Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Monday 27th March 2023 Grand Committee

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord for accommodating this intervention. I thought it would aid noble Lords in having a productive debate if I set out up front the intention of the government amendments in this group, given that it contains a significant number and, as I understand it, the amendments in the name of the noble Lord, Lord Vaux of Harrowden, seek to build on them.

The government amendments seek to further strengthen transparency of shareholder data on the company register. I hope they will reassure noble Lords that the Government take this topic very seriously. A core purpose of the register of companies is to provide details of company ownership. However, users of the register have reported some problems with the way in which company ownership data is recorded. That is why the Bill contains measures to increase the usefulness of the information held on the shareholders, subscribers and guarantors—also known as members—of companies.

The Government appreciate the concerns expressed during the passage of the Bill by expert witnesses and parliamentarians about member information. However, I stress that we are also mindful of stakeholder concerns about imposing disproportionate burdens on businesses. The 2019 corporate transparency and register reform consultation proposed that non-traded companies, such as companies that are not listed on any regulated market, be required to collect the usual residential address and date of birth of their members. Consultation responses were mixed, and the Government concluded that the case had not adequately been made for the collection of the information, given the potential burden on businesses.

The Government consider that the approach taken with these amendments balances competing stakeholder concerns proportionately. The amendments will help to ensure that the policy intent of provisions in the Bill and the Companies Act 2006 are met without imposing undue burdens on business before further consultation is carried out.

Amendment 31 inserts a new clause into the Bill, which will amend the Companies Act 2006 to create an express requirement that old information must be retained where it changes. So, if a member’s name, address or shareholding changes, that old information must be retained for as long as the Companies Act 2006 allows. That is currently implied by other sections of the Companies Act 2006, but the law is unclear. For example, Section 121 states that an “entry” relating to a former member of a company may be removed from the register after the expiration of 10 years from the date on which he ceased to be a member. The retention of old information should already be current practice as it is in a company’s own interests to retain such information for audit purposes. Retrospective disputes relating to votes, dividends, and tax could all hinge on who owned shares at a point in time.

The new clause inserted into the Bill by Amendment 31 will also amend the Companies Act 2006 to provide powers to companies to ensure that member information is provided and kept up to date. The amendments also provide duties for members to provide their information and keep it up to date. There are offences for companies and members failing to comply with the new requirements without a reasonable excuse. That will ensure that the requirements are taken seriously by both companies and members and will enable more effective enforcement activity.

Amendments 6, 31, 34, 59 and 66 restructure existing provisions in the Bill that in turn amend the Companies Act 2006. They also provide powers to strengthen the regime by regulations. The powers allow regulations to require more information to be provided and to ensure that any new personal information is protected as appropriate. That would allow the Government to act swiftly to require more information to be provided if it is deemed proportionate to do so—again, following further consultation. Equally, law enforcement agencies may identify additional types of information that the registrar could require the collection of, which would help them in the prevention and detection of crime.

If new information is later required, it may not be appropriate for it to be made available for public inspection or disclosed except in specified circumstances—for example, if regulations later require a person’s personal email address to be provided, as that could have unintended consequences with spam mail and so on. These amendments ensure that personal information can be protected where appropriate, applying the principles from similar provisions in the Companies Act 2006 and this Bill to these measures.

I want to highlight that the power in new Section 113C could be used to limit any additional information requirements to companies that are not traded on any listed market, as those companies are already subject to similar disclosure requirements. That would reduce the burden on business, in line with the proposals in the 2019 consultation.

These amendments set up the framework for the policy intent to be met and leave the heavy lifting to regulations, once consultation has been carried out. The Government consider that to be an appropriate balance, as all regulations will be subject to the affirmative resolution procedure such that Parliament will have its say when those regulations are made.

The Government intends to remove Clauses 2, 4, 46 and 47 from the Bill because the provisions of those clauses are amended and/ or incorporated into the new clauses that I have described. Amendments 35 to 38, 60 to 62 and 67 allow the provisions to be sequenced more coherently and make consequential drafting tweaks.

I hope that noble Lords will support the amendments, and I look forward to the rest of this debate.

[Lord Vaux of Harrowden (CB)]

My Lords, I shall speak to Amendments 7, 8, 32 and 33 in my name. Before I start, I hope the Committee will not mind if I point out that my name is pronounced “Vawks”. It is astonishing how many different pronunciations of a four-letter word it is possible to come up with. I should also remind the Committee of my interest in the register as a non-practising chartered accountant.

I thank the Minister for arranging to meet me to discuss the various amendments that I have tabled and for his engagement so far. Like, I think, everyone in the Room, I support everything that the Government are trying to achieve with this Bill. My amendments to the Companies House section try to make it more effective in achieving the Government’s stated aim, which the Minister explained at Second Reading is to

“bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide”.

He went on to say that:

“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business.”


I think we all agree with that, but the Bill remains weak in improving transparency.

At Second Reading the noble Lord also said that the Bill would be

“helping to ensure that we know the real people acting for, and benefiting from, companies.”

The Bill makes some improvements in that respect, but it is pretty thin gruel and is not likely to make any real practical difference unless it is strengthened. That is what I am trying to do with these amendments, which I have tabled as amendments to the government amendments.

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[Lord Leigh of Hurley (Con)]

As a fellow chartered accountant, can I ask the noble Lord how his amendment would work in respect of trust? Does it mean that trustees are disclosed or that beneficiaries are disclosed? Clearly, one would want to have beneficiaries disclosed, and I am not sure that this achieves that.

[Lord Vaux of Harrowden (CB)]

The noble Lord is quite right. What we are really trying to get to here is the ultimate beneficial owner, which is a problem that sits throughout this and the overseas property register. Neither of them really gets to that point. The wording requires refinement, but that is what I was trying to get to—that the ultimate beneficial owner, the directing mind behind the shareholding, is disclosed.

[Lord Faulks (Non-Afl)]

Does the noble Lord think this goes far enough? I chaired the Joint Committee on the Draft Registration of Overseas Entities Bill, and one of our recommendations was that there should be improved verification procedures for Companies House. We also thought it was well worth considering ensuring that regulated professionals acting should also provide statements, which would concentrate the minds of those advising who are responsible for providing this information.

[Lord Vaux of Harrowden (CB)]

I made exactly the same argument during the passage of what we used to call ECB 1—the first economic crime Bill. I entirely agree, and noble Lords will see that I have a number of later amendments dealing with those issues of the verification statements and the authorised corporate service providers being named publicly as opposed to—as is proposed at the moment—not being named on the register. That is really important. I agree that this probably does not go far enough. I am mindful of the Minister’s comments about not making this overly burdensome—if we do, it will not work—but we need to find a way to make sure that we understand who owns the shares.

[Lord Wallace of Saltaire (LD)]

My Lords, I am here as an international policy wonk, and I am very conscious that, in economic crime, a great deal goes on cross-border and outside the jurisdiction of the UK. I have therefore tabled two later amendments: one concerns the Crown dependencies and the overseas territories and the other concerns the levels of international co-operation that will be desirable and necessary if we are to crack some of these problems.

I strongly support what the noble Lord, Lord Faulks, has said about the requirements for those agents—or enablers, if you like—in setting up what are very often cascades of companies that disappear outside the jurisdiction of the United Kingdom to our various overseas territories or beyond. The question, therefore, is how we ensure the maximum amount of transparency and make the risk of crime as minimal as possible by putting heavily on those who are engaged in setting up these trust companies and further arrangements the responsibility of declaring clearly that these are legitimate and sound.

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[Lord Johnson of Lainston (Con)]

I thank noble Lords for their amendments. The Government appreciate their intent but consider that we already have the powers we need in the Bill to address the substance of these concerns. Following on from comments from my noble friend Lord Faulks and the noble Lord, Lord Clement-Jones, we are not discussing the verification of corporate providers. I think there is a significant amount of discussion to be had on that a bit later.

I totally agree about the importance of the transparency of the records and understanding who the beneficial owners of companies are—that is the whole point of much of the work we are undertaking today. On the comments of the noble Lord, Lord Vaux, about the ownership level of 25%, in a private company you have to have your identity verified if you are a director, own 25% or more of the company or are a person with significant control. To clarify, the 25% level does not denote a person with significant control. Somebody who has one share can be a person with significant control, and it is the company’s duty to report who they are. It is extremely important to make that clear in this discussion.

I was not in this great House for the previous piece of legislation, the debate on which has resulted in this new piece of legislation, but I am very aware of the importance of understanding who stands behind the companies—as has rightly been said, to quote myself, the people acting for and benefiting from companies. The 25% level does not denote a person with significant control, and companies suffer significant penalties—the penalty regime, which I am happy to share with noble Lords, is substantial and at the very core of this process.

[Lord Vaux of Harrowden (CB)]

The noble Lord is quite right: there is the question of being able to influence or control the company other than through shareholdings, but he referred to penalties and so on. How many times has anyone been penalised for failing to provide information about being a person with significant control when they did not hold 25%?

[Lord Johnson of Lainston (Con)]

That is exactly the sort of question that should be asked; I look forward to returning to this Committee with the answer, as I unfortunately do not have it at my fingertips. However, I know that Companies House continues to do a great deal of investigation into these matters, even before this Act has come into place.

The noble Lord, Lord Vaux, also raised an important point in saying that it is too easy and cheap to create a company and that the 1855 principles around the corporate veil are a privilege. At the time, they were considered a great risk to the economy, abrogating people of their personal responsibilities and liabilities to the debts of their businesses. It caused great debate, as noble Lords may remember—looking around the Room, not all noble Lords will, but some may. It is important to understand that it comes with privileges and obligations.

