Economic Crime and Corporate Transparency Debate

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Department: Home Office
Overall, I prefer to say to the Minister: please think again. Do not bother with this amendment and come back with better proposals.
Lord Coaker Portrait Lord Coaker (Lab)
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My Lords, I thank the Minister for his introduction. Various contributions that have been made show that we should see the Government’s amendments as a starting point, but they have considerable work to do. I have decided that I shall not make the speech I was going to make because that is such an important point.

I support the amendments tabled by the noble Lord, Lord Fox, and the noble and learned Lord, Lord Garnier. I looked again at the report that the noble Baroness, Lady Morgan, brought forward last November, and I have been struck by the point made by the noble Baroness, the noble Lord, Lord Sandhurst, and the noble Baroness, Lady Bowles, about cultural change and how important it is that that is taken forward.

I have two specific questions for the Minister that have not been mentioned in the debate so far. First, I think the Committee’s plea to the Minister is that the Government have an opportunity now to make a real difference through the Bill. As the noble and learned Lord, Lord Thomas, and the noble Lord, Lord Vaux, asked, are we going to miss that opportunity? Are we going to think in a few months’ time, after it has passed, that we had a legislative vehicle by which some of these issues could have been sorted out but this was the Government’s position?

I have been a Member of the other place as well, as have other Members of the Committee, and I know that a Government have not only to look at the votes but to reflect on what is being said. You can tell from the discussions that we all have with our colleagues in the other place that there is a mood for change. To an extent, that has been brought about by what the Government have done but it simply does not go far enough. If the Government set their face against this, whip the votes in the other place and say, “We’re just going to drive this through. We don’t care what the reports have said or what the arguments are. This is where we are”, this will have been a real missed opportunity.

Politically I differ from the noble Lord, Lord Sharpe, but his approach should give this Committee hope. In other Bills that we have debated, change has been brought about by speeches made in Committees such as this one, and indeed by votes lost in the other Chamber.

The Government have to move on some of this—they simply do. I agree that the SME carve-out is flawed and should not be there, and the Government need to move on that; they cannot just set their face against it and say, “Everybody else is wrong and we’re right”. Usually, if everybody is telling you that you are wrong, you are wrong, frankly, whether you are in government or in a family. The Government are being told, in report after report and in interview after interview, by virtually everyone without exception—there may be one—that they have to change. The question is really not whether the amendments are flawed or inadequate or whether a sentence needs changing here or there; government lawyers can sort that out. In Committee the Minister will read out his brief, but between Committee and Report, will the Government at least try to adapt and change and listen to some of the points being made? That is the fundamental question, and that is why I decided that I would not repeat what has been said.

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Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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Before the noble Lord sits down, will he clarify Labour’s position from the Dispatch Box: that it would be happy with one clause that requires prevention procedures to apply to an extremely large, multinational financial services company, for example, and to a local sweet shop which was incorporated? The noble Lord says that everyone agrees. According to the soundings I have taken from small business organisations, they would not be happy with that.

Lord Coaker Portrait Lord Coaker (Lab)
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I said everyone on the Committee —with the possible exception of the noble Lord. I was talking about how people feel about the Bill as drafted, with the carve-out for small and medium-sized enterprises. The noble Lord was referring to something that might include not the small but the medium, and that is a matter for debate, but the general view of the Committee was that the Government’s current carve-out is not acceptable. Where you put the threshold—whether you apply to a little sweet shop at the end of the road with a turnover of a few thousand pounds the same regulation you apply to a multinational company—could be sorted out in regulations, and if we saw them, we could suggest that they take into account the small sweet shop to which the noble Lord referred.

Lord Sharpe of Epsom Portrait Lord Sharpe of Epsom (Con)
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My Lords, I thank all noble Lords—too numerous to mention—who have participated in this debate, and I shall try to address all the points put to me, but I apologise if I do not name everybody individually.

I feel I should declare an interest: I have owned and been a director of small businesses, not all of them successful—like my noble friend, Lord Leigh—and to my noble and learned friend Lord Garnier, I declare an interest as a tall man.

I will start with the amendments linked specifically to failure to prevent offences. I welcome the broad support today for the government amendments, which would, I emphasise, cover all sectors, and that includes telecoms companies. I hope that they deliver most of what the other amendments intend. However, I have noted that concerns remain. Obviously, I listened to the debate very carefully, including on the scope and reach of the new offence.

