Post Office Legislation

Debate between Kevin Hollinrake and Liam Byrne

Wednesday 13th March 2024 Commons Chamber

[Kevin Hollinrake]

I thank my hon. Friend for his question and all his work on this subject. Our engagement with him throughout the process has been very important. He has much expertise in this area.

We agree that this is unprecedented and undesirable, but we believe it is the least worst option. We want to see this delivered more quickly as, of the 790 or so sub-postmasters whom we believe this legislation will affect, only around 100 convictions have so far been overturned. We think that situation is untenable, which is why we decided to take this route. Of course, I will continue to work with him and listen to his wise advice.

I think I am right in saying that, for convictions overturned by the Court of Appeal, the record is marked “Overturned by the Court of Appeal”. We foresee these records being marked in a similar way—“Quashed by Parliament” or something along those lines. Again, I am happy to engage with my hon. Friend to make sure we get it right.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I welcome the Minister’s statement and thank him for the collegiate way in which he is working across the House to try to secure justice for those who have suffered.

This is a welcome step forward. I am glad to see the Minister taking on board some of the recommendations made in the Business and Trade Committee’s report last week, setting out how we can deliver fair, fast and independent redress. The Government have today proposed how they will overturn convictions. They have taken the Post Office out of some, but not all, claim processing and, crucially, they have increased the number of people who can apply for fixed-term remuneration. However, the Post Office is still handling the claims of at least 100 people with overturned convictions when it is patently not fit for purpose.

For those who seek to contest their claim, the Minister says there will be no legally binding timeframe between the submission of a claim and an initial offer being made by his Department, which is a problem. There is no standard tariff proposed for compensation under key heads of terms, such as loss of reputation. That, too, is a problem. The Bill is far more than a half measure, that is true, but it is not yet a full solution.

I leave the Minister with the words of Jo Hamilton, who messaged me last night to highlight the plight of the GLO litigants, in particular, and the way in which they

“have to justify every last penny even if some of their claim is for actual monies stolen from them by the Post Office… Why can’t the Government do the right thing before even more victims die?”

Those words need to ring in our ears as we seek to perfect this Bill.

[Kevin Hollinrake]

I thank the right hon. Gentleman for his comments and collaboration. It is important that we listen to his Committee’s recommendations and its very informative evidence sessions—I sat through all five hours.

At this point, we believe the Post Office should continue its work on the 100 or so cases before it. We currently have no capacity in the Department to handle those claims, although we clearly will by the time the Bill comes into effect. We do not want to pause between the Bill coming into effect in July and compensation payments being made. We think we can get those payments to people in August using that route.

There may be some people left in the first tranche of overturned convictions, for people who have been through the Court of Appeal. We will certainly look at the Committee’s recommendations on whether we should bring those cases back in-house or leave them with the Post Office. We will keep an open mind on that.

We already have fixed timescales to respond to offers or service level agreements in the GLO scheme. We commit to responding to 90% of full claims within 40 days of submission. I am happy to look at how we might put some benchmarks in place to make sure the new scheme has a similar speed of response. I am sure the right hon. Gentleman heard what I said about our new pilots under which lawyers can submit claims without forensic accountants and medical reports. That may do something along the line he says, and I will happily have an ongoing conversation with him.

Thus far, 128 of the 490 claims have been submitted to the GLO scheme, and 110 of them have been settled. To my knowledge, only one claim has gone to independent dispute resolution before going to the independent panel, which hopefully indicates that, generally, the offers are fair and have been accepted almost straightaway.

I understand what Jo Hamilton says, and I met her to discuss some of the processes she had to go through to prove her claim. We are determined to reduce those frictions and evidence requirements, certainly for things that are not essentially material. There are three things that we have to get right in delivering compensation: we have to be fair to the individuals and families affected; we have to be fair to all the other sub-postmasters to make sure there is consistency across the scheme; and, of course, we have to be fair to the taxpayer. There is no cap on what we will pay people, as long as it is fair.

Oral Answers to Questions

Debate between Kevin Hollinrake and Liam Byrne

Thursday 7th March 2024 Commons Chamber

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

The Secretary of State will have seen the recommendations that our Committee set out this morning for ending the circus of the Post Office administration of the redress schemes for victims of the Horizon scandal. I know that she takes this incredibly seriously and so I know that she will study our cross-party recommendations for the new legislation that she is about to bring before the House. The question for today is this: if we put all the ongoing investigations to one side, on the basis of the facts as they are known today, does she still have full confidence in Nick Read as the chief executive of the Post Office to run the redress schemes currently under way?

[Kevin Hollinrake]

We thank the right hon. Gentleman for his work. I have taken a quick look at the report, although it was only issued this morning. All the recommendations he makes in that report we have either fixed or are fixing with the assistance of the Horizon compensation advisory board. We agree with him that we need to bring the compensation schemes in house. The GLO—group litigation order—scheme is already being delivered by the Department for Business and Trade. We believe that further compensation will flow from our overturning of convictions. We will be overturning hundreds of convictions through legislation in this House very shortly, as quickly as possible, and that will provide a flow of hundreds of millions of pounds in compensation for those individuals. That will be done by the Department for Business and Trade.

Post Office Board and Governance

Debate between Kevin Hollinrake and Liam Byrne

Wednesday 28th February 2024 Commons Chamber

[Mr Deputy Speaker (Sir Roger Gale)]

I call the Chairman of the Select Committee.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I am grateful to the Minister for joining us for most of the five hours of hearings yesterday, but he will know as well as I do that what we saw yesterday was complete chaos at the top of the Post Office, when what we needed was a clarity of purpose about paying redress fast and fairly. Not a single witness yesterday said that they were satisfied with the speed of any one of the three processes. In fact, the lawyers for the claimants said that it may now take one to two years in order to complete the payment of redress, and we heard evidence of offers being made that were, frankly, insultingly low. That is true across each of the three schemes.

Most worryingly, we heard that the Post Office chief executive had not had regularly meetings with the Secretary of State or received a clear written instruction to accelerate every one of the three schemes; there were no deadlines and no targets, and there are no incentives to get the redress schemes done and dusted. That is not good enough. Will the Minister again reflect, when he brings his Bill before the House, on the need to eliminate the Post Office from this process to the maximum possible extent and ensure that there are a legally binding set of timescales under which claims are given the information they need and processed, with offers made and offers settled? I say that, because we cannot go on like this.

[Kevin Hollinrake]

I do think the chaos was caused by one individual. I sat through the whole session; for the bit I was not in the room with the right hon. Gentleman, I was watching on television. It is right for people to be able to say that they are not satisfied with the speed of compensation. I have said that time and time again from this Dispatch Box, and we are keen to accelerate the process and make sure it is fast and fair.

We are aware of the recommendations from the right hon. Member for North Durham (Mr Jones) on an appeals mechanism for some of the schemes where people feel the compensation is too low. We are looking and will continue to look at that. Every compensation scheme I have dealt with, such as the Royal Bank of Scotland global restructuring group scheme and the Lloyds-HBOS scheme, has been too slow, because of some of the complexity involved. We heard some good suggestions yesterday about how we might remove some of that complexity, which I am very keen to do. We heard some positive remarks from the individuals concerned, for example, from some of the solicitors, and from the Post Office on the fixed-sum awards—the £650,000 for the overturned convictions and the £75,000 for the GLO scheme. We heard how that was reducing the amount of disclosure that was required—that is one of the limiting factors. This should mean that the timescales that some people put on the table of one to two years should be rapidly reduced, and I am very keen to build on that work.

As the CEO confirmed to the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) yesterday, I meet him every month, and we speak about the need to accelerate compensation every single time. We have targets for when to pay the compensation by: August for GLO cases, and for all cases ideally by the end of the year. As we heard yesterday, 1,000 new claimants have come forward since the ITV series, which makes it difficult to put deadlines on payment. I am aware that the right hon. Gentleman wants a legally binding target. I am happy to discuss that with him, but we have just removed one legally binding target because not everything within the process is within our gift.

Post Office Horizon: Compensation and Legislation

Debate between Kevin Hollinrake and Liam Byrne

Monday 26th February 2024 Commons Chamber

[Mr Deputy Speaker (Sir Roger Gale)]

I call the Chair of the Business and Trade Committee.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

May I put on record my gratitude to the Minister for the speed and attention he is paying to this issue? The bottom line, however, is that redress is too slow and the offers are too low. Papers that the Select Committee is publishing this afternoon show that at the core of the problem is a toxic culture of disbelief of sub-postmasters, which still persists at the top of the Post Office. Indeed, the board minutes for March last year show that board members lamented that the board was tired and constantly distracted by historical issues and short-term crises. I am afraid that that is not good enough when only 40% of the allocated budget for the Horizon scheme has been paid out and only 4% of the budget for the overturned conviction scheme has been paid out. When the Minister brings forward his Bill, will he make sure that the Post Office is now taken out of every single one of the compensation schemes, and that a hardwired instruction to deliver, with a fixed, legally binding timetable to deliver compensation agreements, is written on the face of the Bill?

[Kevin Hollinrake]

I thank the right hon. Gentleman for his points, his kind words earlier, and his work on this matter. I know that he will be chairing a Select Committee session on it tomorrow, and I look forward to his recommendations.

I agree that compensation has been delivered too slowly. We are trying to accelerate its delivery every single day, and we are, I think, doing good work with the advisory board to ensure that that happens. I do not accept that the offers are too low, although I am not saying that there are no exceptions; no compensation scheme will be 100% perfect. In respect of the GLO scheme, for example, 58 full claims have been submitted and 41 have been accepted without reference to the next stage of the process, involving the independent panel, which would seem to indicate that the offers that have been made are fair. Of course people will not take my word for it—they will only accept it when those cases have been resolved—and there are bound to be high-profile cases, as indeed there have been, in which people say that the offers are too low. However, we are determined to ensure that everyone has full compensation that is also fair to the individual, fair to the other individuals within the schemes and, of course, fair to the taxpayer.

As for the people who are running the scheme, as the right hon. Gentleman knows, the Horizon shortfall scheme was set up as a scheme run by the Post Office, with an independent panel including eminent KCs such as Lord Garnier. I have met its members, as has the right hon. Member for North Durham (Mr Jones), and we have confidence in it. Nevertheless, we are looking at recommendations from the advisory board for an independent appeal process. The GLO scheme is independent of the Post Office; it is within our Department, and we are working to ensure that the offers are fair. As the right hon. Gentleman suggested, we are considering bringing the overturned conviction scheme back in-house, and we will have more to say about that in due course.

The right hon. Gentleman mentioned 40% of the budget. We set a maximum budget of £1 billion—not a cap, but a maximum budget at this point. Part of the reason why only 4% of overturned convictions claims have been settled is the fact that the convictions have not in fact been overturned, which is why we are legislating in this way. Once those hundreds of convictions have been overturned, en masse, people will have access to rapid compensation via either the fixed-sum award, whereby compensation takes only days, or the full-assessment route, which takes longer.

The right hon. Gentleman spoke about a legally binding route, and of course we will look at all the various suggestions that are made. We have just legislated to extend the timescale for GLO compensation because we did not want to be bound by an arbitrary date, and I think he supported our legislation. I would therefore caution him against suggesting a legally binding date, because not everything is in our gift, in terms of when we receive a claim and how fast it can then be processed.

Post Office Horizon Scandal

Debate between Kevin Hollinrake and Liam Byrne

Thursday 22nd February 2024 Commons Chamber

[Mr Speaker]

I call the Chair of the Business and Trade Committee.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I associate myself with the words of praise for the Minister’s speed and attention on this issue. I think a legally binding instruction for the Post Office and the Department to deliver at speed is a necessity in the new Bill. The Minister has told us today that about £160 million has been paid in compensation, but there is provision for about £1.2 billion, which means that only 13% of the money has been paid out. He updated the House on the number of claimants, and there were 555 people in the GLO group and 700 who were convicted. As the Minister told us, only 73 people have had their final compensation fully paid, which is only 6% of the two groups.

The confusion at the beginning of the week about who said what to whom shows there is confusion about the instruction to deliver at speed. When the Bill comes before us, will the Minister reflect on the necessity for a legally binding deadline under which the Post Office must make information available in 20 to 30 days and an offer must be made to settle within 20 to 30 days, with a legally binding deadline for final resolution? Otherwise, frankly, I worry that the ambiguity will still cause delays. He knows as well as I do that justice delayed is justice denied.

[Kevin Hollinrake]

I thank the right hon. Gentleman for paying regular attention to this issue. I know that the Committee has a session next week and will be asking some of those questions.

We are keen to get compensation to victims as soon as possible. We are somewhat at the mercy of claims, and we cannot offer compensation if claims do not come in. Like others, I am very keen for people to come forward to submit a claim. One of the reasons why we put forward the fixed-sum awards of £600,000 for overturned convictions and £75,000 for members of the GLO scheme is to try to accelerate the payment of compensation, which contradicts the claim that people are trying to slow things down.

I am meeting the Horizon compensation advisory board this afternoon to look at its recommendations for accelerating compensation. We have taken nothing off the table, and I remind the right hon. Gentleman that the House recently voted to extend the compensation deadline from 4 August, on the recommendation of Sir Wyn Williams, because we do not want people to be timed out of compensation. The maximum budget for compensation has, thus far, been set at £1 billion.

One of the issues we are trying to resolve urgently is the fact that people are reluctant to come forward to have their convictions overturned by the Court of Appeal, which is one of the reasons why we have not compensated enough people with convictions. We cannot compensate them until we overturn their convictions, which is exactly why we have proposed the legislation. Once we have done that, the door will be opened for compensation to flow freely. That is exactly what the right hon. Gentleman and I want to see.

There has never been any confusion in our mind about the need to deliver this quickly. I have focused on that every single day, both since I have been in office and before. I have never been resisted by anyone in my Department or in other parts of Government. There may be confusion, but I promise that there has been no confusion in Government.

