Economic Crime and Corporate Transparency Bill
Thursday 11th May 2023
(11 months, 3 weeks ago)
Grand CommitteeEconomic Crime and Corporate Transparency Act 2023 View all Economic Crime and Corporate Transparency Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: HL Bill 96-VII Seventh marshalled list for Grand Committee - (9 May 2023)
Lord Coaker
“Compensation for victims of economic crime
(1) The Secretary of State must, within the period of 180 days beginning with the day on which this Act is passed, publish and lay before Parliament a strategy for the potential establishment of a fund for the compensation of victims of economic crime.(2) Any such fund must comprise the proceeds of property recovered under the Proceeds of Crime Act 2002 in relation to economic crime.”Member’s explanatory statement
This new Clause would require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime within 180 days of this Act being passed.
Lord Coaker (Lab)
Good afternoon, everyone. I want to make just a few remarks on my Amendment 106D, which is obviously a probing amendment seeking some information on the Government’s thinking with respect to compensation for victims of economic crime. The proposed new clause to be inserted by this amendment would require the Government to prepare and publish a wide-ranging strategy on efforts to ensure that the necessary financial compensation is made available to victims of economic crime, wherever they may be. This could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could also be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regime around the world. As I say, the proposed new clause would provide a mechanism for compensating victims of economic crime in the UK, including thousands of British victims of online scams every year. That briefly sets out the purpose of my Amendment 106D.
I thought it might also be helpful to the Committee for me to read into the record from the Government’s Fraud Strategy. As the Minister will know, it is dated May 2023; it does not state the day so I do not know whether there is a later version but that is where we are. I want to do so in case the Committee has not had an opportunity to read the report. I have not read all of it—I have just dipped into it for the purposes of this amendment—but it is quite staggering when you read the statistics. I will quote the report; I hope that the Committee will bear with me because it is important for those who read our proceedings, as many people do, to see the facts as laid out by the Government.
The report—the Government’s own words—states:
“In the year ending December 2022, 1 in 15 adults were victims of fraud. 18% of those victimised became victims more than once. The sums of money involved are staggering. The total cost to society of fraud against individuals in England and Wales was estimated to be at least £6.8 billion in 2019-20. This includes the money lost by victims, the cost of caring for victims, and the costs of recovery, investigation and prosecution of fraudsters”.
It continues:
“In the year ending March 2021, Action Fraud received victim reports totalling a loss of £2.35 billion … There is also considerable cost to business and enterprise. UK Finance, the trade body for the banking and finance industry, reported that in 2021 its members lost over £1.3 billion to fraud”.
The figures just go on. Clearly, this is a huge problem, as all of us recognise.
Can the Minister outline something for us? Among all the points made in the strategy, I could not find anything concrete and specific with regard to compensation. It would be helpful if the Minister could spell out the current arrangements on compensation for victims of fraud. Given the scale of the problem, which the Government have helpfully just published in their Fraud Strategy, what are their proposals in respect of compensating individuals? I know from speaking to Members of the Committee here and many people, including friends and family, that the cost to individuals is immense. It is not just a financial cost but an emotional one; I know that the Minister understands that. It is important for us to know the answers to these questions.
The other point is what the current rules on compensation are, how much someone could expect to get back, what the Government propose to improve that situation, and the perennial question we keep coming back to: how that will be made real.
I found paragraph 7, on page 4 of the strategy, particularly interesting. The Government say:
“We will ensure victims of fraud are reimbursed and supported”.
Again, we go back to previous questions: does that mean under the current reimbursement regime, or are the Government proposing a new one? How will people be “supported”?
I think the noble Lord, Lord Agnew, will be particularly interested in the next sentence, the first part of which says:
“We will … Change the law so that more victims of fraud will get their money back”.
Where in the Bill before us is this change to the law so that more victims of fraud will get their money back? It may well be in here. I am not trying to trip anyone up; I just could not find it myself. It would be helpful if the Minister could point out where it is. If it is not in the Bill, where will that change in the law be put, when is it coming and what change do the Government propose?
The second part says that the Government will:
“Overhaul and streamline fraud communications so that people know how to protect themselves from fraud and how to report it”.
Again, how will the Government “overhaul” and “streamline” those communications? Added to that, how do people know what their rights are and—a question we keep coming back to—how does an individual citizen take on a bank, financial institution or whoever to assert the rights that the Government say they will give them to get compensation back for the money they have lost through fraud? Those are really important questions.
I will stop there. I could go on and on repeating the same thing in different words, but I think the Minister gets the nub of what I am saying, and I think the Committee would be interested to hear the Government’s views, as well as those of other Members of the Committee. With that, I beg to move Amendment 106D.
The Lord Bishop of St Albans
I am sorry I have been unable to engage more fully and consistently with this Bill, but this amendment prompted me to come here when I had a few minutes. I was recently speaking to someone I met at a social gathering. In the course of the evening, we were talking about a whole range of things, and he was talking about the fact that he had been defrauded of some money and how it is now materially affecting his retirement. His comment was: “I feel so embarrassed, because I’ve always tended to think it was simple people who didn’t understand financial matters who were likely to lose money. I’m highly literate, I’ve done all the right things, but I’ve been defrauded”. This is having a big effect.