Having done a great deal of investigation into this Act, of the 4.8 million companies on the register, I would have thought that many should not be limited companies; it is not necessary for a sole trader or a small partnership to have a company, so I have a degree of sympathy for upgrading the entire concept of what a limited company is and what sort of information should be provided. It may be important, philosophically, to look at it in that way, rather than simply saying, “Here are a very large number of companies; if we impose undue obligations on them, that will be unfair or overly burdensome to businesses.” It is not unreasonable to look at the picture in the round.

Having said that, we undertook a variety of consultations and feel that the way this Bill has been drafted gives us the security to understand who the beneficiaries of companies are and the requirements of companies to record that information and link those individuals across the information processes and systems in Companies House to ensure that we have integrity of data. To require all shareholders to verify their identity would be unnecessarily burdensome for many thousands of companies and, potentially, millions of small shareholders who are simply passive holders of a business.

I would not like my comments to be taken in the wrong way—perhaps in the way that “minimise” has been taken—but we are making a significant change to the way that companies are established in this country and to the sorts of information levels that we require from businesses to ensure the integrity of data at Companies House, in what both individual directors, persons with significant control or corporate service providers and companies have to provide. It is very important that we do not lose sight of the fact that this country is one of the easiest places to do business in the world. Our wealth comes from our entrepreneurial nature and the importance of having a company structure, system and process that does not place unnecessary burdens where they will not necessarily add value.

I am, however, very open to further conversations to ensure that the philosophy presented here matches our ambition, which is to ensure that we understand who benefits from companies and who is behind them.

[Lord Vaux of Harrowden (CB)]

The noble Lord has explained the onerous nature of verifying the identity of every shareholder, which I accepted in part when I spoke. We will come back to that issue on Amendments 39 and 43. However, he has not talked about whether and why a shareholder making a simple statement as to whether they are holding the shares on their own behalf—and if they are not, on whose behalf they are—is particularly onerous. I am afraid that I do not see why it should be.

[Lord Johnson of Lainston (Con)]

The company is obliged to register if there is a person with significant control or someone with more than 25%. If it is not truthful in that registration, it will be committing an offence.

[Lord Vaux of Harrowden (CB)]

But that is different from any shareholder having to make the positive statement: “I am”—or “I am not”—“holding the shares on my own behalf”. It is very different from, “I’ve got 25% and therefore I have to make some disclosures”. Why is it a problem for an individual shareholder to say, “I’m holding these shares on my own behalf”, or “I’m holding them on behalf of somebody else”? I am sorry, but I really do not see why that is difficult or onerous. It is a very different thing from the 25% threshold that the Minister just mentioned.

[Lord Johnson of Lainston (Con)]

I appreciate the noble Lord’s intervention. I expect some of this comes down to nominee companies and the roles that they perform on shareholder registers, but I am happy to look in more detail at this point. We had the good fortune to have a conversation about this some days ago and came to the conclusion that it was certainly worth further investigation to ensure that anyone who puts information on to the Companies House website has to ascertain whether they are acting on behalf of other people. However, I believe, and very much hope, that the answer will lie in the depths of the legislation.

My noble friend Lord Agnew’s amendment is very similar. I hope I have covered this point, particularly in relation to the PSC framework already in place.

I turn to Amendment 5, and thank the noble Lord, Lord Ponsonby, for his helpful replacement of the noble Lord, Lord Coaker, in speaking to it. The amendment would require a memorandum of association to include the nationality and country of ordinary residence of each subscriber. A memorandum of association is a memorandum stating that the subscribers wish to form a company, and they agree to become members of that company. Their names are then entered into the company’s register of members.

This amendment, if I may be so bold, would not require the same information to be provided by persons who later become members. Frankly, it is considered that that would create inconsistency between the information requirements of members who were subscribers and other members. The Government consider that any new information requirements should be consistent between the two.

The Government appreciate the intent behind the amendment, but we consider that this would be better addressed by consulting stakeholders about what additional information, if any, it would be proportionate to require every company to provide about all its members, rather than just subscribers who are individuals. To reinforce that point, we would look to consult stakeholders about what additional information it would be proportionate to require.

This Bill, and government amendments to it, provide the powers to require additional information to be provided via regulations. This discussion can happen on an ongoing basis, and we welcome that. The government amendments that I outlined earlier signal our willingness to review the position on this issue, albeit having first consulted stakeholders, given the potential burdens involved. I know we all agree about the importance of keeping the legislation sensible so that it does not impinge on our entrepreneurial spirit and the creation of companies in this country. That is absolutely right, and noble Lords would expect the Government to consult in ensuring that we get the right information registered in the right way. I hope this reassures the noble Lord and that he will withdraw his amendment.

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[Lord Vaux of Harrowden (CB)]

My Lords, I have two very short points on this. First, I agree with the noble Lord, Lord Leigh of Hurley. I do not think paragraph (a) in the amendment works: the registered address does not have to be the place of business, it often is not and there are often perfectly good reasons for that; but paragraph (b) is incredibly important, concerning this use of people’s addresses for, effectively, fraudulent purposes. Often, the first thing the person whose address it is knows about it is a letter from HMRC with a massive VAT demand: this is particularly used for VAT fraud. It is really important that Companies House works closely—a point discussed on a previous group—with other agencies, particularly HMRC, to make sure that this sort of thing is knocked on the head.

[Lord Thomas of Gresford (LD)]

My Lords, the Companies Act says at Section 9(5) that an application

“must contain a statement of the intended address of the company’s registered office”.

That is all on registration. That opens up the sort of abuses that we have heard from the noble Baroness and the two noble Lords who have already spoken. I tend to agree with the two noble Lords, having been a solicitor myself, that it is perfectly responsible for a solicitor’s or accountant’s office to be used as a registered office, but nevertheless, the way in which the Government have attacked it does not cover the whole ground. It is very sensible, in addition to the way the Government have put it, to define an appropriate office in the negative sense. That would not include the solicitor’s or accountant’s office, for the reasons given.

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[Lord Faulks (Non-Afl)]

I am not wholly convinced that what you would be required to do under this amendment is very onerous. I remember looking at this when we were examining the desirability of transparency in relation to ownership of shares. Presuming bad actors—although this is, I hope, infrequently the case—it is very easy for someone to, as it were, redistribute their shares to smaller packages if they wanted to conceal their identity. I am not saying that that is what people do most of the time, but it would be more difficult if there were an obligation to disclose of the sort contained in this amendment.

[Lord Vaux of Harrowden (CB)]

My Lords, very quickly, I will not repeat what we said on an earlier group, but these two amendments cover very much the same sort of areas of transparency. I ask the Minister—probably as a matter of relative urgency, given the discussions we have had—whether he could facilitate a meeting of the various interested parties so that we can try to thrash out where we want to start to coalesce around these issues, as that would be helpful.

[Lord Cromwell (CB)]

I declare that I am a shareholder in an SME. We need to be aware that there are various classes of shares. You could be a 5% shareholder in terms of owning the company, but an 80% shareholder in the voting shares. Whatever the outcome of these discussions, we need to be very clear which type of shares we are talking about.

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[Lord Johnson of Lainston (Con)]

I greatly appreciate the input from noble Lords. Knowing my record over the last hour, I will probably vote against this in any event.

I shall just explain this in my own words, if noble Lords will tolerate my lack of legal expertise. The point was that, until this amendment, you had to prove—I welcome interventions from noble Lords if they feel that I am straying into their legal territory—either dishonesty or recklessness, rather than simply misfiling, in order for there to be a prosecution, which set a very high bar for prosecution. As I understand it, a number of important prosecutions—which is the whole principle for us being here—failed because they were unable to prove that exceptionally high bar.

This therefore makes it an offence to misfile which, as has been rightly pointed out, is a statutory event. However, it would seem to be unreasonable that, if you accidentally put your address down as “46B” when it should be “46C”, you then receive a two-year prison sentence or indeed a significant fine. It is right in this instance that “reasonable excuse” is brought to bear.

[Lord Vaux of Harrowden (CB)]

Unfortunately, I do not think that is a “reasonable excuse”; that would not be a “material particular”.

[Lord Johnson of Lainston (Con)]

I am delighted that the noble Lord pointed that out; that is certainly true. I think noble Lords understand the direction of travel in the intent of this amendment. It is important; it is not simply tidying up. There are some elements of making sure that penalties relating to overseas entities relate to companies registered in the United Kingdom, but, following consultation with department officials, it seems to me that this is a very important part of the Bill. I do not support dropping it at this stage, but I am very comfortable having further conversations about it. I would be grateful if the Committee gave me a few moments to consult my team on the specifics about how to proceed. I want to make sure that we have a sensible and reasoned debate but that I do not get the process wrong regarding amendments to the Bill.

Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 18th April 2023 Grand Committee

[Lord Naseby (Con)]

My Lords, I apologise for not taking part at Second Reading due to other parliamentary commitments. I have a couple of small questions, but one of them is quite important.

First, if we are dealing with micro-companies, they are not likely to have substantial staff. There must be some safeguard so that the authorities do not change the requirements for reporting and leave these poor micro-entities with perhaps two or three months to totally amend their software. That has happened in certain other areas, so there must be some requirement that, while it is quite right that the registrar’s requests should be met, there must be some safeguards and those having to do the returns must be given adequate time to do them.

Secondly, I have one small point in relation to new Section 443A(2) inserted by Clause 54. At the end, it says, “(and any directors’ report”). I assume the directors’ report refers to the accounts, but that is not totally clear.

[Lord Vaux of Harrowden (CB)]

My Lords, in the light of what we have just heard, I want to touch on the micro-company side of things. Micro-companies may be small but they are not unimportant. They are probably the single biggest sort of company used for VAT fraud, for example. There has been a lot of publicity recently about some poor chap in Cardiff. Several hundred companies were registered at his address, then he started receiving large bills from HMRC. It is precisely this sort of company that is used for that; we should not be too generous to these companies in relation to reporting requirements.

