in Schedule 10, including the reference to theft. Sometimes it is difficult to distinguish between fraud and theft, but I am happy to acknowledge that typical forms of theft, including low-level theft such as shoplifting or street crime or similar activities, are most unlikely to be relevant to anything in the Bill. Therefore, the Government do not feel able to change the definition of economic crime specifically for the legal sector, and the regulators must be able to respond to circumstances as they develop.
I shall address in a little more detail some of the points raised by the noble and learned Lord, Lord Etherton, this afternoon. I hope to cover all those points one way or another. First, in relation to legal professional privilege, the regulatory objective already requires adherence to professional principles under the Legal Services Act. In the Government’s view, there is no need for a specific reference to legal professional privilege, but I can make it absolutely clear that the Government do not consider that the Bill makes any difference to the principle of legal professional privilege. It is in no way an assault or attack on that fundamental principle of English law. The protection of legal professional privilege, as developed in the courts, will continue to apply in this area, as in many other areas. That is the Government’s position, and I hope that it is clear
As to how the regulatory objective and the provisions of the Bill will operate in practice, and in response to the noble and learned Lord, Lord Etherton, who made various entirely fair points, the intention and purpose of the regulatory objective is to put the onus on legal services regulators to be active in promoting and upholding adherence to the economic crime regime. The new objective will put beyond doubt and clarify that securing compliance is explicitly part of the regulatory role. We expect regulators to use all the tools available to them, but their activity should be appropriately targeted and not in any sense just a box-ticking exercise. The objective does not directly place new duties on lawyers. It is directed to the legal services regulators, and existing safeguards remain.
All those regulators will still be bound by public law principles, which will ensure that any regulation of legal services is proportionate and fair. Proportionality is particularly important. Section 3 of the Legal Services Act already requires the Legal Services Board to have regard to the principle that regulatory activity should be transparent, accountable, proportionate, consistent and targeted only for cases where action is required. The new regulatory objective on economic crime fits within this framework and existing objectives, such as supporting the rule of law, promoting the public interest and improving access to justice.
It is understood and expected that the Legal Services Board will work closely with the professions in developing guidance to support the new objective. This will include a public consultation on any necessary policy statement or guidance to ensure that the regulatory objective is implemented in a targeted and proportionate way. This will allow the LSB to capture and analyse any concerns that professional bodies or others may have, or continue to have, in relation to the new objective.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and my other amendments to clause 187 correct the definition of “economic crime” to include encouraging or assisting an offence under Part 2 of the Serious Crime Act, which replaced the common law offence of incitement in England and Wales and Northern Ireland.
Lord Sharpe of Epsom (Con)
My Lords, corporate criminal liability is a topic that many across the House care deeply about—
Lord Sharpe of Epsom
“(ba) constitutes an offence—(i) under Part 2 of the Serious Crime Act 2007 (England and Wales and Northern Ireland: encouraging or assisting crime) in relation to a listed offence, or(ii) under the law of Scotland of inciting the commission of a listed offence,”Member’s explanatory statement
See the explanatory statement to my first amendment to clause 187.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment is consequential on my other amendments to clause 187.
Lord Bellamy
“Power to strike out certain claimsStrategic litigation against public participation: requirement to make rules of court
(1) The power to make Civil Procedure Rules must be exercised so as to secure that Civil Procedure Rules include provision for ensuring that a claim may be struck out before trial where the court determines—(a) that the claim is a SLAPP claim (see section (Meaning of “SLAPP claim”), and (b) that the claimant has failed to show that it is more likely than not that the claim would succeed at trial.(2) Rules made in compliance with subsection (1) may include rules about how a determination under that subsection is to be made, including (in particular)—(a) rules for determining the nature and extent of the evidence that may or must be considered;(b) rules about the extent to which evidence may or must be tested;(c) rules permitting or requiring the court to determine matters of fact by way of presumptions.(3) Rules made in compliance with subsection (1) must include rules under which the court may make a determination under that subsection of its own motion.(4) The power to make Civil Procedure Rules must be exercised so as to secure that Civil Procedure Rules include provision for securing that, in respect of a SLAPP claim, a court may not order a defendant to pay the claimant’s costs except where, in the court’s view, misconduct of the defendant in relation to the claim justifies such an order.(5) The Lord Chancellor may by regulations provide for subsections (1) to (4) to apply in relation to any rules of court that may be specified in the regulations as those subsections apply in relation to Civil Procedure Rules.(6) In this section—“court” includes a tribunal;“rules of court” means rules relating to the practice and procedure of a court or tribunal.”Member’s explanatory statement
This new clause, new clause (Meaning of “SLAPP claim”) and my amendments at page 191, line 37, page 192 at line 33 and 192, line 38 provide for the making of rules of court with a view to preventing claimants from improperly using civil proceedings to restrain certain disclosures of information relating to economic crime.
Lord Sharpe of Epsom
“Attributing criminal liability for economic crimes to certain bodiesAttributing criminal liability for economic crimes to certain bodies
(1) If a senior manager of a body corporate or partnership (“the organisation”) acting within the actual or apparent scope of their authority commits a relevant offence after this section comes into force, the organisation is also guilty of the offence.This is subject to subsection (3).(2) “Relevant offence” means an act which constitutes—(a) an offence listed in Schedule (Criminal liability of bodies: economic crimes) (“a listed offence”),(b) an attempt or conspiracy to commit a listed offence,(c) an offence—(i) under Part 2 of the Serious Crime Act 2007 (England and Wales and Northern Ireland: encouraging or assisting crime) in relation to a listed offence, or(ii) under the law of Scotland of inciting the commission of a listed offence, or(d) aiding, abetting, counselling or procuring the commission of a listed offence.(3) Where no act or omission forming part of the relevant offence took place in the United Kingdom, the organisation is not guilty of an offence under subsection (1) unless it would be guilty of the relevant offence had it carried out the acts that constituted that offence (in the location where the acts took place).(4) In this section—“body corporate” includes a body incorporated outside the United Kingdom, but does not include—(a) a corporation sole, or(b) a partnership that, whether or not a legal person, is not regarded as a body corporate under the law by which it is governed;“partnership” means—(a) a partnership within the meaning of the Partnership Act 1890;(b) a limited partnership registered under the Limited Partnerships Act 1907;(c) a firm or other entity of a similar character to one within paragraph (a) or (b) formed under the law of a country or territory outside the United Kingdom;“senior manager”, in relation to a body corporate or partnership, means an individual who plays a significant role in—(a) the making of decisions about how the whole or a substantial part of the activities of the body corporate or (as the case may be) partnership are to be managed or organised, or(b) the actual managing or organising of the whole or a substantial part of those activities.”Member’s explanatory statement
This amendment sets out circumstances in which liability for an offence committed by a senior manager may be attributed to a body corporate or partnership.
Lord Sharpe of Epsom (Con)
My Lords, my apologies again for my early start on this; my enthusiasm keeps getting the better of me today.
As I was saying, corporate criminal liability is a topic that many across the House care deeply about, and one where the Government are committed to making significant reforms. I thank noble Lords for the robust and constructive debate we had in Committee on this topic and for the ongoing engagement which many noble Lords have afforded me in the weeks leading up to this debate.
I reiterate the Government’s commitment to reforming corporate criminal liability and tackling fraud. Since this Bill was introduced, significant steps forward have been taken. I hope, with the further government amendments to which I will speak shortly, noble Lords will recognise that we have gone to great lengths to strengthen the Bill in this area. In addition, government action continues outside of this Bill. The recently published Fraud Strategy further demonstrates the ongoing work across government and with partners to take action to tackle fraud.
I will speak first to government Amendments 104, 105, 106, 109, 138, 139, 140, 144 and 145, which introduce new clauses to this Bill to reform the identification doctrine. As noble Lords will be aware, the identification doctrine is outdated and ineffective in the way in which it holds corporates to account, given the breadth of business we see in the 21st century. Companies have grown tenfold since the “directing mind and will” test was devised in the 1970s. As companies have grown, their operations and governance have become spread across different areas, making it incredibly difficult to pinpoint the directing mind of a company, particularly in a large organisation. Individuals with significant authority can escape corporate liability by asserting that the directing mind and will is elsewhere.
Meanwhile, there is an unfairness here. Smaller companies, perhaps with one or two directors, have much more easily identifiable directing minds, meaning that corporate liability is more easily attributable and a prosecution is more likely to be successful. It is this inequality in the law that we need to address. The government amendments place the identification doctrine on a statutory footing for economic crimes for the first time, providing legislative certainty that senior managers are within the scope of the rule.
Under these new measures a corporate will be held liable if a senior manager has committed an offence under the new schedule, or if they have encouraged or assisted an offence by another, or have attempted or conspired to commit an offence under the schedule. The corporate will be criminally prosecuted and, if convicted, will receive a fine, in addition to any sentences imposed for individuals who are separately prosecuted and found guilty of the same offence. The reform will apply to all corporate bodies and partnerships established in England and Wales, Scotland and Northern Ireland.
These amendments build on the extensive work and consultation conducted by the Law Commission in this area. Building on feedback from prosecuting bodies, business representatives and Members of both Houses, some tweaks have been made to the Law Commission’s proposal to ensure the reform is applicable to the widest set of cases. Under the Government’s reform, economic crime is defined according to a new schedule in the Bill—introduced via Amendment 109—which reflects existing Schedule 10 but without those offences that principally apply to a corporate body, such as failure to prevent bribery.
For the purpose of these amendments, “senior management” will be defined in accordance with the well-established definition provided for in the Corporate Manslaughter and Corporate Homicide Act 2007. This model considered the senior managers’ roles and responsibilities within the relevant organisation and the level of managerial influence they might exert, rather than their job title.
The clauses tabled by the Government also seek to capture instances where a senior manager commissions or encourages a lower-ranking employee to do their “dirty work” by making it clear that the corporate can also be held liable where the senior manager encourages or assists a listed offence in the schedule.
To be clear to the House, subsection (3) of the new clause introduced by Amendment 104 ensures that criminal liability will not attach to an organisation based and operating overseas for conduct carried out wholly overseas simply because the senior manager concerned was subject to the UK’s extraterritorial jurisdiction; for instance, because that manager is a British citizen. Domestic law does not generally apply to conduct carried out wholly overseas unless the offence has some connection with the UK. This is an important matter of international legal comity.
However, some offences, wherever they are committed, can be prosecuted against individuals or organisations who have certain close connections to the UK. Subsection (3) makes sure that any such test will still apply to organisations when the new identification doctrine applies. Extending the identification doctrine test to senior management better reflects how decision-making is often dispersed across multiple controlling minds, mitigating the ability to artificially transfer, remove or create titles to escape liability. This is a positive step to increasing lines of clear governance and accountability in corporations.
Looking forward, although these government amendments are a strong step to improving corporate criminal liability laws, they are not the final step. The Government have committed in the Economic Crime Plan 2 and the Fraud Strategy to introduce reform of the identification doctrine to apply to all criminal offences. This will take place when a suitable legislative vehicle arises.
I move on now to the government amendments on failure to prevent fraud. In Committee, the Government tabled amendments which introduced a new corporate offence of failure to prevent fraud. Under the new failure to prevent offence, a large organisation will be liable to prosecution where fraud was committed by an employee for the organisation’s benefit and the organisation did not have reasonable fraud prevention procedures in place. The new offence will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees.
Following this, noble Lords have raised further points with me on where the Government clauses could be strengthened. I have listened to the points raised, and the Government have tabled further amendments on the definition of large organisations and the treatment of subsidiaries. I thank the noble Lord, Lord Vaux of Harrowden, for bringing this point to my attention.
As I have set out on many occasions, the failure to prevent fraud offence is designed to balance the fraud prevention benefits with minimising burdens on small business. Amendments 111, 112, 113, 114, 115, 116, 118, 119, 122, 123 and 124 will help prevent companies from avoiding responsibility by moving high-risk operations into subsidiaries that fall below the size threshold for the offence. They will also ensure that groups of companies with significant resources are incentivised to take steps to prevent fraud.
First, we have made a clarification to ensure that an assessment of whether an organisation meets the size criteria, and is therefore in scope of the offence, is made cumulatively across the parent company and its subsidiaries—that is, the group—rather than being based on each individual entity. We then have to consider where liability would attach within that group. The group itself is not a legal entity so cannot be liable. It may be more appropriate for the subsidiary or the parent to be accountable directly, depending on the circumstances. We have therefore clarified that whichever of the individual entities within a group was responsible for the fraud can be directly liable for a failure to prevent fraud, in the same way as any other entity in scope of the offence.
Additionally, we have clarified that an employee of a subsidiary can be an associated person of its parent or owning company. That makes it more feasible to attach liability to the parent company should the approach of targeting the specific subsidiary be inappropriate. A test would still have to be met that the fraud by the subsidiary employee intended to benefit the parent, and the parent would have the defence that it was reasonable to take no steps to prevent the fraud—for example, if the structure was such that the parent had no say over the activities of the subsidiary.
Finally, Amendment 120 ensures that the views of the Scottish and Northern Ireland Governments are taken into account before any future changes to the offence threshold based on organisation size.
I hope noble Lords will recognise that this is a hugely meaningful package of amendments. I recognise that a number of noble Lords will have hoped the Government would go further, particularly around the threshold in the failure to prevent fraud offence. However, I stress that we have already taken tremendous strides forward. The Government firmly believe that our reforms to the identification doctrine; the introduction of a failure to prevent fraud offence covering around 50% of economic activity; measures to prevent avoidance via subsidiaries; and our existing ability to identify and prosecute fraud more easily in smaller organisations will cumulatively have the desired effect of tackling and deterring economic crime, without unnecessarily imposing billions of pounds of burdens and bureaucracy on actual or potential small businesses. I hope noble Lords can recognise the great progress we have made, and I beg to move.
Lord Garnier (Con)
My Lords, I thank my noble friend the Minister for his opening remarks and for the advance that the Government have made on two fronts. The first is by clarifying the senior management officers within a company; in doing so, they have clarified the way in which the identification doctrine can be applied in modern Britain.
As I have said on previous occasions, I have an interest to declare. I will not specifically recite it again because I did so in Committee, at Second Reading and, I think, on the three or four previous pieces of legislation into which a failure to prevent amendment could have been inserted—but of course it was not the right Bill, the right vehicle or the right time, and in fact it was just not right. So here I am again.
I shall speak to my Amendments 110 and 125A, which at the appropriate time I will move to a Division unless the Government persuade me otherwise. I am not engaging here in party politics or even in a rebellion. I am doing nothing by surprise; anyone who has followed discussions on economic crime over the last 13 years will know precisely what I am going to say. Indeed, my noble friend the Minister is adept at moving from one corridor to the next to avoid having a yet further conversation with me about my favourite subject. He has also heard all my jokes before, but not every Member of our House has had that advantage so it may be that, unless the Government accept my amendment, my little Aunt Sally will have another canter around the course. However, I will take things in stages.
First, I thank the Government, as I hope I have done —and I mean it sincerely—for their Amendments 104 to 106 and 109—essentially, the modernisation of the identification principle, so far as it goes. We are now slowly catching up with the Americans; they did something similar to this in 1912, but this is the United Kingdom and we must not rush.
Baroness Blake of Leeds (Lab)
My Lords, I start by acknowledging the great progress that has been made on the failure to prevent process through the debates in the House of Commons. There was significant movement there, which we of course welcome.
I say at the outset that if the noble and learned Lord, Lord Garnier, is minded to divide the House on Amendments 110 and 125A, he will have the support of these Benches. There are very good reasons for that, as have been outlined in the debate today. The statistics, particularly the 0.5% figure, are startling. Surely, we all need to take this incredibly seriously if, as the noble Baroness, Lady Morgan, said, we are serious about tackling the wider fraud issues, which seem to be growing daily. The numbers of people we all know personally who are affected by this shows the sheer extent of the problem.
I will make the very strong point that the issue of costs and burdens on SMEs has been overemphasised. If these processes are tightened in the way proposed, those very businesses will themselves be protected by the action taken on other companies. In particular, I completely support the extension to the money laundering provision in Amendment 125A.
We have had a really good debate throughout our proceedings on these measures. It would be so disappointing if, at this final stage, we did not go the full distance we can at this point, recognising, as we know, that more will need to be done in the future. We have the opportunity now and we should seize it.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords for their contributions to today’s debate on corporate criminal liability and for their continued engagement on this subject. These conversations have been robust and constructive and have helped the Government immensely in the development of the clauses —developed, I say to the noble Lord, Lord Vaux, without any reluctance at all.
I turn to Amendments 135 and 125G on senior manager liability, tabled by my noble and learned friend Lord Garnier. As he has noted, senior managers hold a higher level of responsibility than ordinary employees in conducting business because they take important decisions on the corporate policy, strategy and operation of the company. The extension of the identification doctrine to senior management in Amendment 104, which I spoke to previously, recognises this. To reflect the heightened responsibility of a senior manager in the actions of a corporation, powers are available already to prosecutors to hold a senior manager liable where a company conducts an economic crime offence.
Under the fraud, theft and bribery Acts and the money laundering regulations 2017, senior officers, including managers, are liable if they consent to or connive in fraud, theft, bribery or money laundering regulatory breaches. This extends as far as the senior manager knowingly turning a blind eye to offending, extending beyond the usual law on accessory liability for other crimes. If a senior manager is guilty of the offence and liable, they can be proceeded against and punished accordingly, including by imprisonment.
Additionally, in the regulatory space, the senior managers and certification regime is in place to improve good corporate behaviour and compliance in the sectors regulated by the Financial Conduct Authority and Prudential Regulation Authority, placing specific requirements on senior managers to encourage positive corporate behaviour.
Lord Sharpe of Epsom
“Power to amend list of economic crimes
(1) The Secretary of State may by regulations amend Schedule (Criminal liability of bodies: economic crimes) by—(a) removing an offence from the list in the Schedule, or(b) adding an offence to that list.(2) The power in subsection (1) is exercisable by the Scottish Ministers (and not by the Secretary of State) so far as it may be used to make provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The power in subsection (1) is exercisable by the Department of Justice in Northern Ireland (and not by the Secretary of State) so far as it may be used to make provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State.(4) The Secretary of State may from time to time by regulations restate Schedule (Criminal liability of bodies: economic crimes) as amended by virtue of subsection (1) to (3) (without changing the effect of the Schedule).”Member’s explanatory statement
See the explanatory statement for new Clause (Attributing criminal liability for economic crimes to certain bodies).
Lord Fox (LD)
My Lords, I am pleased to support the amendment in the name of my noble friend. If I do not speak at length, it is not because I do not think it a very important amendment but because I am trying to infect the rest of the House with some brevity—unsuccessfully, I suspect. This is an important amendment and we have seen movement in other regimes. We have seen movement in the United States; we are seeing movement in the European Union; and I think we have seen movement in the House of Commons on the Procurement Bill, to which we have started to see changes in attitude. I hope we will hear from the Minister shortly that the Government are prepared to move, in order that we can bank a step in the right direction along this path. I look forward to hearing what the Minister has to say, and I hope this amendment will not have to be pressed if we hear what we want to hear.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Alton of Liverpool, for this amendment, for his constructive engagement throughout the passage of the Bill through this House and, of course, for his typically thoughtful and powerful introduction. I also pay tribute to noble Lords from all sides of the House, and Members in the other place, for continuing to pursue this important issue and engage with the Government on a cross-party basis, not least the APPG on Anti-Corruption and Responsible Tax. I can reassure the noble Lord that the Government are supportive of mechanisms to deprive sanctioned individuals, where appropriate, of their assets, with a view to funding the recovery and reconstruction of Ukraine. More broadly, the Government want to drive further transparency on assets held by sanctioned persons in the UK.
On 19 June, the Government announced four new commitments which reaffirm that Russia must pay for the long-term reconstruction of Ukraine. This includes new legislation, laid the same day by the Foreign Secretary, to enable sanctions to remain in place until Russia pays compensation for damage caused. In this announcement the Government also confirmed that we will lay new legislation requiring persons and entities in the UK, or UK persons and entities overseas, who are designated under the Russia financial sanctions regime to disclose any assets they hold in the UK. The Government are firmly committed to bringing forward this secondary legislation, subject to the made affirmative procedure, and to introducing this measure before the end of 2023, subject to the usual parliamentary scheduling. This will strengthen transparency of assets and make it clear that the UK will not allow assets to be hidden in this country.
Sanctioned individuals who fail to disclose their assets could receive a financial penalty or have their assets confiscated. This demonstrates our continued commitment to penalising those who make deliberate attempts to conceal funds or economic resources. The new power builds on and strengthens the UK’s existing powers around transparency of designated persons’ assets. HMG already use the annual review of the Office of Financial Sanctions Implementation, known as OFSI, to collect and detail assets frozen under UK financial sanctions. Additionally, relevant firms such as banks, other financial institutions, law firms and estate agents have an ongoing obligation to report to OFSI if they know or reasonably suspect that a person is a designated person or has committed offences under financial sanctions regulations, where that information is received in the course of carrying on their business. Those firms must provide information about the nature and amount of any funds or economic resources held by them for the customer.
The designated person reporting measure will act as a dual verification tool by enabling the comparison of disclosures against existing reporting requirements that bite on relevant firms. This will tighten the net around those who are not reporting and are evading their reporting requirements.
On asset seizure, prosecutors and/or law enforcement agencies can currently apply to confiscate or permanently seize assets where someone has benefited from their offending, or the assets have links to criminality, by making use of powers under the Proceeds of Crime Act 2002. Importantly, the new measures will also give His Majesty’s Government the ability to impose fines. Overall, this designated person reporting measure will be focused on strengthening the UK’s compliance toolkit while giving options for penalising those who seek to hide their assets.