Also, as we are becoming increasingly cashless and more and more transactions are online—it looks like that will be the trajectory for quite some while—there is far more potential for these sorts of frauds. For example, I note that fraud on lost and stolen cards had increased by 30% by 2022 and card ID theft, where a criminal opens or takes over a card account, had almost doubled in the previous year. In other words, this crime is getting worse.
It is in everybody’s interests that we encourage people to use what is, for most of us, a great convenience being able to pay with our cards—but we need to make sure that people have confidence. The statistic that the noble Lord, Lord Coaker, gave us—that one in 15 adults has been a victim—is particularly interesting. In other words, it is now widely assumed among groups of ordinary people chatting that this is a very real problem. There is a good side to that—hopefully, we are being far more cautious and savvy—but, nevertheless, that will not encourage people to invest and use some of the financial services that we might hope they will as they plan their retirements.
I just want to add my words of encouragement and ask the Government whether they can give us some idea about whether this amendment, or something similar, might be a way forward. It would give people confidence if they knew that there was clear and simple way to find redress when they were a victim of fraud. Also, could this be built on in some way, not least because the proceeds of property recovered under this future Act could then be directed towards compensation?
Lord Fox (LD)
My Lords, I thank the noble Lord, Lord Coaker, and the right reverend Prelate the Bishop of St Albans for their words. I am not going to try to add to the issue of individuals; instead, I note that we should remember that this also involves businesses. The Home Office survey said that one-fifth of businesses have been hit by fraud. Such fraud can be existential to those businesses—at the very least, it is a tax on growth because money that is stolen is not reinvested in that business—so this matters.
In earlier debates, we have talked about the other side of this: stemming the cause of fraud. We have talked about the failure to report as well as the facilitation issue. The Government seem much more interested in picking up on the failure to report side than on the facilitation side. I ask the Minister to go back and find a middle way between what was being proposed by the noble Baroness, Lady Morgan, and her committee and what we have now, which is nothing—that is, to find some sort of code of conduct with teeth that starts to address the facilitation issue. It is through facilitation that this fraud is happening, in many cases. At the same time as addressing questions about compensation, we must go back and find effective ways of preventing this happening.
With noble Lords’ indulgence, I will slightly broaden the scope of my speech because, over the course of the last day or so—since we debated this issue—the United States has repatriated seized assets to Ukraine. Can the Minister ask his officials to have a look at how that was achieved? Which international laws were used to facilitate that repatriation? In previous Committee debates, we have discussed freezing and seizing, so it would be very useful for your Lordships to know more about this before we get to Report; it is an issue that we remained concerned about. Although I realise that the United States is a different legal domain, it sits in the same international climate of law. Therefore, it would very much help our deliberations if the Minister was able to talk to the department’s officials and get some sort of readback as to how this seizure and repatriation to Ukraine was achieved.
Otherwise, Amendment 106D is a good way of trying to find out where the Government sit on compensation, although I would open it up to include business compensation as well. Perhaps there are also issues around the insurance industry that the Government should be thinking about.
The Parliamentary Under-Secretary of State for Migration and Borders (Lord Sharpe of Epsom) (Con)
My Lords, I thank the noble Lord, Lord Coaker, for this amendment. Of course, the Government take the compensation of victims of economic crime very seriously, as it is crucial for limiting the harm of these ruthless crimes.
The noble Lord referred to the fraud strategy. I will come back to that in a second. Of course, the object of that exercise, as well as going after stolen money, is to prevent it happening in the first place. So this has to be considered in the round. These are obviously anti-crime measures, as well as enforcement and mitigation measures.
I completely agree with the noble Lord, Lord Fox: fraud is an attack on growth and we should bear in that in mind. Fraud and the reimbursement of fraud, as we know, costs the banks many billions a year already under the existing arrangements, which I will come back to. Clearly, somebody has to pay for that and it is not easy for society to bear, never mind the banks themselves.
Asset recovery powers under the Proceeds of Crime Act 2002 already provide the court with the ability to prioritise the payment of compensation orders to victims. We have had extensive conversations on all manner of asset seizures and reimbursements, including on the Ukraine question, to which the noble Lord, Lord Fox, just referred. I have absolutely no doubt that those conversations will continue. We are looking at the situation that he described, which developed, as I understand it, overnight. I do not know the details—we will find out.
The Government are legislating, through the Financial Service and Markets Bill, to remove any regulatory barriers to the Payment Systems Regulator making reimbursement mandatory for victims defrauded through the faster payments system. We are therefore already taking active steps to improve compensation routes and consider that there are already means of redress available.
Having said that, I also point to the fraud strategy, which the noble Lord, Lord Coaker, referred to. There is only one relatively small paragraph on this but if he goes to page 24, he will see that the City of London Police
“are also working with the private sector on a limited pilot to explore whether civil debt recovery and other powers can recover more of victims’ money. As this pilot develops, we will review whether there are further civil enforcement powers that could be applied to fraud”.