[Lord Browne of Ladyton (Lab)]

My Lords, I rise to speak to the amendments in the name of the noble Lord, Lord Leigh of Hurley, together with the notice given by the noble Lord, Lord Sarfraz, that he intends to oppose the Question that Clause 54 stand part of the Bill; I suspect that in his absence this will not be part of the process but I will cover the issues that are raised.

I will confine myself to a few observations. First, no one wishes to stifle micro-enterprises with too onerous a set of reporting duties but, in a Bill that has the word “transparency” in its very name, it is surely important that micro-entities are not exempted from such a reporting duty. That small businesses are not merely the flywheel but the very motor of the UK economy is well known and constantly rehearsed. I have no need to go through all that but flourishing surely cannot come at the price of opacity when that opacity will be exploited in the way in which the noble Lord, Lord Vaux, suggests it has been in the past and we know is a problem.

The amendments from the noble Lord, Lord Leigh, do not merely serve as a symbolic recognition of this fact but serve a useful practical purpose, which I will turn to. It is the stated aim of the Government for Companies House to be a fully digital organisation by 2025. The amendments under discussion ensure that electronic documents submitted to the registrar not only conform with its standard electronic format but ensure that they meet standards of accuracy, completeness and consistency. Surely, each of these measures is desirable and, taken together, they are more desirable still.

If the Government are not minded to accept the noble Lord’s amendments, it would be useful to know which of these requirements they regard as superfluous. It would also be helpful to know how the Government feel that these amendments fail to assist Companies House in meeting its own target of becoming fully digital in the next two years, which seems a very challenging target.

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Moved by

[Lord Vaux of Harrowden]

48: Clause 64, page 48, line 8, at end insert “and included in the register, including the name of the authorised corporate service provider who has made the verification statement”
Member’s explanatory statement
This amendment is intended to ensure that the identity of the authorised corporate service provider who makes the verification statement is included in the verification statement and on the register.

[Lord Vaux of Harrowden (CB)]

My Lords, in moving this amendment I will speak also to my Amendment 54. Given that these amendments relate to authorised corporate service providers, some of which will be regulated by accountancy bodies, I should remind the Committee that I am a non-practising member of the Institute of Chartered Accountants in England and Wales.

I thank the Minister for his opening comments and his generosity in his willingness to meet with us. In particular, I thank him for arranging a meeting yesterday with the officials. I also thank the officials very much for their generosity with their time yesterday, as that meeting rather overran.

This group relates to the role of authorised corporate service providers, or ACSPs. This is an important subject because the Bill, to a very large extent, effectively outsources much of the verification work to these ACSPs. To be authorised to carry out verification, they must be regulated in accordance with the money laundering regulations. At the moment, that is the only qualification required. The Secretary of State may add other requirements by regulation. I would be grateful if the Minister told us what plans the Government have in that respect.

These ACSPs are the very same people or entities that have been responsible for much of the company creation of the past. I think we can all agree that our system has not exactly been a beacon of transparency or probity. It is not for nothing that London became the preferred location for Russian oligarchs and kleptocrats and became known as the London laundromat or Londonistan—something, frankly, that we should all be ashamed of. That is why we had last year’s emergency legislation, the Economic Crime (Transparency and Enforcement) Act, which introduced the overseas entities register, which is why we now have this Bill to try to clean that up.

Many—probably most—of these ACSPs are honest and diligent, but it must be the case that too many have not historically been as honest or diligent as they should or could have been. They have allowed, or dare I say enabled, the creation of the London laundromat. At best, a blind eye has been turned; at worst, there has been a more active enabling of the bad actors. Transparency International’s evidence to the Committee on this Bill in the other place stated:

“Investigations by civil society organizations and journalists have demonstrated that time and again UK TCSPs”—


trust and corporate service providers, which will now become these ACSPs—

“have been responsible for building and maintaining secretive networks built from thousands of shell companies, used to launder billions of pounds in illicit funds over the years”.

So I and, I believe, many others have many concerns about the level of reliance the Bill has on the ACSPs for the verification of the identity of directors and, in particular, the identity of persons with significant control. As I said, these ACSPs will include the very same people who have historically advised on how best to disguise ownership and control, and who have created the structures to do that.

If we are to rely on these ACSPs, as the Bill intends, we need to ensure that they carry out their roles properly and that they are incentivised to do the right thing, rather than remaining enablers for the kleptocrats, criminals and terrorists the Minister referred to at Second Reading. Just relying on the fact that they are regulated under the money laundering regulations, which is what the Bill currently proposes, is not enough. It has not worked until now and I can see no reason why that will change unless we strengthen the rules. The whole money laundering regime is hugely overdue for reform, which is the subject of Amendment 49 from the noble Lord, Lord Agnew.

The Bill provides for two ways in which the verification of the identity of directors and PSCs can be carried out. Either the identity can be verified by the registrar or a verification statement made by an ACSP can be delivered to the registrar. How that verification is carried out and the records that must be kept in either case will be set out in regulations to be made by the Secretary of State. We do not yet know what those will be. Perhaps the Minister can provide some information as to what he expects those regulations to contain. Amendment 50 in the next group, in the name of the noble Lord, Lord Coaker, makes some useful suggestions in that respect.

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[Lord Vaux of Harrowden (CB)]

I am grateful to the Minister for his qualified support. I would be interested to understand why the Government decided to go along with this recommendation for the overseas entities register and are resisting it, at least to some extent, for the domestic Companies House. I am not sure that I understand why the two things should be different at all.

[Lord Johnson of Lainston (Con)]

I am always grateful to the noble Lord, Lord Vaux, for his interventions. As I said, we are looking forward to having a full discussion about this issue in our proceedings over the next few weeks. From my personal point of view, it is right that there is a higher degree of transparency and it is absolutely right that we should look closely at trying to ensure that the identity of the verifier is also linked to the verification of the identity.

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[Lord Johnson of Lainston (Con)]

I appreciate my noble friend’s mixed metaphors. I hope I have been clear that the process of making sure that the ACSPs operate in an environment that is trusted and clear is at the root of much of the activity we are discussing today. I will certainly make myself available for further inquiry but, as I hope I have made clear, ACSPs are regulated by the money laundering supervisory authorities and a review of that important process will begin in the summer.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank all noble Lords who have spoken in this fairly long debate for their support. Once again, consensus seems to have broken out in the Committee, which must be a good thing.

The noble Lord, Lord Agnew, dramatically set out the scale of this problem. We all stand around it. Like him and the noble Lord, Lord Fox, I must confess that I thought the Minister was rather complacent in his views on the efficacy of the anti-money laundering regulations as they stand. The Treasury review is welcome; it has been hanging around and talked about for quite a long time now. The fact that it is only starting in the summer is somewhat alarming. We need to fix what is a broken system. In talking to the Institute of Chartered Accountants, it surprised me by telling me that the vast majority of accountancy firms are not regulated by it. This is not consistent and really does not work well; it is an area that we have to improve.

At the outset of today’s debate, the Minister said that he is open to constructive and practical suggestions for improvement. We are all grateful for that. In this group, we have a number of simple suggestions that would add little or no burden on either the registrar or business and could make a genuine practical difference. The Minister was quite right when he said that the vast majority of ACSPs are diligent and honest, and that it is an important industry. It is worth repeating that. I am sure that that vast majority would like to see the poor minority driven out of the business so that it stops giving it a bad name.

I am disappointed that the Minister cannot accept some or all of these amendments today, I must say, but I am grateful for his confirmation that he will consider them seriously. I look forward to the promised discussions that he has agreed to have. On that basis, for now—although I am absolutely certain that we will come back to this issue on Report—I beg leave to withdraw my amendment.

Amendment 48 withdrawn.

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[Lord Vaux of Harrowden (CB)]

In our debate on the previous group, I asked the Minister what regulation the Government were intending on ID verification. The Bill allows the Secretary of State to create regulations on what the ID verification process will be. The Minister did not answer that question then, so this seems like a convenient moment for him to do so.

[Lord Fox (LD)]

The noble Lord just said exactly what I was going to say. If it is not this, what is the process to identify people and what documentation is required? It will be interesting to hear the Minister’s response to the challenge from the noble Lord, Lord Ponsonby: if it is good enough for voters in local elections, why is it not good enough for multi-million-pound companies?

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Moved by

[Lord Vaux of Harrowden]

53: Clause 67, page 56, line 12, leave out subsection (3)
Member’s explanatory statement
Clause 67(3) would make any statements of a person’s unique identifier (or that they have not been allocated one) unavailable for public inspection. This amendment would reverse that so that the numbers are available for public inspection.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to move Amendment 53; I hope to be fairly brief. It is related, in a way, to Amendment 48A in the name of the noble Lord, Lord Coaker, which we spoke about earlier. In effect, it attacks the issue of unique identifiers from the opposite direction.

Clause 67(3) ensures that the unique identifiers allocated to companies and others, including ACSPs, are not available on the public register. I was rather surprised to find this. My amendment is really a probing amendment to find out the rationale for hiding unique identifiers and discuss whether that is the right thing to do. It seems to me that the unique identifier would be a helpful tool to assist civil society organisations, journalists, analysts and, indeed, AML regulators to discover trends and connections in the information held on companies on the register.

One person can easily have a number of versions of their name—A Jones, Andrew Jones, AJ Jones and so on. It is not necessarily dishonest. I have two names myself: my title and my real name. I hope that that is not dishonest. My amendment would make it much easier to search using the unique identifier and would avoid the problems of potentially having multiple names or versions of names and people being missed off. It would allow an AML regulator quickly to search for all situations where a particular ACSP has acted, or a journalist to identify ACSPs that act regularly for companies in particular industries, and to be sure that they have caught all the instances.

When I met the Minister previously, for which I thank him again, he explained that the unique identifier is used as the login for the relevant entity. If that is the case, I understand why it should not be public, but I strongly question whether that is sensible. Very few organisations would use a number such as a unique identifier for login purposes; it would go against commonly accepted security practices. The Government do not do it in other systems, as far as I am aware. Would it not make more sense for the unique identifier to be public, and therefore useful, to allow the greatest transparency that I have described and to have a more secure method of logging into Companies House accounts? I beg to move.

