Economic Crime and Corporate Transparency Bill
Tuesday 27th June 2023
(10 months, 1 week ago)
Lords ChamberEconomic Crime and Corporate Transparency Act 2023 View all Economic Crime and Corporate Transparency Act 2023 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 138-II Second marshalled list for Report - (23 Jun 2023)
19:15 - Division on Amendment 110 - Ayes: 179 / Noes: 176 - Amendment 110 agreed.
19:35 - Division on Amendment 125A - Ayes: 176 / Noes: 160 - Amendment 125A agreed.
19:55 - Division on Amendment 129 - Ayes: 164 / Noes: 150 - Amendment 129 agreed.
Lord Sharpe of Epsom
That the Bill be further considered on Report.
The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)
My Lords, I put on record my thanks to my noble friend Lord Johnson of Lainston, who took the Bill through its first day of Report last week, and my noble and learned friend Lord Bellamy for his work in the run-up to today’s debate. I extend my thanks to noble Lords for the constructive debate we have had so far on the Bill, both in Committee and in separate meetings. This collaboration has resulted in comprehensive and much-needed legislation—
The Deputy Speaker (Baroness Bull) (CB)
Would the Minister like to move that we move on to this item of business before he moves his first amendment?
Lord Sharpe of Epsom
“(10) The Secretary of State may not make regulations under subsection (7) unless the Secretary of State has—(a) consulted the Scottish Ministers and the Department of Justice, and(b) given a notice containing the relevant information to the Scottish Ministers and the Department of Justice.(11) Consultation under subsection (10)(a) must include consultation about any effects that the Secretary of State considers the regulations may have on—(a) a person in Scotland or Northern Ireland (as the case may be) applying for the forfeiture of cryptoassets held in a crypto wallet that is subject to a crypto wallet freezing order, and(b) a sheriff or court in Scotland or a court in Northern Ireland (as the case may be) considering such an application or making an order for such forfeiture. (12) In subsection (10)(b) “relevant information” means—(a) a description of—(i) the process undertaken in order to comply with subsection (10)(a) in relation to the Scottish Ministers or the Department of Justice (as the case may be), and(ii) any agreement, objection or other views expressed as part of that process by the Scottish Ministers or the Department of Justice (as the case may be), and(b) an explanation of whether and how such views have been taken into account in the regulations (including, in a case where the Secretary of State proposes to make the regulations despite an objection, an explanation of the reasons for doing so).”Member’s explanatory statement
This amendment provides for certain consultation requirements to apply before regulations may be made under inserted section 303Z42(7) of the Proceeds of Crime Act 2002 (forfeiture orders).
Lord Sharpe of Epsom (Con)
As I was saying, I put on record my thanks to my noble friend Lord Johnson of Lainston and my noble and learned friend Lord Bellamy, but I also extend my thanks to all noble Lords for the constructive debate we have had so far on the Bill, both in Committee and in separate meetings. It is nice to be able to say that more than once. This collaboration has resulted in comprehensive and much-needed legislation. As my noble friend Lord Johnson set out, the Government listened to the views of the House during the passage of the Bill and have moved to address many of its concerns in the amendments tabled for Report.
Baroness Altmann (Con)
My Lords, briefly, I congratulate the Government on bringing forward the amendments; they will enhance the operation of the Bill. However, while we debate what could cover so-called crypto assets, I want to put on record my concern that by calling them “assets” and by not banning them from conventional financial markets we are potentially encouraging economic actors and criminals who demand payment in these untraceable types of so-called money. There is a danger to both our financial system and society if we continue to try to suggest that they are, in any way, conventional media of exchange.
Lord Fox (LD)
My Lords, I reflect back the point made at the beginning by the Minister—in fact, made in triplicate—that this has been a co-operative approach. In fact, I was one of the people who raised the issue of crypto assets at the beginning. There was good consultation with the team involved, and the Government brought forward a number of amendments in Committee and on Report.
As the Minister acknowledged, the issue is going to have to be flexibility going forward, and the ability to make changes and to understand how criminals are using crypto assets and other assets to commit fraud will be very important. Having the ability to come back to Parliament and make those changes will be key to the success of this Bill. In that respect, anything that improves flexibility, as I think these amendments do, will be very helpful.
Lord Ponsonby of Shulbrede (Lab)
My Lords, I reiterate what the noble Baroness, Lady Altmann, and the noble Lord, Lord Fox, have said: there has been a co-operative approach to this Bill, which I think will make it a better Bill. I was going to make exactly the points that the noble Lord, Lord Fox, has just made about the need to build in a way of feeding back to Parliament, particularly given that crypto assets are a very turbulent technology; it is a very turbulent industry. We know about the criminality endemic within these types of so-called assets. The point has been made by the noble Lord, Lord Fox, that Parliament needs to find a way, through flexibility and feedback, to make sure that the appropriate regulations are kept in place.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords for their brief points in this debate. Broadly speaking, I agree with all the points that have been made. It is important to maintain a high level of flexibility, because this is a very fast-moving space technologically as well as with regard to the use of these assets in the broader economy and for other purposes. I agree with everything that has been said. Obviously, these amendments allow us to maintain a high degree of flexibility, so I ask noble Lords to support them. There is not much point in saying anything else at this point.
Lord Sharpe of Epsom
(3) Provision made by virtue of sub-paragraph (2) may in particular refer to a list of countries published by the Financial Action Task Force as it has effect from time to time.”Member’s explanatory statement
This removes the power to make regulations about enhanced customer due diligence by reference to a list of high-risk countries published by the Treasury. Instead it allows regulations to refer to a list of countries published by the Financial Action Task Force (the regulations could also refer to that list subject to specified exceptions).
Lord Sharpe of Epsom
(a) in subsection (2), for the first “which” substitute “made during the period of 6 months beginning with the day on which the Economic Crime and Corporate Transparency Act 2023 is passed if the instrument”; (b) in subsection (9), for the words from “if” to the end substitute “if they only make provision prescribing high-risk countries by virtue of paragraph 4(2) of Schedule 2”.Member’s explanatory statement
This amendment means that regulations made within 6 months of royal assent are subject to the made affirmative procedure if all they do is make provision about countries in relation to which enhanced customer due diligence measures are required to be taken; regulations made after that period are subject to the draft affirmative procedure.
Lord Faulks
“Strategic lawsuits against public participation
(1) It is an offence for a person or entity without reasonable excuse to threaten civil litigation against another person or entity with intent to suppress the publication of any information likely to be relevant to the investigation of an economic crime.(2) A person guilty of an offence under this section is liable—(a) on summary conviction in England and Wales, to a fine;(b) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum;(c) on conviction on indictment, to imprisonment for a term not exceeding two years or a fine (or both).”Member’s explanatory statement
This amendment introduces a new criminal offence to deal with groundless threats in pursuance of SLAPPS in order to suppress investigations into economic crimes.
Lord Faulks (Non-Afl)
My Lords, we now come a group of amendments about strategic lawsuits against public participation, or SLAPPs. These were much debated at Second Reading and in Grand Committee. As noble Lords will be aware, SLAPPs is the rather ungainly acronym to describe the abusive threats of litigation and actual litigation by deep-pocketed individuals with the intention of preventing journalists or others from revealing the truth, very often about economic crime or, at the very least, economic activity which the claimant would much rather was not revealed at all, or certainly not to the general public. This is a worldwide problem which has received a variable response.
In a sense, there is nothing new about SLAPPs. Powerful men have often used litigation to try to silence their critics, but there have recently been some egregious examples. The difficulty always exists in separating out genuine complaints by powerful men or organisations and those which have been commenced for a collateral purpose. When SLAPPs were debated at Second Reading, it was thought that amendments to prevent or limit such lawsuits would be outside the scope of the Bill. I am glad to say that that has now proved not to be the case, although it is clear that the relevant amendments, either mine or the Government’s, are focused on economic crime as opposed to wider areas of criminal activity which might provoke a strategic lawsuit. The Government’s position at Second Reading appeared to be that they were sympathetic to the notion of legislation in this area. However, they thought that the whole issue needed separate and mature consideration and should not be part of any amendment to this Bill.
I am delighted that the Government have changed their mind and brought forward amendments in this group which we will debate. I understand that the new Lord Chancellor has had much to do with this, and I thank him and the Minister for tabling the amendments.
A number of noble Lords have spoken about SLAPPs, including the noble Lords, Lord Agnew and Lord Cromwell, who gave a graphic description of the mischief at which any change in the law should be directed. My difficulty with any potential amendment was always that the courts have powers already to strike out abusive proceedings, but they tend to be extremely cautious about doing so, on the basis that striking out is a somewhat draconian remedy. Courts tend to be persuaded that it is better to see how the evidence emerges before putting a case out of its misery, but that can be too late. Huge expenditure will have been incurred, often by relatively impecunious defendants. Sometimes they have no realistic alternative but to capitulate—delay is plainly the friend of those who use SLAPPs. The best chance, in my experience, of striking out a claim is when there is a clear point of law, but even then there can be appeals and further expense, which work in favour of an abusive claimant.
The government amendments are clearly aimed in the right direction, but I can already foresee a few difficulties. There will be significant arguments as to what does or does not constitute a SLAPP, for example. That issue of itself has a lot of litigation potential. I am also concerned about the process of making the relevant Civil Procedure Rules. This can be a lengthy process, and is always a carefully considered process. I have studied the recent minutes of the Civil Procedure Rule Committee, so as to inform myself as to how the committee approaches rule changes. I would be grateful if the Minister could explain to the House how this amendment will make its way into the rules and the likely timescale.
Those reservations apart, my view is that we should go further. As pointed out at Second Reading by the noble Lord, Lord Thomas of Gresford, who has put his name to this amendment, there is no obvious reason why there should not be a criminal offence in this area.
I invite the House to consider a client consulting his expensive lawyers. He wants to take every step he can through litigation to suppress and exhaust the funds of those who would expose him. He utters those words which lawyers tend to love: “I don’t mind how much it costs”. The advice that he will or should receive after the government amendments become law is that there is a risk that the courts might decide to stop the litigation if it is regarded as abusive. “But”, the litigant says, correctly, “It will surely still be a lengthy and expensive process before a court even gets to consider that option”. However, if the Government were to accept my amendment, then the advice he should receive is that he risks criminal prosecution if he, without reasonable excuse, threatens litigation with the intent to suppress the publication of any information likely to be relevant to the investigation of an economic crime. This potential offence gives room for a defence, of course, but its very existence should act as a considerable deterrent against the sort of behaviour we want to stop. If this amendment becomes law then the hypothetical client might think much more carefully before threatening or embarking upon abusive litigation.
This amendment is particularly relevant to journalists, who have a huge role in tackling economic crime. I declare my interest as chair of the Independent Press Standards Organisation. It is also of importance to anyone who wants to reveal economic crime. It is entirely consistent with the aims of the Bill. Let us bear in mind that the opportunity to legislate in this space is unlikely to present itself again, or at least not for some time. I beg to move.
Lord Thomas of Gresford (LD)
My Lords, I remind your Lordships that, at Second Reading of this Bill, on 8 February, I referred to a legal action brought by Yevgeny Prigozhin, founder of the Wagner Group, who has been somewhat in the news over the last weekend, against the journalist Eliot Higgins, who had investigated his activities. When his case was justly struck out last May, Prigozhin said that he brought court cases against journalists because
“in any issue there should be room for sport”.
The cost to Mr Higgins was in the region of £70,000, although he won his case. That is the sort of abuse of the English legal system that the current crop of so-called reputational lawyers have brought on behalf of Russian oligarchs and many other large co-operations that resent too close a look into their operations.
Lord Cromwell (CB)
My Lords, I start by sincerely thanking the noble and learned Lord, Lord Bellamy, and his team for meeting me and others to discuss SLAPPs and for the subsequent correspondence with me on areas of concern that remain, to some of which I will return briefly in a few moments.
As noble Lords will know, I have been rather tenacious in arguing for the inclusion of provisions against SLAPPs in the Bill, so I welcome government Amendments 102 and 103 before us today. They reflect positive listening by the Government, in particular the new Lord Chancellor, to a long campaign by Members of both Houses, as well as a coalition of non-governmental organisations. The amendments do not deliver everywhere —Scotland is excluded, I believe—nor do they cover everything that I and others have been seeking. I shall put these, as succinctly as I can, on the record.
My main concern, because it goes to the heart of SLAPP tactics, is the lack of sufficient provision in Amendment 102 for the courts to bring matters to a halt pending a decision on striking out under subsection (1) of the new clause inserted by the amendment. In his letter to me on this point, the Minister characterised such an approach as unfair and restrictive on the court, but as others have said, those using SLAPPs will do all they can to run up the costs of their opponent, not as a route to justice but as a tool of harassment. For example, in relation to new subsection (1)(b) in the amendment, deliberate pursuance of disclosure pending resolution of an anti-SLAPP motion can easily ratchet up costs.
To be effective in assessing cases and in preventing SLAPPs, to which Amendment 102 is directed, the court should be inclined to call a halt to the litigation process until it is decided whether the case should be struck out. I therefore ask the Minister whether he agrees that the courts, guided by the Civil Procedure Rules, should as a default position take the approach of putting a stop on proceedings pending a decision on striking out and allowing processes to proceed only where a very compelling reason exists for them to do so.
On Amendment 103, subsection (1)(d) of the new clause inserted by the amendment refers to harassment, expense and other harms which are
“beyond that ordinarily encountered in the course of properly conducted litigation”.
It is exactly the use of so-called “properly conducted litigation” that SLAPPers weaponise in order to intimidate their victims. While some amount of emotional and financial cost is inevitable in court proceedings, I do not accept that harassment should ever be part of properly conducted litigation. The phrasing of the amendment appears to suggest that it is acceptable. This creates a significant opportunity for the SLAPPer’s legal team to claim its harassment tactics are just part of the machismo and cut and thrust of legal process and, perhaps, as if a bit of harassment never really hurt anyone. That is the bully’s excuse.