I will come back to that in more detail, obviously, but clearly it is very much at the pilot stage at the moment. That is explicit in the text. But the interests of victims are being actively considered via the fraud strategy. Again, there is more to be said on that, which I will do shortly.
As I have said before in Grand Committee, victims’ interests are at the heart of the new powers introduced by Part 4 of the Bill, which will allow applications for stolen crypto assets or funds in accounts to be released to victims at any stage of civil forfeiture proceedings. This will ameliorate the negative impacts of criminal conduct, including economic crime.
More widely, and I have referred to this from the Dispatch Box in the Chamber, victims need to have the confidence and trust to come forward to report fraud and to know that their case will be dealt with. That is why we are providing £30 million to the City of London Police to upgrade Action Fraud, which, as noble Lords will know, has not been widely applauded in this House. The new service will use the latest technology to drastically improve reporting and support for victims and provide far greater intelligence to policing, which will allow greater prevention and disruption at scale. The upgrade is already happening. It will be fully operational in 2024 and we are implementing consistent support for victims across England and Wales by expanding the National Economic Crime Victim Care Unit, to which I have also referred.
Where there are overseas victims in bribery, corruption and economic crime cases, the Serious Fraud Office, Crown Prosecution Service and National Crime Agency compensation principles have committed law enforcement bodies to ensuring that compensation is considered in every relevant case, and to using whatever available legal mechanisms to secure it where appropriate.
The Government are also fully committed to utilising suitable means to return the proceeds of corruption to their prior legitimate owner and/or to compensate victims, in line with international obligations under the UN Convention against Corruption. This is set out in detail in the Government’s Framework for Transparent and Accountable Asset Return.
Of course, the private sector also has responsibility for the protection of its customers, and we are increasing that further. Victims of unauthorised fraud, where payment has been taken without the victim’s permission, are already reimbursed by payment service providers. The contingent reimbursement model code has improved the reimbursement by payment service providers of victims of authorised fraud where a fraudster has manipulated the victim into approving the payment.
On the subject of PSPs, the right reverend Prelate made a good point about consumers becoming more savvy. I recently read in a briefing—I cannot remember whether it comes from the Fraud Strategy or some other current initiative—about the level of information sharing by PSPs, which will enable potential victims to identify the platforms that tend to be the most used. If they can be appropriately savvy when looking at those platforms and, perhaps, a little more suspicious and questioning, that will help enormously in stopping this happening in the first instance. I will come back with more detail on that, because I cannot quite remember under which regime that sits.
On the contingent reimbursement model, in 2021, £583 million was lost to APP scams. According to UK Finance data, the faster payment system was used in 97% of APP scams by volume in 2021. Under the contingent reimbursement model code, which is the voluntary scam reimbursement code signed by several major banks, the level of reimbursement is just over 50% of total APP scam losses for those signatory firms. Following PSR action, we expect that consumers will be reimbursed more consistently and comprehensively.
I realise that there is a lot more work to do on this. Clearly, the picture is fast evolving, as I am sure all noble Lords would acknowledge. There is clear intent on the part of the Government to make sure that victims are front and centre in the current regimes and all future planning. With that, I hope that the noble Lord, Lord Coaker, feels reassured and able to withdraw his amendment.
Lord Coaker (Lab)
I thank the Minister for that response. I am somewhat reassured, because I believe he has his own personal commitment to this. However, as with many amendments that we have discussed here, you get the feeling that it needs a bit of a boost a surge of urgency.
There is clearly a lot of good will and a lot of good government policy. There is nothing in particular wrong with the Fraud Strategy, which has some really good stuff in it, but the example that the Minister gave from page 24, which was perfectly reasonable, is a pilot. It does not say, “We will change the law”, but “we will review” what the pilot tells us, whereas, if you go back to the much stronger commitment at the beginning of the Fraud Strategy, it gives you some expectation that something will happen. It does not say, “We will review” but “We will ensure”—which is the sort of language that people want to hear—that
“victims of fraud are reimbursed and supported”.
It does not say, “We will review the law” but
“We will … Change the law so that more victims of fraud will get their money back”.
I get what the Minister said—that it is a pilot and a review, which is good—but a pilot and a review is not the same as what is promised in paragraph 7 on page 4 of the Fraud Strategy. We are talking about colossal sums of money and, as the right reverend Prelate the Bishop of St Albans pointed out to us, people are embarrassed; large numbers do not know what their rights are under the current law and cannot get their money back. That is the reality. The simple question for the Government, who I am sure want to improve it—there is no doubt about that—is: what five practical things will it mean? We cannot change the past, but we could do something about the future.
I also take the Minister’s point that this is about prevention, too. I absolutely accept that; we need double authentication and so on. I thank the right reverend Prelate the Bishop of St Albans for his support and helpful comments in this short but important debate. I also thank the noble Lord, Lord Fox, for reminding us that businesses and enterprises are also subject to fraudulent activity and that this is about them too. That was an important point to make.
To conclude, I thank the Minister for his response but ask him to speak to his department about how we get that surge of energy into the Bill and make what the Fraud Strategy says a reality so that we make a real difference. With that, I beg leave to withdraw my amendment.