[Baroness Bowles of Berkhamsted (LD)]

I will speak briefly on this amendment because key to it is: what is the purpose of the unique identifier? Perhaps like the noble Lord, Lord Vaux, I thought that it was like the resource identifier that you use for searching. I know that if you search on my name, you do not find all my directorships. I keep amending my name to try to make sure that they are all the same, but you still cannot find them in Companies House, so I was thinking that it was a better way than names of finding out all the companies that people were involved in, and so on.

I can see that, if it is more of a login approach, that might be different, but that then begs the question: is there not a better way of identifying companies and individuals that works on the searches? If you are searching to see whether somebody is doing something in a different company, or how many directorships they have, simply going by name means that too often there are minor variations, and it will not flag up what you are looking for. Like the noble Lord, Lord Vaux, I am curious about what the purpose of this identifier is, and therefore why it is confidential.

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I hope that this provides reassurance and that the noble Lord, Lord Vaux, will kindly withdraw his amendment.

[Lord Vaux of Harrowden (CB)]

I thank the Minister for that helpful answer. I am somewhat reassured; the “behind the scenes” use of the unique identifier to make sure of the connections between different names—and, now, all the names to be displayed if you are searching for one person—will be important. We will see how well it works in practice. From what I understand from what the Minister said, the Secretary of State will have the power to make changes to this by regulation if it does not work properly. On that basis, I beg leave to withdraw my amendment.

Amendment 53 withdrawn.

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[Lord Faulks (Non-Afl)]

My Lords, in terms of timing, it is important to bear in mind that the genesis of much of this legislation can be found as long ago as 2015. It has taken a long time for anything to happen in response to what was then identified as a major threat—the corruption which has permeated our society. Eventually we got the Criminal Finances Act, then there were many promises of legislation, which did not materialise, then we had the Sanctions and Anti-Money Laundering Act, which dealt with some aspects of this, and then it took the invasion of Ukraine before we had the last piece of legislation. Now, eight years after the initiative of 2015, we have this legislation, which may or may not be the final chance. So, with respect, keeping the Government up to the mark with an annual report and not having a sunset clause is something we should learn from the very chronology that I have just described.

[Lord Vaux of Harrowden (CB)]

My Lords, I intended to sign Amendment 72, but I was beaten in the stampede to support it, which must in itself say something about the quality of the amendment. Amendment 64 in the name of the noble Lord, Lord Coaker, is very similar. Like others, I think that both include important elements and it would be great to try to combine the best of both when we get to Report.

I shall not repeat what has already been said, but it does seem that adding this level of transparency into the system must help in ensuring that we have got this right. During the debates on ECB 1, the previous economic crime Bill, the noble Lord, Lord Callanan said:

“When we introduced the provisions on PSCs—persons with significant control—in relation to UK companies, we had to make some iterative changes to that, as it became evident over time that aspects were not working as effectively as we had hoped”.—[Official Report, 14/3/22; col. 44.]


The best way to see if things are not working as effectively as we had hoped is transparency and reporting, so I hope the Minister can accept this very simple and sensible amendment to promote that level of transparency.

With permission, I will make one addition to the list of items to report on set out in the amendment. Given the importance of the ACSPs to the process, as we discussed in the previous group, I think it would be useful to include some statistics on the number of ACSPs that have approved, both UK and foreign, who they are regulated by and the number which are suspended. With that addition, I add my support to these amendments.

[Lord Johnson of Lainston (Con)]

As always, I offer my thanks to noble Lords for their participation and to the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 64. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier and the noble Lord, Lord Cromwell, as well as the noble Baroness, Lady Bowles, for their Amendment 72—if I have got that correct. These amendments address reporting requirements in similar ways and are very relevant and important.

I agree that it is important that Parliament is informed about the implementation and delivery of these reforms. That is why the other place agreed to add an amendment to this effect on Report, which noble Lords have discussed. Companies House already reports on many of the items set out in these new amendments and, in many cases, actually goes much further, either through its annual report or via quarterly and annual statistical releases. Legislating to duplicate this, given the new reporting duty at Clause 187, seems unnecessary.

It is important that any report is holistic and of use to Parliament and the wider public. It should provide the necessary context to facilitate an informed view of performance, which would be difficult based solely on the raw data that these amendments propose. However, I agree that some of the new items of data identified in these amendments could be of interest. The noble Lord, Lord Vaux, raised some specific points, which I believe are already covered in part in some of the quarterly filings. In any event, if they are not, they are certainly worthy of discussion. I am happy to explore with Companies House officials how they might incorporate these into their reporting without the need for this statutory requirement.

It may be worth returning to some of the comments from the noble Lord, Lord Coaker, to cover some of the key points raised. Under Amendment 72, each report must

“provide annual data on … the number of cases referred by the registrar to law enforcement bodies and anti-money-laundering supervisors”.

As I understand it, this is already enabled via the Commons amendment and is expected to be included. Also in Amendment 72, each report must provide annual data on

“the total number of company incorporations to the registrar, and the number of company incorporations by authorised corporate service providers to the registrar”.

These incorporations are published quarterly via the statistical release. The amendment says that each report must

“detail all instances in which exemption powers have been used by the Secretary of State”—

which is also covered by the government amendment—and

“confirm that the registrar has sufficient financial resources to meet its objectives”.

The registrar’s resources will continue to come from fees, which will be set according to how much activity Ministers want to be undertaken. Also, each report must

“provide annual data on … the number of companies that have been struck off by the registrar”

and

“the number and value of fines”.

Removals from the register are already reported on quarterly. The number and value of late-filing penalties are published in annual management information tables.

That just gives the Committee reassurance that there is already a great deal of detail published, and we will be looking to publish more. I look forward to a discussion with noble Lords on specific areas that we can cover; I am sure that my officials are looking forward to those discussions. This is all about the sort of data we provide that allows us to run an effective and transparent company system in this country. But I am very reluctant to legislate specifically, according to these amendments, given what I have said and our commitment to making sure that we are publishing useful information.

I will cover the comments from some of your Lordships relating to the supposed sunsetting of requirements to report. As I understand it—I may have misunderstood, but I hope I have not—the purpose of the clauses on six-month and annual reporting relates to the implementation of changes in Companies House that will bring it up to the standards at which we wish to see it operating. At that point, the reports will be included in annual and/or regular reports. It is not that reporting ends, but that it becomes commonplace to report on the data rather than necessarily on the changes that we are instigating to Companies House. I am happy to clarify that further, if my description was not accurate enough.

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[Lord Faulks (Non-Afl)]

My Lords, to take up the noble Baroness’s final point on technology, in the very helpful session we had yesterday—unfortunately the Minister could not be there—we were provided with some written information about the use of technology that was going to develop. I asked about artificial intelligence. Either in the course of answering these amendments or generally, could the Minister assist us as to how, with this increasing amount of information that Companies House will now have, artificial intelligence will allow it and the prosecuting authorities to have a great deal more information to put two and two together, which will assist with this legislation’s overall objectives?

[Lord Vaux of Harrowden (CB)]

My Lords, this discussion about how we fight economic crime would be an awful lot easier and better informed if we had seen the Government’s national fraud strategy, which I believe was supposed to be with us at the back end of last year. Perhaps the Minister might like to find out when we might finally see it.

[Lord Johnson of Lainston (Con)]

My Lords, I thank your Lordships, as always, for this very passionate debate. I am struck, after however many pleasant hours we have been together debating in Committee, by the convinced passion and determination of Peers on all sides. An Economic Crime and Corporate Transparency Bill might be considered a dry, technical matter for specific and weighty thought, but the reality is that this is an emotive subject. It is important for all noble Lords to know the Government’s shared passion for stamping out illegal activity and economic crime in this country. From my point of view, it is extremely costly to the economy to enable financial crime to be enacted in the UK. It is not invisible, and every crime has a victim. I hope all noble Lords understand that my personal passion and that of the Government are allied in trying to make a Bill that is practical, will achieve its goals and will allow businesses to flourish.

I would also like to apologise. The noble Lord, Lord Faulks, mentioned the meeting which many officials here attended yesterday. I was unable to attend that meeting, for which I sent my apologies. That was the only morning that I have been away in the past six months. I hope all noble Lords will feel comfortable in contacting me directly to arrange further formal or informal meetings.

I now turn to the amendments. I thank the noble Lords, Lord Coaker and Lord Ponsonby, and the noble Baroness, Lady Blake, for their Amendment 65 on fees and penalties. I also thank my noble friend Lord Agnew, my noble and learned friend Lord Garnier, the noble Lord, Lord Cromwell, and the noble Baroness, Baroness Bowles, for their Amendments 69, 70, 71, which address the economic crime fund and the retention of fees by economic crime enforcement agencies. I also thank my noble friend Lady Altmann for her Amendment 106E on fees and an economic crime fund.

I shall attend initially to the fees and penalties element. The level of Companies House fees has been the subject of much speculation, and I know from our conversations and the amendments in this group that noble Lords have a significant interest in this. At no point do the Government believe, or could anyone in all seriousness believe, that £12 is a reasonable amount for setting up a company. People have suggested that if a commercial organisation cannot afford whatever arbitrary figure one may wish to pick—it could be £50, £100, £150 or £500—for the creation of a limited liability company, it should question whether a limited liability company is the right structure in which to operate.

However, it is very important that fees are set via regulations and that the Government have flexibly over the right level of fee, which has not yet been established. I was grateful to my noble and learned friend Lord Garnier for confirming his view that that is the most appropriate way to set fees. The fee will be determined following an analysis and appraisal of the volume of investigation and enforcement activity to be undertaken, the associated cost base, the timelines for recruitment and systems development and other factors which we have raised in this important debate. We are currently finalising our modelling but are increasingly confident that we can fully fund the reforms, including creating around 400 new roles at Companies House, while keeping fees low. Current estimates from Companies House suggest fees of no more than around £50.