It also leaves the courts struggling to make a subjective judgment about what is in the minds of the claimant and the defendant. In his helpful letter to me, the Minister stated that the courts are well versed in deciding such matters. However, I remind the House, as I elaborated at some length in Committee, that courts have always been very shy of inferring intention, and I am not aware of any instance where a court has struck out a case for improper purpose.
Even the recent case involving Charlotte Leslie and Mr Amersi was thrown out pursuant to CPR part 3.4 —namely, that the statement of case disclosed no reasonable grounds for bringing the claim. The court judgment was explicit that the court was not making a decision on whether the case constituted an abuse of process. The most the court judgment was willing to say was that there were several aspects of Amersi’s behaviour which gave “real cause for concern” that it was brought with an improper purpose. That illustrates how high a hurdle the test for improper purpose currently is.
The courts’ hands need to be strengthened here. Unless we enable the courts more effectively to label an action as an abuse of process, the current shyness about ever striking out a case on those grounds seems set to continue. I therefore ask the Government to reconsider my suggestion, which I have written to the Minister about, that the phrase about “properly conducted litigation” is removed and that the court, in considering the claimant’s behaviour, should decide if it could be reasonably understood as
“intended to cause the defendant … harassment”,
et cetera.
I have two other brief points. I understand that the intention of subsection (3) of the new clause inserted by Amendment 103 is to draw a wide definition of economic crime. However, in practice, it puts a potentially costly burden on the defendant to show that it is a SLAPP, and to require a subjective, and perhaps lengthy, assessment of intent by the court. Above all, it seems redundant, because subsection (1)(d) already establishes whether a case is a SLAPP. I therefore hope that the Minister will consider a revised drafting in order to encompass the purpose of having a wide definition of economic crime while not creating a new area of difficulty for the defendant.
Finally, subsection (4) of the new clause inserted by Amendment 103 covers factors for the court to take into account. It misses a typical SLAPP intimidatory tactic of bringing an action against individuals as well as their publishers. An example of the latter is the case brought in the UK against Swedish investigative journalists by a Swedish business. By bringing the claim in the UK, the claimant was able to sue not only the publication and its editor but the journalists as individuals. This would not have been possible in Sweden where, tellingly, the claimant decided not to sue. Individuals do not typically have legal insurance, and bringing individual action in this way is a classic intimidatory tactic. I therefore urge the Minister to include this as a factor for the court to take into account under subsection (4).
In conclusion, like the song by Messrs Jagger and Richards says,
“You can’t always get what you want
But if you try sometime …
You get what you need”,
these amendments give us a good chunk of what we need. By highlighting SLAPPs as unacceptable, they will make lawyers think harder about engaging in SLAPP tactics, as the noble Lord, Lord Faulks, highlighted. It is a great start, but there is more to do, as I and others have tried to outline today. I hope that these points will yet be reconsidered, either in the other place or in the wider legislation on this subject that the Government have promised. I look forward to the Minister’s response.
Lord Garnier (Con)
My Lords, I too declare an interest as a member of the Bar who has, over the past several decades, specialised in defamation.
I agree with quite a lot of what the noble Lord, Lord Cromwell, has just said in that, first, this is in essence economically driven; and that, secondly, the decision in Amersi v Leslie and others did not designate that particular claim as a SLAPP. None the less, there was plenty in the judgment of Mr Justice Nicklin to demonstrate that the judge was quite acute about the motivation behind the claim. Essentially, it was a claim that he considered to be bullying and designed to cause the defendants the most financial embarrassment possible; he saw through that.
Baroness Stowell of Beeston (Con)
My Lords, I am pleased to hear my noble and learned friend say that he has changed his position since we met in Grand Committee because I recall that, during those debates, he was strong in his view and mildly critical of those of us who had brought forward amendments.
I have two amendments in this group, Amendments 125H and 125J. I will speak to them but, before I do, I join my noble and learned friend Lord Garnier in welcoming the amendments tabled by my noble and learned friend the Minister. I am very pleased to see them; they go a long way to addressing the concerns that my committee—I declare my interest as chairman of the Communications and Digital Select Committee—has raised in our hearings on this topic over the past 12 months. As has been acknowledged, those amendments are confined to economic crime but that is because this is a Bill about economic crime, so I am happy to accept them as far as they go.
None the less, I want to highlight something that my amendments, the same amendments that I tabled in Committee, refer to—the power of deterrence with regard to the solicitors who represent those who bring forward these forms of legal action. I listened very carefully to my noble friend Lord Faulks introducing his amendment. Unlike my noble and learned friend Lord Garnier, I find his arguments quite compelling, but at this point I am pleased with what we have here. The importance of deterrence and the link between the Solicitors Regulation Authority’s new fining powers, the tactics employed by those who bring SLAPPs and the new dismissal mechanism are where I want to focus my comments.
As we have heard, the Government’s amendments bring much-needed legal clarity about the definition of a SLAPP case. The new strike-out clause includes a likelihood test but not a requirement for the case to be shown to have merit. That is a bit of a gap. It suggests that well-to-do law firms could still threaten journalists with a defamation case that has no merit and force the journalist to deal with huge legal costs. As we have already heard, as long as the lawyers toe the line and are not too aggressive in their tactics, they are unlikely to be thrown out under the early dismissal mechanism, but just because a case is not thrown out at the start, that does not mean everything is fine.
Most SLAPP cases never make it to a court, as we have heard. They succeed by intimidating critics into dropping their investigation at a very early stage. In these circumstances, the early dismissal test will not even come into play. One of the best defences probably lies with the solicitors’ regulator. The SRA needs to have confidence that these amendments tabled by my noble and learned friend the Minister will give it a sufficiently robust basis to penalise solicitors and law firms that pursue SLAPPs.
I understand that the SRA has powers to take action against individuals and law firms for misconduct or failing to comply with the rules. I would be grateful for clarification from my noble and learned friend the Minister that the SRA’s new unlimited fining powers, which are already in the Bill, could definitely be used to deter and punish law firms facilitating SLAPP cases, even if the case is not thrown out by the early dismissal test or does not make it to court. Let us not forget that the lawyers are making huge amounts of money from this. They know exactly what they are doing and can be very clever about getting away with it. We need confidence and assurances that the regulator will be able to take robust enforcement action, as we in Parliament need to be able to set a clear expectation of the regulators that they will be proactive in asking people to come forward with concerns, process complaints speedily and investigate high-risk firms to put them on notice.
Above all, the SRA needs to enforce the spirit of the law, not just the letter, by demonstrating zero tolerance for those profiting from flagrant abuses of our legal system. From my noble and learned friend the Minister, I am looking for clarity at the Dispatch Box that the fining powers that the SRA now has in the Bill and this new definition of SLAPPs empower it to act against law firms if it considers it appropriate to do so because they have breached its codes and so on. We are not looking for a situation in which it is possible for the SRA not to do what is properly expected of it just because it has not been spelled out in words of one syllable in the Bill.
In my view, it is really important for any regulator or regulated sector to understand that the members of it and those who are regulating it have a responsibility to uphold the reputation of that sector. That is done by the way in which they conduct their business. It is important that that is made very clear if the Government bring forward this definition of SLAPPs, as they have, to try to prevent further use of this aggressive and abusive form of legal action, which is doing so much to undermine the Government’s overall intention to reduce economic crime.
Lord Thomas of Cwmgiedd (CB)
My Lords, I am grateful to the Minister and I welcome the amendment he has put forward. I want to make three quick points.
First, it is clear that the will of the House is that something should be done quickly. The remedy should be speedy, inexpensive and flexible. This leads to my second point. The right course is to allow the rule committee to develop this, but the rules must be flexible and must allow for the development to be made judicially, rather than prescribed in rules. That, in my experience, has generally been the way forward; we have tried this in relation to other matters and know that it is impossible to lay down too many detailed things in rules. Thirdly, I hope that the Government will make available the necessary resources to the judiciary, so that this can be dealt with by a High Court or other senior judge. Speed, effectiveness and determination will show whether this is a means that will work or whether we will have to resort to that which was suggested by the first amendment that was debated.
Baroness Blake of Leeds (Lab)
My Lords, I add the thanks of our side to Ministers and their teams for the access that they have given us.
I will not say much more; we have had a full discussion and response to the concerns that were raised at Second Reading and in Committee. I believe that we are in a much better place than we were, as has been outlined by many of these contributions.
I have a few points to highlight. I honestly believe that providing the courts with powers to strike out SLAPPs would be a huge, ground-breaking step forward. We have to regard what is before us as a positive start. It is also positive that a robust threshold test has been introduced and that the profile of the defendant is not prescribed, which enables it to be used by anyone—journalists, whistleblowers, activists and academics—as we have heard.
We have to acknowledge the problems that other noble Lords have highlighted around the definition of what constitutes a SLAPP and where we will achieve that clarity. The proof will come as we move ahead, but I agree that we need to make sure of this in the rules and know when they will be available for us to consider. Perhaps the Minister can respond to this.
I want to press the Minister on an answer to when the Government expect to extend the use of protections against SLAPPs beyond the definition of economic crime as outlined. That would be very helpful for us all.
In conclusion, while limited, this is a promising framework. As I have said, the Government have committed to expanding the scope, and we all ask for this to be done speedily. I do not want to get into competing quotations from famous rock stars, but there are several we could follow. I hope that
“watch out, you might get what you’re after”,
from Talking Heads, is not one of them.
The Parliamentary Under-Secretary of State, Ministry of Justice (Lord Bellamy) (Con)
My Lords, I am very grateful to the House and to all noble Lords who have spoken in today’s debate and in earlier debates. If I may say so, I think we have collectively changed our minds, or developed our thoughts, in various respects as a result of a collective effort, for which the Government are grateful. I am particularly grateful to those noble Lords who have engaged outside the Chamber: the noble Lords, Lord Faulks, Lord Ponsonby and Lord Cromwell, the noble and learned Lord, Lord Thomas, the noble Baroness, Lady Stowell, and others, have all contributed most constructively to the debate. There is clearly a great deal of strength of feeling on the issue of SLAPPs. It is therefore with some optimism that I hope the amendments I am about to move formally will be accepted: Amendments 102, 103, 137, 141, 142 and 143.
I will first make a general remark. In civil litigation generally, parties are not necessarily evenly matched. One may have more private resources than the other; one may be legally aided while the other is not. That is a fact of life, but one relies on the rules of procedure and the good sense of the judge to see fair play, bearing also in mind the inherent power of the court to strike out a claim for abuse of process. But when we come to SLAPPS—short for strategic litigation against public participation, a rather unwieldy phrase—two additional factors come into play. This is probably common ground in this House. In addition to the possible imbalance of power between the parties, the two additional factors are, first, the right to free speech, which is essentially what this legislation protects, and secondly the public interest in full and frank disclosure of wrongdoing.
Effectively, to use the courts or the threat of litigation as a means of preventing free speech and possibly covering up wrongdoing is a particular kind of abuse of process. It may well be that the power to control such behaviour already exists under the inherent direct jurisdiction of the courts—as I think my noble and learned friend Lord Garnier may have observed earlier—but the Government wish to put that issue beyond doubt and to put a stop to SLAPP-type tactics. We cannot allow the misuse of our legal system to suppress public interest investigations and reports. On the other hand, we have to safeguard access to justice in the measures that we take, so there is a balance to be struck here. The Government respectfully suggest that this Bill finds that balance.
I will first take the definition of SLAPPs. What is a SLAPP claim? It has a number of components. First, it will be one where the complainant has acted, or intended to act, to restrain the defendant’s exercise of their right to freedom of speech. The defendant will typically be a journalist. Secondly, the exercise of that right is a matter relating to economic crime—this is necessarily limited at the moment to economic crime because of the scope of the Bill—and for a purpose related to the pursuit of the public interest in combating such economic crime. Lastly, the claimant will have misused the litigation to cause harm to the defendant, in the circumstances defined in the clause.
For such SLAPP claims there will be several protections. First, there is the early dismissal test. The claimant will have to establish that they are more likely than not to succeed at trial. Normally, if you try to strike something out, it is you who has to establish that, but if it is a SLAPP claim, the burden is reversed and the claimant must establish that they are more likely than not to succeed at trial. That is an important change in the onus.
Secondly, there is the costs protection of the defendant, who will not have to pay the costs, even if there is eventually an adverse outcome at trial. On pre-litigation tactics, raised on a number of occasions by the noble and learned Lord, Lord Thomas, and others—it is a very fair point—in the Government’s view the costs protection and the reversal of the burden of proof very largely draw the sting of those threats. The journalist can sit back and say, “Well, do your worst. I’m protected on costs and by the change of the onus”, so the teeth are drawn from the attempt to suppress the publication of wrongdoing.
In addition—I will come to this in a moment—there are the powers of the Solicitors Regulation Authority to pursue the solicitors through its disciplinary procedures. With those protections, there is a very substantial assault by this legislation on SLAPPs. The Government’s view is that the courts will have the necessary tools and guidance from Parliament to deal with SLAPP lawsuits aimed at stifling freedom of speech and preventing journalists exposing economic crime.
As to the points rightly raised by the noble Lord, Lord Cromwell, that we should have gone further and so forth, the Government’s view is that we can always improve the shining hour—of course we can—but here we have, to use the words of the noble Lord, a good chunk of what is necessary. The Government’s view is that, at the moment, these provisions go far enough. As far as Scotland is concerned, discussions are continuing with our Scottish counterparts—it is a separate legal jurisdiction—and the same is true in Northern Ireland, so those matters will be pursued in due course. But the Government ask the House to accept that the provisions of this Bill as framed cut the mustard, if I may use the expression.