Post Office Ltd

Debate between Kevin Hollinrake and Liam Byrne

Monday 29th January 2024 Commons Chamber

[Mr Speaker]

I call the Chair of the Select Committee.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

Leaving the Post Office rudderless now, when people are literally dying before they get redress, is not a situation we can put up with. The key question for the Minister is this: where is the Bill to expedite redress for those who were wrongfully convicted? Will he commit this afternoon finally to making sure that we have pre-legislative scrutiny of that Bill so that it is as strong as it can be, and will he commit to a hard deadline enshrined in law in the Bill to make sure the payments are made as rapidly as possible? Frankly, Mr Bates and the other sub-postmasters who have been wronged for so long should not be made to wait a moment longer.

[Kevin Hollinrake]

I thank the right hon. Gentleman for his question, but I do not accept his premise that the Post Office is rudderless. The chief executive is still there and I spoke to him a few moments ago, prior to the urgent question. As I have said, we are looking to appoint an interim chair as soon as possible and a permanent replacement shortly after that, and meanwhile the daily work of the board will continue.

On our commitment to overturn convictions on a blanket basis, I appreciate the right hon. Gentleman’s previous constructive collaboration and engagement with our Department, and I hope that continues. I am keen to engage with him on our approach. These are legal matters that need to be considered carefully and we had a number of meetings last week on this very issue, so I am keen to engage with him, but in a way that does not slow down the process of bringing the legislation forward. He will find us contacting him and knocking at his door in the coming days to talk about how we will go forward with that legislation.

I should point out that Mr Bates’s compensation is not related to the overturning of convictions, because he was never convicted. That is not what is getting in the way of Mr Bates’s compensation, although it is getting in the way for something like 900 other people, and we are keen to resolve that as quickly as possible.

Post Office Horizon Scandal

Debate between Kevin Hollinrake and Liam Byrne

Wednesday 10th January 2024 Commons Chamber

[Mr Speaker]

I call the Chair of the Business and Trade Committee.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I thank the right hon. Member for Haltemprice and Howden (Sir David Davis) for securing the urgent question. I am very much looking forward to cross-examining the Minister when he comes before the Business and Trade Committee next Tuesday, when we will be hearing evidence from Mr Bates and his colleagues. We will also be putting questions to Fujitsu. Can I push the Minister on the point I made on Monday night? Three years after the landmark case, 85% of convictions have not been overturned, only 4% of the cases have resulted in a full and final settlement, and we have heard evidence from victims this week already that even when settlements have been made, the cash has not yet been handed over. Can I ask the Minister again what his target is? What is his goal, approximate or otherwise? When will those wrongfully prosecuted have their full and final settlement delivered, in cash?

[Kevin Hollinrake]

I am very much looking forward to appearing before the right hon. Gentleman’s Select Committee and hearing some challenging questions, which I would welcome. To be clear, 64% of all those affected by the scandal have received full and final compensation. He talks about the smaller cohort who have come forward in relation to convictions. Only 95 have had convictions overturned. In order to try to expedite the payment of compensation to those people, we have introduced the fixed-sum award route, which is proving very successful. I am not aware of his point about people not actually receiving the cash, but I am very happy to engage with him on that, because there is every intention that once a decision has been taken to go down the fixed-sum award route, the sum is paid pretty much instantly. I am very happy to find out what exactly is happening in those cases. Where people have gone down a full assessment route, that is understandably more complex, as various considerations about loss, financial forensic information, health and reputational loss—a key facet in most of these cases—will be taken into account.

The right hon. Gentleman asked for a date. We have always intended to deliver all the compensation by August this year, and that is still the case. We would like to do it more rapidly, and for many people we will do it more rapidly, but not everything within the timescales is in our gift, because people are required to go down a full assessment route in order to compile a claim to which we can then respond. However, we have set ourselves some criteria relating to time and service levels to enable us to respond to claims in a timely fashion.

Horizon: Compensation and Convictions

Debate between Kevin Hollinrake and Liam Byrne

Monday 8th January 2024 Commons Chamber

[Mr Deputy Speaker (Mr Nigel Evans)]

I call the Chair of the Select Committee.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

Justice delayed is justice denied but 85% of the convictions have still not been overturned despite the Select Committee warning last spring that the process was rolling much too slowly and having made recommendations for speeding it up. Many of those recommendations were rejected, yet tonight the Minister has told the House that only now is the Lord Chancellor exploring with the judiciary a way to speed things up. Will the Minister tell us tonight his timeframe for delivering justice to those who have been unfairly convicted? Can those who are still waiting for their convictions to be overturned expect justice to be done this year? Or must they wait until many more of them have, tragically, passed away without justice?

[Kevin Hollinrake]

I thank the right hon. Gentleman for his work as Chair of the Select Committee, and I am very happy to be appearing before it next week to answer more detailed questions on these matters. He is right to say that most convictions have not come forward, which is precisely why we are making this statement today—so that more people with convictions have them overturned. One difficulty is that some of them have not come forward. Also, about 50 people who have come forward have not had their convictions overturned. We are looking at both those particular issues and I am happy to talk to the right hon. Gentleman about any of his recommendations.

Yes, we absolutely want to see these issues resolved this year. As we have said before, we want to see all compensation payments done by August, which was the original timeframe. Not all these matters are within our gift: we require victims and their representatives to bring forward claims and, in the current process, those seeking to overturn convictions to bring forward applications for that. That is a process that we are trying to expedite, and I hope to have some very good news for the right hon. Gentleman in the coming days.

Oral Answers to Questions

Debate between Kevin Hollinrake and Liam Byrne

Thursday 30th November 2023 Commons Chamber

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

On Tuesday, we finally had answers from Lisa Wilkinson about the mistakes that led to the collapse of that much-loved firm, but Ms Wilkinson was not able to answer why 70% of the profits in the last four years were paid out in dividends to family trusts while the deficit in the pension fund amounted to now £50 million. Will the Secretary of State ensure that regulators explore every option to claw back those dividends so that Wilko pensioners are not short-changed?

[Kevin Hollinrake]

The right hon. Member raises a very important point. He has looked at this matter very carefully, including on the Business and Trade Committee, and I thank him for his work. I was pleased to give evidence to his Committee on Tuesday. Clearly, the Insolvency Service is looking at this. It is looking at the directors’ conduct report from PricewaterhouseCoopers, the administrator, which it needs to look at very carefully. It is clear from that report so far that there is no evidence of director misconduct, but further work is ongoing. The Insolvency Service is due to meet the administrator, PwC, in January, and we will look at the situation as it unfolds.

Economic Crime and Corporate Transparency Bill

Debate between Kevin Hollinrake and Liam Byrne

Consideration of Lords message
Wednesday 25th October 2023 Commons Chamber

[Liam Byrne]

My right hon. Friend is absolutely right. This is a point of cross-party consensus. I know it is a point of cross-party consensus because it was the Minister who used to use precisely the same argument to argue for some of the changes that we see in the Bill.

We all know that our country does well, because, by and large, we have a reputation for clean trade around the world. When companies file and incorporate in this country, that is a credential that does them well around the world. That is a credential that we must do everything in this House to protect, which is why the amendment is so important. We cannot leave a weakness in our armour as crime and fraud multiplies.

The Minister said that the proposal would be a cost to British business that we could not withstand or sustain, but the truth is that, while it might be a cost to some British businesses, it would also be a saving to British business, to the British economy and to British taxpayers, because it is always cheaper and more effective to prevent fraud in the first place than to have to police it or to prosecute fraud after the event. When 64% of businesses—small businesses—in this country are victims of fraud, we can only imagine how widespread that cost of fraud has now become. That average is much higher than international averages and therefore there is an additional argument that we need to go that one step further to make sure that we are doing everything in our power to prevent fraud from arising in the first place.

All we ask in this amendment is for the Minister to face the facts. He should bring the facts together, put them in a report, assess them, analyse them and present some conclusions to the House. How can we have a situation where the Minister is essentially asking for the freedom to look away? That simply cannot be the basis of good policy. I am grateful to my new colleagues on the Business and Trade Committee who agreed yesterday that we will ask representatives of Companies House to come before us for hearings. Frankly, if the Minister is not prepared to put the facts around fraud in one place, I shall ask the Select Committee to do the job for him.

[Kevin Hollinrake]

With the leave of the House, I wish to thank Members who have contributed to the debate. We have much in common, despite the fact that some small differences still remain. As I said earlier, the Government have come a long way since the original tabling of the legislation. The number of pages have increased by more than 100, so the contents of the Bill now stand at nearly 400, which shows the importance of the legislation that we are debating.

I did not agree with the shadow Minister when she said that the Government have not been willing to compromise—that is not the case at all. The “failure to prevent” offence, particularly the identification doctrine, are key, world-leading measures. In my opening remarks, I made the commitment—and I make it again—that will we keep this matter under review, and that includes, in particular, the threshold. Even if there were a requirement for review in statute, there is no requirement on the Government to make changes following that review, so it is important to maintain the goodwill that we have experienced during the passage of the Bill.

Economic Crime and Corporate Transparency Bill

Debate between Kevin Hollinrake and Liam Byrne

Consideration of Lords amendments
Monday 4th September 2023 Commons Chamber

[Kevin Hollinrake]

The vast majority of the business community is honest and upstanding—that is the point. What we are trying to ensure is that those businesses are not disproportionately affected by putting in controls, checks and balances. I speak as a businessperson who did have to implement failure to prevent bribery and tax evasion measures in our business, and I tell the right hon. Member that there were significant administrative burdens around that legislation, and I believe they would be more so for fraud. I will come to that point in more detail.

I turn to Lords amendment 23. The inclusion of lines 84 to 96 would require all UK companies to declare whether they are 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. Fundamentally, that is not necessary. Provisions in the person with significant control framework, as strengthened through the Bill, already require the disclosure of a person of significant control behind a nominee on pain of criminal sanction for non-reporting. That achieves the same intent. A combination of measures already in the Bill, the material discrepancy reporting regime in the Money Laundering and Terrorist Financing Regulations 2022 and Companies House’s new intelligence hub will more effectively flush out undeclared PSCs and deter the provision of false information.

I am afraid that the proposed approach is something of a blunt instrument. It would apply to all shareholders, when we should be focusing on the transparency of individuals exerting significant influence as already provided for under the PSC framework. As such, we would risk burdening millions of companies and their shareholders with new information requirements for no useful purpose. The proposition may sound sensible, but nominee arrangements can be complex, including having multiple layers of nominees and large numbers of beneficiaries for entirely legitimate reasons. For example, pension funds that own shares in a company would be caught. Listed companies would be particularly impacted as their shares are often held by nominee arrangements for legitimate administrative reasons—for example, in stocks and shares individual savings accounts, by custodian banks and by corporate sponsored nominees.

Listed companies report similar information about those owning 3% or more of their shares to the Financial Conduct Authority, so the Lords amendment would partly duplicate existing arrangements. In summary, lines 84 to 96 of the amendment risk disproportionate burdens on legitimate actors and would most likely be ignored by illegitimate actors. Those acting as nominees on behalf of shady individuals behind the scenes are already adequately on the hook if found to have provided false information, as is the company itself.

The effect of inserting those lines into part 8 of the Companies Act 2006 would be to cut across a tenet of UK company law: those running a company—usually the directors—must know its legal owners and act in the interests of the legal owners of the company. Those legal owners are recorded on the register of members. Companies shall have regard to their members record and not, for example, to anyone holding any underlying beneficial interest in their shares.

Lords amendment 115 would introduce two new duties for overseas entities. It would first require event-driven updates on beneficial ownership information and, secondly, require overseas entities to update their record no more than 14 days before the completion of a land transaction rather than the existing requirement to do so annually. Although the amendments are well intentioned, they would significantly increase burdens on both overseas entities and third parties transacting with them, as well as introduce an element of risk in land transactions that the annual update prevents.

As my ministerial colleague Lord Johnson of Lainston explained in the other place, in the case of an overseas entity that owns large commercial premises split into units, the amendment could result in the entity needing to provide updates twice a month, which is a disproportionate burden. There are a number of other technical challenges and impracticalities with setting such a duty on these entities. The Government are not alone in those views. The Law Society of Scotland, the Law Society of England and Wales and the British Property Federation have all expressed their concerns. The Government therefore cannot support the amendment.

Lords amendment 117 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. It is important to note that the information on trusts is already provided to the registrar when an overseas entity registers on the register. Furthermore, the registrar already discloses trust information to His Majesty’s Revenue and Customs, law enforcement and other persons with functions of a public nature if and when necessary and appropriate. This is not a loophole.

In the other place and in this House, including from the right hon. Member for Barking, the Government have heard and acknowledged that there is a case for broader transparency over trust arrangements beyond law enforcement agencies. The Government therefore added a regulation-making power in the law to allow third-party access to trust data in certain circumstances. That will enable individuals such as civil society organisations and investigative journalists to access such information under certain circumstances.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I am grateful to the Minister for his thanks for the progress we have made together on SLAPPs. Because of the amendment made on SLAPPs, we are now providing journalists and other truth-tellers with important protections when it comes to investigating economic crime. The Lords amendment is a complement to that. The truth is, there will never be enough enforcement resources for Companies House, HMRC and others, so we do need civil society to be able to bring the disinfectant of sunlight and undertake investigations. It is therefore vital that trust information is provided. Has he seen the new research published by Arun Advani, Andy Summers and their colleagues that shows that the current arrangements shield something like 152,000 properties from that transparency? If we genuinely want to be able to investigate where things are going wrong, where there is corruption, surely it is in the national interest for us to make that information more widely available.

[Kevin Hollinrake]

I thank the right hon. Member for his intervention. I have seen the report and the media release around it and we do not accept those numbers or the interpretation of beneficial ownership used in drafting the report. Nevertheless, we share his concerns and absolutely want to ensure that transparency will be greater than it is today.

The Government have every intention of exercising the power and intend to ensure that access can be granted in a straightforward way. Information currently held by Companies House was submitted by overseas entities in the expectation that it would not be available for public inspection. Making such information available for public inspection would come with a number of risks, including the possibility of legal challenge. Moreover, publishing the data by default would likely have significant unintended consequences, including potentially exposing information about vulnerable individuals and minors. It is therefore right that the Government take the time to consult properly on this important issue to address the benefits and risks of greater transparency and how this can be achieved.