I draw noble Lords’ attention to the annual administration fee. There is an establishment fee for setting up a company and then there is an annual fee, which is currently £13—it is more expensive to register your firm annually than it is to set it up in the first place. I am not entirely sure how we reached those figures, but we are not looking to enshrine a minimum level of fee in primary legislation because to do so would severely restrict flexibility which may be required at a future date. Fees will continue to be reviewed on a regular basis to ensure that they are providing the level of funding that Companies House needs. Companies House is able to retain incorporation fee income under current arrangements between it and HM Treasury, with the arrangement reviewed periodically. That is important. The current intention is that the fees will be used to pay for Companies House, so a raised fee is absolutely right. It is estimated to be used for the functioning of Companies House.

Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Thursday 20th April 2023 Grand Committee

[Lord Vaux of Harrowden (CB)]

My Lords, I support the amendment in the name of the noble Lord, Lord Agnew. To follow up on what has just been said, at the date of Second Reading, approximately half of the expected 32,000 companies that were going to register had done so. I gather that this figure is now 27,000, which is a good step forward. At that time, when it was a rather smaller number, I think 4,000 of those companies suggested that they were owned by trusts, which shows the scale of this issue.

I think it was the noble Lord, Lord Leigh of Hurley, on the first day in Committee, who was sceptical about whether my amendments identified the ultimate beneficial owners of trusts. He was right to be sceptical; I do not think they did. But that ultimate beneficial ownership and control is what we are trying to get to with this process. Trusts are probably the most common method used for hiding the ultimate true ownership. As I say, 4,000 out of the 16,000 companies that had filed at the time of Second Reading—a quarter—were owned by trusts, and we could no longer see where they went.

It seems very perverse that this information is hidden. I am keen to hear from the Minister a convincing explanation of why the Government feel that it should be hidden. Like the noble Lord, Lord Agnew, I see that the Minister has tabled Amendment 76H, which will extend the information required on trusts. That is very much to be welcomed. I am not at all clear—I do not think that the noble Lord, Lord Agnew, is either—on whether that information is intended to be transparent or hidden. Clearly, it should be public.

To be honest, there seem to be a lot of areas where information is hidden. We have had a number of discussions already in Committee about that. We need to step back and apply a simple principle that there should be maximum transparency, and that we should hide information only where there is genuinely a strong privacy issue. At the moment, it feels very much as if the balance is tipped too far towards privacy and too far away from transparency.

[Lord Garnier (Con)]

My Lords, I entirely agree with what the noble Lord has just said. Trusts are and have been frequently discussed in this Bill and its predecessors as one of the most effective ways of hiding information that ought to be made public. Clearly, some matters are properly to be kept confidential, but much of the material covered by the law of trusts ought, in the public interest, to be disclosed.

I happily support the amendment that my noble friend Lord Agnew moved a moment ago. Like him, I want to know whether the Government’s Amendment 76H renders his amendment redundant. I do not think it does, because it seems to me that there is a difference between the publication of information about trustees, which is what my noble friend talks about, and the registration of information about trusts in the Government’s proposed new clause. We can register as much as we like, but if you cannot open the box and see what is inside and has been registered, it is a pretty futile exercise. Public opinion, public policy and an assessment of the public interest suggest to me—for the reasons already given by the noble Lord, Lord Vaux, and my noble friend Lord Faulks—that the Government, if they want to maintain the difference between registration and publication, are behind the curve.

We learned a lot in my noble friend’s committee in 2019 about the huge amounts of real estate, particularly within London and a couple of its boroughs, which are owned by people, companies and trusts of which we know nothing. Many of these houses and properties were unoccupied; they were merely the physical dumping grounds for money. Obviously, they had to be paid for.

The committee on which the noble Lord, Lord Faulks, and I served was not able to discover, but sought to encourage the then Government to expose, the route by which criminal funds were laundered into London by money launderers. Any number of blocks of flats and very expensive houses, all year round, 24 hours a day, never have a single light on. You can go down smart squares in Kensington or Westminster and see places that look utterly unoccupied—because they are. They are dumps for dosh. We need to make sure that this new law is effective at exposing and, if not exposing, inhibiting before it gets here, the translation of laundered money from dodgy jurisdictions into ours. It is as simple as that. I hope the Minister is able to persuade the Committee that my noble friend’s amendment is redundant, because the Government’s amendment comprehensively and effectively does what we would like.

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[Lord Johnson of Lainston (Con)]

I thank the noble Baroness, Lady Blake, for those well-expressed sentiments. I hope the Committee knows my passion for these important reforms. I apologise for not declaring my interests at the beginning of this debate, as I should have. We have had so many different meetings it is easy to forget. It is important that I declare them because I do own companies, I have set companies up and I have been a participant in LLP structures and so on—although I do not believe I am now; please refer to my entry in the register. There is no conflict in my mind; if anything, I hope that gives me quite a good perspective on how these structures can be used for good but also by bad actors.

On the importance of eradicating corruption in our economy, there is, potentially, no greater value that a person can engage in than allocating capital to the highest point of return. That may sound a bit cynical and clear-cut but the point is that the effective functioning of our economy is what gives us the goods, services and quality of life that allow us to exist in harmony and happiness. Corruption, which we are trying to eradicate, is extremely invidious in allowing us to have successful economic growth and, in many cases, it is invisible. It is also assumed to be victimless, which is not the case: it is highly corrosive to our economy and every crime has a victim, even if they are not immediate or apparent.

Our determination to eradicate corruption and economic crime is at the core of our agenda to make our economy work better to provide better lives for our citizens. The noble Lord, Lord Coaker, raised a good point when he said that the public demand this. That is absolutely right. If one believes, as I do, in business and capitalism, and the power of capitalism to do good, if it is being distorted, that destroys our foundation and means that we do not have the true legitimacy to carry on effectively legitimate affairs, because they are conflated with illegitimate affairs.

I am completely dedicated to this mission and am grateful to all noble Peers. I am very glad that we have put on record our group support, if I can call it that, for an industry that, as we have discussed, is incredibly valuable and performs enormously important functions for companies that work in it. It is important; I am happy to state that.

Given this opportunity, I will go back over some of the statistics. The noble Lord, Lord Faulks, raised the issue of compliance. This has been well flagged; there was an assumption, perhaps, that the compliance rate is low. It has taken time for these overseas entities to register themselves. The population of entities in scope is around 32,000 but it is assumed that some of them—perhaps as much as 10%; let us say around 2,500—are dormant, defunct, in the process of being wound up or just part of the general churn of overseas entities. We now have 28,000 entities that have complied with our requirements; that is a high level if one assumes that, as I said, 2,500 or so are probably part of natural churn. So we are already looking at a non-compliance rate of maybe 1,500 to 2,000 companies out of 30,000—I know that I am making estimates; I would be happy to write to the Committee with specific numbers.

[Lord Vaux of Harrowden (CB)]

The Minister might be coming on to this but, when he says “compliance”, that means an entity has made a filing; it does not necessarily mean that the filing itself is compliant. The statistics that would be interesting for us are those on what the beneficial holdings behind these entities look like. Are they trusts? Are they opaque companies? It would be helpful to know that. Also, what has Companies House done—and what is it doing—to follow up on those that seem to be unduly opaque?

[Lord Johnson of Lainston (Con)]

I appreciate that intervention. As I said, I would be happy to write with specific information as I do not have details on all 28,000 registered businesses.

The point I want to make, which is important, is that a very large number of overseas entities have registered and, we assume, sent in information that can be confirmed and will lead to them being compliant. That is quite a high number; it allows us to focus. That is the point. The question was about what happens to the 1,500 to 2,000 or so companies that have not registered. Well, they cannot transact; they cannot participate in transactions in this country. Their assets are untransactable, which, in my view, negates the value of those assets to a significant degree. In effect, they are compelled to register and comply if they want to get their money out; that is important. Clearly, the next phase is to do the work on the companies that have registered to ensure that the information we have is accurate. We then have to make sure of why those companies that have not registered have not done so. Sometimes, there are perfectly legitimate reasons why that would be the case but, on the whole, we have made significant process.

Following our discussion earlier in Committee and the sensible points from the noble Lord, Lord Wallace—I have been glad to discuss them with my colleagues—let me say that compliance and law enforcement are at the crux of this issue. There is no point in bringing in any of this legislation—not even a single line of it—if it will not be enforced and overseen properly. My view has often been that sometimes we may not need new legislation but we need to enforce properly the legislation that we have, where a great deal of our effort will be far more effective.

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I am sensitive to how we have this discussion, because I do not want people to leap to their feet and say that the Government are somehow trying to encourage opacity—we are not. The Treasury is very clear on trusts law and how trusts are treated, and I am sure the noble Lords here have greater experience in this area than I do. However—I raised this during the discussion on how we review micro-entity information—to achieve our goals I do not think it necessary to publish every piece of information about every business or personal activity. Sometimes, it is right or necessary to protect the privacy of individuals.

[Lord Vaux of Harrowden (CB)]

The noble Lord is right that it is sometimes necessary to protect the privacy of individuals. I do not think anyone in the Room would argue otherwise, but it is true that trusts can be and are used to hide real beneficial ownership. The noble Lord will correct me if I am wrong—I apologise for not having the Act in front of me—but I recall that a process within the Act allows entities to apply for their information not to be on the public register. That should cover the privacy issue. The default should be that the information is on the register. If the entity has applied for the information not to be and Companies House has accepted its reason as valid, that is fine, but the default should surely be that the information is public.