The noble Lord’s amendment includes a specific provision which would require the designated person also to report assets which were held six months prior to the designation. The Government are still fully developing the non-disclosure measure and I can assure the noble Lord that we are carefully considering this suggestion. Although not retrospective in terms of regulating or criminalising conduct that occurred before the measure came into force, requiring designated persons to provide a snapshot of their assets at a historical point in time is necessarily more onerous than a forward look requirement. The Government will need carefully to consider the design of the measure and the proportionality and additional value of so-called retrospective reporting to ensure that it is operationally deliverable and legally robust. This will include working with relevant law enforcement agencies to determine how such information would be used.
Before laying these regulations, the Government will complete their ongoing evaluation of possible operational or implementation challenges to help ensure the successful delivery of this measure. For example, investigating non-compliance will require significant resources from the enforcing agency. We want to ensure that it has all the capability, skills and resources to succeed.
I note the interest in and strength of feeling on this issue. The Government will continue to work collaboratively and constructively with interested parties in the lead-up to bringing forward the legislation, including on reporting assets which were held prior to a designation. We will continue to engage with the civil society organisations that have campaigned for this measure, and I would be happy to work with the noble Lord, Lord Alton, and other parliamentarians to keep them informed of progress ahead of it being formally introduced.
Again, I am grateful to the noble Lord for bringing this issue forward for debate and for the continued interest and engagement of many stakeholders. I hope that, given the reasons I have outlined and the action the Government are already taking, he will consider withdrawing his amendment.
Lord Alton of Liverpool (CB)
My Lords, I am extremely grateful to the noble Lord, Lord Sharpe, for the manner in which he has addressed this issue and the House this evening. He was right to pay tribute to the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax; I would link with that the specific work of Dame Margaret Hodge MP, the Royal United Services Institute and many of those in civil society to which the Minister has referred. I was especially pleased to hear what he said about working collaboratively with those organisations that have been involved in taking this amendment forward.
I do not underestimate the importance of what the Minister has said to the House. He said that he will look at the outstanding issue of the six-month retrospective period; although he gave no guarantees or assurances on that front, at least we will be able to discuss and examine it further. However, he has agreed to introduce secondary legislation before the end of the year—not “at a time to be agreed” or some possibility of legislation coming in the next nine or 10 months, but by the end of this year. I welcome that very much. He also told the House that it would be done under the affirmative procedure, which will give us the chance to come back again. Significant progress has been made on this and I am very grateful to the Minister. I am very happy to withdraw the amendment.
Lord Sharpe of Epsom
“SCHEDULECRIMINAL LIABILITY OF BODIES: ECONOMIC CRIMESCommon law offences
1_ Cheating the public revenue.2_ Conspiracy to defraud.3_ In Scotland, the following offences at common law—(a) fraud;(b) uttering;(c) embezzlement;(d) theft.Statutory offences
4_ An offence under any of the following provisions of the Theft Act 1968—(a) section 1 (theft);(b) section 17 (false accounting);(c) section 19 (false statements by company directors etc);(d) section 20 (suppression etc of documents);(e) section 24A (dishonestly retaining a wrongful credit).5_ An offence under any of the following provisions of the Theft Act (Northern Ireland) 1969—(a) section 1 (theft);(b) section 17 (false accounting);(c) section 18 (false statements by company directors etc);(d) section 19 (suppression etc of documents);(e) section 23A (dishonestly retaining a wrongful credit).6_ An offence under any of the following provisions of the Customs and Excise Management Act 1979—(a) section 68 (offences in relation to exportation of prohibited or restricted goods);(b) section 167 (untrue declarations etc);(c) section 170 (fraudulent evasion of duty).7_ An offence under the Forgery and Counterfeiting Act 1981 (forgery, counterfeiting and kindred offences).8_ An offence under section 72 of the Value Added Tax Act 1994 (fraudulent evasion of VAT).9_ An offence under section 46A of the Criminal Law (Consolidation) (Scotland) Act 1995 (false monetary instruments).10_ An offence under any of the following sections of the Financial Services and Markets Act 2000—(a) section 23 (contravention of prohibition on carrying on regulated activity unless authorised or exempt); (b) section 25 (contravention of restrictions on financial promotion);(c) section 85 (prohibition on dealing etc in transferable securities without approved prospectus);(d) section 398 (misleading the FCA or PRA).11_ An offence under any of the following sections of the Terrorism Act 2000—(a) section 15 (fund-raising);(b) section 16 (use and possession);(c) section 17 (funding arrangements);(d) section 18 (money laundering);(e) section 63 (terrorist finance: jurisdiction).12_ An offence under any of the following sections of the Proceeds of Crime Act 2002—(a) section 327 (concealing etc criminal property);(b) section 328 (arrangements facilitating acquisition etc of criminal property);(c) section 329 (acquisition, use and possession of criminal property);(d) section 330 (failing to disclose knowledge or suspicion of money laundering);(e) section 333A (tipping off: regulated sector).13_ An offence under section 993 of the Companies Act 2006 (fraudulent trading).14_ An offence under any of the following sections of the Fraud Act 2006—(a) section 1 (fraud);(b) section 6 (possession etc of articles for use in frauds);(c) section 7 (making or supplying articles for use in frauds);(d) section 9 (participating in fraudulent business carried on by sole trader);(e) section 11 (obtaining services dishonestly).15_ An offence under any of the following sections of the Bribery Act 2010—(a) section 1 (bribing another person);(b) section 2 (being bribed);(c) section 6 (bribery of foreign public officials).16_ An offence under section 49 of the Criminal Justice and Licensing (Scotland) Act 2010 (possession, making or supplying articles for use in frauds).17_ An offence under any of the following sections of the Financial Services Act 2012—(a) section 89 (misleading statements);(b) section 90 (misleading impressions);(c) section 91 (misleading statements etc in relation to benchmarks).18_ An offence under regulation 86 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.19_ An offence under regulations made under section 49 of the Sanctions and Anti-Money Laundering Act 2018 (money laundering and terrorist financing etc).20_ (1) An offence under an instrument made under section 2(2) of the European Communities Act 1972 for the purpose of implementing, or otherwise in relation to, EU obligations created or arising by or under an EU financial sanctions Regulation.(2) An offence under an Act or under subordinate legislation where the offence was created for the purpose of implementing a UN financial sanctions Resolution. (3) An offence under paragraph 7 of Schedule 3 to the Anti-terrorism, Crime and Security Act 2001 (freezing orders).(4) An offence under paragraph 30 or 30A of Schedule 7 to the Counter-Terrorism Act 2008 where the offence relates to a requirement of the kind mentioned in paragraph 13 of that Schedule.(5) An offence under paragraph 31 of Schedule 7 to the Counter-Terrorism Act 2008.(6) An offence under regulations made under section 1 of the Sanctions and Anti-Money Laundering Act 2018 (sanctions regulations).(7) In this paragraph—“EU financial sanctions Regulation” and “UN financial sanctions Resolution” have the same meanings as in Part 8 of the Policing and Crime Act 2017 (see section 143 of that Act);“subordinate legislation” has the same meaning as in the Interpretation Act 1978.”Member’s explanatory statement
This amendment sets out the list of offences in relation to which liability may be attributed to the body in accordance with Clause (Attributing criminal liability for economic crimes to certain bodies)(1).
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and my amendment at page 178, line 2 substitute the term “subsidiary undertaking” for “subsidiary”, for consistency with my amendment at page 178, line 3.
Lord Sharpe of Epsom
“(1A) The reference in subsection (1) to a relevant body does not include a relevant body which is a parent undertaking (as to which see section (Large organisations: parent undertakings)).”Member’s explanatory statement
See the explanatory statement for new Clause (Large organisations: parent undertakings).
Lord Sharpe of Epsom
“Large organisations: parent undertakings
(1) For the purposes of section 188(1) and (1A) a relevant body which is a parent undertaking is a “large organisation” only if the group headed by it satisfied two or more of the following conditions in the financial year of the body that precedes the year of the fraud offence—
Aggregate turnover | More than £36 million net (or £43.2 million gross) |
Aggregate balance sheet total | More than £18 million net (or £21.6 million gross) |
Aggregate number of employees | More than 250. |
This amendment and my amendment at page 179, line 35, enable certain parent undertakings to qualify as a “large organisation” for the purposes of the offence of failure to prevent fraud.
Lord Sharpe of Epsom
“(5A) “Parent undertaking” has the same meaning as in the Companies Acts (see section 1162 of the Companies Act 2006).”Member’s explanatory statement
This amendment is supplementary to new Clause (Large organisations: parent undertakings).
Baroness Blake of Leeds (Lab)
Amendment 128 in the name of my noble friend Lord Coaker has a straightforward, clear ask: within a year of the Bill passing, the Secretary of State must publish a report on economic crime and investigation. It must include the performance of the framework for investigating crime, et cetera, and an assessment of the roles of the Serious Fraud Office in particular. Important elements mentioned in the amendment include the adequate resourcing of staff and the strategy for fees, which we have discussed elsewhere.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Baroness, Lady Blake, for speaking to the amendment in the name of the noble Lord, Lord Coaker, and my noble friend Lord Agnew of Oulton for his amendment. These amendments seek to add further parliamentary scrutiny on economic crime matters.
However, I have been clear throughout the previous debates on this topic that it is the Government’s view that there is already more than sufficient external scrutiny in the areas outlined by the noble Lords. These amendments are therefore duplicative, and if accepted would lead to agencies and government departments being caught in resource-intensive reporting requirements that would have no real benefit to parliamentarians, detracting from their core roles of tackling economic crime. I have noted what my noble friend has said, and the Government are of course more than committed to doing the things he suggests.
Amendment 128 in the name of the noble Lord, Lord Coaker, would require the Government to issue a report on the performance of agencies and departments in tackling economic crime. I am aware of the strength of his feeling on the resourcing, performance and co-ordination of operational agencies. I hope that the sessions we have facilitated for him with Companies House and the Serious Fraud Office will have gone some way to reassuring him on this.
I can also reassure him and the House that the Government are ensuring that the response to economic crime has the necessary funding. The combination of 2021’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. The levy applies to the AML-regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24.
In addition, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability. Under the asset recovery incentivisation scheme—ARIS—receipts paid into the Home Office are split 50:50 between central government and operational partners, based on their relative contribution to delivering receipts. In 2021-22 this resulted in £142 million being redistributed to POCA agencies. That should provide the necessary reassurance on resourcing and funding. Given what I hope to have shown is a significant amount of reporting, external scrutiny and indeed funding and resource, I ask the noble Baroness, on behalf of the noble Lord, Lord Coaker, not to press Amendment 128.
Baroness Bennett of Manor Castle (GP)
My Lords, I refer to a comment made by another Minister at the Dispatch Box that we will come back to economic crime and fraud again and again. I have no doubt about that. In the meantime, I beg leave to withdraw Amendment 125.
Lord Ponsonby of Shulbrede (Lab)
My Lords, if the noble Lord chooses to move to a vote, we will support him. This amendment would build on last year’s Bill, which introduced similar changes to unexplained wealth orders. It is a welcome development, and I hope that the noble Lord presses his amendment to a vote.
Lord Bellamy (Con)
My Lords, unfortunately, the Government are not able to accept this amendment, although we are sympathetic to the points made by my noble friend Lord Agnew. The amendment is designed to protect public authorities from having costs awarded against them if they fail to recover the proceeds of economic crime under the Proceeds of Crime Act.
First, the Government are not persuaded that public authorities that lose their case should be protected in this way. Secondly, this is a major breach of the general principle applied in civil litigation in the High Court that the loser pays.
Thirdly, it is a major interference with the discretion of the court on the question of costs. Fourthly, if such a change were to be contemplated, it should be a matter for the Civil Procedure Rules and not something inserted without detailed reflection on Report in your Lordships’ House. Fifthly, it would produce even more inconsistency than allegedly we have already. I do not accept that there is material inconsistency, but you would have one rule for some POCA cases and another rule for other POCA cases, because not all POCA cases are economic crime cases.
However, the Government are prepared actively to consider a consultation to properly consider this matter and the evidence with a view to ensuring that there is a correct balance of justice and the proper consideration of the pros and cons. That, very briefly, is the Government’s position.
I will briefly deal with one or two points. This is not like unexplained wealth orders, which have been mentioned. Those are an investigative procedure and not determinative of civil rights and obligations. In some respects, the UWO procedure is closer to a search warrant than to a recovery of money in civil litigation. It does not provide an analogy to the present case.
It is true that there are various costs regimes in various cases. It is probably not useful to weary your Lordships with particular decisions, but it is not without interest that in the case of Pfizer and Flynn, which involved the Competition and Markets Authority, the authority lost at first instance and was ordered to pay some of the costs. The Court of Appeal overturned that on the basis that it did not want to have the “chilling effect” of public authorities having to pay the costs when they lose litigation. However, the Supreme Court restored the original judgment and said, “This so-called chilling effect is only one factor”. In other words, it is not decisive. You must consider in that jurisdiction all the factors. The Government draw from that case that the so-called chilling effect is not necessarily decisive, and that one must have a regime that enables the court to balance all the relevant effects.
With all respect for the motives behind it and the concerns that have been expressed, this amendment is too blunt an instrument to be a proper exercise of primary legislation in an area which very much calls for balanced consideration under the Civil Procedure Rules. As I said at the outset, the Government are perfectly prepared actively to consider reform of the Civil Procedure Rules with that aim in mind.
I hope that I have persuaded your Lordships that this is not an occasion to make an exception to the well-established rule that has stood for hundreds of years, whether it applies to HMRC, the National Crime Agency or the FCA. If they make a complete Horlicks of a case, there is no reason to let them off the costs. That is the Government’s position.
Lord Agnew of Oulton (Con)
I thank my noble and learned friend the Minister for his answer. He has always been entirely consistent, and I respect that. We have a genuine difference of views. English law has plenty of exceptions to the landscape which my noble and learned friend has set out—for example, when local authorities bring cases following the Booth case, law enforcement bodies when they bring cases in the magistrates’ court, the Law Society when it brings disciplinary action, its prosecutions that fail following the Baxendale-Walker case, and the Competition and Markets Authority, where the Competition Appeal Tribunal can rule in its favour when it is unsuccessful in bringing a case.
There are plenty of examples. I am not seeking to make the perfect the enemy of the good. We can bring this in with this Bill. It would send a very powerful signal. I seek to test the opinion of the House.
Baroness Blake of Leeds (Lab)
I add my recognition to the noble Baroness, Lady Kramer, for the extraordinary attention to detail and persistence that she has shown in taking forward this very important issue. I know that the Minister will talk to us about the review that is coming in, but there still remain certain aspects that could be brought in immediately—for example, an expectation that every company at least has a policy on whistleblowing. We do not have to wait for a review to achieve that.
We have heard some extraordinary testimony through the debates on the Bill, and the real heartache and personal cost that have befallen people who have not had a good experience. As the noble Baroness, Lady Altmann, said, too many people wait until their job or career comes to an end before they give any details, if they do at all, on the issues that concern them.
This is an extraordinarily important issue. We need to make sure that the pressure is on. I ask the Minister to give us some reassurance about the review, what will happen when it is concluded, and what the mechanism will be to make sure that its findings are put into practice.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
Before I speak to the amendment in this group, I draw your Lordships’ attention to my interests as set out in the register.
I turn to Amendment 136. I personally thank the noble Baroness, Lady Kramer, for raising the very important matter of whistleblowing. I have been extremely grateful for the time that she spent with me ahead of this debate, and look forward to continuing being an important conduit for her into the Government, trying to seek a good resolution around the noblest of intentions. I am also grateful to my noble friend Lady Altmann and the noble Baroness, Lady Blake, as always, for their useful, contributory, collaborative comments.
This Government recognise how valuable it is that whistleblowers are prepared to shine a light on wrongdoing and believe that they should be able to do so without fear of recriminations. This entire process fits within the spirit of the ECCT Bill. I pay tribute to the courage displayed by individuals who blow the whistle on wrongdoing.
I appreciate that there is real strength of feeling on this topic, but the Government’s position is still that it is premature to make legislative change ahead of the review of the whistleblowing framework, which has been mentioned in this debate. The Government recognise that there are different proposals for an office for the whistleblower, and the roles and functions that such a body could have.
The office risks duplication and confusion within the established whistleblowing framework. It is not necessarily clear how the office would interact with the existing prescribed persons, many of whom have regulatory powers in specific sectors. It may duplicate their role and responsibilities. It is also not clear how the office would interact with the current approach to detriment protection for whistleblowers and the role of the employment tribunal, and how whistleblowers and employers would be affected.
Secondly, there is an issue around the costs associated with establishing and running a body. It is not clear how the body would be funded, and we should think very carefully before committing taxpayers’ money, even though this is clearly a very important cause that deserves significant amounts of attention.
Finally, I would not want the Government to take such a dramatic step before they have fully considered the effectiveness of our existing framework as well. As I am sure noble Lords would agree, it would be premature to make legislative change before the ongoing review of the whistleblowing framework has concluded and the Government have assessed the evidence.
It is worth pointing out that we were one of the first countries to introduce a whistleblowing framework, and our framework is well established. Internationally, we are regarded as a leader in whistleblowing policy and our framework has been used as a model for other jurisdictions, such as Australia and Ireland. The whistle- blowing framework recognises that workers are actually the first line of defence for employers to detect and take action where wrongdoing is taking place or has the potential to do so. Workers who believe that they have been dismissed or otherwise detrimentally treated for making a protected disclosure can make a claim to the employment tribunal, which can award unlimited compensation.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateTuesday 4th July 2023
(10 months, 1 week ago)
Lords ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: HL Bill 156-I Marshalled list for Third Reading - (3 Jul 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Johnson of Lainston
That the Bill now be read a third time.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, following the expedited passage of the Economic Crime (Transparency and Enforcement) Act 2022, my noble friend Lord Callanan assured the devolved Governments that they would be closely engaged throughout the passage of this second Bill. Our officials have been sure to keep their counterparts in the devolved Administrations informed and we have met a number of times at ministerial level to discuss key issues.
As noble Lords will be aware, the Northern Ireland Civil Service is facing a number of challenges in the absence of the Northern Ireland Assembly and the subsequent lack of an Executive, one of which being that it is not possible to engage the legislative consent process for this or any other Bill. Given the importance of this Bill, the official level of support for its provisions and the desire to ensure a united response against economic crime, we will proceed to legislate for the whole of the UK without the formal legislative consent of the Northern Ireland Assembly. We have written to the Northern Ireland Permanent Secretaries to keep them informed.
However, I am pleased to confirm that on 20 June the Welsh Senedd voted to grant legislative consent to the Bill. Last week, on the Scottish Parliament’s last sitting day before the Summer Recess, the Scottish Parliament also voted to grant legislative consent to the Bill. I thank colleagues and officials in all three Administrations for the constructive way in which they have worked during the development and passage of this Bill to design measures that will be as effective as possible in tackling economic crime across all parts of the United Kingdom.
Amendment 1
Lord Johnson of Lainston
“Duty to deliver information about exemption from Part 21A
In section 853H of the Companies Act 2006 (duty to deliver information about exemption from Part 21A), after subsection (2) insert—“(2A) The statement under subsection (2) must specify— (a) whether the company falls within the description specified in section 790B(1)(a) or a description specified in regulations under section 790B(1)(b), and(b) if it falls within a description specified in regulations under section 790B(1)(b), what that description is.””Member’s explanatory statement
A company that is exempt from Part 21A of the Companies Act 2006 (information about persons with significant control) has to confirm that it is exempt in each confirmation statement. This new clause would require it to explain why. See the Minister's undertaking at report stage (20 June, col. 149)
Lord Johnson of Lainston (Con)
My Lords, I will now speak briefly to the government amendments, which deliver on the undertakings I made on Report, first in response to concerns raised about the robustness of the people with significant control—PSC—framework and secondly to close a gap in the register of overseas entities information requirements. I thank the noble Lord, Lord Vaux of Harrowden, in particular, for raising these issues. I also welcome the contributions of my noble friend Lord Agnew of Oulton and of the noble Lords, Lord Fox, Lord Ponsonby of Shulbrede, Lord Cromwell and Lord Clement-Jones.
The majority of the amendments fall into the former category of the PSC framework. I reassure noble Lords that, although the number of amendments is higher than we might have liked to table at Third Reading, the majority are minor consequential or tidying-up amendments, and a lot of the new material is in fact a refashioning of existing rules to make them work in the new context of a central register, rather than locally held PSC registers. These amendments improve this by requiring companies to collect additional and more useful information, and by improving the mechanisms through which companies collect the information and report it to Companies House.
Currently, companies must record various “additional matters” in the PSC register. The Bill as drafted removed the regulation-making power through which these additional matters are prescribed. Amendments 26 and 32 preserve those requirements in the context of a centrally held PSC register. Amendment 26 means that a company will notify the registrar if the company knows, or has cause to believe, that a person has become a PSC but the company has not yet had confirmation from them. Amendment 32 means that a company must give notice to the registrar if it knows or has cause to believe that the company has no PSC. This will provide a hook for the registrar to query the statement that a company has no PSC, if she has intelligence to suggest otherwise.
The Bill as drafted removed an important measure to ensure that personal information is protected appropriately. Amendments 14, 17, 20, 22 and 25 ensure that protection mechanisms remain in place, otherwise a person who is at serious risk of violence or intimidation could be reported as a PSC without ever knowing, meaning that they may not have had the opportunity to apply for their personal information not to be displayed publicly.
To improve accuracy and transparency, and to make it easier to monitor and prosecute non-compliance, Amendment 1 requires a company that is exempt from the PSC requirements to explain why it is exempt in each confirmation statement. Amendment 15 improves existing provisions of the Companies Act 2006 which require companies to investigate and obtain information about their PSCs.
