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Economic Crime and Corporate Transparency Bill

2nd reading
Thursday 13th October 2022

(1 year, 8 months ago)

Commons Chamber
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[Relevant document: The Eleventh Report of the Treasury Committee, Session 2021-22, Economic crime, HC 145: and the Responses, Session 2021-22, HC 1261.]
Second Reading
12:10
Suella Braverman Portrait The Secretary of State for the Home Department (Suella Braverman)
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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 Portrait Andy Slaughter (Hammersmith) (Lab)
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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 Portrait Suella Braverman
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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 Portrait Suella Braverman
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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 Portrait Stephen Doughty
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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 Portrait Suella Braverman
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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 Portrait Jim Shannon (Strangford) (DUP)
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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 Portrait Suella Braverman
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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 Portrait Catherine West (Hornsey and Wood Green) (Lab)
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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 Portrait Suella Braverman
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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 Portrait Layla Moran (Oxford West and Abingdon) (LD)
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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 Portrait Suella Braverman
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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—

Chris Bryant Portrait Chris Bryant (Rhondda) (Lab)
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The sale? You were selling them?

Suella Braverman Portrait Suella Braverman
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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 Portrait Chris Bryant
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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 Portrait Suella Braverman
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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 Portrait Chris Bryant
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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 Portrait Suella Braverman
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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 Portrait Kevin Hollinrake (Thirsk and Malton) (Con)
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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 Portrait Suella Braverman
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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.

Margaret Hodge Portrait Dame Margaret Hodge (Barking) (Lab)
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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 Portrait Suella Braverman
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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 Portrait Jim Shannon
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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 Portrait Suella Braverman
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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 Portrait Kevin Hollinrake
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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 Portrait Suella Braverman
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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 Portrait Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
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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 Portrait Suella Braverman
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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.

Catherine West Portrait Catherine West
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Will the Home Secretary give way?

Suella Braverman Portrait Suella Braverman
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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.

Chris Bryant Portrait Chris Bryant
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Will the Home Secretary give way on that point?

Suella Braverman Portrait Suella Braverman
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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 Portrait Catherine West
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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 Portrait Suella Braverman
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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 Portrait Chris Bryant
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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 Portrait Suella Braverman
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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 Portrait Suella Braverman
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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.

Kate Green Portrait Kate Green (Stretford and Urmston) (Lab)
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Will the Home Secretary give way?

Suella Braverman Portrait Suella Braverman
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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 Portrait Andy Slaughter
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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 Portrait Suella Braverman
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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.

Rosie Winterton Portrait Madam Deputy Speaker (Dame Rosie Winterton)
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I call the shadow Home Secretary, Yvette Cooper.

12:41
Yvette Cooper Portrait Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
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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 Portrait Yvette Cooper
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If the Home Secretary wants to respond to any of those points, I shall welcome her doing so.

Suella Braverman Portrait Suella Braverman
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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 Portrait Yvette Cooper
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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.

Catherine West Portrait Catherine West
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My right hon. Friend is making an excellent speech. Does she agree that it is also necessary for the courts in London to accept that there are limits to how many cases can be held involving libellous action against good authors such as Catherine Belton, who wrote “Putin’s People” with the aim of educating the general population? Are not these false claims which keep coming up in court a complete waste of the courts’ time?

Yvette Cooper Portrait Yvette Cooper
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My hon. Friend has made an important point which I hope can be explored further in Committee. There is clearly a problem when those with the deepest pockets, who effectively have endless wealth that they can draw upon, can use and abuse the court system in order to silence people. That issue needs to be addressed further.

We know that this problem has a wide impact on the state of our economy and our national security. We supported the last economic crime Bill and we support this one, although there are deep concerns about how long this process has taken, and also about the gaps. We welcome, in particular, the overhaul of Companies House, which Labour has supported and has pressed the Government to get on with, and which I know has been championed by Members on both sides of the House. It is right to give Companies House powers to check and challenge basic information. When we try to explain this to people, most of them are shocked to learn that it did not already have powers to check the identities of people trying to set up shell companies.

We welcome the measures on cryptoassets. The new technology is outpacing action against economic crime and organised crime. The power to freeze and seize criminal assets cannot just be an analogue one in a digital age. We welcome the measures to encourage information sharing to help spot fraud and money laundering, and we welcome the measures that the Home Secretary has referred to about the ability for the SRA to increase fines.

There are sensible measures in the Bill, but the delays in getting this far have caused a problem, and so do the gaps in the Bill. We are still playing catch-up rather than looking forward, and it should not have taken a war for us to get this far. Transparency International warned about serious problems back in 2015. For years, the National Crime Agency has called internally on the Home Office, the Department for Business, Energy and Industrial Strategy and the Treasury to do much more. We were promised action in 2016, in 2018 and in 2019, but as of August, fewer than half the recommendations in the Government’s 2019 economic crime plan had been enacted. The shadow Attorney General called for action on serious corporate fraud nine years ago. As shadow Home Secretary, I called 10 years ago for stronger laws and action on economic crime and fraud.

We are very clear about the importance of the matter. 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. We know that that depends on having robust powers and procedures in place to defend our economy and our financial and economic institutions from fraud and abuse.

Chris Bryant Portrait Chris Bryant
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In fact, we tabled some of the measures in the Bill as amendments in 2018, and all that lot voted against them. One of my anxieties is about what happens with oligarchs’ assets that are frozen by the UK. There is a legitimate question about whether it is right for the state to seize assets that belong to private individuals. On the whole, that is not a good thing—that is what authoritarian regimes do—but we need some clarity on how we proceed in a time of war, which is effectively where we are at the moment. I note that Abramovich’s Chelsea was sold, and the money is still sitting in his bank account because the Foreign Office still has not put in place a means of transferring it to Ukraine. This is months in, and it is absolutely bonkers.

Yvette Cooper Portrait Yvette Cooper
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My hon. Friend makes an important point, and I pay tribute to the work he has done over very many years, long before other people were talking about these issues and highlighting the risks. I also pay tribute to the work of the all-party parliamentary group on anti-corruption and responsible tax, co-chaired by my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the hon. Member for Thirsk and Malton (Kevin Hollinrake). We really need to get the detail right and go further.

I agree with the principle that my hon. Friend the Member for Rhondda (Chris Bryant) has raised. Safeguards must be in place, but in an extreme time of war, when oligarchs have supported and enabled Putin’s regime and his illegal war for so long, there is a strong case for using their assets to support Ukraine. I do hope that the Government will look further at that. Canada and other countries have changed their laws in the most serious of circumstances, and we are keen to talk to the Government about taking forward something similar.

We want to explore with the Government going further on other measures, such as provisions to enable Companies House to publish and verify up-to-date information on shareholders, and provisions on third-party enablers of organised crime and kleptocracy. The Home Secretary will know that there have long been concerns about those who help organised criminals and kleptocrats hide their money, and who cover up for crime. The regime for preventing that and for effectively regulating high-risk sectors is still too weak. She will be aware that the Office for Professional Body Anti-Money Laundering Supervision has said that 81% of professional supervisors on money laundering do not have an effective risk-based approach. I hope that we can look further at that in Committee and work with the Government on stronger measures.

We have already raised with the Home Secretary concerns about enforcement, and I will keep pushing her on the question of funding for the National Crime Agency. We know that it was asked to draw up proposals for 20% staffing cuts. I think that is irresponsible at a time when we face economic crime; when the NCA’s work can benefit the Exchequer and the economy by taking strong action, including on criminal asset seizures; and when the NCA needs to deal with wider issues around organised crime, people smuggling and trafficking. I will keep pressing the Home Secretary, because she did not rule out the 20% staffing cuts, and we want to know that they have been abandoned.

There have been wider questions about training for law enforcement in things such as cryptocurrencies.

Chris Bryant Portrait Chris Bryant
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One issue that is quite difficult for UK agencies concerns moneys that come from British companies straight into sanctioned accounts in the United States. British paper manufacturer Mondi, for instance, is selling off its arm in Russia, but it has just sold it to one of Putin’s closest allies. In other words, millions of British pounds have gone into Russian pockets and will end up funding the war in Ukraine. How do we make sure that we have the resources to track down these problems and bring these people to book?

Yvette Cooper Portrait Yvette Cooper
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My hon. Friend is right. Our law enforcement needs a level of agility to keep up with the scale and pace at which organised criminals and corrupt oligarchs work and the resources that they have at their disposal.

Hon. Members have raised concerns about the huge gap in the Bill when it comes to tackling fraud, particularly serious corporate fraud—many Members have raised concerns about the proposed legislation in that regard—but fraud more widely, too. It has become the single most common crime that we face, not just the most common economic crime. There were 4.5 million fraud offences—40% of total crimes—last year, and, shockingly, only 0.01% of them were charged. Charges for fraud have dropped. In 2015, 9,000 fraud charges were brought, but last year there were fewer than 5,000. That is a 47% drop in fraudsters being taken to court. Serious Fraud Office prosecutions plummeted by 60%, and SFO convictions were down from 10 in 2016 to just three last year. That is not justice, and it is not keeping people safe. It is as though the Government have shrugged their shoulders and said that criminals and fraudsters can have free rein. We must have proper enforcement in place and take action on serious crimes.

Kate Green Portrait Kate Green
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My right hon. Friend is making a powerful speech. I want to return to the question of resources for Companies House, and its new enforcement powers. Rightly, it will put most of its effort into dealing with serious organised crime and matters of national security. Does she share my concern that without adequate resourcing, the day-to-day frauds that affect so many of our constituents simply will not receive the attention they deserve?

Yvette Cooper Portrait Yvette Cooper
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My hon. Friend makes an important point, because enforcement in these areas saves money—for the economy overall, and often also for public sector organisations. We need a proper enforcement plan from the Government.

John Penrose Portrait John Penrose (Weston-super-Mare) (Con)
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Does the shadow Home Secretary agree that strengthening our enforcement and plugging the enforcement gap is not just about resourcing for public bodies; it is also about having a much more effective whistleblowing regime? That can turbocharge what public bodies can do. It dramatically improves their ability to spot financial crimes —particularly fraud—and to intervene effectively and prosecute.

Yvette Cooper Portrait Yvette Cooper
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The hon. Member makes a very important point. There are issues around both whistleblowing and safeguards for whistleblowers, and around information sharing. Information sharing is rightly included in the Bill, but many hon. Members will be aware that RUSI has pointed out that if we are looking to the future, as well as some of the issues around whistleblowing, there ought to be the potential to use artificial intelligence, for example, to spot patterns of fraud and corruption. As the hon. Member says, we need ways to detect potential fraud; we need routes—be it through whistle- blowing, information sharing or spotting things that happen—through which to identify it and then for speedy enforcement action to be taken.

Let me press the Home Secretary on the need to tackle corporate criminal liability. The shadow Attorney General, my right hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), originally called for action on that nine years ago, and the Treasury Committee and the Law Commission have both called for action. Corporate fraudsters should not be able to get away with sequestering millions because the law just is not strong enough. I urge the Home Secretary to look at this urgently. It will have crossed her desk while she was Attorney General, and we need rapid action.

Labour will support the Bill on Second Reading, but we have to be honest that it does not yet go far enough. We should not stand for dirty money, fraudsters, organised criminals, and the deep and serious crimes that they facilitate. We must stand up for our national security; for our economy; for good businesses and professional services that are being undermined; for our law enforcement bodies, which need support and backing to deliver; and, most of all, for those who become the victims—those who are exploited here and across the world. Britain should be leading the way. The Bill is welcome, but it is not yet good enough. We hope that, with concerted cross- party action, we can all get our act together and make it better.

13:02
Damian Hinds Portrait Damian Hinds (East Hampshire) (Con)
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I support this important Bill, which seeks to tackle this most international of criminal problems. The scale of global financial crime is mind-boggling, accounting for up to 5% of gross world product and, depending on which estimate we look at—we cannot say absolutely for certain—worth between $2 trillion and $5 trillion. On an optimistic view, the confiscation rate runs at around 1%.

Economic crime is sometimes thought of as being in a separate category from other crime but, no, it is part of those other crimes. There is a particularly close link between fraud and cyber-crime. Money laundering, fraud and cyber-crime collectively—distance crime—make up the majority of crime by volume in this country. More broadly, virtually all crime with a financial motivation touches on money laundering at some level. There is a mix of organised crime groups pulling off huge cyber-crimes, down to individually small but cumulatively very large-volume frauds. Some groups have undergone a sort of vertical integration, controlling every part of the chain; others specialise in one particular part of the chain, such as ransomware as a service. There is a merging of criminal actors with a nexus to states. Then, of course, there are the kleptocrats who got filthy rich on plunder from their fellow citizens.

There is a huge amount that needs to be done in this area. Much of it needs to be done globally, but countries such as ours need to be in the lead. The world has made quite some progress in this area, and in key aspects we have been a leader, but we have also had our lacunae. High on that list is transparency about who is really behind and ultimately benefits from corporate structures and economic assets.

For some time, we have had a substantial and, in many ways, effective architecture to tackle money laundering, but there is an important question whether the suspicious activity reports regime is sufficiently efficient, and whether it is focused enough to make the most difference while minimising dead-weight. There is also the question whether we are fully harnessing the power and capabilities of banks, particularly if we compare our legislation with section 314(b) of the American Patriot Act. Should there be more direct intelligence sharing between banks, and if so, how do we manage the competition policy aspects of that? Finally, however much we improve and innovate, the criminals are doing the same, with ever more sophisticated technology, and they are increasingly bypassing the systems that we have been used to in the past by using cryptocurrency and cryptoassets.

The most important thing about the Bill is that it moves to plug the transparency gap, with reforms to Companies House and limited partnerships as its backbone. It modernises seizure by bringing cryptoassets into scope of the civil forfeiture powers, and it moves from a compliance-driven anti-money laundering system to one that is more proactive and intelligence-led, with rationalised SARs and DAML—defence against money laundering—requirements.

I welcome all the aspects of the Bill, but especially the information-sharing provisions, and in particular their broad scope to include all types of economic crime, including, importantly, volume fraud. I ask the Home Secretary and the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Watford (Dean Russell), to really test whether these powers go as far as they productively can. I press not just the Home Office and BEIS Ministers we have here today, but the Treasury, regulators and the private sector, to come together to ensure that we link up the different parts of our financial services sector and the wider professional services sector to best effect.

Information and intelligence sharing could be so much more powerful if we reformed the way that payments are made so that in certain circumstances, where suspicious activity is detected, it is possible to slow down or pause payments and use the system not just to track down money laundering payments or fraudulent payments after the fact, but to stop them happening before the fact. That could be a genuine game changer. As I say, I strongly encourage the two excellent Ministers present today to communicate with the Treasury and others about that.

I support the Bill and I wish Ministers well with it. It is of course part of a wider set of reforms that includes the sanctions regime, the creation of the National Economic Crime Centre, the kleptocracy cell, the overall economic crime plan, and, importantly, our international work with like-minded partners, the Financial Action Task Force, and the Crown dependencies and overseas territories. The reform of visas, which came up, is part of this too, and of course we recently passed the Economic Crime (Transparency and Enforcement) Act 2022. There will be more to come, I am sure, including on corporate criminal liability.

Damian Hinds Portrait Damian Hinds
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On that point, I give way to my hon. Friend.

Kevin Hollinrake Portrait Kevin Hollinrake
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I am very supportive of that, as my right hon. Friend knows, but I rise to make another point. He mentioned that putting some friction in the payments system might reduce instances of economic crime. At the moment, banks are refunding a much higher proportion of authorised push payment fraud, but all the onus is on the sending bank. Nothing is reimbursed by the receiving bank, yet it is the receiving bank where the dodgy account is held. Does he agree that we should look at that and create an incentive for the companies that host those bank accounts to tackle it more effectively?

Damian Hinds Portrait Damian Hinds
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I do think we need to look at this more closely, although it is even more complex than my hon. Friend suggests, because we get this ping-on system as well, where a body can be both a receiving bank and a sending bank, and so be a sort of transmission mechanism. We certainly need to look at this more broadly. Madam Deputy Speaker might get cross with me if I try to unpack it too much now, because it is a broader subject. However, as my hon. Friend rightly mentioned, we also have to address the questions of who is liable and how much of the liability now sits within the banking sector, full stop, as opposed to other parts of the consumer interface—different channels through which people come—that might reasonably be expected to share some of that burden too and be properly incentivised.

I am going to close my remarks by saying that these reforms are important and they are not in tension with the success of our financial services sector—quite the reverse. These reforms are about enhancing the reputation of both British financial services and, more broadly, the UK and our reliance on and respect for the rule of law. They are about protecting and growing our business; and doing the right thing, ceding no space to the criminals and the kleptocrats. In the unlikely event that we divide this afternoon, I will be proud to vote “Aye” for this Bill.

13:10
Alison Thewliss Portrait Alison Thewliss (Glasgow Central) (SNP)
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I am glad to follow the right hon. Member for East Hampshire (Damian Hinds), whom I believe was the Minister who said he was not happy with the progress that had been made on tackling economic crime thus far. None of us in this place are happy about the situation on economic crime.

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

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

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

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

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

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

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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There is, of course, only one Alison Thewliss. She mentioned Graham Barrow as one of a number of exceptional individuals who do a lot to expose the kind of things going on at Companies House that it should really be doing. I do not know whether she has followed his Twitter account recently. On 10 October, he tweeted that Companies House had just accepted the registration of a business called “Legat Business Limited”, which has a single director, called “Andrei Perezhogin”. His nationality is “Russian”, his place of residence is “Russia”, and he describes his occupation as “Men”. He claims to have set up this company with £100 million of capital. Does she share my alarm that it appears that a Russian living in Russia can invest £100 million in a British company and—this is without the powers in this Bill—nobody at Companies House thinks anything of it?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13:27
Mary Robinson Portrait Mary Robinson (Cheadle) (Con)
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It is a pleasure to be called to speak on Second Reading of this important Bill.

To maintain the UK’s role and reputation as an international banking and business hub, we must have a transparent system with robust defences against money laundering and fraud, backed up by legislation. As we have heard, the Bill introduces vital reforms to Companies House and to limited partnerships. It also brings forward measures to ensure that law enforcement is equipped to handle the modern challenge of cryptoassets. We have to keep pace with the inevitable changes that result from the development and recognition of cryptocurrency as it moves from niche technology to the mainstream. It is a policy area that poses a unique challenge to law enforcement, with constantly evolving technology creating intangible assets that are largely unregulated and increasingly used to hide and move the proceeds of crime and enable malign states.