--- Later in debate ---

[Kevin Hollinrake]

It would be if the hon. Gentleman’s numbers were right, but that is not what I said. Three thousand entities are not currently registered, to our knowledge. Many of those will have already ceased to exist or will have disposed of the property they owned. We are trying to find out the exact numbers. That is about the enforcement action. We have had 100,000 communications with those 3,000 entities, and half a million pounds of fines so far, but those fines can rise exponentially if they continue not to comply properly with the legislation.

[Liam Byrne]

The Minister has wisely equipped himself with an order-making power, which he referred to earlier. He told the House that he plans to undertake a consultation. It would be of comfort to some in the House—not to all—if he could tell us when he plans to launch that consultation and, in his own mind, when he would like the consultation to be implemented through the power with which he has equipped himself.

[Kevin Hollinrake]

We intend to launch the consultation by the end of the year, and we would like the regulations in place as soon as possible. It is quite clear that we want to do that. We all agree on the transparency—I agree with the right hon. Gentleman’s point that sunlight is the best disinfectant. I am absolutely keen to do it, but we must make sure we do it right. We do not want any unintended consequences. It is right that we consult widely with the different sectors to make sure that this legislation—and the regulations, when they come—are fit for purpose.

--- Later in debate ---

[Kevin Hollinrake]

The threshold is set at one of these three: 250 employees, £36 million turnover or £8 million in gross assets. We think that is the right level. We always listen to what the right hon. Lady has to say. The legal sector is covered by current money laundering regulations, as is the estate agent sector, for example. It is not right to say that they are not covered by money laundering regulations.

[Liam Byrne]

The Minister is being characteristically generous. I, too, respect what he is trying to do with the regulatory burden. I have taken a business from two people and a business plan and grown it into a multi-million pound organisation, so I respect what he is trying to do on regulation. However, does he not risk the growth of businesses with a turnover just below £36 million—perhaps £35 million—explicitly set up to be the conduits for bad behaviour? He will remember at the public Bill evidence sessions that representatives from the financial services community told us about the way in which money came into a bank and was split up between several different organisations and their bank accounts to blur what was really going on before the money went on to be laundered. Is there not a risk that clever people who are corrupt will just set up a whole hive of small businesses with a turnover below £35 million, to circumvent the safeguards that we are all trying to put in place?

[Kevin Hollinrake]

I do not accept that. It would be extraordinary if someone set up a business just for the purpose of keeping turnover below £36 million. Besides, it is already much easier to pinpoint fraud in small organisations than larger organisations. That is already the case. It is easier to take forward those kinds of prosecutions on that basis.

Draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023

Debate between Kevin Hollinrake and Liam Byrne

Monday 22nd May 2023 General Committees

[Kevin Hollinrake]

It is a pleasure to respond to the important points raised in the debate. The shadow Minister, the hon. Member for Feltham and Heston, asked when the draft regulations come into force. The date they come into force is 21 June. Companies House will be able to impose financial penalties from that date forward. On warning letters, on different occasions Companies House has written to entities that have not registered—to the property of the address they own or to the service address provided to the registry.

The right hon. Member for Birmingham, Hodge Hill asked about the number of overseas entities that are not registered. We estimate that there are 32,000 entities and that 29,000 are now compliant, so it is 3,000. We think that a significant number of those might not have received the communications and might not be deliberately not co-operating. It is important that any enforcement action taken is proportionate. That is what Companies House is there for.

The right hon. Gentleman also made an important point about resources. As he knows, I am totally aligned with him on ensuring that Companies House has the right resources. We are undertaking a body of work with Companies House to determine what resources it needs and how we apply the right registration or incorporation fee—it will be a higher fee than the current £12. There are also annual fees—recurrent fees—for filing, which can also be used to ensure that Companies House has the right level of resources. We think that that is the horse before cart approach; we are seeing what resources it needs for this and its other work to ensure that the register is accurate.

The shadow Minister mentioned the £2,500—the daily fine for the failure to update offence. The other fines for failing to register are much more significant. The bands I set out earlier are based roughly on council tax bands: A to C will be the £10,000 fee, D to F £20,000 and G to H £50,000. That fine would apply to each property in the portfolio. If we imagine a portfolio of three properties in the mid-range, that would be an initial fine of £60,000, which could be doubled subsequently for non-compliance. The fines are not insignificant and we think that they are at the right level to encourage compliance.

The shadow Minister also made a point about the 750 who have provided the details as required by Companies House, in which they basically say that they no longer hold the properties—the properties have been disposed of—and we therefore feel they are compliant. The 28 days is the time to respond; that was the response time required after the request by the registrar.

On the proxy directors, I understand the point made by the right hon. Member for Birmingham, Hodge Hill, but that does not obviate the requirement for the beneficial owner to be named. Whatever proxy directors there might be, the requirement is for the beneficial owner to be named in any circumstance. That is in existing ownership or future ownership. Someone cannot technically hide behind the proxy director without being guilty of a false filing offence.

[Liam Byrne]

I am grateful for the clarification. Will the Minister also clarify whether, if the penalty regime stops people trading with an unregistered overseas entity, they could still trade with a beneficial owner who was standing behind an entity based overseas that had not fulfilled its obligations?

[Kevin Hollinrake]

Either way, if it were an entity established now or in future, it would be in breach of the legislation—it would be breaking the law by doing that, by not declaring who the beneficial owner was, in any circumstance. Whether that is through shareholders or directors, it is about the person with significant control. That person does not even have to have a shareholding to be a beneficial owner or a person with significant control, if they exert influence by other means. The legislation is in the right place, though enforcement is a different matter, of course, and we must ensure that the relevant enforcement agencies have the resources they need.

The final point was on concerns about trusts. The Economic Crime and Corporate Transparency Bill, which is going through the Lords, includes some additional mechanisms to ensure that we get behind trusts so that they are not used as a vehicle for non-compliance or to avoid the rules. His Majesty’s Revenue and Customs has a great deal of information that is not publicly available for good reason—some people have trusts to protect individuals, such as minors.

To conclude, the draft regulations will complement the measures in the Economic Crime (Transparency and Enforcement) Act 2022 to ensure that the register is as effective as possible. I commend them to the Committee.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Register of Overseas Entities (Penalties and Northern Ireland Dispositions) Regulations 2023.

Economic Crime and Corporate Transparency Bill

Debate between Kevin Hollinrake and Liam Byrne

Report stage
Tuesday 24th January 2023 Commons Chamber

[Kevin Hollinrake]

I think it would be wrong to make any representations on any particular case, but seeking to enable somebody to avoid sanctions is entirely unacceptable, clearly. I am sure that those allegations will be looked into very carefully. We should definitely make sure that those are properly reviewed before we come to any firm conclusions, but in essence I agree with the principle behind the hon. Member’s statement.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

Will the Minister give way?

[Kevin Hollinrake]

I will make a little progress, if I may. I appreciate that there are a large number of Government amendments, hence the need to make some progress. I would like to reassure the House that they are intended to ensure that the measures in the Bill will work as intended, and in most cases they reflect issues raised in Committee.

I will briefly summarise our amendments relating to parts 1 to 3 of the Bill. First, and importantly, our new clause 15 requires the Government to publish an annual report on the implementation and operation of parts 1 to 3, which includes reforms to Companies House.

--- Later in debate ---

[Liam Byrne]

Let me echo the wide welcome that the Minister has received at the Dispatch Box. Has he had a chance to reflect on how the report that parliamentarians need actually stretches beyond the compass of Companies House to the business of tackling economic crime more generally? After this morning’s revelations, for example, it was said that a junior official in the Office of Financial Sanctions Implementation was the individual who signed off the new flexibility for one of Putin’s warmongers to fly over London lawyers in an attempt to silence English journalists in English courts. That is surely a matter of concern to the Minister and to all parliamentarians, and that is the kind of issue that could be surfaced in a more wide-ranging and forensic report, if he were able to publish it.

[Kevin Hollinrake]

Again, I think it would be wrong to comment on individual cases, but I take the right hon. Member’s point. In general terms, the UK sanctions regulations permit the OFSI to license reasonable legal fees. That is clearly something on which officials make decisions, rather than Ministers—I think it is important to say that—and the merits of any case are for the appropriate court to judge. However, he has certainly campaigned extensively for making sure that people cannot close down the raising of understandable concerns. In essence, I absolutely support that and the work on SLAPPs—strategic lawsuits against public participation—to which my hon. Friend the Member for Isle of Wight (Bob Seely) referred in introducing his ten-minute rule Bill earlier. So that is work in progress, rather than anything that relates specifically to this legislation.

We are taking a power to expand the registrar’s data-sharing ability. That will future-proof the legislation and provide scope to expand the data-sharing gateway, if needed. We are also strengthening the range of sanctions for non-compliance with the register of overseas entities. Our new clause 8 will mean that a director can be disqualified if they breach an obligation under part 1 of the Economic Crime (Transparency and Enforcement) Act 2022, ensuring a consistent approach to tackling non-compliance between that Act and the Companies Act 2006. Following discussions in Committee, we are also removing the power to exempt certain individuals from identity verification requirements, having concluded that it is not essential.

As well as those important amendments, we are making improvements to the limited partnership reforms. We will ensure that a limited partnership’s dissolution and deregistration is transparent and properly drawn to the attention of the public. There will be a legal requirement for these to be published on the Companies House website as well as in the Gazette. Again, this was discussed by Opposition Members in Committee.

Economic Crime and Corporate Transparency Bill (Eighteenth sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Thursday 24th November 2022 Public Bill Committees

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

What has changed?

[Kevin Hollinrake]

Nothing.

--- Later in debate ---

[Liam Byrne]

No one could accuse the Minister of being an innocent abroad in a world that is not innocent, but I have to ask him whether he seriously believes the content of the paragraphs that he has just read out. I have no doubt that there are countries around the world that have said that they are going to increase their AML supervision, but we now have a situation in this country where we have some very bad people, such as Usmanov and others, who own property portfolios of up to £50 million. We have allowed them to do that, and now we cannot take those portfolios off them, so could the Minister at least tell us how he is going to seriously get a grip on bad people from bad countries being allowed to buy assets here in the UK?

[Kevin Hollinrake]

We have applied sanctions on a targeted basis to some of those actors—[Interruption.] The right hon. Gentleman raises his eyebrows. Is he not aware of the sanctions we have applied to certain individuals from high-risk jurisdictions?

[Liam Byrne]

As the Minister knows, I am one of the Members who pushed for the Government to toughen up their sanctions after they left so many people off the sanctions list the first time around. Going forward, how is he going to stop bad people from bad countries who have no intention of improving their AML regulation buying mansions in London?

[Kevin Hollinrake]

It is entirely wrong to tar everybody from one country with the same brush. Clearly there are some deficiencies, but is the right hon. Gentleman honestly saying that every person from a jurisdiction that has deficiencies in its AML regime is a bad person? I think that is what he said, and I think it is entirely inappropriate.

[Liam Byrne]

I am grateful for the chance to put the question where it belongs, which is back on the Minister. The question was very simple: how is he going to ensure that bad people who happen to live in bad countries are prohibited from buying assets here in London? How is he going to do that? Tell us!

[Kevin Hollinrake]

Through the provisions in this 250-page piece of legislation; through the provisions in the legislation that was passed earlier this year, which both of us campaigned for; and through other things, such as the sanctions regime—through all those different things. It is our view that we should look at the people, not necessarily the jurisdiction. Of course, we work internationally to improve jurisdictions around the world, but it is wrong to suddenly say that countries, potentially including Commonwealth countries, are bad countries, which I think is what the right hon. Gentleman said.

--- Later in debate ---

[Liam Byrne]

We may as well pursue this to its death—I am grateful to the Minister for being so generous in giving way. Let us take the example of Usmanov. He has only recently been sanctioned, but when we read the indictment, we see that it is very clear that he has been an associate, colleague and enabler of President Putin for an awfully long time. The sanctions came ex post facto, after he had been allowed to acquire assets. How do we create a more preventive regime to stop this kind of nuisance on our shores?

[Kevin Hollinrake]

The right hon. Gentleman is saying that no Russian should ever be able to buy property in the UK—

[Liam Byrne]

I didn’t say that, did I?

[Kevin Hollinrake]

That is exactly what he is saying. Russia is a high-risk jurisdiction; is he saying that no Russian can buy property in the UK?

[Liam Byrne]

I am grateful for the chance to clarify. The Minister is engaged in the old debating tactic of putting the question back on me, but the question is on him: how is he going to stop individuals like Usmanov buying property in London in the future? What safeguards does he think he has in place? When a sanction has not yet been put in place, how is he going to stop people about whom we have serious concerns acquiring that kind of asset?

[Kevin Hollinrake]

If the right hon. Gentleman is saying that people are guilty until proven innocent, that is entirely the wrong way to look at this issue. Of course, those decisions have to be information-led; many of the provisions in the Bill are about information sharing and being information-led, looking at the red flags, identifying the people who we potentially need to be concerned about, and preventing those people’s actions on that basis.

[Liam Byrne]

Will the Minister give way?

[Kevin Hollinrake]

I think I have given way enough on this point.

[Liam Byrne]

It is my last one.

[Kevin Hollinrake]

One last time, then.

[Liam Byrne]

The Minister is being characteristically generous with his time. Is he therefore reassuring the Committee that if the provisions in the Bill had been in place, Usmanov would have been prohibited from buying a mansion three years ago—yes or no?

[Kevin Hollinrake]

He may not have been, because he was not on the sanctions list at that point, and he was not on a sanctions list anywhere else in the world, as far as I am aware. He may have been—I do not actually know that information—but Usmanov would have been treated like anybody else under our system. It is interesting how quickly the Opposition sometimes will jettison some of the fundamentals of our society, one of which being that a person is innocent until proven guilty. We need the evidence before we can sanction somebody. We will adhere to that principle—certainly I will as long as I am in Parliament.