Baroness Kramer
“Register of beneficial ownership: freeports
Each Freeport Governance Body required—(a) to undertake reasonable efforts to verify the beneficial owner of businesses operating within the Freeport tax site, and(b) to make this information available to the Commissioners for His Majesty’s Revenue and Customs, law enforcement agencies and other public bodiesmust also register this information with the registrar for public inspection.”Member’s explanatory statement
This amendment would require governing bodies of freeports to make the information they are required to collect about beneficial ownership of companies operating within the freeport available to the public.
Baroness Kramer (LD)
My Lords, I have two amendments in this group. The first addresses freeports. I think even the Government recognise that freeports are catnip to criminals and money launderers. We discussed the issue pretty extensively in relation to the National Insurance Contributions Bill, the piece of legislation prior to this which gave an opportunity to discuss freeports. The Government made it clear that they were very conscious that there were potential issues of criminality around freeports that we had to take exceedingly seriously. I am glad of that, but I have still been waiting for replies to help me understand what kinds of actions will be taken to minimise that risk.
Since that period of discussion, we know that at least one of the major freeports will be under the Dubai Ports World regime, which already has ownership of major docks in London. Its various purchases of port facilities around the world have typically been very controversial. Of course, the most recent controversy in the UK occurred when Dubai ports summarily fired 800 British-based sailors, I think by Zoom, to replace them with much cheaper agency staff. The law has since been changed to ensure that there cannot be a repetition of this kind of behaviour.
I would make the point that the kind of people who are attracted to freeports tend to be those who absolutely push the law to the limit, even when they do not go beyond it. We have so many examples from around the world where the players in various different freeports have gone well beyond it. Again, I do not want to spend time on this because we did so on the National Insurance Contributions Bill, but because there are no customs declarations, customs inspections or tax-related declarations in freeports, the normal mechanisms that provide data and direct monitoring and enforcement agencies are simply not available.
My understanding from what we have been told by the Government and which we have certainly read is that the entities that own freeports are to make a reasonable effort to identify the beneficial owners of facilities within their port complex and, in effect, make a register of that to pass on to enforcement agencies. Nowhere is that in statute, so the first two paragraphs of this amendment would put that into primary legislation.
More important is the third part of the amendment, which is that that register should be available “for public inspection”. In all the debates and discussions on Companies House and the British regime for cleaning up business in every kind of way, going back to George Osborne, we have heard that transparency is important: that the sunlight of a public register enables not just enforcement agencies to see what is happening within the complex world of foreign ownership but civic groups, people with an interest and a much wider population—a phrase I sometimes use in relation to whistleblowing is a citizens’ army—to look in and therefore be much more effective in countering abuse and misuse.
As I asked in the national insurance contributions debate: why is the register that is going to be put together for freeports not to be made public? If I understood the answer that I got, it was, “Oh, this will all be dealt with when we get to Companies House legislation”. Well, here we are: that economic crime Bill 2, with Companies House at the heart of it, but I cannot see anything that deals with making that register of beneficial owners in freeports public, nor can I understand that anyone going to Companies House and searching through the information would in any easy way be able to extract from that whether the various declarations of beneficial ownership were from companies that were engaged in freeports in any way—it did not seem that that was a required part of any of the discussion. I would really like the Government to bring us up to date on this and, because they recognise that there are real risks both of criminality and of money laundering, to have some answers. I hope that they have re-examined their determination not to make public the register that will be held and will explain to us why. We are dealing with Companies House legislation, so the answer cannot be, “Just wait for that”.
Baroness Bennett of Manor Castle (GP)
My Lords, I apologise to the noble Baroness, Lady Kramer, because I would certainly have attached my name to these two amendments had I been able to get my head sufficiently above the parapet in the face of the barrage of legislation that your Lordships’ House currently faces. They are terribly important amendments, as was highlighted yesterday in the other place in Prime Minister’s Questions, when the Prime Minister in response to a question about what is happening on Teesside said:
“Contracts at the site will be a commercial matter for the companies involved”.—[Official Report, Commons, 10/5/23; col. 334.]
There is great public concern about what is happening on Teesside, and it is at the moment extremely opaque.
I shall concentrate mostly on freeports, because, as the noble Baroness said, investment zones are such a “fluffy” area that is very hard to grasp on to it. As to what we know about freeports and what is happening, a lot of the questions are being asked by the independent media and the civil society organisations referred to by the noble Baroness. I would point anyone who is interested to an excellent, 44-page report from the Byelines Network that was put out by local journalists from around the country in areas directly affected. It does a great job of examining some of the issues, but butting up again and again against commercial confidentiality and lack of recording. One of those reports notes that in 2020, the Royal United Services Institute Centre for Financial Crime and Security Studies submitted evidence to the International Trade Committee saying that
“there is evidence of criminal activity taking place in multiple freeports around the world. It often involves trade in counterfeit goods, drug trafficking, smuggling of untaxed goods or trade-based money laundering”.
