Economic Crime and Corporate Transparency Bill

(Limited Text - Ministerial Extracts only)

Consideration of Commons amendments
Monday 11th September 2023 Lords Chamber

Moved by

[Lord Johnson of Lainston]

That this House do disagree with the Commons in their Amendment 23A and do propose Amendments 23B and 23C in lieu—

23A: As an amendment to Lords Amendment 23, leave out lines 84 to 96

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[The Minister of State, Department for Business and Trade (Lord Johnson of Lainston) (Con)]

My Lords, I shall also speak to Motions B, C, D and D1. I thank noble Lords for their extraordinarily high level of constructive input over the last few days as we have come to this point. I believe that together, across the House, we have created a truly powerful piece of legislation that will have a meaningful impact on how Companies House operates, how we deal with financial crime and how we make our system safer and cleaner.

I should declare my interests. I have interests in limited companies and other companies, but I do not believe there is any conflict of interest in this process today.

Motion A relates to Lords Amendment 23, tabled on Report by the noble Lord, Lord Vaux of Harrowden, which would require members of all UK companies to declare whether they were holding shares on behalf of, or subject to the direction of, another person or persons as a nominee and, if so, to provide details of the person or persons. We have been in conversation over the last few days about that amendment. While we understand the intention to tackle what we perceive to be an industry of nominee service providers prone to acting unlawfully, I am afraid we do not believe that the amendment is the appropriate way to achieve that goal.

However, the Government, via Motion A, have therefore tabled Amendments 23B and 23C in lieu of Commons Amendment 23A. I hope that is making sense to the noble Lord. The new amendments allow the Secretary of State to make regulations to make further provision for the purpose of enabling a company to find out who its PSCs are—that is, people of significant control—in cases where shares are held by a nominee. That could include, among other things, imposing further obligations on companies to find out if they have nominee shareholders and, if so, for whom they are holding shares, or imposing further obligations on nominee shareholders to disclose their status and for whom they are holding shares.

It is important that we make it clear that the reason for tabling the new amendments rather than accepting the noble Lord’s revised amendment is that we are slightly wary of imposing disproportionate burdens on business. There are a vast variety of nominee types which we need to make sure we have taken into account when ensuring that we are getting the right information from the right types of nominees. As I have said to the noble lord—at this Dispatch Box, I believe—the commitment in principle to try better to understand the route between the nominee and the beneficiary is an important one. We want to do it in the right way, and these amendments would give the Secretary of State the powers to do that. I hope that the noble Lord can agree that that is the right approach to take and, assuming that is so, can support the Government in this new amendment and consider withdrawing his own.

I turn to Motion B.

[Lord Agnew of Oulton (Con)]

My Lords, I apologise to my noble friend the Minister. I had been told that I needed to address my Motion D1 while Motion A was under discussion. I am very happy to wait but those were the instructions I had from the Table. Would anyone like to clarify?

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[Lord Johnson of Lainston (Con)]

I am told that I should continue, and we will hear from my noble friend at a later stage—which I welcome and look forward to greatly.

Motion B is a technical Motion that allows the power to modify who is able to file with Companies House on others’ behalf, to ensure it is consistent for all types of filings. I hope the House is assured that these amendments are minor but sensible modifications to the Bill.

Motion C relates to Lords Amendment 115, also tabled by the noble Lord, Lord Vaux, at Report. This will introduce two new duties for overseas entities, the first requiring event-driven updates on beneficial ownership information, and the second requiring overseas entities to update their records no more than 14 days before the completion of a land transaction. We believe that requiring event-driven updates for the Register of Overseas Entities will not work in principle. I would like to reassure noble Lords that we have done an enormous amount of highly collaborative work with the noble Lord, Lord Vaux, on this issue. We are concerned that this would create additional risk for purchasers of properties involved with overseas entities. However, as I hope I have made clear to noble Lords, we are extremely committed to working further on this subject. The Government commit to keeping under review the question of the update period for the Register of Overseas Entities. That is extremely important, and I personally commit to that on behalf of the Government. We will have more evidence at our disposal as the first set of annual updates comes through. If we felt it necessary to change the reporting requirements, and if there were not the risks that we feel may be presented by the noble Lord’s proposal, then we would look to consult on that. For that reason, we will not be supporting that amendment.