Of course, SLAPPs are broader than just economic crime. In answer to the question of the noble Baroness, Lady Blake, and others, the Government will come forward with completing the jigsaw as soon as a suitable legislative vehicle appears. At the moment, we are engaged in what, in another context, is called horizon scanning, to see when we can find a legislative vehicle that will do the job. This is not something the Government are going to forget about, and nor would this House allow us to do so. As soon as we can do it, we will get on to it.
It is entirely true that we now need the Civil Procedure Rules to back this up. The Civil Procedure Rule Committee will no doubt proceed as fast as it can; it is well-versed in ensuring that there are appropriate rules to make sure that legislation can have its proper effect in the courts. I have no control over the timetable of the Civil Procedure Rule Committee, but the message from this House is to get on with this as fast as we can. Indeed, if I may quickly refer to the comments of the noble and learned Lord, Lord Thomas, of course we need, as he suggests, quick, cheap and flexible procedures. One would hope that those will be developed judicially by senior judges, and that this legislation will have the desired effect. The Government have every confidence in the ability of the courts to put into effect what is the clear will of Parliament.
I turn to Amendment 94, in the name of the noble Lord, Lord Faulks. With regret, the Government, although sympathetic to the amendment’s objectives, do not feel that it would be right to criminalise access to justice in the way proposed. As the noble and learned Lord, Lord Garnier, pointed out, we have got rid of criminal libel. We have a balance to strike here. It would be very strong to say that it is, or is potentially, a criminal offence to commence proceedings in the courts. The courts have to be open. In the Government’s view, the balance to be struck here is civil, not criminal. Creating a criminal offence with such a broad application to tackle what is, in essence, a civil matter would be inappropriate. We do not have the evidence to support such a development. It would be entirely inappropriate to create a criminal offence that would not be very clearly defined and would potentially prevent access to justice—apart from, of course, establishing the criminal instead of the civil standard, which we are essentially dealing with here.
The creation of a criminal offence would go far beyond the Government’s measures and, I think, would mark a departure from other jurisdictions, to which some reference has been made. I might be wrong, but I do not know of one that has made this kind of activity a criminal offence. In the light of those comments, I invite the noble Lord to withdraw the amendment.
Amendments 125H and 125J were tabled by my noble friend Lady Stowell. I thank her again for her constructive engagement on the Bill. These amendments seek to allow the Solicitors Regulation Authority to set its own fining limit for cases of professional misconduct relating to abusive litigation brought forward to suppress reporting on economic crime.
Clause 195 removes the statutory limit on the level of financial penalty that the Law Society, which delegates the matter to the SRA, may impose, and a similar provision applies to the Scottish Solicitors’ Discipline Tribunal. The intention that my noble friend expresses is shared by the Bill, but the Government’s view is that the current drafting of these clauses, which already captures disciplinary matters relating to economic crime, covers the matters to which my noble friend referred. If the SRA can demonstrate that an abusive litigation case breached a rule specifically for economic crime or
“purposes relating to the prevention or detection of economic crime”,
that should permit it to use its new fining powers, so my noble friend’s amendments are, in the Government’s view, unnecessary.
I assure my noble friend that the Government’s intention is that this measure allows the SRA to impose fines above £25,000 against solicitors and law firms that fail to comply with the rule by taking part in or facilitating abusive litigation, whether or not such cases reach court or are struck out, provided that the SRA can establish a link between this type of misconduct and the prevention or detection of economic crime. This legislation is directed not just to cases that come to court but to pre-action threats and actions to deal with attempts to intimidate.
Lord Faulks (Non-Afl)
My Lords, the Minister quite rightly emphasised that these amendments are concerned with two fundamental points: free speech and the public interest that exists to expose wrongdoing. He also said that the power, to be further elaborated by the rules, already exists. He is absolutely right to do so. In a way, the government amendments, which I welcome, tell the courts to do what they already can do. The question is whether they go far enough.
I have already indicated that I see a great deal of litigation potential in the definition of what SLAPPs may or may not be, notwithstanding the drafting. The Minister said that, with the comfort of these new rules, editors will be able to say to their journalists, “Well, we can go ahead. Sit back and do your worst”. I wonder how realistic that is, given that a journalist seeking after truth and attempting to expose wrongdoing will nevertheless expose him, her or their journal to a considerable hurdle before there is any chance of a striking out taking place. We hope the rules will come into effect in due course to encourage courts to take that view, but my experience, sadly, is that courts are reluctant to strike out claims on the basis that it is very difficult, without evidence, to come to a conclusion that something is an abusive process.
However, I accept that, for the moment, the view is taken that this amendment to create a criminal offence goes too far. I am afraid I do not accept the characterisation that it would “criminalise access to justice”; that was a most unfortunate phrase. In fact, it would create an offence that would help prevent the suppression of the publication of any information likely to be relevant to the investigation of economic crime. That is not criminalising access to justice; that was a most unfortunate characterisation.
However, I accept that the Government are with the spirit of the debate entered into in various stages on the Bill, and that they want to encourage the courts to intervene where necessary. I accept that, although it has expressed real concern, the House does not, for the moment, want to go as far as my amendment suggests. With some reluctance, but accepting the will of the Front Benches and of the Minister, I beg leave to withdraw my amendment.
Lord Etherton
“(a) constitutes the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation,”Member’s explanatory statement
This amendment provides for a shorter and more focused definition of “economic crime” than is presently to be found in Clause 187(1) and Schedule 10.
Lord Etherton (CB)
I tabled all the amendments in this group. I am very grateful to those who have added their names to them: the noble Lords, Lord Verdirame, Lord Pannick and Lord Anderson of Ipswich. I am also very grateful to the Minister, the noble and learned Lord, Lord Bellamy, for meeting me and senior representatives of the Law Society and of the Bar Council to discuss what is now Clause 197.
All these amendments relate to the new regulatory objective in Clause 197 that amends the Legal Services Act 2007 by inserting for the Legal Services Board a new objective:
“promoting the prevention and detection of economic crime”.
As I said in Committee, this proposed new regulatory objective is extraordinarily wide and imprecise. The meaning of the word “promoting” lacks any clarity or certainty. It raises legitimate concerns about a potential lack of proportionality and overregulation by regulators, and about a lack of evidential risk as to those sectors most likely to come into contact with economic crime—for example, advisers rather than advocates. And even in the area of advisers, it is hardly likely to involve experts in the environment or town planning.
As the MoJ’s impact assessment of the new regulatory objective makes clear, the front-line regulators of the legal profession are already implicitly under a duty to ensure that lawyers are not breaching economic crime rules. The provisions in Clause 197 are merely to make explicit what is already implicit, and it is important that the Legal Services Board and the front-line regulators understand that this is the case.
The definition of economic crime for the purposes of Clause 197 is provided in Clause 187(1) by mean of cross-reference to Schedule 10, which contains a long list of statutes. This provides no focus on what is really at issue and should be the concern of regulators. That is spelled out clearly in my Amendment 95—namely,
“the offences of fraud, false accounting, money laundering or offences under any binding sanctions regime, whether at common law or in primary or secondary legislation”.
This lack of focus could well promote overregulation and a lack of proportionality.
What is needed is a clear statement from the Minister, which I would very much welcome today, on the following. First, regulators must understand that this is not a new regulatory duty but one that states explicitly what is already implicit. Secondly, there should be a focus on the particular criminal activity which is relevant: fraud, false accounting, money laundering and offences under any binding sanctions regime. Thirdly, there is a need for evidence-based regulation according to evidence of risk in particular areas of work and practice, as I described, such as transactional work rather than contentious and court-based work, and areas of advisory work which might be relevant in which economic crime might well occur. Fourthly, there will also be a need for proportionality by regulators. Fifthly, the regulators must understand, as the Minister said before, that there is to be no interference with the principle of legal professional privilege. Finally, there is a need for consultation with the profession to ensure that the new objective successfully tackles economic crime in the proportionate and evidence-based way I have described.
I hope the Minister will be able to make those points clear to the profession to enable a proper regulatory framework to work. I beg to move.
Lord Bellamy (Con)
I thank the noble and learned Lord, Lord Etherton, for his engagement on this topic throughout the Bill and for his remarks today. I briefly reiterate that the definition of economic crime is deliberately widely drawn. It applies not only to the regulatory objective but to several other clauses of the Bill, including the information-sharing measures between various financial institutions at Clauses 182 and 183. The Government do not believe that restricting that definition would be right.
It is true that there is a long list of offences in Schedule 10, including the reference to theft. Sometimes it is difficult to distinguish between fraud and theft, but I am happy to acknowledge that typical forms of theft, including low-level theft such as shoplifting or street crime or similar activities, are most unlikely to be relevant to anything in the Bill. Therefore, the Government do not feel able to change the definition of economic crime specifically for the legal sector, and the regulators must be able to respond to circumstances as they develop.
I shall address in a little more detail some of the points raised by the noble and learned Lord, Lord Etherton, this afternoon. I hope to cover all those points one way or another. First, in relation to legal professional privilege, the regulatory objective already requires adherence to professional principles under the Legal Services Act. In the Government’s view, there is no need for a specific reference to legal professional privilege, but I can make it absolutely clear that the Government do not consider that the Bill makes any difference to the principle of legal professional privilege. It is in no way an assault or attack on that fundamental principle of English law. The protection of legal professional privilege, as developed in the courts, will continue to apply in this area, as in many other areas. That is the Government’s position, and I hope that it is clear
As to how the regulatory objective and the provisions of the Bill will operate in practice, and in response to the noble and learned Lord, Lord Etherton, who made various entirely fair points, the intention and purpose of the regulatory objective is to put the onus on legal services regulators to be active in promoting and upholding adherence to the economic crime regime. The new objective will put beyond doubt and clarify that securing compliance is explicitly part of the regulatory role. We expect regulators to use all the tools available to them, but their activity should be appropriately targeted and not in any sense just a box-ticking exercise. The objective does not directly place new duties on lawyers. It is directed to the legal services regulators, and existing safeguards remain.
All those regulators will still be bound by public law principles, which will ensure that any regulation of legal services is proportionate and fair. Proportionality is particularly important. Section 3 of the Legal Services Act already requires the Legal Services Board to have regard to the principle that regulatory activity should be transparent, accountable, proportionate, consistent and targeted only for cases where action is required. The new regulatory objective on economic crime fits within this framework and existing objectives, such as supporting the rule of law, promoting the public interest and improving access to justice.
It is understood and expected that the Legal Services Board will work closely with the professions in developing guidance to support the new objective. This will include a public consultation on any necessary policy statement or guidance to ensure that the regulatory objective is implemented in a targeted and proportionate way. This will allow the LSB to capture and analyse any concerns that professional bodies or others may have, or continue to have, in relation to the new objective.
Lord Etherton (CB)
I am extremely grateful to the Minister for all those assurances. They are extremely helpful, and I do think that they will assist in settling the concerns of many of those in the legal profession. On the basis of the assurances that he has given, I am very happy to indicate that I will withdraw my amendment.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and my other amendments to clause 187 correct the definition of “economic crime” to include encouraging or assisting an offence under Part 2 of the Serious Crime Act, which replaced the common law offence of incitement in England and Wales and Northern Ireland.
Lord Sharpe of Epsom (Con)
My Lords, corporate criminal liability is a topic that many across the House care deeply about—
Lord Sharpe of Epsom
“(ba) constitutes an offence—(i) under Part 2 of the Serious Crime Act 2007 (England and Wales and Northern Ireland: encouraging or assisting crime) in relation to a listed offence, or(ii) under the law of Scotland of inciting the commission of a listed offence,”Member’s explanatory statement
See the explanatory statement to my first amendment to clause 187.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment is consequential on my other amendments to clause 187.
Lord Bellamy
“Power to strike out certain claimsStrategic litigation against public participation: requirement to make rules of court
(1) The power to make Civil Procedure Rules must be exercised so as to secure that Civil Procedure Rules include provision for ensuring that a claim may be struck out before trial where the court determines—(a) that the claim is a SLAPP claim (see section (Meaning of “SLAPP claim”), and (b) that the claimant has failed to show that it is more likely than not that the claim would succeed at trial.(2) Rules made in compliance with subsection (1) may include rules about how a determination under that subsection is to be made, including (in particular)—(a) rules for determining the nature and extent of the evidence that may or must be considered;(b) rules about the extent to which evidence may or must be tested;(c) rules permitting or requiring the court to determine matters of fact by way of presumptions.(3) Rules made in compliance with subsection (1) must include rules under which the court may make a determination under that subsection of its own motion.(4) The power to make Civil Procedure Rules must be exercised so as to secure that Civil Procedure Rules include provision for securing that, in respect of a SLAPP claim, a court may not order a defendant to pay the claimant’s costs except where, in the court’s view, misconduct of the defendant in relation to the claim justifies such an order.(5) The Lord Chancellor may by regulations provide for subsections (1) to (4) to apply in relation to any rules of court that may be specified in the regulations as those subsections apply in relation to Civil Procedure Rules.(6) In this section—“court” includes a tribunal;“rules of court” means rules relating to the practice and procedure of a court or tribunal.”Member’s explanatory statement
This new clause, new clause (Meaning of “SLAPP claim”) and my amendments at page 191, line 37, page 192 at line 33 and 192, line 38 provide for the making of rules of court with a view to preventing claimants from improperly using civil proceedings to restrain certain disclosures of information relating to economic crime.