[Lord Johnson of Lainston (Con)]

I appreciate the noble Lord making that comment, which I will come on to but, if the Committee does not mind, I would like to correct some of my statistics. Slightly fewer than 28,000 of our overseas entities have registered, although it is very nearly that. My officials want me to be accurate, so that I never mislead this august Committee. I should also be specific about the PSC regime relating to registered overseas entities. As noble Lords know, but were kind enough not to pick me up on, they have a separate regulatory regime, which is similar to it but not actually called that. I apologise and hope that has been corrected.

[Baroness Blake of Leeds (Lab)]

It would be helpful if we were regularly updated on the number of overseas entities that have registered, with a running total. Otherwise, we keep having to come back and it is not clear where we are in the process.

[Lord Vaux of Harrowden (CB)]

I would also be grateful if the Minister could answer the question about whether there is a process for privacy.

[Lord Johnson of Lainston (Con)]

I am just coming on to that. The noble Baroness, Lady Blake, is right to ask for there to be a running total, because a further 717 overseas entities have complied in the recent period since my own figures were updated—so it would be quite useful to see how that is going. I would also like to separate the comments of the noble Lord, Lord Vaux, about the ability to keep some information private from the presumption of this Bill, which is the presumption for privacy for trusts rather than it being the exception.

This matter was well debated in the other place during the passage of the Bill—I am sure that some of your Lordships have had the opportunity to read that debate—but the question was what level of information should be published. Let us remember that all this information is collected by Companies House, so it is on record. In terms of crime fighting, it will be fully available to Companies House for the processes that all companies are obliged to undergo. It is perfectly reasonable to have a debate about what level of transparency there should be when it comes to publishing information. As I said before an intervention, it may also be appropriate for there to be a presumption of privacy for small, micro-entity information, given that some of those very small businesses are in effect people’s private wealth.

We should not conflate the work that we are trying to do here on Companies House, corporate transparency and reducing crime with some of the powerful principles around privacy, investment, family and protection, which are not irrelevant. It is important that we have a debate about this. The Government have committed actively to explore levels of information that should be published. The Treasury is very specific on my mandate in this discussion. I am not mandated to commit to any level of transparency above and beyond what we are already doing, which is a significant change, yet, at the same time, I can, and am keen to, commit to further debate about the level of transparency.

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I hope noble Lords will support these amendments, and I beg to move Amendment 76H.

[Lord Vaux of Harrowden (CB)]

My Lords, I rise to speak to the three amendments in my name in this group, Amendments 77AA, 77C and 77D. I thank the noble Baroness, Lady Bowles, for her support for the latter two. This group addresses flaws in the original economic crime legislation, the Economic Crime (Transparency and Enforcement) Act, and makes improvements to it. That Act was rushed through as emergency business, so I welcome the Government making these improvements, and I hope that the noble Lord recognises that my amendments are trying to do the same thing.

The noble Lord has said several times now that his Amendment 76H is very good. I echo the words of the noble Lord, Lord Agnew, that it is very good but could be so much better if this information was made public by default—but we have already been there.

With these amendments, I acknowledge that I am revisiting discussions that we had during the passage of the Economic Crime (Transparency and Enforcement) Act, and I apologise to noble Lords who may feel a sense of déjà vu in that respect. Normally, I would not revisit things that we have already discussed, but I am relying on the very clear commitment from the noble Lord, Lord Callanan, who reassured us at the time that we would be able to use this Bill as an opportunity to revisit matters that would perhaps have been the subject of Divisions in less of an emergency situation than last time. I remind noble Lords that he specifically indicated a willingness to revisit the matter that my amendments in this group are trying to address. So, while it is unusual to come back to the same thing, that is why I feel justified in doing so.

Amendments 77C and 77D are aimed at removing an anomaly, or loophole, in the overseas entities register. Amendment 77AA, which is an amendment to the Minister’s Amendment 77A, follows on from the same issue. Currently, if the details on the overseas entities register are changed—for example, if there is a change in beneficial ownership—that needs to be updated on the register only annually. This means that a person could register an entity, filing all the necessary details, and could then change the ownership or other details the very next day, but they would not need to inform the registrar until the end of the year. In my view, that is an unacceptable length of time for a register to remain out of date and inaccurate. Properties could be bought and sold during that period, without anyone knowing who is really behind those transactions.

As a comparison, the PSC rules require an update within 14 days of the company becoming aware of a change. Amendment 77C aims to bring the overseas entities register into line with the PSC register and require an update within the same 14 days. This amendment is identical to one that I tried to put to the previous Bill.

This matters for two reasons. The whole point of the register is to ensure that we know who the beneficial owner of the property held by the overseas entity is. If the information can be up to a year out of date that means we do not know. More importantly, this could lead to the risk of an innocent party who buys a property from an overseas entity unwittingly enriching a criminal or sanctioned person. That cannot be desirable.

The argument against accepting this amendment that the noble Lord, Lord Callanan, made last time we debated it was that, if there was a 14-day updating duty, a person buying a property from an overseas entity could not know if the entity would be in breach of the updating requirement. Because of the way the Act works, that could mean that the innocent party might not be able to register ownership of the property that they acquired. That is obviously very serious and it is a valid concern, which is why I did not push the matter last time round.

However, the Act actually includes a solution, in that it is possible for an overseas entity to shorten the annual reporting period, so a purchaser of the property could make it a condition of the purchase that the entity shortens the period and files an update before the purchase goes ahead. That would solve the problem, but I acknowledge that that requires the purchaser to be well advised and puts the onus on the purchaser, which is not right.

This time round, I have tried to address that problem by tabling Amendment 77D, which would require that, before an overseas entity can enter into an agreement to buy or sell a UK property, it must update the register no more than 14 days before entering into such an agreement. That would both safeguard any innocent purchaser and, combined with Amendment 77C, ensure that the register is kept up to date in the same way as the PSC rules are. I hope that would solve the problem that the noble Lord, Lord Callanan, highlighted last time round so that we can bring the overseas entities register into line with the PSC register to ensure that it is kept up to date and is not up to 12 months out of date at any one time.

Amendment 77AA aims to close the same loophole when an overseas entity applies to be deregistered. I welcome the Minister’s Amendment 77A—he said that I was nodding enthusiastically and he was right—but although that amendment would require any outstanding updates to be made before an entity can be deregistered, the same loophole exists. If no update is pending, the information on the register could be a whole year out of date because there is no requirement to update the register for a year.

Amendment 77AA would simply add a requirement that an entity should make a statement that the information on the register is up to date and accurate before deregistration can be accepted. That seems an incredibly simple way of ensuring that the register is up to date before the deregistration can happen, which is important.

I hope the Minister will see these amendments as helpful and intended to improve the overseas entities register, to remove a loophole and to make it the same as the PSC rules. It is very hard to see why it should not be. I hope he feels able to accept them.

[Lord Agnew of Oulton (Con)]

I strongly support these very sensible proposals from the noble Lord, Lord Vaux, which really show why hereditary Peers still have such an important role in this House. It will be very interesting to hear from my noble friend the Minister why he might wish to dismiss these amendments, because they make such a lot of sense: if you are buying from one of these opaque entities, why should all the responsibility lie with the buyer, not the seller?

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I would like to have further discussion about these amendments, if I may. I do not want to be accused—as may have been intoned by the noble Lord, Lord Ponsonby, earlier—of promising further discussions as a way to avoid current ones. That is not the case at all, but I want to make sure that, in this case, we have a proper discussion to ensure that, effectively, transactors do not get caught by the principle of non-compliance. Forgive me if I do not go into as much specific information at this stage as noble Lords may wish, because I think that this is for a considered debate. There is a great deal of sympathy with the notion of a transaction-related reporting point to trigger a report of beneficial ownership change, if I have understood the principles behind the noble Lord’s amendments.

[Lord Vaux of Harrowden (CB)]

There are two elements to my amendments. One is that, if there is a change of beneficial ownership, it should be registered within 14 days, in the same way as the PSC works, because of the way that the Act works in relation to the ownership of property, the inability to dispose of property and, therefore, the risk to a potential buyer if they did not know that the company should have given an update. The second is based on the transaction. If there is to be a transaction, the information must be updated before then, which gets around the issue that the noble Lord, Lord Callanan, quite rightly raised last time. So there are two elements: one is the 14 days—we should keep the thing up to date at all times, regardless of whether there is a transaction—and the second is that we should update it if there is a transaction.

[Lord Johnson of Lainston (Con)]

I am grateful to the noble Lord for that further clarification. As I said, I am very aware of our desire to make sure that the register is clear and transparent, and to make sure that people, corporations, individuals and beneficiaries cannot move ownership and obfuscate the intention of transparency. What I will say is that there has to be a record of activity during the year. It is not a snapshot but a story in terms of beneficial ownership, so any beneficial ownership change has to be catalogued in that period of time.

[Lord Vaux of Harrowden (CB)]

That may be true, but Companies House is informed of it only at the end of the 12-month period. Therefore, the point remains that if you register a company on 1 January, change the beneficial ownership on 2 January and then do lots of transactions on 3 January, 4 January, 5 January or whatever, you can then tell Companies House that it has changed on 31 December. It could have changed multiple times in that period.

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[Lord Johnson of Lainston (Con)]

As I hope I have illustrated, my enthusiasm for intellectualisation is paramount, even after an enjoyable light afternoon of committee debate. If I may expand further on the difference with the legislation relating to overseas entities and other types of purchase, using my noble friend Lord Agnew’s concept about the bus route or discovering moments before one buys a house that they are going to build past it some terrible thing—I was going to say a high-speed rail line, but of course we are enthusiastic here about building high-speed rail lines in this country—that is not the same thing at all.

Here, we are talking about the concept of overseas entities and the whole principle around this is to ensure that non-compliant entities are unable to transact. That is the only way to make this process workable. It is not a question of caveat emptor or something that can be corrected later, or whatever. This will prevent a transaction from happening. If a noble Lord purchases something—we were hearing earlier about the noble Lord, Lord Wallace, going to Battersea Power Station to purchase himself a downsized retirement villa, which seemed to be an upgrading, certainly for the Johnson household—is it reasonable to have a situation in which you cannot be sure whether the party you are dealing with is compliant?