If we were to think of something that is essential to the purposes of the economic crime Bill now before us, shining the light, opening the doors and being able to see what is happening would clearly be it. What we are talking about with freeports are huge concessions from the Government. As the noble Baroness, Lady Kramer, said, they include freedom from all kinds of usual customs controls, but also stamp duty land tax relief, enhanced structures and building allowance, enhanced capital allowances, employer national insurance contributions relief, and business rates relief and retention. Those are huge concessions. Surely it would only be absolutely fair and reasonable to demand full transparency about who is responsible and who is making those decisions.
It is very evident that there is great public concern. This is one way that the Bill or some other mechanism—I directly put the question, “If not this Bill, where else?”, to the Minister—will make sure of what will happen if we create these structures. The reason why people are so suspicious about this seems to go back to an uncredited blog from 2010 on the website of a right-wing lobbying group, the TaxPayers’ Alliance, which raised the idea of charter cities. People are very suspicious. Surely the Government would want to dispel some of those suspicions by ensuring that there is absolute transparency and openness.
Lord Agnew of Oulton (Con)
My Lords, I rise because I hope that I might be able to provide some help to my noble friend the Minister, as this is obviously not his area of expertise; this is at the Companies House end.
Right at the beginning of Committee, I tabled Amendment 44. Its explanatory statement says:
“This amendment mandates companies to disclose whether their shareholders are acting as nominees. Nominee shareholders protect the identity of the beneficiary of the shareholding. This measure will help mitigate the risk of abuse through nominee shareholders. Failure to comply would incur a penalty”.
Last night, I met the Minister, my noble friend Lord Johnson, who indicated to me that the Government were sympathetic to this approach. I do not want to put words into his mouth, as he is not here now, but I suggest to the Minister, my noble friend Lord Sharpe, that he talks to my noble friend Lord Johnson to see whether there is any way that we could look at this; that would deal with the specific concern raised by the noble Baroness, Lady Kramer, in relation to freeports.
Lord Coaker (Lab)
I was not going to say very much but I have been provoked by what the noble Baroness, Lady Bennett, and the noble Lord, Lord Agnew, have said.
I very much support the thrust of what the noble Baroness, Lady Kramer, said. One wonders why transparency is such a difficult notion for the Government. I suspect that the Minister will send up smoke by saying that we are all in favour of freeports, that they are a great way of generating employment, and so on. It is certainly what I would say if I were him—that freeports are a great thing for creating jobs and that we should not stand in the way of free enterprise, which is developing enterprise zones in some of the most difficult and challenging areas in the country. However, this is not about that—it is about transparency and knowing how this is funded—so I hope that the Minister does not send up smoke. The issue is transparency; the noble Baroness, Lady Kramer, was right to point that out.
I will not repeat the list from the noble Baroness, Lady Bennett, of concessions and allowances made to ensure that businesses can operate—perhaps in an area that they would not operate in—as that is something for the Minister to discuss.
On what the noble Lord, Lord Agnew, said, has the Minister had discussions with the noble Lord, Lord Johnson? Is it right that the Government are considering some concessions? Is that what the Minister is going to tell us—that he is going to go away and talk to the noble Lord, Lord Johnson, about what we have just been informed about? Is there hope for this amendment or will the Minister just reject it? Is it something that we will hear more about as we go to Report? Will we get a government amendment on transparency around this issue, if not from the Minister then from the noble Lord, Lord Johnson?
With those questions, I will listen to the Minister with care.
Lord Sharpe of Epsom (Con)
I thank the four noble Lords who have spoken in this debate. I also thank the noble Baroness, Lady Kramer, for her Amendments 106EC and 106ED. Amendment 106EC would require an overseas entity to apply for registration in the register of overseas entities if it is operating in a freeport. Amendment 106ED would require an overseas entity to apply for registration in the register of overseas entities if it is operating in an investment zone tax site. I thank the noble Lord, Lord Coaker, for his eloquent support for freeports.
Lord Coaker (Lab)
Can I clarify that I was saying what I thought the Minister would say, not what I think?
Lord Sharpe of Epsom (Con)
It was spot on so I suspect that the noble Lord has nobbled my notes at some point.
The economic merits of and progress in delivering freeports and investment zones remain at the heart of the Government’s levelling-up agenda, and good progress is being made. However, that is not quite within the scope of this Bill, so I will focus on the core points raised in relation to corporate transparency and illicit finance. I will endeavour to answer the questions asked of me while noting, as my noble friend Lord Agnew has, that this is not necessarily my specialist subject.
Turning first to Amendment 106EC, I am assured that, throughout the bidding prospectus and subsequent business case processes, freeports were required to set out how they will manage the risk of illicit activity. I will go into this in some detail because it is important and, as I am not a specialist in this subject, I asked for extra detail. These plans were approved by officials in the Border Force, HMRC, the NCA and other relevant crime prevention bodies, including the Home Office, the police, the Department for Transport and DLUHC.
At business case stages, freeports are required to commit to further requirements to mitigate risk. That includes commitments to the OECD’s code of conduct for clean free trade zones and they were required to establish robust local governance structures in place to monitor risk and ensure effective co-operation between relevant bodies with remits to prevent illicit activity. In most cases, that included most of the bodies I have already referenced—the police, NCA, and so on. Those plans were approved by officials who have responsibility for security and preventing illicit activity across government, and they are also required to carry out an annual audit of security each year to ensure that these structures remain effective and the risk mitigations remain robust and relevant. These audits will be reviewed by the Government annually.