The value of losses from crypto-related scams reported to Action Fraud more than doubled over the previous year to £190 million in 2021. All fraud costs the UK economy £190 billion annually, with money laundering constituting an additional £100 billion.

This is money from hard-working individuals and businesses taken by criminals and used to perpetrate wars and terrorism, and technology is only making that easier for them. The Bill’s stated objective, which I welcome, is as follows:

“Strengthen the UK’s broader response to economic crime, in particular by giving law enforcement new powers to seize cryptoassets and enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.”

Increased powers will bolster the National Crime Agency and Serious Fraud Office, as well as the regulatory bodies, and are welcome. However, the Bill misses an opportunity to refer to and support the important role of whistleblowers in the fight against financial crime. The impact assessment produced by the Department for Business, Energy and Industrial Strategy references PricewaterhouseCoopers’ global economic crime and fraud survey 2022, which found that the UK has a higher than average proportion of serious fraud carried out by an external perpetrator at 57% versus 39% globally. It notes that fighting external perpetrators is distinct from handling internal fraud, with external forces being “immune” to traditional fraud detection and prevention tools—including workplace frameworks and whistleblowing procedures.

The Government are in the process of reviewing whistleblowing guidance, which is welcome. However, the reality is that existing legislation applies only to employees— not to contractors, trustees, volunteers or many others who might hold vital information. It is estimated that just over 40% of fraud is detected through whistleblowing tips, and only half of those disclosures come from employees.

By their very nature, money laundering and economic crime are more often than not linked to serious organised crime gangs and hostile states. Without adequate protections, the stakes for an informed insider blowing the whistle are simply too high. With cryptoassets existing outside the realm of a centralised or governed system, it is unlikely that anyone with information about financial crime involving them will be employees, and therefore they will not be covered by the provisions of the Public Interest Disclosure Act 1998, which is the one that oversees the protections of whistleblowers.

If protections are not to be afforded in this Bill, I hope the Government will support the aims of the all-party group on whistleblowing, which I chair, to create an office of the whistleblower to provide overarching protection for the very people we need to speak out and uncover the criminal activities that this Bill aims to curtail.

I welcome this important Bill, and I know that it will receive support. There are changes that could be considered, particularly with regards to whistleblowing, so I look forward to seeing the Bill go through to Committee.

13:33
Margaret Hodge Portrait Dame Margaret Hodge (Barking) (Lab)
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It is a pleasure to follow the hon. Member for Cheadle (Mary Robinson), who has been a passionate and strong advocate on behalf of whistleblowers and the very important part they play in fighting economic crime, money laundering and fraud.

Many of us have waited with eager anticipation for the Bill that the Government promised would enable us to rid Britain of the influence of oligarchs and kleptocrats and of the cancer of money laundering, fraud and other economic crime. That is particularly true of the large and ever growing group of Back Benchers who are working together across the House on these issues. Although we all welcome the fact that the Bill is now before us, many of us deeply regret that, yet again, the Government have failed to demonstrate the strategic vision, determination and ambition that are plainly needed if we are to translate our shared aim into reality on the ground and convert our warm words on economic crime into real action. The Bill contains good and important changes, but it does not allow us to make the big leap forward that we need to systematically drive this pernicious and pervasive illegal activity out of our economy and our society.

Let me remind Members why tackling economic crime really matters. Bluntly, the cost to the UK economy is immense. People have talked about the figure of £290 billion a year, but a recent study by the University of Portsmouth gives us a figure just short of £350 billion. The mind boggles. That is somewhere between a quarter and a third of total public spending every year. It is the enormity of the sums that gives the UK the shameful and dubious distinction of being the jurisdiction of choice for oligarchs, kleptocrats and criminals around the world—people who choose us to hide and launder their ill-gotten gains.

Governments of both the main political parties have long championed the UK's financial services, and the success of our financial services has contributed significantly to economic growth over recent decades. We boast of our professionals, our institutions, a trusted legal jurisdiction, the English language, an attractive property market and the lure of London as a place in which to live and work—all things that help to create a vibrant financial services sector. At the same time, though, our weak regulations, our woefully inadequate enforcement capability, our relationship with the UK tax havens in the Crown dependencies and overseas territories, our lack of transparency and our deficient accountability protocols have meant that it has become all too easy to wash the dirty money along with the clean here in Britain.

The human impact of this is beyond awful. We have all seen the horrific, heartbreaking images of Putin’s vicious assault on Ukraine and the effect that it is having on innocent Ukrainians. However, we must face up to the understanding that the dirty cash is laundered and cleaned by Putin and his kleptocratic friends both in and through the UK. Ukraine is now paying the price for corruption and economic crime. We are helping to enable Putin’s assault. Our corporate structures, our lawyers, bankers, company service providers and accountants, and our links with places such as the British Virgin Islands all facilitate the accumulation of stolen wealth and power that helps to fuel the criminal onslaught on an independent nation and its people.

We have allowed that to happen. It is an utterly appalling truth that, since Putin came to power more than 20 years ago, there has not been one single prosecution for economic crime launched against any individual Russian oligarch—not one. Similarly, the explosion of fraud in Britain has led to endless instances of misery and harm, which other Members have cited. The authorities, as my right hon. Friend the shadow Home Secretary said, reported 5.1 million incidents of fraud in the year to September 2021, and we know that much fraud remains unreported. The published figure means that at least one in 11 adults were the victim of fraud in that year. People such as Len, who, at the age of 96 and with a proud record of service in the Army and a successful career as a chartered surveyor, was getting 600 scam communications a month. Although he did not keep track of his total losses, he knew that in one 10-day period he had spent and lost £600. It is the lack of enforcement action that contributed to Len’s misery and that has allowed fraud to spiral into the most common crime in Britain today.

The Government are absolutely right to bring forward legislation. In fact, I would argue that if we do not eradicate money laundering, fraud and other economic crime we will cause lasting damage to our financial services sector, because we will lose our reputation as a trusted jurisdiction, and the plentiful supply of clean money across the world will go to other more reputable countries. We will lose business, not attract it. Britain can never enjoy sustained economic growth on the back of dirty money.

I welcome the good and important changes the Bill will bring about when it is passed into law. The reform of Companies House, which other hon. Members have talked about, is warmly welcomed and hugely important. None of us wants more regulation, but we do need much smarter regulation, and that is what these provisions aim to achieve. We need to tackle and stop scandals such as the Danske Bank scandal, where an Estonian branch of the Danish bank allowed $8.3 billion of suspect payments to move through the bank using British registered companies. Many of those companies were limited liability companies, and we now know that 90% of the more than 800 limited liability companies involved in the scandal were set up by one rogue company service provider and registered at the same address in Birmingham. We need to stop the practices that meant that in the FinCEN files leaks 3,267 UK shell companies were named—more than in any other country. We need to tackle the reasons that led to Transparency International’s finding in a 2017 investigation that 766 UK shell companies were involved in corruption and money laundering cases worth up to £80 billion, with half of those 766 companies registered at just eight different addresses.

Kevin Hollinrake Portrait Kevin Hollinrake
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The right hon. Lady is making a fantastic speech, and it is always a pleasure to listen to her and to work so closely with her from our respective positions on the Back Benches. She refers to Danske Bank; the total amount of money laundering through that Estonian branch was €200 billion, much of it Russian money from kleptocrats moving the money out of Russia. The bank has not been fined yet. It will probably get a fine of £2 billion or £3 billion, but the likelihood is that not a single individual will be held to account. That is absolutely wrong. Fines are seen as a cost of doing business. I know she agrees that we need to extend the failure to prevent an offence to include economic crime and things such as false accounting, and we must have individual directorial responsibility.

Margaret Hodge Portrait Dame Margaret Hodge
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Hear, hear! I completely concur with the hon. Gentleman, and it is a real pleasure to work with him on all these matters. He is completely right. The interesting thing about Danske Bank is that, were there to be any prosecutions, they would not happen in the UK. They might happen in other jurisdictions, particularly America, but they will never happen in the UK because of the weakness of our enforcement agencies.

The provisions in the Bill are essential to help tackle some of the wrongs in the examples I have given, but I hope the Minister will assure the House when he winds up the debate that he will seriously consider amendments that we intend to table to strengthen the reform of Companies House and prevent potential loopholes. I also welcome the proposals to allow organisations such as banks to share information where that could help to prevent or detect wrongdoing, and the proposals to treat cryptoassets just like cash or any other assets for the purposes of seizure and enforcement.

However, the Bill too often tinkers with the challenges at the margin instead of boldly adopting a more holistic and systemic approach to bearing down on dirty money. For example, instead of proper and much-needed reform of the supervision of the professional enablers who are responsible for implementing anti-money laundering regulations, we get new cost caps for the Solicitors Regulatory Authority and new powers for the Legal Services Board—piecemeal reform, not systemic reform.

Instead of reforming the present outdated criminal offences in relation to the responsibilities of companies and their directors to prevent economic crime, which the hon. Member for Thirsk and Malton (Kevin Hollinrake) referred to, so that we can really hold those who enable, facilitate or collude with economic crime to account, we get new pre-investigation powers for the Serious Fraud Office—important, but piecemeal reform. Instead of a systemic reform of the broken suspicious activity reports regime, we tinker at the edges by reforming part of the regime, the defence against money laundering SARs—again necessary, but yet another example of the piecemeal approach being taken.

Not only does the Bill tinker at the edges; it also fails to address key matters that are all vital to a comprehensive approach to preventing, detecting and punishing money launderers and fraudsters. Where are the proposals to seize, as well as freeze, the assets taken from sanctioned individuals and states? We want the money that Putin and his kleptocratic cronies stole from Russia to be used to fund the reconstruction of Ukraine. We need similar powers to those that already exist in other European countries such as Italy and in nations across the world such as Canada.

Where are the proposals for a sustainable funding regime for the enforcement agencies, so that they can use the powers they have? For instance, as the hon. Member for Glasgow Central (Alison Thewliss) stated, the cost of registering a new company with Companies House is a mere £12. It would still be a bargain at £50 or £100, with the extra income ringfenced to fund Companies House properly.

Where are the proposals to do away with the requirement that our enforcement agencies pick up the tab for the legal costs incurred by individuals who succeed in resisting a prosecution for economic crime? The US enforcement agencies, which are far more successful in securing convictions, do not have to pay the costs of the person prosecuted if they lose a case. We should follow that example. Our system acts as a brake on our enforcement agencies. They fear the financial costs of losing, so they fail to prosecute aggressively, and because of that fraudsters, criminals and money launderers get away with awful actions.

Where are the proposals, which the hon. Member for Cheadle called for in her contribution, to protect the brave whistleblowers on whom we are so dependent? Where are the proposals to ensure accountability to Parliament and the public, so that we can see whether our reforms deliver? Where are the proposals to tackle the abuse of our defamation laws by oligarchs who want to silence those of us wanting to hold them to account? Where are the proposals to close the loopholes on transparency for trusts and the ownership of land, which continue to act as secret ways to launder money into or through the UK? Where are the reforms to the SARs regime, to the supervision of AML supervision or to corporate criminal liability laws?

In the wake of the 7/7 attack in Britain, we treated the reform of counter-terrorism as a mission requiring strong and comprehensive action, and we are now rightly proud of our capabilities in that area. The war in Ukraine should be our 7/7 moment in the battle to eradicate dirty money. It has helped us to understand the horrors that allowing illicit finance to infect our financial services sector, our economy and our society can bring, both at home and abroad.

This Bill is a once-in-a-generation opportunity to put things right. We cannot and must not waste it. I look forward to working with my colleagues across the House and with Ministers in Government to achieve our shared and crucial objective: to show that we are a country that consistently demonstrates zero tolerance for all illicit finance and is determined to grow a strong, trusted financial services sector in a jurisdiction that boasts the smartest regulation, first-class enforcement of the rules, maximum transparency and strong accountability. There lies the way to economic growth.

13:48
Kevin Hollinrake Portrait Kevin Hollinrake (Thirsk and Malton) (Con)
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It is a pleasure to speak in this debate and a particular pleasure to speak after the right hon. Member for Barking (Dame Margaret Hodge). She has done incredible work in this area for many years, for which we should pay tribute to her, and I hope she will continue for many years to do the same. I know that she has talked once or twice about hanging up her political boots—if the accommodation Whip is listening, I would very much like to inherit her office if she ever does—but nevertheless I hope she continues in Parliament for many years to come.

On a more serious note, all hon. Members deal with tragic cases and I want to refer to a couple of mine. Leah Heyes was a 15-year-old girl whose life ended in a carpark in Northallerton in 2019. Andrew Bellerby took his own life aged 35 in 2015. The connection between those two tragic cases is, of course, drugs. Lia suffered an adverse reaction to her first experiment with ecstasy, and Andrew’s life had been devastated by drug dependency. We also try to help families in those tragic cases, who are trying to pick up the pieces and make the best of what has happened to them, by putting in place measures to stop such things happening again. Too often we look at ways to try to deal with suicide cases more effectively or clamping down on people who deal drugs, but that is treating the symptoms, not the causes.

The causes are linked to economic crime. Many people will have watched the television series “Narcos”. The big cartels make a huge amount of money distributing the drugs that result in those tragic cases. They make so much that they bury hundreds of millions of pounds, because it is difficult to legitimise the money. They are not supposed to be able to pay that dodgy money into a bank or buy a yacht or a house with it, because questions should be asked about where the money has come from. Without the ability to launder the money, it is pointless perpetrating those horrendous crimes and being the linchpins behind those tragic cases.

The reality, however, is that many of our large financial institutions facilitate the laundering of that money. In 2012, HSBC, which we regard as a trusted organisation, was fined £1.9 billion for laundering money for the Sinaloa cartel, which was run by El Chapo. It is incredible that that would happen, but the obvious reason it does is money. The banks can make huge amounts of money themselves. My friend the right hon. Member for Barking mentioned the Danske Bank case. Normally a regional branch of a bank would have a profit margin of about 20% on turnover. The Estonian branch of Danske Bank that dealt with the £200 billion of Russian kleptocrat money had a profit margin of 460%, and that huge amount of money was the incentive. It is inconceivable that the people at the top of HSBC and Danske Bank did not know what was going on. It is impossible to make such extraordinary profits without those at senior levels knowing what is going on. But time and again we simply fine the bank and do not hold the individuals to account.

Drugs are not the only issue. Some of them are problems that we are trying to solve, such as the small boats crisis. Traffickers are making huge amounts of money and they need to be able to move that money around. Paul Stanfield, the head of economic crime at Interpol, says that it is all about the money and

“If you want to tackle organised crime, you have to go after the money”.

But the reality is that the UK makes all this easier. Because of some of our lax regulations on shell companies, which allow money to be hidden behind the veils of different companies in different jurisdictions, and because of the expertise in London and our overseas territories, the UK is the destination of choice for money laundering. The money may go to different places but it is laundered through London.

That is why many of the measures in the Bill are welcome, including those on transparency and Companies House. This is a big job. It is not only new companies whose directors must be verified, but existing ones. That is millions of companies. The Minister has been excellent in engaging on these issues, as was the previous Security Minister, but I would like to understand how that will be achieved. We may be putting £63 million into Companies House, but verifying the identities of people who have significant control over organisations will be a big job.

The resources going to Companies House need to be beefed up, and it makes sense to increase the very low fee of £12 for setting up a company in the UK to £50 or £100. I have set up quite a lot of companies in my time, and a fee of £50 or £100 would not have deterred me. That could increase resources to make sure that the enforcement happens. Too often, we look at innovation and legislation but we do not look closely enough at implementation. Without that, it is pointless having this debate. Implementation is key, and resources are key to that.

We are bound to focus on measures that are not in the Bill—that is what Back Benchers do. I have said many times that the No. 1 measure we need is an extension of the failure to prevent provisions on bribery and tax evasion, which have been so effective. People say that we talk a lot and never get anything done, but the bribery provisions have been massive in holding corrupt companies to account. The Serious Fraud Office has deferred prosecution agreements for Rolls-Royce for Airbus, with almost £1 billion in fines going to the Treasury. The SFO also prosecuted the GPT Special Project Management Ltd case. The SFO does not get many successful convictions but GPT Special Project Management Ltd pleaded guilty in Southwark Crown court in 2020, and paid £28 million in financial forfeitures as a result, on the back of the Bribery Act 2010.

I pay tribute to my hon. Friend the Member for Cheadle (Mary Robinson) for her work on whistleblowers. It is an area that the Bill does not cover at the moment, but I hope that the Minister will introduce more provisions. My constituent Ian Foxley blew the whistle in 2011, resulting in a conviction 10 years later. He was well paid, operating in the middle east for GPT, but he has had 11 years without any remuneration. He was earning probably £200,000 a year, so he is millions of pounds down. 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.

Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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Does the hon. Gentleman agree that there is a grave injustice when those who have done the right thing have a lifetime loss of earnings of millions of pounds, but when crooked accountants are called up before and disciplined by the Financial Reporting Council, their loss of earnings from being suspended for a short time, which could run into millions of pounds, is taken into account? The sentence is often more lenient if it will have a significant financial impact on an accountant who has given false information to the FRC. It appears that the crooks are better treated than the people who try to bring them to justice.

Kevin Hollinrake Portrait Kevin Hollinrake
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The hon. Gentleman makes a very interesting point. We need to clamp down on enablers of all kinds, and we need to get tougher in lots of ways to crack down on this in the way that we would all like to see. I know that provisions on whistleblowers will not be part of this Bill—although there may be amendments in Committee to that effect—but we want those brought forward as quickly as possible.

The failure to prevent is so important. It has to include the ability to hold an individual director to account, which would start to reduce the incidence of money laundering and the facilitation of all kinds of offences, including the huge profits made from drug dealing. An illustration of this is what happened with health and safety legislation back in 1974, when directors were made individually responsible and could go to jail if they did not prevent or seek to prevent serious injuries on their building sites. It became a health and safety offence that could be pinned on the individual. After that happened, deaths and serious injuries dropped by 90%. 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.

There are many other things we should do. We should extend what we did with unexplained wealth orders in terms of cost protection to other elements of the Proceeds of Crime Act 2002 such as property freezing orders and recovery orders. Bill Browder, who is very outspoken in these cases, has come up with an interesting idea. If an individual is sanctioned, anyone who has dealt with that individual—whether it be an accountant, a solicitor or anyone else—should have to hand over their records in connection with that individual to the authorities, so that we can track down the money more effectively. I cannot see a good argument against that.

We have talked about freezing and seizing assets. That is difficult to do, because we have to prove that there was a crime, and we believe in property rights and the rule of law in the UK, so taking these assets off individual oligarchs is tough. One thing that seems like an open goal is the fact that we hold about £30 billion in Russian foreign currency reserves. It is clear that Russia is guilty of international crimes in its invasion of Ukraine. We could legislate to ensure that that money is not just frozen, as it is currently, but confiscated, seized and used to pay reparations to Ukraine.