I can see the noble Lord, Lord Vaux, waiting to leap up from his seat to tell me how it is possible. If it is possible to find a solution to this principle, I would be happy to have a discussion, but I am extremely reluctant to make a decision at the Dispatch Box.

[Lord Vaux of Harrowden (CB)]

I do not think anyone disagrees with the Minister. I said as much when I introduced my amendments, as I am conscious that the way that the Bill works means that there is a risk to the purchaser. We need to make sure that does not happen, and I have attempted to deal with it with these amendments. If that does not work, I am open to discussions, but it would be helpful to hear the Minister confirm, as I think I understand it, that he is sympathetic to the concept of making sure that the register is updated on a timely basis. That is the core thrust of these two amendments—a way to get around that and solve the very problem that the Minister is talking about. Therefore, I am looking for confirmation that he is sympathetic to keeping the register updated, if it is possible to do that and if we can solve the property ownership problem and bring it into line with the PSC rules.

[Lord Johnson of Lainston (Con)]

As always, I am grateful to the noble Lord, Lord Vaux, for his comments. I just repeat the point that we have been involved in markets where there has been misregulation. If it is believed that you cannot, in effect, undertake a transaction with a registered overseas entity because it is not possible to confirm compliance, whether Companies House is able—

[Lord Vaux of Harrowden (CB)]

The Minister is just repeating what he said before. I am looking for something more. The thrust of these amendments is that the register should be updated more regularly than annually. It should be updated when the information changes. Is he sympathetic to that and will he accept something along those lines, as long as we can find a solution to the property ownership issue?

[Lord Johnson of Lainston (Con)]

I hope noble Lords will forgive me if I thought myself entitled to a small preamble to my answer. Simple yes or no answers at the Dispatch Box are rather blunt instruments for creating finely tuned legislation. Noble Lords would not respect that process if that was the case.

I hope I am not repeating but clarifying the point, for me and my officials as much as for the Committee. What is worrying the Government, and should worry us all in this Room, is the chilling effect of our regulation. We must make sure that we balance our intended ambitions with the need to ensure that business functions properly. That is what this is about. If it does not do that, it will counter the effect that noble Lords want. That is the concern.

I am coming to answer the noble Lord’s question, if he will indulge me for a few more minutes. The question of non-compliance, which is at the core of this legislation, is not the same as a caveat emptor, additional, post-purchase risk. It is totally different. If the concept of these amendments makes it difficult to be assured of the compliance of a registered overseas entity, it makes it very difficult to welcome them. If it is possible, I am open to having a discussion around ensuring a timely mechanism—I do not wish to commit to anything specific—for matters of key interest, which are more than recorded data but are relevant to the intentions that we will bring to bear in our Bill and can be managed appropriately. I am always open to discussions about how we can make that process more transparent, cleaner and easier to manage. With that very clear commitment, I ask the noble Lord to withdraw his amendment.

[Lord Vaux of Harrowden (CB)]

The Minister has not actually addressed Amendment 77AA, which is an amendment to his Amendment 77A. I apologise for amending his amendment again.

[Lord Johnson of Lainston (Con)]

If the noble Lord will allow me, I will turn to my notes on Amendment 77AA. I thank all noble Lords for their valued contributions during this debate, as I have done consistently. I know that the register of overseas entities remains an issue of keen interest to all of us—it is at the core of much of the well-placed description from the noble Lord, Lord Coaker, of public anger at what has happened over the past decades—not least the noble Lord, Lord Faulks, who I know was involved in the issues in the debate two years ago now, I believe, and others who led the pre-legislative scrutiny of the original draft legislation.

--- Later in debate ---

Adding a requirement for a new statement seems to be intended as a means to get the overseas entity on the hook should any of the information provided subsequently prove false. We have been very clear about this: the entity is already liable for the information that it has provided so a further statement is unnecessary. The noble Lord, Lord Vaux, is about to intervene but I want to say how much sympathy I have with him for his amendment. I hope that I have covered it.

[Lord Vaux of Harrowden (CB)]

I am not sure that the Minister has done so because, as things stand, as I understand it, all his amendment requires is the information that is already required—that is, the annual statement. In other words, there are no statements that have not been made. Even if no pending statements are required, information can still be up to a year out of date. The whole point of this is to try to ensure that, at the point of deregistration, the information is fully up to date and has been completely updated before that happens. It is the same as when you sell a property. Even if there are no updates pending, that information could be up to a year out of date.

[Lord Johnson of Lainston (Con)]

I apologise to the noble Lord if I have got this wrong but, as I understand it, to be given approval to be removed from the register, an entity has to provide final information. If that is not correct, I will certainly return to the noble Lord. I am looking at my officials to see whether I have misinterpreted this but I am very grateful to noble Lords in assisting us in ensuring that we have drafted our legislation properly.

Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Committee stage
Tuesday 25th April 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, I speak in favour of my own amendment, which is part of this group—Amendment 86, which is about asking for prioritisation of SARs reporting. Just to set the scene for noble Lords, according to the UK Financial Intelligence Unit, the praetorian guard of the NCA in this respect, there were 901,000 SAR reports in 2021-22, 70% of which related to banks. That is a number far in excess of what institutions can meaningfully deal with, so huge opportunities are being missed.

The Home Office itself has just produced its own report, called Transparency Data: Accounting Officer Memorandum: Suspicious Activity Reports (SARs) Reform Programme, published on 24 February, just a few weeks ago. It accepts that there are at least four problems in our management of the SAR regime:

“Inconsistent levels of compliance reporting in some parts of the regulated sector … Insufficient human resource capacity within the UKFIU which limits their ability to analyse financial intelligence or engage with partners to improve the quality of SARs … Under-utilisation of SARs by law enforcement … Legacy IT systems which cause inefficiency and ineffectiveness throughout the regime”.


That is in the words of the Home Office, from literally only a few weeks ago. What is so frustrating is that the Government have been talking about this for at least four years. In April 2019, a strategic outline business case for the programme was reviewed by the Home Office. An economic crime plan was produced in July 2019 and then the full business case was subsequently reviewed and approved by the Home Office in April 2021. Yet we still do not seem to have a lot of action.

All my amendment is trying to do is to push the machine to get on with this. Of course, the Minister will ask me not to press the amendment, but I would ask him whether, in so doing, he can give us a date—maybe not today but in writing to the Committee—by when all this stuff will start to happen, because we are missing huge opportunities to identify economic crime. My simple proposal is to triage the SARs, so that the shortage of resource, which no doubt will remain for a while, can at least be concentrated on areas of greatest risk to our system.

[Lord Vaux of Harrowden (CB)]

First, the noble Lord, Lord Agnew, makes a very interesting point and I should like to hear the Minister’s views on it. I should also be interested to hear how many of the 900,000-odd SARs are acted on and followed up each year. That would be an interesting statistic to understand.

I wish to ask about Amendment 78E, which I do not fully understand. It would remove the reference being inserted into the Proceeds of Crime Act to predicate offences. I am not sure why we should take it out. It would be interesting to understand from the Minister why it was in the Bill in the first place and why the Government have now changed their mind and are taking it out. As I understand it, a predicate offence is the offence that creates the finances that are then laundered. It must in many cases be quite hard to untie those two things. I should have thought that it must be useful to any crime agency looking into these things to understand the full chain, from the original offence to the laundering of the funds. Clause 172 is talking only about information orders, not about creating new offences or anything else, so I am unclear why we would want to remove the predicate offence from the information order and would like to understand it a little more.

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I chaired the Economic Affairs Finance Bill Sub-Committee, which looked at research and development issues. The level of fraud in research and development tax credits is so great that HMRC’s accounts are qualified, because it does not know how much fraud there is. As my noble friend Lord Agnew said, more pressure on HMRC to put greater effort and time into detecting fraud, money laundering and other such matters would be time well spent. I encourage my noble friend to accept this amendment.

[Lord Vaux of Harrowden (CB)]

My Lords, I will briefly support this amendment. As I said on a previous group, I was surprised to discover that the vast majority of small accountancy firms are not regulated by the Institute of Chartered Accountants in England and Wales, of which I am a member—fortunately, I am not also a member of the Chartered Institute of Taxation.

That majority of small firms are the ones doing the verification under the overseas entity register and will be the authorised corporate service providers. They are, or will be, regulated by HMRC for anti-money laundering purposes, and that is the qualification they need to be able to do the verification. If HMRC is not carrying out this role seriously—which it is not—then all the safeguards built into this Bill on verification become meaningless. It is incredibly important that HMRC’s resolve in terms of its responsibilities as an AML regulator is sufficiently stiffened to mean something for all these ACSPs and the due diligence verifiers in the overseas entity register. Without that, this Bill loses an awful lot of teeth.

[Lord Fox (LD)]

My Lords, it is true that the Minister is being asked to take on Treasury functions—having first talked about cryptocurrency, we are now dealing with this issue—and I look forward to his response. I, too, support the noble Lord, Lord Agnew, who has been consistent in his theme that, without due, proper and improved enforcement, the Bill that we are spending all these hours debating will have very little effect on the outside world. This is one element of the enforcement story.

The noble Lord’s point is bang on: where there is a finite resource—which, of course, there always is—HMRC will target what it believes benefits the country most. As the noble Lord pointed out, that tends to be tax generation rather than AML functions. For this Bill to be successful, something needs to change to refocus the Treasury on AML issues, as we have heard. If that is not to be the noble Lord’s amendment, what will it be?

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[Lord Vaux of Harrowden (CB)]

I have to say that I am becoming increasingly concerned as we go through this process that, every time we raise concerns about things, we are told that everything is fine. That is what we are being told now—that HMRC is doing a really good job of the ML regulation. The truth is that we have massive quantities of money laundering going through the UK market, and in many cases that is enabled by people who are regulated by the HMRC—a lot of the small entities particularly. So there is a problem, and we keep being told that it is not that serious. It worries me substantially that we are not really taking this seriously or trying to solve the serious problem that this country has. We have become a laughing stock and are known as the “London laundromat”. It is embarrassing.