Freeport status in no way undermines or weakens existing port security arrangements. Special customs status, which has been noted, builds on, rather than radically departs from, facilitations available elsewhere in the UK, and is available only on specific customs sites within the wider freeport footprint. These are secure sites administered by a specially authorised customs site operator—CSO. CSOs are required to obtain AEO or equivalent authorisation from HMRC, an international gold standard for safety and security, and remain subject to robust ongoing oversight from HMRC. Freeport customs sites therefore uphold the UK’s high standards on security and preventing illicit activity and should not be conflated with some entirely different international free trade zones.
I hope I have been clear that the Government require each freeport governance body to undertake reasonable efforts to verify the beneficial ownership of businesses operating within the freeport tax site. As I have said, freeports uphold the UK’s high standards on security, safety, workers’ rights, data protection, biosecurity, tax avoidance and evasion, and the environment. They are subject to the same legislation and regulation to protect them as the rest of the country. To impose additional requirements on businesses investing in freeport tax sites would directly undermine the objective of freeports: to facilitate investment and regenerate some of the most deprived areas of the UK. The Government therefore do not think it is proportionate to impose this additional cost and administrative burden on freeports compared to elsewhere in the UK, which would also risk acting as a disadvantage for bringing in investment.
I turn to investment zones. The Chancellor announced in the Autumn Statement that the investment zones programme was being refocused to catalyse the development of clusters in areas in need of levelling up in order to boost productivity, growth and jobs. At the Spring Budget, the Government announced eight areas in England that it had identified to co-develop an investment zone proposal with the Government, with a view to agreeing proposals by the end of the year, subject to requirements being met. The Government will work with these places to co-develop proposals, ensuring that the same high standards that are required for freeport tax sites are met for any investment zone tax sites designated.
Given the early stages of policy development on investment zones, it is too early to set out the governance arrangements in any detail. However, I am clear that businesses within investment zone tax sites will need to comply with the same laws and high standards regarding transparency as any other business investing in the UK. I am also afraid that both amendments would duplicate existing requirements on UK-registered businesses. If a business in either a freeport or an investment zone, once established, is a UK-registered company, it is already bound by the requirements to report its people with significant control to Companies House. This information is publicly available on the Companies House register.
It would also partially duplicate the requirements of the register of overseas entities. Any overseas entity owning, buying or leasing land or property in a freeport or an investment zone, once established, would be required to give information about their beneficial owners to Companies House. This information is also available to the public and would help law enforcement track down those abusing freeports for money laundering or other nefarious purposes. In both cases, all information held by Companies House is available to law enforcement, even information which is not publicly available; for example, the information about trusts.
I also draw noble Lords’ attention to the far-reaching impact of the amendments, which refer to “businesses operating” in free ports and zones. A “business” goes beyond companies and similar corporate entities and includes, for example, sole traders; “operating” is also an imprecise term. Let us imagine a truck of goods arriving at a freeport: the amendment would require the freeport governance board to determine the beneficial ownership of the haulage company owning the truck as well as the beneficial ownership of every business whose goods are being carried on that truck. One company may own the truck and another the trailer, both are caught. Under this scenario, even the delivery driver bringing sandwiches to the businesses located in the zone would be impacted by the amendment. I am sure that was not the noble Baroness’s intention and she will say that it could be improved at the drafting stage, but it is worth pointing that out.
Baroness Kramer (LD)
My Lords, I suspect your Lordships will guess that I am not terribly happy. I will be perfectly happy if the Government go away and clean up my drafting; I do not pretend to be at all expert at it. The kind of niggles that the Minister identified could, I am sure, be dealt with extremely efficiently and quickly by his team.
The Minister raised an issue that we have heard about before: the cost of having a transparent register. However, if all this data is being gathered anyway, the cost of putting it into a public format is de minimis. We are not asking for the collection of all kinds of additional information; we are asking for transparency on the information that the Government keep saying they are definitely going to collect anyway. It is the public’s ability to view it that matters.
Can the Minister help me with one issue? He said that, actually, one can see all this just by going to Companies House. That is not the feedback I have had from officials, although I accept that my understanding could have been wrong. They said that, when you look at the register in Companies House, you will never know where to begin because you have to have a name to start with in order to track down the company; of course, you do not know the name. If the Minister can help me through that process, that would be extremely helpful. Will he also publish his advice? Civil society groups all over the world are keen to be able to carry out these activities but, so far as I can gather, they are currently completely befuddled. They do not know about the access that the Minister implied is present so, if he could do that, I would be grateful. Further, if he looks at this issue and finds out that, actually, this does not work and outsiders cannot get a look at the system, will he go back and look at providing transparency?