There are many other things we could do, which I will talk about further during the later stages of the Bill. I may well table one or two amendments, which I know Ministers will continue to engage with and, I hope, will look kindly on, because all these measures will clamp down on economic crime, which is good for the UK and good for business. It is not bad for the economy—it is good for the economy—and it will drive out these heinous crimes all around the world, not just in the UK. We will then be able to point proudly at our record on tackling economic crime, and I hope the Minister will take credit for that as this legislation passes through the House.

13:58
Valerie Vaz Portrait Valerie Vaz (Walsall South) (Lab)
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It is a pleasure to follow the hon. Member for Thirsk and Malton (Kevin Hollinrake), and I will pay tribute to him later. It is hard to be here on a Thursday without thinking of the late David Amess and remembering how he always used to come into business questions with a smile on his face. It has been a year, but it does not feel like a year; it has gone so quickly. We remember both David and Jo Cox. It is a very sad time.

I welcome the Minister to his position. I know that he has a lot of work to do. He is a talented author, and I bet he wishes he was reading his books, rather than the Bill. This is a wide-ranging Bill, and the main reforms are to Companies House. I am quite surprised that two Departments are covering this. It is a huge Bill, with six parts, 162 clauses and eight schedules. It is impossible to go through the whole Bill, but I have looked at certain sections of it, and it makes big reforms. I hope that this will all be teased out in Committee, and I want to highlight a few areas. I welcome what my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) said: we welcome the Bill, but with reservations.

Reading the words “Companies House” took me back to when I started working as an articled clerk. I had to go down to Companies House, which was on Old Street then, and look through the microfiches of all the companies; that was the work we did at that time. Having qualified as a lawyer and worked in the Treasury Solicitor’s Department, I saw civil servants when they had the tools and the resources to go after companies, and they did that in the public interest—they understood those words, which they picked up over the years by osmosis and the way that departments worked, and they used to wind up companies in the public interest. The hon. Member for Thirsk and Malton mentioned going after directors and having that strict liability. There is the Company Directors Disqualification Act 1986, but I do not think it is used often, and certainly not to wind up companies in the public interest. I hope the Department will look at that, but that requires resources, and by the time I had left the Treasury Solicitor’s Department, it had been outsourced to other companies.

I am not sure that there is a reference to this in the Bill, but it is possible to buy companies off the shelf and then transfer them to new ownership. What drew me to this issue, as well as my previous experience, is that a couple of constituents contacted me to say that their home address was being used as the registered address of a company, which they were getting mail for, and they could do nothing about it. They got in touch with Companies House. At the time, the Minister wrote a letter to say that there would be a new Bill and reforms, but these people were having to correct the information themselves and provide evidence that they lived at that address—they were the victims, but they had to rectify the register. I hope the Minister will confirm that these new powers will cover that situation, so that the onus will not fall on the victims to rectify the register, and that the registrar will deal with this under the ID verification scheme. There are some concerns about that new scheme. The regulations are still to be made, and it is not clear on the face of the Bill what the process will be and what will count as acceptable evidence; there is concern that it will just be biometrics.

The second case I want to come to is one that I have had three emails and lots of information about, and it is that of a constituent who I will refer to as Mr B—not because that is an expletive deleted or what I feel about him, but because that is his initial. He was going round setting up companies to defraud elderly people, and he was using false addresses. Even now, there are 16 companies registered to Mr B, of which five are active, and they are renewable energy companies. He is not only doing it here; apparently, he has a database of companies around the world—he has victims in India, the USA and Canada. My constituent went to the police and was told to go to Action Fraud, which told her to go to the National Fraud Intelligence Bureau, and nothing has been done. Will the Minister meet me to discuss that case? Can he confirm whether the new verification scheme will stop that?

The dynamic duo, my right hon. Friend the Member for Barking (Dame Margaret Hodge) and the hon. Member for Thirsk and Malton—what would we do without them?—both mentioned that funding is an issue. We may give Companies House powers, but it must have the tools to finish the job. It is more than just snagging. It only costs £12 to set up a company. In France it is £50, and in Germany it is £100. The APPGs chaired by this dynamic duo who are keeping us safe have both suggested a cost of £50, but as the hon. Member for Glasgow Central (Alison Thewliss) said, the Treasury Committee has suggested that it should be in the region of £100. At today’s rate, someone could set up eight companies—why would they want to?—for £100. If it would help with the costs of verification, the Government should look at the higher figure of £100, because the Treasury Committee has taken evidence on that. We know that over half a million companies are created each year. Transparency International UK found that, as the hon. Member for Strangford (Jim Shannon) mentioned, between 2000 and 2019 nearly £137 billion was lost in money laundering and corruption.

That leads me to my next concern, which is the method of identity verification. There seem to be two routes mentioned in the Bill—Companies House or an authorised corporate service provider. Again, there is nothing in the Bill about how this will be set up. I know there will be secondary legislation, but I think the House would like to see some of the processes and what exactly that will entail because I have a few questions. What are the transactional costs of using an authorised provider as compared with Companies House? Are we just outsourcing this process and will such providers be accountable to the registrar at Companies House? How many authorised corporate service providers will there be, because this Bill is quite rightly about corporate transparency?

This brings me to the register of overseas entities, which is operational, and as of 11 October 1,605 have registered. I logged on to the register, and the House of Commons Library helpfully took me through the process. I searched through the register and, lo and behold, companies with opaque beneficial owners can still register. I will mention just one: Merakino Ltd, which is registered in Jersey. When I clicked on the beneficial tab, it came up with East Fiduciary AG, with the registered office in Switzerland, and the only person named is the agent in the UK supervised by His Majesty’s Revenue and Customs. A company expert has said that about 20% of registrations on that register have a beneficial owner that is a legal entity, not a human being, which shows, sadly, that the register is not working. I hope the Minister will look at this, and say whether he considers that a register in which for 20% of the entries the entity is a company is working.

I, too, agree with other colleagues who have said that this is a missed opportunity, because I feel that the Government have failed to close a huge gap that in effect amounts to economic crime against the British people. I know there will be mumbles about this not being the right vehicle and so on, but I think closure of the non-dom status is a vital area in fraud and in ensuring that money owed to the British people stays here. Those who choose to live, use our services and vote here do not pay their taxes on overseas income, and as my hon. Friend the shadow Chancellor has pointed out, this would raise £3.2 billion a year.

Sadly, in conclusion, I have several questions for the Minister. Will he consider raising the registration fee, as suggested by the Treasury Committee and the APPGs, in line with other countries? Will he look at that, and at an open and robust process for identity verification? Will he look again at closing the loopholes in the overseas register? Will our constituents be safeguarded from the use of their own home addresses? Will Mr B, using fake companies to defraud constituents, be exposed, caught and penalised? Looking through clause 96, one of my concerns is that the registrar can apply civil penalties, but using a civil burden of proof—the burden of proof is “beyond reasonable doubt”, but the penalties are civil ones—so does the Minister, the Department or the Government know how many people will be caught by this, because it is quite a high bar? Our constituents are working hard and they pay their taxes, mostly through pay-as-you-earn, and it is right that we close loopholes and protect them against fraud so that we can continue with the entrepreneurial spirit this country is very good at.

14:10
John Penrose Portrait John Penrose (Weston-super-Mare) (Con)
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I guess the simplest way to greet this Bill is with a massive cheer of hooray. Many of us in this place today have been waiting and waiting for a very long time, and it is really good to see it arriving on the Floor of the House at last, and to see it being welcomed from both sides. There is cross-party agreement on the fact that it is due and, frankly, past due to plug some of those gaps, and it is great news that it is here.

Many of us have been pushing for a very long time to get such things as beneficial ownership transparency, so that if we want to find out who owns a particular company, we do not have to go through multiple layers of shells and other bits and pieces, and finally end up in a secrecy jurisdiction. We are, at least in theory, able to find somebody in charge or exercising effective control over that company who has a pulse, and that is the ultimate guarantee that we are getting somewhere.

We have already heard that many further steps will be required to make that actually bite properly, but in principle is it not great that we are here and is it not great that this stuff is happening? I am delighted to be able to welcome it along with everybody else here today. However, you can probably tell, Madam Deputy Speaker, that I am working up to a but at the end of that sentence. In fact, I am working up to two buts, if I may.

The first but is the point raised by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) about the failure to prevent mechanism or indeed any other effective mechanism ensuring that for a corporate—I am using “corporate” in the broadest sense to mean not just companies, but all corporate vehicles, including things such as trusts—there is some sort of proper personal liability for the people running it if they allow things such as money laundering to happen. Failure to prevent is probably the most obvious way to do it, and it was blessed and agreed to for fraud, as an extension of where we are now, by the Law Commission in its recently published report. However, there is a whole range of other crime and economic crime that it does not cover, and the Law Commission said that there may be other mechanisms than failure to prevent.

It does not really matter what that the mechanism is, except that it has to be better than what we have at the moment, and we absolutely have to push forward on what is one of the biggest remaining holes in the coverage of our protections. My hon. Friend is quite right that until we do this—until we plug this particular gap—we will still end up with a huge opportunity for thieves, kleptocrats and organised criminals of all kinds to do what they do. I am afraid that they are incredibly entrepreneurial people, and they are very creative and stay ahead of whatever mechanisms we come up with. It is only by doing something like that that that we will close the gap properly and get an all-encompassing roadblock to what they do.

It is therefore absolutely essential that, whether it is with failure to prevent or some other mechanism, we do not accept that the status quo is adequate in this area, and we must, all of us from all parts of the House, send a resounding message to Ministers and to law enforcement that this must not be allowed to persist. I may be being a little bit over-optimistic, but I think we heard from the Home Secretary earlier that the Government plan to come back to, look at and take forward—I think that was the phrase she used—the report from the Law Commission. I hope she will hear from all of us here that that is good news, but that we would like to take it forward briskly, promptly and with maximum energy, if we can.

The second but is the point about enforcement. It is all very well to have brilliant legal structures, brilliant laws passed and regulations in place saying, “Thou shalt do this” and “Thou shalt not do that”, but it is no flipping use at all if there is no one there to actually police it and enforce it. While there are an awful lot of people working extremely hard in all sorts of organisations —the National Crime Agency and others—to try to do this enforcement, we all know that there is an enforcement gap in this country compared with, for example, America, which is an awful lot better at it than we are, in this particular area at least.

Therefore, we are going to have to raise our game here. I wish there was a Home Office Minister sitting on the Bench alongside the excellent BEIS Minister at this moment, because the Home Office is the Department that will be under funding pressure to raise its game in order to make sure there are enough resources for these enforcement organisations to do their job, and to do it better, more effectively and more efficiently than they are at the moment. Until they do that, we are always going to be a weak link internationally. I do not think we should kid ourselves about where we are at the moment, because we are a bit of a weak link at the moment.

That brings me on to the other half of my point about enforcement, which is that the points made about whistleblowing by the APPG chair, my hon. Friend the Member for Cheadle (Mary Robinson), really matter. As I said to the shadow Home Secretary earlier, we can turbocharge and maximise the effectiveness of our existing enforcement organisations if we get our whistleblowing regime upgraded and improved very dramatically from where it is now, because whistleblowers are force multipliers for the police. They make the police’s life easier, bring them good, warm leads, blow open cases and provide the evidence that is needed to create effective prosecutions. Without them, the job is a great deal more expensive and less effective; with them, the police can do their job much faster and better. The kleptocrats, the oligarchs and the various different crime lords are a great deal more scared of the UK with a decent whistleblowing regime than they are without one.

That causes a problem because Ministers will say, “Ah yes, but there isn’t enough space in this Bill to provide upgrades to the whistleblowing regime.” Many of us asked that question before we got here today and we all had the same answer, which is, “Yes, it is very important, but not here, not now, and not just yet.” Frankly, that is not good enough or adequate.

I appreciate that the constraint on space is real and I am not trying to pretend it is not, but there are other things that Ministers could do that do not require this Bill and that could be done through, for example, little bits of secondary legislation. If Ministers can commit to make those changes—ideally in the Minister’s summing up this afternoon or certainly in Committee—the pressure for primary legislation and, dare I say it, for endless rounds of proposed amendments, which people may be minded to table later in the Bill’s progress, either here or in the other place, will be greatly reduced. So it is in everybody’s interest for Ministers to say, “Yup, we are going to do that.” If the Minister is able to stand up later this afternoon and say, “Yes, we will do these four things during this parliamentary Session”, that will relieve an awful lot of pressure in this area, because we will all know that proper progress will be made.

The things that would reduce the pressure and the need for primary legislation in the Bill are very simple. First, we could extend the Public Interest Disclosure (Prescribed Persons) Order 2014 to include all the professional regulators. At the moment, that order includes some of them, but if all the professional regulators were included that would massively improve the protection available. It would mean that when somebody says, “I have seen something that is wrong that needs to be dealt with, and I am going to blow the whistle and provide the information,” they would not be the ones who end up as victims, unemployable or completely monstered, either by their former employer or the profession in which they work. Extending the prescribed persons order would mean that those professional regulators have a duty to look after them. At the moment there are big gaps in the list, but it would be relatively straightforward and would not require primary legislation to plug those gaps. Why on earth are we not doing that? Why can we not do that now? It would only take secondary legislation, so let us get on and do it.

Secondly, we could expand the definition of “a worker” under the existing regulations. At the moment, employees who blow the whistle are better protected than trainees, non-executive directors or suppliers. Those sorts of people are very well placed to see wrongdoing, may know what is going on and may have good audit trail evidence to provide, but woe betide them if they blow the whistle, because they ain’t protected as they should be and as they would be if they were an ordinary employee. That seems to me and an awful lot of people to be jolly silly and a massive gap, and it would be easy to fix.

Kevin Hollinrake Portrait Kevin Hollinrake
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My hon. Friend is making a fantastic speech. On that point, I talked about my constituent, Ian Foxley, who was a contractor working overseas. Those sorts of people are not covered by the existing legislation. Had they been, he would have been able to seek redress through the company he worked for. As it is, he cannot.

John Penrose Portrait John Penrose
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That is absolutely right and a very good example. Again, it is relatively simple to fix. It would not require primary legislation, it would reduce the pressure on the Bill and the pressure from all of us here trying to shoehorn extra things into the Bill. In the interest of giving the Minister an easy time, which we all want to do, if he could make these commitments for some time in this parliamentary Session, that all goes away. We would end up with something an awful lot better and quicker.

Thirdly, there are a series of money laundering regulations that can be upgraded and improved. Again, that will not need primary legislation and, again, that will help dramatically.

Finally, we must improve the process for raising concerns. Lots of other countries have online systems, with websites that work easily and are centralised. People know that if they raise concerns through the centralised system, they are automatically engaged with the necessary protections and have the right degree of protection, so they are much more comfortable that they will not end up on the receiving end of victimisation from the people they are trying to blow the whistle about.

Those are the four items. They are easy for the Minister to say—nice and simple. Not only that, I am sure he will have the support of his Home Office counterparts, because they will be the ones whose budgets will be under pressure to improve and upgrade the resources available to the investigative organisations, such as the NCA. Such organisations will otherwise have to be paid more money in order to carry out investigations; they will still need a bit, but they will be able to use it much more effectively if we can make those four changes. I hope that is helpful. I look forward to the Minister’s comments. I will have my pen poised to tick these points off. I am hopeful that he will be able to be helpful.

14:26
Layla Moran Portrait Layla Moran (Oxford West and Abingdon) (LD)
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It is a pleasure to follow the hon. Member for Weston-super-Mare (John Penrose), who has championed these matters for an incredibly long time, along with so many other hon. Members. It is always an honour to take part in such debates because it feels as if it is Parliament pushing Government to go faster, further and deeper.

I do not suspect that economic crime Bill 2 will be any different from economic crime Bill 1. We all welcome the fact that we are here, finally, but we all have a “but”, which is that we wish to do more. Certainly, the speeches so far indicate that the spirit with which we approached economic crime Bill 1 lives proudly within us. We achieved quite a lot in that and I hope that economic crime Bill 2 will be equally as fruitful.

In some ways, I hope it will be the last economic crime Bill, because I hope we can get it done properly this time. In economic crime Bill 1 we kept being told, “Well, don’t worry about that. We are going to put it to one side. It’s a bit complicated. We need to go away and look it, and then we will come back and sort it in economic crime Bill 2.” When we picked up our copies of economic crime Bill 2 and saw that it was nice and hefty, I thought, “This is good.” Then I looked at it and, I am afraid to say, I was quite disappointed. There was a lot that was mentioned, both from the Dispatch Box and in private with Ministers, that we thought we were going to tackle this time, and it simply is not there.

That frustration leads us all to want to push the Government to go further. There is also the deep frustration that it has taken a war to get to this point. I see bombing in Kyiv, Crimea and elsewhere, and I have a Ukrainian guest living with me who feels these things very deeply. Every time I see that, in the back of my mind I think, how much of the money that has gone into Putin’s coffers to help pay for what is being done to her and her family came through our economic system? How shameful that there is that direct link. We know that link is there because that is what caused us to act as quickly as we did with economic crime Bill 1. I know there is that feeling of frustration in all parts of the House and that we want to tackle the issues as comprehensively and finally as we can, this time.

In common with other hon. Members, I welcome the measures in the Bill, in particular the reform of Companies House and Scottish limited partnerships, which are significant steps forward. We have not even had a framework to deal properly with many parts of economic crime. However, even if we have a legal framework for something, we still have to be realistic. We have a legal framework for burglary, muggings and all sorts, but there still needs to be adequate resourcing for the enforcement agency. In that case, the enforcement agency is the police but with economic crime there are 22 different agencies that are meant to do that, in particular the National Crime Agency. The funding for those agencies is falling, not increasing. If we are serious about tackling economic crime, there needs to be a commitment of money to the agencies that are the force behind those warm words from the Government. When the Home Secretary was questioned on that earlier, she gave very woolly answers.



As the Bill progresses through the House in the next few weeks, I am hoping to hear the Government say that they know how much money they need to do the job they have to do. The reasons for doing it are entirely in our self-interest. There is not just the geopolitical reason that I described—the shame that money flowing through our systems is in any way funding nefarious purposes—but the fact that HMRC has something to gain. If we can get our hands on some of that money and find ways to divert it, we can find ways to spend it better, away from the criminals. That is surely in the taxpayer’s interest.