This new clause would prevent the registration of titles by legitimate companies in any of the jurisdictions on the lists. That would have a detrimental impact on those companies wishing to invest in the UK, as not every company incorporated in those jurisdictions is a bad actor. Although the new clause would prevent registration of title by an overseas entity, it is not possible to prevent a transaction from taking place and money changing hands. Unintended consequences would be likely.

Any overseas entity applying to the Land Registry to register title must now be registered with Companies House and have an ID number. That provides a safeguard against bad actors, more transparency about the overseas entity, and information for law enforcement should it later transpire that the overseas entity is involved in criminal activity. Therefore, I politely ask for this new clause to be withdrawn.

--- Later in debate ---

[Kevin Hollinrake]

The right hon. Gentleman says that there is a much stricter cost-control regime in the United States. He is clearly not aware that there is no such regime in the United States, because no adverse costs are awarded. It is a completely different legal system.

[Liam Byrne]

I meant, in summary, the economic effect. The impact is that agencies have much greater latitude to bring cases against bad people in American courts without fear of what it will do to their enforcement budget. That is exactly where we need our enforcement agencies to be. If we are going to strengthen their hand, to really effectively police the problem and to respect what the Government need to do, namely, to ensure that we maximise the effectiveness of our enforcement agencies within tight budgets, the measure should, I hope, be accepted by the Government. I am delighted to have had the opportunity to move the new clause.

Economic Crime and Corporate Transparency Bill (Twelfth sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[Kevin Hollinrake]

The right hon. Member for Barking went to a very tough school. She is not an easy person to please. Quite rightly, she is very demanding of more action in various areas; I support that, as she knows. HMRC is not directly answerable to BEIS. It reports to the Treasury, of course.

[Liam Byrne]

It is a law unto itself.

[Kevin Hollinrake]

The right hon. Gentleman knows that very well. I agree about enforcement, but I question the right hon. Lady’s language a little bit. She implied that HMRC is useless in certain contexts. I have met Jim Harra and other people from HMRC and found them to be diligent, decent people seeking to do the right job. The vast majority of people in any agency—officials, or whoever—do not go to work to do a bad job, so I think the language she used is not helpful.

We do need to beef up enforcement in all sectors, whether we are talking about tax avoidance, evasion or economic crime, and I absolutely support that. We see time and again that the return on investment from the extra enforcement capability is more than worth while for the taxpayer. I appreciate the spirit of the right hon. Lady’s remarks but not some of the language around them. Certainly, enforcement in all areas is something we need to look at carefully.

Question put and agreed to.

Clause 118 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Scott Mann.)

Economic Crime and Corporate Transparency Bill (Eleventh sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Tuesday 15th November 2022 Public Bill Committees

[Dame Margaret Hodge]

I know it is, but most of that comes from the economic crime levy. The £300 million comes from the economic crime levy; £100 million comes from the Government’s coffers. Correct me if I am wrong, but that is my understanding of it, so a third of that—£32 million or £33 million—is the Government’s annual contribution out of taxation. That is where I got the figure from. If I am wrong, I stand to be corrected, but that is my understanding.

Looking across the world, even the British Virgin Islands, our favourite secrecy jurisdiction, charges £1,000 to people who wish to create a company there; I cannot think that that has put anyone off using the BVI if they want a secrecy jurisdiction to support them. Australia charges £247; in the USA, in California, it is £150; in Delaware, another secrecy jurisdiction, it is £590; in New York, £570; Italy, £2,000; and Germany, £383. Even with our new clause, we would still be a cheap place in which to do business.

That is all I need to say at this point. We brought in new clause 40 because we think that should also be embedded. The Minister may tell me that it happens, but we think it should be embedded in legislation so that no future Government are ever tempted to take the money they earn from fees and put it towards other purposes. I hope that the Minister will accept that.

Again, correct me if I am wrong, but I have not seen anything in legislation that ensures that money raised in fees goes directly to enforcement. The Minister may want to do that, but his successors may not feel the same. The issue is never a high political priority so it is important that we get sustainability for the issue over time. That is the reason for the new clause.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

It is a pleasure to speak with you in the Chair, Mr Robertson. It is fantastic for the Minister to be able to kick off today with this debate—surely there has never been a Minister as lucky as this one is in taking this Bill through Committee. Here we have an entire Opposition side of the Committee united in wanting to give the Minister the tools to do the job—the job for which he has argued for years and years in this House.

We want to send the Minister into the spending review, with his colleague the Chancellor of the Exchequer, with his hands bound. We want to ensure that he goes into those conversations with the law of the land changed, so that he is required to put up the fees for Companies House and actually has the money he needs to do the job. We know that that is not going to damage the business investment environment in this country. How? Because it could not get any worse than it is today.

The business investment level in this country over the last 12 years has now been the worst in the G7, so it is unlikely to get any worse if fees at Companies House are put up a little bit: it is already spectacularly bad. That underlines a simple point: that the level of economic crime in this country is now so infamous around the world that it could be damaging the level of business investment here. If we are known around the world—certainly, in Washington and in European capitals—as a global epicentre of dirty money, how does that help us become a great, global hub of business investment in years to come? Obviously, it does not. There is a competitive advantage to be had by becoming one of the great capitals of clean trade. Here we are, an Opposition united in wanting to help the Minister achieve that ambition and make sure that he has the resources to do the job.

In the public evidence sessions, we heard a clear set of arguments as to why these amendments need to be made. We heard that our country has now become the centre of the Russian laundromat, the Troika laundromat and the Azerbaijan laundromat. Indeed, the Security Minister and I were on the Foreign Affairs Committee together when we heard the most appalling evidence that some of the biggest money-laundering scandals have involved UK corporate structures more than anything else; I think I am right that about 40% of the billions laundered through Danske Bank came through UK corporate structures. That is truly a mark of shame, and why Bill Browder was absolutely right when said in evidence to this Committee that it is appalling—a matter of shame—that there has been only one prosecution for money-laundering around economic crime in this country. That truly is an appalling record of law enforcement.

Worse than that, we also heard from the Independent Reviewer of Terrorism Legislation that the situation is not simply bad news for economic crime, but a national security issue. When the Independent Reviewer of Terrorism Legislation tells the Committee that it is a matter of national security that we clean up the dark mass of economic crime in this country, we as Members of Parliament ought to listen and do something about it. Then we heard from a range of police specialists who said, first, that they thought the problem was getting much worse quite quickly, and secondly, that they did not have the resources they needed to enforce the law in this area.

All that evidence points in one direction: Companies House needs more money. When we took evidence from representatives of Companies House, we heard, startlingly, that they have not even discussed their budget with the Treasury for the next financial year, which is due to start in only a few months’ time. They mooted the idea of asking for cash for an extra 100 people, which the dogs in the street know is not going to be enough to enforce the measures in the Bill.

With all his native cunning and wit, the Minister needs to find a way to make the concessions the Opposition are asking for and to agree to the amendment, so that he can be the great, historic, legendary, reforming Minister who took the bull by the horns once and for all and helped make sure that this country is once more renowned around the world as a capital of clean trade—all because of the efforts, cunning and wisdom of the Minister in accepting the amendment before him today.

[Kevin Hollinrake]

I thank the right hon. Gentleman and other Members for the amendments and their contributions. I would never take credit for all the progress we are making on economic crime. In fact, I would hark back to the words of Ronald Reagan, who said something like, “There is no limit to what you can achieve in life, as long as you don’t mind who takes the credit.” I am happy to share the credit with anybody on this Committee or the many people who have campaigned on the issue over the years.

One thing I do agree with the Opposition about—it is a point on which we all agree—is that Companies House and the other enforcement agencies should have enough money to do the job. That is what we are trying to get to and what I think we will get to. I also agree that, in the past and currently, enforcement agencies have been and are under-resourced, so we need to do something about that. I also have to agree with myself on the statements I made about the proportion of spending on law enforcement for economic crime and in respect of the Treasury Committee report’s conclusion that Companies House fees should be raised. My position on that absolutely stands.

I disagree on a number of points, the first being that this situation is somehow just the current Government’s fault—that somehow, Companies House fees have been reduced to £12 over recent years. That is not the case; it has been the case for years, including when Opposition Members were in charge of setting those fees. The right hon. Member for Birmingham, Hodge Hill was in the Treasury at the time when fees were at £12. The reason for that is that Companies House has always had the principle that its fees are levied to the extent it needs to do the job that it is set to do.

[Liam Byrne]

Will the Minister give way?

[Kevin Hollinrake]

Very briefly, because we are over half an hour into this debate already.

[Liam Byrne]

We are just getting warmed up. The Minister is absolutely right to flag that point. The fee level was always set in relation to the perception of the crime environment at the time, which was very different in 2009-10 from what it is today. As we have heard in the evidence, the crime environment is much worse and is multiplying exponentially each year, which is why the fees have to go up so dramatically. Hopefully, that is the point he is going to make.

[Kevin Hollinrake]

Again, we are all in agreement. Changing the environment is what this Bill—this very substantial document—is all about. There is no doubt that the situation has been hastened by what we have seen in Ukraine and other matters. It is absolutely high time to do this; I agree.

The shadow Minister suggested that somehow the fees to Companies House are going to face cuts in the future—that is the opposite of what is happening. I think he said the disparity would widen and there would be an absence of additional funding. That is absolutely the wrong way to look at the situation. The right hon. Member for Barking said that somehow these matters would be subject to cuts, and we would have to go to the Treasury as part of the comprehensive spending review to get funding for Companies House. That is exactly what is not happening—what is happening is that Companies House will collect the fees that it needs to do the job.

The position we take is that we do not put the cart before the horse. Companies House needs to set out exactly what resources, staffing and IT implementation it will need to do the job. It will present that to the Treasury and the Department for Business, Energy and Industrial Strategy and say, “Right, this is what we need to do”. Fees will then be set on a commensurate basis and ringfenced to the job, not stolen by the Treasury. They are set in accordance with the rules and the oversight that they need, including enforcement. As we know, Companies House is moving from that dumb register to being a proactive body, in terms of overseeing the integrity of the register.

--- Later in debate ---

[Kevin Hollinrake]

It is under the affirmative resolution. Different Members have suggested different figures, from £50 to £100. The right hon. Member for Barking said £1,000, as if to say, “We charge that in the BVI, therefore why not charge it in the UK?” That was the implication. What she said was that the people who look to use those jurisdictions to hide their money would be quite happy to pay £1,000, but that is exactly the point. On 99.9% of occasions, we are not just dealing with companies that indulge in nefarious activities; we are talking about not deterring bona fide businesses by setting the fee level at a fair level that does not deter business activity but does mean that Companies House has the right enforcement capability. That is what we want to get to, and we want to ensure that Companies House is able to do that.

I will touch on a couple of the points made about the SFO case last week, which I think we all welcome. It was not actually about resourcing; changing legislation made that possible. It was about corporate criminal liability and failure to prevent, which was successfully enforced in that case. That is a lesson for us all. The right hon. Member for Birmingham, Hodge Hill said that there has been only one case ever of a successful economic crime prosecution in the UK, and that Bill Browder had said that. Mr Browder did not say that; there have been many prosecutions of economic crime. To clarify, he was talking about it in connection to the money that came out of Russia.

Companies House is funded by the fees that it charges. If the Secretary of State considered changing those fees, there would of necessity be an appraisal of the resourcing needs of Companies House before that could take place. Fees can be charged only to cover the costs of the activities that they are intended to fund, including enforcement.

In order to arrive at an appropriate level of fee, my Department would have to work directly with Companies House to determine the funding requirements. Of course, there has to be Government oversight of that, because that is what we are elected to do. It is right that the Secretary of State would oversee that and then present it to Parliament for scrutiny. I agree that companies will justifiably want to understand how and why a particular level of fee has been arrived at, but the mechanism for that already exists. Fees will continue to be set by regulations, and the basis for any changes will be included in the accompanying analysis and explanatory memorandum that are published and presented to Parliament for scrutiny.

New clauses 25 and 33, introduced by the hon. Member for Glasgow Central and the right hon. Member for Barking, will shortly set out intentions on the level of fees to be charged. We do not intend to enshrine a level of fee in primary legislation, as doing so would restrict flexibility that may be required at a future date. We will commit to reviewing the fees on a regular basis to ensure that they provide the funding that Companies House needs.

[Liam Byrne]

I think we all welcome the revelation that fees will be set shortly. What month of the year does the Minister think that might be?

--- Later in debate ---

[Kevin Hollinrake]

Sorry, I did not catch that. Will the hon. Gentleman repeat the question? I do apologise.

[Liam Byrne]

The Minister said that he will set out the fees shortly, but what month of the year does he mean by “shortly”?

[Kevin Hollinrake]

I am a new Minister, but I have heard many Ministers speak on such occasions and I have never heard a Minister commit to a date before.

[Liam Byrne]

Break the mould!

[Kevin Hollinrake]

I cannot imagine that in his many years as a Minister the right hon. Gentleman would have ever set out a date, but it will be shortly.

Finally, I turn to proposed new clause 45 and the points made by the right hon. Member for Barking. The Bill amends the fee-raising power within the Companies Act 2006, in order to enable costs associated with investigation and enforcement to be included when setting the level of fees. Companies House is able to retain incorporated fee income under current arrangements between the Treasury and Companies House, with the arrangement reviewed periodically. Legislation does not set the level of fees, but rather the level of fees is set by our regulations. I have to say to the right hon. Member for Barking that that is under the negative resolution procedure and therefore receives parliamentary scrutiny.

Economic Crime and Corporate Transparency Bill (Tenth sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Tuesday 8th November 2022 Public Bill Committees

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

It is a pleasure to serve with you in the Chair, Ms Elliott. When the Minister winds up the debate on the clause, will he say a little more about some of the information that the registrar may be seeking, and in particular whether she is able to solicit information from people seeking to file accounts, and so on, that has been requested by other agencies? All kinds of information is sometimes beyond the purview of, for example, the National Crime Agency, and sometimes the registrar, rather than a police agency, making the first approach may be a more intelligent way to get the information needed for an investigation. It would be helpful if the Minister clarified whether Companies House can act in concert with other law enforcement agencies to gather information that is needed to help to bring prosecutions.

