Jonathan Djanogly
Main Page: Jonathan Djanogly (Conservative - Huntingdon)Small Business, Enterprise and Employment Bill
Jonathan Djanogly Excerpts
Vince Cable
I recall the major role that the hon. Gentleman played in trying to obtain commitments in relation to the north-west and, in particular, his constituency. The same issue will arise in other cases. He is right. Although commitments were made, there is an issue of enforceability. That is what we now wish to address by strengthening the rules.
Let me move on to company transparency. The OECD has reported that
“almost every economic crime involves the misuse of corporate vehicles”.
There are staggering sums of money involved. Organised crime costs the UK alone about £24 billion a year. The European Commission estimates that global criminal proceeds are in the order of $2 trillion. Of course, not all crime flows through companies, but much does. More specifically, in 2011 the World Bank carried out an exercise that suggested that 70% of grand corruption cases involved at least one corporate vehicle to hide beneficial ownership and the true source of funds. Very often, criminals create complex corporate structures spanning multiple jurisdictions to hide the involvement of a company. That is why the UK pushed the agenda for greater corporate transparency during our G8 presidency last year. We obtained agreement from G8 members that all would take action to increase corporate transparency. That is what we are now doing, thus demonstrating our commitment.
We wish to help to deter, identify and sanction those who hide their interest in UK companies to facilitate illegal activities, as well as generally creating a more trusted business environment. That is why we are going to require companies to keep a register of the people who have significant control over that company—their beneficial owners—and provide this information to Companies House, where it will be publicly available. We will lead the way within the developed economies in having an open register. Alongside that, the Bill abolishes the use of bearer shares, which can change hands without any record and have been open to abuse for tax evasion and money laundering purposes.
Mr Jonathan Djanogly (Huntingdon) (Con)
Will the Secretary of State acknowledge that the vast majority of beneficial owners are absolutely legitimate and are not involved in crime, and that his regulatory proposals will significantly attack privacy and reduce the amount of investment going into British companies?
Vince Cable
I do not accept any of those propositions. It will be possible to devise a register—we have devoted a great deal of thought to this—to ensure that individual privacy is respected. We do not want the kind of invasion of privacy that occurred, for example, with life sciences companies in respect of animal testing. That is exactly the kind of problem we wish to avoid. We have discussed this extensively with business groups. We do not believe that it will have a negative effect on investment; we think that the opposite is the case, because honest, transparent transactions will be acknowledged. Indeed, moving to an open register is a process that many organisations, including business organisations, welcome. The hon. Gentleman’s starting point is quite right: the vast majority of companies are completely honest and therefore have absolutely nothing to fear from an open register.
Mr Jonathan Djanogly (Huntingdon) (Con)
I declare my interests as they appear in the Register of Members’ Financial Interests and I shall be using my precious five minutes to discuss the clause 70 proposals for a register of people with significant control.
The Government have spoken about anonymously owned companies having connections with terrorist groups and being used to hide shadowy funds, and they suggest that transparency of ownership is the best cure for that. These proposals are, of course, a departure from current English law, where transparency of ownership relates to whether a company is public or private. If it is public, there are various disclosures that have to be made as to ownership—for instance, once a shareholder owns 3% or more of a company’s shares. However, in situations where the public are not involved—say, a family company or a private equity company—privacy can be maintained.
There are four issues at stake here: the first is fighting crime; the second is the right to privacy; the third is the increasing regulation; and the fourth is encouraging investment in British private companies. I doubt that the first ambition will be much satisfied through this measure, while I do have significant concern about the loss of privacy and investment that could result and the increased regulation. Moreover, if criminals have concerns that this legislation will stop their money laundering potential, they will simply buy other assets. There is no beneficial register of stamp collections, for instance, or blood diamonds, but the family business that legitimately wants privacy of ownership will suffer as a result. We need to know how many of these private companies are being used for crime, compared with the hundreds of thousands that are legitimate—in effect, are these provisions worth it?
The provisions apply to those with more than 25% ownership or control, and I foresee many court cases arising over whether someone actually exercises significant influence or control over a company. Shady players will give stakes in companies to third parties to go beneath 25%—that is, of course, if they ever own any of the shares at all. Families, likewise, will split shareholdings between them, often making it impossible to determine control. Should we not be concentrating on the legitimacy of the money going into and out of companies, rather than the shares being held?
I know that the finance industry also has concerns. The problem here is that fund structures will often mean that those who are defined by the legislation as having significant control over a UK company may, in fact, have delegated management to a fund manager. It will be important for the legislation to navigate the complexity of private fund structures to arrive at an appropriate result.
If the impact of these regulations is to put off institutional or angel private equity investment, this would be a case of throwing the baby out with the bath water, but I think from my own practice experience that there are also some serious privacy issues here. People have a right not to show their wealth, and if they cannot do that by buying shares, they will buy gold or art or put their money abroad. Some people do not want their shareholdings to be known to other people with whom they work or live. Many foreigners want anonymity for legitimate reasons, and we should not just assume that their private companies are fronts for dirty money laundering. Some have ethical issues; Muslims come to mind in respect of investing in companies that may conduct lending or brewing.
During the passage of the Companies Act 2006, I presented amendments aimed at protecting legal, rather than beneficial, shareholders who were under threat from animal rights terrorists, who were taking their names and addresses off the share register and persecuting them. The fear of this will only increase with these proposals and broad exclusions are going to be needed.
I see from the House Library that significant concerns have been raised by the Association of Pension Lawyers, the British Bankers Association and the British Private Equity and Venture Capital Association. Let me add my concerns on behalf of the thousands of family businesses that are going to be affected by this. I think we should remove these clauses, but if we go ahead, I would suggest some system whereby people could avoid the register and maintain their right to privacy if they show the authorities that they are legitimate and of previous good character.
With my remaining time, I shall turn to director disqualification. I understand the need to have overseas offences included in the grounds for disqualification, although the technicalities of this could be very complicated. However, I have concerns about the proposal to increase the time limit for starting disqualification proceedings from two to three years. Sometimes the investigation will indeed require more time, but I do not think we should be giving the authorities more time to delay their processes and so it may be better if the extra year were to be provided for upon application to the court.
As for striking off a company by the registrar, I note that the proposal in clause 91 is to reduce the notice period from six months to as little as two months. Given that that will give creditors less time to make their objections, will the Minister please explain his thinking here? On the clause 73 proposal to abolish bearer shares, the notes say that only 900 companies using them are still trading, but getting rid of them will be inconvenient and a cost to business. Why can we not make these proposals retrospective? I also note that British companies that trade their shares in the US financial markets use American depository receipts, which are presumably bearer stocks. Will those also be excluded? Could the Minister please explain?
Madam Deputy Speaker (Dame Dawn Primarolo)
Order. I am sorry but there is huge pressure on time and the time limit may have to go down. I call Mr Adrian Bailey.