As was mentioned by the right hon. Member for Barking (Dame Margaret Hodge), if we want to be seen as a good place to do business, we cannot allow ourselves to be a country that accepts this money. It taints all businesses—the good ones with the bad—that are deciding to trade in our financial markets. It is in our gift to make this country the best and safest place in the world to do business. It is in our own self-interest to tackle corruption. It is not just about the war; there are more far-reaching consequences.

I want to draw the Minister’s attention to a few areas now so that he has plenty of time to work on them before we get to Committee and the Bill goes through its next few stages before eventually reaching the other place. First, and most importantly, we need to start with the provisions of the first economic crime Act and look again the register of beneficial ownership. While it has now come into force, if I was an enabler wanting to make a mint from my oligarchs, it would be really easy for me to tell them how I would get around the new legislation. All I would have to do is transfer the entity into one of my relatives’ names, or, instead of having four people registered as beneficial owners, I would just need a fifth, and all of a sudden the problem would disappear. Those are two simple examples of how people can get around that register. Everyone recognises that economic crime Act 1 happened quickly, but given the time that we have had to properly scrutinise and think about these matters, I ask the Minister to consider amendments that would improve it. There is a small part of the Bill where the Government have started to do that for the register, so such amendments would be in scope. I therefore urge him to consider further amendments to that end.

My second question, which I posed to the Home Secretary, is about golden visas. We have heard absolutely nothing about them. It is not enough to say, “We’ve put a freeze on them and we’re not giving out any more.” The fact is, we did give them out. She clearly misspoke when she said that we sold them—that was rightly picked up on—but it is quite an interesting way of looking at it. Actually, many of the people who “bought” them will have seen it that way. There would have been an exchange. At the time, the idea was, “If you invest in this country, you get something back,” and in this case it was citizenship. Other countries do that, too. However, we know that golden visas were being used as a way essentially to whitewash people who should never have been given the right to reside here, let alone passports or anything else, and unless we understand fully the extent to which they were used, how and by whom, this place cannot hold the Government to account for what they are trying to achieve with the Bill.

We are in a perverse situation. We understand that the Minister has access to that review—it has been done, it is finished, and it is sitting there on Ministers’ desks—but Parliament has not seen it. That is unacceptable. At the Dispatch Box, the Minister should not say that he will look at it, as the Home Secretary did. I do not want her to look at it—I want to look at it. I want all hon. Members to be able to look at it. The Government should publish it so that we can see it. On economic crime, the slogan for all of us must now be “Better out than in”.

The third thing that I want to raise, as several hon. Members have, is the Law Commission’s look at the “failure to prevent” offence. While I was sat down I searched for that, because the pace has been so glacial that wanted to remind myself of the phases that it has already gone through. If I remember rightly, it was back in 2016, before I entered this place, that David Cameron mentioned it as part of his anti-corruption plan—in fact, I think he first mooted it in an article in The Guardian —and nothing happened. After having done a consultation announced in 2016, the Law Commission reported back in June. So we have been talking about the failure to prevent for five or six years.

The point made first by the hon. Member for Thirsk and Malton (Kevin Hollinrake) and then by the hon. Member for Weston-super-Mare (John Penrose) was that if we put the onus on the entities to prevent economic crime in the first place, that would be hugely powerful and speak to all of our concerns about the lack of resource for the National Crime Agency and the other agencies that are meant to enforce this area. That is really neat. Actually, it would be even better, because by putting the onus on the entities themselves, it would not have to cost the Government that much.

Peter Grant Portrait Peter Grant
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What does it say about the Government’s priorities if they have taken six years and not brought in failure to prevent legislation for economic crime but have managed to bring in failure to prevent legislation that fines companies tens of thousands of pounds if they unintentionally give a job to somebody who under immigration law is not entitled to be here? Is there a question of priorities that needs to be looked at?

Layla Moran Portrait Layla Moran
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I agree with the hon. Member. It needs to be done for the cost to the economy alone, but also for the personal cost to families and individuals, which we have heard about. Economic crime sounds like something that is not personal and does not affect actual people, but that is not true. Every time that we turn a blind eye, look the other way or say “It is too difficult,” we are doing our constituents a disservice.

The final thing that we need to grapple with, which we have spoken about over and over again, is the enablers. Firms of accountants and lawyers are used to help those with the deepest pockets to circumvent the very heart of what we are trying to achieve in this place. We need only listen to what Catherine Belton said to the Foreign Affairs Committee about how she has been hounded. It is not just her; there are others as well. In fact, I know that parliamentarians across the House have faced lengthy letters from lawyers whenever we have tried to raise things. We are protected by privilege, but it should never be the case that someone is afraid to speak out on what is right because they are concerned that they will be hounded by lawyers being paid by oligarchs with the very nefarious money we are trying to prevent from getting into their hands in the first place.

There is very little in the Bill that tackles the enablers. I appreciate that that may need an economic crime Bill 3, but I have heard nothing about it at all so far. I remind the Minister, if he has not looked through Hansard to see what Ministers before him have said, that previous Ministers promised we would look at the issue in some depth in economic crime Bill 2. I am sorry to say that I see very little in this Bill that goes any way to tackling the concerns raised in the speeches on the first economic crime Bill.

To conclude, I am glad we are here and talking about this, as there is so much to say. There is huge good will in all parts of this place and the other place to tackle this matter once and for all. I urge the Government not to shy away from the difficult decisions. Parliament will support them if that is what they want to do. There is a will and there is a way. Now please, Government, get on with it.

14:39
Andy Slaughter Portrait Andy Slaughter (Hammersmith) (Lab)
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To listen to the Home Secretary opening the debate, one would think the Government had a good record on tackling economic crime. As my right hon. Friend the Member for Barking (Dame Margaret Hodge) said, there has been not one prosecution of a Russian in the time that the Government have been in power. On the contrary, they have been welcomed into the heart of the establishment, buying their way into it. Only now, after the terrible events in Ukraine took place earlier this year, have we seen a response. The initial response, the first economic crime Bill, was clearly inadequate. We were promised that a second Bill would fill in the gaps and be more comprehensive. It is so far, frankly, a disappointment, for many of the reasons that we have heard.

Yes, the measures in the Bill are welcome, and I do not think anyone has said that they are not, but as has been asked—I do not want to repeat what has been said by people who have greater expertise on this matter than I do—where is the ability to carry this through and where is the funding for Companies House to actually police, rather than simply register? We heard from the shadow Home Secretary, my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), that the National Crime Agency is still—unless the Government correct this in today’s debate—facing cuts at a time when we know it has very limited resources.

The Bill has many, many omissions. We have heard about the lack of corporate liability and the lack of provisions on whistleblowers, but we can add to that. As the hon. Member for Oxford West and Abingdon (Layla Moran) said, we still have nothing on failure to prevent. I asked the Home Secretary about that earlier. Her colleague the Secretary of State for Wales, the right hon. and learned Member for South Swindon (Sir Robert Buckland), said in a speech earlier this week, if it was correctly reported by the Law Society Gazette:

“What isn’t in the Bill is as interesting as what is. I hope not to prejudice the Government’s position, but amendments”—

to create an offence of—

“failure to prevent economic crime…could be quite a dramatic move by Parliament.”

I think the right hon. and learned Gentleman has a history of supporting that. I asked the Home Secretary about that and she said, “Well, we’re always looking at that.” Surely the Government must know by now whether they are going to include those provisions in the Bill. Perhaps the Minister, in winding up, can enlighten us further.

Where is the anti-SLAPP—strategic lawsuits against public participation—legislation? I did not agree with the former Justice Secretary on much, but he did push forward that agenda. There was a response from the Government earlier this year and we were looking for legislation in the Queen’s Speech. It could have been included in the Bill, and it could still, but where is it? And where is the better organisation of supervisory bodies? The Government are not short of good advice on what to put in the Bill, but let me quote Spotlight on Corruption:

“Anti-money laundering supervision for professionals in the legal and accountancy sector is currently not fit for purpose, with 22 different professional bodies overseeing their compliance with anti-money laundering rules. Last year the Office for Professional Body Anti-Money Laundering Supervision”—

another body—

“found that only 15% of these supervisors were effective ‘in using predictable and proportionate supervisory action’ and that only 19% ‘had implemented an effective risk-based approach’ to supervision.”

That is not really going to intimidate those who wish to commit economic crime if the Government cannot get their tackle in order in that respect.

There are, therefore, many omissions, but in the short time I am going to speak for I want to concentrate on the lack of resources. The shadow Home Secretary, my right hon. Friend the Member for Normanton, Pontefract and Castleford, mentioned that she and my boss the shadow Attorney General, my right hon. Friend the Member for Islington South and Finsbury (Emily Thornberry), have been banging on about this for 10 years. Many of the measures that are still not in the Bill have been called for over that period, yet we are still waiting. We will see what happens in Committee. I do not hold out much hope on that, because it is relatively rare for the Government to introduce many major provisions in Committee, but I hope to be proved wrong.

Let us look at two areas in relation to enforcement: money and staffing. To give an example of another case, in July 2020 the NCA faced a claim for £1.5 million in costs following an adverse ruling in an unexplained wealth order. That was a quarter of its international corruption unit’s annual budget for fighting corruption, whereas the Government had estimated, when they introduced UWOs, that law enforcement would face costs of up to £1.5 million over a 10-year period.

It is right that there is now a different format for cost orders for UWOs, which gives some cost protection. That is universal in the United States and it would be very useful in this respect. A trend in how the Government are legislating is the increased use of fixed recoverable costs. There are other areas of cost protection, but not unfortunately, in the area of Leveson, on which the Government seem to have a blind spot. However, this is a prime category in which we need some protection for the enforcement agencies. Although this does now apply to UWOs, it does not apply in any other economic crime cases.

That affects the behaviour of enforcement agencies in a number of ways. First, they tend to go after the small fry rather than the bigger fish, because they are worried that the bigger fish will be able to instruct lawyers who will run rings around them and bankrupt them, in the sense that they will use up their whole budget in the way I described. It makes them pusillanimous in their attitude and there is a vicious downward spiral, because when they lose cases—I think, for example, of the SFO in the Serco, Unaoil and ENRC cases—they can be at risk, effectively, for large pots of their budget. It is therefore understandable that they then have to go cap in hand to HMRC or the Government and ask for the money to be used to subsidise their overspends for that year. That is really no way to behave and it is not surprising that the inequality of arms means that the enforcement agencies have low morale and perhaps do not have the motivation to go after crooks in the way that we would like them to.

Another way to deal with the issue would be to fund the agencies better. As I think Spotlight on Corruption said, although enforcement agencies recover limited amounts—because of their limited remit and limited ability, and I do not believe that the enforcement agencies recover as much money as they could—most of that goes to the Treasury. If it went to them instead, their budgets would perhaps be double what they are now. That would be a virtuous circle, because they could then be rather bolder in the prosecutions they take—as the Department of Justice is in America—and achieve better results.

Whether we are talking about cost protection or better funding through the proceeds of crime that the enforcement agencies release, there has to be a way of making them more effective. If that does not happen, frankly, everything else that the Government are trying to do will be a waste of time.

Let me say a bit about staffing. There are a lot of very hard-working staff in the Serious Fraud Office and the National Crime Agency who are doing their best, but there is also a revolving door from the public to the private sector, because remuneration is so much higher in the private solicitor service and elsewhere. Essentially, therefore, the state is funding the training and development of individuals who will work for the SFO or the NCA, only for their expertise to be taken to law firms who specialise in defending against white collar crime prosecution. That is a serious problem and a conflict of interest, and it is seemingly overlooked by the Government, particularly given the rather limited use of the Advisory Committee on Business Appointments guidelines by the SFO, in particular.

That is not the SFO’s only problem with staffing. Over the past five years, the number of financial investigators, case progression officers, lawyers and case controllers has grown by just 11 officials, despite the massive increase in economic crime. When I asked the head of the SFO, I was told not only that the SFO is proud of the revolving door because it shows that its staff are attractive to other employers, but that it does not keep any records about the destinations of former staff.

In 10 minutes of research on LinkedIn, I managed to find out that since 2010 the former director Sir David Green, two former general counsel, four former heads or co-heads of the bribery and corruption division, two former heads of the fraud division, the former heads of the assurance division and the international assistance division, and at least 20 more junior staff, have moved on and are now working for legal firms that, on the whole, represent the people who are being prosecuted. The only one who was vetted by the Advisory Committee on Business Appointments was Sir David Green; the net effect was that a delay of six months rather than three months was imposed before he could take up his post, and that there were other restrictions on his use of knowledge gained at the SFO. It is a joke.

We are expecting agencies to do a job with one hand—and in some cases both hands—tied behind their back. I recommend that everybody read Oliver Bullough’s excellent book “Butler to the World”, which shows that this has been going on rather longer than we may think; it is not a recent event. In summing up a case that I referred to earlier, which the NCA completely lost on all levels—it lost even the ability to appeal—he writes:

“Reading the final judgment is like reading the report of a match between Manchester City and Hereford FC: the embattled non-league side did its best, but its players were swept aside by superior skills, fitness, knowledge and resources.”

I want our enforcement agencies to have premier league status, rather than being where they are at the moment—no offence to Hereford, who I am sure are an excellent team. I mean no offence either to the people who are doing the best they can to deliver, but how can they deliver unless the Government give them the tools to do the job? I want to believe that the Government are sincere about tackling the issue and have seen the light, even belatedly, but the Bill simply does not deliver the goods.

14:52
Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
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Being a Scot, and in deference to the sensitivities of supporters of Celtic, Rangers and the Scottish women’s football team, I will maybe not talk about football, if that is okay by everybody else. Hopefully we will still have somebody left in Europe after tonight.

I welcome this long overdue Bill, but let us not kid on that it was made necessary by the illegal war crimes that have been committed in Ukraine over the past year, or even by the illegal war crimes that started in 2014. This Bill was needed 20 years ago, if not earlier. I welcome it because it gives us the opportunity to turn Companies House into what most people probably thought it was: an effective regulator playing its part in the fight against fraud, rather than an innocent bystander that watches while companies on its register scam our constituents out of billions of pounds every year and enable some of the most evil regimes and criminal gangs on the planet. Companies House has become a spectator because this Government and generations of previous Governments could not be bothered to give it the powers to be anything else.

My criticism of the Bill, like that of most other hon. Members who have spoken today, is that in too many areas it does not go anywhere near far enough. As has been mentioned, it is completely silent about one of the biggest obstacles to tackling corporate fraud: the fact that literally any company can easily dodge the existing requirements, and the requirements in the Bill, just by making sure that its ultimate owner is not a human being but a brass nameplate on the door of a building, probably in some dodgy Crown dependency. And while we are talking about Crown dependencies, why is it that we still allow Crown dependencies and British overseas territories to be such willing enablers of the evil perpetrated by Putin and so many others? That has to stop.

A few hon. Members have reminded us that, as well as enabling large-scale acts of barbarity around the world, economic crime hits our constituents very hard. I do not apologise for bringing up Blackmore Bond again; I will keep bringing it up until Phillip Nunn and Patrick McCreesh have been properly brought to book. They were able to move on from the £1 million they had made on the fringes of the London Capital & Finance fraud to set up their very own £46 million scam called Blackmore Bond.

At about that time, Nunn and McCreesh were directors of 35 companies registered at Companies House. Last time I checked, those 35 companies had collected 59 formal notices of disciplinary action—59 formal notices of compulsory wind-up—because they were acting illegally. They were failing to comply even with the woefully weak requirements currently imposed by Companies House. There was no way of flagging up the fact that the same directors were in charge of all those defaulting companies. There was no way of totting up their offences, like bookings for a footballer or speeding points for a motorist. Indeed, it was as if the motorist were able to get off by arguing that his licence could not be taken away because each time he was caught speeding he was in a different car.

We need to tighten that up. We need to be able to identify those who are directors of several companies that are all in default. There must be an accumulation of culpability; there must be speedy action, which means not just closing down the companies—that is often exactly what the directors want to happen, and it was certainly what Nunn and McCreesh wanted to happen—but taking effective sanctions against the directors.

A year or two before Blackmore Bond finally collapsed, it said in the accounts that it submitted to Companies House that it was relying on incoming money from future investors to pay back what it had previously claimed was guaranteed money to previous investors. In other words, the directors sent a document to Companies House, which put it on the website, saying, “We are a Ponzi scheme.” No one at Companies House noticed, because it was no one’s job to notice.

The auditors who signed off the accounts of one part of the group, which was a plc, were required to express a view on whether the company could be truly regarded as a going concern, but they were under no obligation to run up a red flag and say, “Not only can we not be sure that it is a going concern, but this company is designed to collapse, and it is going to collapse very soon.” Because they were under no obligation to tell anyone, client confidentiality meant that they were under an obligation to tell no one.

I commend to Members who have not seen it the BBC’s “Panorama” programme on Blackmore Bond—and not just because I am in it for about 10 seconds; the rest of it is very interesting as well. From that programme, I learned that Phillip Nunn—poor diddums—had been declared bankrupt. What a shame! I checked the Companies House records this morning, and found that he was still a registered director of two companies. I thought it was an offence for a bankrupt person to be a director of a company. Why has no one picked up on that? Perhaps we can at least find something for him to be charged with while the Serious Fraud Office and others are carrying out their checks.

However, you do not need to set up a company to get rich. Mr Nunn’s latest scheme is to set himself up on social media as some kind of lifestyle self-help guru. To be fair, helping himself is something that he seems to be quite good at. No one could fail to see what this is about. He is going online in order to reach a much wider audience. He comes across as very plausible and very personable, but he is grooming innocent victims, not just in the UK but all over the world, until he is ready to say to them, very confidentially, “Do not tell anyone else, but I have just found about a brilliant investment scheme: you are guaranteed to get money back.” It will be Blackmore Bond and LCF all over again, and at present there seems to be nothing anyone can do to stop it. They know it is going to happen, but they have to wait until it is too late and then try to console the victims.

Let me draw attention to one feature of many corporate scams and frauds. Instead of setting up one company, people set up a whole sequence of small companies. They run a company for about 18 months to two years, and just at the point when they have to publish a set of accounts, they close it down, shift what is left of the assets to a different company and start all over again. It is possible to run a business for 20 years without ever having to tell Companies House, or anyone else, anything about the money going into and out of the accounts. That should raise the reddest of red flags. If the same one or two directors are seen to be setting up a sequence of fairly small companies that never seem to do anything and are then wound up, Companies House should be looking at that, as should the fraud squad, because 90% of the time fraud will be the answer.