[Kevin Hollinrake]

I am grateful for the right hon. Gentleman’s remarks. The answer is yes, that is exactly what the legislation allows for: the risk-based flow of information between the registrar and law enforcement agencies. Of course, the power will be discretionary, so the registrar will determine when to exercise it, but it can be to request any information that she requires under legislation—both public and private information.

Question put and agreed to.

Clause 80, as amended, accordingly ordered to stand part of the Bill.

Clause 81

Registrar’s notice to resolve inconsistencies

Question proposed, That the clause stand part of the Bill.

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[Liam Byrne]

It is a pleasure to speak to new clause 43, which is in my name but has been drafted with the assistance of my right hon. and hon. Friends. In introducing it, I have to think that the Minister is a lucky man, because there are very few opportunities when any of us in this place have the chance to translate a life’s work into the law of the land. Yet that is precisely the opportunity that we have afforded to the Minister, who is steering the Bill so ably through Committee. That is why we are here to help him. The Minister will know that he is living the dream.

I know that the Minister is not insensible to the scale of economic crime in this country or to the threat that it poses, because I was privileged enough to be there in Westminster Abbey just a few months ago, when he got up to speak with his customary eloquence to the launch of the economic crime manifesto. That has been drawn up with input from so many right hon. and hon. Members, and it is the manifesto that declares loud and clear:

“Dirty money is a national security threat…Dirty money causes massive financial damage…Dirty money is damaging the UK’s reputation…Dirty money may be pushing up prices for British citizens…Dirty money undermines the rule of law and democratic institutions.”

The Minister knows what he is talking about when it comes to the Bill, which is why he is stewarding it so ably through Committee. That is why I know that, as a canny captain in his Department, he is alive to all the constructive recommendations that we are making to him, because that that strengthens his hand.

The Minister has obviously got some theatre to perform because he has to get the Bill through the House and then get it through the House of Lords, and then back through the House of Commons. As an experienced and seasoned political operator, he will know that it is really wise to make a few strategic concessions to the Opposition to keep them on side. Although he has not revealed that yet by making us any concessions, it will not be long, and it could be at the conclusion of my speech to new clause 43, because it is a blindingly obvious improvement to a current hole in the Bill.

To make that case, I need to demonstrate three things this afternoon: that use of proxies by bad people is a problem; that use of proxies by bad people is a problem here in our country; and that the Bill is deficient and needs toughening up.

Let me share a few examples of why proxies are such a problem. Where better to start than with exhibit A, Roman Abramovich, who was finally sanctioned earlier this year after a disgraceful period of licence in which he was allowed to do terrible things like buy football clubs? Now he has of course put Chelsea football club into some sort of trust. The money is frozen. He has declared that all net proceeds from the sale will be donated to the victims of the war. Members on both sides will have been as surprised as I was to hear from the Foreign Office Minister this morning at Foreign Office questions that that money has still not been routed to victims of Russia’s barbarity in Ukraine; it is still frozen by red tape and bureaucracy in this country.

That is an outrage, because Roman Abramovich secretly transferred hundreds of millions of pounds in assets, including private jets—including the world’s biggest private jet—to his children just days before he was placed under sanctions. That is not my view; that is the view of the Federal Bureau of Investigation. The oligarch has seven children, aged between eight and 30. He is alleged to have made his offspring the beneficiaries of an offshore trust in Cyprus that controls his assets. That transfer was made in February and included a £282-million Boeing 787 Dreamliner, super yachts and trophy items bought through a network of shell companies, including some in Jersey and the British Virgin Islands: Wotton Overseas Holdings Ltd, Jersey; Clear Skies Flights Ltd, Jersey; and Wenham Overseas Ltd, British Virgin Islands.

All that begins to illustrate how a bad actor has used proxies to circumvent sanctions and sanction controls. The tragedy of course is that it was not Companies House that proactively brought the matter to the House to say, “Here we are, folks. I think we have a bit of a problem”; no, we have to learn about it not from Companies House or a British crime enforcement agency, but from the United States, where the authorities brought an action and forced disclosure of the information in the American courts. That underlines my point that use of proxies is a systemic problem.

I want to go further, however, and to illustrate how the use of proxies is a systemic problem of economic crime here in our country. Who better to illustrate that than Alisher Usmanov? He has strong ties to President Putin and his inner circle. On 22 March this year, it was revealed that Usmanov’s sister, a gynaecologist based in Tashkent, had the beneficial ownership of 27 different Swiss bank accounts with hundreds of millions of dollars in them. In fact, analysis of the suspicious activity reports related to those accounts showed that they had been moving around about $1.6 billion. That was revealed in The Guardian newspaper. His assets include a $600-million super yacht, the Dilbar, an Airbus H175 helicopter and UK properties including Sutton Place, a 16th-century Tudor house in Surrey, which are held through a range of different trusts. He is widely known as someone whom we should be taking far more aggressive action against than we are today.

We then have the case of Dimitry Mazepin. He was —is—the controller of Uralchem and a number of other fertiliser companies on behalf of President Putin and the Russian Government. Among the holding companies in Mazepin’s group is Uralchem Freight, based in Cyprus, which has control of a fertiliser terminal in Latvia. The Latvian press, however, reports that the beneficial owner of that organisation is someone called Aamar Atta Bhidwal. That is the same name as a director of Quest Resources, incorporated at Companies House on 16 July 2021, in Guisborough. The co-director was someone called Gordon Alexander, a director of Hutton Chemicals. Quest is also, we are told, in the beneficial ownership of a company with close association with Mr Mazepin.

Clearly, there is already a risk that UK nationals on the Companies House register can be used as proxies, whether wittingly or unwittingly, by someone who is sanctioned.

[Kevin Hollinrake]

Will the right hon. Gentleman give way?

[Liam Byrne]

I will give way to the Minister, but there is more to come.

[Kevin Hollinrake]

I intervene in the hope that I might abbreviate the debate—I am probably going to fail. Is the right hon. Gentleman aware that it is already the case in law that a share held by a person as a nominee or proxy for another is to be treated as though the share is held by the true owner? Also, in law, failure to declare the true owner is a criminal offence. Is he aware of that?

[Liam Byrne]

Yes, of course, but the Minister must also be aware that the provisions he has sketched into the law have comprehensively failed, as my next example will now prove.

Mazepin was the majority owner of Hitech Grand Prix, and his son was a racing driver. His company, Uralkali, was the sponsor of this company until March 2022. In March of this year, 75% was transferred to a company called Bergton Management Ltd. The shares were not sold; they were relinquished. There does not seem to have been any cash paid out for this major economic interest in a globally significant grand prix company.

From Bergton Management Ltd, the ownership of the assets moved to somebody called Oliver Oakes, who now controls 75% of the shares. He created Uralkali racing in January of this year. In an interview last year, he called Dmitry Mazepin a friend, associate, colleague and manager. I saw from the Companies House register this morning that he created Hitech Global Holdings on 11 March 2022, just three days after Mr Mazepin and his son were sanctioned.

There is a clear risk that oligarchs are using proxies, and that this misbehaviour is washing up on our shores and in Companies House. That leaves us with the third question: whether there is a hole in the Bill here. We need look no further than the evidence that UK Finance provided to the Committee. I said:

“So you would say to Members of Parliament who are worried about bad people transferring control of an economic asset to proxies that, at the moment, we do not have enough safeguards in the Bill.”

The answer came:

“I think they could be improved, yes.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 11, Q10.]

Here is a simple opportunity for the Minister to apply a bit of good old-fashioned belt and braces, make the Opposition happy, keep them on side and ensure that some of his former colleagues who put together the economic crime manifesto are singing his praises wherever they can—accept either the principle or the wording of new clause 43. It asks for nothing more than that any person holding shares in a public company as a nominee for another person must disclose that fact to the register, or face a sanction. That is straightforward, it is not complicated, and it would make a difference.

[Kevin Hollinrake]

I am grateful to the right hon. Gentleman for his kind words. I remember very clearly my speech in Westminster Abbey that night. He might remember that I talked about corporate criminal liability and whistleblower reform, which are absolutely essential. Indeed, at least one of those falls under my portfolio, so I am certainly committed to bringing forward those reforms when I can.

The only difference between hon. Members of the Opposition and ourselves is the means by which we would achieve the same end. On amendments 119 and 120, I am always happy to look at sensible amendments that take us forward. When Opposition Members talk about those cases, they are talking primarily about cases in the past where we did not have the powers that this Bill provides, and where we did not have the level of enforcement; we both agree that that needs improvement.

Where we differ is on how we go about this. I have serious concerns about the provisions in amendment 116, tabled by the right hon. Member for Barking, which seem to require the registrar to look at every single company on the record. That is exactly what it says. It says that the registrar

“must carry out a risk assessment to identify where the information it holds might give rise to a matter of concern.”

The registrar can do that only by looking at every single record.

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[Liam Byrne]

My concern was to ensure that the registrar has a crime-fighting obligation, and that when she conducts her risk assessments, she is not constrained merely to the information that is before her—that which is on the register.

[Kevin Hollinrake]

As the right hon. Member knows, objective 4 establishes exactly that: an obligation

“to minimise the extent to which companies and others carry out unlawful activities, or…facilitate the carrying out by others of unlawful activities.”

That is quite clearly in the Bill.

New clauses 37 and 38 would require the status of a person with significant control and the accounts of dissolved companies to be checked by the registrar. The registrar would be required to carry out a risk assessment of all those companies—roughly 1,000 companies per day. Members might be thinking that every person with significant control has some connection to Russian dirty money or Russian oligarchs, but the vast majority of state-owned enterprises have a person with significant control, because they own more than 25% of those companies. For the registrar to look at 1,000 companies every single day to determine whether there is a risk, and then investigate further—that is exactly what the right hon. Lady’s new clauses would require—would not be practical.

Economic Crime and Corporate Transparency Bill (Ninth sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Tuesday 8th November 2022 Public Bill Committees

[Kevin Hollinrake]

We are on the same page about ensuring that the system is fit for purpose. It is difficult for me to do a review when the Treasury itself is doing one and is probably better placed than I am to do it, given its wider understanding of the system.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I don’t think that’s true!

[Kevin Hollinrake]

Perhaps it might not be as ambitious as me, but it certainly has access to detailed information and the resources to properly conduct the review. The Treasury should be allowed to do that job.

I think that we are all on the same page. I am absolutely committed to ensuring that the system is fit for purpose. It is not a case of just getting the Bill passed; we need to ensure its implementation, as I have said many times in the House and in Committee.

[Liam Byrne]

I am sorry to intervene, but the Minister provokes me. A point to take away is that we are now bedevilled by a real problem in this country: responsibility for policing this area is divided between the Minister, the Treasury, the Foreign, Commonwealth and Development Office and the Bank of England. At the moment, as the Foreign Affairs Committee has said repeatedly, there is not an effective gearbox for joining those things together. If one of the Minister’s legacies could be to fix that problem, he would be cheered from all sides.

[Kevin Hollinrake]

God forbid that the Government work in silos, whoever is in power, but they do tend to do so at times. I am on the same page as the right hon. Gentleman and other Committee members that we must have a joined-up approach right across Government. The systems of supervision of money laundering must be fit for purpose, tight, verified and checked, and the people who do not do it right must be held to account. We must ensure that we get that right, and I am fully committed to that.

Question put and agreed to.

Clause 69 accordingly ordered to stand part of the Bill.

Clauses 70 and 71 ordered to stand part of the Bill.

Clause 72

Delivery of documents by electronic means

Question proposed, That the clause stand part of the Bill.

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[Kevin Hollinrake]

I am happy to raise that with officials and come back to the right hon. Lady. [Interruption.] There is some flapping about right there, as I speak.

[Liam Byrne]

Will the Minister give way?

[Kevin Hollinrake]

Not before I have answered the question.

[Liam Byrne]

I was just going to give the Minister more time.

[Kevin Hollinrake]

Very kind.

Economic Crime and Corporate Transparency Bill (Seventh sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Thursday 3rd November 2022 Public Bill Committees

[Kevin Hollinrake]

That is perfectly reasonable. I tried to set out those kinds of example earlier, so I am very happy to clarify that in a letter to both the hon. Lady and the right hon. Member for Barking. Our position is that somebody might be subject to a travel ban for a number of reasons, and that does not necessarily exclude them from being a fit and proper person to run a company. Now, Members may think of some reasons why that individual should not be a fit and proper person, but I will set out why that person may still be fit and proper, and then we can all either agree, disagree or find a way of dealing with it.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

It seems that if somebody is subject to a travel ban, they will fail pretty much every “know your customer” rule for every financial institution in the country. Indeed, we have set out regulations precisely to ensure that there are those tripwires. How will a company director be able to fulfil their duties? If the Minister cannot answer now, perhaps he can set that out in the correspondence to follow.

[Kevin Hollinrake]

That is exactly what I have already agreed to do. We will move on from that point, but, briefly, there will be instances where that person is not necessarily described as unfit or not proper to run a company, but we will set that out.

Amendment 83, tabled by the right hon. Member for Barking, introduces enhanced data sharing provisions to enable Companies House to more proactively identify and exchange information regarding suspicious activity with partners, including with law enforcement agencies. That is in addition to existing information sharing gateways and arrangements.

The Government believe it is better and more flexible to allow relevant operational agencies to formulate their own preferred approach to information exchange, rather than to define it inflexibly in primary legislation—[Interruption.] The right hon Member for Barking looks at me quizzically. I think she has picked up on one particular situation where she wants Companies House to act in a certain way, but she must agree that we could pick up myriad different situations where we might want Companies House to do something if we sat down and made a list. I am sure she does not want to get into the micromanagement of what Companies House should do in every circumstance. There will be millions of different things we expect Companies House to do. We prefer to give Companies House the objective of promoting the integrity of the registers and then hold it to account through the objectives and the provisions of the Bill. Specifying every single condition that we expect Companies House to operate in a certain situation is the wrong thing to do.