I base this point on policies from the Minister’s own Government—at least, from George Osborne’s time as Chancellor—in that transparency is thought to be absolutely crucial as a key pillar of cleaning up the complex, difficult world of financial services, which always has such potential for corruption because of the amount of money that is available in abusing the system. I beg leave to withdraw the amendment.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment is consequential on new clause (Fraud offences: supplementary) and ensures that the requirement that regulations under the Bill must be made by statutory instrument only applies to regulations made by the Secretary of State.
Lord Sharpe of Epsom (Con)
My Lords, these government amendments concern commencement and cut across several clauses. Amendments 106F, 106H and 107A are consequential on the regulation-making powers introduced by the new clause headed, “Fraud offences: supplementary”, which is one of the Government’s new clauses introducing a failure to prevent fraud offence. Amendments 106G and 107B, and the proposed new clauses to be inserted by Amendments 109 and 110, replace Clause 191 with a new commencement clause and a separate transitional provision clause. The clauses are being separated into two to make the commencement provisions easier to follow and avoid having one long and complex commencement provision.
They include a number of small, technical changes to ensure that the commencement provisions in the Bill work as effectively as possible and bring the devolution aspects of the commencement powers into line with previous similar legislation. They also bring into force, on Royal Assent, procedures in the Bill about the codes of practice which will govern the strengthened information order powers. This will ensure that those powers can quickly start to be used. Certain money laundering reporting measures are also being commenced on Royal Assent: the exemption for “exiting and paying away” and the new defence against failure to report, which we debated earlier in Committee. That will give certainty to businesses about their reporting duties as soon as the Bill is passed.
I hope noble Lords will support these amendments. I beg to move.
Lord Fox (LD)
My Lords, I will speak very briefly—I am sure the Minister will be glad to know that. I am intrigued by Amendment 109 because it complicates the process of bringing the Bill into being quite a lot. There are a lot of moving parts set out in Amendments 109 and 110 for the Bill to start to be effective. The simple question is: from start to finish—from Royal Assent to when everything is working and all parts are moving—what is the Government’s estimate as to long it will take to fulfil all the steps set out in these amendments?
Baroness Blake of Leeds (Lab)
I too will speak very briefly. I note the comments about consultation with devolved authorities. Given concerns about the extent of consultation in other areas, can the Minister reassure us that it is adequate, and deemed adequate by the devolved authorities? That is a clear theme running through some of the legislation.
We have discussed—we will revisit it, I am sure—the issue of failure to prevent and the specific mention of large organisations. We understand that keeping it to large organisations will not capture a broad enough spectrum of the businesses that we are covering. Having said that, I recognise that this is a tidying-up exercise. With further amendments we might revisit some of the issues at a future stage, but I would be grateful if the Minister could respond to those comments.
Lord Sharpe of Epsom (Con)
I thank noble Lords for their brief comments. In answer to the noble Lord, Lord Fox, about when the powers in the Bill will be brought into force, obviously I speak with authority only for the Home Office measures in the Bill. Certain measures in the Bill that are necessary to issue codes of practice will come into force on the day of Royal Assent, as will some of the money laundering reporting measures that we discussed previously in Committee. It is our intention for some of the remaining measures to be brought into force in autumn. This is subject to obtaining Royal Assent before summer.
The operalisation of these powers is a priority for the Government and our law enforcement partners. That is why we have taken steps to provide pre-commencement consultation for a number of measures in the Bill, to facilitate it coming into force as early as practically possible.
Some of the Companies House reforms will require consequential changes, including secondary legislation and guidance. Certain reforms, such as identity verification, will also require system development following Royal Assent. Some changes will be implemented almost immediately but others will take longer. We cannot commit to precise dates at present but work on implementing the measures is already under way at Companies House. Companies House is an executive agency of the Department for Business and Trade and there are various governance mechanisms to hold the agency to account on those reforms.
As I mentioned previously, these amendments are technical. They are designed to ensure that the Bill is effective and to make changes following amendments debated previously in Committee.
Before I wind up, I thank all noble Lords for their participation in the Committee, in particular the Front Benches. It has been a lively, extremely interesting and well-informed Committee. It will certainly improve the Bill over the course of its passage through Parliament. I thank my officials for the constructive spirit in which they have engaged with all interested Peers. From a personal point of view, I also thank them for guiding me through some fairly tricky questions. I hope that noble Lords are satisfied with the amendments.
Lord Sharpe of Epsom (Con)
My profuse apologies to the noble Baroness, Lady Blake. I am assured that all discussions have taken place with the devolved Administrations and that they are all content with it.
Lord Sharpe of Epsom
“(2A) For regulations made under this Act by the Scottish Ministers, see section 27 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10) (Scottish statutory instruments).(2B) Any power of the Department of Justice in Northern Ireland to make regulations under this Act is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This amendment is about the classification of certain instruments made by the Scottish Ministers or the Department of Justice in Northern Ireland.
“(ea) regulations made by the Secretary of State under section (Fraud offences: supplementary) (1);(eb) regulations under section (Section (Failure to prevent fraud): large organisations) (5) or (6);”Member’s explanatory statement
This amendment provides for regulations under the specified powers to be subject to affirmative procedure.