Amendments 33 and 34 widen the scope of a regulation- making power in the Bill so that the power can amend relevant parts of the Companies Act 2006 and to make consequential amendments to other parts of the Act. This is to ensure that the legislation is coherent, by avoiding having similar provisions spread across primary and secondary legislation.
Amendment 39 creates a reasonable excuse defence relating to the offence of failing to comply with information notices. This aligns the drafting of the offences with other similar offences.
All other amendments are consequential. I hope that noble Lords will support these amendments.
I turn to Amendment 9. On Report, the noble Lord, Lord Vaux of Harrowden, tabled an amendment seeking to close a gap in the register of overseas entities’ information requirements relating to overseas entities acting as nominees. The Government agreed that this gap exists, and I thank the noble Lord and Transparency International for bringing it to our attention. The amendment tabled by the noble Lord was not quite right, but I hope that this amendment addresses his concerns. It amends Schedule 1 to the Economic Crime Transparency and Enforcement Act 2022 to ensure that, where there is a nominee relationship, this is declared. It then inserts a new definition of beneficial ownership into Schedule 2 to the 2022 Act: “registrable beneficial owners”. I hope that noble Lords will welcome this amendment and agree that it closes the gap that we discussed on Report. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I thank the Minister for these amendments. As he said, I described at Report the loophole in the register of overseas entities that allows people to hide the true ownership of UK properties through nominee arrangements. As the Minister described, he tabled Amendment 9, as he undertook to do, which effectively closes that loophole. I am not sure what conclusion to take from the fact that my original 11-line amendment has turned into one that runs to three pages—it presumably says something about my amendment drafting skills—but I am most grateful.
The other amendments that the Minister tabled relate to the register of persons with significant control. These new amendments tighten the rules and will improve the ability to identify PSCs. In particular, I welcome the requirement for the information to be filed on a centrally held register, rather than locally held registers managed by the companies themselves. The requirement to explain why a company is exempt from the PSC requirements is also an important improvement.
I was slightly confused as to what happens if a company has become aware that it has a PSC but the PSC has not yet confirmed their status or information. Amendment 20 appears to deal with that situation; it requires the company to notify the registrar if it knows, or has cause to believe, that a person has become a registrable person but has not yet had confirmation. However, that seems to conflict with the explanatory statement to Amendment 17:
“This means that a company will only need to notify the registrar of a person with significant control if the person has confirmed their status and information about them”.
Amendment 20 says that the registrar must be notified of an unconfirmed PSC but Amendment 17, or at least the explanatory statement to it, seems to say exactly the opposite. Can the Minister please explain which is right and how the two work together? More importantly, can he reassure me that a PSC will not be able to avoid being notified to the registrar simply by failing to confirm their status or information.
I put on record that, while I welcome and support the amendments, I do not believe that they deal with the problem of nominee shareholders not having to declare themselves as such. The new amendments are not an alternative to the amendment that the House passed on Report that required shareholders to state whether or not they are acting as a nominee, and if so who for. I hope that the Government will continue to consider that amendment and look at it favourably in the other place, or at the very least meet with me and others to see whether we can find a workable compromise. It should not be possible for bad actors to hide behind nominees, and there should be consequences for those who act as nominees to conceal such bad actors.
I am extremely grateful to the Minister and his officials for their helpful and constructive engagement throughout this process; they have been extremely generous with their time. In particular, I thank them for having addressed a number of issues, including the one we have just talked about, throughout the progress of the Bill. The level of engagement from all Ministers involved has been exemplary—if only all Bills were managed so constructively. I also thank all noble Lords who have been so generous in their support of the various amendments that I have proposed. When the Bill started in this House, it was generally seen to be a good Bill, and I think that it emerges from this House in even better shape.
Baroness Blake of Leeds (Lab)
My Lords, I thank the Minister for his letter on the amendments tabled at Third Reading; it was very much appreciated. All of us involved fully understand the importance of transparency of ownership in Companies House and the register of overseas entities, issues we have revisited many times throughout consideration of the Bill.
Ensuring that complex, opaque structures cannot be built to hide economic wrongdoing is central to what we need this Bill to do. I appreciate the approaches taken in working with colleagues across the House to make sure that this important and complex Bill is as effective as possible at preventing economic crime and enforcing consequences for those who commit or facilitate it. However, as we have heard, other areas of the Bill need to be changed, as this House has agreed and as the noble Lord, Lord Vaux, noted, particularly through his own amendments. I hope that Ministers will also hear those points as the Bill heads back to our colleagues in the other place.
I thank all the officials, whose diligence, work, unfailing response and willingness to talk to us throughout has been exemplary. I thank the Ministers for their patience and commitment to working with all parties across the House, in particular the noble Lords, Lord Johnson and Lord Sharpe, and the noble and learned Lord, Lord Bellamy. We are very grateful for that commitment. I give special thanks to Clare Scally, who works in our office. Her tireless support and endless patience working through the various amendments is to be commended. She has kept us on the straight and narrow going through the various changes, which have been welcomed, in the main. I particularly thank my noble friends who have engaged in the debate, especially my noble friends Lord Ponsonby and Lord Coaker, who have given so much of their insight and expertise to help us move forward.
As we have heard today, there is no doubt that this Bill is in a better place than when we started. However, all of us, hand on heart, know that there is still much more to do, particularly in tackling the sheer scale of economic crime in this country. Many people who were not aware of that now are, and I believe that the demand for action will grow. I hope that our improvements to the Bill will have a swift impact on its legislative journey and really help the many victims who must remain at the heart of our considerations.
Lord Johnson of Lainston (Con)
My Lords, before I conclude, I would just like to cover the comments made by the noble Lord, Lord Vaux. If my memory is correct, Amendment 17 prevents the publication of a PSC whose identity has not been verified, so there is no conflict between the two. It is only right that people whose identity has not been verified is published. What is important about these additional amendments is that they ensure that you have to ascertain that you have no PSCs, or if the PSC has not been identified then the registrar is able to make further inquiries. They are not inconsistent and make a sound change to the Bill very much along the lines the noble Lord was recommending in the first place.
I thank the Opposition Front-Benchers, in particular the noble Lords, Lord Coaker and Lord Ponsonby of Shulbrede, the noble Baroness, Lady Blake of Leeds—a formidable Front Bench, if I may say—and the noble Lord, Lord Fox. I thank them for their engagement and constructive scrutiny of the Bill, as well as the enormous amount of time they dedicated to the various meetings ahead of each set of debates. It was a very valuable collaboration and I believe together in this House, we have formed a significant piece of legislation that all the peoples of the United Kingdom will benefit from.
I thank some of the other key contributors to this Bill. Many other noble Lords have been instrumental in the improvements made during its passage through this House, including the noble Lords, Lord Vaux of Harrowden and Lord Alton of Liverpool. The noble Lord, Lord Vaux, and I spent many hours working through this Bill, and if ever asked to point to the value of this great Chamber, it is exactly those constructive debates that I would point to. I am extremely grateful for his input and strong sense of collaboration.
Thanks must also go to my noble friends Lady Stowell of Beeston, Lady Morgan of Coates, Lord Leigh of Hurley—I have rightly described him as a “guru of finance”— Lord Sandhurst, and others for their input and constructive challenge. I also thank my noble friend Lord Agnew of Oulton, who has also engaged extremely constructively with me during this process, and my noble and learned friend Lord Garnier. Over recent months, we have had robust discussions and debates and I genuinely thank them for their engagement.
I must also thank the Whip, my noble friend Lord Evans of Rainow; the formidable team of Whips and officials; and my ministerial colleagues—my noble friends Lord Sharpe of Epsom and Lord Minto, and my noble and learned friend Lord Bellamy—who have all done an excellent job when representing this Bill in the House in all debates over the last few months. The Bill is significant both in size and scope, spanning several departments.
This brings me to all the officials working across multiple departments behind the scenes supporting the ministerial team as we engaged and debated with noble Lords on the detail of the Bill; I extend true personal thanks and the thanks of my noble friend Lord Sharpe. I thank Louise Smyth, the registrar of Companies House, who will be taking many of the actions we are passing through this House in order to make Companies House function more effectively. She and her entire team have engaged consistently throughout this process, and we wish her the greatest of success in implementing this dramatic programme.
I thank the analysis, company law and corporate transparency team in my own Department for Business and Trade, headed especially ably by the deputy director, Matt Ray, and his head of policy, Steve Webster. I thank the criminal finances and asset recovery unit in the Home Office, excellently led by Maria Hannan. I thank Paul Rowlands, Lucy Chisholm, the hard-working legal teams in both departments—I can certainly attest to that—and the expert drafters from the Office of the Parliamentary Counsel, particularly Diggory Bailey and Camilla Grundy. I thank my private office team, in particular, Emily Tranter and Simon Moore, who have supported me so much over these last few months. Finally, I thank the Bill team: Tom Ball, the Bill manager, and his fantastic team of Nicola Wallace, Anna Gray, Corrie Monaghan, Tim Holland, Sophie Curry, Monique Sidhu, Michael Tam and Carolin Grassmann. Everyone involved has demonstrated impressive levels of expertise, and I think I can speak for all Ministers when I say that we felt in safe hands. I am grateful for their proactive, patient and professional support throughout.
Finally, I thank the House authorities for managing the large number of amendments made in this House, and the parliamentary staff, the doorkeepers and clerks for their professionalism and continued support to the Bill and to your Lordships’ House.
To conclude, this Bill is a milestone piece of legislation, which will deliver major reforms to the framework for corporate criminal liability, improving the ability to hold corporations liable in their own right for economic crimes; the first serious reform of limited partnership law since 1907; the most significant changes to our system for setting up and maintaining companies since the 1850s; the first national legislation from any Government to take action against SLAPPs; and the legislative underpinning to tackle the new threats facing us in 21st century through action on crypto assets and improved data-sharing.
Economic crime affects every single one of us in different ways and at different scales. This Government are determined to tackle economic crime and drive out dirty money, protecting British citizens. We are ensuring that public agencies, law enforcement and the private sector have the tools needed to deliver greater protections for members of the public and businesses. As I have said on multiple occasions, the Government have been determined throughout that the Bill strikes the right balance in all areas between tackling criminality and avoiding undue burdens on the law-abiding majority. I remain keener than ever to get this important legislation on the statute books, and look forward to implementing the reforms that it contains when we reach Royal Assent. I beg to move.
Lord Johnson of Lainston
Member’s explanatory statement
This is consequential on my amendment to Schedule 2, page 222, line 31. See the Minister's undertaking at report stage (20 June, col. 149).
Lord Johnson of Lainston
Member’s explanatory statement
Clauses 68, 136 and 166 ensure that certain documents are withheld from public inspection. My amendments to those Clauses protect similar documents delivered under regulations under section 1067A(5)(a) and (6) of the CA 2006. My amendments are therefore consequential on those regulation-making powers, which were added at earlier stages.
Lord Johnson of Lainston
Member’s explanatory statement
See the explanatory statement to my first amendment to Clause 68.
Lord Johnson of Lainston
“Registrable beneficial owners: nominees
(1) The Economic Crime (Transparency and Enforcement) Act 2022 is amended as follows.(2) In Schedule 1 (required information)—(a) in paragraph 3(1), for paragraphs (e) and (f) substitute—“(e) whether the individual is a registrable beneficial owner by virtue of paragraph 2(1) of Schedule 2 or paragraph 2(2) of that Schedule;(f) if the individual is a registrable beneficial owner by virtue of paragraph 2(1) of Schedule 2—(i) a statement as to which of the conditions in paragraph 6 of that Schedule is met and why, and(ii) a statement as to whether that condition is met by virtue of the individual being a trustee;(fa) if the individual is a registrable beneficial owner by virtue of paragraph 2(2) of Schedule 2, a statement as to which of the conditions in paragraph 6A of that Schedule is met and why;”;(b) in paragraph 4, for sub-paragraph (f) substitute—“(f) whether the government or public authority is a registrable beneficial owner by virtue of paragraph 4(1) of Schedule 2 or paragraph 4(2) of that Schedule;(fa) if the government or public authority is a registrable beneficial owner by virtue of paragraph 4(1) of Schedule 2, a statement as to which of the conditions in paragraph 6 of that Schedule is met and why;(fb) if the government or public authority is a registrable beneficial owner by virtue of paragraph 4(2) of Schedule 2, a statement as to which of the conditions in paragraph 6A of that Schedule is met and why;”;(c) in paragraph 5(1), for paragraphs (g) and (h) substitute—“(g) whether the entity is a registrable beneficial owner by virtue of paragraph 3(1) of Schedule 2 or paragraph 3(2) of that Schedule;(h) if the entity is a registrable beneficial owner by virtue of paragraph 3(1) of Schedule 2—(i) a statement as to which of the conditions in paragraph 6 of that Schedule is met and why, and(ii) a statement as to whether that condition is met by virtue of the entity being a trustee;(ha) if the entity is a registrable beneficial owner by virtue of paragraph 3(2) of Schedule 2, a statement as to which of the conditions in paragraph 6A of that Schedule is met and why;”. (3) In Schedule 2 (registrable beneficial owners)—(a) in paragraph 2—(i) the existing text becomes sub-paragraph (1);(ii) in paragraph (a) of that sub-paragraph, for “(see Part 2)” substitute “by virtue of paragraph 6”;(iii) after that sub-paragraph insert—“(2) An individual is also a “registrable beneficial owner” in relation to an overseas entity if the individual is treated as a beneficial owner of the overseas entity by virtue of paragraph 6A.”;(b) in paragraph 3—(i) the existing text becomes sub-paragraph (1);(ii) in paragraph (a) of that sub-paragraph, for “(see Part 2)” substitute “by virtue of paragraph 6”;(iii) after that sub-paragraph insert—“(2) A legal entity other than a government or public authority is also a “registrable beneficial owner” in relation to an overseas entity if it is treated as a beneficial owner of the overseas entity by virtue of paragraph 6A.”;(c) in paragraph 4—(i) the existing text becomes sub-paragraph (1);(ii) in that sub-paragraph, for “(see Part 2)” substitute “by virtue of paragraph 6”;(iii) after that sub-paragraph insert—“(2) A government or public authority is also a “registrable beneficial owner” in relation to an overseas entity if it is treated as a beneficial owner of the overseas entity by virtue of paragraph 6A.”;(d) after paragraph 6 insert—“Persons treated as beneficial owners where entity holds land as nominee6A_ A person (“X”) is to be treated as a beneficial owner of an overseas entity (“Y”) if one or more of the following conditions are met.Y holds land in England or Wales as nominee for XCondition 1 is that Y—(a) is registered in the register of title kept under the Land Registration Act 2002 as the proprietor of a qualifying estate within the meaning of Schedule 4A to that Act,(b) became so registered in pursuance of an application made on or after 1 January 1999, and(c) holds the qualifying estate as nominee for—(i) X, or(ii) an entity of which X is a beneficial owner by virtue of paragraph 6.Y holds land in Scotland as nominee for XCondition 2 is that—(a) Y—(i) holds an interest in land by virtue of being entered, on or after 8 December 2014, as proprietor in the proprietorship section of the title sheet for a plot of land that is registered in the Land Register of Scotland,(ii) is, in relation to a lease that was recorded in the General Register of Sasines or registered in the Land Register of Scotland before that date, by virtue of an assignation of the lease registered in the Land Register of Scotland on or after that date, the tenant under the lease, or(iii) is the tenant under a lease that was registered in the Land Register of Scotland on or after that date, and(b) Y holds the interest in land referred to in paragraph (a)(i), (ii) or (iii) as nominee for— (i) X, or(ii) an entity of which X is a beneficial owner by virtue of paragraph 6.Y holds land in Northern Ireland as nominee for XCondition 3 is that Y—(a) is registered in the register kept under the Land Registration Act (Northern Ireland) 1970 (c. 18 (N.I.)) as the owner of a qualifying estate within the meaning of Schedule 8A to that Act,(b) became so registered on or after the day on which that Schedule came into force, and(c) holds the qualifying estate as nominee for—(i) X, or(ii) an entity of which X is a beneficial owner by virtue of paragraph 6.”;(e) in paragraph 8, for “paragraphs 2(b) and 3(c)” substitute “paragraphs 2(1)(b) and 3(1)(c)”.”Member’s explanatory statement
This amendment means that where an overseas entity holds certain interests in land as a nominee for another person that person is treated as a beneficial owner for the purposes of the register of overseas entity. It also deals with less direct relationships. See the Minister's undertaking at report stage (20 June, col. 187).
Lord Johnson of Lainston
Member’s explanatory statement
See the explanatory statement to my first amendment to Clause 68.
Lord Johnson of Lainston
Member’s explanatory statement
This amendment corrects a cross-reference.
Lord Johnson of Lainston
“9_ In section 790C (key terms), omit subsection (10).”Member’s explanatory statement
This is consequential on my other amendments to Schedule 2 and leaves out a definition that is no longer used. See the Minister's undertaking at report stage (20 June, col. 149).
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateMonday 4th September 2023
(8 months, 1 week ago)
Commons ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: Commons Consideration of Lords Amendments as at 4 September 2023 - (4 Sep 2023)
21:03 - The House divided: - Ayes: 295 / Noes: 205 - Question accordingly agreed to.
21:20 - The House divided: - Ayes: 297 / Noes: 209 - Question accordingly agreed to.
21:33 - The House divided: - Ayes: 294 / Noes: 206 - Question accordingly agreed to.
21:46 - The House divided: - Ayes: 291 / Noes: 209 - Question accordingly agreed to.
21:58 - The House divided: - Ayes: 292 / Noes: 206 - Question accordingly agreed to.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mr Deputy Speaker (Mr Nigel Evans)
I must draw the House’s attention to the fact that financial privilege is engaged by Lords amendments 6, 7, 9 to 12, 14 to 21, 30, 32 to 34, 54, 68, 115, 117, 120, 124, 125, 173, 174 and 178 to 201. If those Lords amendments are agreed to, I will cause the customary entry waiving Commons financial privilege to be entered in the Journal.
After Clause 46
Register of members: information to be included and powers to obtain it
6.50 pm
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move amendment (a) to Lords amendment 23.
Mr Deputy Speaker (Mr Nigel Evans)
With this it will be convenient to discuss:
Lords amendment 151, and Government amendment (a).
Lords amendment 153, and Government amendments (a) to (c).
Lords amendments 115 and 117, and Government motions to disagree.
Lords amendment 159, and Government motion to disagree.
Lords amendment 161, Government motion to disagree, and Government amendment (a) in lieu.
Lords amendments 1 to 22 and 24 to 55.
Lords amendment 56, Government motion to disagree, and Government amendments (a) to (c) in lieu.
Lords amendments 57 to 114, 116, 118 to 150, 152, 154 to 158, 160 and 162 to 229.
Kevin Hollinrake
It is a pleasure to bring this Bill back to the House. It is crucial in ensuring that we can bear down on kleptocrats, criminals and terrorists who abuse our open economy, while also strengthening the UK’s reputation as a place where legitimate business can thrive. I am pleased to say that the Bill is now in a better place and there is a great deal more of it than when it left for the other place back in January. When introduced, the Bill ran to some 239 pages; it is now closer to 400. That reflects the spirit of genuine collaboration across both Houses and the fact that the Government have listened and taken many sensible proposals on board. I take this opportunity to thank Members of both Houses for their collaborative and cross-party approach.
The Government made significant amendments to the Bill in the other place. It is now unquestionably a milestone piece of legislation that takes the UK’s fight against economic crime to an entirely new level. I will summarise a few key changes, starting with the game-changing reforms to corporate criminal liability. As the Minister for Security, my right hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), committed to, the Government tabled amendments to introduce a new failure to prevent offence, which will drive cultural change towards improved fraud prevention in organisations and, failing that, hold organisations to account with prosecutions if they profit from fraudulent actions.
Layla Moran (Oxford West and Abingdon) (LD)
I thank the Minister for giving way so soon. It is undoubtedly a positive thing that failure to prevent, or at least part of it, has now been included in the Bill, but does he have any sympathy for those warning that because this measure is targeting the larger firms, the small boutique firms—the one-man bands that are very aware of what they are doing and know how to get around the system—will still be allowed to freely operate? Would he consider supporting the Lords amendment that would close that particular loophole?
Kevin Hollinrake
I will speak in detail to the various amendments, including the non-Government amendments, one of which is on the threshold that the hon. Lady refers to. If I may, I will defer addressing that until later in my remarks.
The Government have also introduced reforms to the identification doctrine for economic crimes to make it easier to prosecute corporations in their own right for these offences. The House will know that this is the largest and most meaningful change to corporate criminal liability in decades. It will have a transformative effect on our ability to hold corporates to account for the actions of criminal individuals. I thank my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) for all their work and engagement to further the cause for the reform of corporate criminal liability.
We have also made amendments to tackle strategic lawsuits against public participation, known as SLAPPs, that feature economic crimes. We believe that this is the first national legislation in the world to combat SLAPPs. The new clauses will enable an appropriate, fair and effective early dismissal procedure against SLAPP cases. I very much thank the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) for his work in this area.
Members will also be pleased to hear that the Government have tabled amendments to improve the new statutory objectives for the registrar of companies, and I hope my hon. Friend the Member for Barrow and Furness (Simon Fell) and the hon. Member for Feltham and Heston (Seema Malhotra) in particular will welcome these improvements, given their previous amendments.
We also recognise the points made by several Members of this House, as well as in the other place, about the role of authorised corporate service providers in the identification process, and we have tightened the framework. Our amendments will improve the transparency of ACSPs, including by requiring verification statements made by ACSPs when they carry out ID verification on behalf of an individual to be made publicly available on the register.
Furthermore, we have tabled a number of important amendments to strengthen and increase the transparency of the register of overseas entities, which I trust the hon. Member for Aberavon (Stephen Kinnock) and the right hon. Member for Barking (Dame Margaret Hodge) will welcome, given the amendments they proposed in Committee. I must pay tribute to my ministerial colleagues Lord Sharpe of Epsom, Lord Johnson of Lainston and Lord Bellamy for all the work they have done to get this important Bill to where it is now.
