Sanctions and Anti-Money Laundering Bill [HL]

Lord Naseby Excerpts

Committee: 3rd sitting (Hansard - continued): House of Lords
Wednesday 6th December 2017 Lords Chamber

[Baroness Kramer (LD)]

My Lords, Amendments 69H, 69J and 69L in this group are in my name and that of my noble friend Lady Bowles, but the group also encompasses Amendment 69K in the name of the noble Lord, Lord Naseby. This cluster of four amendments work extremely well together, and we are very grateful to the noble Lord for bringing in a piece which strengthens this cluster.

Even the unobservant will have noticed that, in a sense, this is about starting to close loopholes. We had a very interesting comment, I think from the noble Lord, Lord Naseby, earlier—he can tell me if I am wrong—talking about the reputation and the failures of the UK to manage money laundering that involves the overseas ownership of property in London. The noble Lord, Lord Naseby, may not have had the opportunity to be here earlier, but we did have Amendment 69 in the name of the noble Lords, Lord Faulks, Lord Rooker and Lord Collins, and the noble Baroness, Lady Bowles, which directly addressed the public register of beneficial ownership of UK property by companies and other legal entities registered outside the UK, in an attempt to speed up the whole process of getting a public register of beneficial ownership.

[Lord Naseby (Con)]

I sat through the whole debate on Amendment 69, which took a fair amount of time.

[Baroness Kramer]

I do apologise, but the noble Lord will know then that that issue was addressed at that point in time. The Government gave us an update on the progress they are making towards what we hope will be such a public register. Indeed, I believe the Minister said it was not a question of whether but how there would be a public register. In a sense, that is one of the criticisms of London that hopefully will be closed within a reasonable period of time. We are still waiting on the timetable, but that is indeed what we hope.

However, the noble Lord is absolutely right that whenever issues are raised, particularly when the UK talks of issues around tax havens in other countries, or we on these various Benches talk about trying to get public registers in the overseas territories and Crown dependencies, the answer nearly always comes back, “Clean up your own house first”. Indeed, that is one of the reasons why I and so many in this House support that public register of beneficial ownership of property.

These amendments that I now address follow on that same theme. I remember the noble Lord, Lord Eatwell, in particular in the debates on the Criminal Finances Bill, being highly critical, comparing London very badly with Jersey. Although we have a public register for companies, it is not one that has any verification system, and he saw that as a very fundamental flaw in the UK system. That accusation comes again and again, whenever we look at trying to do anything with the overseas territories. Whenever we look at any kind of more global activity, the answer that always comes back is: “You say that you’re well in advance of other countries, but look at your own house—you’ve plenty there to get in order”. I would agree that we have plenty to get in order, so let us do it.

The three amendments that I have tabled with the noble Baroness, Lady Bowles, deal with various aspects of this. Amendment 69H deals with an issue that has generally been overlooked. I am very grateful to the noble Baroness, Lady Bowles, for identifying it—as noble Lords can probably tell, she is the expert hand in these amendments and has drafted all three. Amendment 69H proposes that trust or company service providers that do not carry on business in the UK and ensures that they may not incorporate UK companies without oversight from an anti-money laundering supervisor. I will not go through the details of each of its provisions, but essentially it makes sure that anti-money laundering authorities can get a grip on a series of organisations—trust or company service providers—that may have escaped notice up to this point in time. It is one loophole closed.

Amendment 69J takes another tack to close loopholes. It recognises that a company can be tracked if it has a UK bank account, but if the company does not, it is much harder to identify that particular company and make sure that the money laundering authorities can give it due and appropriate attention. In the proposed new clause, if an entity falling under the Companies Act 2006 does not have a UK bank account, it will have to provide a fee. The reason it should provide a fee is that it means that the cost of doing due diligence falls not on the UK taxpayer but on the company. That provides every incentive and every opportunity for the various authorities to pay due attention to that company. That is another loophole closed.

That fits brilliantly with the new clause proposed by the noble Lord, Lord Naseby. I will let him explain that because he will understand it far better than me, but again it highlights the importance of due diligence which flows through the first two amendments that I have described. Due diligence is vital to make sure that those entities that are active in the UK have very limited opportunity—or, preferably, no opportunity—to engage in nefarious activity.

Finally, Amendment 69L directly addresses that issue that was raised by the noble Lord, Lord Eatwell, and others. As noble Lords know, we have a public register of companies here in the UK, but the Government have never used a verification procedure. I understand why they have not. When a register is public, it is transparent. Journalists, NGOs, and members of the public have the opportunity to trawl that database, and that provides for many additional eyes to look through the material. That is exceedingly important, but perhaps it is not sufficient. At this point in time, issues of tax avoidance, tax evasion and money laundering have become far more significant—and on a far more significant scale. This is the time to turn to the supervisory authorities and give them the power and the wherewithal —the wherewithal probably being the critical element—to do verification and proper due diligence on that register.

That is the purpose of the three new clauses proposed in my name and that of the noble Baroness, Lady Bowles. They are to close the kinds of loopholes which leave the UK open to regular criticism that we talk about cleaning other people’s houses but we have not done what is necessary to clean our own. Read those together with Amendment 69 and you have a package that makes a very fundamental difference—one I am sure ought to be acceptable to the Government. I beg to move.