“(4A) But subsection (4) does not apply to a statutory instrument that only contains regulations appointing the appointed day for the purposes of section 51.”Member’s explanatory statement
This amendment ensures that the regulation-making power to specify an appointed day for the purposes of Clause 51 is not subject to any procedural requirements since it is similar to a commencement power.
“(4A) Regulations made by the Scottish Ministers under section (Fraud offences: supplementary) (1) are subject to the affirmative procedure (see section 29 of the Interpretation and Legislative Reform (Scotland) Act 2010 (asp 10)).(4B) Regulations made by the Department of Justice in Northern Ireland under section (Fraud offences: supplementary) (1) may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the Northern Ireland Assembly.”Member’s explanatory statement
This amendment is consequential on new clause (Fraud offences: supplementary), which confers new powers to make regulations on the Scottish Ministers and the Northern Ireland Department.
Member’s explanatory statement
This amendment is consequential on the amendments in the name of Lord Sharpe of Epsom that leave out Clause 191 and insert new Clauses in relation to commencement and transitional provision.
Lord Sharpe of Epsom
“Commencement
(1) Except as provided by subsections (2) to (5), this Act comes into force on such day as the Secretary of State may by regulations made by statutory instrument appoint.(2) The following come into force on the day on which this Act is passed—(a) this Part;(b) any provision of, or amendment made by, Parts 1 to 5 so far as it confers a power to make regulations or relates to the exercise of the power;(c) paragraph 1 of Schedule 7 so far as it inserts section 303Z25 into the Proceeds of Crime Act 2002;(d) paragraph 16 of Schedule 7 so far as it relates to that section;(e) section 168 so far as it relates to the provisions mentioned in paragraphs (c) and (d);(f) section 170;(g) section (Money laundering: offences of failing to disclose);(h) section 172(12) and (13);(i) section 173(13) and (14).(3) Section 187 comes into force at the end of the period of 2 months beginning with the day on which this Act is passed.(4) The following come into force (so far as not brought into force by subsection (2)(b)) on such day as the Scottish Ministers may by regulations appoint after consulting the Secretary of State—(a) Part 2 of Schedule 6, and(b) section 167 so far as it relates to that Part.(5) The following come into force (so far as not brought into force by subsection (2)(b)) on such day as the Department of Justice in Northern Ireland may by order appoint after consulting the Secretary of State—(a) Part 3 of Schedule 6, and(b) section 167 so far as it relates to that Part.(6) No regulations may be made under subsection (1) bringing into force any of the following provisions, so far as they extend to Scotland, unless the Secretary of State has consulted the Scottish Ministers—(a) Schedule 7, and(b) section 168 so far as it relates to that Schedule.(7) No regulations may be made under subsection (1) bringing into force any of the following provisions, so far as they extend to Northern Ireland, unless the Secretary of State has consulted the Department of Justice in Northern Ireland—(a) Schedule 7, other than paragraphs 6(7), 10 and 11, and(b) section 168 so far as it relates to that Schedule, other than paragraphs 6(7), 10 and 11.(8) No regulations may be made under subsection (1) bringing into force section (Failure to prevent fraud) unless the Secretary of State has published guidance under section (Guidance about preventing fraud offences)(3).(9) Regulations under subsection (1) or (4), and orders subsection (5), may appoint different days for—(a) different purposes, and (b) where regulations under subsection (1) appoint a day for the coming into force of any provision of Schedule 7 or 8, different areas.(10) A power of the Department of Justice in Northern Ireland to make an order under subsection (5) is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This amendment leaves out Clause 191 and inserts a replacement commencement Clause that provides for additional provisions to come into force at Royal Assent and for consultation requirements to apply in relation to certain cryptoasset provisions. See also the new transitional provision Clause to be inserted after Clause 191.
Lord Sharpe of Epsom
“Transitional provision
(1) The Secretary of State may by regulations made by statutory instrument make transitional or saving provision in connection with the coming into force of any provision of this Act, other than a provision mentioned in section (Commencement) (4) or (5).(2) The Scottish Ministers may by regulations make transitional or saving provision in connection with the coming into force of a provision mentioned in section (Commencement) (4). (3) The Department of Justice in Northern Ireland may by order make transitional or saving provision in connection with the coming into force of a provision mentioned in section (Commencement) (5).(4) The power to make regulations under subsection (1) or (2), and the power to make orders under subsection (3), includes power to make different provision for—(a) different purposes, and(b) where regulations under subsection (1) make provision in connection with the coming into force of any provision of Schedule 7 or 8, different areas.(5) Transitional provision and savings made under subsections (1) to (3) are additional, and without prejudice, to those made by or under any other provision of this Act.(6) A power of the Department of Justice in Northern Ireland to make an order under subsection (3) is exercisable by statutory rule for the purposes of the Statutory Rules (Northern Ireland) Order 1979 (S.I. 1979/1573 (N.I. 12)).”Member’s explanatory statement
This new Clause contains the powers to make transitional provision that were previously in Clause 191. It also includes additional powers for the Scottish Ministers and the Department of Justice in Northern Ireland to make transitional provision and savings in connection with the coming into force of certain cryptoasset provisions.