I turn to Motion D, which my noble friend Lord Agnew will then speak to. Again, I am very grateful to my noble friend for his extraordinarily high level of commitment to making sure that the Economic Crime and Corporate Transparency Bill is genuinely powerful legislation that will enable us to achieve the goals we wish to achieve. Ultimately, transparency is at the core of our ambition. However, we are concerned, in that his amendment would make information about trusts submitted to the Register of Overseas Entities publicly available by removing it from the list of material listed as unavailable for public inspection. I note that my noble friend has also tabled a further amendment.

However, it is important to come back to these points, because they are very relevant to our ambitions. We are resolute in saying that we will not unilaterally change the rules relating to these trusts, and I think Members of the House understand why. However, we have committed already to launching a full public consultation before the end of the year on how we can further improve the transparency of trust information. Following further discussion with my noble friend, I would like to make it clear that the public consultation to which we are committed is a separate exercise from the commitment to make regulations that I have discussed already. The consultation will look at the case for broader transparency regarding trusts. The Government’s ambition is to increase and improve transparency. We commit absolutely that we will undertake this consultation and that it will be launched before Christmas of this year and run for no more than 12 weeks. That is in line with discussions we had with my noble friend.

I reassure my noble friend that Ministers across departments are committed to meeting this deadline and acting swiftly on the consultation’s findings. I would be very happy to meet with my noble friend, and indeed any noble Lords, soon after the consultation closes to discuss how we can move forward at pace. We therefore oppose my noble friend’s amendment, but I hope he can take the commitments I have made today at the Dispatch Box as sufficient reassurance to persuade him to withdraw his amendment. I beg to move.

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[Baroness Blake of Leeds (Lab)]

My Lords, I start by thanking the Minister for the broader tidying up of the amendments in this group and by reflecting on the time, over several months, that we have been discussing these important issues. We must keep our eye on the scale of the issues that we are dealing with; they are immense, and they cost this country billions of pounds. We have a great deal to do to repair the UK’s reputation in the world, and I hope that we involved in this debate will all have our eyes on that prize.

I am pleased to say that we have seen some positive changes achieved through the passage of this Bill and a genuine appetite for change, as we experienced with our conversation with Companies House. We are going through an immense cultural change in the management of these affairs. As we know, it is the biggest shake-up for 170 years. I also pay tribute to everyone in the Chamber, and those who are not here today, for their diligence in the work that they have done, and to my colleagues in the other place, Dame Margaret Hodge and Seema Malhotra in particular. Months and months of work have gone into getting us to this place.

I am very grateful for the explanation that the noble Lord, Lord Vaux, gave. There is real recognition that there will be an ongoing need to scrutinise. I think we all accept the commitments in good faith, but we need to make it clear to Ministers and their officials that the interest is very live and that there will be close scrutiny as these matters roll up. Compromise has been reached on this—I accept that that is the reason we will not be taking the amendment to a vote—but we add our support to the ongoing scrutiny that will need to take place.

I also pay tribute to the noble Lord, Lord Agnew, for his persistence in this and his unique position having had experience in government, which has informed the approach he has taken and the concern that I think many would agree he has rightly raised. We are where we are—he has decided to accept the reassurances—but we also have an insight into those elephant traps that he referred to. I also reference the comments of my noble friend Lord Eatwell on the explicit need for vigilance.

With those comments, and thanking everyone for the spirit of compromise, I reassure everyone that we will look closely at this, and we very much hope that the measures being brought in today will be sufficient. We will look to those delegated powers that have been built in to make sure that, if change is necessary, it will indeed be made.

[Lord Johnson of Lainston (Con)]

I thank noble Lords for their contributions, including the noble Baroness, Lady Blake, for her extremely helpful and supportive comments about the overall debate. In her summation, she was right that we have, through a great degree of good faith among us all, come up with a very strong series of actions that will genuinely change the economic landscape in this country for the better.

I have had the privilege of working with my noble friend Lord Agnew for a number of months as we have come to today’s conclusion on these measures. I reiterate my personal commitment, and the commitment of this Government, to delivering on the thrust of his ambitions. On a process that came to light only recently—the issue of bulk data and its accessibility—I can commit that Companies House will do a review of how it can assess bulk data for the trusts’ information on the register of overseas entities once a consultation period has finished and it is deemed appropriate.

Ultimately, we are committed to greater transparency, and I am very grateful to my noble friend and noble Lords across the House for their understanding of our approach to how we can best achieve this without either endangering vulnerable minors or individuals or opening ourselves up to legal challenge which could derail many of the main principles of this part the Bill to which my noble friend is rightly keen to contribute.