Meaning of “SLAPP” claim
(1) For the purposes of section (Strategic litigation against public participation: requirement to make rules of court) a claim is a “SLAPP claim” if—(a) the claimant’s behaviour in relation to the matters complained of in the claim has, or is intended to have, the effect of restraining the defendant’s exercise of the right to freedom of speech,(b) any of the information that is or would be disclosed by the exercise of that right has to do with economic crime,(c) any part of that disclosure is or would be made for a purpose related to the public interest in combating economic crime, and(d) any of the behaviour of the claimant in relation to the matters complained of in the claim is intended to cause the defendant—(i) harassment, alarm or distress,(ii) expense, or(iii) any other harm or inconvenience,beyond that ordinarily encountered in the course of properly conducted litigation.(2) For the purposes of determining whether a claim meets the condition in subsection (1)(a) or (c), any limitation prescribed by law on the exercise of the right to freedom of speech (for example in relation to the making of defamatory statements) is to be ignored.(3) For the purposes of this section, information mentioned in subsection (1)(b) “has to do with economic crime” if— (a) it relates to behaviour or circumstances which the defendant reasonably believes (or, as the case requires, believed) to be evidence of the commission of an economic crime, or(b) the defendant has (or, as the case requires, had) reason to suspect that an economic crime may have occurred and believes (or, as the case requires, believed) that the disclosure of the information would facilitate an investigation into whether such a crime has (or had) occurred.(4) In determining whether any behaviour of the claimant falls within subsection (1)(d), the court may, in particular, take into account—(a) whether the behaviour is a disproportionate reaction to the matters complained of in the claim, including whether the costs incurred by the claimant are out of proportion to the remedy sought;(b) whether the defendant has access to fewer resources with which to defend the claim than another person against whom the claimant could have brought (but did not bring) proceedings in relation to the matters complained of in the claim;(c) any relevant failure, or anticipated failure, by the claimant to comply with a pre-action protocol, rule of court or practice direction, or to comply with or follow a rule or recommendation of a professional regulatory body.(5) For the purposes of subsection (4)(c) a failure, or anticipated failure, is “relevant” so far as it relates to—(a) the choice of jurisdiction,(b) the use of dilatory strategies,(c) the nature or amount of material sought on disclosure,(d) the way to respond to requests for comment or clarification,(e) the use of correspondence,(f) making or responding to offers to settle, or(g) the use of alternative dispute resolution procedures.(6) In this section—“court” has the same meaning as in section (Strategic litigation against public participation: requirement to make rules of court);“economic crime” has the meaning given by section 187(1);“the right to freedom of speech” means the right set out in Article 10 of the European Convention on Human Rights (freedom of expression) so far as it consists of a right to impart ideas, opinions or information by means of speech, writing or images (including in electronic form).(7) In the definition of “the right to freedom of speech” in subsection (6) “the European Convention on Human Rights” means the Convention for the Protection of Human Rights and Fundamental Freedoms agreed by the Council of Europe at Rome on 4 November 1950 as it has effect for the time being in relation to the United Kingdom.”Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
Lord Sharpe of Epsom
“Attributing criminal liability for economic crimes to certain bodiesAttributing criminal liability for economic crimes to certain bodies
(1) If a senior manager of a body corporate or partnership (“the organisation”) acting within the actual or apparent scope of their authority commits a relevant offence after this section comes into force, the organisation is also guilty of the offence.This is subject to subsection (3).(2) “Relevant offence” means an act which constitutes—(a) an offence listed in Schedule (Criminal liability of bodies: economic crimes) (“a listed offence”),(b) an attempt or conspiracy to commit a listed offence,(c) an offence—(i) under Part 2 of the Serious Crime Act 2007 (England and Wales and Northern Ireland: encouraging or assisting crime) in relation to a listed offence, or(ii) under the law of Scotland of inciting the commission of a listed offence, or(d) aiding, abetting, counselling or procuring the commission of a listed offence.(3) Where no act or omission forming part of the relevant offence took place in the United Kingdom, the organisation is not guilty of an offence under subsection (1) unless it would be guilty of the relevant offence had it carried out the acts that constituted that offence (in the location where the acts took place).(4) In this section—“body corporate” includes a body incorporated outside the United Kingdom, but does not include—(a) a corporation sole, or(b) a partnership that, whether or not a legal person, is not regarded as a body corporate under the law by which it is governed;“partnership” means—(a) a partnership within the meaning of the Partnership Act 1890;(b) a limited partnership registered under the Limited Partnerships Act 1907;(c) a firm or other entity of a similar character to one within paragraph (a) or (b) formed under the law of a country or territory outside the United Kingdom;“senior manager”, in relation to a body corporate or partnership, means an individual who plays a significant role in—(a) the making of decisions about how the whole or a substantial part of the activities of the body corporate or (as the case may be) partnership are to be managed or organised, or(b) the actual managing or organising of the whole or a substantial part of those activities.”Member’s explanatory statement
This amendment sets out circumstances in which liability for an offence committed by a senior manager may be attributed to a body corporate or partnership.
Lord Sharpe of Epsom (Con)
My Lords, my apologies again for my early start on this; my enthusiasm keeps getting the better of me today.
As I was saying, corporate criminal liability is a topic that many across the House care deeply about, and one where the Government are committed to making significant reforms. I thank noble Lords for the robust and constructive debate we had in Committee on this topic and for the ongoing engagement which many noble Lords have afforded me in the weeks leading up to this debate.
I reiterate the Government’s commitment to reforming corporate criminal liability and tackling fraud. Since this Bill was introduced, significant steps forward have been taken. I hope, with the further government amendments to which I will speak shortly, noble Lords will recognise that we have gone to great lengths to strengthen the Bill in this area. In addition, government action continues outside of this Bill. The recently published Fraud Strategy further demonstrates the ongoing work across government and with partners to take action to tackle fraud.
I will speak first to government Amendments 104, 105, 106, 109, 138, 139, 140, 144 and 145, which introduce new clauses to this Bill to reform the identification doctrine. As noble Lords will be aware, the identification doctrine is outdated and ineffective in the way in which it holds corporates to account, given the breadth of business we see in the 21st century. Companies have grown tenfold since the “directing mind and will” test was devised in the 1970s. As companies have grown, their operations and governance have become spread across different areas, making it incredibly difficult to pinpoint the directing mind of a company, particularly in a large organisation. Individuals with significant authority can escape corporate liability by asserting that the directing mind and will is elsewhere.
Meanwhile, there is an unfairness here. Smaller companies, perhaps with one or two directors, have much more easily identifiable directing minds, meaning that corporate liability is more easily attributable and a prosecution is more likely to be successful. It is this inequality in the law that we need to address. The government amendments place the identification doctrine on a statutory footing for economic crimes for the first time, providing legislative certainty that senior managers are within the scope of the rule.
Under these new measures a corporate will be held liable if a senior manager has committed an offence under the new schedule, or if they have encouraged or assisted an offence by another, or have attempted or conspired to commit an offence under the schedule. The corporate will be criminally prosecuted and, if convicted, will receive a fine, in addition to any sentences imposed for individuals who are separately prosecuted and found guilty of the same offence. The reform will apply to all corporate bodies and partnerships established in England and Wales, Scotland and Northern Ireland.
These amendments build on the extensive work and consultation conducted by the Law Commission in this area. Building on feedback from prosecuting bodies, business representatives and Members of both Houses, some tweaks have been made to the Law Commission’s proposal to ensure the reform is applicable to the widest set of cases. Under the Government’s reform, economic crime is defined according to a new schedule in the Bill—introduced via Amendment 109—which reflects existing Schedule 10 but without those offences that principally apply to a corporate body, such as failure to prevent bribery.
For the purpose of these amendments, “senior management” will be defined in accordance with the well-established definition provided for in the Corporate Manslaughter and Corporate Homicide Act 2007. This model considered the senior managers’ roles and responsibilities within the relevant organisation and the level of managerial influence they might exert, rather than their job title.
The clauses tabled by the Government also seek to capture instances where a senior manager commissions or encourages a lower-ranking employee to do their “dirty work” by making it clear that the corporate can also be held liable where the senior manager encourages or assists a listed offence in the schedule.
To be clear to the House, subsection (3) of the new clause introduced by Amendment 104 ensures that criminal liability will not attach to an organisation based and operating overseas for conduct carried out wholly overseas simply because the senior manager concerned was subject to the UK’s extraterritorial jurisdiction; for instance, because that manager is a British citizen. Domestic law does not generally apply to conduct carried out wholly overseas unless the offence has some connection with the UK. This is an important matter of international legal comity.
However, some offences, wherever they are committed, can be prosecuted against individuals or organisations who have certain close connections to the UK. Subsection (3) makes sure that any such test will still apply to organisations when the new identification doctrine applies. Extending the identification doctrine test to senior management better reflects how decision-making is often dispersed across multiple controlling minds, mitigating the ability to artificially transfer, remove or create titles to escape liability. This is a positive step to increasing lines of clear governance and accountability in corporations.
Looking forward, although these government amendments are a strong step to improving corporate criminal liability laws, they are not the final step. The Government have committed in the Economic Crime Plan 2 and the Fraud Strategy to introduce reform of the identification doctrine to apply to all criminal offences. This will take place when a suitable legislative vehicle arises.
I move on now to the government amendments on failure to prevent fraud. In Committee, the Government tabled amendments which introduced a new corporate offence of failure to prevent fraud. Under the new failure to prevent offence, a large organisation will be liable to prosecution where fraud was committed by an employee for the organisation’s benefit and the organisation did not have reasonable fraud prevention procedures in place. The new offence will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations and by holding organisations to account through prosecutions if they profit from the fraudulent actions of their employees.
Following this, noble Lords have raised further points with me on where the Government clauses could be strengthened. I have listened to the points raised, and the Government have tabled further amendments on the definition of large organisations and the treatment of subsidiaries. I thank the noble Lord, Lord Vaux of Harrowden, for bringing this point to my attention.
As I have set out on many occasions, the failure to prevent fraud offence is designed to balance the fraud prevention benefits with minimising burdens on small business. Amendments 111, 112, 113, 114, 115, 116, 118, 119, 122, 123 and 124 will help prevent companies from avoiding responsibility by moving high-risk operations into subsidiaries that fall below the size threshold for the offence. They will also ensure that groups of companies with significant resources are incentivised to take steps to prevent fraud.
First, we have made a clarification to ensure that an assessment of whether an organisation meets the size criteria, and is therefore in scope of the offence, is made cumulatively across the parent company and its subsidiaries—that is, the group—rather than being based on each individual entity. We then have to consider where liability would attach within that group. The group itself is not a legal entity so cannot be liable. It may be more appropriate for the subsidiary or the parent to be accountable directly, depending on the circumstances. We have therefore clarified that whichever of the individual entities within a group was responsible for the fraud can be directly liable for a failure to prevent fraud, in the same way as any other entity in scope of the offence.
Additionally, we have clarified that an employee of a subsidiary can be an associated person of its parent or owning company. That makes it more feasible to attach liability to the parent company should the approach of targeting the specific subsidiary be inappropriate. A test would still have to be met that the fraud by the subsidiary employee intended to benefit the parent, and the parent would have the defence that it was reasonable to take no steps to prevent the fraud—for example, if the structure was such that the parent had no say over the activities of the subsidiary.
Finally, Amendment 120 ensures that the views of the Scottish and Northern Ireland Governments are taken into account before any future changes to the offence threshold based on organisation size.
I hope noble Lords will recognise that this is a hugely meaningful package of amendments. I recognise that a number of noble Lords will have hoped the Government would go further, particularly around the threshold in the failure to prevent fraud offence. However, I stress that we have already taken tremendous strides forward. The Government firmly believe that our reforms to the identification doctrine; the introduction of a failure to prevent fraud offence covering around 50% of economic activity; measures to prevent avoidance via subsidiaries; and our existing ability to identify and prosecute fraud more easily in smaller organisations will cumulatively have the desired effect of tackling and deterring economic crime, without unnecessarily imposing billions of pounds of burdens and bureaucracy on actual or potential small businesses. I hope noble Lords can recognise the great progress we have made, and I beg to move.
Lord Garnier (Con)
My Lords, I thank my noble friend the Minister for his opening remarks and for the advance that the Government have made on two fronts. The first is by clarifying the senior management officers within a company; in doing so, they have clarified the way in which the identification doctrine can be applied in modern Britain.
As I have said on previous occasions, I have an interest to declare. I will not specifically recite it again because I did so in Committee, at Second Reading and, I think, on the three or four previous pieces of legislation into which a failure to prevent amendment could have been inserted—but of course it was not the right Bill, the right vehicle or the right time, and in fact it was just not right. So here I am again.
I shall speak to my Amendments 110 and 125A, which at the appropriate time I will move to a Division unless the Government persuade me otherwise. I am not engaging here in party politics or even in a rebellion. I am doing nothing by surprise; anyone who has followed discussions on economic crime over the last 13 years will know precisely what I am going to say. Indeed, my noble friend the Minister is adept at moving from one corridor to the next to avoid having a yet further conversation with me about my favourite subject. He has also heard all my jokes before, but not every Member of our House has had that advantage so it may be that, unless the Government accept my amendment, my little Aunt Sally will have another canter around the course. However, I will take things in stages.
First, I thank the Government, as I hope I have done —and I mean it sincerely—for their Amendments 104 to 106 and 109—essentially, the modernisation of the identification principle, so far as it goes. We are now slowly catching up with the Americans; they did something similar to this in 1912, but this is the United Kingdom and we must not rush.
Lord Vaux of Harrowden (CB)
My Lords, I will briefly add my support to the amendments proposed by the noble and learned Lord, Lord Garnier, which try to strengthen the failure to prevent clauses the Government have proposed. I welcome those clauses and the changes the Government have added at this stage. In particular, I strongly support Amendment 110, to which I have added my name, which removes the restriction of this offence to large companies.