Between 2019 and 2022, a gentleman called Richard Philip Wells set up 24 such companies. Members who are interested in motor racing may recognise the name, because Richard Wells owns a motor racing team; he is not a poor man. Most of those 24 companies have never filed a set of accounts, and most have lasted for less than two years before being wound up. The few that have filed accounts have filed them on the basis of being dormant: it is basically, “Nothing to report, Sir.” But just how dormant were those companies?

On 15 November 2020 two of his companies, SHP Litigation Ltd and SHP Security Trustee Ltd, were set up on the same day. Companies House knows that two weeks later, on 30 November 2020, SHP Litigation granted a charge—effectively, a mortgage—to SHP Security Trustee. The charge document was signed on behalf of one company by its only director, Richard Wells, and a wee bit further down the page Richard Wells signed on behalf of the other company to confirm that he agreed with the conditions of the money that he was lending to himself.

A few months later, the same Richard Wells certified on the accounts of both companies that they had not traded, that they had been dormant and that they had carried out no activities during the previous 12 months. One of the statements that he submitted to Companies House has to be a lie. We cannot possibly have money being lent back and forth between two companies and then say that the companies did nothing—unless a company that did not have money lent money it did not have, secured against the assets of another company that had no assets at all. There is clearly something very sinister going on in that network of companies. On 5 July 2022, he shut down both companies, because by that time they had achieved their purpose.

It is noticeable that a lot of Richard Wells’ more recent companies had SHP in their names. One of them, SHP Capital Holdings Ltd, he set up on 29 November 2019. He used that company to buy a funeral plan company called Safe Hands Plans Ltd, which we have all now heard of. Why would somebody buy a funeral plan company that would never be able to comply with the Financial Conduct Authority’s requirements for the running of a funeral plan company after July 2022? Why spend money buying a company when he knew it would be illegal to operate less than two years later? The reason was that he was not interested in the company; he was only interested in an associated company where its money lived.

That money was not the company’s, but the customers’. The previous directors had lied to the customers that the money was held securely in an independent trust, but it was held in an associated company, with the same shareholders and the same directors. One of Mr Wells’ first acts was to sack the fund manager and move the fund management to a different, newly set up company that was run by his best mate. Fast forward a couple of years, and the whole façade crumbles. Safe Hands Plans goes into administration, thousands of people discover that their funeral plan money has disappeared and nobody knows where it has gone. I know where it has gone, Madam Deputy Speaker, and so does the Serious Fraud Office. I hope that it can quickly establish that sufficiently to bring charges.

There is no legitimate, lawful business reason for Wells, Nunn, McCreesh or dozens of others to set up so many tiny companies for a relatively small-scale operation. Companies House records show all the hallmarks of the kind of company set-up that is a red flag for money laundering, but nobody at Companies House spotted it. Nobody looked more closely to see whether there was a legitimate reason for it or whether it was a scam in preparation, because nobody in this place had ever made it the job of anybody at Companies House to prevent fraud, rather than to try to chase down the money afterwards.

I ask the Minister to confirm, in summing up, where in the Bill Companies House is given the responsibility, the legal powers and the resources to identify and investigate suspicious patterns of company formation and dissolution. If it is not in the Bill just now, will the Government undertake to bring forward an amendment in Committee to enable that?

I also ask the Government to consider some other amendments. HMRC has the power to look through the labyrinth of a company’s structure and tax the company based on what it does, rather than how it structures itself. Why do we not give the same powers to bodies such as Companies House? Why do we not extend the circumstances in which directors can be held personally and speedily liable in civil and criminal courts for their misconduct? Why do we not just outright ban the registration of any company whose ultimate owner is not a person with a pulse? The Minister may be able to explain why it is sometimes necessary to allow a computer bot to own a company that trades in the United Kingdom. I cannot think of an answer, but I hope he can enlighten me on that.

Why do we not base the reporting and audit requirements on the total size of the undertaking, rather than ignoring the fact that if we chop a big company into 30 bits, they all become so wee that they do not have to publish accounts and nobody is allowed to see what is going on? When the Financial Reporting Council publishes a sanction against a company’s auditors because of some flaw in the company’s accounts, why not also require that company to lodge the same document at Companies House so it appears on the front page of the record, rather than as a footnote on page 26 of the accounts in a couple of years’ time?

The Bill will make things better, but it will not make them anywhere near better enough. There is very little in the Bill that I am opposed to, but there is a lot that I am disappointed not to see in it. I became interested in this subject, as I suspect many Members did, after having people break down in my surgery because they had been cleaned out by people like Wells, Nunn, McCreesh and so many others. It became obvious to me quite quickly what changes needed to be made to legislation, first to stop these chancers scamming our constituents, and secondly to make sure that those who do it in the future and those who have done it in the past are brought speedily to a court of law, dealt with and locked up.

If I were the sort of person who broke into someone’s house and stole £1 million, no police force in these islands would rest until I was safely behind bars. If I set up a company and stole £20 million, the chances of me getting away scot-free would be very high indeed. The Bill makes it a wee bit more likely that I would get caught, but if I were criminally minded, it would still be a gamble worth taking. Until we make the law tight enough that economic crime never pays, our constituents will continue to pay the price of our failure.

15:06
Kate Green Portrait Kate Green (Stretford and Urmston) (Lab)
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It is a pleasure to speak in this debate, which has faced in two extreme directions at once. On the one hand, Members have rightly talked about the potential of the Bill to address issues of serious organised crime and national security. On the other hand, we have heard again and again of constituents’ experiences of crimes that are low level in the scheme of things but are significant abuses, frauds and criminal behaviour, facilitated by the weakness of our company law. Like others, I will concentrate on provisions in part 1 of the Bill, and my interest stems from experience in my constituency of conduct by unscrupulous directors and owners who misuse registration and dissolution processes to avoid their obligations to their creditors and others.

I am pleased that the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Watford (Dean Russell), has sat through the debate, and I am grateful to his colleague Lord Callanan and his officials for meeting me earlier this year to discuss my concerns. However, as we have heard repeatedly this afternoon, the Bill, while welcome as far as it goes, is a disappointment in terms of its reach and effect. Unless Companies House actually enforces the law and has the resources to do so, the Bill will simply fail to deter directors determined on misconduct from fraudulent and wrongful behaviour.

I turn first to provisions in relation to verification of identity and people with significant control. Clause 76 gives the registrar power to reject documents for inconsistencies, and clause 80 gives her the power to request additional information if inconsistencies are identified. As the Bill progresses, I hope we will get more clarity from Ministers on how inconsistencies in PSC statements will be identified by the registrar and how decisions will be taken regarding criminal proceedings. What processes will be followed? What information will be considered by the registrar? What resources will be available to enable her to carry out her task?

By way of exemplifying my concerns, of a group of eight companies controlled by Mr Jason Alexander and operating in my constituency, only two appear to comply with PSC registration requirements. BEIS and Companies House have been aware of this situation since at least 2019, yet he continues to operate the companies with impunity. How can the new provisions in the Bill have credibility when there has been such a history of lax enforcement?

A particular issue arises where companies are owned and controlled via a network of trusts, for which there is of course no public register, and these trusts are used to obscure the identity of the true owners. In a letter to me in May, Lord Callanan told me that if a trust has any ownership or control over a company, the company must “consider” whether that trust would have met any of the control conditions if it were an individual. He confirmed that if it does meet such conditions, the trustees of the trust may be persons with significant control. A request for companies merely to “consider” the position does not seem to be a very stringent requirement, and the Bill does nothing to prevent shares from being held in trusts in order to obscure ownership and control.

I hope there will be an opportunity in Committee to ensure that the registrar follows up on non-registrable relevant legal entities and to require that those who control trusts are identified. In addition, I cannot see how the Bill will stop phoenixing. Again, I hope there will be opportunities in Committee to consider how the Bill can be strengthened to make it easier for the victims of phoenixing to seek redress.

I turn now to the strike-off, dissolution and restoration of companies. The Government are well aware of concerns about compulsory strike-off. In their response to their consultation in 2018, they stated that

“where a company is insolvent, dissolution should not be used as an alternative to insolvency proceedings.”

But compulsory strike-off continues to be used in that manner; 94% of strike-offs are due to a failure to file required information, and R3, the insolvency practitioners’ group, says that it is that estimated 50% of those companies are insolvent. The compulsory strike-off process, in which the registrar contacts a company and if she hears nothing, can strike it off, suits directors who can use the simple device of ignoring the registrar’s requests in order to take advantage of compulsory strike-off to avoid their obligations to creditors and others, and to avoid late-filing penalties—this is income forgone to the taxpayer. Even so, the process of strike-off is dilatory. Aura Business Centres Limited, another of Mr Alexander’s companies, was finally dissolved by compulsory strike-off early this year, having never once filed accounts in the five-plus years since it was incorporated, and despite Companies House and the Insolvency Service being alerted to this in August 2019.

All that stands in stark contrast to the more onerous expectations placed on those who wish to object to strike-off. When a constituent of mine sought to object to compulsory strike-off in a recent case, she was told:

“We are unable to register your objection without documentary evidence to support your complaint.

Please provide evidence such as invoices, court documents, general correspondence or emails between you and the company, to show that you are actively pursuing them for an outstanding debt.

All evidence should be recent and dated within the last 6 months and must show the full company name, including the word ‘Limited’, or equivalent.”

So a much more demanding burden is placed on an individual who has suffered wrong and seeks redress than the do-nothing approach that can be taken by a company that wishes to use strike-off as a means to avoid its obligations.

R3 has suggested tightening up the compulsory strike-off process by automatically placing a company that fails to comply with its obligations into liquidation, with the process overseen by the Government’s official receiver. That would allow for earlier investigation into the conduct of directors and for the earlier recovery of misappropriated company assets for the benefit of all the company’s creditors. Directors could be made liable for the costs of liquidation, which would be an additional deterrent to misconduct.

Finally, concerns also exist about the process of restoring companies to the register. Currently, that can require a costly court order, creating a clear asymmetry between those who wish to avoid their obligations and those such as creditors, or insolvency practitioners, who need to put things right. R3 has proposed a system of administrative restoration in all cases, which could be triggered by a company director or a creditor once suitable requirements have been met, such as producing evidence of an unpaid debt or a commitment to petition for the winding-up of the restored company.

The fee for doing so could be similar to the cost of dissolving a company. I really hope that the Minister will now carefully consider the provisions on compulsory strike-off and administrative restoration that are missing from the Bill.

I conclude where I began. The Bill is fine as far as it goes, but its modest provisions will not act as a deterrent to misconduct if the registrar lacks the will, powers and resources to enforce them. I welcome the intentions behind the Bill but hope that, as it continues its parliamentary passage, we will be able to make improvements to it to give them full effect.

15:15
Margaret Ferrier Portrait Margaret Ferrier (Rutherglen and Hamilton West) (Ind)
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I shall be brief. I welcome the Minister to his place and I welcome the Bill. I am glad to see Ministers deliver on the commitment to use the building blocks laid by fast-tracked legislation earlier this year. While the war in Ukraine continues, we have to utilise what we can to hit the Russian state where it hurts financially.

Although Russian aggression may have been the catalyst for economic crime prevention measures, the benefits of a better-regulated system are far more wide-reaching. According to the Cabinet Office, fraud accounts for 40% of all crime committed in the UK. Tackling that is crucial, and a monumental task. However, as we have heard, the legislation is not the powerhouse it needs to be. There are some very big limitations and gaps to be plugged. For the Bill to be effective there cannot be any gaps or loopholes. We must close them before the Bill finishes its passage, and get it right the first time.

I have concern about the resourcing and funding that will be available to public bodies such as Companies House to undertake their new responsibilities. The Government have been clear that they are keen to cut back departmental spending and reduce civil service numbers. How do those priorities align with pouring what will be very necessary resource into the organisations responsible for operationalising the Bill’s measures?

Companies House will have to make a significant pivot to its new regulatory role, and that will require investment if it is to be effective in the long term. Some of the funding could, and should, be raised through increasing the registration costs for new companies. The Government have taken the power to do so through secondary legislation but have not yet committed to using that power. As we have heard, increases would not need to be astronomically high: industry has suggested an increase from £12 to £50 and the Treasury Committee has suggested £100. Those costs would still mean that the UK is one of the cheapest places in the world to set up a company.

What steps will the Government take to ensure the registrar’s proactive querying power is effective in targeting a significant number of the companies that have submitted fraudulent information to the register? Are Ministers also looking at further reform to the strike-off process? That will inevitably require further resourcing but is a crucial gap in the Bill that needs some more attention. If companies continue to be struck from the register automatically, there are no checks to assess whether any fraud has occurred. That means that the directors of automatically struck-off companies can go on to commit further frauds—indeed, many do just that. Will the Minister commit to putting such companies through an insolvency process to ensure that returns to creditors can be made?

The Bill will deliver significant changes for limited partnerships, which are at high risk of being “shell companies” that are used for fraudulent activity and crime. In its current form, the Bill does not adequately prevent limited partnerships, limited liability partnerships or Scottish limited partnerships from having corporate partners and members in secretive offshore jurisdictions. While such companies are controlled by offshore entities, we will continue to struggle to identify their real owners and verify that the information held by Companies House is accurate. Because limited partnerships operate differently and do not require directors, they could allow sanctioned individuals to continue to launder money through the UK. The Government must introduce measures to tackle that issue.

The last issue I wish to look at is communication and information sharing. I will give Ministers some leniency here—it is not easy to create an effective information-sharing gateway while protecting sensitive data—but information sharing will be key to the success of a new regime.

Regulated sector entities should be able to share information more easily—the new measures will be used reactively and miss the potential for proactivity in spotting fraudulent activity earlier. Regulated organisations need more clarity about the intent of the legislation and how it can be operationalised to its fullest potential.

The finance sector, for example, sees benefits in sharing information between firms on the same basis that they currently share information with the National Crime Agency. Although the legislative framework may exist for that, civil liability is a very real risk, particularly where firms are dealing with sophisticated, experienced and monied criminal individuals. We have already seen the risks of aggressive litigation in this area through the legal challenges mounted against the National Crime Agency when pursuing unexplained wealth orders.

I hope that Ministers will be looking closely at where the gaps are here. This is a piece of legislation that must be done right and must be watertight if it is to be effective. Rather than bringing forward multiple Bills over the next few years as issues are identified and further gaps need filling, I hope the Government will use the Bill as a legislative vehicle to reform the system and prevent these instances of money laundering and economic crime as soon as possible.

15:20
Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
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It is indeed a pleasure to speak on Second Reading of this important Bill. But before I begin my remarks, let me just mention that, in the Public Gallery today, there are two young dancers from Ukraine, Yeva and Zakhar, who, yesterday, came second in the International Ballroom Dancing Championships. I am sure that we all want to pass on our congratulations to them.

I welcome the Minister to his new role. I very much look forward to working with him in the same spirit as I did with his predecessors. Today, he will have heard Members across the House express their concerns about the time that it has taken to introduce this legislation. Urgency is required not just to bring forward a Bill, but to bring forward the Bill that we need to close the gap between what we are doing now and what needs to happen to tackle the scale of economic crime that exists.

As we heard today, action on economic crime was first promised in 2016 and then again in 2018 and 2019. Even in March, the Government blocked Labour’s amendments, which would have introduced reforms to Companies House and left Russian oligarchs with nowhere to hide. It matters that we have had these delays, because, in six years, we have seen a significant increase in economic crime, much of which could have been prevented had the Government acted earlier.

I thank all the Members who have contributed today from all parts of the House, many of whom have been ahead of the Government in calling for action. I also thank the Minister and his team for our meeting earlier this week. It is also good to have heard about the work going on with the devolved Administrations, because we do indeed need to hear voices from across the nations.

Let me pay tribute to some of the contributions that we have heard today. The right hon. Member for East Hampshire (Damian Hinds) made the important connection between fraud and cyber-crime. He also mentioned the local nature of crime and its links with economic crime nationally. This is not just a debate about a grand scale matter. There is a very deep connection with the lives that we lead in our everyday economies. There is also a need for global action, and it is up to the UK to take the opportunity to lead that action.

The hon. Member for Glasgow Central (Alison Thewliss), with whom it is always an honour to debate from the Front Bench, made some very powerful comments including around false registration, the methods of verification and the need for resources. I commend her work on tackling the issue of Scottish limited partnerships. I also commend the hon. Member for Cheadle (Mary Robinson) on her work on the APPG for whistleblowing; I hope that as we go through Committee we will see more action taken in this Bill to tackle the challenges faced by whistleblowers, who do us a service.

My right hon. Friend the Member for Barking (Dame Margaret Hodge) spoke eloquently, as always, but what stood out for me was her articulation of the scale of the challenge and the fact that there is still just not enough determination or ambition. She was absolutely right to say that warm words need to give way to action—I will come back to some of her other comments.

I will also come back to the speech by the hon. Member for Thirsk and Malton (Kevin Hollinrake), but his comments about legislation with implementation stuck with me. He is right, because we cannot afford to sit on our laurels after passing this Bill, saying we are proud of it, if it does not achieve the change that is necessary and vital. I will also come back to his campaigning on the failure to prevent; his arguments have been heard across the House.

My right hon. Friend the Member for Walsall South (Valerie Vaz) articulated the problem of homes being used fraudulently for the registration of companies when people are not living there, and the lack of redress—an issue also raised by other hon. Members across the House. I want to highlight what that means for the vulnerability of elderly people: we know they are more likely to be victims of scams, but the ability to identify them, often on the electoral register, as people who might be living alone is another source of vulnerability for them and may lead to their being targeted and becoming victims of economic crime.

The hon. Member for Weston-super-Mare (John Penrose), who I also come across in many debates on this and other related topics, is right that the Bill was due, and past due—I think those were his words. I am sure that we will come back in Committee to the arguments he has made about the urgency of proper beneficial ownership transparency and many other points he has raised. I look forward to working with him on those matters.

The hon. Member for Oxford West and Abingdon (Layla Moran), who is not in her place, was right to say that we should get this done in economic crime Bill 2, because we do not want to be back for economic crime Bill 3. This is our chance. She made the point that it is worth taking a little longer to get this Bill through both Houses of Parliament to make sure that it is fit for purpose, and I support that.

My hon. Friend the Member for Hammersmith (Andy Slaughter), speaking from his own deep experience on issues of policing and enforcement, made the point extremely well about the need to ensure that we have the resources, motivation and morale for both policing and enforcement. We cannot have a revolving door. We must have the resources within our public sector to tackle these issues effectively. The hon. Members for Glenrothes (Peter Grant) and for Rutherglen and Hamilton West (Margaret Ferrier) and my hon. Friend the Member for Stretford and Urmston (Kate Green) also made similar and very effective comments in the debate.