Before I turn specifically to the amendments, I reassure my noble friend Lady Morgan that the fraud strategy really is imminent. She is absolutely right: I am really keen to see it. I say to my noble friend Lord Leigh that his point about accounting principles was very interesting, but the design of the definition of large companies comes from the Companies Act 2006.

I note the wider offence lists put forward in Amendments 96, 97, 98 and 99, tabled in the names of my noble and learned friend, Lord Garnier, my noble friend Lord Agnew, the noble Lord, Lord Faulks, and the noble Baroness, Lady Bennett of Manor Castle. In particular, noble Lords seek to ensure that money laundering is covered by the new failure to prevent offence. The Government have consulted with law enforcement and prosecutors, and we are satisfied that all the priority offences have been included.

We have carefully examined the wider offence list and determined that they are not appropriate to include because they would duplicate existing regimes, cause repetition with other existing offences, are too broad or relate to preparatory offences. It is also worth noting that the Law Commission report published in June 2022 agrees with this. It highlighted that Part 2 of Schedule 17 to the Crime and Courts Act 2013, as Amendment 98 suggests, while a good starting point for considerations, would be too broad.

I turn to the proposed failure to prevent money laundering offence, as in Amendment 99, tabled by my noble and learned friend Lord Garnier. The UK already has a strong anti-money laundering regime which requires regulated sectors to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious civil and criminal penalties if they fail to do so.

A failure to prevent money laundering offence would duplicate the systems, controls and penalties of the existing regime. Furthermore, it would extend anti-money laundering obligations to organisations with very low risk, which would be disproportionate. Any necessary anti-money laundering measures can be implemented through the existing regime. The Law Commission agreed with this point, noting that any offences to cover breaches of money laundering would create additional positive duties on organisations which would overlap with the duties under the anti-money laundering regime.

The Government’s review of the UK’s anti-money laundering regime, published in June 2022, concluded that existing regulatory requirements allow for businesses to take a risk-based approach to their obligations, meaning their compliance activities can be targeted at areas of highest risk of money laundering and terrorist financing. The review also committed the Government to further analysis and public consultation to identify the best path for reform of the anti-money laundering supervisory regime. Further improvements to the UK’s anti-money laundering framework are therefore best targeted by strengthening and improving the existing regime, rather than by the creation of a new parallel regime. The Government have already committed to undertake further consultation on the anti-money laundering supervisory regime and continue to review the anti-money laundering framework.

Amendment 99 in the name of my noble and learned friend Lord Garnier also proposes a failure to prevent sanctions evasion offence. The UK can already impose a range of criminal and civil penalties against corporations and individuals for breaches of UK sanctions. Powers were strengthened last year when we moved civil penalties for financial sanctions on to a strict liability basis. Introducing a failure to prevent offence would duplicate the existing regime. On the scope of the offences, government Amendment 84B contains a power in secondary legislation to update the list when required.

I turn to Amendments 84AA, 84CA, 84CB and 84CC, on the threshold for the new offence, tabled by the noble Lord, Lord Fox. I thank him for talking me through his concerns last week and I note that most other noble Lords have supported its intention. I will endeavour to set out the Government’s position on this. Our analysis shows that small businesses would be disproportionately affected by the costs of complying with a failure to prevent fraud offence. The total cost to small and medium-sized enterprises would amount to billions of pounds in year one and hundreds of millions in each subsequent year. This would significantly increase the cost of the measure, which is £98.5 million per annum with the threshold included. An affirmative power—

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Lord Fox Portrait Lord Fox (LD)
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My Lords, it is a great pleasure to support the noble Lord, Lord Alton, on this amendment. I have supported him on a number of amendments in other areas, and I have learned not to do too much research because however much you have done, he will have said it by the time you get the chance to say it.

The Government have recognised the importance of asset seizure. Back in the heady days of March 2022, the then Exchequer Secretary to the Treasury, James Cartlidge—he has of course moved on since then—said that the Government were looking at

“how we can go further to crack down on illicit money in British property, including considering temporary asset seizures beyond the freezing regime that we already have in place”.—[Official Report, Commons, 22/3/22; col. 147.]