Finally, I express my gratitude to the noble Lord, Lord Vaux, who, from the very beginning, has been a tireless collaborator in creating—with his input across the board in this section of the Bill—a truly powerful piece of legislation. It was my own personal pleasure and pride to work with him as we have come to this conclusion, and I am very grateful to him for his understanding, again, of how we believe that we can achieve our shared ambitions in what we think will be the right way.

We have made some clear further commitments today—to which I would be delighted to be held to account by my noble friend Lord Agnew and all noble Lords in the House today—to make the Economic Crime and Corporate Transparency Bill the most effective legislation it can be. I therefore invite the House to agree the government Motions in this group.

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Moved by

[Lord Johnson of Lainston]

That this House do not insist on its Amendment 56 and do agree with the Commons in their Amendments 56A, 56B and 56C in lieu.

56A: Page 57, line 25, leave out subsection (3) and insert— “(3) After section 1067 insert—
“Who may deliver documents to the registrar
1067A Delivery of documents: identity verification requirements etc
(1) An individual may not deliver a document to the registrar on their own behalf unless—
(a) their identity is verified (see section 1110A), and
(b) the document is accompanied by a statement to that effect.
(2) An individual (A) may not deliver a document to the registrar on behalf of another person (B) who is of a description specified in column 1 of the following table unless—
(a) the individual is of a description specified in the corresponding entry in column 2, and
(b) the document is accompanied by the statement specified in the corresponding entry in column 3.

	1	2	3
	Description of person on whose behalf document delivered (B)	Description of individual who may deliver document on B’s behalf (A)	Accompanying statement
1	Firm	Individual who is an officer or employee of the firm and whose identity is verified (see section 1110A).	Statement by A— (a) that A is an officer or employee of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified.
2	Firm	Individual who is an officer or employee of a corporate officer of the firm and whose identity is verified.	Statement by A— (a) that A is an officer or employee of a corporate officer of the firm, (b) that A is delivering the document on the firm’s behalf, and (c) that A’s identity is verified.
	1	2	3
	Description of person on whose behalf document delivered (B)	Description of individual who may deliver document on B’s behalf (A)	Accompanying statement
3	Firm	Individual who is an authorised corporate service provider (see section 1098A).	Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on the firm’s behalf.
4	Firm	Individual who is an officer or employee of an authorised corporate service provider.	Statement by A— (a) that A is an officer or employee of an authorised corporate service provider, and (b) that A is delivering the document on the firm’s behalf.
5	Individual	Individual whose identity is verified.	Statement by A— (a) that A is delivering the document on B’s behalf, and (b) that A’s identity is verified.
6	Individual	Individual who is an authorised corporate service provider.	Statement by A— (a) that A is an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf.
7	Individual	Individual who is an officer or employee of an authorised corporate service provider.	Statement by A— (a) that A is an officer or employee of an authorised corporate service provider, and (b) that A is delivering the document on B’s behalf.

(3) In relation to a corporate officer that has only corporate officers, the reference in row 2 of the table to an individual who is one of its officers is to—
(a) an individual who is an officer of one of those corporate officers, or
(b) if the officers of those corporate officers are all corporate officers, an individual who is an officer of any of the corporate officers’ corporate officers,
and so on until there is at least one individual who is an officer.
(4) The Secretary of State may by regulations—
(a) create exceptions to subsections (1) or (2) (which may be framed by reference to the person by whom or on whose behalf a document is delivered or by reference to descriptions of document or in any other way);
(b) amend this section for the purpose of changing the effect of the table in subsection (2).
(5) Regulations under subsection (4)(a)—
(a) may require any document delivered to the registrar in reliance on an exception to be accompanied by a statement; (b) may amend this section.
(6) The Secretary of State may by regulations make provision requiring a statement delivered to the registrar under subsection (2) to be accompanied by additional statements or additional information in connection with the subject-matter of the statement.
(7) Regulations under this section are subject to affirmative resolution procedure.
(8) In this section “corporate officer” means an officer that is not an individual.””

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Moved by

[Lord Johnson of Lainston]

That this House do not insist on its Amendment 115, to which the Commons have disagreed for their Reason 115A.