I would like to give one final set of thanks, because it is right to pay particular tribute to my right hon. Friend the Member for Barking and the hon. Member for Thirsk and Malton for their leadership in the work of the APPGs on anti-corruption and responsible tax and on fair business banking. Their work serves this House and our nation extremely well on these difficult and complex issues.

I also recognise and thank for their steadfast advocacy the civil society groups that work tirelessly for action on economic crime, including Transparency International, Spotlight on Corruption, the Royal United Services Institute, Open Ownership and the Fair Tax Foundation. That is not an exhaustive list, and many others are worthy of our thanks for bringing insight and clarity to a complex area, which demands that we act in the interests of our national and international security and prosperity.

This Bill is an historic opportunity to put a stop to the UK’s shameful role as a hub of illicit finance and a facilitator of economic crime. This debate is testament to the support of the House for the Government’s going further in tackling money laundering and the illicit use of cryptocurrencies to enable crime.

I am sure the Minister has heard the arguments put forward today, and the motivations for doing so are so clear. Dirty money is a national security threat. It is the lifeblood of corruption, crime and war. Organised crime gangs profiteer from drug smuggling, people trafficking, arms dealing, fraud and environmental destruction. Parliament’s Intelligence and Security Committee has criticised Russian influence in the UK and frankly, as long as Putin and his friends have a safe haven in London, we do a disservice to the brave people of Ukraine, who are fighting with their lives to defend their country and our shared values of democracy and freedom.

Dirty money also causes massive financial damage. In 2020, the National Crime Agency found that money laundering causes at least £100 billion of economic damage to the UK. We have heard other estimates today. Spotlight on Corruption estimates that fraud, now the most commonly experienced crime in the UK, costs us £190 billion annually, hitting businesses and tax receipts and damaging public services. As my right hon. Friend the Member for Barking said, we will never secure sustained growth on the back of dirty money. Every one of us is a victim of economic crime.

Dirty money is damaging the UK’s reputation. The prevalence of economic crime jeopardises our status as a business destination of choice. The United States has designated us as “high risk” for money laundering, alongside Cyprus. That is embarrassing, frankly. Britain must not lose its status as a trusted jurisdiction. The warning signs are there and we need to act urgently.

Finally, dirty money undermines the rule of law and democratic institutions. It corrupts political and legal systems. Oligarchs are clogging up Britain’s already overburdened legal system with vexatious lawsuits to muzzle legitimate critics and whistleblowers. My hon. Friend the Member for Hornsey and Wood Green (Catherine West) made that point extremely well. Democracy, free speech and the rule of law are under threat.

We welcome the Bill. Our argument is not about what is in it, but what is not in it. There are aspects of the Bill that we will want to strengthen and to work with the Government on doing so. Let me lay out some of the areas on which we want to see further action, some of which have also been touched on today. Money launderers use complex financial structures such as shell companies and offshore tax havens to provide the secrecy that allows them to move, hide and spend their money. We must lift the cloak of anonymity that protects criminals and the corrupt.

We are pleased that the Bill begins to tackle the abuse of limited partnerships, including Scottish limited partnerships, by strengthening transparency requirements and enabling them to be deregistered. New research by Transparency International has revealed that more than one in ten limited liability partnerships ever incorporated—over 21,000—have characteristics identical to those used in serious financial crimes, such as bribery, embezzlement of public funds and sanctions evasion. We will review the detail of changes in Committee. Given the mass use of LLPs and other UK legal structures in large-scale money laundering, those networks are ideal platforms for a variety of clients looking to move dirty money.

On Companies House, the Bill is a huge step forward in improving the integrity of our register. That is important as we move from Companies House being a register to being more of a regulator. For far too long, fraudsters have obscured their identities behind shell companies, relying on a lack of verification of the information they submit. It is right that the Bill will make failure to comply with new ID regulations a criminal offence. The identity verification introduced by the Bill can finally begin to close that door, but it needs to be strong and we need further details about how the new powers will be used to close down those fraudulent companies already registered with Companies House.

Experts such as Graham Barrow suggest that there have been a huge number of bogus incorporations over the past decade alone, which will take significant effort and time to retrospectively verify. The Government have yet to clarify the period in which registered companies will be required to meet their new commitments, which, similarly to the Economic Crime (Transparency and Enforcement) Act 2022, will create a window in which those who have engaged in fraudulent activities can dissolve their entities or transfer interests. We do not want to see that happen. Has the Minister considered whether such verification should also be required to strike off and dissolve a company? That would help to prevent entities from dissolving and restructuring to avoid scrutiny under the new regime.

I urge the Minister to consider a mechanism by which parties affected by fraudulent entries—we have heard examples today—can apply to Companies House to have an entity or director struck off. They should not have to wait for Companies House to use its querying power, given the time that it takes. Public accountability is vital, so what plans does the Minister have for reports to Parliament on Companies House activity, which will bring public confidence?

Trust and company service providers are defined as being “of the highest risk” for money laundering by the National Crime Agency. A recent Treasury review found that HMRC, which is responsible for supervising TCSPs, continues to suffer from

“a lack of appropriate AML policies, control and procedures”.

The AML supervisory regime, including of TCSPs, is under review, but the further consultation promised by the Treasury in June is yet to be published. Until this broken supervision is fixed, how can we rely on such third-party agents to effectively act as the gatekeepers of our financial system? Under the Bill as introduced, they can be authorised to carry out ID verification as an alternative to Companies House. Crooks and kleptocrats already rely on these enabling professionals to build and maintain whole systems of shell companies. New measures in the Bill requiring third-party agents who form companies on behalf of someone else to register with Companies House and be registered in the UK with an anti-money laundering supervisor are long overdue. However, unscrupulous TCSPs will simply add ID verification and, potentially, falsification to their menu of law-busting schemes. That must not become a loophole in the legislation.

Could the Minister outline how the legislation will have sufficient teeth to prevent rogue actors from setting up shell companies for money laundering? The detail of verification checks is yet to be defined, but as drafted, third-party agents will simply be able to state that they have verified information on behalf of clients. Will the registrar have sufficient powers to review the documentation of “know your customer” checks if there are concerns?

There are concerns from stakeholders, such as Transparency International, that the Bill does not commit to verifying shareholder data, which could reduce the level of trust in the accuracy of that data. Concerns have also been raised about information sharing. While the measures in the Bill are a step forward, information-sharing measures appear to be reactive, rather than to proactively spot problem areas. This is a complex issue, and I am sure that there will be detailed discussion of it in Committee.

Extending current asset recovery provisions into the realm of cryptoassets is a welcome step forward, with cryptoassets increasingly used to launder the profits of crime and to support terrorism. On seizing and recovering cryptoassets, we will want to work with the Government to ensure that powers in the Bill extend to introducing sanctions on crypto-marketplaces that enable criminal activity. However, we are concerned, as the UK Anti-Corruption Coalition is, that to be effective, any new provisions regarding crypto money laundering and asset seizure need to be executed by a fully trained workforce. What is the Government’s economic crime people and skills strategy, and how is it changing in the light of the new threats we face?

Finally, I want to come back to a point raised by my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper) and others. We very much believe that there is a missed opportunity in this Bill, which is extending corporate criminal liability for economic crimes. The powers that exist under the Bribery Act 2010 and in relation to tax evasion could and should be extended to other economic crimes. The Secretary of State for Wales said this week that he considers a new failure to prevent offence for fraud “likely”. The Home Secretary said that the Government are looking at this, so why do they not just get on with it, and bring forward proposals or work with us on amendments to the legislation? I certainly believe, on the basis of the debate today, that there is support for such a move across the House, and we will continue to push for it.

There is much to welcome in this Bill, with long overdue powers for Companies House and law enforcement agencies, but those powers will make a real difference only if the Government provide the resources to use them—legislation with implementation, as the hon. Member for Thirsk and Malton said. We know that the Government committed £63 million in the 2021 spending review to Companies House, which was allocated for the transformation effort that, rightly, must take place. That is £63 million as against the billions that I have described economic crime as costing the UK each year.

The Government have included a new power to set Companies House incorporation fees. We know that the £12 cost of registration is the sixth lowest in the world, so what are the plans to resource those efforts? Does the Minister plan to increase the costs of incorporation to help pay for the effective operation of the new regime as part of the sustainable resourcing model, or to seek an increase in the economic crime levy, and what is the alternative? It would be helpful to understand that as the Bill goes on its passage through the House.

With the Bill’s complexity, it would not be possible to touch on all the issues involved, but I am grateful to have had the opportunity to wind up for the Opposition. We have the power in this country to lead change, and for the sake of our citizens, our children and the international community we must do so now.

Eleanor Laing Portrait Madam Deputy Speaker (Dame Eleanor Laing)
- View Speech - Hansard - - - Excerpts

I call, to make his debut at the Dispatch Box, Minister Dean Russell.

15:42
Dean Russell Portrait The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Dean Russell)
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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 Portrait Dean Russell
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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 Portrait Dean Russell
- Hansard - - - Excerpts

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 Portrait John Penrose
- Hansard - - - Excerpts

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 Portrait Dean Russell
- Hansard - - - Excerpts

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.

Eleanor Laing Portrait Madam Deputy Speaker (Dame Eleanor Laing)
- Hansard - - - Excerpts

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 Portrait Dean Russell
- Hansard - - - Excerpts

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 Portrait Seema Malhotra
- Hansard - - - Excerpts

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 Portrait Dean Russell
- Hansard - - - Excerpts

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.

Nigel Evans Portrait Mr Deputy Speaker (Mr Nigel Evans)
- Hansard - - - Excerpts

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)

The Committee consisted of the following Members:
Chairs: † Mr Laurence Robertson, Hannah Bardell, Julie Elliott, Sir Christopher Chope
† Anderson, Lee (Ashfield) (Con)
† Ansell, Caroline (Eastbourne) (Con)
† Byrne, Liam (Birmingham, Hodge Hill) (Lab)
† Crosbie, Virginia (Ynys Môn) (Con)
† Daly, James (Bury North) (Con)
† Doyle-Price, Jackie (Minister of State, Department for Business, Energy and Industrial Strategy)
† Hodge, Dame Margaret (Barking) (Lab)
† Huddleston, Nigel (Lord Commissioner of His Majesty's Treasury)
† Hughes, Eddie (Walsall North) (Con)
† Hunt, Jane (Loughborough) (Con)
† Kinnock, Stephen (Aberavon) (Lab)
† Malhotra, Seema (Feltham and Heston) (Lab/Co-op)
† Morden, Jessica (Newport East) (Lab)
† Newlands, Gavin (Paisley and Renfrewshire North) (SNP)
† Stevenson, Jane (Wolverhampton North East) (Con)
† Thewliss, Alison (Glasgow Central) (SNP)
Tugendhat, Tom (Minister for Security)
Kevin Maddison, Committee Clerk
† attended the Committee
Witnesses
Nick Van Benschoten, Director, International Illicit Finance, UK Finance
Gurpreet Manku, Deputy Director General and Director of Policy, British Private Equity and Venture Capital Association (BVCA)
Nigel Kirby, Head of the Financial Intelligence Unit (FIU), Lloyds Banking Group
Andy Gould, Detective Chief Superintendent and NPCC National Cyber Crime Programme Lead & Interpol Global Cybercrime Expert, National Police Chiefs’ Council
Arianna Trozze, PhD student, UCL researching detection and prosecution of cryptocurrency crime
Jonathan Hall KC, Independent Reviewer of Terrorism Legislation
Public Bill Committee
Tuesday 25 October 2022
(Morning)
[Mr Laurence Robertson in the Chair]
Economic Crime and Corporate Transparency Bill
09:30
None Portrait The Chair
- Hansard -

Good morning, everyone. We are sitting in public and our proceedings are being broadcast. I have a couple of preliminary announcements. Hansard colleagues will be grateful if Members could email their speaking notes to hansardnotes@parliament.uk and I remind everyone—including myself—to turn mobile phones to silent.

We will first consider the programme motion on the amendment paper, and then a motion to enable the reporting of written evidence for publication and the motion to allow us to deliberate in private—which will take only a minute or so—before the oral evidence session. I hope to take those motions formally.

Ordered,

That—

1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 25 October) meet—

(a) at 2.00 pm on Tuesday 25 October;

(b) at 11.30 am and 2.00 pm on Thursday 27 October;

(c) at 9.25 am and 2.00 pm on Tuesday 1 November;

(d) at 11.30 am and 2.00 pm on Thursday 3 November;

(e) at 9.25 am and 2.00 pm on Tuesday 8 November;

(f) at 9.25 am and 2.00 pm on Tuesday 15 November;

(g) at 11.30 am and 2.00 pm on Thursday 17 November;

(h) at 9.25 am and 2.00 pm on Tuesday 22 November;

(i) at 11.30 am and 2.00 pm on Thursday 24 November;

2. the Committee shall hear oral evidence in accordance with the following Table:

TABLE

Date

Time

Witness

Tuesday 25 October

Until no later than 10.10 am

UK Finance; British Private Equity & Venture Capital Association

Tuesday 25 October

Until no later than 10.30 am

Lloyds Bank

Tuesday 25 October

Until no later than 11.05 am

The National Police Chiefs Council; Arianna Trozze

Tuesday 25 October

Until no later than 11.25 am

Jonathan Hall KC, Independent Reviewer of Terrorism Legislation

Tuesday 25 October

Until no later than 2.30 pm

Companies House; National Economic Crime Centre (National Crime Agency)

Tuesday 25 October

Until no later than 3.00 pm

City of London Police; Serious Fraud Office; The National Police Chiefs Council

Tuesday 25 October

Until no later than 3.45 pm

Spotlight on Corruption; Global Coalition to Fight Financial Crime; UK Anti-Corruption Coalition

Tuesday 25 October

Until no later than 4.15 pm

Oliver Bullough; Bill Browder

Tuesday 25 October

Until no later than 4.45 pm

Professor John Heathershaw, University of Exeter; Chatham House

Thursday 27 October

Until no later than 12.00 noon

Centre for Financial Crime and Security Studies at RUSI; Transparency International

Thursday 27 October

Until no later than 12.30 pm

OpenCorporates; Elspeth Berry, Nottingham Law School

Thursday 27 October

Until no later than 1.00 pm

Graham Barrow

Thursday 27 October

Until no later than 2.20 pm

Institute of Chartered Accountants in England and Wales

Thursday 27 October

Until no later than 2.50 pm

The Chartered Governance Institute UK & Ireland; City of London Law Society

Thursday 27 October

Until no later than 3.10 pm

Catherine Belton

Thursday 27 October

Until no later than 3.30 pm

Professor Jason Sharman, University of Cambridge



3. proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 48; Schedule 1; Clauses 49 and 50; Schedule 2; Clauses 51 to 90; Schedule 3; Clauses 91 to 100; Schedule 4; Clauses 101 to 134; Schedule 5; Clauses 135 to 141; Schedule 6; Clause 142; Schedule 7; Clauses 143 to 153; Schedule 8; Clauses 154 to 162; new Clauses; new Schedules; remaining proceedings on the Bill;

4. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 29 November.—(Jackie Doyle-Price.)

None Portrait The Chair
- Hansard -

The Committee will proceed to line-by-line consideration of the Bill on Tuesday 1 November at 9.25 am.

Resolved,

That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Jackie Doyle-Price.)

None Portrait The Chair
- Hansard -

Copies of written evidence that the Committee receives will be made available in the Committee Room and will be circulated to Members by email.

Resolved,

That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Jackie Doyle-Price.)

09:27
The Committee deliberated in private.
Examination of Witnesses
Nick Van Benschoten and Gurpreet Manku gave evidence.
09:29
None Portrait The Chair
- Hansard -

We are now sitting in public. Good morning to our first witnesses. I am going to crack on straightaway, because the timetabling is tight this morning, but you are very welcome. Thank you for coming. I remind everyone we are now being broadcast. Do any Members need to make a declaration of interest? No. Witnesses, will you briefly introduce yourselves, please?

Nick Van Benschoten: My name is Nick Van Benschoten. I work at UK Finance, which is the voice of the UK’s banking and finance industry. I work in our economic crime policy unit.

Gurpreet Manku: I am Gurpreet Manku. I am the BVCA deputy director-general and director of policy. The BVCA is the representative body for private equity and venture capital in the UK. We look after the smallest venture capital firms investing in start-ups all the way through to growth capital and private equity firms offering across the UK and worldwide.

None Portrait The Chair
- Hansard -

Thank you. You are welcome. Given the time constraints, I will ask Members for short, snappy questions, so short, snappy answers will be very much appreciated. I start with the Opposition spokesman.

Seema Malhotra Portrait Seema Malhotra (Feltham and Heston) (Lab/Co-op)
- Hansard - - - Excerpts

Q I will put one brief question to each of the witnesses, as I know colleagues have other questions.

First, thank you for giving evidence. Nick, I am conscious of your perspective for the whole of the financial services sector and I want to ask a question specifically about data and information sharing: is enough happening in the Bill to deal with what has been described to me as the chilling factor of sharing information? What might come back in the consequences of promoting sharing?

Ms Manku, you gave evidence in which you described the “unintended consequences” of requiring limited partnerships to have a registered office. I am not sure that we would necessarily agree with that, so I am interested in your argument.

Nick Van Benschoten: We welcome the provisions in the Bill for private sector information sharing. We are very glad to see that they apply across the AML regulated sector—not just banking, but payments, crypto, e-money and so on—which allows us to follow the money and the data as criminals move across sectors to obscure their tracks. That is very welcome.

We also welcome the protection from breach of confidence. That can be in common law and, typically, in terms and conditions. It is important to be able to encourage people to do the right thing without the fear that they might be subject to litigation. However, we note that the Bill falls short in the way in which we can share information with the National Crime Agency, which is a disapplication of all civil litigation. We would like to explore whether we could go further in the Bill, but those provisions are very welcome.

I will not say too much. An expert colleagues from one of our member banks is speaking to you later, but I stress the fact that we want to encourage the use of information sharing as much as possible. It is not just where customers are exited, but where a restriction is placed on them, such as additional monitoring or thresholds—there are a lot of ways in which the banks put each other on notice. We want to encourage that use as much as possible in true cases of economic crime.

Gurpreet Manku: We welcome the provisions in the Bill to ensure that limited partnerships are not abused by criminals—I want to make that clear. On the point about having a registered office, we agree that there needs to be a service address in the UK for the delivery of documents and for the registrar to contact the organisation, but our concern is actually in reference to the legal meaning of “registered office” in the Companies Act 2006 when it comes to standard companies. We know that the term means something else in that context, so it is actually quite a knotty legal point rather than an objection to the principle of having a link to the UK.