However, that is not an easy task, and this is a bit more than closing a few loopholes. Many experts have flagged risks relating to seizing assets—I am sure that the Minister will remind us of that when we come to it—particularly without the necessary proof of criminality. For assets belonging to individual oligarchs, concerns have been raised over the rule of law, due process and property rights. In the case of state assets, objections include sovereign immunity—something that I think I mentioned in a previous debate—and the fear that other states may withdraw their reserves. This is a big issue, as the noble Lord, Lord Alton, mentioned. When we focus on the Russian sanctions, for example, we see that the UK has frozen billions of pounds of Russian assets under the sanctions following the invasion of Ukraine. The Office of Financial Sanctions Implementation—OFSI—has reported that £18 billion owned by individuals and entities associated with Russia’s regime has been frozen since the beginning of that war. Some estimates suggest that more than £40 billion could be frozen or immobilised if further sanctions were put in place.

However, assets frozen under sanctions are passive. Funds frozen under the UK sanctions regime cannot be retrieved or repurposed. In fact, these should be returned at the end of the war if sanctions are lifted. Meanwhile, as the noble Lord, Lord Alton, pointed out, the UK is asking the taxpayer to fund the war effort and, no doubt, the repair of Ukraine if and when we get to that point. So, there is quite a lot at stake.

Amendment 85 is a way of trying to do this and cut through the complication relatively simply and ingeniously —for which I claim no credit. It seeks to strengthen the UK sanctions regime and find a route that allows us to recover these frozen assets, which have been concealed in the past. As we have heard, the mechanism we propose would impose a duty on sanctioned persons proactively to disclose all their assets held in the UK and criminalise the failure to disclose such assets as a form of sanctions evasion.

If a sanctioned person fails to declare all their assets and further assets are uncovered by the authorities, they are guilty of a criminal offence—sanctions evasion. Those undisclosed assets may then be seized under the Proceeds of Crime Act 2002. This seizure would be subject to the same safeguards that courts currently uphold in criminal and civil recovery processes, following due process and ensuring that any deprivation of private property is not disproportionate to the public interest in seizing the proceeds of crime.

Given that sanctions evasion is already a criminal offence in the UK, this amendment would be a straightforward way rapidly to scale up assets that may be susceptible to seizure. Adding a requirement to disclose all assets held within six months prior to designation would also capture assets such as those set out by the noble Lord, Lord Alton. It is for these reasons that we support this amendment.

Lord Coaker Portrait Lord Coaker (Lab)
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My Lords, I rise briefly to support Amendment 85 from the noble Lord, Lord Alton, to which I have added my name, and to support the comments of the noble Lord, Lord Fox, and the noble Baroness, Lady Bennett.

As my noble friend Lord Ponsonby said, the question for the Government concerns giving teeth to the sanctions regime in respect to designated individuals. If it is not dealt with like this, what do the Government propose to do? There is clearly a gap, sanctioned individuals are finding ways around the law and we are not able to confiscate or seize the assets we want to seize. Criminalising a failure to disclose as a form of sanctions evasion, so that those assets can be seized, as referred to by the noble Lord, Lord Alton, is a very important step forward. Although this is just one amendment, Amendment 85 is really important.

As I said, if the Government do not believe that this amendment is appropriate, what are we going to do about the situations and individuals the noble Lord, Lord Alton, spoke about, and the huge sums of money, which are beyond the scope of the British state to collect from individuals? We all think we should be able to do something about that.

Just so the noble Lord does not feel on his own in being sanctioned, I am sanctioned as well, so we are in good company, as is the noble Lord, Lord Faulks. We could have a sanctions party here.

Lord Leigh of Hurley Portrait Lord Leigh of Hurley (Con)
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I join the sanctions party. I rise to say that, as this amendment has the support of Cross-Bench, Lib Dem and Labour Peers, I add my support, even if I missed out on adding my name to those proposing it.