Let us be clear what this failure to prevent offence deals with. It does not cover, for example, the use of a company’s services by fraudsters, something I greatly regret. I am sure that—along with, I hope, the noble Baroness, Lady Morgan—we will come back to this in another Bill. It actually applies only to situations where somebody associated with the company, such as an employee, commits a fraud that is intended to benefit the company. Let me emphasise that: it applies only to frauds carried out by associates such as employees or agents, and only where those frauds are effectively committed on behalf of the company. It is pretty restricted.
When I was in business, frankly, it never occurred to me that such situations were not already caught by the law. Surely, it must be a fundamental principle that a company should take reasonable steps to prevent its employees committing fraud on its behalf. But the Government seem to take a different view. Having been dragged somewhat reluctantly into putting forward their own amendments to create this offence of failure to prevent, they have decided it should apply only to larger companies. As we have heard, they have set the threshold so that less than 1% will be covered.
The argument, as we have heard, is that the cost would be disproportionate. The Government have come up with some costings to support this. I am afraid I do not think I am the only person who simply does not find those costings credible. Any reputable company should, and I believe generally will, be doing this already. There are some things we should ensure that companies do anyway. A good example is that companies must ensure that health and safety rules are followed. It is not an excuse to say, “It wasn’t me; an employee caused the accident”. Nor is it an excuse to say, “My company is too small to follow health and safety rules”. We do not give small companies an exemption from health and safety, tax evasion or bribery legislation. Why would we do so, uniquely, for fraud—committed on the company’s behalf?
If the Government are genuinely worried about the cost, they can deal with that easily enough by issuing timely guidance that sets out what steps would be reasonable and the circumstances in which no additional procedures would be required, which is likely to be the case for most small enterprises. Amendment 125D makes some sensible suggestions in that regard.
Lord Leigh of Hurley (Con)
My Lords, my noble and learned friend Lord Garnier wonders why the noble Baroness, Lady Bennett of Manor Castle, supports his amendment. I have heard wags tell me that he is referred to as a Green Peer, on account of the number of times he recycles his gags. That might be a little unfair—I hear disapproval, but never mind.
I will speak to these amendments, having followed the Bill extremely closely. The noble Lord, Lord Vaux of Harrowden, is of course right to pinpoint what we are debating: fraud perpetrated to benefit a relevant body. However, the noble Lord actually said “on the company’s behalf”, and that is not right. I do not think it is necessarily to capture exclusively where a company seeks to benefit itself; it could also, quite rightly, seek to capture an employee who commits fraud to benefit himself or herself because of a bonus arrangement or other matters. So it is not just on a company’s behalf.
In Grand Committee and elsewhere, I have argued that there should be exemptions for small and medium-sized companies, in opposition to Amendment 110. I totally agree with my noble and learned friend Lord Garnier that the numbers proposed by the Government—any two of the following: a turnover of £36 million; a balance sheet of £18 million, which is undefined; and 250 employees, which is easy to define—are not appropriate. As he said, they capture only 0.5% of companies, but of course they capture the most important companies, which is where this legislation is perhaps intended to attack—it covers pretty much every FTSE and AIM company, which would perhaps have someone to put their mind to undertaking a fraud.
Although I have reservations about Amendment 110, curiously enough I support my noble and learned friend Lord Garnier’s Amendment 117, which is eminently sensible and deals with the issue. He has specified a turnover of more than £10 million, a balance sheet of more than £3 million, and more than 25 employees, which is sensible and fair. However, that applies only to fraud. His Amendment 125D does not have any SME exemption but simply says that the Secretary of State must issue guidance specifically for SMEs and particular micro-enterprises. He recognises that there is a difference for SMEs and micro-enterprises, and I think we should do so. I am nervous about this legislation: we just do not know what that regulation might be and do not understand what the guidance might be, how it might work and what effect it will have on SMEs and micro-enterprises.
I had a micro-enterprise at one point; I started a business. I refer your Lordships to the register of interests, which discloses that the business grew quite substantially, but it was originally micro by any definition. I do not know how many of your Lordships have started and run a micro-business, where everything revolves around survival and one’s entire life revolves around next week’s and next month’s wages, paying suppliers and creditors, and dealing with HMRC. There are so many pressures on micro-businesses, growing through to SME businesses, and we should think very carefully about putting another hurdle in place, however small, that makes an entrepreneur say, “You know what? Maybe I won’t bother. The Government are saying that I’ve got to take care about failure to prevent fraud. Really? Is that something I should worry about at this micro level? Have I not got enough to do to try to survive?”
I urge caution in adopting Amendment 110. If it is passed, I urge the House to adopt Amendment 117. I would be very careful about adopting Amendment 125 without clarification of exactly what will be in Amendment 125B.
Baroness Morgan of Cotes (Con)
My Lords, I will speak briefly to this group. I thank my noble friend the Minister for the steps that the Government have taken in relation to the failure to prevent fraud offence and the identification doctrine. These are significant steps, and he is right to say that they will obviously be followed up in future Bills.
It is worth remembering the scale of fraud in England and Wales in particular. Some 40% of crime is fraud against individuals, and clearly the scale of the cases against small, medium-sized and large businesses is also devastating. On Friday, we will debate the wider issues relating to fraud looked at by the committee on digital fraud, which I was privileged to chair. I am grateful that, from that committee and the work with my noble friend, the Fraud Strategy was published in early May.
I support my noble and learned friend Lord Garnier’s Amendment 110 and the associated Amendment 121, and have added my name to them. He and the noble Lord, Lord Vaux, set out clearly why these amendments are necessary. There is no SME exemption in the Bribery Act or in relation to tax evasion.
I want to take on one of the points raised by my noble friend Lord Leigh. He talked about the survival of SMEs, and he is of course right to do so. I have not set up a small business but I have set up a small charity, and many of the issues are similar. If that small business or small charity were the victim of fraud, it would be absolutely devastating. One of the arguments here is the burden on small businesses of having to set up fraud-prevention measures, but they have to do it anyway these days because they have to be very cautious about anyone attempting invoice fraud or utility fraud. If they have an employee, they have to make sure that they are making best use and correct use of the corporate credit card, for example.
Noble Lords rightly referred to Clause 192 and the guidance that the Government will publish. We already have an example of it, as the Government have published the outline of how it would look. If this amendment is passed, it would be perfectly within the rights of the Government to set out clearly how that guidance should be interpreted by small and medium-sized enterprises, which are quite used to reading extensive amounts of guidance. If we want to have a broader debate about red tape and regulation, that is perhaps for another day, but they are used to dealing with much guidance. If they are likely to be victims of fraud, they will take that guidance very seriously.
I support these amendments and I support my noble and learned friend’s Amendment 125A on expanding the failure to prevent offence to money laundering. If we are going to introduce the failure to prevent offence, which I thoroughly welcome, we might as well do it properly and expand it to money laundering, which is also a huge a problem and one that the Bill seeks to tackle as well.
Baroness Bowles of Berkhamsted (LD)
My Lords, my name is on several amendments relating to failure to prevent fraud, and I support what has been said already and what was said extensively in Grand Committee on both failure to prevent fraud and the identification doctrine. If the noble and learned Lord, Lord Garnier, moves his Amendments 110 and 125A, we on these Benches will support them.
I retabled my amendment on regulatory failure to prevent, which was well supported in Committee. I do not intend to move it but I have tabled it as a reminder that we have not yet covered the enablers, as the noble Lord, Lord Vaux, spoke about. This is probably the best route to do so, with regulators being perhaps best able to understand where actions could or could not have been taken. This recommendation was encompassed within the Fraud Act report.
We have, I suppose, gone a long way, and the Government have gone a long way within the remit covered by the Law Commission, which unfortunately included the harm aspect. As a lot of the crime that has come about through this enabling channel has been since that report was commissioned, this is unfinished business; we will necessarily have to come to this again. For now, we should strengthen the government proposals through Amendments 110 and 125A.
Baroness Blake of Leeds (Lab)
My Lords, I start by acknowledging the great progress that has been made on the failure to prevent process through the debates in the House of Commons. There was significant movement there, which we of course welcome.
I say at the outset that if the noble and learned Lord, Lord Garnier, is minded to divide the House on Amendments 110 and 125A, he will have the support of these Benches. There are very good reasons for that, as have been outlined in the debate today. The statistics, particularly the 0.5% figure, are startling. Surely, we all need to take this incredibly seriously if, as the noble Baroness, Lady Morgan, said, we are serious about tackling the wider fraud issues, which seem to be growing daily. The numbers of people we all know personally who are affected by this shows the sheer extent of the problem.
I will make the very strong point that the issue of costs and burdens on SMEs has been overemphasised. If these processes are tightened in the way proposed, those very businesses will themselves be protected by the action taken on other companies. In particular, I completely support the extension to the money laundering provision in Amendment 125A.
We have had a really good debate throughout our proceedings on these measures. It would be so disappointing if, at this final stage, we did not go the full distance we can at this point, recognising, as we know, that more will need to be done in the future. We have the opportunity now and we should seize it.
Lord Sharpe of Epsom (Con)
My Lords, I thank all noble Lords for their contributions to today’s debate on corporate criminal liability and for their continued engagement on this subject. These conversations have been robust and constructive and have helped the Government immensely in the development of the clauses —developed, I say to the noble Lord, Lord Vaux, without any reluctance at all.
I turn to Amendments 135 and 125G on senior manager liability, tabled by my noble and learned friend Lord Garnier. As he has noted, senior managers hold a higher level of responsibility than ordinary employees in conducting business because they take important decisions on the corporate policy, strategy and operation of the company. The extension of the identification doctrine to senior management in Amendment 104, which I spoke to previously, recognises this. To reflect the heightened responsibility of a senior manager in the actions of a corporation, powers are available already to prosecutors to hold a senior manager liable where a company conducts an economic crime offence.
Under the fraud, theft and bribery Acts and the money laundering regulations 2017, senior officers, including managers, are liable if they consent to or connive in fraud, theft, bribery or money laundering regulatory breaches. This extends as far as the senior manager knowingly turning a blind eye to offending, extending beyond the usual law on accessory liability for other crimes. If a senior manager is guilty of the offence and liable, they can be proceeded against and punished accordingly, including by imprisonment.
Additionally, in the regulatory space, the senior managers and certification regime is in place to improve good corporate behaviour and compliance in the sectors regulated by the Financial Conduct Authority and Prudential Regulation Authority, placing specific requirements on senior managers to encourage positive corporate behaviour.
Lord Garnier (Con)
My Lords, I thank my noble friend the Minister for his patience and tolerance in listening to my arguments over and over again—
Lord Fox (LD)
I am sorry, but it was the amendment of the noble Lord, Lord Sharpe, that was being moved.
Lord Garnier (Con)
We both seem to be making as many mistakes as each other.
Lord Sharpe of Epsom
“Power to amend list of economic crimes
(1) The Secretary of State may by regulations amend Schedule (Criminal liability of bodies: economic crimes) by—(a) removing an offence from the list in the Schedule, or(b) adding an offence to that list.(2) The power in subsection (1) is exercisable by the Scottish Ministers (and not by the Secretary of State) so far as it may be used to make provision that would be within the legislative competence of the Scottish Parliament if contained in an Act of that Parliament.(3) The power in subsection (1) is exercisable by the Department of Justice in Northern Ireland (and not by the Secretary of State) so far as it may be used to make provision that—(a) would be within the legislative competence of the Northern Ireland Assembly if contained in an Act of that Assembly, and(b) would not, if contained in a Bill for an Act of the Northern Ireland Assembly, result in the Bill requiring the consent of the Secretary of State.(4) The Secretary of State may from time to time by regulations restate Schedule (Criminal liability of bodies: economic crimes) as amended by virtue of subsection (1) to (3) (without changing the effect of the Schedule).”Member’s explanatory statement
See the explanatory statement for new Clause (Attributing criminal liability for economic crimes to certain bodies).
“Offences under section (Attributing criminal liability for economic crimes to certain bodies) committed by partnerships
(1) Proceedings for an offence alleged to have been committed by a partnership by virtue of section (Attributing criminal liability for economic crimes to certain bodies) must be brought in the name of the partnership (and not in that of any of the partners).(2) For the purposes of such proceedings—(a) rules of court relating to the service of documents have effect as if the partnership were a body corporate, and(b) the following provisions apply as they apply in relation to a body corporate—(i) section 33 of the Criminal Justice Act 1925 and Schedule 3 to the Magistrates’ Courts Act 1980;(ii) section 18 of the Criminal Justice Act (Northern Ireland) 1945 (c. 15 (N.I.)) and Schedule 4 to the Magistrates’ Courts (Northern Ireland) Order 1981 (S.I. 1981/1675 (N.I. 26));(iii) sections 34(2), 66(6AA) and 72D(2) of the Criminal Procedure (Scotland) Act 1995.(3) A fine imposed on the partnership on its conviction for an offence committed by virtue of section (Attributing criminal liability for economic crimes to certain bodies) is to be paid out of the partnership assets.(4) In this section “partnership” has the same meaning as in section (Attributing criminal liability for economic crimes to certain bodies).”Member’s explanatory statement
This amendment makes provision in relation to offences committed by partnerships by virtue of section (Attributing criminal liability for economic crimes of certain bodies).