It is just about ensuring that any existing arrangements that have been set up for legal and regulatory purposes for international funds structures remain intact. We will need to work through the process of what this means in practice. We were speaking to BEIS officials as soon as yesterday to talk through what it means in practice. This is more of an implementation point, and we have suggested edits that will come through to officials.

None Portrait The Chair
- Hansard -

Would you like to follow up, Seema?

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Quite a lot of people want to ask questions, so I will make further remarks later.

None Portrait The Chair
- Hansard -

Dame Margaret?

Margaret Hodge Portrait Dame Margaret Hodge (Barking) (Lab)
- Hansard - - - Excerpts

Q Gurpreet, your written evidence is very negative. At one point, it states:

“We do not think these proposed changes support the Bill’s central aim of reducing the use of limited partnerships for money-laundering, since criminal users of limited partnerships will simply ignore them.”

That suggests to me that we are not going far enough. We are aiming to catch the people who are guilty of economic crime. Attached to that, somehow I cannot see any investor wanting anything other than to know that they are putting their money into a kosher investment. Even if you are just a pension fund putting your money into a scheme, it does not seem a bad idea to check that the person behind it is legitimate and not a drug or people smuggler.

Gurpreet Manku: Absolutely. We agree with you that it is not in our interests to have our limited partnership fund structure abused by criminals for all those reasons. We believe that the introduction of annual confirmation statements, the requirement to have authorised corporate service providers register limited partnerships and the power for HMRC to obtain accounts will deter criminals and prevent them from using the vehicle—we hope that they have stopped using it now given that these reforms are finally going through Parliament.

On how those points link to the evidence you quoted specifically, which was actually about some niche requirements on passive investors in a limited partner- ship fund, a worry there is that those investors might be deterred from using the UK limited partnership structure because they feel that their liabilities are being increased, that they are being asked to do the job of management and that criminal sanctions are attached to that. That part of our evidence applied not to the Bill as a whole but to those specific areas.

Alison Thewliss Portrait Alison Thewliss (Glasgow Central) (SNP)
- Hansard - - - Excerpts

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

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

On the verification measures, one of the key points is that they fall short of minimum industry standards. Verification of identity is necessary but not sufficient. A key thing we have noted is that the Bill does not provide for order-making powers to allow Companies House to verify the status of directors or beneficial owners, and for that sort of requirement on company information agents and so on. That seems an odd gap. We understand that it may be a matter of phasing or resourcing, which can be dealt with in the implementation, but not if we do not have the order-making powers in the bill.

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

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

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

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

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

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

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

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

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

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

Jackie Doyle-Price Portrait The Minister of State, Department for Business, Energy and Industrial Strategy (Jackie Doyle-Price)
- Hansard - - - Excerpts

Q I want to come back to the question that Dame Margaret Hodge asked you, Gurpreet. I hear your point that some of the obligations may deter private equity investment, but through the legislation, we are making the positive statement that we are determined to improve standards of regulation, with a view to tackling crime, and are saying that this country will be safe place in which to invest. To what extent will the Bill be a deterrent? Do you have any evidence or have you made any calcuations on that? If so, which other centres do you expect will benefit from our introducing this system of regulation?

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q That is very helpful, but can I turn the question on its head? To what extent do you think these changes could make this country more attractive, given that we are making a very clear statement about the standards that we expect in these vehicles?

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 Portrait Liam Byrne (Birmingham, Hodge Hill) (Lab)
- Hansard - - - Excerpts

Q Nick, can I check two things that you said, which I think reveal some significant flaws in the Bill? First, I think you said that the verification regime proposed for Companies House is weaker than that for the regulated anti-money laundering sector. Is that the case?

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.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q Right, so we have a risk of a two-tier verification regime: one operated by Companies House and one gold-standard regime operated by the regulated AML sector.

The second thing I think you said is that the verification regime proposed in the Bill runs a risk of failing to establish those in actual economic control of a company. Is that true?

Nick Van Benschoten: There is always the risk, yes, but some of the shortfalls in the Bill can be addressed, and we think they should be, so that we can address the issues that you mention. In specific terms, some of the abuses are going to be abuses that the UK has suffered in the past; others will be abuses that we have seen happening overseas. The key thing is that the Government need to take a risk-based approach to measuring those. At the moment, the Bill does not allow Companies House to pick up some of those measures, including if we identify them in the future and want to remedy the regime.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q 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.

Nick Van Benschoten: I think they could be improved, yes.

Stephen Kinnock Portrait Stephen Kinnock (Aberavon) (Lab)
- Hansard - - - Excerpts

Q A couple of quick questions from me. First, on resourcing, the Bill puts a number of additional tasks, requirements and responsibilities on Companies House. How would you estimate the gap between where Companies House is now and where it would need to be if it were to properly implement and execute the Bill? Secondly, we have seen that a number of other jurisdictions—the Netherlands and Singapore in particular—have moved further and faster than the UK on data sharing. Do you think the Bill will bring us up to the gold standard for data sharing?

Nick Van Benschoten: Are you addressing the question to me?

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

To both of you, if you do not mind. It would be good to hear from both of you on both questions.

Nick Van Benschoten: My view is that, in terms of resourcing, there is a lot of new technology. Companies House is quite lucky that it can leapfrog using best practice. We have had a number of meetings with it. I think you may be hearing evidence from Graham Barrow later; we had a roundtable with Graham Barrow, Companies House and some other providers to try to explore this issue. Companies House is quite lucky in that it does not need to be a manual exercise: the goal is to get very much a minority manual review by humans, with the majority being technology and machine learning and so on.

That said, we also did a webinar with a number of data providers, including well-known companies that are looking at the size of the challenge and the opportunities. There is a big difference between quick wins and longer-term investment. Companies House already has a risk engine; it has data analytics already. It is just that its enforcement people, working as hard as they can, have their hands tied behind their back. I think there will be a lot of policy development, and work to implement not just the technology but the way that it interacts with the regime that it wants to set up. It is a challenge, because the short term is a burning platform.

Known patterns of abuse are identified every day. Also, a number of companies may be about to walk off with a lot of stolen public money through bounce back loan scheme fraud, and that is an area where Companies House may or may not have powers. Whatever powers the Bill gives need to be operated at speed. Sorry, that was a roundabout way to get to your question. There are short-term things it can do now, and there is a long-term thing; but it must make sure that it is dealing with the urgent as well as the transformative. We understand that the transformative exercise will take a long time, but there is also need for it to apply more tactical focus around the risks, especially in the short term. What was your second question? Sorry, I forgot it in my enthusiasm.

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

On data sharing.

Nick Van Benschoten: Each country has its own threats and problems. Singapore’s COSMIC database addresses particular exposures and problems that it has with trade-based money laundering. The UK is in a different place in that market, but we have our own problems. In terms of data-sharing, one of the key things we would like is for Companies House to enable permissioned access to the regulated sector. We have a lot of problems that are not so much in high-end corporate, but in the retail customer base. We have money mules for fraud, we have a lot of spoof companies enabling purchase and investment scams. Trying to work out where exactly the needle is in the haystack is difficult when we do not all have access to the same data.

Companies House seems to be facing a binary choice: either it is public, or it is only for the public sector. There does not seem to be a middle ground that works on a need-to-know basis, where you have an obligation to apply money laundering checks and to have careful, need-to-know handling procedures and anti-tipping off and so on, and where that information is available for the purposes of safeguarding your customer and maintaining the integrity of the market. From a UK perspective, that is definitely something that we would support. We also think it might allow us to develop something equivalent for our own risks, as the Singaporeans and other countries have done.

Gurpreet Manku: We have focused on the limited partnerships provisions in the Bill, but in principle we would support Companies House being appropriately resourced to implement all these changes effectively. I have no objections to data-sharing with relevant authorities. Our investment community operates across the globe, so we are used to this type of activity in other jurisdictions.

None Portrait The Chair
- Hansard -

Perhaps two quick final questions. Alison, you wanted to come back.

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q It is interesting that in this sitting, we have got rather contradictory evidence. On the one hand, you, Nick, are saying that we are not getting enough information on the basics, such as identity checks, and that we need information about more people; on the other, Gurpreet, you are saying that there is too much data, and it will damage business formation and prosperity. I wanted to give you the opportunity to think again, particularly you, Gurpreet. Have you got any figures? In your evidence, you say that you have to set up a tertiary body somehow. Is that just your guess? I think Alison Thewliss will agree that all our evidence is that the structures we are dicussing are among the most abused, and have facilitated more money laundering and economic crime than almost anything else. If we do not sort this out, it will just add to our problem, rather than enabling us to do what the Minister wants.

None Portrait The Chair
- Hansard -

May I ask for a brief answer?

Gurpreet Manku: We are commenting on different parts of the Bill. On the limited partnerships part, we think that a number of the new provisions being introduced will deal with the issues you have outlined. To reiterate, we are really unhappy and shocked to see the amount of abuse of this fund structure, because it has been in place for decades and is used for legitimate purposes on our side.

When you read the paper cold, you are right—it does look quite negative; we probably should have reinforced our support for the provisions that will work. Sometimes we have a tendency to go into the detail and start thinking about how things will be implemented in practice. We want to ensure that we use the tools and implement the most effective measures in the Bill. If there are other points that, on balance, would not necessarily help with the overall aim of the Bill, perhaps we should look at whether they need to be implemented.

None Portrait The Chair
- Hansard -

Q Nick, would you like to come in very briefly?

Nick Van Benschoten: I would just say that we support the application of the Companies House powers to all the entities registered at Companies House. Companies House needs risk-based querying powers and to be able to follow the data and the money. My earlier comments also apply to the point about limited partnerships and verification by trust company service providers; we need a much more cautious approach to the reliability of that service.

None Portrait The Chair
- Hansard -

I call Seema for what is probably the last question.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q I want to come back to where I started and to pick up on the evidence given about regulated and unregulated sectors. Obviously, there are issues in banks and the financial sector, but we have not talked much about cryptocurrency or other areas such as gambling, where there may be flows of illicit finance—cash and so on. Do you think that more needs to be done about unregulated sectors? Does the perimeter need to be extended? What relationships are there between economic crime in the financial sector and that in other sectors?

Nick Van Benschoten: From a financial sector point of view, it is important to look at this as an ecosystem; that is definitely how the criminals look at it. They look for weak points. Sometimes the problems are upstream of the financial sector, but it crystallises in our sector because that is when people realise that the money has gone out of their accounts.

We are very supportive of the fraud provisions in the Online Safety Bill—we think they are critical. We also think it critical that everyone be incentivised to play their part. That includes potential issues around the scope of the economic crime levy, which applied only to the AML regulated sector. The Bill levels up powers for the cryptoasset seizures and freezing orders. That is welcome; it simplifies things. We work with crypto sector associations. They are now trying to realise that they are part of a regulated sector, and they want to be part of the gatekeeper community.

On what the Bill does, it is important, as I mentioned, that there be information sharing across sectors. That is key, because then we can see whether we all have a different piece of the puzzle to put together. A systems approach is definitely needed; that is maybe the context for our point that Companies House should really be an enabling hub. That includes giving access to information that may not be on the public register.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q If this legislation is to be as effective as it needs to be, will there need to be dependencies on other legislation?

Nick Van Benschoten: That is a very good point, yes. There are also the information processing provisions on the identification, prevention and detection of economic crime in the Data Protection and Digital Information Bill, as well as the Online Safety Bill. Obviously, consultation is ongoing about a statutory APP or authorised push payments code. There may also be other vehicles in one of those bits of legislation, or this one, for other measures that we are currently discussing with the Government. I think the Minister made reference to our difficulty with having to process payments within a set period—there is a hard regulatory obligation, even when we have identified economic crime risks. We are still exploring whether that needs guidance or legislation. All these things need to come together if we are to design the right ecosystem. That then raises the question of who is leading the system. We are working on that with the Government.

None Portrait The Chair
- Hansard -

We have less than one minute. Ms Manku, do you want to make a few final comments?

Gurpreet Manku: We are glad that these provisions are being implemented. We have been working on them since 2018, and stand ready to work with officials to ensure that they are implemented effectively to meet the Bill’s overall goals.

None Portrait The Chair
- Hansard -

That was good timing. I thank the witnesses for coming to see us and for their answers.

Examination of Witness

Nigel Kirby gave evidence.

10:04
None Portrait The Chair
- Hansard -

Thank you for joining us, Mr Kirby. We have until 10.35 am. Would you briefly introduce yourself, please?

Nigel Kirby: Good morning to the Chair and the Committee. I am currently the head of the group financial intelligence unit at Lloyds Banking Group. Across the industry, I am a representative on UK Finance’s information and intelligence committee and, for full transparency, as part of that I was deputy director of the economic crime command of the National Crime Agency.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q It is good to have you here, Mr Kirby. Could you give us a little flavour of the kinds of trends and patterns of economic crime that you are seeing? How are criminals behaving? Are you seeing new trends domestically and internationally?

Nigel Kirby: Perhaps I can give a couple of the examples that we used when we were speaking with the Home Office for the formation of the Bill. In one case that involved money laundering, Lloyds identified seven customers that were receiving cash payments into their accounts. We linked those seven customers because they used the same fraudulent documentation—a gas bill—to set up their accounts. They had all been linked using fraudulent IDs. They were sending money to one individual in another bank.

At the moment, we act on such cases by meeting our statutory obligations—we exited those customers—but from the criminal’s perspective, the second bank is not aware of the fact that they are receiving those funds, because we do not have the capability to share that information with them. Secondly, it is highly likely that those seven customers moved on to other banks and continued that activity because, again, at the moment we have no capability to share the information about our economic crime concerns in that space.

That is a fairly simple example, but to build on it, the same kinds of techniques were used to launder criminal funds in another case involving three companies that were banking with us. We recognised that they were receiving cash money from the same post office source. They were also receiving money from other companies in banks. That money all got consolidated and was sent out to, if you like, a fifth bank. I do not know what happened to it after that—we cannot see.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q A fifth bank domestically or internationally?

Nigel Kirby: It was, at that particular point, a UK domestic bank, yes. We have this sort of complexity of companies that are linked using different identities and are moving money around, layering it in the system, and sending it to other parts of the system. We are currently limited in what we are able to do.

On those three companies that we at Lloyds could see were receiving money from five other banks, at the time we could not inform those banks of our concerns or explore with them whether that money was legitimate—it is not all illegitimate; it could, of course be legitimate funding. Furthermore, when that money was consolidated and sent to another bank, we were unable to inform that bank.

Whatever the predicate crime—there are all sorts of predicate crimes—the layering is not that complex but it uses the banking system, across the banking system, to obfuscate and layer the funds, and then the criminals move on. The big challenge at the moment is that we can report those entities and companies, but they will just go and open up in another high street bank, and when they have exhausted the five major high street banks, they will go to the challenger banks, and when they have exhausted those, they will go to the fintechs. We are not aware of that in the way that other industries such as the motor industry might well be.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q That is extremely helpful. To follow up, will the measures in the Bill go far enough to enable the critical data sharing and the ability to inform other banks of what you think is important? In doing that and in going as far as you feel is needed, are appropriate safeguards in place for some things that may be legitimate finance and able to be explained by visitors or customers?

Nigel Kirby: To take the first question first—about whether the Bill goes far enough—I commend and compliment the Home Office. It worked with us on the Bill. This piece of legislation was, fortunately, done by the Home Office but using our case examples. The Home Office explored whether the Bill would work with the scenarios we gave them. That helped the information provisions to be pretty much in the right place. There is one key omission from our perspective; I can come back to that, if helpful. There is also one key dependency in another Bill—

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q Sorry, what is the omission?

Nigel Kirby: The omission was referred to by Nick Van Benschoten: the civil liability protection. In the UK, we have real trust and confidence built up in voluntary information sharing with the National Crime Agency under section 7 of the Crime and Courts Act 2013. That has been the basis of our voluntary sharing, and we have built confidence in it over seven years.

The legislation has two limbs to civil liability protection—I will have to read my notes to make sure I do not make a mistake. The first limb is

“an obligation of confidence owed by the person making the disclosure”—

that limb is also included in this Bill. The second limb that we rely on is

“any other restriction on the disclosure of information (however imposed)”—

that limb is not included in the Bill.

Our position is that the Bill should align with the existing legislation that we are comfortable with. We would have more comfort in sharing and be more incentivised to share if we had the same protections as we have when we share with the National Crime Agency. The further observation is that there is not just one precedent; another piece of legislation, the Criminal Finances Act 2017—under section 11, I think—had sharing provisions with the purpose, in effect, of bringing better disclosures to the NCA. It had exactly the same two civil liability limbs, written in the same way. We believe that the second limb would be hugely helpful in doing things.

You might want to come back, but the other dependency that is key for us is that the Bill is drafted as an interlink with the GDPR, as you well know. That is wise, and one of the protections—that it has that link with the GDPR—but because the Bill has that interlink, the provisions in the GDPR are really important. I am aware that there is a draft Bill that has not yet been laid before Parliament and, again, we—my colleagues in UK Finance—have worked on that Bill. Absolutely key for us in the draft Bill is a legitimate interest for sharing, because that Bill sets out legitimate interests.

At the moment, the GDPR cites only fraud as a legitimate interest, and no other crimes. To be able to make the measure in this Bill work, we need the revised GDPR to have the “prevention, investigation” and “detection” of crime—what the GDPR says at the moment—to be for all crime as a key part, so we can make the interlink. Otherwise, we are restricted only to fraud, but do not include wider economic crime.

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

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

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

Jackie Doyle-Price Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q I want to come back to the issue of GDPR, if I may. The whole ethos sitting behind the GDPR legislation is to defend the subject that the information is about. As you just highlighted, that feels really incompatible with having information sharing for the purposes of combating crime. I just want a better feel from you of how much of a barrier that will be. Is it a barrier or is it tying our hands behind our back to use the issues in the Bill? How much more do we have to challenge the ethos behind GDPR for us to build a system that is fit for purpose?

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q That is very helpful. It feels to me that we have got to a position with GDPR where the practical implementation has gone beyond that safeguarding, actually, but we could tackle this by, perhaps, a much fuller statement and guidance about how we expect people to respect the protections but also the obligations that exist in terms of tackling crime.

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q That has been really helpful on the information. I think that a slight amendment to what we are doing would help the GDPR issue.

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—

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q So you think SARs are okay.

Nigel Kirby: Just to be very clear, I am here from Lloyds Banking Group; I will answer this question from my former role at the NCA—from that perspective. SARs do have huge value in what they do; the idea that they just go to a box and are not used is not entirely correct. One of the things the UK has done with SARs, which is world leading and others are quite jealous of, is that they are accessible to a wide range of investigators. It is not about following each one up. There is a database. A wide range of financial investigators can see them and they are held there for six years, as legislation allows. So there is a huge use there.