Jim Shannon (Strangford) (DUP)
May I thank the Minister? He always brings his points of view to the Chamber with clarity and helpfulness, and that is appreciated by everyone, including me.
We as a party are of a mind to support the Government on this Bill tonight. I want to ask a question that is probably very specific. It relates to Northern Ireland, where criminal gangs—that is what they are; they masquerade as paramilitaries, but they are criminal gangs—delve into business and economic crime. I am seeking assurance from the Minister—I think he probably will respond positively, but at the same time I seek to get his response on the record. Will this Bill ensure that criminal gangs that use illicit money and launder money from across the whole of Europe and further afield will be accountable, by ensuring that we can catch them, detain them and put them in jail?
Kevin Hollinrake
I thank the hon. Gentleman for his work and his intervention. It is clear that fraud and money laundering are already criminal acts; what the Bill principally does is help to prevent fraud by requiring organisations to make sure that fraud is not happening within them in the first place. I think he has spoken to that in the past, as have I as a Back Bencher. I fully support it as the Minister concerned, and I absolutely believe that the Bill will have a major impact in clamping down on economic crime.
We must do more to tackle crime, but we must also ensure that the UK remains a great place to start and grow a business. As such, the Government strongly oppose putting additional burdens on legitimate business, unless there is a clear rationale for doing so. Any amendments made to strengthen the Bill have been carefully weighed up, and the Government are confident that we have struck the right balance in tackling economic crime and preserving the UK’s welcoming business environment.
Sir Jeremy Wright (Kenilworth and Southam) (Con)
I know that my hon. Friend will come on to make points about failure to prevent offences in relation to burdens on small businesses. May I tell him first that I welcome wholeheartedly the arrival of failure to prevent offences? Like my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland), I have argued for that when I was Attorney General and since, and I am glad to see it. In relation to failure to prevent and Lords amendment 151 in particular, the Minister will wish to argue that he is seeking to prevent excessive burdens on smaller organisations by limiting that offence to large organisations, but can he explain why subsection (4) of the new clause introduced by Lords amendment 151 does not do that job? It states:
“It is a defence for the relevant body to prove that, at the time the fraud offence was committed…the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have”.
Why would one of those circumstances not be the size and capacity of the organisation in question?
Kevin Hollinrake
I thank my right hon. and learned Friend for his point and his work in this area. I will come on to that amendment, if I may, later in my remarks. He makes a valid point, and we want to ensure there are no loopholes while at the same time maintaining the position that the Bill does not put new burdens on businesses that are not likely to have a systemic effect on economic crime.
Richard Fuller (North East Bedfordshire) (Con)
I interrupt my hon. Friend to pick up the intervention he received from my right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright). I warn those on the Front Bench about what he just said. Leaving the burdens on business to the courts or whichever procedures to define is not a reasonable protection for small businesses. They need the protection that the Minister outlines, because in such circumstances people will go to the most conservative position they can. Although my right hon. and learned Friend suggested that that would provide significant and effective protection, it will not do so in practice as behaviour will change and burdens will increase. I think the Minister is getting the right balance on this.
Kevin Hollinrake
My hon. Friend makes the other point, and these measures are about the delicate balance that we want to strike, ensuring that the right provisions are in place to prevent fraud without putting undue burdens on business. I am pleased that those interventions reflected both those positions so that we can see the legislation holistically rather than just through the lens of failing to prevent fraud.
Kevin Hollinrake
If I may, I will make a little progress on that point.
We believe that the six non-Government amendments for debate would pose significant and disproportionate burdens on business, penalising reasonable companies and businesspeople with limited evidence that the burdens would be outweighed by any meaningful benefits. I will go into each amendment in detail, but I will begin by emphasising the Government’s position. We must insist that the balance achieved in the Bill through Government amendments made in the other place is maintained.
Dame Margaret Hodge
I am grateful to the Minister for saying that, because it was on that point that I wanted him to give way. Does he not think that any honest, upright business, whether large, small or micro, would aim within its own procedures to avoid fraud or money laundering?
Kevin Hollinrake
The vast majority of the business community is honest and upstanding—that is the point. What we are trying to ensure is that those businesses are not disproportionately affected by putting in controls, checks and balances. I speak as a businessperson who did have to implement failure to prevent bribery and tax evasion measures in our business, and I tell the right hon. Member that there were significant administrative burdens around that legislation, and I believe they would be more so for fraud. I will come to that point in more detail.
I turn to Lords amendment 23. The inclusion of lines 84 to 96 would require all UK companies to declare whether they are holding shares on behalf of or subject to the direction of another person or persons as a nominee, and if so to provide details of the person or persons. Fundamentally, that is not necessary. Provisions in the person with significant control framework, as strengthened through the Bill, already require the disclosure of a person of significant control behind a nominee on pain of criminal sanction for non-reporting. That achieves the same intent. A combination of measures already in the Bill, the material discrepancy reporting regime in the Money Laundering and Terrorist Financing Regulations 2022 and Companies House’s new intelligence hub will more effectively flush out undeclared PSCs and deter the provision of false information.
I am afraid that the proposed approach is something of a blunt instrument. It would apply to all shareholders, when we should be focusing on the transparency of individuals exerting significant influence as already provided for under the PSC framework. As such, we would risk burdening millions of companies and their shareholders with new information requirements for no useful purpose. The proposition may sound sensible, but nominee arrangements can be complex, including having multiple layers of nominees and large numbers of beneficiaries for entirely legitimate reasons. For example, pension funds that own shares in a company would be caught. Listed companies would be particularly impacted as their shares are often held by nominee arrangements for legitimate administrative reasons—for example, in stocks and shares individual savings accounts, by custodian banks and by corporate sponsored nominees.
Listed companies report similar information about those owning 3% or more of their shares to the Financial Conduct Authority, so the Lords amendment would partly duplicate existing arrangements. In summary, lines 84 to 96 of the amendment risk disproportionate burdens on legitimate actors and would most likely be ignored by illegitimate actors. Those acting as nominees on behalf of shady individuals behind the scenes are already adequately on the hook if found to have provided false information, as is the company itself.
The effect of inserting those lines into part 8 of the Companies Act 2006 would be to cut across a tenet of UK company law: those running a company—usually the directors—must know its legal owners and act in the interests of the legal owners of the company. Those legal owners are recorded on the register of members. Companies shall have regard to their members record and not, for example, to anyone holding any underlying beneficial interest in their shares.
Lords amendment 115 would introduce two new duties for overseas entities. It would first require event-driven updates on beneficial ownership information and, secondly, require overseas entities to update their record no more than 14 days before the completion of a land transaction rather than the existing requirement to do so annually. Although the amendments are well intentioned, they would significantly increase burdens on both overseas entities and third parties transacting with them, as well as introduce an element of risk in land transactions that the annual update prevents.
As my ministerial colleague Lord Johnson of Lainston explained in the other place, in the case of an overseas entity that owns large commercial premises split into units, the amendment could result in the entity needing to provide updates twice a month, which is a disproportionate burden. There are a number of other technical challenges and impracticalities with setting such a duty on these entities. The Government are not alone in those views. The Law Society of Scotland, the Law Society of England and Wales and the British Property Federation have all expressed their concerns. The Government therefore cannot support the amendment.
Lords amendment 117 would make information about trusts submitted to the register of overseas entities publicly available by removing it from the list of material listed as unavailable for public inspection. It is important to note that the information on trusts is already provided to the registrar when an overseas entity registers on the register. Furthermore, the registrar already discloses trust information to His Majesty’s Revenue and Customs, law enforcement and other persons with functions of a public nature if and when necessary and appropriate. This is not a loophole.
In the other place and in this House, including from the right hon. Member for Barking, the Government have heard and acknowledged that there is a case for broader transparency over trust arrangements beyond law enforcement agencies. The Government therefore added a regulation-making power in the law to allow third-party access to trust data in certain circumstances. That will enable individuals such as civil society organisations and investigative journalists to access such information under certain circumstances.
Liam Byrne (Birmingham, Hodge Hill) (Lab)
I am grateful to the Minister for his thanks for the progress we have made together on SLAPPs. Because of the amendment made on SLAPPs, we are now providing journalists and other truth-tellers with important protections when it comes to investigating economic crime. The Lords amendment is a complement to that. The truth is, there will never be enough enforcement resources for Companies House, HMRC and others, so we do need civil society to be able to bring the disinfectant of sunlight and undertake investigations. It is therefore vital that trust information is provided. Has he seen the new research published by Arun Advani, Andy Summers and their colleagues that shows that the current arrangements shield something like 152,000 properties from that transparency? If we genuinely want to be able to investigate where things are going wrong, where there is corruption, surely it is in the national interest for us to make that information more widely available.
Kevin Hollinrake
I thank the right hon. Member for his intervention. I have seen the report and the media release around it and we do not accept those numbers or the interpretation of beneficial ownership used in drafting the report. Nevertheless, we share his concerns and absolutely want to ensure that transparency will be greater than it is today.
The Government have every intention of exercising the power and intend to ensure that access can be granted in a straightforward way. Information currently held by Companies House was submitted by overseas entities in the expectation that it would not be available for public inspection. Making such information available for public inspection would come with a number of risks, including the possibility of legal challenge. Moreover, publishing the data by default would likely have significant unintended consequences, including potentially exposing information about vulnerable individuals and minors. It is therefore right that the Government take the time to consult properly on this important issue to address the benefits and risks of greater transparency and how this can be achieved.
Nick Smith (Blaenau Gwent) (Lab)
On transparency and trustees, the Minister says that he does not accept the estimate of 150,000 properties that ought to be looked at in more detail, as my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne), said. What is the Government’s estimate of the properties that need transparency?
Kevin Hollinrake
Around 3,000 entities have not properly registered at this point in time. Enforcement action is being taken on them: some 100,000 communications already have gone out to those particular entities, and a number of fines have been issued—about half a million pounds in fines so far. We do not accept those numbers. We are happy to have a conversation with whoever has concerns about the legislation so far. We do not want legislation that cannot be properly enforced and implemented. It is important that we compare like-for-like to ensure this legislation is fit for purpose.
Sir Chris Bryant (Rhondda) (Lab)
I may have misheard, but I think the Minister said that enforcement activity is going on against 100,000 companies—he will correct me when I sit down—and that there have been half a million pounds-worth of fines. That would be £5 a company, would it not?
Kevin Hollinrake
It would be if the hon. Gentleman’s numbers were right, but that is not what I said. Three thousand entities are not currently registered, to our knowledge. Many of those will have already ceased to exist or will have disposed of the property they owned. We are trying to find out the exact numbers. That is about the enforcement action. We have had 100,000 communications with those 3,000 entities, and half a million pounds of fines so far, but those fines can rise exponentially if they continue not to comply properly with the legislation.
Liam Byrne
The Minister has wisely equipped himself with an order-making power, which he referred to earlier. He told the House that he plans to undertake a consultation. It would be of comfort to some in the House—not to all—if he could tell us when he plans to launch that consultation and, in his own mind, when he would like the consultation to be implemented through the power with which he has equipped himself.
Kevin Hollinrake
We intend to launch the consultation by the end of the year, and we would like the regulations in place as soon as possible. It is quite clear that we want to do that. We all agree on the transparency—I agree with the right hon. Gentleman’s point that sunlight is the best disinfectant. I am absolutely keen to do it, but we must make sure we do it right. We do not want any unintended consequences. It is right that we consult widely with the different sectors to make sure that this legislation—and the regulations, when they come—are fit for purpose.
John Penrose (Weston-super-Mare) (Con)
When my hon. Friend does his consultation, will he reassure those of us who are anxious to maintain the distinction between significant control and general beneficiaries? If he is going to try—rightly—to protect minors for example, who he mentioned in his earlier remarks, will he focus on people who may be misusing trusts because they have control of them? That might be trustees—in some cases it could be beneficiaries if they have effective control of the trustees as well, but in many other cases it will not. Will he try to make sure that he makes that distinction? It is absolutely essential and reads directly across from the persons of significant control legislation that we have elsewhere in disclosing information about shareholdings as well.
Kevin Hollinrake
I thank my hon. Friend for all his work in this area. He makes the point very well. We need to ensure that when we bring forward these measures, they are properly considered and do not result in unintended consequences. He may want to raise those points as part of that consultation when we launch it.
The Government firmly believe that their own amendment and their commitment to consult better achieve the aim of improving trusts’ transparency, as intended by Lords amendment 117, while ensuring that we have time to analyse and stress test the risks in greater depth, including legal risks. We therefore do not support the amendment.
Lords amendment 151, in effect, removes the threshold, as right hon. and hon. Members have already raised, that the Government introduced as part of the failure to prevent offence, which exempts small and medium-sized entities. As I have set out, the Government are extremely mindful of the significant pressures that small companies are under, and do not want to place unnecessary and duplicative burdens on legitimate businesses.
Sir Robert Buckland (South Swindon) (Con)
I agree that we have made huge progress on the Bill, but why is the threshold on small businesses not present in the failure to prevent bribery and tax evasion offences? They are alike offences that have caused a regulatory burden to already exist. What difference will the Bill really make? Why are we not giving it the full fat treatment?
Kevin Hollinrake
I think there is a difference in the regulatory burden of failure to prevent fraud versus failure to prevent bribery and tax evasion. It is more complicated to do it, so it would have a much greater impact on SMEs than bribery and tax evasion. It is a balance of risk and benefits when making sure where those regulatory burdens sit.
Dame Margaret Hodge
I hear the Minister’s plea on behalf of SMEs, and I have sympathy that we do not want to overburden them with regulation, particularly small businesses. However, the threshold that the Government have chosen to set for exclusion from the failure to prevent fraud is extremely high. If I take just one example, law firms—he will know as well as I do that lawyers are among the key enablers of many schemes that lead to both fraud and money laundering—out of the 10,400 law firms in the UK, only 100 will be caught by the legislation as it is currently framed. Is he willing to negotiate with us on the Back Benches and members of the House of Lords to look again at the level at which he defines an SME in this legislation?
Kevin Hollinrake
The threshold is set at one of these three: 250 employees, £36 million turnover or £8 million in gross assets. We think that is the right level. We always listen to what the right hon. Lady has to say. The legal sector is covered by current money laundering regulations, as is the estate agent sector, for example. It is not right to say that they are not covered by money laundering regulations.
Liam Byrne
The Minister is being characteristically generous. I, too, respect what he is trying to do with the regulatory burden. I have taken a business from two people and a business plan and grown it into a multi-million pound organisation, so I respect what he is trying to do on regulation. However, does he not risk the growth of businesses with a turnover just below £36 million—perhaps £35 million—explicitly set up to be the conduits for bad behaviour? He will remember at the public Bill evidence sessions that representatives from the financial services community told us about the way in which money came into a bank and was split up between several different organisations and their bank accounts to blur what was really going on before the money went on to be laundered. Is there not a risk that clever people who are corrupt will just set up a whole hive of small businesses with a turnover below £35 million, to circumvent the safeguards that we are all trying to put in place?
Kevin Hollinrake
I do not accept that. It would be extraordinary if someone set up a business just for the purpose of keeping turnover below £36 million. Besides, it is already much easier to pinpoint fraud in small organisations than larger organisations. That is already the case. It is easier to take forward those kinds of prosecutions on that basis.
Sir Robert Buckland
My hon. Friend is being very generous. I have two points on that. First, I take the point that the Government amendments have already mitigated the issue about parent companies and the division into subsidiaries—that is welcome. But the threshold has been taken from modern day slavery legislation. What is the separate rationale for that threshold in the context of economic crimes? I have not heard any.
Secondly, money laundering is already a criminal offence under the Proceeds of Crime Act 2002, just like fraud, false accounting and theft. Why on earth are we conflating the regulations that are all about neglect, which are used by the FCA admittedly on some major cases, but not that often, with what is already a criminal offence? Why can we not just extend money laundering, which already is part of the regulatory burden of businesses in any event?
Kevin Hollinrake
I will come to the point about money laundering and broadening the sectors that money laundering regulation applies to, but, on SMEs, in my experience, in the work I did as a Back Bencher and in the work others have done, every case of fraud or money laundering I have seen has been by larger companies, not small companies. A number of cases the Serious Fraud Office has tried to take forward have been against larger companies, which is where the failure to prevent requirement comes in. It is much easier to take forward—
Kevin Hollinrake
I will just finish my point.
It is much easier to take that forward where the failure to prevent offence comes in, of course. The act of money laundering is a criminal offence—of course it is—and the act of fraud is a criminal offence. This is about a failure to prevent those activities and imposing that would, in our view, impose a significant regulatory burden on businesses.
Sir Robert Buckland
I am grateful. The Minister is right to cite the SFO, but he knows that the threshold the SFO applies is very high. It will only prosecute high-value, complex or novel cases. It does not deal with the warp and woof of fraud in this country. He is right to say that the majority of this fraud is committed by byzantine, large organisations, but I have to ask him again: what is the regulatory burden? We know that companies already have to face regulations anyway. We have failure to prevent offences. Why is it—I suspect it is the hand of the Treasury, with respect to him—that the Treasury is trying to hold things back on this offence?
Kevin Hollinrake
My right hon. and learned Friend says it is the Treasury. Actually, I am responsible for the business framework and I am concerned about putting £4 billion of regulatory burdens on businesses. That burden has been calculated in the same way that we calculated the burden for bribery, so I think it is a figure we can rely on. Our natural position is that we do not regulate businesses that would find it more difficult to deal with that regulation. That tends to be SMEs. They might find it more difficult to deal with regulation, rather than larger companies, where it is easier to put those controls in place.
We have heard arguments that the threshold means 99% of companies will not be in scope, but we do not think the number of companies is the right metric by which to assess the effect of the new offence. We believe economic activity is more appropriate. I can assure the House that 50% of economic activity would be covered by the organisations in scope of this new offence with the threshold in place. It is, of course, already easier for law enforcement to prosecute fraud in smaller organisations that fall below the threshold. Given those factors, the Government cannot support the amendment.
Lords amendment 158 seeks to introduce a failure to prevent money laundering offence. The UK already has a strong anti-money laundering regime which requires the regulatory sector to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellations of registration and criminal prosecution if they fail to take those measures. The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would be hugely duplicative of the existing regime. In our conversations with industry, it has been very clear that that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should be supporting legitimate businesses, rather than hampering them with overlapping regimes. The Government therefore do not support the amendment.
Lords amendment 160 would prevent enforcement authorities from having to pay legal costs in unsuccessful civil recovery proceedings, subject to certain intended safeguards. This type of amendment would be a significant departure from the loser pays principle and therefore not something we should rush into without careful consideration. The risk of paying substantial legal costs is just one of a multitude of factors that inform an operational decision to pursue an asset recovery case.
Several hon. Members and noble Lords have pointed to the similar changes made to the unexplained wealth order regime by the first economic crime Act, the Economic Crime (Transparency and Enforcement) Act 2022. The key difference is that UWOs are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas civil recovery cases covered by the amendment could do so. There could, therefore, be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. However, we recognise the strength of feeling on the issue and the potential merits of reform. We have therefore tabled an amendment in lieu which imposes a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on its findings before Parliament within 12 months.
I hope the House is assured that the amendments the Government have laid are minor but sensible tweaks to the Bill. As I have set out, the Government have listened and made substantial important amendments to the Bill throughout its passage, significantly improving and strengthening the package where we recognise improvements could be made and where it makes sense for businesses. We must now, however, stand firm where we believe the amendments will not work or will place disproportionate burdens on businesses. I very much hope Members will support our position today and that the other place will note the Government’s movement on cost protection and reconsider its position on the six amendments when the Bill returns there. We must get on with implementing the vital measures in the Bill without further delay.
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
It is a pleasure to speak in this debate on behalf of myself and my hon. Friend the Member for Aberavon (Stephen Kinnock). I thank the Minister for his opening remarks, and for the call last week with him and his officials. I thank the officials, pay tribute to their work on the Bill, and thank all those who have supported and taken part in the Bill’s proceedings.
We are in no doubt about the importance of the Bill. Britain has become a global hub for dirty money. The cost of economic crime now runs to as much as £350 billion, equivalent to our annual health and education budgets combined. Economic crime hits our constituents and our businesses. It hurts our public finances and it damages our reputation around the world. Action on economic crime was first promised in 2016, then 2018 and 2019. It matters because in the years from 2016 we saw a significant increase in economic crime, much of which could have been prevented if the Government had acted then. It took the invasion of Ukraine for the Government to step up. Strengthening the law has been urgently needed, which is why the Labour party has actively supported the Bill’s important passage through both Houses and sought to ensure that we leave no loopholes unchecked. Where the Government fail to act, we will.
We recognise that the Bill has made real progress in strengthening the law to tackle economic crime and its enablers. I particularly thank my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my hon. Friend the Member for Rhondda (Sir Chris Bryant), and the all-party parliamentary groups on anti-corruption and responsible tax and on fair business banking for their research and relentless campaigning for change. I also thank other Members who have made significant contributions to our debates, including some who are here: the hon. Member for Cheadle (Mary Robinson), the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the right hon. and learned Member for Kenilworth and Southam (Sir Jeremy Wright). The Bill brings significant reform of Companies House, improving the accuracy and transparency of the register, with new powers for the registrar to become a more active gatekeeper over company creation.
Let me speak first to Government amendments which we support. I congratulate the Minister on the number of U-turns on areas that Labour argued for in Committee and on Report, including on closing loopholes around third party enablers and introducing a failure to prevent fraud offence. We welcome Government amendment 1, passed in the other place, which would expand the scope of objective 2 in clause 1, requiring Companies House to also take into account the accuracy of information already on the register before the Bill comes into effect. Government amendments 35 to 50, which all relate to the authorisation of corporate service providers, are vital amendments, especially amendment 35, which requires the registrar to publish the name of the authorised corporate service provider who has carried out ID verification. We welcome amendment 43, which requires the registrar to refuse the application for authorisation as a corporate service provider if it appears that the applicant is not a fit and proper person to become an ACSP.