115A: Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

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Moved by

[Lord Johnson of Lainston]

That this House do not insist on its Amendment 117, to which the Commons have disagreed for their Reason 117A.

117A: Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason, trusting that this Reason may be deemed sufficient.

[Lord Johnson of Lainston (Con)]

I beg to move.

Motion D1 not moved.

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Moved by

[Lord Sharpe of Epsom]

That this House do agree with the Commons in their Amendment 151A.

151A: In subsection (1), after first “body” insert “which is a large organisation (see sections ((Failure to prevent fraud): large organisations) and (Large organisations: parent undertakings))”

[The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)]

My Lords, I will speak also to Motions F, G, H and H1. We cannot agree to the proposed amendments for practical reasons, not least that the burdens they would place on business would not just be justified. It is for this reason, and not because of any intransigence or party-political reason, that we are unable to agree with the proposed Lords amendments. I will now talk specifically to the Motions in this group.

Motion E would reinsert the SME exemption for the failure to prevent fraud offence. I have of course noted Motion E1, tabled by my noble and learned friend Lord Garnier. I appreciate that he has moved closer to the Government’s position on this issue, creating his own threshold that would exclude microentities from the failure to prevent fraud offence. However, the Government remain extremely mindful of the pressures on companies of all sizes, including small and medium-sized enterprises, and therefore do not feel it is appropriate to place this new, unnecessary burden on more than 450,000 of them.

The analysis on this issue remains clear: even reducing the exemption threshold to only microentities would increase the one-off costs on businesses from around £500 million to £1.5 billion. Further, the annually recurrent costs would increase from £60 million to more than £192 million. Those costs would still be disproportionately shared by small business owners.

I know some noble Lords have expressed scepticism about the burdens, but the fact is that when a small business person hears that they may be liable to a new offence and significant fines if they are judged not to have taken action on something, they will worry. They will take time out of their business to scrutinise the guidance and, whatever it may say, there could be widespread overcompliance. Furthermore, they may well have to pay their accountant or lawyer to do it for them. While this burden is eye-watering in its own right, the issue cannot be taken in isolation. We must be aware of the cumulative compliance costs for SMEs across multiple government requirements or regulations. Furthermore, I can assure noble Lords that 50% of economic activity would be covered by the organisations in scope of this new offence with the Government’s threshold in place. It is of course already easier for law enforcement to attribute and prosecute fraud more easily in the smaller organisations that fall below the threshold.

I hope that noble Lords who feel strongly on this issue will be reassured that this is not the end of the debate. The Government have future-proofed the legislation by including a delegated power to allow them to raise, lower or remove the threshold altogether. Of course, as with all legislation, the Government will keep the threshold under review and will make changes if there is evidence to suggest that they are required. I therefore urge noble Lords to support government Motion E, rather than Motion E1.

I now turn to government Motion G, which disagrees with Lords Amendment 158. This was also tabled by my noble and learned friend Lord Garnier and seeks to introduce a failure to prevent money laundering offence. I am pleased that no amending Motions have been tabled for today, as I fear this amendment is entirely duplicative of existing regulations. Much like my noble and learned friend’s other amendment, it would therefore impose yet further unnecessary burdens on UK businesses. The UK already has a strong anti-money laundering regime in the form of the money laundering regulations, which require regulated sectors to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellation of registration and criminal prosecution, if they fail to take those measures. What is more, those penalties will apply even if no actual money laundering has occurred. No knowledge of or intention to commit an offence has to be proved.

The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would therefore be highly duplicative of the existing regime. This is not just the view of the Government: in our conversations with industry, it has been very clear that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should support legitimate businesses, rather than hamper them with overlapping regimes. I therefore hope that noble Lords will agree with the government Motion to disagree with the amendment from Report.

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[Lord Coaker (Lab)]

My Lords, we have been pleased to support the legislation, which overall we think is very good, and we have said that to the noble Lord, Lord Sharpe. Indeed, the Government have listened, as have all the Ministers on the Bill, and made significant changes. Now we are left with just two amendments, put forward by the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, which deal with two issues that remain outstanding but are of significant importance and deserve our support and consideration.

I want to reference one or two points made by the noble and learned Lord, Lord Garnier, because he made them particularly well. It is a proportionate and reasonable amendment to ask of the Government. There are all sorts of regulations and legislation—the noble and learned Lord referenced them—to which we say small businesses should be subject to, because we believe that it is the right thing to do and the right climate in which those businesses should operate. When it comes to the failure to prevent, the Government point out that 50% are covered by their legislation, which of course leaves 50% that are not.