[Liam Byrne]

The last Bill Committee I had the pleasure of serving on was for the Data Protection Act 2018, which implements the general data protection regulation and prescribes all manner of protections for data privacy. This is our worry. When the new duty set out by the Minister for Companies House clashes with GDPR legislation, how do we resolve those clashes of principles to allow Companies House to share the data they need to share with the people they need to share it with in order to pinpoint the bad guys?

[Kevin Hollinrake]

That is a fair point and it is covered in the Bill, which seeks to make it easier for Companies House to share information proactively with other organisations or, indeed, commercial organisations and vice versa. Here, we are talking about specifying the exact circumstances in which that should happen, which we think is the wrong approach.

I now turn to amendment 93, which seeks to expand the criteria for disqualifying individuals from being company directors to include people suspected of facilitating evasion of UK sanctions by sanctioned individuals, in addition to the sanctioned individuals themselves. Any person enabling or facilitating the evasion of certain sanctions would already be committing an offence, for example, under regulation 19 of the Russia (Sanctions) (EU Exit) Regulations 2019. The maximum penalty on indictment is seven years in prison or a fine. Those are already dissuasive measures to ensure compliance with sanctions.

It is not appropriate and proportionate to apply director disqualification and offences to an individual who is only suspected of facilitating the evasion of sanctions. It is not clear what would constitute such suspicion and at what point a person would be prohibited to act. That could mean exposing an individual to criminal liability in circumstances reliant on suspicion alone, which I am sure the right hon. Member for Barking would not want to see. The uncertainty of what would constitute the criminal offence and potential interference with presumption of innocence has implications for the rule of law. I therefore ask hon. Members not to press their amendment.

I will now speak to clause 33. New section 11A of the Company Directors Disqualification Act 1986, introduced by the Bill, prohibits individuals subject to relevant financial sanctions, such as asset freezes, from acting as directors of companies. The clause limits the scope that prohibition by disapplying it for building societies, incorporated friendly societies, NHS foundation trusts, registered societies, charitable incorporated organisations, further education bodies and protected cell companies. The Secretary of State may, by regulations, repeal any of the subsections in the section, therefore applying the prohibition on individuals subject to an asset freeze from acting as directors in any of the organisation types in the clause. That allows the Secretary of State to apply those measures only to company directors in line with the policy focus of the measures in the Bill, without that unnecessarily applying to other entities currently not in scope. That will take effect in England and Wales and Scotland. Clause 35 makes equivalent provision for Northern Ireland.

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[Kevin Hollinrake]

I am still not sure I agree. Of course there are elements of our enforcement agencies that we are all frustrated by at times, but to my mind nobody goes to work to do a bad job. People are doing their best, often in very difficult circumstances. We all agree that we need to hold our enforcement agencies to account and properly resource them. What we are trying to do is provide them with more powers and ability, and then hold them to account for the use of those powers.

[Liam Byrne]

The Minister is being characteristically generous. As he reflects on the huge wisdom of the amendments tabled by my right hon. Friend the Member for Barking and perhaps returns to the Committee with some of his own, could he share with us how many of the 1,200 individuals and 120 businesses that have been sanctioned since Russia’s invasion of Ukraine have had directorships suspended?

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[Liam Byrne]

Right. hon, I am afraid.

[Kevin Hollinrake]

Quite right, too; the right hon. Gentleman was Chief Secretary to the Treasury—I will go no further. The Foreign and Commonwealth Office is not responsible for the Office of Financial Sanctions Implementation—that is a function of His Majesty’s Treasury—which determines how the sanctions regime works once people are sanctioned. The OFSI ensures that the regime works effectively. It is fair to say that when that organisation was established fairly recently, it was not ready for the amount of work it had to do. It has been scaled up to make it a more effective organisation, which has been discussed in the context of resources generally.

[Liam Byrne]

Let me give the Minister a bit of feedback from my time as Chief Secretary to the Treasury. If a spending Minister comes before the Chief Secretary to say: “I’m really sorry, but we have a legal duty to do this”, it is an awful lot easier for them to win the case for the resource that they need than when they do not have the weight of that legal duty on their shoulders. Therefore, automatic consideration of a sanctioned individual for suspension of a directorship is a good thing to enshrine in a legal duty. I am trying to be helpful to the Minister, because I want him to be able to win arguments with the Treasury for the resources that he needs to achieve the objectives we both share.

[Kevin Hollinrake]

Yes, but we have to make careful use of our resources, otherwise there would be no money left.

We agree that sanctioned individuals should not be allowed to be directors of companies. That is what we are talking about, so there is no disagreement. Our disagreement is about how we share information between different agencies, and whether we should tell them how to do it, or they should do it themselves. We are parliamentarians; we are not experts in financial crime or how the financial system works. Wherever we can, we should leave it to the experts to determine the best way to share the information between agencies and—the important thing we are doing here—give them the powers to do that.

Question put, That the amendment be made.

Economic Crime and Corporate Transparency Bill (Sixth sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[Kevin Hollinrake]

I would like to finish the point. The key point is that the measure requires the people who control the company, be it the directors or persons of significant control, to make statements. If they make false statements or fail to comply with the requirement, they will be committing a criminal offence, as is every officer of the company who is in default.

What the right hon. Member for Barking seems to want is to have armies of address checkers going around the country. This is ex post regulation, which is a more effective means of regulation. I do not suppose that anybody on this Committee wants to inhibit the lawful, commercial activity of the vast majority of companies that go about their normal commercial business every single day.

[Liam Byrne]

Will the Minister give way?

[Kevin Hollinrake]

No, not at this point in time.

We are striking a balance between the two. These measures have to be seen in the context of the wider provisions of the Bill on checking the identity of directors and persons of significant control—the people who are controlling the company. If people make false statements, those people and that company will be guilty of an offence.

The shadow Minister wanted to intervene.

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[Kevin Hollinrake]

If it is an example where 2,000 companies are registered at an address near Edinburgh, and somebody tries to register that address, that may well lead to a red flag. Companies House is investing in that capability, as part of its work. It is not just about people, but systems and automation of systems, in order to see those red flags. At that point in time, the system would potentially do what the right hon. Member for Barking wants it to do—raise a red flag. That could then be queried with the directors and the people who control the company, and could alert law enforcement authorities. I do not think anybody here is suggesting that Companies House becomes another law enforcement authority. There has to be information sharing between Companies House and the law enforcement authorities.

[Liam Byrne]

The Minister is being characteristically generous in giving way. The problem the Committee has with the argument about ex post facto regulation is that, if we take the example I gave this morning of the requirement to register persons of significant control, there are still 11,000 companies that have not registered persons of significant control, but there have only been 119 convictions. There is an enormous enforcement gap, which is a real concern to the Committee, not least because the powers that the Minister is seeking are for companies to verify an address, rather than creating a duty to verify the address. Witness after witness gave evidence to the Foreign Affairs Committee on the duty to verify the address, which is why that Committee, of which the Minister for Security was Chair, concluded that there must be a tough verification regime in place at Companies House.

[Kevin Hollinrake]

The right hon. Gentleman may think a duty to check 4.5 million addresses is proportionate. I think it would be disproportionate. The vast majority of those addresses are bona fide addresses of bona fide companies. We have to take a risk-based approach; I think we would both agree on that.

The right hon. Gentleman returns to resources. We have already had a long debate on resources. He knows that I agree that the registrar, and the law enforcement agencies for that matter, must have sufficient resources to ensure that the registration of persons of significant control is undertaken. That body of work is ongoing now with Companies House.

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[Kevin Hollinrake]

The objectives promote the integrity of the register. That is quite clear. The registrar therefore has the responsibility to act. The intelligence and information available to her could come from a number of sources, such as third-party sources, law enforcement agencies or financial institutions. Red flags within an organisation can come from a number of places. If a red flag leads to the conclusion that there are reasonable grounds to suspect the company does not have permission to use the address, the conditions will not be met and the registrar will either reject it or change it, according to the circumstances. The golden thread running through that is that the registrar has the power to act on information based on the risk-based approach, which conforms to the request from the right hon. Member for Barking that we do spot checks. A risk-based approach is far more effective than random spot checks. That is what we are trying to get to here.

The hon. Member for Glasgow Central asked about when people would have to move away from PO box addresses to an appropriate address. The earliest commencement by regulation is two months after Royal Assent.

Lastly, I turn my attention to the first element of amendment 86, which would have the effect of compelling companies to register their main place of business as their registered office. That would be problematic for many good companies. Let us take, for example, a company with a large, rural manufacturing facility, which might be considered its main place of business, and a city centre showroom. There are perfectly legitimate reasons for such a company to favour the city over the country as its registered office location. The amendment would prevent that. I hope hon. Members will be reassured that the provisions will be an effective means by which to monitor and police the accuracy of company address information and will feel able to withdraw their amendment.

Turning to amendment 94, I hope the right hon. Member for Barking will agree with me that the Bill’s new definition of what constitutes an appropriate address for the purposes of a company’s registered office address is an improvement on what has existed up to now. It requires the company to have authority to use the address on pain of criminal sanction for the company in breach and every one of its officers in default. I trust she and the Committee members will welcome the provisions that I have just described. I do not think it is proportionate to agree to routine or spot checking for each and every company and, in our view, we need to take a risk-based approach, which I think we all agree with, to make sure Companies House resources are used fruitfully.

In the light of the reforms proposed in the Bill, Companies House, armed as it will be with new powers and objectives, will home in on those companies that are most likely to be engaged in criminal activity. In some cases, intelligence and information-sharing enabled by measures in the Bill might suggest that the registered office address is a clue to that criminal behaviour and might prompt any one of a number of different approaches on the part of the registrar and, potentially, law enforcement agencies. For example, it is my expectation that in future Companies House will consider carefully whether to process multiple incorporations emanating from a single address, as described earlier, and deploy the new querying powers available to it before doing so.

Ultimately, the Bill seeks throughout to focus effort and resource where it will achieve the most meaningful impact. I hope that the right hon. Member for Barking will be reassured that proactive intervention, based on sound risk assessment, is a more cost-effective approach to take and that she will feel able to withdraw her amendment.

[Liam Byrne]

Perhaps the Committee could take more comfort from the approach the Minister has enunciated this afternoon if he could give us a sense of how many companies he thinks Companies House would be able to check under the new regime each year? Can he give us a sense of the scale and proportion?

[Kevin Hollinrake]

That is something that we will need to see—the plan for Companies House and the resources needed for that. A figure of £50 or £100 was quoted; if the company formation fee was £50, that would raise £20 million a year. That is quite a significant amount of money. As I said, cart and horse, first we need to see what powers and resources Companies House needs, and then we can apply the right levy in terms of the company formation fee to ensure that the resources are available. A review will also be conducted to ensure that those resources will still be available as time goes on. On that note, I conclude my remarks.

Economic Crime and Corporate Transparency Bill (Fifth sitting)

Debate between Kevin Hollinrake and Liam Byrne

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Kevin Hollinrake)]

It is a pleasure to serve with you in the Chair, Mr Robertson, and to speak after the right hon. Member for Barking. As she knows, and I hope all Committee members know, I am—like her—incredibly ambitious for the Bill. Hopefully, the dialogue we have in this room over the next few weeks will serve a great purpose to ensure that this legislation is fit for purpose.

I entirely agree with the thrust of the amendment. Of course we want a proactive gatekeeper of the information. The right hon. Member for Barking highlights many examples, as does the shadow Minister, the hon. Member for Feltham and Heston, who talked about the culture of the organisation. She is absolutely right that the culture needs to be focused on making sure that the information held by Companies House is accurate, but we need a balance. We must avoid an impossibly bureaucratic and expensive system. The right hon. Member for Barking highlights some of the problems of dealing with a register of this size. There are between 4 million and 5 million companies and about 7 million or 8 million directors in the UK. To independently verify all those records, one by one, is clearly a huge challenge.

On changing the culture of the organisation, the Bill has its four objectives: accuracy, completeness of records, reducing risk and reducing the chances of unlawful activity. I would also point to the text in bold type in clause 1—the objective

“to promote integrity of registers”.

That does exactly what the right hon. Lady intends with her amendment. To me, promoting the integrity of the registers speaks to the proactivity that we want to see. We definitely want to see Companies House sharing information with law enforcement agencies proactively, for example.

The right hon. Lady spoke about a number of obvious cases that would raise red flags, and that happens because Companies House is not operating as she wants it to. One of the key bases of the Bill is to change the role of Companies House from registry to gatekeeper, and to promote integrity properly and proactively by identifying information on a risk-based approach.

[Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I join my colleagues in welcoming the Minister to his post, in what is a very welcome appointment, and I apologise to you, Mr Robertson, for being slightly late this morning.

Surely the Minister must see that there is a world of difference between action to promote the virtue of something and action to prevent the badness of something. I have been a Minister too. I have created Government agencies. I have tried to enshrine objectives in agencies, from which a business plan is then written. It is incredibly important to say what we mean and mean what we say when we are specifying the objectives of an agency such as Companies House. I urge him to think again about the amendment. It is not simply a matter of word play. It is about doing what is needed to be done.

[Kevin Hollinrake]

I am grateful for the right hon. Gentleman’s work in this area. We should not get into semantics. The key point, as he says, is making sure that we have a plan that sits behind the objectives, and Companies House is currently working on how it will perform its duties under the objectives. That is key. We can legislate all we want in here, but legislation is less important than implementation. The implementation of the rules is key. We must ensure that the plan is robust and that it identifies the red flags on a risk-based approach and shares that information with the relevant law enforcement agencies that have their duties to undertake. “Promoting integrity” does what the right hon. Member for Barking wants.

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[Liam Byrne]

This is an important debate, and I think that the Minister’s reply will be, in a sense, a useful “Second Reading” debate on how he will deal with the problem of resourcing. I know that he, as a new Minister, will have spent the weekend reading all of the evidence that we gathered last week. It was very much like an autopsy on the state of economic crime in our country—grisly and appalling. He will have been not shocked, because he is familiar with the facts, but reminded starkly that he is a Minister at a watershed in the debate. It is clear that the time to act is now.