Lord Alton of Liverpool
“Duty to disclose funds and economic resources
After section 16 of the Sanctions and Anti-Money Laundering Act 2018, insert—“16A Duty to disclose funds and economic resources(1) Any regulations made under section 1 (power to make sanctions regulations) must, for the purposes of preventing an offence under those regulations, make provision requiring designated persons—(a) to report to the Treasury or another competent authority, within three months after such regulations are made or within three months from the date of designation, whichever is the latest, the funds or economic resources that—(i) are currently held, owned or controlled by them within the United Kingdom, and(ii) were held, owned or controlled by them within the United Kingdom six months prior to the date of designation, and(b) to cooperate with the Treasury or other competent authority in any verification of such information.(2) A failure to comply with a requirement in subsection (1) may be considered as participation in activities the object or effect of which is (whether directly or indirectly) to circumvent such requirement.(3) Where a designated person has been convicted of an offence by virtue of subsection (2), a court proceeding under section 6, 92 or 156 of the Proceeds of Crime Act 2002 (confiscation orders) must consider such person as benefitting by the value of any assets concealed through such criminal conduct. (4) Assets concealed as a result of a failure to comply with a requirement in subsection (1) constitute recoverable property for the purposes of Part 5 of the Proceeds of Crime Act 2002 (civil recovery of the proceeds etc. of unlawful conduct).(5) A court may only make an order for the confiscation or forfeiture of concealed assets if, or to the extent that, it would not be just and equitable to require the designated person to pay the amount recoverable under subsection (3) or to forfeit the property recoverable under subsection (4).(6) Regulations under subsection (1) may also be made in relation to a person who is subject to an International Criminal Court warrant for an offence that would constitute an economic crime in the United Kingdom.””Member’s explanatory statement
This amendment says that sanctions regulations must, for the purposes of preventing an offence under those regulations, require designated persons to disclose all assets they own or control in the UK. Failure to disclose such assets is defined as a form of sanctions evasion, which is already criminalized under UK law, and which could result in asset recovery under the Proceeds of Crime Act.
Lord Alton of Liverpool (CB)
Amendment 107 enjoys all-party support, and its purpose is to insert a new clause imposing a duty to disclose funds and economic resources. In a nutshell, the amendment would require that sanctions regulations must, for the purposes of preventing an offence under those regulations, require designated persons to disclose all assets that they own or control in the United Kingdom. Failure to disclose such assets is defined as a form of sanctions evasion, which is already criminalised under UK law and which could result in asset recovery under the Proceeds of Crime Act.
The amendment is in line with the one debated in Grand Committee. One change has been made to reflect the Minister’s helpful view about proportionality— I am particularly grateful to the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, for their helpful suggestion that the best way in which to ensure proportionality would be to incorporate the words “just and equitable”, as we have done in the revised amendment. In thanking the noble Lord and the noble and learned Lord, I thank also the co-sponsors, the noble Lords, Lord Leigh of Hurley, Lord Coaker and Lord Fox. Their input and wisdom have been invaluable. The Minister and his really excellent Bill team have engaged through meetings and in a flurry of emails and exchanges, which have been admirable, and I am grateful to them too. I hope that we can come to an amicable conclusion this evening.
The topicality and urgency of this amendment was underlined by the Statement made in another place yesterday, and repeated here last night, on the Ukraine Recovery Conference. We have all been shocked by the sheer scale of the destruction unleashed by Putin’s illegal war—the massive loss of life and the ruination of cities, towns and villages, and the destruction of the country’s agricultural base. In this lamentable context, we are right to plan for the future. The European Union has set aside a €50 billion recovery fund, and the United Kingdom has said that we will provide loans worth $3 billion over the next three years. Globally, some 500 businesses from 42 countries have pledged more than $5.2 trillion to back Ukraine’s recovery. However, as the Prime Minister made clear to that conference, Russia must pay for the destruction that it has inflicted. In that respect, the Foreign Secretary has said that the United Kingdom is working with allies to explore lawful routes to use frozen and immobilised Russian assets to fund Ukrainian reconstruction. It was to enable that to happen that the movers of this amendment raised this question in Grand Committee.
Lord Fox (LD)
My Lords, I am pleased to support the amendment in the name of my noble friend. If I do not speak at length, it is not because I do not think it a very important amendment but because I am trying to infect the rest of the House with some brevity—unsuccessfully, I suspect. This is an important amendment and we have seen movement in other regimes. We have seen movement in the United States; we are seeing movement in the European Union; and I think we have seen movement in the House of Commons on the Procurement Bill, to which we have started to see changes in attitude. I hope we will hear from the Minister shortly that the Government are prepared to move, in order that we can bank a step in the right direction along this path. I look forward to hearing what the Minister has to say, and I hope this amendment will not have to be pressed if we hear what we want to hear.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Alton of Liverpool, for this amendment, for his constructive engagement throughout the passage of the Bill through this House and, of course, for his typically thoughtful and powerful introduction. I also pay tribute to noble Lords from all sides of the House, and Members in the other place, for continuing to pursue this important issue and engage with the Government on a cross-party basis, not least the APPG on Anti-Corruption and Responsible Tax. I can reassure the noble Lord that the Government are supportive of mechanisms to deprive sanctioned individuals, where appropriate, of their assets, with a view to funding the recovery and reconstruction of Ukraine. More broadly, the Government want to drive further transparency on assets held by sanctioned persons in the UK.
On 19 June, the Government announced four new commitments which reaffirm that Russia must pay for the long-term reconstruction of Ukraine. This includes new legislation, laid the same day by the Foreign Secretary, to enable sanctions to remain in place until Russia pays compensation for damage caused. In this announcement the Government also confirmed that we will lay new legislation requiring persons and entities in the UK, or UK persons and entities overseas, who are designated under the Russia financial sanctions regime to disclose any assets they hold in the UK. The Government are firmly committed to bringing forward this secondary legislation, subject to the made affirmative procedure, and to introducing this measure before the end of 2023, subject to the usual parliamentary scheduling. This will strengthen transparency of assets and make it clear that the UK will not allow assets to be hidden in this country.
Sanctioned individuals who fail to disclose their assets could receive a financial penalty or have their assets confiscated. This demonstrates our continued commitment to penalising those who make deliberate attempts to conceal funds or economic resources. The new power builds on and strengthens the UK’s existing powers around transparency of designated persons’ assets. HMG already use the annual review of the Office of Financial Sanctions Implementation, known as OFSI, to collect and detail assets frozen under UK financial sanctions. Additionally, relevant firms such as banks, other financial institutions, law firms and estate agents have an ongoing obligation to report to OFSI if they know or reasonably suspect that a person is a designated person or has committed offences under financial sanctions regulations, where that information is received in the course of carrying on their business. Those firms must provide information about the nature and amount of any funds or economic resources held by them for the customer.
The designated person reporting measure will act as a dual verification tool by enabling the comparison of disclosures against existing reporting requirements that bite on relevant firms. This will tighten the net around those who are not reporting and are evading their reporting requirements.
On asset seizure, prosecutors and/or law enforcement agencies can currently apply to confiscate or permanently seize assets where someone has benefited from their offending, or the assets have links to criminality, by making use of powers under the Proceeds of Crime Act 2002. Importantly, the new measures will also give His Majesty’s Government the ability to impose fines. Overall, this designated person reporting measure will be focused on strengthening the UK’s compliance toolkit while giving options for penalising those who seek to hide their assets.
The noble Lord’s amendment includes a specific provision which would require the designated person also to report assets which were held six months prior to the designation. The Government are still fully developing the non-disclosure measure and I can assure the noble Lord that we are carefully considering this suggestion. Although not retrospective in terms of regulating or criminalising conduct that occurred before the measure came into force, requiring designated persons to provide a snapshot of their assets at a historical point in time is necessarily more onerous than a forward look requirement. The Government will need carefully to consider the design of the measure and the proportionality and additional value of so-called retrospective reporting to ensure that it is operationally deliverable and legally robust. This will include working with relevant law enforcement agencies to determine how such information would be used.
Before laying these regulations, the Government will complete their ongoing evaluation of possible operational or implementation challenges to help ensure the successful delivery of this measure. For example, investigating non-compliance will require significant resources from the enforcing agency. We want to ensure that it has all the capability, skills and resources to succeed.
I note the interest in and strength of feeling on this issue. The Government will continue to work collaboratively and constructively with interested parties in the lead-up to bringing forward the legislation, including on reporting assets which were held prior to a designation. We will continue to engage with the civil society organisations that have campaigned for this measure, and I would be happy to work with the noble Lord, Lord Alton, and other parliamentarians to keep them informed of progress ahead of it being formally introduced.
Again, I am grateful to the noble Lord for bringing this issue forward for debate and for the continued interest and engagement of many stakeholders. I hope that, given the reasons I have outlined and the action the Government are already taking, he will consider withdrawing his amendment.
Lord Alton of Liverpool (CB)
My Lords, I am extremely grateful to the noble Lord, Lord Sharpe, for the manner in which he has addressed this issue and the House this evening. He was right to pay tribute to the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax; I would link with that the specific work of Dame Margaret Hodge MP, the Royal United Services Institute and many of those in civil society to which the Minister has referred. I was especially pleased to hear what he said about working collaboratively with those organisations that have been involved in taking this amendment forward.
I do not underestimate the importance of what the Minister has said to the House. He said that he will look at the outstanding issue of the six-month retrospective period; although he gave no guarantees or assurances on that front, at least we will be able to discuss and examine it further. However, he has agreed to introduce secondary legislation before the end of the year—not “at a time to be agreed” or some possibility of legislation coming in the next nine or 10 months, but by the end of this year. I welcome that very much. He also told the House that it would be done under the affirmative procedure, which will give us the chance to come back again. Significant progress has been made on this and I am very grateful to the Minister. I am very happy to withdraw the amendment.
Lord Sharpe of Epsom
“SCHEDULECRIMINAL LIABILITY OF BODIES: ECONOMIC CRIMESCommon law offences
1_ Cheating the public revenue.2_ Conspiracy to defraud.3_ In Scotland, the following offences at common law—(a) fraud;(b) uttering;(c) embezzlement;(d) theft.Statutory offences
4_ An offence under any of the following provisions of the Theft Act 1968—(a) section 1 (theft);(b) section 17 (false accounting);(c) section 19 (false statements by company directors etc);(d) section 20 (suppression etc of documents);(e) section 24A (dishonestly retaining a wrongful credit).5_ An offence under any of the following provisions of the Theft Act (Northern Ireland) 1969—(a) section 1 (theft);(b) section 17 (false accounting);(c) section 18 (false statements by company directors etc);(d) section 19 (suppression etc of documents);(e) section 23A (dishonestly retaining a wrongful credit).6_ An offence under any of the following provisions of the Customs and Excise Management Act 1979—(a) section 68 (offences in relation to exportation of prohibited or restricted goods);(b) section 167 (untrue declarations etc);(c) section 170 (fraudulent evasion of duty).7_ An offence under the Forgery and Counterfeiting Act 1981 (forgery, counterfeiting and kindred offences).8_ An offence under section 72 of the Value Added Tax Act 1994 (fraudulent evasion of VAT).9_ An offence under section 46A of the Criminal Law (Consolidation) (Scotland) Act 1995 (false monetary instruments).10_ An offence under any of the following sections of the Financial Services and Markets Act 2000—(a) section 23 (contravention of prohibition on carrying on regulated activity unless authorised or exempt); (b) section 25 (contravention of restrictions on financial promotion);(c) section 85 (prohibition on dealing etc in transferable securities without approved prospectus);(d) section 398 (misleading the FCA or PRA).11_ An offence under any of the following sections of the Terrorism Act 2000—(a) section 15 (fund-raising);(b) section 16 (use and possession);(c) section 17 (funding arrangements);(d) section 18 (money laundering);(e) section 63 (terrorist finance: jurisdiction).12_ An offence under any of the following sections of the Proceeds of Crime Act 2002—(a) section 327 (concealing etc criminal property);(b) section 328 (arrangements facilitating acquisition etc of criminal property);(c) section 329 (acquisition, use and possession of criminal property);(d) section 330 (failing to disclose knowledge or suspicion of money laundering);(e) section 333A (tipping off: regulated sector).13_ An offence under section 993 of the Companies Act 2006 (fraudulent trading).14_ An offence under any of the following sections of the Fraud Act 2006—(a) section 1 (fraud);(b) section 6 (possession etc of articles for use in frauds);(c) section 7 (making or supplying articles for use in frauds);(d) section 9 (participating in fraudulent business carried on by sole trader);(e) section 11 (obtaining services dishonestly).15_ An offence under any of the following sections of the Bribery Act 2010—(a) section 1 (bribing another person);(b) section 2 (being bribed);(c) section 6 (bribery of foreign public officials).16_ An offence under section 49 of the Criminal Justice and Licensing (Scotland) Act 2010 (possession, making or supplying articles for use in frauds).17_ An offence under any of the following sections of the Financial Services Act 2012—(a) section 89 (misleading statements);(b) section 90 (misleading impressions);(c) section 91 (misleading statements etc in relation to benchmarks).18_ An offence under regulation 86 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.19_ An offence under regulations made under section 49 of the Sanctions and Anti-Money Laundering Act 2018 (money laundering and terrorist financing etc).20_ (1) An offence under an instrument made under section 2(2) of the European Communities Act 1972 for the purpose of implementing, or otherwise in relation to, EU obligations created or arising by or under an EU financial sanctions Regulation.(2) An offence under an Act or under subordinate legislation where the offence was created for the purpose of implementing a UN financial sanctions Resolution. (3) An offence under paragraph 7 of Schedule 3 to the Anti-terrorism, Crime and Security Act 2001 (freezing orders).(4) An offence under paragraph 30 or 30A of Schedule 7 to the Counter-Terrorism Act 2008 where the offence relates to a requirement of the kind mentioned in paragraph 13 of that Schedule.(5) An offence under paragraph 31 of Schedule 7 to the Counter-Terrorism Act 2008.(6) An offence under regulations made under section 1 of the Sanctions and Anti-Money Laundering Act 2018 (sanctions regulations).(7) In this paragraph—“EU financial sanctions Regulation” and “UN financial sanctions Resolution” have the same meanings as in Part 8 of the Policing and Crime Act 2017 (see section 143 of that Act);“subordinate legislation” has the same meaning as in the Interpretation Act 1978.”Member’s explanatory statement
This amendment sets out the list of offences in relation to which liability may be attributed to the body in accordance with Clause (Attributing criminal liability for economic crimes to certain bodies)(1).