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I urge the Minister to see if he can be a little braver, and persuade his ministerial colleagues to do the same, in grasping this opportunity, and to fashion this himself rather than allowing it to be fashioned for him by others later. There is nothing to be lost but much to be gained by grasping this opportunity now.
Lord Coaker Portrait Lord Coaker (Lab)
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My Lords, given the time of day, I shall make a brief comment. I agree with Amendments 91 and 94. On Amendment 94, spoken to by the noble Baroness, Lady Morgan, I ask the Minister directly: why would he not ensure that this Economic Crime and Transparency Bill currently before Parliament did exactly what Amendment 94 suggests? It just does not seem logical. If the Minister and the Government do not do it, this will have been a missed opportunity, and we will come back to this issue and ask why we did not do it now. The amendment is reasonable and makes perfect sense and no doubt the Minister agrees with it, but it needs the Government to say, “We’re going to do it”. If it is flawed then the government lawyers can sort it out, but it is a perfectly reasonable amendment and, in my view, the Government should have no difficulty in accepting it. With that brief comment, I will sit down.

Lord Sharpe of Epsom Portrait Lord Sharpe of Epsom (Con)
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My Lords, I thank the noble Baroness, Lady Bowles of Berkhamsted, and my noble friend Lady Morgan of Cotes for their amendments on failure to prevent economic crime, and all noble Lords who have spoken in this debate.

I hope that my comments during our debate earlier today will have provided some reassurance on the Government’s ambitions to take action in this area, including the introduction of a new offence of failure to prevent fraud. These amendments obviously cover some of the same ground so I will seek not to repeat myself too much on issues such as the scope and threshold of the Government’s amendments but to focus more on what I understand to be the wider thrust of Amendments 91 and 94.

Before I get on to that, I reassure the noble Lord, Lord Vaux, that the fraud strategy is a couple of hours closer. I remind noble Lords that there is an all-Peers drop-in session on 9 May to discuss the three Bills that are currently under way through Parliament: this Bill, the Online Safety Bill and the Financial Services and Markets Bill. That will bring some of the discussions together, as suggested by my noble friend Lady Morgan. I refute the allegation that the Government are not doing very much. Those three Bills themselves prove that we are indeed intent on fixing many or all of the problems that have been identified—the Government of course take these problems seriously.

I turn to the amendments in this group. The Government’s offence does not extend to services that facilitate fraud—that is, companies whose services are misused by third parties to carry out fraud. Examples include social media and telecoms companies whose services are used to promote fraudulent schemes, as has been pointed out, and banks and crypto exchanges, which fraudsters use to process the payments. If these companies or their employees commit fraud, they will be in scope, but not where their services are misused by others.

The Government agree that companies that facilitate fraud, even if they are not complicit in the offending, must do more to prevent and detect it. In doing so, they can protect their customers and the wider public from fraud, which, as has been discussed at length, causes significant damage to wider society and individuals —we must not forget them. However, we intend for this to be achieved by seeing through existing plans for regulatory and voluntary activity, rather than by creating a new offence which risks duplicating those existing approaches.

Amendment 91, tabled by the noble Baroness, Lady Bowles of Berkhamsted, proposes a regulatory duty to prevent economic crime, enforced by regulators. In relation to organisations that commit fraud, we can achieve a similar effect that incentivises organisations to put fraud controls in place through the Government’s approach: an offence enforced by law enforcement. Our approach allows all sectors to be in scope, not just regulated bodies, and is less resource-intensive for business and the public sector than establishing new regulatory approaches. In relation to the facilitation of fraud, I reassure the noble Baroness, Lady Bowles, that action is already under way to tackle this. I will address some of the sectors mentioned in today’s debate and Amendment 91, which I hope will provide some further reassurance.

The Online Safety Bill will require all in-scope tech companies, including social media companies, to take action to tackle fraud where it is facilitated through user-generated content or via search results. They must put in place systems and processes to prevent users encountering fraudulent content through their platforms and to swiftly remove any such content available through their platform. Without wishing to single out any particular company for attention, I reassure my noble friend Lady Morgan that Airbnb, which she referenced, would of course be in scope.

Additionally, there will be a duty on the largest social media and search engines requiring them to prevent fraudulent adverts appearing on their services. The Bill gives Ofcom, as regulator, robust enforcement powers, allowing it to impose significant financial penalties on services that do not fulfil its duties. Ofcom will publish codes of practice to set out further details on what platforms must do to meet their duties under the Online Safety Bill.