The world is divided, and there is a great kleptosphere from Kaliningrad to Kamchatka, so it is important that we set out our stall as a place not just of free trade, but of fair trade, as well as, crucially, clean trade. That is where economic advantages will flow from in the years to come. It is therefore a matter of enormous national shame that we have become such a hotbed of money laundering. It is appalling that about 40% of the corporate structures used for Danske Bank money laundering were here in the UK, and appalling that we have become such a country.

Hundreds of billions of pounds-worth of money stolen from the Russian people has been laundered through UK corporate structures, yet last week we heard from Bill Browder and Catherine Belton that UK corporate structures are absolutely being used by friends and allies of President Putin to move money abroad to help to finance Russian intelligence operations and other nefarious activity. However, as Mr Browder said, we are not prosecuting the crime and, as my right hon. Friend the Member for Barking pointed out, there has been only one prosecution despite hundreds of billions being stolen and moved through UK corporate structures.

In part, we are not prosecuting the crime because we are not policing the crime, and all of us on the Committee will have heard loud and clear last week’s evidence from City of London police and the National Police Chiefs’ Council, which said that they need more resource. It is as simple as that. They cannot afford the specialists they need to police this area, and the task of policing such crime would be an awful lot easier if we ensured that there was a proper gateway doing its job in Companies House.

We know that Companies House needs more resource as there has already been a wide-ranging debate. Indeed, the Minister, in his pre-ministerial life, is on the record as having speculated about what some of the resources might need to look like. We hope he will repeat those comments on the record as a Minister of the Crown in the Committee today.

Let us be clear about the risks, which were starkly described for us last week by the independent reviewer of terrorism legislation: there is a direct relationship between economic crime and national security. This is not simply a question of bad people stealing lots of money from good people; it is about a threat to our country. The Minister has an opportunity to ensure not only that our economy is operating on a clean-trade basis, but that our national security defences are strengthened. That is why the amendment is important, and why it is important that the Minister set out clearly today how he is going to approach the solution to this problem.

[Kevin Hollinrake]

I am grateful to the hon. Member for Glasgow Central, who I worked closely with on the Treasury Committee, for all her work on economic crime. I absolutely agree we need the right resources to go alongside the Bill, so I am fully committed to anything I said before in the Chamber or otherwise about ensuring that that resourcing is available. I certainly agree with the right hon. Member for Birmingham, Hodge Hill when he talks about clean trade—absolutely right. We do not want this country associated with dirty money in any shape or form.

The right hon. Gentleman gave an interesting example about the money laundering through Danske Bank, which was, as he said, hundreds of billions of pounds-worth of Russian money stolen from the Russian people flowing through UK shell companies to its destination. That was subject to regulatory action and potential criminal enforcement; it is not as though the matter was held secretly until it was identified locally in Danske Bank. Danske Bank will get sanctioned for that, so it is not as though law enforcement is not happening. However, the right hon. Gentleman and I would agree that, too often, big banks turn a blind eye to the problem on the basis that it is quite profitable for them, and the fines are ultimately a cost of doing business. What we need to do is hold people properly to account, including individual directors.

[Kevin Hollinrake]

I agree with the right hon. Lady’s point. As she knows, I am a big fan of improving the legislation on whistleblowers. I am delighted to say that role is part of my portfolio and I am determined to take that forward as quickly as possible.

[Liam Byrne]

The Minister is being characteristically generous in giving way. The point about Danske Bank is that the money was moved through UK corporate structures that should not have been set up in the first place. If we had a stronger verification regime—if we had a stronger set of obligations on Companies House and a better-resourced Companies House—we would surely have run a chance of the crime being prevented, because the checks would have created a tripwire that would have stopped the structures being set up and the money being moved through them. The point about resources and duties is incredibly important.

[Kevin Hollinrake]

I absolutely agree. That is the nature of and the substance behind the Bill—making sure that the resources fit the need and that Companies House can promote the integrity of the register and work with law enforcement agencies to share that information and identify the red flags with a risk-based approach. We need to make sure that the work it is doing is appropriate to the task it has been given and that it is sufficiently funded.

Currently, the fees for Companies House are set at a level commensurate with its activities. The Bill seeks to massively increase the scope of its functions to that gatekeeper approach, so it has to be sufficiently funded. The funding started in this spending round, with £63 million for personnel and improving technology to be able to more easily identify the red flags. Companies House is bringing in external expertise to look at its work and what it will need to do to take the expanded activities into account. We need to make sure that as we go forward the resources will be sufficient for it to deliver on its new duties. It is right not to put the cart before the horse. We cannot say, “It should be £50” or “It should be £100”. Various figures have been thrown about. I think the Treasury Committee suggested £100. We need first to identify what it will cost for Companies House to cope with the new duties and then set the figure attached to that cost, to make sure that it has the right resources but does not become a huge bureaucracy that is out of control in terms of costs.

[Kevin Hollinrake]

Yes, in both cases. That work is going on now. Those recommendations will then be discussed with me and my colleagues in the Department and we will come back to the House. The decisions we make will be approved by the House under the affirmative procedure.

[Liam Byrne]

I suppose we may as well get all the details out now. The estimates for how much extra resource Companies House might need range from three times to 10 times its current level. I was very surprised to hear from Companies House that it was proposing to employ only 100 extra people. That is an increment of about £5 million to £6 million extra, which feels radically short of what is proposed and for the implications of the Bill. Will the Minister therefore put our minds at rest by saying to the Committee that those figures will be radically improved when the Companies House business case for the next financial year is approved?

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[Kevin Hollinrake]

That is hugely important. The hon. Lady makes exactly the right case: for us to give a figure now, whether that is £50 or £100, is to put the cart before the horse. We all agree that the right resources will be needed, but they will be based on the duties in the final version of the Bill approved by both Houses. That is what we will seek to do with Companies House. My intention is absolutely that Companies House will do that.

In response to the point made by the right hon. Member for Birmingham, Hodge Hill, it is not just about people. I do not yet know the extra numbers that Companies House will dedicate to this work, or when. That is what we need to see in a clear plan that it will set out. Technology, however, can also play a huge part. Companies House holds a huge amount of data, public and non-public, that law enforcement agencies can make use of with a risk-based approach. Technology can certainly play a part, and that is not always inexpensive.

[Liam Byrne]

My sense is that the Minister will steer clear of specifying the order of magnitude by which we need to increase Companies House resources. That is a disappointment to many of us, but will he therefore advise the Committee how as a House of Commons we best guard against the risk of under-resourcing Companies House once the Bill has reached Royal Assent?

[Kevin Hollinrake]

Scrutiny—by Ministers and by Back Benchers, such as those in Committee and in all parts of the House. Parliamentary scrutiny is the most important thing—scrutiny of the plans of Companies House, to ensure that they are fit for purpose. I promise that no one is keener to see that than me.

May I address one other point in this conversation? Parkinson, for all his work, came up with two laws: first, that work expands to fill the time available; and, secondly, that expenditure rises to meet income, which we probably all recognise from our personal lives, but we could say the same of Government. We do not want to set a figure now, because if we did so, Companies House might expand to fill that envelope—

[Liam Byrne]

We do. That is exactly what we want to do.

[Kevin Hollinrake]

But I do not. I want to see the plan, to ensure that it is fit for purpose and that it delivers an excellent service at the lowest cost to the taxpayer. That is what we need to do. Doing it this way around is a better way.

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[Liam Byrne]

I think this has been a disappointing start to the Committee. Last week in the evidence sessions, I read out the objectives and asked the witnesses what they thought of them. We had anti-corruption organisations there—people who have given their lives to tackling corruption and economic crime—and they were very clear, saying the objectives were too weak and needed to be stronger. I will set out the politics of this for the Minister, new in his role as he is. He is on the wrong side of the argument. He risks going into the debates we are about to have as someone who it is too easy for His Majesty’s Opposition to characterise as soft on economic crime. That is not his position. It is not a position he wants to be in. I hope he will reflect on the debate we have had today and come back with stronger and proactive anti-corruption objectives, including a duty to prevent corruption placed on Companies House.

To summarise the debate we have had, we are going to have a set of objectives for Companies House. Then we are going to match the resources to those objectives. The problem with setting the bar for our objectives too low, too soft and too weak is that we end up setting a resource base that is too low, too soft and too weak. On this side of the Committee—on both sides I think—we would rather see a much tougher set of policy objectives, and we would want Companies House to have the requisite resources to fill that role. I am afraid the Minister has found himself on the wrong side of the argument today. I hope that he reflects and comes back—possibly on Report or in the other place—with a strong set of objectives and the resources to match.

[Kevin Hollinrake]

I thank the right hon. Gentleman for his comments. I do not agree with what he has said. I read through much of the evidence given to the Committee before I was part of it, and Transparency International said that

“the Government has taken an important step toward cracking down on kleptocrats, criminals and terrorists—including associates of the Putin regime—who abuse UK companies for nefarious purposes.”

It also says that the Bill

“presents a number of welcome reforms to the operation of Companies House that, if implemented effectively, would help to prevent money launderers from abusing the UK’s company incorporation system”.

There are people who agree with what we are doing here. We should of course reflect on the comments that have been made by hon. Members in the Committee, but I do think these objectives are important steps forward. We must ensure that they are effective, that there are no Swiss cheese loopholes, as the shadow Minister mentioned, and that the relevant bodies are properly resourced. That is a body of work I will continue with over the next few weeks.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Memorandum of association: names to be included

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[Liam Byrne]

Let me go back to 1855 for a moment, which is when this House last debated the creation of limited liability companies. It is worth every member of the Committee studying the Hansards of those debates, because the speeches reveal that, when our ancestors in this place made it possible for people to pool together small amounts of capital but nevertheless receive a limit on the liability that they would encounter if things went bad, their view was that it was in the common good of the country to allow in Britain the invention of limited liability, which had operated in the United States for some time. The common good of the country was the guiding principle by which the debate was shaped, and eventually the Bill was passed.

Right now, too many people are not contributing to the common good, and are using UK corporate structures to circumvent their obligations to pay tax and obey the law of the land. We should be trying to crusade against that, and this amendment would help us do that.

At the end of this year, the register of beneficial ownership for property will be published, but it is already clear that there are shell companies that own assets, including property in expensive parts of this country, whose nominal shareholders are resident abroad. There has been an enormous surge in non-resident, foreign national shareholders of shell companies that own property in this country. We have not only the phenomenon of shell companies but, as Oliver Bullough made clear, the new phenomenon of shell people.

The Minister has a decision to take. Will he put in place measures that help us guard against that risk and ensure that we honour the principles that were agreed back in 1855, or will he leave our enforcement regime as weak as it is today?

[Kevin Hollinrake]

Before I turn to the amendment tabled by the hon. Members for Feltham and Heston and for Aberavon, it might be helpful if I set out the intentions and effect of the clause.

The purpose of the companies register is to provide details of company ownership, and via these clauses the Government are introducing measures in this Bill to improve transparency requirements and increase the usefulness of the information held on the shareholders, subscribers and guarantors of UK companies. Clause 2 provides that each person who decides to form a company—a subscriber—must state their name on the memorandum of association. Currently, a subscriber does not need to state their full name—they can merely state their name as J. Bloggs, for example—as there is no definition of “name” for subscribers in the Companies Act 2006 or the associated regulations. This clause provides that, in relation to a subscriber, “name” means forename and surname. In that example, the person would have to state “Joe Bloggs”.

The shadow Minister and the right hon. Member for Birmingham, Hodge Hill are absolutely right to try to get to the basis of ownership and control of companies. That is why we are focusing our attentions on the people who control companies—namely, the directors and persons of significant control. As the right hon. Gentleman states, if somebody really owns the company, that information would have to be disclosed and that person’s identity would have to be fully verified.

I remind the Committee that persons of significant control are not just those who hold more than 25% of shares in a company. They can also be people who own more than 25% of the voting rights of a company, people who have the right to appoint or remove the majority of the board of directors, and people who might influence or control the company through other means—namely, a nominee. The company may also be controlled by a trust or firm without a legal personality. The provisions really focus on directors and persons of significant control, which are defined in a number of ways.

Amendment 85 would require that the memorandum of association also states the nationality of the subscriber and the country in which each subscriber is ordinarily resident. Subscribers are the persons who agree to form a company and become its members by subscribing their name to a memorandum of association. Upon incorporation of the company, they become its members and usually, but not always, its shareholders. Their details are recorded in the company’s register of members.

The Bill already contains provisions that could not only achieve the intent behind the amendment, but require the same information from a wider category of person. Clause 45 inserts new section 113A into the Companies Act 2006. New section 113A provides a power for the Secretary of State to make regulations that amend the particulars required to be entered into a company’s register of members. That power could be used to require the nationality and country of ordinary residence of all members to be entered into a company’s register of members.

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[Kevin Hollinrake]

I am certainly minded to consider all aspects of the debate we have had in Committee and to discuss the matter with the Secretary of State and others. We are here to inform the debate, and Members on both sides of the House are better informed as a result.

[Liam Byrne]

In the light of that remark, will the Minister go further and tell the Committee how he will tackle the problem of shell people if we are unable to get information about them? Shell people is the phenomenon of having what look like foreign nationals or residents of other countries controlling shell companies, which may, in turn, own assets in this country. If it is not possible for us to establish the nationality or the ordinary residence of those people, how will we know whether we have a problem? If, for example, people put down their nationality as British, we would know where to find them, but if we do not have that information, we risk getting a little lost.

[Kevin Hollinrake]

If the person is a director or owns more than 25% of the shares in a company, they have to have their identity verified. If the right hon. Gentleman means nominees, such a person could easily be living in the UK. I am not sure that the right hon. Gentleman would be better served by knowing where they were based, unless we were taking a risk-based approach to people from a certain nation.

[Liam Byrne]

Such as Russia.

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[Kevin Hollinrake]

Such as Russia. It is key that the ID verification works for directors and persons of significant control—that is where we are on that. We need to debate whether the amendment, which seeks to find out the nationality of company members, who are not necessarily shareholders or directors, serves any purpose at all.