Lord Garnier
Member’s explanatory statement
This amendment, together with the amendment to leave out Clause 190, would remove the exemption for organisations that are not “large organisations” from the failure to prevent regime so that there are no exemptions, although the statutory defence will apply to all organisations.
Lord Garnier (Con)
My Lords, clearly, I have not persuaded the Government, but I hope that I have not treated their arguments with disrespect. We have had not a row but an honest disagreement. As with all sorts of disagreements, I invite the House to arbitrate and will press this amendment to a Division.
The Deputy Speaker (Baroness Barker) (LD)
I advise the House that, if Amendment 110 is agreed to, I cannot call Amendment 111 because of pre-emption.
The Deputy Speaker (Baroness Barker) (LD)
My Lords, I cannot call Amendment 111 because of pre-emption.
Amendments 112 to 116
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and my amendment at page 178, line 2 substitute the term “subsidiary undertaking” for “subsidiary”, for consistency with my amendment at page 178, line 3.
“(1A) A relevant body is also guilty of an offence under subsection (1) if—(a) an employee of the relevant body commits a fraud offence intending to benefit (whether directly or indirectly) the relevant body,(b) the fraud offence is committed in a financial year of a parent undertaking of which the relevant body is a subsidiary undertaking (“the year of the fraud offence”), and(c) the parent undertaking is a relevant body which is a large organisation.”Member’s explanatory statement
This amendment establishes that an offence of failure to prevent fraud may be committed by a subsidiary of a large organisation where an employee of the subsidiary commits a fraud offence, intending to benefit the subsidiary.
Member’s explanatory statement
This amendment omits unnecessary words.
Member’s explanatory statement
See the explanatory note for my amendment at page 177, line 28.
“(6A) For the purposes of this section a person is also associated with a relevant body if the person is an employee of a subsidiary undertaking of the relevant body; but for the purpose of determining whether an offence is committed by virtue of this subsection, subsection (1) has effect with the omission of paragraph (b) (and the “or” preceding it).”Member’s explanatory statement
This amendment establishes that an offence of failure to prevent fraud may be committed where an employee of a subsidiary of a large organisation commits a fraud offence, intending to benefit the large organisation.
Lord Sharpe of Epsom
“(1A) The reference in subsection (1) to a relevant body does not include a relevant body which is a parent undertaking (as to which see section (Large organisations: parent undertakings)).”Member’s explanatory statement
See the explanatory statement for new Clause (Large organisations: parent undertakings).
Member’s explanatory statement
This amendment enables new Clause (Large organisations: parent undertakings) to be modified for the purpose of altering the meaning of “large organisation”.
“(6A) Before making regulations under subsection (5) or (6) the Secretary of State must consult—(a) the Scottish Ministers, and(b) the Department of Justice in Northern Ireland.”Member’s explanatory statement
This amendment requires consultation to take place before the powers in subsections (5) and (6) are exercised.
Lord Sharpe of Epsom
“Large organisations: parent undertakings
(1) For the purposes of section 188(1) and (1A) a relevant body which is a parent undertaking is a “large organisation” only if the group headed by it satisfied two or more of the following conditions in the financial year of the body that precedes the year of the fraud offence—
Aggregate turnover | More than £36 million net (or £43.2 million gross) |
Aggregate balance sheet total | More than £18 million net (or £21.6 million gross) |
Aggregate number of employees | More than 250. |
This amendment and my amendment at page 179, line 35, enable certain parent undertakings to qualify as a “large organisation” for the purposes of the offence of failure to prevent fraud.
Lord Sharpe of Epsom
“(5A) “Parent undertaking” has the same meaning as in the Companies Acts (see section 1162 of the Companies Act 2006).”Member’s explanatory statement
This amendment is supplementary to new Clause (Large organisations: parent undertakings).
“(8) “Subsidiary undertaking” has the same meaning as in the Companies Acts (see section 1162 of the Companies Act 2006).” Member’s explanatory statement
This amendment is supplementary to new Clause (Large organisations: parent undertakings).
Lord Evans of Rainow (Con)
My Lords, I beg to move that we adjourn during pleasure—
“Update on the Fraud Strategy
The Government must publish, and lay before Parliament, an update by July 2024, and annually thereafter, on the progress and effectiveness of the implementation of the commitments made under Pillars 1, 2 and 3 of the Fraud Strategy published in May 2023, and the impact of the commitments, as it relates to the reduction of economic crime.”Member’s explanatory statement
This amendment requires the Government provide an update on the impact of the Fraud Strategy of May 2023 by July 2024 and then annually thereafter.
Baroness Bennett of Manor Castle (GP)
My Lords, I may be able to assist the House by moving Amendment 125—if no one yells at me, I will assume I am doing the right thing—in the name of the noble Lord, Lord Agnew, to which I have attached my name. I shall keep going. Noble Lords will see that this amendment calls for an update on the fraud strategy and for the Government to publish and lay before Parliament
“an update … by July 2024, and annually thereafter”.
We have debated at considerable length the fact that the UK is
“the fraud capital of the world”—
and there I am quoting the head of UK Finance. I attached my name to the amendment because, as I do not need to say to the House, the noble Lord, Lord Agnew, is absolutely our stalwart leader on these issues, so I beg to move.
Lord Agnew of Oulton (Con)
My Lords, I do not seek to press this amendment. I merely say that the fraud plan, which my noble friend the Minister worked so hard on, has produced a list of some 74 commitments. I certainly am not going to add to the agony of the House and list them; all I ask my noble friend to do is to ensure that there is a mechanism for his department to track the progress of all these commitments. In aggregate, they would entirely change the landscape, but if they are not pursued, we will not move forward.
Baroness Blake of Leeds (Lab)
Amendment 128 in the name of my noble friend Lord Coaker has a straightforward, clear ask: within a year of the Bill passing, the Secretary of State must publish a report on economic crime and investigation. It must include the performance of the framework for investigating crime, et cetera, and an assessment of the roles of the Serious Fraud Office in particular. Important elements mentioned in the amendment include the adequate resourcing of staff and the strategy for fees, which we have discussed elsewhere.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Baroness, Lady Blake, for speaking to the amendment in the name of the noble Lord, Lord Coaker, and my noble friend Lord Agnew of Oulton for his amendment. These amendments seek to add further parliamentary scrutiny on economic crime matters.
However, I have been clear throughout the previous debates on this topic that it is the Government’s view that there is already more than sufficient external scrutiny in the areas outlined by the noble Lords. These amendments are therefore duplicative, and if accepted would lead to agencies and government departments being caught in resource-intensive reporting requirements that would have no real benefit to parliamentarians, detracting from their core roles of tackling economic crime. I have noted what my noble friend has said, and the Government are of course more than committed to doing the things he suggests.
Amendment 128 in the name of the noble Lord, Lord Coaker, would require the Government to issue a report on the performance of agencies and departments in tackling economic crime. I am aware of the strength of his feeling on the resourcing, performance and co-ordination of operational agencies. I hope that the sessions we have facilitated for him with Companies House and the Serious Fraud Office will have gone some way to reassuring him on this.
I can also reassure him and the House that the Government are ensuring that the response to economic crime has the necessary funding. The combination of 2021’s spending review settlement and private sector contributions through the new economic crime levy will provide funding of £400 million over the spending review period. The levy applies to the AML-regulated sector and will fund new or uplifted activity to tackle money laundering, starting from 2023-24.
In addition, a proportion of assets recovered under the Proceeds of Crime Act 2002 are already reinvested in economic crime capability. Under the asset recovery incentivisation scheme—ARIS—receipts paid into the Home Office are split 50:50 between central government and operational partners, based on their relative contribution to delivering receipts. In 2021-22 this resulted in £142 million being redistributed to POCA agencies. That should provide the necessary reassurance on resourcing and funding. Given what I hope to have shown is a significant amount of reporting, external scrutiny and indeed funding and resource, I ask the noble Baroness, on behalf of the noble Lord, Lord Coaker, not to press Amendment 128.
Baroness Bennett of Manor Castle (GP)
My Lords, I refer to a comment made by another Minister at the Dispatch Box that we will come back to economic crime and fraud again and again. I have no doubt about that. In the meantime, I beg leave to withdraw Amendment 125.
Lord Garnier
“Failure to prevent fraud and money laundering
(1) A relevant body is guilty of an offence if a person who is associated with the body (“the associate”) commits a fraud or money laundering offence intending to benefit (whether directly or indirectly)—(a) the relevant body, or(b) any person to whom, or to whose subsidiary, the associate provides services on behalf of the relevant body.(2) The relevant body is not guilty of an offence under subsection (1)(a) where the conduct underlying the offence was intended to cause harm to the body.(3) It is a defence for the relevant body to prove that, at the time the relevant offence was committed— (a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or(b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.(4) In subsection (3) “prevention procedures” means procedures designed to prevent persons associated with the body from committing fraud or money laundering offences as mentioned in subsection (1).(5) A “fraud or money laundering offence” is an act which constitutes—(a) an offence listed in Schedule 11 (failure to prevent fraud: fraud offences) (a “listed offence”), or(b) aiding, abetting, counselling or procuring the commission of a listed offence.(6) For the purposes of this section a person is associated with a relevant body if—(a) the person is an employee, agent or subsidiary of the relevant body, or(b) the person otherwise performs services for or on behalf of the body.(7) Whether or not a particular person performs services for or on behalf of a relevant body is to be determined by reference to all the relevant circumstances and not merely by reference to the nature of the relationship between that person and the body.(8) Where a relevant body is liable to be proceeded against for an offence under subsection (1) in a particular part of the United Kingdom, proceedings against the body for the offence may be taken in any place in the United Kingdom.(9) Where by virtue of subsection (8) proceedings against a relevant body for an offence are to be taken in Scotland—(a) the body may be prosecuted, tried and punished in a sheriff court district determined by the Lord Advocate, as if the offence had been committed in that district, and(b) the offence is, for all purposes incidental to or consequential on the trial or punishment, deemed to have been committed in that district.(10) A relevant body guilty of an offence under this section is liable—(a) on conviction on indictment, to a fine;(b) on summary conviction in England and Wales, to a fine;(c) on summary conviction in Scotland or Northern Ireland, to a fine not exceeding the statutory maximum.(11) In this section—“relevant body” means—(a) a body which is incorporated under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere),(b) any other body corporate (wherever incorporated) which carries on a business, or part of a business, in any part of the United Kingdom,(c) a partnership which is formed under the law of any part of the United Kingdom and which carries on a business (whether there or elsewhere), or(d) any other partnership (wherever formed) which carries on a business, or part of a business, in any part of the United Kingdom,and, for the purposes of this section, a trade or profession is a business;“sheriff court district” is to be read in accordance with the Criminal Procedure (Scotland) Act 1995 (see section 307(1) of that Act).(12) It is immaterial for the purposes of section (1) whether— (a) any relevant conduct of a relevant body, or(b) any conduct which constitutes part of a relevant fraud or money laundering offence,takes place in the United Kingdom or elsewhere.”
Lord Agnew of Oulton
“Civil recovery: costs of proceedings
After section 313 of the Proceeds of Crime Act 2002 insert—“313A Costs orders(1) This section applies to proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002 where the property in respect of which the proceedings have been brought has been obtained through economic crime.(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate,(b) the authority acted dishonestly or improperly in the course of the proceedings, or(c) it would not be in the interests of justice.””Member’s explanatory statement
This extends the cost cap for civil recovery cases beyond Unexplained Wealth Orders. Part 5 of the Proceeds of Crime Act permits the recovery of criminal assets where no conviction has been possible. For example, because the individuals avoided conviction by remaining remote from the commission of the crimes but were beneficiaries of them, or having fled the country. It retains safeguards on costs for improper action taken by prosecuting authorities.
Lord Agnew of Oulton (Con)
My Lords, I shall be very brief. First, I thank my noble and learned friend the Minister for his active engagement on this; he knows how strongly I feel about it.
We have a complete mishmash on the principles of cost capping at the moment. For example, cases taken in the magistrates’ courts have cost capping, as do cases taken by the SRA. However, we do not have cost capping for the most important of all: those large cases where the enforcement agencies are trying to take on big-time oligarchs.
The only other thing I would say is that we have heard about Bill Browder tonight. I have spoken to him a lot over the past few months. He said, “The one clause you must get through in this Bill is the one on cost capping”. I beseech the Government to listen to us on this and bring forward a clause on cost capping.
Lord Faulks (Non-Afl)
My Lords, I rise briefly to support the noble Lord. Two key themes emerged from our lengthy debates on the Bill. The first was that the scale of economic crime is a major threat to the prosperity of the country. The second was that there is a significant inequality of arms between the enforcement authorities and the perpetrators of economic crimes. I could weary the House at length but I will not do so. This is an attempt to redress that inequality and not provide a disincentive for the authorities to pursue the perpetrators of economic crime.
Lord Ponsonby of Shulbrede (Lab)
My Lords, if the noble Lord chooses to move to a vote, we will support him. This amendment would build on last year’s Bill, which introduced similar changes to unexplained wealth orders. It is a welcome development, and I hope that the noble Lord presses his amendment to a vote.
Lord Bellamy (Con)
My Lords, unfortunately, the Government are not able to accept this amendment, although we are sympathetic to the points made by my noble friend Lord Agnew. The amendment is designed to protect public authorities from having costs awarded against them if they fail to recover the proceeds of economic crime under the Proceeds of Crime Act.
First, the Government are not persuaded that public authorities that lose their case should be protected in this way. Secondly, this is a major breach of the general principle applied in civil litigation in the High Court that the loser pays.