The “failure to prevent” offence operates in a similar way to the Online Safety Bill, by setting out reasonable steps to be taken, with the ability to fine companies that fail to fulfil their duties. Expanding the “failure to prevent fraud” offence in the ECCT Bill to cover facilitation of fraud would create duplication for tech companies, which would have to follow two parallel regimes in relation to facilitation of fraud, potentially creating confusion for businesses.

Noble Lords also raised the role of telecoms companies, including the content of messages passed over their networks. The telecoms industry is already extensively regulated by Ofcom, which is active in encouraging the industry to tackle scam calls and texts, including through regulation and guidance. This includes new measures that will take effect shortly to tackle the spoofing or disguising of UK telephone numbers from overseas. As it should be, the telecoms industry has been an active partner in the fight against scams, with broadband and mobile providers signing up to the Home Office’s Telecommunications Fraud Sector Charter and committing to work with the Government to reduce the use of their networks by criminals.

However, it is important to recognise that telecoms operators are not able to view the content of messages passing over their networks. While they employ sophisticated algorithms to identify and block hundreds of millions of fraudulent or scam messages and calls, the rapid evolution of threats creates challenges to pre-emptive action. This means that a facilitation offence could potentially have a disproportionate effect on the industry and the operation of telecommunications in the UK.

Amendment 91 also references the Financial Conduct Authority. The FCA is working closely with banks and other financial institutions to reduce the role they play in facilitating fraud and to identify further controls that can be put in place to protect the public from scams. In addition, the Payment Systems Regulator is introducing new requirements for financial institutions to reimburse fraud victims, which will create strong incentives to improve fraud controls, as noted by the noble Lord, Lord Vaux.

In respect of the Solicitors Regulation Authority, noble Lords will be aware from Tuesday’s debate that Clause 183 of the Bill already inserts a regulatory objective in the Legal Services Act 2007, focusing on promoting the prevention and detection of economic crime. This measure affirms the duties of the regulators, the Legal Services Board and the regulated communities to uphold the economic crime agenda.

The noble Lord, Lord Vaux, also referenced the Institute of Chartered Accountants in England and Wales. Amendment 91 also references that organisation and other relevant regulators of accountants. As I said, I am aware that several noble Lords have declared their association with that organisation.

As noble Lords will be aware, ICAEW is a professional and supervisory body for chartered accountants. Its work in areas regulated by law—for example, audit, anti-money laundering, local audit, investment business, insolvency and probate—is monitored by oversight bodies such as the Insolvency Service, the FCA, the Office for Professional Body Anti-Money Laundering Supervision, the Civil Aviation Authority and the Legal Services Board. ICAEW has been proactive in the industry fight against fraud, leading the sector in negotiating and delivering the Accountancy Fraud Sector Charter, published in 2021, and is an active member of the counter-fraud community, contributing to all levels of governance across the threat landscape. It is a co-signatory to the Economic Crime Plan and associated actions.

As I set out in our earlier debate, the offence introduced via the Government’s amendments covers fraud and false accounting, while keeping money-laundering responsibilities contained under the existing regulatory regime. That ensures that the offence is targeted, focused on offences most likely to be committed by corporations and where prevention can have the most impact and not duplicative of existing regimes.

I note the wider offence lists put forward under the noble Baroness’s amendment, but—as we debated at length earlier today—we are satisfied through discussions with law enforcement and prosecutors that all the priority offences have been included. There is a power in secondary legislation to update the list when required. We have also touched on the issue of the threshold in the government amendment that means it applies—at least initially—only to large organisations. As I set out earlier, this is to avoid disproportionate burdens on small and medium-sized enterprises and ensure our economy encourages people to open and grow businesses. Of course, we encourage small organisations to take steps to prevent fraud and there are, as I mentioned in an earlier group, existing powers to prosecute small organisations and their employees if they commit fraud, but we need to keep the total regulatory burden in check.

There have been cross-party calls for the Government’s failure to prevent fraud offence both in this House and in the other place, as well as across civil society. The Government have listened and introduced amendments. In addition to the legislative measures proposed, the Government continue to work closely with regulators and wider sectors to tackle fraud and set out the actions expected of industry. I am afraid that the Government therefore view these amendments as duplicative of measures already being taken forward—