Government amendments 146 to 150 introduce further provisions limiting SLAPPs that feature economic crime. I particularly thank my right hon. Friend the Member for Birmingham, Hodge Hill for his advocacy on this issue throughout the passage of the Bill and in Committee. SLAPPs are a form of abusive proceedings. It is for us to send a signal and to change the law in the public interest. I would, however, ask the Minister for clarity on the Government’s intention to cap costs via secondary legislation, set out in one of the Bill’s factsheets. It would be helpful if he could give us an idea of when the Government are considering doing that, and how quickly he expects it to happen.
Lords amendments 151 to 158 introduce an offence of failure to prevent fraud, which I know was a priority for the Minister as well before he took on his present role. This is a huge step forward, which also follows considerable pressure and work between the Government and both the Opposition and their own Back Benchers throughout the Bill’s passage. The amendments take us forward, but the evidence shows that we need to go further, which is why we will support Lord Garnier’s amendment 159.
Kevin Hollinrake
Is the point not that in the 400 pages of legislation we have before us we are doing exactly that: closing these loopholes, making it easier for businesses and making it easier for Companies House to make sure that these entries are valid? We are also committed to increasing the fees at Companies House to make sure that the proper resources are in place for it. Indeed, we have increased the resources for enforcement at the National Crime Agency by 40% since 2019, with this now standing at just below £800 million a year.
Alison Thewliss
I thank the Minister for that point, but the number of incorporations is massive and the resource to Companies House is not keeping pace to check on each and every company that is going. I direct him to the tweet from Graham Barrow highlighting some of these issues, because there are so many companies and we need as many eyes as possible on this data. Companies House does not have the resource to do this and neither does law enforcement. Allowing those researchers who have the time, expertise and patience to tease out this data to do this and do it well is important. They must be allowed to do this.
Let me turn to the amendment on failure to prevent fraud, from Lord Garnier. I recall the Minister being keen on such an amendment beforehand and there is an awful lot more the Government could be doing on this. As other Members have said, if this can be done for bribery and tax evasion, there is no reason why doing it for fraud should present an additional burden. As the Minister himself pointed out, 99% of businesses are not in scope under what is being proposed here—again, that is ludicrous.
There is also an effect on small and medium-sized businesses to consider, because they also stand to lose money through fraud. They stand to be targeted by those who want to commit this fraud. So those businesses that are perhaps more exposed—those local businesses that do not have the power to stand up to those who would bully them to engage in such activity—are put at risk and should be better protected by this legislation, were they to be kept in line with it.
Dame Margaret Hodge
I shall start where that brilliant speech by the right hon. and learned Member for South Swindon (Sir Robert Buckland) ended. I would also say to the Minister, and also to the Minister for Security, the right hon. Member for Tonbridge and Malling (Tom Tugendhat) were he still in his place, that they have shown from their time as Back Benchers a real understanding of all the issues around economic crime. They knew what needed to be done. They helped to develop the agenda that would work through smart regulation, transparency, tough enforcement and proper accountability. When the Bill arrived in the House, it was, I hope the Minister will agree, a bit half-baked. I am not blaming the civil servants in the box, but it was a bit half-baked. It was full of loopholes and serious omissions. But in this year that we have been considering the legislation, it has gone through tremendous transformations, so I salute the Minister for what he has done, but urge him to go that step further. I thank the Labour Front-Bench team for their assiduous and detailed work on this, but I particularly salute the Back Benchers—Back Benchers from all parts of this House who have joined together to bring forward a set of pragmatic, practical amendments that really will make this Bill fit for purpose. I also thank those in the House of Lords who have worked across parties, with the Cross Benchers, to ensure that we have some serious amendments that will give us a good framework to start the eradication of the malignant infection that we have with dirty money.
I say to the Minister: do not undo that good work; do not emasculate what has happened and where we have got to; and do not give into the voices of enablers who want to make a fortune on the back of dirty money. I wonder, as the right hon. and learned Member for South Swindon has wondered, why on earth is the Minister not listening to what we are saying. Everybody in Parliament wants this. Everybody in the country wants this. Nobody supports dirty money. As I have said time and again, the country will not sustain economic prosperity and wealth on the back of dirty money. There is no future in that. I give the Minister another commitment, which I really regret having to say. I will not be here, but I want a future Labour Government to commit to never having a system that allows any political party to exist on the back of donations of dirty money. I say: do not let this opportunity go. Do not betray the principles and do not cave into the lobbying. The Government should look at the excellent amendments and please go forward.
I wish to focus on some new points. Lord Agnew’s excellent amendment in relation to trusts needs to be considered. The Minister said that he did not accept the research that was published today by really respected academics. These are people I have worked with over the years in whose work I have total and utter confidence. I challenge the Minister to bring them in and talk to them and then see if he comes to the view that what they are saying is not true. What they are saying is that we do not know the beneficial owner of 70% of the properties identified as owned by an overseas entity. And we do not know the beneficial owner of two thirds of that 70% because there is a trust that hides the real beneficial ownership. The Minister should have regard to what they say, as they are distinguished. I urge him to talk to them. I am happy to join in a meeting with them. In 87% of cases where information is either missing or inaccessible, it is because of Government choices in the design of the scheme. It is not because people are not obeying the law. It is because the Government have chosen to design the scheme in that way.
Dame Margaret Hodge
I am conscious of time, but I will give way to the Minister.
Kevin Hollinrake
When the LSE looked at beneficial ownership, I think that it included tenants of properties rather than the ownership of properties, and the register of overseas entities only deals with the ownership of those properties. There is definitely some disconnect between the Government’s position on this and the legislation and the interpretation that has been taken with this research from LSE.
Dame Margaret Hodge
I have met the key academics involved in this on a number of occasions, and I urge the Minister to do so as well. I think the differences are between the entities and the properties. We started asking for a register of properties that were owned by overseas entities in 2012, 2014 and 2016. It was absolutely ages ago. It was when David Cameron was Prime Minister. It was finally enacted last year, but it has been enacted badly. I have to say that it is the secrecy that matters. We can have transparency and we can protect vulnerable people. Transparency will enable all eyes—many, many more eyes—to interrogate the data and the Minister knows that to be true.
Let me put in this basic point. He and I own properties. We are not ashamed of showing the ownership of those properties. Why should we reveal the ownership of the properties in which we live, when rich people—often kleptocrats, often criminals, often money launderers—are able to use trusts as a mechanism to hide their ownership? That is a basic unfairness that the Minister should deal with. May I quote to him the words of one of the firms of lawyers that is exploiting the loophole? It is Payne Hicks Beach—Baroness Fiona Shackleton is a member of that firm. The firm says:
“On the face of it, the lacuna would seem to defeat the purpose of the legislation”—
this is lawyers saying this—
“so may be tightened up”—
hopefully tonight—
“in the future, but for the time being, using a nominee to hold UK property will continue to provide privacy as far as the ROE is concerned.”
Lawyers are exploiting that loophole, and we should stop it because—I hope that the Minster will agree with this—it is damaging our sanctions policy. Usmanov has been able to hide a lot of his wealth in property through trusts. Abramovich has done it, Fedotov has done it, and it is time that we brought it to a stop.
The other key issue is the failure to prevent. I will quote to the Minister what he said time and again. This is not about additional burdens on SMEs, or filling the courts with criminal cases; this is about trying to change the behaviour in our society, so that preventing fraud and money laundering becomes embedded in our culture, in the same way that preventing bribery has become embedded in business culture. The example that the Minister used when he was on the Back Benches is very potent. When we used to have a lot of accidents and deaths on construction sites, we reformed the health and safety at work legislation. We did not suddenly fill the courts with builders and construction people being taken to court, but overnight the number of accidents went down by over 90%. That is the principle that we are working on. That is the evidence that we want to use, and it is vital that we do it here.
Ms Marie Rimmer (St Helens South and Whiston) (Lab)
I would like to pay my respects to my hon. Friend the Member for Feltham and Heston (Seema Malhotra) for her excellent opening on our behalf, as well as to my right hon. Friend the Member for Barking (Dame Margaret Hodge) for her excellent knowledge and understanding. The time she has put in is just unbelievable. She spoke about Bill Browder—no one can read his work without realising just how serious this issue is. I also thank my right hon. Friend the Member for Birmingham, Hodge Hill (Liam Byrne), who covered it so aptly and brought it down to how dangerous and very serious this is for our democracy and our economic equality. What could happen, and what I think will happen, is frightening.
I want to focus on the importance of legislating on the failure to prevent fraud and money laundering, which are crimes committed in the shadows. Currently, there is a severe lack of provisions to prevent economic crime, which we know is the best, cheapest and most effective way to tackle our dirty money problem. These crimes are committed and witnessed by some of the most senior professionals at a company, and even if they are not participating but just happen to witness fraud, surely they must be under a legal duty to report it. Amendment 159 was introduced in the other place, and I pay my respects to the other place for its absolutely wonderful scrutiny of the Bill. I commend it to the Minister. He has spearheaded the Bill to where it is now, but he just needs to go that bit further.
We must have reasonable prevention mechanisms in place. The failure to prevent measures would work on multiple fronts. First and foremost, they would act as a deterrent, forcing companies to act and to take economic crime seriously if they know they would be held liable. Deterrence is proven to work. As a health and safety professional, I know that regulations to make companies and directors liable made tremendous inroads on health and safety. We may wonder why there were always so many disputes on construction sites, but it was because there was no health and safety. The workers had to fight for everything, and they could not do it without legislation. That is why we are here: to tackle things when they are not being tackled, and economic crime is not being tackled at the present time. That legislation resulted in a 90% drop in deaths and serious injuries on construction sites, which could have involved just building a few houses.
Secondly, regulatory factors such as the fines that exist are not sufficient to bring about the required change. After all, the fines could be a lot less than these companies are earning from economic crime, and they become a cost factored into doing business for those companies. This cannot be right, and it simply cannot continue. To our shame, Britain is the global hotbed of economic crime, at a cost of £350 billion a year. The people of Ukraine are feeling the impact of this unchecked economic crime, as some of the main benefactors have been Russian oligarchs, the Russian state and Putin himself. There are the Magnitsky sanctions, but it tells us a lot, does it not, when Putin kills his own people as a deterrent? When we look at the invasion of Ukraine, we cannot sit back and let this continue unchecked.
The Government amendments to cover this do not go far enough. Well-organised criminal entities would easily get around legislation that only touches the largest companies and the largest businesses. They take advantage of small and medium-sized businesses, as my right hon. Friend the Member for Birmingham, Hodge Hill said. That is exactly what they do—they do whatever it takes. They are cleverer than us, and they are doing it now. Well-organised criminals will get around it. As 64% of companies have experienced fraud, this would help those companies.
The Government legislation fails to make failure to prevent money laundering an offence. The justification for doing that is the money laundering regulations, yet there has been only one corporate conviction since they were introduced—that of NatWest in 2021. Clearly, the money laundering regulations are not good enough. The new legislation would make companies prove that they have the right procedures in place to prevent money laundering. This is the type of tough legislation we need to crack down on economic crime. For too long Britain has been the laundromat for foreign despots and dictators.
I heard a Member across the Floor talking about feeling the chill; what is more chilling than seeing what is going on and turning a blind eye, not washing the blood off our hands for the crimes against humanity committed for the very money being laundered around our country? I urge the Minister—I know where his heart is—not to throw away this wonderful opportunity to save so much. Democracy is at risk. It really is not acceptable. Please be brave enough—be brave enough and you will sleep at night.
Kevin Hollinrake
I thank all Members for their contributions. I will not reiterate all the points I made in my opening speech, which addressed many of the points raised in the debate but shall talk to a few of the points made.
My right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright) made some points that were also reflected by my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland). My right hon. and learned Friend the Member for Kenilworth and Southam challenged me to explain why subsection (4)(a) of the proposed new clause in Lords amendment 151 does not prevent excessive burdens on SMEs. That measure says we must have in place “such prevention procedures” and there is a concern that many millions of SMEs across the country would have to put in place prevention procedures despite there probably being no chance of any fraud at that organisation. So there would be burdens that otherwise would not exist on those businesses.
Sir Jeremy Wright
The Minister is right, but subsection (4)(a) refers to
“such prevention procedures” as are
“reasonable in all the circumstances”,
so in very many cases that would be a very minimal requirement and probably only what companies that are behaving responsibly are doing already. Secondly, as I am sure the Minister is about to point out, subsection (4)(b) states that it might not be
“reasonable in all the circumstances to expect the body to have any prevention procedures in place.”
So if it was not considered reasonable to have any, it would be possible to rely on that defence if they did not.
Kevin Hollinrake
I think my right hon. and learned Friend will accept there will also be a requirement to analyse actuarily the business to see what risks there are, and any perceived risk would of course require those prevention procedures to be put in place. We have analysed this and tried to get some context around the costs to businesses and think it would be in the order of £4 billion, so there would be significant burdens. For that reason, we are not persuaded to change our threshold.
Let me correct myself to the hon. Member for Rhondda (Sir Chris Bryant). I was only out by a factor of 100 when I talked about the number of warning notices sent to overseas entities; 1,000 warning notices have been sent.
The hon. Member for Feltham and Heston (Seema Malhotra) talked about the introduction of SLAPPs, and we are clearly keen to do that at the earliest possible time. We have to work with the Civil Procedure Rule Committee to implement a new cost protection scheme for SLAPPs defendants and the early dismissal mechanism via secondary legislation as soon as possible. We cannot give a definite date, however.
I thank my hon. Friend the Member for Cheadle (Mary Robinson) for all the work she does with the all-party group on whistleblowing, which I was heavily engaged with as a Back Bencher. We have a review of whistleblowing that should conclude by the end of 2023. On extending SLAPPs to areas of our economy outside the economic sector, we are considering further legislative options. Clearly, in this proposed legislation it could only pertain to economic crime due to the extent of the Bill.
The hon. Member for Glasgow Central (Alison Thewliss) rightly talked about enforcement resources and also some of the limitations in the current regime, and that is exactly why we are legislating. The provisions we will make will increase the incorporation fee for Companies House. In addition to the £63 million we have put in to pump-prime this work—the extra people at Companies House will therefore be resourced, and there are already 400 people there to enforce the provisions of this legislation—we expect to increase incorporation fees to around £50 and also to extend the costs of annual returns to raise the money as necessary to make sure that the requirements of the Bill are fully implemented.
Alison Thewliss
Given the woefully low number of fines for false filing and the single one for not registering a person of significant control for Scottish limited partnerships, will we see that increase?
Kevin Hollinrake
That is exactly why we are legislating. These are the biggest reforms to Companies House in 170 years. We have to legislate first and ensure that the resources and the enforcement are in place. We are on the same page in this area.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateMonday 11th September 2023
(8 months ago)
Lords ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: HL Bill 166-I Marshalled list for Consideration of Commons Amendments and Reasons - (8 Sep 2023)
17:04 - Division on Motion E1 - Ayes: 211 / Noes: 185 - Motion E1 agreed.
17:16 - Division on Motion H1 - Ayes: 218 / Noes: 186 - Motion H1 agreed.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Johnson of Lainston
That this House do disagree with the Commons in their Amendment 23A and do propose Amendments 23B and 23C in lieu—
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
My Lords, I shall also speak to Motions B, C, D and D1. I thank noble Lords for their extraordinarily high level of constructive input over the last few days as we have come to this point. I believe that together, across the House, we have created a truly powerful piece of legislation that will have a meaningful impact on how Companies House operates, how we deal with financial crime and how we make our system safer and cleaner.
I should declare my interests. I have interests in limited companies and other companies, but I do not believe there is any conflict of interest in this process today.
Motion A relates to Lords Amendment 23, tabled on Report by the noble Lord, Lord Vaux of Harrowden, which would require members of all UK companies to declare whether they were holding shares on behalf of, or subject to the direction of, another person or persons as a nominee and, if so, to provide details of the person or persons. We have been in conversation over the last few days about that amendment. While we understand the intention to tackle what we perceive to be an industry of nominee service providers prone to acting unlawfully, I am afraid we do not believe that the amendment is the appropriate way to achieve that goal.
However, the Government, via Motion A, have therefore tabled Amendments 23B and 23C in lieu of Commons Amendment 23A. I hope that is making sense to the noble Lord. The new amendments allow the Secretary of State to make regulations to make further provision for the purpose of enabling a company to find out who its PSCs are—that is, people of significant control—in cases where shares are held by a nominee. That could include, among other things, imposing further obligations on companies to find out if they have nominee shareholders and, if so, for whom they are holding shares, or imposing further obligations on nominee shareholders to disclose their status and for whom they are holding shares.
It is important that we make it clear that the reason for tabling the new amendments rather than accepting the noble Lord’s revised amendment is that we are slightly wary of imposing disproportionate burdens on business. There are a vast variety of nominee types which we need to make sure we have taken into account when ensuring that we are getting the right information from the right types of nominees. As I have said to the noble lord—at this Dispatch Box, I believe—the commitment in principle to try better to understand the route between the nominee and the beneficiary is an important one. We want to do it in the right way, and these amendments would give the Secretary of State the powers to do that. I hope that the noble Lord can agree that that is the right approach to take and, assuming that is so, can support the Government in this new amendment and consider withdrawing his own.
I turn to Motion B.
Lord Agnew of Oulton (Con)
My Lords, I apologise to my noble friend the Minister. I had been told that I needed to address my Motion D1 while Motion A was under discussion. I am very happy to wait but those were the instructions I had from the Table. Would anyone like to clarify?
Lord Johnson of Lainston (Con)
I am told that I should continue, and we will hear from my noble friend at a later stage—which I welcome and look forward to greatly.
Motion B is a technical Motion that allows the power to modify who is able to file with Companies House on others’ behalf, to ensure it is consistent for all types of filings. I hope the House is assured that these amendments are minor but sensible modifications to the Bill.
Motion C relates to Lords Amendment 115, also tabled by the noble Lord, Lord Vaux, at Report. This will introduce two new duties for overseas entities, the first requiring event-driven updates on beneficial ownership information, and the second requiring overseas entities to update their records no more than 14 days before the completion of a land transaction. We believe that requiring event-driven updates for the Register of Overseas Entities will not work in principle. I would like to reassure noble Lords that we have done an enormous amount of highly collaborative work with the noble Lord, Lord Vaux, on this issue. We are concerned that this would create additional risk for purchasers of properties involved with overseas entities. However, as I hope I have made clear to noble Lords, we are extremely committed to working further on this subject. The Government commit to keeping under review the question of the update period for the Register of Overseas Entities. That is extremely important, and I personally commit to that on behalf of the Government. We will have more evidence at our disposal as the first set of annual updates comes through. If we felt it necessary to change the reporting requirements, and if there were not the risks that we feel may be presented by the noble Lord’s proposal, then we would look to consult on that. For that reason, we will not be supporting that amendment.
I turn to Motion D, which my noble friend Lord Agnew will then speak to. Again, I am very grateful to my noble friend for his extraordinarily high level of commitment to making sure that the Economic Crime and Corporate Transparency Bill is genuinely powerful legislation that will enable us to achieve the goals we wish to achieve. Ultimately, transparency is at the core of our ambition. However, we are concerned, in that his amendment would make information about trusts submitted to the Register of Overseas Entities publicly available by removing it from the list of material listed as unavailable for public inspection. I note that my noble friend has also tabled a further amendment.
However, it is important to come back to these points, because they are very relevant to our ambitions. We are resolute in saying that we will not unilaterally change the rules relating to these trusts, and I think Members of the House understand why. However, we have committed already to launching a full public consultation before the end of the year on how we can further improve the transparency of trust information. Following further discussion with my noble friend, I would like to make it clear that the public consultation to which we are committed is a separate exercise from the commitment to make regulations that I have discussed already. The consultation will look at the case for broader transparency regarding trusts. The Government’s ambition is to increase and improve transparency. We commit absolutely that we will undertake this consultation and that it will be launched before Christmas of this year and run for no more than 12 weeks. That is in line with discussions we had with my noble friend.
I reassure my noble friend that Ministers across departments are committed to meeting this deadline and acting swiftly on the consultation’s findings. I would be very happy to meet with my noble friend, and indeed any noble Lords, soon after the consultation closes to discuss how we can move forward at pace. We therefore oppose my noble friend’s amendment, but I hope he can take the commitments I have made today at the Dispatch Box as sufficient reassurance to persuade him to withdraw his amendment. I beg to move.
Baroness Blake of Leeds (Lab)
My Lords, I start by thanking the Minister for the broader tidying up of the amendments in this group and by reflecting on the time, over several months, that we have been discussing these important issues. We must keep our eye on the scale of the issues that we are dealing with; they are immense, and they cost this country billions of pounds. We have a great deal to do to repair the UK’s reputation in the world, and I hope that we involved in this debate will all have our eyes on that prize.
I am pleased to say that we have seen some positive changes achieved through the passage of this Bill and a genuine appetite for change, as we experienced with our conversation with Companies House. We are going through an immense cultural change in the management of these affairs. As we know, it is the biggest shake-up for 170 years. I also pay tribute to everyone in the Chamber, and those who are not here today, for their diligence in the work that they have done, and to my colleagues in the other place, Dame Margaret Hodge and Seema Malhotra in particular. Months and months of work have gone into getting us to this place.
I am very grateful for the explanation that the noble Lord, Lord Vaux, gave. There is real recognition that there will be an ongoing need to scrutinise. I think we all accept the commitments in good faith, but we need to make it clear to Ministers and their officials that the interest is very live and that there will be close scrutiny as these matters roll up. Compromise has been reached on this—I accept that that is the reason we will not be taking the amendment to a vote—but we add our support to the ongoing scrutiny that will need to take place.