[Lord Naseby]

My Lords, I shall speak to Amendment 69K, which contains a new clause that I believe would meet a need arising from an apparent money laundering loophole to do with Companies House. Before I get on to it, I thank the Minister and particularly his staff for the consultation periods that were made available to Members of your Lordships’ House; they were extremely well run. I have also had correspondence with his office and I found it extremely helpful, so I put on record my personal thanks.

There are two ways of registering a company in this country, either directly through Companies House or via a company formation agent. Currently, 40% of all companies are incorporated through Companies House. As we probably all know, in July this year the fourth EU anti-money laundering directive came into force. It required considerable change for company formation agents in that they now had to take out enhanced due diligence checks when registering a company. Obviously this increased their workload and indeed the cost considerably, but nevertheless it was to the credit of the industry that it welcomed the changes that came with the directive.

However, under current provisions, fraudsters can still register a business direct with Companies House, either on paper or via the GOV.UK website, and, through that, avoid all the checks now required when company formation agents carry out exactly the same process. My understanding of the rationale behind this is that Companies House is not a business provider, but instead is fulfilling a statutory duty just to register businesses and issue incorporation certificates. Legally, Companies House has to accept in good faith all documents sent to it, and has no statutory power whatever to verify or validate the information contained in them. It can act only within the parameters of the Companies Act, and it has no investigatory powers under that legislation.

In reality, that means that for just £12 someone can set up a company using entirely false details without having to go through any verification checks on beneficial ownership, and with limited checks on registered directors. Individuals who have been involved in money laundering, who have convictions or who have been disbarred as owners in other jurisdictions can therefore gain access to UK companies through Companies House. This loophole cannot be justified; by incorporating at Companies House, fraudsters are able to create the illusion of their company being financially secure and sustainable. That leaves British business, consumers and taxpayers open to abuse through fraud or money laundering.

The organisation Transparency International reports that in the UK last year 251,628 UK companies were created with no checks being made on the person setting up the company or their source of wealth. A further TI report found that there were hundreds of British shell companies implicated, in its judgment, in nearly £80 billion of money laundering. The report goes on to say:

“The fact that a large proportion of firms are incorporated directly through Companies House and undergo no due diligence checks creates a significant money laundering risk to the UK framework”.


That lack of checks and balances harms Britain’s reputation as a leading place to do business, and in my judgment it is essential that that reputation is protected in the lead-up to Brexit. To protect businesses, taxpayers, and the UK’s reputation, it is essential that this loophole is closed.

I do not necessarily expect the Minister to take the precise wording in my amendment. It was written largely by myself with the help of the Public Bill Office, so in a sense it is a probing amendment, but I believe it is one with such depth of information that I would be enormously surprised if Her Majesty’s Government did not respond to it and come back with something similar on Report.

[Lord Davidson of Glen Clova (Lab)]

My Lords, the Opposition are sympathetic to many of the points that have been made, and I single out Amendment 69H. The capacity to carry out UK company formation from outside the UK is a real lacuna in the current money laundering regime. Monitoring within the UK is difficult enough, as is evidenced by the use of, for example, Scottish limited partnerships in Russian and former eastern-bloc bank fraud and money laundering of gigantic proportions. This vulnerability is of course magnified when the company information provider eludes the UK’s money laundering oversight.

Amendment 69J provides, we respectfully suggest, a useful additional hurdle for any prospective money launderer to negotiate. While the provision of the requisite materials for opening a bank account no doubt seems irksome to many, it none the less provides an additional external check on the background of those seeking to operate via a UK company.

The amendment of the noble Lord, Lord Naseby, offers a clear and useful mechanism for combating money laundering and I share his observation that it would be surprising if the Government did not support this measure with considerable force.

--- Later in debate ---

For these reasons, I therefore ask the noble Baronesses, Lady Bowles and Lady Kramer, and my noble friend Lord Naseby, to withdraw or not press their amendments.

[Lord Naseby]

My Lords, I am grateful to the Minister, but he is just repeating the problem. I understand what he is saying about the EU directive, although I am not skilled in that area and would not claim to be. However, I am quite skilled in the practicalities of life, and if a quarter of a million companies are being registered and nobody is checking them, that is a huge loophole, and Her Majesty’s Government have to find a way around that. The commercial sector is doing its proper due diligence—yes, it does it for a fee—but the Government have to say, “Right, it shall all be done by the private sector and Companies House will carry on doing the little bit of work it does for £12”, or develop a section at Companies House to do it. I accept that more work may well need to be done, but we cannot have such a situation in this country.

I can even give the Minister a small case history of what could happen. Somebody goes to Companies House, pays their £12 and registers. It is then reported to HMRC that they have registered. They then write in four months later to say that they have ceased trading. That is a wonderful vehicle for money laundering: they are a registered company, and HMRC has forgotten about them because they have told it that they are not trading. If a quarter of a million of them are doing this—I am not saying there are quite as many as that—it is a huge loophole and Her Majesty’s Government have to figure out how to deal with that section of companies that are currently being registered fully through Companies House.

[Lord Bates]

I do not accept that all we are doing is describing a problem. We are of course doing that, but we are also highlighting that we are about to formally establish the office for professional body anti-money laundering supervision, which will be responsible for supervising the very professional body of trust companies to which my noble friend was referring. We will have to keep an eye on and watch out for this issue, but we are certainly not complacent about it; we are aware of it and watching it carefully.