Thirdly, it is a major interference with the discretion of the court on the question of costs. Fourthly, if such a change were to be contemplated, it should be a matter for the Civil Procedure Rules and not something inserted without detailed reflection on Report in your Lordships’ House. Fifthly, it would produce even more inconsistency than allegedly we have already. I do not accept that there is material inconsistency, but you would have one rule for some POCA cases and another rule for other POCA cases, because not all POCA cases are economic crime cases.
However, the Government are prepared actively to consider a consultation to properly consider this matter and the evidence with a view to ensuring that there is a correct balance of justice and the proper consideration of the pros and cons. That, very briefly, is the Government’s position.
I will briefly deal with one or two points. This is not like unexplained wealth orders, which have been mentioned. Those are an investigative procedure and not determinative of civil rights and obligations. In some respects, the UWO procedure is closer to a search warrant than to a recovery of money in civil litigation. It does not provide an analogy to the present case.
It is true that there are various costs regimes in various cases. It is probably not useful to weary your Lordships with particular decisions, but it is not without interest that in the case of Pfizer and Flynn, which involved the Competition and Markets Authority, the authority lost at first instance and was ordered to pay some of the costs. The Court of Appeal overturned that on the basis that it did not want to have the “chilling effect” of public authorities having to pay the costs when they lose litigation. However, the Supreme Court restored the original judgment and said, “This so-called chilling effect is only one factor”. In other words, it is not decisive. You must consider in that jurisdiction all the factors. The Government draw from that case that the so-called chilling effect is not necessarily decisive, and that one must have a regime that enables the court to balance all the relevant effects.
With all respect for the motives behind it and the concerns that have been expressed, this amendment is too blunt an instrument to be a proper exercise of primary legislation in an area which very much calls for balanced consideration under the Civil Procedure Rules. As I said at the outset, the Government are perfectly prepared actively to consider reform of the Civil Procedure Rules with that aim in mind.
I hope that I have persuaded your Lordships that this is not an occasion to make an exception to the well-established rule that has stood for hundreds of years, whether it applies to HMRC, the National Crime Agency or the FCA. If they make a complete Horlicks of a case, there is no reason to let them off the costs. That is the Government’s position.
Lord Agnew of Oulton (Con)
I thank my noble and learned friend the Minister for his answer. He has always been entirely consistent, and I respect that. We have a genuine difference of views. English law has plenty of exceptions to the landscape which my noble and learned friend has set out—for example, when local authorities bring cases following the Booth case, law enforcement bodies when they bring cases in the magistrates’ court, the Law Society when it brings disciplinary action, its prosecutions that fail following the Baxendale-Walker case, and the Competition and Markets Authority, where the Competition Appeal Tribunal can rule in its favour when it is unsuccessful in bringing a case.
There are plenty of examples. I am not seeking to make the perfect the enemy of the good. We can bring this in with this Bill. It would send a very powerful signal. I seek to test the opinion of the House.
Baroness Kramer
“Whistleblowing: economic crime
(1) Whistleblowing is defined for the purposes of this section as any disclosure of information suggesting that, in the reasonable opinion of the whistleblower, an economic crime—(a) has occurred,(b) is occurring, or(c) is likely to occur.(2) The Secretary of State must by regulations made by statutory instrument, within the period of 12 months beginning with the day on which this Act is passed, set up a body corporate, to be known as the Office for Whistleblowers, to receive reports of whistleblowing as defined in subsection (1).(3) Regulations under subsection (2) may not be made unless a draft of the statutory instrument containing them has been laid before, and approved by, each House of Parliament. (4) The Office for Whistleblowers must—(a) protect whistleblowers from detriment resulting from their whistleblowing,(b) ensure that disclosures by whistleblowers are investigated, and(c) escalate information and evidence of wrongdoing outside of its remit to such other appropriate authority as the regulations may provide or otherwise as the Office may determine.(5) The objectives of the Office for Whistleblowers are—(a) to encourage and support whistleblowers to make whistleblowing reports,(b) to provide an independent, confidential and safe environment for making and receiving whistleblowing information,(c) to provide information and advice on whistleblowing, and(d) to act on evidence of detriment to the whistleblower according to such guidance as may be set out by the Secretary of State in the regulations.(6) The Office for Whistleblowers must report annually to Parliament on the exercise of its duties, objectives and functions.”Member’s explanatory statement
This amendment would require the Secretary of State to set up an Office for Whistleblowers to receive reports of whistleblowing in relation to economic crime.
Baroness Kramer (LD)
My Lords, it has been a long day and I discussed this amendment to create an office for whistleblowers extensively in Committee, so I will not cover the detailed ground again. I had intended to bring this amendment back to give an opportunity to the noble Lord, Lord Browne of Ladyton, but, given the small number in the Chamber at this time, we mutually decided that he should save the information that he has gathered for a larger audience. The noble Lord has, in essence, uncovered information that demonstrates how few whistleblower reports are actually investigated by any of the regulators.
As we have discussed before, whistleblowers have two asks, the first of which is that they are not left to be victims of retaliation. This House has heard how often the careers and lives of whistleblowers are destroyed under the current framework. The only protection the FCA offers is confidentiality for the whistleblower reports it receives; it takes no action if whistleblowers are identified—as they often are, because they have raised concerns internally or because the information itself identifies them. The employment tribunal process, which is limited to employees, costly and often drawn out for years, is no real protection. Correcting this by creating an office for whistleblowers is at the heart of my amendment.
The other ask of any whistleblower is that their tip-off, especially when supported by extensive data, is followed up with an investigation. Many of us assume that this would be the norm, except where the tip is malicious or frivolous. Instead, it is the rare exception, as the noble Lord, Lord Browne, will detail when he next has the opportunity. Following a recent survey of whistleblowers, the FCA told us that it is intending to remedy the lack of follow-up. It admits that it followed up fully on only three cases last year. It also says that it will take time to build the capacity and protocols to make follow-up much more the norm.
This amendment would give the office for whistle- blowers the power to get regulators to follow up tips, rather than brush them in the bin, which has been the norm in virtually every area of public and private life. The House will be fairly shocked when it sees the data assembled by the noble Lord, Lord Browne.
Before I close, I again draw the House’s attention to the difference in performance between the UK and the US. I am not suggesting that the US has it all solved or that we should import the US system, which in many ways would not fit well. However, last year, the Securities and Exchange Commission alone received 783 tips from UK whistleblowers, typically because the UK regulator had decided on no action. My understanding is that, in the US, tips means that all those cases will be followed up intensely.
Last weekend, I was stopped in the street by a whistleblower who has received no action by the FCA. He told me that he has been invited to fly to the US— I believe he is there now—because the SEC’s initial investigation, based on his tip, is opening up one of the most significant cases of bank fraud in a decade. It should be an exception for a UK whistleblower to believe that the only place that they can go to get proper investigation is the United States; unfortunately, it is the rule in financial services. For that reason, among others, I beg to move.
Baroness Altmann (Con)
I do not wish to detain the House long. I congratulate the noble Baroness, Lady Kramer, on her amendment and her Private Member’s Bill trying to bring this matter to the House’s attention. She is absolutely right that it is really important, and I wish that we could put a measure of this nature into the Bill—whether this one exactly or something similar.
It should not be a career-ending decision to try to do the right thing. To try to alert the country to a major issue that may be going on within our corporate sector should not be something that one is frightened of. Sadly, at the moment, that is so.
I also congratulate the APPG on Anti-Corruption and Responsible Tax, which has done brilliant work in helping brief the House on the Bill. Finally, I thank my noble friend the Minister, who I know has tried so hard to make this a better Bill. I thank the noble Baroness, Lady Kramer. I fully support her amendment, but I am sad that it is not going to carry tonight.
Baroness Blake of Leeds (Lab)
I add my recognition to the noble Baroness, Lady Kramer, for the extraordinary attention to detail and persistence that she has shown in taking forward this very important issue. I know that the Minister will talk to us about the review that is coming in, but there still remain certain aspects that could be brought in immediately—for example, an expectation that every company at least has a policy on whistleblowing. We do not have to wait for a review to achieve that.
We have heard some extraordinary testimony through the debates on the Bill, and the real heartache and personal cost that have befallen people who have not had a good experience. As the noble Baroness, Lady Altmann, said, too many people wait until their job or career comes to an end before they give any details, if they do at all, on the issues that concern them.
This is an extraordinarily important issue. We need to make sure that the pressure is on. I ask the Minister to give us some reassurance about the review, what will happen when it is concluded, and what the mechanism will be to make sure that its findings are put into practice.
The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)
Before I speak to the amendment in this group, I draw your Lordships’ attention to my interests as set out in the register.
I turn to Amendment 136. I personally thank the noble Baroness, Lady Kramer, for raising the very important matter of whistleblowing. I have been extremely grateful for the time that she spent with me ahead of this debate, and look forward to continuing being an important conduit for her into the Government, trying to seek a good resolution around the noblest of intentions. I am also grateful to my noble friend Lady Altmann and the noble Baroness, Lady Blake, as always, for their useful, contributory, collaborative comments.
This Government recognise how valuable it is that whistleblowers are prepared to shine a light on wrongdoing and believe that they should be able to do so without fear of recriminations. This entire process fits within the spirit of the ECCT Bill. I pay tribute to the courage displayed by individuals who blow the whistle on wrongdoing.
I appreciate that there is real strength of feeling on this topic, but the Government’s position is still that it is premature to make legislative change ahead of the review of the whistleblowing framework, which has been mentioned in this debate. The Government recognise that there are different proposals for an office for the whistleblower, and the roles and functions that such a body could have.
The office risks duplication and confusion within the established whistleblowing framework. It is not necessarily clear how the office would interact with the existing prescribed persons, many of whom have regulatory powers in specific sectors. It may duplicate their role and responsibilities. It is also not clear how the office would interact with the current approach to detriment protection for whistleblowers and the role of the employment tribunal, and how whistleblowers and employers would be affected.
Secondly, there is an issue around the costs associated with establishing and running a body. It is not clear how the body would be funded, and we should think very carefully before committing taxpayers’ money, even though this is clearly a very important cause that deserves significant amounts of attention.
Finally, I would not want the Government to take such a dramatic step before they have fully considered the effectiveness of our existing framework as well. As I am sure noble Lords would agree, it would be premature to make legislative change before the ongoing review of the whistleblowing framework has concluded and the Government have assessed the evidence.
It is worth pointing out that we were one of the first countries to introduce a whistleblowing framework, and our framework is well established. Internationally, we are regarded as a leader in whistleblowing policy and our framework has been used as a model for other jurisdictions, such as Australia and Ireland. The whistle- blowing framework recognises that workers are actually the first line of defence for employers to detect and take action where wrongdoing is taking place or has the potential to do so. Workers who believe that they have been dismissed or otherwise detrimentally treated for making a protected disclosure can make a claim to the employment tribunal, which can award unlimited compensation.
Baroness Kramer (LD)
My Lords, I thank both the noble Baroness, Lady Altmann, who is so active in this cause, and the noble Baroness, Lady Blake, for the statements they made. I thank the Minister too for reinforcing the steps that the Government are taking to review the whistleblowing framework. We have real hopes that that will achieve a lot of the goals that we have in mind.
I want to reassure the Minister on one point. A canard that is so often raised, and I have addressed it before, is the cost of an office of the whistleblower. Within the Securities and Exchange Commission, the Office of the Whistleblower is regarded not as a cost centre but as a profit centre. Its capacity to pursue wrongdoing has led to such a level of fines as a consequence that over the past 10 years it has passed back in excess of $7 billion to the US treasury. It is certainly an institution that more than pays for itself, because it brings wrongdoers to justice, leads to financial penalties and not only covers its own costs but contributes to taxpayers’ benefit, as it should.
However, I will of course, under these circumstances, at this late hour, and with many thanks, agree to treat this as additional pressure on the Government to further a sense of urgency for the review. I beg leave to withdraw the amendment.
The Deputy Speaker (Baroness Barker) (LD)
My Lords, I should inform the House that the numbers announced for the Division on Amendment 129 need to be corrected. This does not impact the outcome. The correct numbers were: Contents 164, Not-Contents 150.
Clause 204: Regulations
Amendments 137 to 140
Lord Evans of Rainow
Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
“(ea) regulations made by the Secretary of State under section (Power to amend list of economic crimes)(1);”Member’s explanatory statement
This amendment provides for regulations under new Clause (Power to amend list of economic crimes) made by the Secretary of State to be subject to the affirmative procedure.
Member’s explanatory statement
This amendment provides for regulations under new Clause (Power to amend list of economic crimes) made by the Scottish Ministers to be subject to the affirmative procedure.
Member’s explanatory statement
This amendment provides for regulations under new Clause (Power to amend list of economic crimes) made by the Northern Ireland Department to be subject to the affirmative procedure.
Lord Evans of Rainow
Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
“(1A) Sections (Strategic litigation against public participation: requirement to make rules of court) and (Meaning of “SLAPP” claim) extend to England and Wales only.”Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
Lord Evans of Rainow
Member’s explanatory statement
See the explanatory statement for new clause (Strategic litigation against public participation: requirement to make rules of court).
Member’s explanatory statement
This amendment and my other amendment to Clause 206 provide for new Clauses (Attributing liability for economic crimes), (Power to amend list of economic crimes) and (Offences under section (Attributing criminal liability for economic crimes to certain bodies) committed by partnerships) and new Schedule (Criminal liability of bodies: economic crimes) to come into force two months after Royal Assent.
(a) section (Attributing criminal liability for economic crimes to certain bodies) and Schedule (Criminal liability of bodies: economic crimes);(b) section (Power to amend list of economic crimes);(c) section (Offences under section (Attributing criminal liability for economic crimes to certain bodies) committed by partnerships);(d) section 201.”Member’s explanatory statement
See the explanatory statement for my other amendment to Clause 206.