I also pay tribute to the noble Lord, Lord Agnew, for his persistence in this and his unique position having had experience in government, which has informed the approach he has taken and the concern that I think many would agree he has rightly raised. We are where we are—he has decided to accept the reassurances—but we also have an insight into those elephant traps that he referred to. I also reference the comments of my noble friend Lord Eatwell on the explicit need for vigilance.
With those comments, and thanking everyone for the spirit of compromise, I reassure everyone that we will look closely at this, and we very much hope that the measures being brought in today will be sufficient. We will look to those delegated powers that have been built in to make sure that, if change is necessary, it will indeed be made.
Lord Johnson of Lainston (Con)
I thank noble Lords for their contributions, including the noble Baroness, Lady Blake, for her extremely helpful and supportive comments about the overall debate. In her summation, she was right that we have, through a great degree of good faith among us all, come up with a very strong series of actions that will genuinely change the economic landscape in this country for the better.
I have had the privilege of working with my noble friend Lord Agnew for a number of months as we have come to today’s conclusion on these measures. I reiterate my personal commitment, and the commitment of this Government, to delivering on the thrust of his ambitions. On a process that came to light only recently—the issue of bulk data and its accessibility—I can commit that Companies House will do a review of how it can assess bulk data for the trusts’ information on the register of overseas entities once a consultation period has finished and it is deemed appropriate.
Ultimately, we are committed to greater transparency, and I am very grateful to my noble friend and noble Lords across the House for their understanding of our approach to how we can best achieve this without either endangering vulnerable minors or individuals or opening ourselves up to legal challenge which could derail many of the main principles of this part the Bill to which my noble friend is rightly keen to contribute.
Finally, I express my gratitude to the noble Lord, Lord Vaux, who, from the very beginning, has been a tireless collaborator in creating—with his input across the board in this section of the Bill—a truly powerful piece of legislation. It was my own personal pleasure and pride to work with him as we have come to this conclusion, and I am very grateful to him for his understanding, again, of how we believe that we can achieve our shared ambitions in what we think will be the right way.
We have made some clear further commitments today—to which I would be delighted to be held to account by my noble friend Lord Agnew and all noble Lords in the House today—to make the Economic Crime and Corporate Transparency Bill the most effective legislation it can be. I therefore invite the House to agree the government Motions in this group.
Lord Johnson of Lainston
That this House do not insist on its Amendment 56 and do agree with the Commons in their Amendments 56A, 56B and 56C in lieu.
“Who may deliver documents to the registrar
1067A Delivery of documents: identity verification requirements etc
(1) An individual may not deliver a document to the registrar on their own behalf unless—
(a) their identity is verified (see section 1110A), and
(b) the document is accompanied by a statement to that effect.
(2) An individual (A) may not deliver a document to the registrar on behalf of another person (B) who is of a description specified in column 1 of the following table unless—
(a) the individual is of a description specified in the corresponding entry in column 2, and
(b) the document is accompanied by the statement specified in the corresponding entry in column 3.
1 | 2 | 3 | |
Description of person on whose behalf document delivered (B) | Description of individual who may deliver document on B’s behalf (A) | Accompanying statement | |
1 | Firm | Individual who is an officer or employee of the firm and whose identity is verified (see section 1110A). | Statement by A— (a) that A is an officer or employee of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified. |
2 | Firm | Individual who is an officer or employee of a corporate officer of the firm and whose identity is verified. | Statement by A— (a) that A is an officer or employee of a corporate officer of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified. |
1 | 2 | 3 | |
Description of person on whose behalf document delivered (B) | Description of individual who may deliver document on B’s behalf (A) | Accompanying statement | |
3 | Firm | Individual who is an authorised corporate service provider (see section 1098A). | Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on the firm’s behalf. |
4 | Firm | Individual who is an officer or employee of an authorised corporate service provider. | Statement by A— (a) that A is an officer or employee of an authorised corporate service provider, and (b) that A is delivering the document on the firm’s behalf. |
5 | Individual | Individual whose identity is verified. | Statement by A— (a) that A is delivering the document on B’s behalf, and (b) that A’s identity is verified. |
6 | Individual | Individual who is an authorised corporate service provider. | Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf. |
7 | Individual | Individual who is an officer or employee of an authorised corporate service provider. | Statement by A— (a) that A is an officer or employee of an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf. |
(a) an individual who is an officer of one of those corporate officers, or
(b) if the officers of those corporate officers are all corporate officers, an individual who is an officer of any of the corporate officers’ corporate officers,
and so on until there is at least one individual who is an officer.
(4) The Secretary of State may by regulations—
(a) create exceptions to subsections (1) or (2) (which may be framed by reference to the person by whom or on whose behalf a document is delivered or by reference to descriptions of document or in any other way);
(b) amend this section for the purpose of changing the effect of the table in subsection (2).
(5) Regulations under subsection (4)(a)—
(a) may require any document delivered to the registrar in reliance on an exception to be accompanied by a statement; (b) may amend this section.
(6) The Secretary of State may by regulations make provision requiring a statement delivered to the registrar under subsection (2) to be accompanied by additional statements or additional information in connection with the subject-matter of the statement.
(7) Regulations under this section are subject to affirmative resolution procedure.
(8) In this section “corporate officer” means an officer that is not an individual.””
Lord Johnson of Lainston
That this House do not insist on its Amendment 115, to which the Commons have disagreed for their Reason 115A.
Lord Johnson of Lainston
That this House do not insist on its Amendment 117, to which the Commons have disagreed for their Reason 117A.
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 151A.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I will speak also to Motions F, G, H and H1. We cannot agree to the proposed amendments for practical reasons, not least that the burdens they would place on business would not just be justified. It is for this reason, and not because of any intransigence or party-political reason, that we are unable to agree with the proposed Lords amendments. I will now talk specifically to the Motions in this group.
Motion E would reinsert the SME exemption for the failure to prevent fraud offence. I have of course noted Motion E1, tabled by my noble and learned friend Lord Garnier. I appreciate that he has moved closer to the Government’s position on this issue, creating his own threshold that would exclude microentities from the failure to prevent fraud offence. However, the Government remain extremely mindful of the pressures on companies of all sizes, including small and medium-sized enterprises, and therefore do not feel it is appropriate to place this new, unnecessary burden on more than 450,000 of them.
The analysis on this issue remains clear: even reducing the exemption threshold to only microentities would increase the one-off costs on businesses from around £500 million to £1.5 billion. Further, the annually recurrent costs would increase from £60 million to more than £192 million. Those costs would still be disproportionately shared by small business owners.
I know some noble Lords have expressed scepticism about the burdens, but the fact is that when a small business person hears that they may be liable to a new offence and significant fines if they are judged not to have taken action on something, they will worry. They will take time out of their business to scrutinise the guidance and, whatever it may say, there could be widespread overcompliance. Furthermore, they may well have to pay their accountant or lawyer to do it for them. While this burden is eye-watering in its own right, the issue cannot be taken in isolation. We must be aware of the cumulative compliance costs for SMEs across multiple government requirements or regulations. Furthermore, I can assure noble Lords that 50% of economic activity would be covered by the organisations in scope of this new offence with the Government’s threshold in place. It is of course already easier for law enforcement to attribute and prosecute fraud more easily in the smaller organisations that fall below the threshold.
I hope that noble Lords who feel strongly on this issue will be reassured that this is not the end of the debate. The Government have future-proofed the legislation by including a delegated power to allow them to raise, lower or remove the threshold altogether. Of course, as with all legislation, the Government will keep the threshold under review and will make changes if there is evidence to suggest that they are required. I therefore urge noble Lords to support government Motion E, rather than Motion E1.
I now turn to government Motion G, which disagrees with Lords Amendment 158. This was also tabled by my noble and learned friend Lord Garnier and seeks to introduce a failure to prevent money laundering offence. I am pleased that no amending Motions have been tabled for today, as I fear this amendment is entirely duplicative of existing regulations. Much like my noble and learned friend’s other amendment, it would therefore impose yet further unnecessary burdens on UK businesses. The UK already has a strong anti-money laundering regime in the form of the money laundering regulations, which require regulated sectors to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellation of registration and criminal prosecution, if they fail to take those measures. What is more, those penalties will apply even if no actual money laundering has occurred. No knowledge of or intention to commit an offence has to be proved.
The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would therefore be highly duplicative of the existing regime. This is not just the view of the Government: in our conversations with industry, it has been very clear that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should support legitimate businesses, rather than hamper them with overlapping regimes. I therefore hope that noble Lords will agree with the government Motion to disagree with the amendment from Report.
Lord Coaker (Lab)
My Lords, we have been pleased to support the legislation, which overall we think is very good, and we have said that to the noble Lord, Lord Sharpe. Indeed, the Government have listened, as have all the Ministers on the Bill, and made significant changes. Now we are left with just two amendments, put forward by the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, which deal with two issues that remain outstanding but are of significant importance and deserve our support and consideration.
I want to reference one or two points made by the noble and learned Lord, Lord Garnier, because he made them particularly well. It is a proportionate and reasonable amendment to ask of the Government. There are all sorts of regulations and legislation—the noble and learned Lord referenced them—to which we say small businesses should be subject to, because we believe that it is the right thing to do and the right climate in which those businesses should operate. When it comes to the failure to prevent, the Government point out that 50% are covered by their legislation, which of course leaves 50% that are not.
Throughout the passage of the Bill, many of us have sought to ensure that the failure to prevent—which is a good step forward—applies, as far as possible, to as many businesses as it possibly can. The noble and learned Lord, Lord Garnier, asked why we would exclude many small businesses when they are not excluded from other legislation that may be seen as a burden. The argument is hollow and does not cut through. For that reason, and because the noble and learned Lord has put forward an amendment that takes into account what was said in the Commons, it deserves our support. Should he put it to a vote, as I think he suggested he would, we will support him.
Similarly, the noble Lord, Lord Faulks, notwithstanding the correction he made to the amendment, brings forward a very important point indeed. One of the great criticisms that is often made about dealing with fraud is that somehow law enforcement agencies are frightened of taking on the people who are committing fraud. I always thought it should be the other way around; the fraudster should be frightened of the law enforcement agency. Yet, for some bizarre reason, it is that way around—that cannot be right. It is not something that any of us want to be the case. Through his amendment, the noble Lord, Lord Faulks, has tried yet again to push the Government to do better and to do more than what is currently in the Bill. His amendment says to the Government, “Surely we should do better”. Indeed, the Treasury itself should be confident in the work of the law enforcement agencies. Some have suggested that those agencies should be indemnified against any costs they may incur.
I go back to two simple points. First is the point in the amendment from the noble and learned Lord, Lord Garnier: why should small businesses be excluded from this legislation, other than the micro-businesses to which he referred, when we do not exclude them from other legislation that we think is important? Small businesses adhere to that legislation in the same way as other businesses. Secondly, the amendment from the noble Lord, Lord Faulks, gives us an opportunity to turn the tables and ensure that, rather than the law enforcement agencies being frightened of costs they may incur in ensuring that fraudsters are brought to book, the fraudsters are frightened. That is why, if the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, put their amendments to a vote, we will certainly support them.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords who have spoken in this debate. I will respond relatively briefly; I think I have rehearsed the majority of the arguments widely and frequently, and there is not much point in saying more to some of them. However, the precise point I was trying to make in my opening remarks is, in essence, about proportionality. My noble friend Lady Noakes referred to that extremely eloquently.
My noble and learned friend Lord Garnier oftens points out that 99.5% of business is exempted, but I repeat that this is very much a judgment call because 50% of economic activity is captured. My noble friend Lady Noakes referred to the opportunity cost and the noble Lord, Lord Faulks, suggested that perhaps this is about businesses not checking whether they in some way have the right procedures in place to prevent fraud, but it is not about that. It is about many other factors that do not involve the business at hand, as my noble friend Lady Noakes referred to. Those other burdens are obviously partially financial, but not fully.
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendments 153A, 153B and 153C.
Lord Sharpe of Epsom
That this House do not insist on its Amendment 159, to which the Commons have disagreed for their Reason 159A.
Lord Sharpe of Epsom
That this House do not insist on its Amendment 161 and do agree with the Commons in their Amendment 161A in lieu—
“Report on costs orders for proceedings for civil recovery
Report on costs orders for proceedings for civil recovery
(1) The Secretary of State must assess whether it would be appropriate to restrict the court’s power to order that the costs of proceedings under Chapter 2 of Part 5 of the Proceeds of Crime Act 2002 are payable by an enforcement authority and, if so, how.
(2) In carrying out the assessment, the Secretary of State must consult such persons as the Secretary of State considers appropriate.
(3) The Secretary of State must publish and lay before Parliament a report on the outcome of the assessment by the end of the period of 12 months beginning with the day on which this Act is passed.
(4) In this section “the court” means the High Court in England and Wales.”
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateWednesday 13th September 2023
(7 months, 4 weeks ago)
Commons ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: Manuscript Amendments, Commons Consideration of Lords Message as at 13 September 2023 - (13 Sep 2023)
14:51 - The House having divided: - Ayes: 276 / Noes: 210 - Question accordingly agreed to.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move, That this House agrees with Lords amendments 23B and 23C.
Mr Deputy Speaker
With this it will be convenient to discuss the following:
Lords amendments 151B and 151C, Government motion to disagree, and Government motion to insist on amendment 151A.
Lords amendment 161B, Government motion to disagree, manuscript amendments (a) and (b), and Government motion to insist on amendment 161A.
Kevin Hollinrake
It is always a pleasure to speak with right hon. and hon. Members on the Economic Crime and Corporate Transparency Bill, which they will know is close to my heart and contains many vital measures for which I have long campaigned. The Bill will give us the powers we need to crack down on those who abuse our open economy, while ensuring that the vast majority of law-abiding businesses can grow and flourish.
I am grateful that both Houses have reached agreement on several issues, including those relating to the register of overseas entities and on removing the extension of the failure to prevent offence to money laundering. However, we are here today as agreement is still outstanding on a handful of remaining issues. I urge this House to accept the Government amendments, to settle those remaining topics and ensure that we can proceed to Royal Assent and implementation of these important reforms without delay.
I will now speak to those remaining topics. In the other place, the Government tabled two amendments on nominee shareholders—amendments 23B and 23C, in lieu of Commons amendment 23A, and in response to Lord Vaux’s amendment 23 on this topic from Report stage in the other place.
The Government’s amendments will allow the Secretary of State to make regulations to make further provision for the purpose of identifying persons with significant control in cases where shares are held by a nominee. This will allow the Government to work with relevant stakeholders to target the regulations in an effective and focused way that does not impose disproportionate burdens. Members of the other place agreed with the Government’s proposal and I trust that Members of this House will therefore agree with it today.
Lords amendments 151B and 151C would apply the exemption from the failure to prevent fraud offence to micro-entities only, rather than the Government’s position of excluding all small and medium-sized enterprises. The Government appreciate that Lord Garnier has moved closer to the Government’s position in agreeing to the principle of applying a threshold. However, our position remains that such an amendment would still incur significant costs to businesses. Reducing the exemption threshold to only micro-entities would increase one-off costs for businesses from around £500 million to £1.5 billion. The annual recurrent costs would increase from £60 million to over £192 million.
Sir Robert Buckland (South Swindon) (Con)
Where do those figures come from?
Kevin Hollinrake
We used very similar analysis to that used for the failure to prevent bribery and failure to prevent tax evasion offences. We have used a common methodology. I have not seen any figures that contradict our figures here, but in my view—having run a business and dealt with some of the failure to prevent bribery provisions—there is no doubt that there are significant costs. There may be external consultants to bring in, for example. Even if one is compliant, one might not know whether one is compliant, so there are definite associated costs to ensuring that reasonable efforts are made to prevent fraud, as it would be in this case.
Those costs would still be disproportionately shared by small business owners, when law enforcement can attribute and prosecute fraud more easily in these smaller organisations; and, as I have set out before, we must be mindful of the cumulative impact on SMEs across multiple Government requirements and regulations. In all the work I have done in the past from the Back Benches on failure to prevent, it was invariably the case that all cases involved larger businesses, not SMEs.
Large companies have the resources and specialist expertise to cope with additional burdens, whereas small businesses often have to dedicate a significant amount of time and resource, often paying for external professional advice to assess what new rules would mean for them. That is the case even where they subsequently assess that they already have adequate controls in place. That is time and resource that could otherwise have been used to grow and generate wealth for their businesses and jobs for their staff. The Government are extremely mindful of the pressures on companies of all sizes, including SMEs, and therefore do not feel it is appropriate to place this new unnecessary burden on over 450,000 businesses. I therefore urge Members of this House to support the Government motion to disagree with the Lords amendments, to ensure that we take a proportionate approach and do not impose unnecessary measures that would curb economic growth.
Turning to Lords amendment 161B, made by Lord Faulks, on cost protection for law enforcement in civil recovery cases, the Government remain of the view that the amendment would be a significant departure from the loser pays principle and therefore should not be rushed into without careful consideration. There is no clear evidence that such changes would help to achieve their intended aim of increasing the capacity of law enforcement to take on more civil recovery cases. There have been no adverse cost rulings against an enforcement authority carrying out this type of civil recovery in the past six years.
Costs are just one of many factors that determine whether law enforcement will take on a case. For example, the evidence available to pursue a case, particularly where evidence is required from overseas, often proves more vital to an operational decision. There are already a number of ways in which an enforcement agency’s liability to legal costs can be protected under the civil procedure rules in England and Wales. For instance, rule 44.2 gives the court discretion as to the payment of costs by either party, including whether they are payable to another party, the amount, and when they are payable. In addition, a cost-capping order can be applied for under rule 3.19 to limit any future costs that a party may recover under a later costs order. If we are to introduce further legislation, we must consider what gap this is trying to fill. We should also consider civil liberties and property rights that underpin our economy. We will potentially be handing huge powers to the state, which could be held over an individual.
Kevin Hollinrake
I have listened carefully to my right hon. and learned Friend’s points. He said a few seconds ago that this would relate only to fraud that benefits the body concerned. Paragraph 1(b) of Lords amendment 151 also covers the body or an associate within that body providing services, so this is not just about the benefit to the organisation itself.
Sir Robert Buckland
I will take that qualification. I was seeking a short cut because time is brief. My hon. Friend is right to mention the agency point, but it is still a much narrower ambit of the offence than fraud in general. That is the point I would ask him to take away, because I am not persuaded. I think the amendments should remain within the body of the Bill as amended, and I will be voting accordingly.
Dame Margaret Hodge
In the interest of trying to get to the vote on time I will close my speech, but I urge all Members to please support the amendments proposed by Conservatives in the House of Lords, which are eminently sensible, rational and pragmatic.
Kit Malthouse (North West Hampshire) (Con)
I am afraid that I am going to disappoint the right hon. Member for Barking (Dame Margaret Hodge) and speak very strongly against Lords amendments 151B and 151C, and I refer the House to my entry in the Register of Members' Financial Interests. I am surprised at Lord Garnier’s lack of any conception of what it is like to run a small business and the cumulative impact of Government regulation thereupon. The limits that are drawn here will draw in all manner of businesses, not least some eminent barristers who will fall foul of some of the numbers. Indeed, the average town-centre or city-centre pub will be covered by these regulations, such is their level of turnover and employees. It is worrying that I am perhaps the only small-business voice here and that there are not enough small-business people in the House to point out the problems with this issue.
As the Minister has said, hundreds of thousands of businesses will be drawn into the net. This is not necessarily about the compliance cost. The kind of regulation that comes with the prospect of a criminal offence has a chilling effect on small businesses. I speak as somebody who has owned one for nearly 30 years. When the Revenue, health and safety or trading standards show up with some new regulation, a whole industry cranks into place to terrify the owners of small businesses into some kind of compliance. Then along come the consultants, the accountants, the webinars and the newsletters telling us what we do and do not have to do. All of this distracts us from what we should be doing, which is trying to create employment and wealth and paying tax to the rest of the country.
The other issue is that this misunderstands the dynamic of businesses of this size. If a business of this size is going to engage in fraud, it is very possible—more than likely, actually—that the principal will be the instigator of that fraud. The idea that, alongside all the other offences, they should take steps to prevent themselves from perpetrating fraud seems ridiculous. Added to those general difficulties are the specific ones presented by the Heath Robinson-type calculation that every business will have to undertake every month: adding together how many employees there are and how many are employed in each month in year P, then taking away the number you first thought of and dividing it by the number of months. We are all going to have to do this every single month to work out whether we are above the threshold or not. Should we have the steps? Should we not have the steps? It all seems particularly nonsensical.
We know that a vast amount of this fraud takes place in larger companies, and they have the capacity and the wherewithal to deal with it. If my hon. Friends really think that senior barristers, whose turnover and assets will be more than the threshold, should be taking and showing procedural steps to avoid conducting fraud—do not forget that they are sole practitioners—then I am afraid we have gone through the looking glass of what Conservative Members think is appropriate.
Kevin Hollinrake
I welcome the hon. Member for Bethnal Green and Bow (Rushanara Ali) to her place. We worked closely together on the Treasury Committee and it is a pleasure to work across the House with her today. I also pay tribute to her predecessor, the hon. Member for Feltham and Heston (Seema Malhotra) for her similar approach to the work we have done on this legislation. I thank all hon. and right hon. Members for their contributions to this debate and their support for the Government’s amendments made in the other place. I want to refer to a number of points that have been raised today.