[Liam Byrne]

We might as well pursue this point while we have the time. The 25% threshold is obviously very high, and an amendment will be tabled seeking to lower it. If that does not go through, however, the risk is that there will be members on the register with a significant or even a controlling stake of below 25% in a company, yet we will not know where they are resident or where they live. We are now running that risk.

[Kevin Hollinrake]

The definition of “persons with significant control” accounts for exactly that—it accounts for the fact that a person with influence on a company might have any level of shareholding, even including zero shares. That is catered for in the definition of “persons with significant control.” Of course, there is always discussion about how we find out about and verify such information, which is very difficult to ascertain in any circumstance. The subject of ID verification is interesting to debate. I have discussed different aspects of it with officials and we should definitely consider it further.

The regulations under new section 113A will be subject to the affirmative resolution procedure, so the overall intent behind the amendment would be better addressed in a wider conversation about what additional information, if any, it would be proportionate to require every company to provide about its members via these regulations. I hope I have provided some assurance that this amendment is not necessary. Therefore, I would be grateful if the hon. Member for Feltham and Heston would withdraw it.

Clauses 3 to 8 will require those seeking to form a company to confirm that they are doing so for lawful purposes. The clauses make it absolutely explicit that those forming companies are welcome to do so only if they intend to do so for a lawful purpose. Through the requirement and provision of the new statement, subscribers to a new company can be in no doubt that if they are found not to be telling the truth, action can be taken against them.

Clause 4 will require applications to register a company to include a statement that none of the company’s subscribers, founding members or initial shareholders is a disqualified director. The definition of “disqualified person” is provided in proposed new section 159A(2) of the Companies Act 2006. Clause 4 enables the registrar of companies to reject the application if any subscriber is a disqualified director. The registrar should reject such applications, because by being involved in the formation of a company, a disqualified person breaches the law.

Under clause 5, an application to incorporate a company must include a statement confirming that all the company’s proposed directors have either verified their identity or are exempt from verification requirements.

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[Liam Byrne]

I want to reinforce the last point made by my hon. Friend the Member for Feltham and Heston. If we are going to equip the Minister with new powers, it is important that he tells the Committee, at this stage, how he intends to use them. The key question is: what is his deadline for ensuring that every single company on the register has fulfilled the obligations created by these clauses? Can he clarify what his risk tolerance for bad behaviour will be?

I ask the Minister that because I was forced to table parliamentary questions in October last year, which revealed—extraordinarily—that 11,000 companies on the Companies House register had still not disclosed their persons of significant control, even though it was a legal requirement at the time. That is a very big number, but despite that fact, only 119 convictions had been secured for wayward directors.

If we are going to give Companies House the new obligations and new duties that the Minister is taking through, but they are not going to be enforced, then frankly there is very little point in the Bill. If the Minister is not able to today, I hope that he will write to us later to confirm two things. First, will he confirm that his intention is for 100% of companies to meet their obligations under the Bill? Secondly, I think the whole Committee would welcome his setting out a timescale for seeing that target secured.

[Kevin Hollinrake]

A number of points have been raised. The shadow Minister talks about the veracity of information and how we can become certain of it. As she knows, we are talking about a huge number of records—double-digit millions when adding up companies and directors. If we added shareholders, that would be many millions more.

The focus of this debate should be on who is controlling a company, be it a zero shareholding, small shareholding or larger shareholding. That is why traditional ID verification focuses on directors, who are obviously the officers of a company and control it, or a person of significant control—someone who sits behind that organisation. That is why we ask for those IDs to be verified. That can be done by Companies House or a corporate service provider. Some of those have a dubious reputation—I am sure that will be discussed in Committee—but let us see this for what it is: many of them are bona fide, reputable organisations such as Deloitte, EY and PwC. If someone has proven their identity to those organisations [Interruption.]—I am someone who can see his wrongdoing, but I do not see wrongdoing on every single corner. Most people working in commercial enterprise are decent, honourable people who seem to do the right thing. We should keep that in the context of this debate.

The duty is on a director of an organisation to make a statement to say that their identity has been verified. If that statement is false, criminal sanctions are attached. That is how this is regulated. It would make no sense for Companies House to revisit tens of millions of records to ensure that people at Ernst & Young and Deloitte have properly verified the identity of an individual. They are subject to those criminal sanctions.

On multiple disqualifications, I think the hon. Member for Feltham and Heston was talking about some kind of “three strikes and you’re out” system for a director. The Insolvency Service has the opportunity to ban a director for up to 15 years. It is fair to say that if someone had constantly not paid their tax or filed their accounts and had been banned, their days as a director would be just about done by the time they had got three penalties of 15 years.

The exemptions, as I said before, will be brought forward by affirmative regulations. The provision is intended for when there is no need or purpose to going through another round of ID checks, to avoid needless bureaucracy. We should all welcome that because, as anyone who has been at any organisation knows, bureaucracy equals cost for somebody—whether that be a cost on commercial enterprises or on the taxpayer. We have to be careful not to step too far unnecessarily.

[Liam Byrne]

That is an important point. The Minister is basically telling the Committee that he wants to ensure that the verification checks are proportionate, but across Government—in the Passport Office, the visa service and benefits agencies—there is a well-established infrastructure for verifying identities. If people are applying to become a director or a person of significant control, it is hard for many of us on the Committee to understand why the checks on their identity should be much lighter than those applying for other benefits from the state.

[Kevin Hollinrake]

I do not understand why the right hon. Gentleman says that the checks are lighter. This is ID verification where the individual has to be identified against a form of ID such as a passport. It is a proper ID verification. That process will be brought forward so that the Committee can decide whether it is fit for purpose. It is absolutely right that we do that, but these are proper ID verification requirements.

The deadline for ID checking of existing directors is 28 days from the commencement of this legislation—[Interruption.] The right hon. Member for Birmingham, Hodge Hill is not even listening, even though I am answering his question. Existing directors will need to be verified within 28 days. The deadline that he asked for is 28 days from the commencement of the legislation.

[Liam Byrne]

And the target?

[Kevin Hollinrake]

It is 28 days.

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[Kevin Hollinrake]

On a point of correction, I said in answer to a question from the right hon. Member for Birmingham, Hodge Hill that existing directors and people with significant control had 28 days to verify their identity. That figure has not been set yet. It will be set in a commencement order, which I will find out more about. The 28 days applies to relevant legal entities.

[Liam Byrne]

Will the Minister give way?

[Kevin Hollinrake]

I have only six minutes left, so if the right hon. Member wants to hear from me on all those points, he will have to keep it very short.

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[Liam Byrne]

Could the Minister also clarify his target for compliance? I hope it is 100%, but if he could clarify that as well, I would be grateful.

[Kevin Hollinrake]

I am grateful. Of course, my target will certainly be 100%; I cannot imagine why it would not be. The 28 days refers to the time that relevant legal entities will have to rectify their identity from receipt of the registrar’s direction.

To answer the hon. Member for Glasgow Central on computer code, there have been a small number of instances where Companies House systems have identified computer code. What constitutes that may change and evolve over time, so the drafting is future proof. Companies House already has a security capability that will develop and evolve over time. Where necessary, Companies House’s internal scrutiny functions will consult other experts.

The right hon. Member for Barking asked what had been rejected. No other categories were rejected in the course of policy development. I think that these categories were deemed important, but I do not know of any others that were considered. The right to appeal regarding the name change would be through a judicial review. Clearly, it is fair to say that Companies House will use its judgment.

To answer the right hon. Lady’s point on the Secretary of State’s functions, Companies House exercises those functions. There is a well-established administrative process by which Companies House makes the Department aware of potentially problematic names, so the Secretary of State can also exercise their judgment. On how we identify any of those names, of course, a lot of that is technology-based.

Economic Crime: Law Enforcement

Debate between Kevin Hollinrake and Liam Byrne

Thursday 7th July 2022 Commons Chamber

[Liam Byrne]

Exactly. My hon. Friend is absolutely right.

I will quickly run through five parts of the economic manifesto that have to be at the core of the next economic crime Bill. One of the virtues of having this debate today, at this moment of great flux in our politics, is that I hope to put on the record the cross-party consensus that now exists about the provisions that need to go into economic crime Bill 2.

Many of us argued for a long time for the first Bill, which was rushed through the House in record time for obvious reasons. Many of the amendments that improved the Bill came from participants in this debate. What we are saying to the Government today, through the good offices of the Minister, is that the Bill did not go far enough—it did not begin to touch the scale of the problem. There is therefore an expectation that when the Government draw together the provisions of economic crime Bill 2, they will look at the economic crime manifesto, the Foreign Affairs Committee’s report and the text of this debate.

[Kevin Hollinrake]

The right hon. Gentleman is making an excellent speech. May I recommend that the Minister —or the Minister responsible, when that Minister is in place—also reads the Treasury Committee’s report “Economic Crime”, which sets out recommendations similar to those of the Foreign Affairs Committee?

[Liam Byrne]

The hon. Gentleman is absolutely right. The joy of the Minister’s position must surely be that Members of this House have done the heavy lifting for him. Between us, we have sketched out a pretty comprehensive catalogue of measures for the Bill: we have not quite put the clause numbers in, but I think we have set out most of the measures.

Those measures have to start with information about the crime. That is why we need the whistleblower provision, because whistleblowers are so often the source of intelligence, and it is also why we have to reform the suspicious activity reporting regime. Not only does the regime need widening so that it bites on more organisations such as estate agents but we have to find a way of pooling the intelligence that comes from suspicious activity reports and focusing on where we think the harm is greatest. Our Committee has heard that loud and clear, not least in New York last week, where our excellent consular team pulled together a wide-ranging discussion for us. Lots of banks, law firms and so on are saying, “Look, we are spending all our time running platinum-plated processes, but without sieving the information intelligently and focusing on the 0.01% of reports to which we really should pay some attention.”

My hon. Friend the Member for Hammersmith (Andy Slaughter) has drawn attention to the way our courts are being used to shut down journalists, which is the third piece of the puzzle. We need courageous journalists to speak the truth; we cannot use English courts to shut them down, as is happening in London.

There are some changes that we need to make to ensure that we have good information and intelligence. We then need to ensure that the regulator is in place. The argument about needing a better Companies House has been well rehearsed; it is just crazy that the “know your customer” provisions that bite on so many commercial organisations do not bite on Companies House, so it is recording directors with names like Mickey Mouse, and in some cases not recording directors at all.

I fully agree that we need criminal liability for directors as a third set of provisions. The hon. Member for Thirsk and Malton is absolutely right to sketch out the parallel with the Health and Safety at Work etc. Act, which requires people to identify the harms of which their organisation may be guilty and put provision in place to prevent those harms from happening in the first place. Prevention is always better than cure.

We obviously need to transform enforcement. We need to double, at least, the budget for the National Crime Agency. We need to match, at least, the money that the private sector puts into law enforcement. We need to take steps to reduce the costs, which is the only way to start getting unexplained wealth orders through. In America they would love the power of unexplained wealth orders, but we have had to explain that they are currently useless because we just cannot prosecute them successfully through the courts.

On top of that architecture, we need to create one further set of offences to tackle the problem that in cases of corruption, the evidence that our agencies need is not carefully organised and filed away in Britain; it is offshore in jurisdictions where it is not available to us. When we cannot onshore the evidence, we have to somehow onshore the offence. We need to think about creating tough obligations on enablers, on company directors and on politicians in this House and the other place to declare anything that is suspect or corrupt. We almost need a suspicious activity reporting regime that allows us to prosecute people for failing to disclose things that they should be disclosing. That needs to carry a sanction which leads to civil proceedings for confiscation of assets. Unless we find a way of onshoring these offences, we will continue to be bedevilled by the problem of getting hold of the evidence that we need.

Out in the world, people are asking why on earth this place has not acted on economic crime. It is understandable that people should draw a connection between the flood of dirty money into our politics and our failure to act. It is a matter of tremendous regret that more than £7 million of the £54 million that has gone to the Conservative party in high-value donations has come from individuals with very suspect links to Russia.

Ehud Sheleg, who has been discussed in The New York Times, is deeply connected commercially with his father-in-law, Mr Kopytov. The New York Times recently revealed the way in which money came from his father-in-law to Mr Sheleg as a result of business activity in Russia—that was in the suspicious activity report—but when a number of us reported it to the National Crime Agency, the NCA just said, “Well, it has come from the bank account of a UK citizen; nothing to see here.” That is nuts, not least because there is now further evidence that Mr Kopytov is closely linked to business in occupied Crimea, and that money from that Crimean business went into Mr Sheleg’s account in 2018. Worse than that, Mr Sheleg’s father-in-law is now closely connected commercially to Alexander Babakov, who has been sanctioned by countries all over the world.

It is not a good situation for any of us when we have to raise concerns of this kind in the House, not least because we in the House will make mistakes. During a debate on 17 January, for instance, I said that Yuriy Lopatynskyy had questions to answer. I am glad that he has now answered those questions, and has given me reassurances that he has never had links with the Russian intelligence services. I am glad to be able to accept those assurances, and to apologise to him for any distress caused. However, it is not a good situation when we do not have regulators, intelligence agencies and police services that are able to tackle this kind of dirty money.

Dmitry Leus, I am afraid, is another example. There is clear knowledge of his recruitment by the FSB, who got him out of prison. He has a criminal record in Russia., and according to intelligence sources that I have seen, he is

“absolutely dependent on the FSB”.

However, he is also a significant donor to the constituency of Esher and Walton, the home of—I am not quite sure what position he is in at the moment, but he was Deputy Prime Minister last time I looked. The donation that went to the Prince of Wales’s charity was returned, but the Conservative party has not returned its donation.

We are not in a good situation when we are having to discuss this kind of money coming into political parties, and I therefore hope that the future economic crime Bill will ensure that the only money that can come into a political party is from profits that have been created here, in this country.

Let me end by again thanking the hon. Member for Thirsk and Malton and my right hon. Friend the Member for Barking for initiating the debate.