Throughout the passage of the Bill, many of us have sought to ensure that the failure to prevent—which is a good step forward—applies, as far as possible, to as many businesses as it possibly can. The noble and learned Lord, Lord Garnier, asked why we would exclude many small businesses when they are not excluded from other legislation that may be seen as a burden. The argument is hollow and does not cut through. For that reason, and because the noble and learned Lord has put forward an amendment that takes into account what was said in the Commons, it deserves our support. Should he put it to a vote, as I think he suggested he would, we will support him.

Similarly, the noble Lord, Lord Faulks, notwithstanding the correction he made to the amendment, brings forward a very important point indeed. One of the great criticisms that is often made about dealing with fraud is that somehow law enforcement agencies are frightened of taking on the people who are committing fraud. I always thought it should be the other way around; the fraudster should be frightened of the law enforcement agency. Yet, for some bizarre reason, it is that way around—that cannot be right. It is not something that any of us want to be the case. Through his amendment, the noble Lord, Lord Faulks, has tried yet again to push the Government to do better and to do more than what is currently in the Bill. His amendment says to the Government, “Surely we should do better”. Indeed, the Treasury itself should be confident in the work of the law enforcement agencies. Some have suggested that those agencies should be indemnified against any costs they may incur.

I go back to two simple points. First is the point in the amendment from the noble and learned Lord, Lord Garnier: why should small businesses be excluded from this legislation, other than the micro-businesses to which he referred, when we do not exclude them from other legislation that we think is important? Small businesses adhere to that legislation in the same way as other businesses. Secondly, the amendment from the noble Lord, Lord Faulks, gives us an opportunity to turn the tables and ensure that, rather than the law enforcement agencies being frightened of costs they may incur in ensuring that fraudsters are brought to book, the fraudsters are frightened. That is why, if the noble and learned Lord, Lord Garnier, and the noble Lord, Lord Faulks, put their amendments to a vote, we will certainly support them.

[Lord Sharpe of Epsom (Con)]

My Lords, I thank all noble Lords who have spoken in this debate. I will respond relatively briefly; I think I have rehearsed the majority of the arguments widely and frequently, and there is not much point in saying more to some of them. However, the precise point I was trying to make in my opening remarks is, in essence, about proportionality. My noble friend Lady Noakes referred to that extremely eloquently.

My noble and learned friend Lord Garnier oftens points out that 99.5% of business is exempted, but I repeat that this is very much a judgment call because 50% of economic activity is captured. My noble friend Lady Noakes referred to the opportunity cost and the noble Lord, Lord Faulks, suggested that perhaps this is about businesses not checking whether they in some way have the right procedures in place to prevent fraud, but it is not about that. It is about many other factors that do not involve the business at hand, as my noble friend Lady Noakes referred to. Those other burdens are obviously partially financial, but not fully.

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17:04

Division 1

Ayes: 211

Noes: 185

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Moved by

[Lord Sharpe of Epsom]

That this House do agree with the Commons in their Amendments 153A, 153B and 153C.

153A: In subsection (1), after “(Failure to prevent fraud)(1)” insert “and (2)”

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Moved by

[Lord Sharpe of Epsom]

That this House do not insist on its Amendment 159, to which the Commons have disagreed for their Reason 159A.

159A: Because the law already makes sufficient provision in relation to the prevention of money laundering.

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Moved by

[Lord Sharpe of Epsom]

That this House do not insist on its Amendment 161 and do agree with the Commons in their Amendment 161A in lieu—

161A: Page 172, line 44, at end insert the following new Clause—
“Report on costs orders for proceedings for civil recovery
Report on costs orders for proceedings for civil recovery
(1) The Secretary of State must assess whether it would be appropriate to restrict the court’s power to order that the costs of proceedings under Chapter 2 of Part 5 of the Proceeds of Crime Act 2002 are payable by an enforcement authority and, if so, how.
(2) In carrying out the assessment, the Secretary of State must consult such persons as the Secretary of State considers appropriate.
(3) The Secretary of State must publish and lay before Parliament a report on the outcome of the assessment by the end of the period of 12 months beginning with the day on which this Act is passed.
(4) In this section “the court” means the High Court in England and Wales.”

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17:16

Division 2

Ayes: 218

Noes: 186