The shadow Minister, the hon. Member for Bethnal Green and Bow, referred to the Government turning a blind eye to the issue of economic crime, but nothing could be further from the truth. Many of us have worked on this cross-party across the House from the Back Benches and now on the Front Benches, and this is the second piece of legislation we have brought forward on economic crime in the past 18 months. These are groundbreaking new measures. This Bill contains further reforms to the Register of Overseas Entities introduced in the previous legislation. Our legislation on strategic lawsuits against public participation—SLAPPs—is world leading, and we now have the “failure to prevent” offence, which I will speak to in a moment.
The hon. Lady also referred to the resources made available to our law enforcement agencies. We are continuing to invest in measures to tackle economic crime, and we have increased the budget of the National Crime Agency year on year since 2019. Its budget has now increased 40% from the figure in 2019 and stands at just over £700 million.
Together, the recent spending review settlement and private sector contributions through the new economic crime levy will provide £400 million of funding over the spending review period, and the levy is estimated to bring in £100 million per annum starting from this financial year, 2023-24. There will be a wide-ranging review by the end of 2027, providing transparency on how the levy is performing against its original purpose, including on how the money is spent. Existing efforts will move at pace to enhance and further drive forward the unit in what are inevitably complex and lengthy operations. In considering this legislation, we have often debated the extra resources that we are determined to deliver for Companies House and will pay for at least 400 more people. That is an incredibly important part of the Bill.
My hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) stated very clearly that he feels the failure to prevent threshold is too widely drawn, and I understand his point. As I said in my opening speech, all the cases I have dealt with in this place—whether it be Lloyds HBOS Reading, HSBC, NatWest or others—have involved large organisations that turned a blind eye to fraud or let it happen on their watch. We believe it is right to strike a balance between the offence’s crime prevention benefits and the burden placed on business. There is a balance between risk and regulation, and we want to make sure that the regulations do not put excessive costs on business.
My right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) made similar points. He cast doubt on the figures I have in front of me on the costs of the burden on business, which we believe will be £1.5 billion of implementation costs and around £192 million of recurrent annual costs. I am happy to look at other costs and analyses, but those are the figures before me.
My right hon. and learned Friend makes an interesting point that the threshold will facilitate economic crime in certain companies, but the Lords amendment allows some companies to be outside the rules. I am not sure how he can draw a line to say that there will be economic crime in some companies and not in others. It is very difficult to draw a line, and we believe that drawing a line at larger companies is right.
Kit Malthouse
Lines matter. At a point in a business’s evolution, as my hon. Friend will know from building his own business, it crosses a line. It is perfectly possible, under the definitions in Lords amendment 151C, that a company that satisfies the financial criterion will decide to go from nine employees to 10 or 11, and suddenly it crosses into this world of pain—the compliance people show up, and the company needs a whole new process and procedure that comes with employing that single extra person, on top of all the other employment and safety regulation it is having to deal with. Setting these thresholds at a level at which companies can absorb the step up in responsibility, and without a disproportionate amount of cost, seems critical. Does he agree?
Kevin Hollinrake
I do agree. I listened closely to my right hon. Friend’s remarks. He said he might be the only small business owner currently in the Chamber, but he is talking to one. I have owned a business for 30 years, growing it from a small business to a larger one, and I absolutely agree that it is not just the legislation itself but its implementation and the requirement to implement prevention procedures. As he puts it, that would almost create a new industry of advisers to advise on what needs to be done, be they accountants or third parties. He is right to raise those concerns on behalf of small and medium-sized enterprises.
My hon. Friend the Member for Bromley and Chislehurst asked about setting the threshold at a different level, the small company threshold rather than the current micro company threshold. The small company threshold is 50 employers, £10.2 million of turnover and a £5.1 million balance sheet, according to Companies House, whereas we think a 250-employee threshold would be more appropriate. That is where we differ, but I am happy to continue that conversation.
Richard Fuller (North East Bedfordshire) (Con)
I want to ask a question that I do not think was addressed last time we debated Lords amendments, and that I do not think the Government have addressed today. What are the implications if there is an explicit threshold? What further thought have the Government given to the implications of putting in a threshold? Are they satisfied that some of the concerns raised by Opposition Members and Conservative Back Benchers have been taken into account?
Kevin Hollinrake
We are very clear that we believe we have the right threshold. Larger companies clearly have the capacity and the human resources and risk compliance departments to mitigate these kinds of risks, whereas small and medium-sized enterprises are rightly much more focused on driving their business forward, which is very important to the economic health of our country. I think we have it right. My hon. Friend made a similar point in our previous debate on this issue, and he makes it very strongly. The fact that both he and my right hon. Friend the Member for North West Hampshire (Kit Malthouse) have made that point today counterbalances some of the arguments on the other side for extending the threshold further.
The hon. Member for Glasgow Central (Alison Thewliss) spoke about my previous comments. I think I have been pretty consistent in everything I have said in the House, unless she can point to anything different I have said from the Back Benches—[Interruption.] The shadow Minister, the hon. Member for Stalybridge and Hyde (Jonathan Reynolds), laughs, but I have always been a champion of the “failure to prevent” offence. If Members look back to the original Bill, which I think was 260 pages long—it is now nearly 400 pages long—they will see that I have been very keen to make sure that we listen to hon. Members on things like the “failure to prevent” offence and the identification doctrine, which both now feature in the Bill. All the cases I dealt with on the Back Benches, and indeed the information I have seen as a Minister, show that the kind of fraud the law enforcement agencies have not been able to prosecute is happening in larger companies, not smaller companies.
We believe that these circumstances are different from unexplained wealth orders, for which we obviously put cost-capping measures in place. Of course, unexplained wealth orders are not a process for taking somebody’s assets from them; they are a process for freezing assets. Lords amendment 161B is entirely different. In my view, there is definitely a civil liberties issue in terms of the power of the state versus the power of the individual. This measure potentially delivers an imbalance of power between the state and the individual. I would be keen to have a conversation with the very learned Members in the Chamber, but they must understand that the state is powerful and well resourced compared with the individual. Obviously there are some individuals who are very well resourced, but we still operate on the presumption of innocence in this country, and we have to be very careful. That is why we want a review to look into this and report back to Parliament within 12 months.
We have communicated with the National Crime Agency to ask for evidence on where it feels these measures are needed. All law enforcement agencies want more power and more provision, of course, but I have seen no clear, significant evidence from the enforcement agencies that cost-capping orders would be needed in this situation.
I, too, have spoken to Bill Browder, and I have spoken to officials about whether this measure is needed in the UK regime. Members will be aware that Mr Browder principally looks at the parallels with the US situation, where adverse costs do not apply across the system. Members have talked about the chilling effect of such provisions, but there is potentially a chilling effect on the other side of the equation.
Yesterday I met a barrister who defends people against such actions, and he was very concerned about the imbalance of power that would result. I have not seen any significant evidence, and I am very interested in the evidence that my hon. Friend the Member for Bromley and Chislehurst gave to the Cambridge crime symposium, at which I have spoken in the past, on whether this is needed. However, I am not aware of anything the Justice Committee or the Law Commission has done in this area. It is important that we look at that kind of evidence before we implement these kinds of measures.
The right hon. Member for Barking (Dame Margaret Hodge) accuses me of being party political. I am surprised she takes that view. I have worked on a cross-party basis from the Back Benches and, as she knows, I do the same from the Front Bench, and I will continue to do so to make sure that we get this legislation right.
In conclusion, throughout the passage of the Bill, the Government have worked hard to get the balance right between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. The motions tabled by the Government today achieve that balanced and proportionate approach, and I therefore urge Members on both sides of the House to support them.
Lords amendments 23B and 23C agreed to.
After Clause 180
Failure to prevent fraud
Motion made, and Question put,
That this House disagrees with the Lords in their Amendments 151B and 151C and insists on its Amendment 151A.—(Kevin Hollinrake.)
The House proceeded to a Division.
Mr Deputy Speaker (Mr Nigel Evans)
Will the Serjeant at Arms investigate the delay in the Aye Lobby?
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateWednesday 18th October 2023
(6 months, 3 weeks ago)
Lords ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: HL Bill 172-I Marshalled list for Consideration of Commons Reasons - (17 Oct 2023)
16:31 - Division on Motion A1 - Ayes: 245 / Noes: 204 - Motion A1 agreed.
16:43 - Division on Motion B1 - Ayes: 245 / Noes: 209 - Motion B1 agreed.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 151A and do not insist on its Amendments 151B and 151C in lieu to which the Commons have disagreed for their Reason 151D.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, in moving Motion A I will also speak to Motions B and B1.
It is a great pleasure to bring this Bill before your Lordships’ House once more. I hope it is for the last time, as I know that Companies House and law enforcement agencies are keen to use the important changes made by it. Without it, we will not be able to fund the recruitment of hundreds of new staff at Companies House to deliver the transformation that we all agree is needed. We will not be able to tackle SLAPPs, fraudsters will continue to be able to take advantage of vulnerable victims via fake companies, and we will not be able to go after the assets of criminals as effectively as we might. I could go on.
The Government have listened carefully to noble Lords during the Bill’s passage and have already moved significantly. This is an extensive and comprehensive Bill, standing now at nearly 400 pages of drafting, and it is imperative that we see it become statute. Noble Lords will of course be aware that the end of the Session is fast approaching.
I start by discussing Motion A, which seeks to reinsert the SME exemption for the failure to prevent fraud offence. I am grateful that my noble and learned friend Lord Garnier has moved closer yet again to the Government’s position by exempting microentities and smaller organisations from the offence. However, I am afraid that the burdens that this would place on medium-sized enterprises are simply too great, and so the Government cannot and will not support any lowering of the SME threshold that we have introduced. The threshold proposed by my noble and learned friend Lord Garnier would cost medium-sized enterprises £300 million more in one-off costs and nearly £40 million more in annual recurring costs.
However, it is not just about these costs—although they fully justify the Government’s position in their own right. Undoubtedly, a chilling effect also occurs with the imposition of a criminal offence. I have spoken before about my experience of working in the City. I know from that experience that, when this type of new regulation shows up, a whole industry of lawyers, consultants and accountants cranks into action, telling businesses what they can and cannot do. All this distracts businesses from what they should be doing, which is creating jobs and growing their businesses, which benefits the whole economy. As Kit Malthouse, the Member for North West Hampshire, put it in the House of Commons, the SME threshold is
“a level at which companies can absorb the step up in responsibility, and without a disproportionate amount of cost”.—[Official Report, Commons, 13/9/23; col. 947.]
I therefore urge noble Lords to support the government Motion to reinsert the SME threshold, to ensure that we take a proportionate approach and do not impose unnecessary measures that will curb our economic growth.
I now move on to discuss government Motion B, focusing on the amendment tabled by the noble Lord, Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that this type of amendment will be a significant departure from the loser pays principle, and therefore not something that should be rushed into without careful consideration. However, that is not to say that this type of amendment is necessarily a bad idea, and I am grateful to the noble Lord for bringing it to our attention. With that being said, it would not be responsible for us to rush into making such a significant change at the tail-end of a Bill without full consideration by the Government and commensurate scrutiny by Parliament. That is why we previously added a statutory commitment in the Bill to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on the findings and to lay it before Parliament within 12 months. I hope noble Lords will agree that this is the responsible approach to take and therefore support government Motion B.
In conclusion, I encourage noble Lords to agree with the Government’s position in these two areas. It is vital that we achieve Royal Assent without delay so that we can proceed to implement the important reforms in this Bill as quickly as possible. I beg to move.
Motion A1 (as an amendment to Motion A)
Lord Coaker (Lab)
My Lords, I start by echoing something that the noble Lord, Lord Wallace, said: overall, we all believe that this is a good Bill. It is a step forward, and we welcome the changes that the Government have made over a number of months to improve it, and that they have listened to the various points that have been made. It would be churlish not to say that to the Minister at the outset, but that does not alter the fact that the amendments tabled by the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, seek to address two omissions where, even at this late stage, the Government could act to further improve the Bill. I say to both that should they choose to test the opinion of the House, we certainly will support them in the Lobbies to do that.
I will not repeat the arguments. It was interesting; sometimes, when you are constrained by time, the argument distils down to its essence. I think that what the noble and learned Lord, Lord Garnier, said, supported by the noble Lords, Lord Agnew, Lord Eatwell and Lord Wallace, really summed it up with respect to his amendment. As he said, the failure to prevent bribery offence applies to everyone; there is no opt-out or exemption. The Government do not think that that is too burdensome for anyone. As he also said, no company is too small to be exempted from the failure to prevent tax evasion offence. But on this particular emphasis, the failure to prevent fraud, the Government come forward and say: “We need to protect a certain number of businesses”.
The noble and learned Lord, Lord Garnier, has moved amendment after amendment to try to come closer to the Government’s position. As the noble Lords, Lord Agnew and Lord Eatwell, have just said, if you took that to its extreme, you would impose no costs on business at all, and they used the seatbelt argument. So we are very happy to support the amendment of the noble and learned Lord, Lord Garnier, should he choose to test the opinion of the House.
I shall pick out one aspect of the amendment of the noble Lord, Lord Faulks. It was a feature of all our debates and discussions that we wanted law enforcement to take tougher action against those who committed fraud. We believed that the state could and should take more action, that the amount of money lost with respect to fraud was enormous and that we need to do something about it. What I picked out from what the noble Lord said was about reducing the possibility of action not being taken by law enforcement agencies because they were frightened of the possibility of costs —not on the merits of the case that they might seek to pursue but simply because they were frightened that they may incur costs. As such, both amendments are simple but important ones that would do what this House, and I believe the public, expect Parliament to do, which is to give as much power as possible within the Bill to tackle the problem of fraud, which is what we all want.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords who have contributed to this relatively short debate. Like my noble and learned friend Lord Garnier, I am in danger of sounding like a cracked record on this subject, so I will keep my remarks brief. I reassure my noble and learned friend that I still find his joke funny and I am glad he keeps making it. I thank him for being incredibly gracious although we continue to disagree on these matters. I have to say I do not believe the Bill is a dog’s dinner or that these arguments are dog’s-dinnery. We are not in a sticky hole on this; it is a difference of opinion, and I will make a couple of the arguments that I have rehearsed before in support of that.
I shall deal with my noble and learned friend’s amendment by first reminding him and the House that this may be a relatively small number of companies but, as I have said many times before from this Dispatch Box, they account for 50% of economic output in this country. The heart of the argument comes down to why there is a threshold for this offence but not for the offences of failing to prevent bribery or the criminal facilitation of tax evasion. As I have reminded the House on numerous occasions, the Law Commission has identified the disparity here: it is easier to prosecute smaller organisations under the current law, which this failure to prevent offence will address. The new offence is less necessary for smaller firms, where it is easier to prosecute individuals and businesses for the substantive fraud offence. The Government therefore believe it would be disproportionate to impose the same burden on them. The fact is that this is not an exemption from the law; the law applies in a different way to these smaller companies, as we have tried to explain on a number of occasions. I think I will leave that there.
On Motion B1 in the name of the noble Lord, Lord Faulks, I do not think that this represents a tender approach to fraudsters. As we have said and made the case on a number of occasions, fundamental changes are being proposed here, and the review that we have proposed seems like a fair way of assessing precisely the implications of making those changes.
I thank my noble friend Lord Wolfson for highlighting some of the complexities in this area in his particularly acute legal way, which I am not equipped to follow. However, I can perhaps answer the question about the difference in introducing the cost protection amendment for civil recovery compared with unexplained wealth orders. This issue has come up in previous debates as well. The fact is that the difference between the changes made to the unexplained wealth order regime by the first Economic Crime Act last year and what is proposed in this amendment is that unexplained wealth orders are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas the civil recovery cases covered by the amendment could do so. There could therefore be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. A review is the appropriate way to look at this issue. As I tried to make clear in my opening remarks, that may well be a very good idea, but we would like to be convinced of that and to do the work before we actually accept it.
I thank the noble Lord, Lord Coaker, for generously accepting that we have made significant improvements to the Bill through its passage. I say to the noble Lord, Lord Wallace of Saltaire, that we have engaged extensively with all noble Lords in this House on the Bill. I thank him for his explanation of how he believes a revising Chamber should operate. The fact is that we are not sufficiently persuaded of the arguments against this, so there is a genuine difference of opinion. I do not think the noble Lord would mean to imply that this House should necessarily have a veto where there is such a difference of opinion. I think that is a fairly straightforward argument and a perfectly respectable one.
Throughout the passage of this Bill, the Government have worked hard to ensure the right balance between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. The Motions tabled by the Government today achieve that balanced and proportionate approach. I therefore urge all noble Lords to support them.
Lord Garnier (Con)
My Lords, I will make one point in total agreement with my noble friend the Minister—we are not having a row, we are having an argument. He and I have a different view about the merits of our respective arguments. If the House listens to no other speeches, and if it wishes to forget mine, I urge noble Lords to remember what the noble Lord, Lord Eatwell, and my noble friend Lord Agnew said. From both sides of this House, they perfectly summed up the lacuna in the Government’s case.
I thank all noble Lords who have taken part in this short debate. Despite the fact that this is not an argument about party politics—it has nothing whatever to do with the Salisbury convention—I regret that I am insufficiently persuaded by my noble friend the Minister that he has quite got the point. I must therefore ask the House if it will join me in agreeing with my Motion by testing the opinion of the House.
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 161A in lieu and do not insist on its Amendment 161B in lieu to which the Commons have disagreed for their Reason 161C.
“Report on costs orders for proceedings for civil recovery
Report on costs orders for proceedings for civil recovery
(1) The Secretary of State must assess whether it would be appropriate to restrict the court’s power to order that the costs of proceedings under Chapter 2 of Part 5 of the Proceeds of Crime Act 2002 are payable by an enforcement authority and, if so, how.
(2) In carrying out the assessment, the Secretary of State must consult such persons as the Secretary of State considers appropriate.
(3) The Secretary of State must publish and lay before Parliament a report on the outcome of the assessment by the end of the period of 12 months beginning with the day on which this Act is passed.
(4) In this section “the court” means the High Court in England and Wales.”
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateWednesday 25th October 2023
(6 months, 2 weeks ago)
Lords ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: Commons Consideration of Lords Message as at 25 October 2023 - (25 Oct 2023)
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 151A and do not insist on its Amendments 151E and 151F in lieu.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, with the leave of the House, in moving Motion A I will also speak to Motion B.
We are here again to discuss the Bill for what I am pleased to say is, I hope, the last time. As my ministerial colleague in the other place, Kevin Hollinrake, said earlier today, the House of Commons has expressed its strong will on these remaining issues three times now. I therefore hope that noble Lords will support the Government’s Motions this evening. I will keep my remarks brief.
I start with government Motion A on the failure to prevent fraud threshold. My noble and learned friend Lord Garnier’s amendment would have brought medium-sized organisations into scope by exempting only micro-entities and small organisations from the offence. The Government do not support any lowering of the SME threshold that we introduced, and I will briefly repeat the reasons why.
It is already an offence to perpetrate fraud. The objective of the new offence is to ensure that there is accountability where fraud occurs in large organisations, so there is simply no need to apply any such offence to smaller organisations, and it is more straightforward to use existing powers against smaller, less complex companies. Every time an offence like this is introduced, business owners end up distracted from running their businesses by the need to assess their compliance risks, which often involves taking professional advice. We assess that the revised threshold proposed by this amendment would cause medium-sized enterprises £300 million in one-off costs and nearly £40 million in annual recurring costs.
As my ministerial colleague flagged this morning, we have future-proofed this legislation by including a delegated power to allow the Government to raise, lower or remove the threshold altogether. As with all legislation, the Government will keep the threshold under review and will make changes if there is evidence to suggest that they are required. I therefore urge all noble Lords to follow the will of the other place and support the government Motion to reinsert the SME threshold.
I move to Motion B on the amendment tabled previously by the noble Lord, Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that this type of amendment would be a significant departure from a fundamental principle of justice—that of the loser pays—and therefore should not be rushed into without careful consideration. Furthermore, we have seen no clear evidence that this amendment would increase the number of cases taken on by law enforcement.
However, that is not to say that this type of amendment is necessarily a bad idea. That is why we have previously added a statutory commitment to the Bill to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities and to publish a report on the findings and lay it before Parliament within 12 months.
Normally, with regard to civil cost reform in England and Wales, the Government would look to consult appropriate consultees, including the senior judiciary, the Law Society and the Bar Council. Enacting this reform now without a full review would not allow judges and relevant organisations, or their counterparts in Northern Ireland and Scotland, to comment on how it would be read and applied in practice. It would therefore be irresponsible for us to rush into making such a significant change at the end of the Bill without full consideration by Government and further scrutiny by Parliament. With that, I hope all noble Lords will agree that this is the responsible approach to take and therefore support the Government’s position.
In conclusion, I encourage all noble Lords to agree with the Government’s position on both areas. It is vital that we achieve Royal Assent without delay so that we can proceed to implement the important reforms in this Bill as quickly as possible. I beg to move.
Lord Sharpe of Epsom (Con)
I thank both noble Lords for their very generous remarks and I speak as well on behalf of my noble friend Lord Johnson of Lainston, who asked me to make that clear.
We agree that the Bill leaves the House in a better state. The noble Lords, Lord Fox and Lord Coaker, are right that the Bill makes major changes, and we agree that the enforcement agencies have a major part to play. One of the aspects of the Bill that we can now start to get on with is making sure that Companies House is appropriately resourced, as obviously it will have a major part to play in any future delivery of the aspects of the Bill that we have been discussing for more than 400 days, I believe.
We should take this opportunity to thank the enforcement agencies for their past and future efforts. We know that this is a complex area, and without them we would all be in a much worse place. But, for now, this Bill leaves this House in a much better state. I thank, as I know my noble friend Lord Johnson would, both noble Lords on the Opposition Benches, and others from all Benches, for their engagement. Throughout the passage of the Bill the Government have worked hard to ensure the right balance between tackling economic crime and ensuring that the UK remains a place where law-abiding businesses can flourish without unnecessary burdens. Having said that, I am quite sure we will return to some of these issues, as predicted—but, for now, I urge noble Lords to support the Government in their position.