Also, Dame Margaret, we need to think about this. There is the SARs regime and there is the SARs reform work that is being led; investment is going to be put forward there. I would suggest that we need to see what differences the SARs reform makes first.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q Okay, I hear that. I have one final thing to ask. Looking at your background, I see that you have spent a lot of time in the public enforcement realm. From that experience, and looking at the Bill today, do you think that there are any glaring gaps that we ought to be reflecting on?

Nigel Kirby: Reflecting back and particularly focusing on this area, as I am sure you do, we need to build and are building on the public-private relationships we have had. One Member mentioned Singapore and Holland, but actually, from the perspective of a private-public partnership, how we operate together and particularly the joint money laundering intelligence taskforce, we are seen as world-leading in that space. There is something there about building on that as we move forward and bringing in other sectors, which I know the NCA does. In this particular space, the enablers, as they are sometimes referred to—the telcos, the ISPs, the social media companies—being brought into that public-private partnership and building on what we have is important.

The Bill brings forward private-private relationships, and I think that is important. Hitherto, the information-sharing provisions have all relied on the NCA gateways. There is a throttle there, in terms of capacity. Widening that out so that private-private can share and be the frontline, in many ways, to help to prevent and detect is an important way forward.

Broadening out, there are a couple of elements in the legislation that we need to look at. For us, one is about friction in the system. We have a very quick payment system in the UK; when you pay, you press the button and off it goes. That is something we have got used to as a public and as a banking industry. It is unhelpful when you are looking to put legitimate targeted friction into a system to temporarily stop what I will call economic crime, because it is not just fraud, although it includes that.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q So crypto is a bad thing, is it? It goes very quick. There is no friction.

Nigel Kirby: Respectfully, I think that is a different question.

You asked me to put my other hat on, Dame Margaret. Looking at the scale of fraud—you know, you have got it here; you are familiar with it—and the number of victims and the cost to the UK, it is time for the UK and those with the power to do so to either think about fraud as a strategic policing requirement or, going even further, ask whether it is now a national security threat. I do not just mean with that label—that is really important. You can put a label on these things, but if it could be classed as a national security threat and have the available resources brought together from our national agencies and national policing, that might have a greater impact for the public.

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

Q Thank you, Mr Kirby. You have used terms such as “world-leading” and spoken quite positively about what is happening in the UK. I have to say, as an interested observer, it does not look like that to me. London has generally become known as the laundromat for dirty money, particularly from Russian oligarchs and others. Money laundering prosecutions have dropped by 35% over the past five years in the UK. In March 2022, the budget of the NCA’s international corruption unit was cut by 13.5% to £4.3 million, leaving corruption investigators massively outgunned by the oligarchs.

I have two questions. First, I am trying to understand why you have this sense of optimism, because it looks like a pretty dire situation to me. Our enforcement agencies have been starved of the resources and capabilities they need. Secondly, you have had a long career in the NCA and in enforcement; I am sure you are still in touch with some of your former colleagues. If you had to define the resources they need, what extra would they need to be able to turn this situation around? It would be great to hear from you on that.

Nigel Kirby: For clarity, I used “world-leading” specifically in reference to private-public partnerships and what we are doing for voluntary information sharing. Look at the joint money laundering intelligence taskforce and the facts in that space: it has supported 950 investigations that have led directly to 280 arrests, with £86 million secured. There are some hard figures around here that are different. When I was in law enforcement, we had law enforcement from other countries coming to ask how we did it, including Singapore and Holland. I am in the private sector now, and we have private sector colleagues coming to ask us how do we do that part. That is just a part of the ecosystem that is important—

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

Point taken.

Nigel Kirby: If I misled you or you took it that way, that was not intended.

On your question about if I were still there, I am sure that Graeme Biggar, the DG of NCA, will have plans for what that could look like. When I was there, we certainly put forward evidence-based propositions such as, “If there were x amount of funding, these are the extra capabilities we could bring and this is the impact we believe it could have.” I am afraid my contacts are not close enough now to know the detail of that.

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

Q Very diplomatically put. Would you agree that the Bill will not be worth the paper it is written on if the enforcement agencies are not properly resourced to do the job?

Nigel Kirby: I fully agree that we need enforcement to be properly resourced with the right capabilities to be able to deliver what it is asked to do.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q Just to crystallise this, in your first answer, you described quite a simple layering exercise of money moving through five different banks, and you said that was a difficult problem to stop. Does this Bill help us stop that problem that you just described?

Nigel Kirby: Well, it does not stop that in the UK because our financial system launderers are in there, but what we can do is to prevent them from continuing to abuse the financial system. Take the example I gave with the five other banks—four were sending money—that were involved with Lloyds. The Bill will allow us to have a conversation with the four banks that were sending money into our companies, and to say “In relation to our responsibility for understanding due diligence, money laundering and so on, can we share information on those four companies so we can better understand those flows from those companies?” That is important, because some of them may have been legitimate and some may have been illegitimate, but that will help us to define the good from the bad in that particular space. It will also act as an alert trigger for those other four banks to have a look if they have not done so already.

An intelligence-led approach would say, “Lloyds has a concern about these four companies” and it could look further into the matter and do an investigation into its own relationship with its customer. The other element on all that money that came through to us—it was in the millions—that went out to a fifth bank, which I will call bank F, is that we could alert that bank about our money laundering concerns, provided we had exited those three companies, which we did. If that bank had not already picked it up with its transaction monitoring, it would have an intelligence-led trigger to be able to do its own investigations, and to stop that and report it to the authorities.

The final and important part of this is the indirect part—we call it the utility. The ability to better share this information for others is important because. If all those companies were exited out of the financial system by the five banks involved, it is highly likely that they would go on and open up accounts with other banks. This Bill gives us the opportunity to be alerted to that and to take the appropriate action and due diligence that we need.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q The second problem that is often described by banks to me is that they have to spread their compliance resource very thinly across a large customer base, rather than focusing it on a smaller group where they suspect there is more harm at work. Is that a scenario you recognise, and does this Bill help you focus compliance resource on the potential high-harm customers who we should be worried about?

Nigel Kirby: It is an important point in terms of focusing on risk. We are having a conversation at the moment in industry with law enforcement and a regulator about how we can define where the high priorities are and how we can focus our resources on them, while meeting regulatory requirements and the law enforcement perspective. It would be helpful—we refer to it as dial up, down down—in terms of resource to be able to move to a space where our voluntary discretionary resource could be targeted in exactly the way you suggest, because there is a lot of voluntary discretionary resource in this space.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q But this Bill does not help you in that squaring of the circle.

Nigel Kirby: Not in the sense of prioritising what the highest threats are and where we should be. That is to the best of my knowledge. Just for clarity, I am not familiar with every aspect of the Bill.

None Portrait The Chair
- Hansard -

We have literally one minute.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

Q I have a question about automatic strike-off procedures for companies that may have bank accounts with you and where that company may have been involved in economic crime and then is automatically struck off. Do you have concerns about that process and whether there should be reform?

Nigel Kirby: I think, with respect, that “automatic strike-off procedures” are your words, not mine. I used the fact of us taking an approach and considering whether to exit—that might be a similar thing—a customer. We take this really seriously. We look to understand whether we have economic crime concerns about those consumers. There is a range of things that we can do in that space. The ultimate one is about exit. We would exit that relationship, which is contractual, so we are able to do that. But there are other things that we do, and one is actually to speak to the customer and understand that transaction. We see some unusual transactions, but we have a conversation.

Seema Malhotra Portrait Seema Malhotra
- Hansard - - - Excerpts

It is more about Companies House automatic strike-off—but they might be your customers.

None Portrait The Chair
- Hansard -

Order. I am terribly sorry; we do have to leave it there. I must cut it off on the dot. Mr Kirby, thank you very much for joining us.

Examination of Witnesses

Andy Gould and Arianna Trozze gave evidence.

10:36
None Portrait The Chair
- Hansard -

We will kick off. You are very welcome, witnesses. Thank you for joining us. Would you be so kind as to briefly introduce yourselves and your positions?

Arianna Trozze: Hello everyone. My name is Arianna Trozze, and I am a PhD researcher at University College London. I look at detecting and prosecuting financial crime involving cryptoassets, and for the past year I have also been advising the Home Office on a part-time basis on technical aspects involving cryptoassets in relation to this Bill.

Andy Gould: Morning. My name is Andrew Gould. I am a detective chief superintendent with the City of London police. My job is to run the cyber-crime programme for the National Police Chiefs’ Council, which is focused on building capacity and capability across policing.

None Portrait The Chair
- Hansard -

Thank you. We will go straight into questioning.

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

Q Thank you very much. First of all, I have a question for you, Mr Gould. The national fraud policing strategy states that the police’s response to fraud is delivered by local forces, but capability across those forces varies widely. It mentions the regional organised crime units being very limited in their capacity. Do you think that that situation has improved since 2019, when the report was published, and could you say a bit about what extra resources the ROCUs need?

Andy Gould: Sure. Fraud is not really my area of responsibility—I am focused very much on computer misuse act offending—but yes. I know there has been significant additional resource put into the ROCUs for fraud in the last couple of years. Is there enough capacity to meet the demand? Probably not. What policing probably needs to do is take a slightly different approach. Rather than trying to investigate those volume crime offences, it should focus more on those organised crime groups or individuals that are doing the most harm. That is the kind of pivot that policing is trying to make, in terms of being more proactive. I know Commander Adams is giving evidence this afternoon, and he will be able to tell you more about that.

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

Q Thank you. I have a question on cryptoassets. Do you think, broadly speaking, that the enforcement agencies have the expertise that they need to deal with the economic crime dimensions of the cryptoassets issue?

Andy Gould: Yes, I do. I think we have got the capability, but what we lack is capacity. The capability we have got today does not necessarily mean we will be able to maintain that capability tomorrow. We have invested, through the national cyber-security strategy and the programme through Government. We have got about an extra £100 million that has been invested over the last four years or so, building capability across policing. Some of that money we have effectively taken into crypto, so that cyber money is being used to cross-subsidise wider policing. We have created what we describe as cryptocurrency tactical advisers across the whole of policing. There are now officers in every force and every regional organised crime unit who are trained and equipped to do that. We have nationally procured the investigative tools to enable them to progress the investigations, and we have a national storage platform to store that once we have seized it.

We are in a position where we have actually seized hundreds of millions of pounds worth of cryptocurrency assets within the last year or so. The challenge we have is that it is getting harder and harder to do. The assets themselves are becoming more diverse and more technically complex, so our officers are in a bit of an arms race trying to keep up.

On the tools that we use, you might have one supplier that is brilliant on Bitcoin but not so good on another asset class, so we need more than one investigative tool to be able to investigate effectively. That is very expensive. One of the providers is currently quoting $60,000 to $80,000 per licence. That is unachievable, or unsustainable, for policing. We need to procure nationally for everybody, so we have an 80% discount on our current investigative tool, taking that approach.

The big worry for me at the moment is not just the technology changes and whether we will be able to maintain that level of resourcing and expand the capacity across policing; we have created a real staff retention problem. Because crypto is an emerging market, some of the best expertise and understanding of crypto in the UK sits within policing. 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.

Stephen Kinnock Portrait Stephen Kinnock
- Hansard - - - Excerpts

Q Thank you. Ms Trozze, I know that you are a specialist on crypto, so would you like to add anything to that?

Arianna Trozze: I would echo Andy’s point about the difficulty of tracing certain cryptoassets and investigating certain chains and things like that, and how this is evolving rapidly in competition with the existing providers and the blockchain services themselves. It gets more and more difficult to investigate as time goes on. You need more and more capacity building and investigative tools. At the same time, the crypto companies and the blockchain companies are seeking to develop their technologies in ways that will evade that detection, so it is a constant race between the two sides to be able to effectively investigate and prosecute these crimes.

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

Arianna Trozze: One of the key ways that legislation can future-proof itself in the face of this rapidly developing technology is via the definitions. I think that the definition of cryptoasset in the Economic Crime and Corporate Transparency Bill is sufficient to do that. Probably most importantly, the inclusion of cryptographically secured contractual rights means that the definition will cover smart contracts, which is really the technology that underpins all the major advances in the space of, for example, decentralised finance and non-fungible tokens that have taken place, and that we expect to continue to develop in the coming years. Furthermore, the ability to amend those definitions via secondary legislation is clearly a positive, because in the event that something slips through the cracks and develops in a way that we cannot anticipate, it will make it more efficient to change them.

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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

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

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

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

That is okay. No problem.

Jackie Doyle-Price Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q When we talk about things like cryptoassets, it is difficult for lay people like me—I am sure I am not alone—to envisage what exactly we are talking about. I recognise some of the operational sensitivities under which you are working, but would it be possible for you to give us an illustration of how cryptoassets have been used to disguise this activity?

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 Portrait Jackie Doyle-Price
- Hansard - - - Excerpts

Q It is really the complexity that is the barrier, is it not? The actual use of cryptoassets of itself brings an additional complexity, so it is clearly an ideal tool for those who are up to no good.

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 Portrait Liam Byrne
- Hansard - - - Excerpts

Q Is cyber-crime and cryptocurrency-based crime growing quickly?

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.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q What is the criminal structure in this market? Is it teenage hackers in their bedroom or sophisticated organised crime groups?

Andy Gould: It is both. There is a real mixture. You can have your sophisticated organised crime groups, with some of those having a bit of a crossover with hostile state actors, which makes that more complex to manage. You therefore have a lot of overseas threat at the higher end, but during the pandemic we also saw a shift of mainstream, traditional—if that is the right way of describing them—UK-based criminals moving into cyber-crime, because a lot of the tools are readily available on the internet and are quite easy to use.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q You just said that some of those organised crime groups have connections to hostile states—presumably such as North Korea, Iran and Russia.

Andy Gould: Yes, that is right.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q So is there now a blurring of a national security threat and economic crime?

Andy Gould: Yes, definitely.

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

Q And are we investing enough in tackling that kind of crime?

Andy Gould: I think that a lot more has been invested. I think—

Liam Byrne Portrait Liam Byrne
- Hansard - - - Excerpts

That was not the question. Are we investing enough?

Andy Gould: Well, as a police officer, I will always say that you are never investing enough.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

Q Lots of us are trying to get our brains around this. I had a session yesterday with a whole load of people in the crypto industry who tried to convince me that there is actually better transparency because it is open—you can go in and see it—and there ought to be a way in which, with the right algorithms, you could follow the money more easily than in other ways. Is that true? Were they conning me, or is that vaguely true?

Andy Gould: No, there is definitely an element of truth in that. If you have a public blockchain, you can see where it is moving, and that is very open—Bitcoin is the most obvious open public blockchain and the most popular crypto. However, that does not mean that you necessarily know who it is that starts and finishes. That is the issue, and with a lot of the different criminal services available, it is becoming harder and harder to manage. It is becoming more tricky. So, the answer to your question is probably yes and no.

Margaret Hodge Portrait Dame Margaret Hodge
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Q We welcome the Minister’s attempts to start bringing this into a regulatory framework. However, looking at the other aspects of money laundering and economic crime, the so-called enablers are often the bad guys. In this world, those who establish a new form for crypto are presumably the ones who, if they are not properly regulated and supervised, could create a system for facilitating economic crime, fraud and money laundering. I do not think that we have proposals in here, really, for the supervision and regulation, have we? Are those badly missing?

Andy Gould: The Financial Conduct Authority has taken on regulatory powers in this space. I am not an expert in that area, but that is looking pretty promising. A lot of UK-based entities that were offering those services are no longer able to do so, so there has definitely been a clean-up of the market in that space, which is positive.

The challenge is that international regulation, and a lot of the recent work we have seen in that space, has driven a lot of overseas exchanges and providers, which might have been operating in a bit of a grey space, shall we say, to suddenly look to become more legitimate and comply because they want to come into the mainstream financial system. I would use the analogy that the tide is going out on a lot of the more criminal providers. They are effectively being left as “clearly not engaging, clearly criminal”, and a lot of those that may be operating in the grey space in international jurisdictions are becoming more and more legitimate as they clean up their acts.

Margaret Hodge Portrait Dame Margaret Hodge
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Q This is really Liam’s question, but, because it is digital, the answer must be global, must it not?

Andy Gould: Absolutely, yes.

Margaret Hodge Portrait Dame Margaret Hodge
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Q And that is really hard.

Andy Gould: Yes.

Seema Malhotra Portrait Seema Malhotra
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Q I want to follow up on what you were saying about how you can follow the flows, but you do not always know who is sending and who is receiving. I want to understand a bit more about crypto accounts. I understand that you do not need an account in order to make a transaction, but if you do have an account you can see who is making transactions. Is there more that can—or needs to—be done to say that everybody must have an account? Is that practical and how could it happen? Secondly, what is the current level of identification and verification checks when setting up a crypto account, and what level should there be?

Andy Gould: The average member of the public using cryptocurrency will probably be using an account through one of the legitimate exchanges. They will go through the whole “know your customer” process that they would go through for a bank. Regulation pretty much covers that; I think we are in a good place with it. It is the criminal exchanges and criminal service providers that regulation would not affect. You would not be able to build an infrastructure that stops them being able to create their own wallets, as you could for those accounts with what are effectively crypto banks.

Arianna Trozze: There has been research that some of the KYC processes, especially in some of the higher-risk exchanges, are quite easy to fool with fake documents and other such things. There are companies serving UK customers that are still not registered with the FCA and do not meet its KYC or AML requirements, despite its best efforts. For example, none of the Bitcoin ATMs operating in the UK is registered with the FCA, even though they are supposed to be, and they tend to have quite lax KYC requirements. They may require you to put in a phone number. Some of them have more requirements, but whether it is a rigorous process remains in question.

Seema Malhotra Portrait Seema Malhotra
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Q What more could be done about that?

Arianna Trozze: In my view, the only thing would be more enforcement efforts against non-compliant companies. I do not know how practical that is, or what kinds of resources there are to address the problem, but to me the only way forward is to make sure that those companies and operators know that it is not acceptable to be working and serving UK customers without a licence.

Seema Malhotra Portrait Seema Malhotra
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Q What are the consequences for them if they do that?

Andy Gould: I think the FCA has prosecution powers and enforcement and regulatory options, but I could not say what it is doing about that.

Seema Malhotra Portrait Seema Malhotra
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Q Do you know if there are cases where it has used those powers?

Andy Gould: I do not know. They only came in earlier this year, so I would be surprised if the FCA has got to the stage where it is able to exercise them in terms of investigation.