Motion A agreed.
Motion B
Lord Sharpe of Epsom
That this House do agree with the Commons in their Amendment 161A in lieu and do not insist on its Amendment 161D in lieu.
Motion B agreed.
Economic Crime and Corporate Transparency Bill
(Limited Text - Ministerial Extracts only)
Read Full debateWednesday 25th October 2023
(6 months, 2 weeks ago)
Commons ChamberEconomic Crime and Corporate Transparency Act 2023 Read Hansard Text Watch Debate Amendment Paper: Commons Consideration of Lords Message as at 25 October 2023 - (25 Oct 2023)
13:49 - The House divided: - Ayes: 208 / Noes: 274 - Question accordingly negatived.
14:04 - The House divided: - Ayes: 280 / Noes: 207 - Question accordingly agreed to.
14:19 - The House divided: - Ayes: 280 / Noes: 208 - Question accordingly agreed to.
This text is a record of ministerial contributions to a debate held as part of the Economic Crime and Corporate Transparency Act 2023 passage through Parliament.
In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.
This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Parliamentary Under-Secretary of State for Business and Trade (Kevin Hollinrake)
I beg to move,
That this House insists on its amendment 151A and disagrees with the Lords in their amendments 151E and 151F.
Mr Speaker
With this it will be convenient to discuss amendment (a), and the following motion:
That this House insists on its Amendment 161A in lieu and disagrees with the Lords in their Amendment 161D in lieu.
Kevin Hollinrake
I am pleased to bring this important Bill back to the House this afternoon, for what I sincerely hope is the last time, given that this will be the third time we have debated and voted on similar issues. I urge Opposition Front-Bench Members and those in the other place not to risk the safe passage of this hugely significant, near-400 page Bill by continuing to press these amendments.
The Government have appreciated the input of right hon. and hon. Members from both sides of the House—including the right hon. Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill)—to help change the Bill for the better. We are discussing failure to prevent, together with the identification of doctoring. The Government are taking world-leading measures—I think this is the first time that a major economy such as ours has implemented them—which we should be proud we are implementing through the Bill. Of course, if the elected Chamber expresses its strong will on these remaining issues for the third time, I very much hope that the other place will agree that now is the time for it to accept that position. I think we would all rather have what we have done than see all this good work being in vain by letting the legislation fall.
Let me discuss the two issues in turn. I will keep my remarks brief as the arguments remain the same as on the preceding two times we have discussed them. I will first address Lords amendments 151E and 151F on the “failure to prevent” threshold. I will also address amendment (a), tabled last night by the right hon. Member for Barking, on a Government review of the threshold. While my noble Friend Lord Garnier’s amendment has moved closer yet again to the Government’s position by exempting micro-entities and small organisations from the offence, I am afraid that the Government will not support the lowering of the threshold at this time. Let me repeat the reasons why. It is already an offence to perpetrate fraud. The objective of the new offence is to ensure that there is accountability where fraud occurs in large organisations. There is simply no need to apply any such offence to smaller organisations.
Every time such an offence is introduced, business owners end up distracted from running their businesses by taking time to reassess their compliance risks, which often involves taking professional advice. We assess that the revised threshold proposed by Lord Garnier would cost medium-sized enterprises £300 million in one-off costs and nearly £40 million in annual recurring costs. We should be making it easier for businesses to operate in the UK and only imposing additional regulatory burdens when absolutely necessary. The Government completely reject the notion of using such an offence simply to raise awareness among business owners of the seriousness of the problem of fraud. There would be other, more proportionate ways to do that if necessary.
In response to the amendment tabled by the right hon. Member for Barking, the Government have already future-proofed the Bill by including a delegated power to allow the Government to raise, lower or remove the threshold altogether. Of course, as with all legislation, the Government will keep the threshold under review. I make a personal commitment to do that and to make changes if evidence suggests that they are required. I do not think that a Government review is necessary for that to take place, so I ask the right hon. Member not to move her amendment. We must bear in mind that a review does not guarantee change anyway. What guarantees change is having the right people at the Dispatch Box making changes, whether those are people from her party or my party, and both parties are equally exercised by these concerns. I urge all right hon. and hon. Members to support the Government motion to disagree with the Lords amendments to ensure that we take a proportionate approach and do not impose unnecessary measures on legitimate businesses that would curb our economic growth.
I turn to Lords amendment 161D, tabled by Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that such an amendment would be a significant departure from a fundamental principle of justice—that the loser pays—and therefore not something that should be rushed into without careful consideration. Furthermore, as I set out when we last debated this issue, we have seen no clear evidence that the amendment would increase the number of cases taken on by law enforcement. However, that is not to say that such an amendment is necessarily a bad idea. That is why we previously added to the Bill a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, to publish a report on the findings and to lay that before Parliament within 12 months.
With regard to civil costs reform in England and Wales, the Government would normally look to consult appropriate consultees, including the senior judiciary, the Law Society and the Bar Council. Enacting the reform now without a full review would not allow judges and relevant organisations, or indeed their counterparts in Northern Ireland and Scotland, to comment on how it would be read and applied in practice. We therefore feel it would be irresponsible for us to rush into making such a significant change at the end of a Bill’s passage without full consideration by Government and further scrutiny by Parliament. I very much hope that all right hon. and hon. Members will agree that that is the responsible approach to take and therefore support the Government’s position.
Jim Shannon (Strangford) (DUP)
The Minister said clearly that there has been consultation with Scotland and Northern Ireland. Will he indicate who those discussions have taken place with? Was it banks, or the Departments looking after matters in the absence of a functioning Northern Ireland Assembly? I am keen to know who does the work to ensure that there is accountability for everyone.
Kevin Hollinrake
That is a good point. There are clearly different legal jurisdictions in Northern Ireland and Scotland, with of course the Court of Session in Scotland. From a legal perspective, the counsel in those jurisdictions are the people who discuss this. In wider issues such as failure to prevent, banks and many other stakeholders have people who will consult during the process. I am happy to keep up the conversation with the hon. Gentleman.
Jim Shannon
The reason I asked the question is quite specific, although it might not necessarily relate to the issue directly. The Minister refers to banks. A number of local organisations and community groups back home, which are registered and constituted as community institutions, have had their bank accounts closed. Banks have closed their accounts down because they say they are non-profitable. Is it right that banks should be able to do that? I know the Minister understands the matter—
Mr Speaker
Order. Can I just help a little bit? The hon. Gentleman is very good, but his intervention is very long. Why does he not put down to speak? It might be easier. I have to get other people in as well.
Kevin Hollinrake
The hon. Gentleman raises a very important issue relating to the concerns about de-banking that we have across the economy. The Economic Secretary to the Treasury, my hon. Friend the Member for Arundel and South Downs (Andrew Griffith) is looking at it, as is the Treasury. In future, it is our intention to ensure that when banks close accounts they give a valid reason why, rather than closing them summarily. He is absolutely right to raise the point and I am very happy to engage with him on it, because it affects businesses as well as community groups.
To conclude, I encourage everyone to agree with the Government’s position on these two areas. It is vital that we achieve Royal Assent without delay, so we can proceed to implement the important reforms in the Bill as quickly as possible.
Rushanara Ali (Bethnal Green and Bow) (Lab)
It is an honour to speak on the Bill again. I was hoping that we could conclude the proceedings on the Bill as soon as possible and it is disappointing that the Government are yet to make further compromises. The Bill is welcome in principle, but it should not have taken the war on Ukraine to prompt the Government into action. I am grateful to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), and to Members across the House for working together to improve the Bill.
Economic crime poses a threat to our country’s national security, our institutions, our economy, and causes serious harm to our citizens and wider society. Conservative estimates place the cost of economic crime at £290 million a year, according to the National Crime Agency, and the failure to stop criminals benefiting from the proceeds of their crime can fund further criminality. That can include offences such as funding organised crime groups, terrorist activity, drug dealing and people trafficking—this is a very serious issue.
Economic crime, as the Minister knows, has many victims. For too long, the Government have turned a blind eye to corrupt and dirty money, allowing Russian illicit finance to flood into Britain. That lets Putin’s cronies stash ill-gotten gains and even recycle the proceeds of crime into luxury properties. That is well documented and has been highlighted by many Members across the House, as well as in Select Committees. According to analysis by Transparency International, properties to the tune of £6.7 billion have been bought through suspicious wealth. Of those, almost a quarter in value were
“bought by Russians accused of corruption or links to the Kremlin.”
Most are held via secretive offshore companies. That drives up property prices for ordinary people in our country. More than two-thirds of English and Welsh properties held by foreign shell companies do not report their true owners. Research by the London School of Economics and Warwick University shows that the Register of Overseas Entities is not fully effective. For 71% of such properties, essential information about their beneficial owners remains missing or publicly inaccessible, despite the register. That means we still cannot know whether sanctioned individuals, money launderers or other corrupt individuals are benefiting from those properties.
We must not sustain economic growth off the back of dirty money. The Government have already delayed the Bill and these actions for too long. In that time, money has been lost, economic crime has become ingrained and the UK economy has once again lost out. Given that the nature and necessity of the Bill has already been discussed at length, I will focus on addressing the two amendments.
During the passage of the Bill, helpful alterations have been made to ensure that it is robust. The Lords amendments before us today seek to address two omissions. We are very disappointed that the Government are not willing to compromise and not willing to heed the wise and expert input of the Lords. That is deeply disappointing, because a great deal could be achieved if the Minister and his Government took note, including from hon. and learned Members on their own side.
Rushanara Ali
If the Minister is brief, rather than talking the Bill out like he did last time, I will give way.
Kevin Hollinrake
I will be very brief. On the question of compromise, the hon. Lady will have noticed that there was no “failure to prevent” offence when the legislation was first tabled, nor was there an identification doctrine. There has been significant compromise on the Government side. Our preference, clearly, is to move forward in that spirit of compromise. We have achieved a great deal with the Bill, which has moved from under 300 pages to 400 pages. I do not think it is right to say that the Government have not compromised.
Sir Robert Buckland (South Swindon) (Con)
I will certainly remember your exhortation to brevity, Madam Deputy Speaker. As you know, that is something of a challenge for me at the best of times.
Sir Robert Buckland
I think my right hon. Friend may suffer from the same affliction, dare I say; but I will draw a veil of charity over that.
My hon. Friend—and my friend—the Minister has campaigned assiduously with us in the trenches on this issue for many years. I yield to none in my admiration for him, and I want to put on record how grateful I am that he is in this place, in that spot, doing the job that he is doing. We have come a long way. I well remember being on the Parliamentary Business and Legislation Committee giving authorisation for this Bill in the first place, and knowing then that it would require heavy amendment during its course.
It was inevitable that, in the light of the appalling incidents in Ukraine and the changed world situation, the Bill would develop and mature, and mature it has. The identification principle changes are truly radical and reflect a view long held by the Law Commission and others that we needed to update the Tesco v. Nattrass principle, which is now 50 years old. I salute the Minister and colleagues in the Lords for making sure that that has happened, but I must press him again about the basis upon which the Government make assertions, very much at the last minute, about the regulatory or administrative cost burdens on small and medium-sized businesses. I do not think that they are going to be as dramatically high as they assert. We have not had proper time to test the estimates, and I do not think that they stand up to scrutiny. They do not reflect the Government’s position on previous “failure to prevent” offences—namely, for tax evasion and bribery—and this begs a huge range of questions.
There is no doubt that my colleagues in the legal profession—I refer the House to my entry in the Register of Members’ Financial Interests on every occasion, and I do so now—will feast upon these threshold definitions. Worse than that, unscrupulous operators in the field will exploit these threshold definitions and find clever ways around the law. We know what that means. We will see shell companies and people of straw. We will see the same behaviour that we are rightly trying to eradicate because we want this country to be one of the best places in the world to invest.
This is chiefly an economic argument. Yes, there is a morality to it, but chiefly it is an economic argument. That is why, at the last minute as we come up to Prorogation, I remind my hon. Friend the Minister of the increased majorities in the other place for these amendments and in particular of the attempt we have made to compromise with the Government. At the last minute, I imposed myself upon the goodwill of the Clerks in order to get a further amendment in before the time limit. It was a manuscript amendment to increase the period of one year mentioned in the amendment to 18 months. It has not been selected for debate, but the important political point that we wish to make is that we are seeking at the last minute to come up with reasonable compromises.
I will give the Minister another idea. Bills normally come in with Royal Assent, which we imagine will happen either today or tomorrow with the Prorogation ceremony. Two months is the normal period for Bills to then come into force but he has the power to lay commencement orders to ensure that certain parts of this Bill do not come into force until a statutory instrument has been laid. He has that power, so why not use it in this case and accept the amendment tabled in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge)? He can see that we are commanding all the ingenuity that we have to come up with reasonable compromises that will allow the Bill to pass in the best possible order. I make a last-minute plea to him to accept these exhortations and not to oppose the amendment in the name of my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) and me. I can say no more to my hon. Friend the Minister, other than to thank him and ask him to go that extra yard.
Kevin Hollinrake
The right hon. Lady is making very important points. However, the “failure to prevent” offence, as drafted, would not cover that situation, because it covers only situations where the benefit is to the corporation concerned or an officer within it. A situation in which a third party hijacked systems would not be covered, whatever the threshold.
Dame Margaret Hodge
That is an interesting point. The simple response is that, obviously, the drafting of the “failure to prevent” offence needs further improvement to ensure that it covers that sort of instance.
There were similar arguments about the burden on SMEs when we introduced the Bribery Act 2010. In 2015, a survey of SMEs found that nine out of 10 had no concerns or problems with the Act, and 90% also said that it did not affect their ability to export. Although fears are expressed before legislation is introduced, once it is on the statute book people find that it actually helps them. Under the terms of the Bill, SMEs already have an appropriate defence, as the Minister well knows: that they should only take actions that are reasonable in all circumstances. That test of reasonableness would protect microbusinesses and SMEs from having to engage in overly bureaucratic procedures.
Although the argument is overwhelming, the Minister does not agree. We had hoped that the Government would support and accept our amendment. If they were to do so, we would not put all these amendments to the vote. This means that the next Government—a Labour Government, we all hope—will seize the opportunity that the Minister has missed and grasp the issue. Labour will become the anti-corruption champions, saving our country and our economy.
This Bill arrived in a sorry state and we have improved it—I accept that—with the identification doctrine, clauses on strategic lawsuits against public participation, the improvement of accountability with an annual report to Parliament, and the reluctant acceptance that there may be an increase in fees for Companies House. But there are still large gaps. Trusts have not been covered, as they should be, and authorised corporate services providers could end up with a future dud register. Cost caps, which other hon. Members have alluded to, are not in there, the whistleblower regime is not in place, and asset seizure still has to be tackled.
We hear whispers that there is a third economic crime Bill. I am pleased about that, but if we had achieved more with this Bill, we might not have needed another one. After all the work that all of us have done to achieve cross-party consensus, and given the values that we all share, I would hope that the Minister would be bold enough to accept our tiny little compromise and put this Bill to bed so that the proposed legislation could be passed by the time we prorogue.
Liam Byrne
My right hon. Friend is absolutely right. This is a point of cross-party consensus. I know it is a point of cross-party consensus because it was the Minister who used to use precisely the same argument to argue for some of the changes that we see in the Bill.
We all know that our country does well, because, by and large, we have a reputation for clean trade around the world. When companies file and incorporate in this country, that is a credential that does them well around the world. That is a credential that we must do everything in this House to protect, which is why the amendment is so important. We cannot leave a weakness in our armour as crime and fraud multiplies.
The Minister said that the proposal would be a cost to British business that we could not withstand or sustain, but the truth is that, while it might be a cost to some British businesses, it would also be a saving to British business, to the British economy and to British taxpayers, because it is always cheaper and more effective to prevent fraud in the first place than to have to police it or to prosecute fraud after the event. When 64% of businesses—small businesses—in this country are victims of fraud, we can only imagine how widespread that cost of fraud has now become. That average is much higher than international averages and therefore there is an additional argument that we need to go that one step further to make sure that we are doing everything in our power to prevent fraud from arising in the first place.
All we ask in this amendment is for the Minister to face the facts. He should bring the facts together, put them in a report, assess them, analyse them and present some conclusions to the House. How can we have a situation where the Minister is essentially asking for the freedom to look away? That simply cannot be the basis of good policy. I am grateful to my new colleagues on the Business and Trade Committee who agreed yesterday that we will ask representatives of Companies House to come before us for hearings. Frankly, if the Minister is not prepared to put the facts around fraud in one place, I shall ask the Select Committee to do the job for him.
Kevin Hollinrake
With the leave of the House, I wish to thank Members who have contributed to the debate. We have much in common, despite the fact that some small differences still remain. As I said earlier, the Government have come a long way since the original tabling of the legislation. The number of pages have increased by more than 100, so the contents of the Bill now stand at nearly 400, which shows the importance of the legislation that we are debating.
I did not agree with the shadow Minister when she said that the Government have not been willing to compromise—that is not the case at all. The “failure to prevent” offence, particularly the identification doctrine, are key, world-leading measures. In my opening remarks, I made the commitment—and I make it again—that will we keep this matter under review, and that includes, in particular, the threshold. Even if there were a requirement for review in statute, there is no requirement on the Government to make changes following that review, so it is important to maintain the goodwill that we have experienced during the passage of the Bill.
Dame Margaret Hodge
Perhaps the Minister can tell me what he means when he says that he will keep this matter under review. What precisely does that mean?
Kevin Hollinrake
The way that we have legislated here, and the reason for doing so in that way, have always been informed by information that has come from third parties—from Spotlight on Corruption, Transparency International and others—that have been interested in the Bill. The right hon. Lady and I have worked together on this issue in the past in various all-party groups. Those are the kind of bodies that will inform progress as we implement this legislation, which again I say is world leading.
The shadow Minister talked about a level playing field and said that these measures move away from that. I could not disagree more. The key thing is that we do not have a level playing field now. In small companies, it is much easier to identify who is responsible for a fraud. That is why it is more difficult in large companies, which is why we are applying this to large companies. Fraud is fraud whatever the size of the company. This legislation does not allow smaller or medium-sized companies to facilitate fraud—if they are guilty of fraud, they are guilty of fraud and it is far easier to identify the people concerned.
Let me address the comments of my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) and thank him for all the work that he has done on this legislation and on the Justice Committee. I ask him not to doubt my motives; I have not been influenced by the Treasury at all. I am influenced by wanting to do the right thing in terms of both tackling economic crime and making sure that we do not put undue burdens on businesses. I can assure him that, for as long as I am in this role, we will keep this under review and make sure that the threshold is fit for purpose.
My hon. Friend talks about good business, but it is good business to make sure that we do not put undue burdens on business. I can promise him that, from my experience—while I was chief executive of my company—we implemented the rules on bribery and tax evasion, which were significant in our business. These would be significant measures for businesses. I say to him and to my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) that they will have a real impact on businesses and significant costs of implementation. I do not think that they would be proportionate or needed within smaller enterprises, because of the ease of identifying the people responsible if fraud were facilitated in an organisation.
I appreciate the kind words of my right hon. and learned Friend and the work that he has done. I remember lobbying him on this issue when he was the Secretary of State for Justice—and a fine job he did. We have got much further this time than we did at that time, which shows our collegiate way of working all the way through the Bill’s passage.
The hon. Member for Glasgow Central (Alison Thewliss) has also done fantastic work in this area, and I appreciate all her efforts. She says that we do not agree. We have a right to disagree where we disagree, and we honestly disagree about whether this proposal is required. We do not want to put unnecessary burdens on businesses.
I completely understand the strength of feeling of the right hon. Member for Barking (Dame Margaret Hodge) on this matter. I, too, feel strongly about implementing the right measures to tackle economic crime while not putting undue burdens on businesses, so I say to her again, in the spirit of good will that we have operated under for many years, we will keep this under review. If the threshold needs to be changed, we can do that under secondary legislation.
I congratulate the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) on his election as Chair of the Business and Trade Committee. I know that he will do a fine job. He is right that, in that spirit of good will, we have achieved much in the manifesto that we launched just over the road. Again, I hope that he does not doubt my motives in what we are doing to tackle economic crime without putting undue burdens on business.
I urge everyone to support the measures that we have in place already, and I ask those in the other place to respect the clear will of this House.
Question put, That the amendment be made.
Mr Deputy Speaker (Sir Roger Gale)
Order. Before we proceed to the next Division, I must inform the House that it has been drawn to my attention that the election for the Defence Committee Chairman in the Aye Lobby was due to be open until 2 pm. That, of course, was interrupted by the Division, and I understand that one or two tardy Members have yet to vote.
Dr Liam Fox (North Somerset) (Con)
On a point of order, Mr Deputy Speaker. As you know, the House will later vote on the issue of the hon. Member for Wellingborough (Mr Bone) and the Independent Expert Panel’s report. Of course, we do not have a chance to debate the issue, the content, or the pros and cons of that report: we merely vote on it.
It is in that context that I wish to raise with you a report on the BBC this morning, entitled “Peter Bone: Abuse by MP left me broken, former aide says”, which contains a very extensive, one-sided attack on the hon. Member for Wellingborough. This is not in any way to judge the rights and wrongs of this matter, but merely to put the principles of natural justice first. It is an anonymous briefing against a named Member of Parliament on a day on which, as the BBC accepted, MPs would be voting on this issue.
What I would like to know from you, Mr Deputy Speaker, is whether this is an undue attempt to influence Members of Parliament on the day of a vote that should be our business in this House, and indeed, whether it is an attempt to manipulate Members of Parliament. This does not just relate to this case, but to any case that we may have to consider in the future. I would like to ask you to ask Mr Speaker, who has always defended the rights of this House, whether he will take legal advice on whether this particular report today constitutes contempt for the House.