Can I ask a supplementary question? As I mentioned before, the ACSPs are going to be performing the verification processes, which are not actually going to be covered by the anti-money laundering regulations. The people doing it have to be registered with an anti-money laundering regulator, but the regulators themselves do not actually have any process set out for ensuring that the verification processes put in this Bill are covered. How do we bridge that gap?

[Lord Sharpe of Epsom (Con)]

I have to say to the noble Lord that I did not anywhere say that the Government say that everything is under control and perfectly fine. As the noble Lord will be aware, the anti-money laundering regulations themselves are due to be looked at.

The second part of his question relates to why HMRC does not supervise the TCSPs properly, allegedly —but it does.

[Lord Vaux of Harrowden (CB)]

I am looking forward to when this Bill goes through and becomes an Act as to the verification processes being put in place by the Bill by the ACSPs.

[Lord Sharpe of Epsom (Con)]

Ah, the noble Lord said ACSPs—my apologies. I misheard an acronym. In that case, I shall have to write on that, because I do not know the answer.

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[Baroness Altmann (Con)]

My Lords, I add my support to my noble friend Lady Stowell’s Amendments 87, 88 and 89 and congratulate her and her committee on their work. I also support Amendment 80 from the noble Lord, Lord Thomas, and Amendments 105 and 106 from the noble Lord, Lord Cromwell. As I said at Second Reading, this is a vital issue that must be covered in this Bill. In this group, we are discussing threats and lawsuits whose intention is to silence, intimidate or censor critics such as investigative journalists. So often, as the noble Baroness, Lady Wheatcroft, explained so well, they stem from economic crime.

This issue is not just about actual lawsuits. As others have said, often the matter will start with a threatening letter or even a phone call, which is enough to stop journalists or investigators from pursuing inquiries. That is why so few SLAPPs have come to court. I respectfully disagree with my noble and learned friend Lord Garnier on whether the few cases are any indication of whether this legislation and these amendments are required. These threats and vexatious potential lawsuits threaten not just journalists, campaigners, authors or academics but everyone’s rights in this country. They limit the rights of the public to have matters exposed, such as bribe-taking, poisoning water supplies with toxic chemicals, or general economic wrongdoing, which falls squarely within the remit of this Bill. Our courts are supposed to be there to protect ordinary people and small companies without large resources against those with more power, money and influence. Without these amendments, that protection will be fundamentally weakened when we have an opportunity to strengthen it.

I am not a lawyer, but Amendment 80 seems sensible to me. I believe that the Law Society supports judiciary-led gatekeeping. Amendments 87, 88 and 89 from my noble friend Lady Stowell seek to remove the incentives to issue these kinds of threats by introducing properly meaningful fines and intend that payments should not be able to come from the proceeds of economic crime. Again, that seems eminently sensible. I will listen carefully to my noble and learned friend but, equally, I urge him to listen carefully to the powerful arguments across all sides of this Committee and either accept these amendments or introduce his own.

[Lord Vaux of Harrowden (CB)]

My Lords, I am not sure whether I can speak to this, being neither a journalist nor a lawyer. I am very sympathetic to what these amendments are trying to do. It must be right to try to prevent the abuse going on. However, I confess to feeling some niggling doubts. Journalists do not get everything right, and there are those who are not above embellishment or exaggeration. The balance of power is not only one way. A small company or individual may well find themselves up against a large media organisation, for example. Whatever we do, we must not make it harder or more expensive for innocent parties to defend themselves from unfair reporting, pre-emptively if necessary.

There is a balance to be found, and I am not yet convinced that these amendments quite reach it. That said, I agree that there is a problem with the current situation. It is being abused, and we need action sooner rather than later. So let us have the discussion and get something into the Bill. If not now, when?

[Baroness Stowell of Beeston (Con)]

I shall just add briefly a comment before we get to the wind-ups, in response to something that my noble and learned friend Lord Garnier said when he urged us not to overstate the problem of SLAPPs. I just wanted to make two brief points.

One has been made by many people already, which is that in fact, when it comes to SLAPPs we do not really know the scale of this problem, because so many of these cases never make it to a court of law. I wanted to make a second point in response to what my noble and learned friend said about not seeking to overstate the problem, and his questioning my and others’ ingenuity in bringing forward amendments in the Bill. My understanding of the reason for the Bill is that economic crime is a real problem. So, if we are legislating because that is the real problem, and we are aware that some of the most significant perpetrators of economic crime have ways of preventing the evidence that would lead them to be potentially subject to the justice system because they operate in that kind of market, as it were, surely we ought to seek to close that gap. Whether or not the number of them that might qualify under that heading is large or small, there is a gap. As I say, the objective here is tackling economic crime, and our amendments are only about economic crime.

I understand very much that the broader question of SLAPPs will have to be returned to, because the whole issue of SLAPPs cannot be addressed in an economic crime Bill. However, my amendments and others in this group are trying to make sure, in the context of economic crime, that those who may be the most significant perpetrators of it on a large scale have nowhere to hide.

Economic Crime and Corporate Transparency

Lord Vaux of Harrowden Excerpts

Committee stage
Thursday 27th April 2023 Grand Committee

[Lord Agnew of Oulton (Con)]

My Lords, first, I congratulate the Government on bringing forward an amendment—it is at least a start. My noble friend the Minister said that he enjoys a lively debate and was looking forward to another one today, so I do not want to disappoint him. I speak as an SME; cut me in half, and that is what I am, and have been all my life. Indeed, my interest in SMEs long predates my noble and learned friend Lord Garnier’s interest in bribery, as I set up my first business in 1978.

My point is that I absolutely understand how SMEs think, so it is not credible to say, “Oh, we must protect them”. For a start, the way in which the categories are set excludes probably 90% of businesses in this country. I cannot work it out exactly, but it is the vast majority of commercial activity, so that makes a nonsense, frankly, of what is being suggested. On the fair application of law, to respond to my noble and learned friend Lord Garnier, a 5 foot 3 inch burglar can do just as much damage as a 6 foot 6 one. There is no logic to that—and I speak not as a lawyer but as a simple businessman.

More profoundly, unless we bring about this culture change, we are not going to get the SME community to think about fraud. If you are a victim of fraud and have the mechanisms in place to detect it because of other people doing it to you, you are far less likely to have it committed against you. All we are doing is creating an artificial bubble for people who are victims. I keep banging on about this figure, but 40% of crime in this country is now economic crime, of which fraud is a large part. So as for the idea that we are protecting SMEs in any way—we are not.

Perhaps the most important element is the professional enabler—the accountant and solicitor. We heard from the noble and learned Lord, Lord Thomas, the other day that the behaviour of the legal profession is not perhaps as pristine as it was 20 years ago. If it can take short cuts because someone looks like a juicy client, then the temptation exists. Only 100 of the 10,000 law firms in this country would have to comply with this carve-out—so that is nonsense, too. Then we come to public procurement. I was procurement Minister, and we have had a great success in government in the last few years, doubling the amount of money going from public procurement to SMEs from £20 billion to nearly £40 billion. If this provision comes in, it will have a kind of freezing effect on government. I know what officials are like—they are very cautious people and, if they feel they are taking a risk by contracting with SMEs because they, in turn, are not doing proper fraud checks, it will be another reason not to use them. So there is that perverse impact.

If we go a bit further, large corporations will find ways round this. They can create separate subsidiaries and they can use all the things we have been talking about, such as different ownership in different jurisdictions, so this will not solve the problem. The point has also been made about inconsistency: bribery has not had a carve-out for SMEs, so why should this? I ask my noble friend to put a cold towel round his head and those of his officials and come up with a credible explanation.

[Lord Vaux of Harrowden (CB)]

My Lords, I, too, welcome the government amendment. It is a step in the right direction, but I think the Minister will hear fairly similar arguments from all of us as to why it does not go far enough—I will be doing the same thing. In simple terms, the offence that the amendment creates is that the company becomes liable if an employee of the company commits a fraud offence with the intention to benefit the company. I am struggling to understand why, if the employee of a smaller company with, say 25 or even 200 employees, commits fraud intended to benefit the company, that company should not be guilty.

At the risk of introducing a new question at this point in the debate, which I am quite pleased to be able to do, I do not understand how this works for groups of companies. Are the numbers calculated on the basis of consolidated figures or, as the noble Lord, Lord Agnew, suggested, could you just create a subsidiary specifically for the purpose of carrying out the fraud? If it is not on a consolidated basis, it cannot make sense at all.

I have worked for both large and small companies in my career and the reality is that it is much more likely that the directors of a small company will know what their employees are up to than those with a big company. They do not necessarily need burdensome processes to know what has happened. They are in the same office, they are walking the same floor and they are hearing the phone calls. In any event, it should be the responsibility of any company to have in place reasonable procedures to ensure that its employees do not commit fraud on its behalf. Frankly, that should be a basic minimum to be allowed to be in business. Because of the defences that are included, all that is required is to have in place

“such prevention procedures as it was reasonable in all the circumstances to expect”,

or to have no such procedures in place if that would be reasonable. Whether those procedures are considered reasonable in all the circumstances will be driven in part by the size and activity of the company. The Government have also given themselves power to provide guidance as do what would be reasonable and they could easily tailor that for smaller companies, so we really do not need to remove them from scope. In the absence of compelling reasons from the Minister, I would be minded to support the amendments of the noble Lord, Lord Fox.

The other element that seems to be missing from the government amendment is any personal liability of the company management. Without this, those who turn a blind eye to fraud can hide behind the limited liability of the company. If someone has been involved in the decision-making process that led to the failure to take reasonable steps to prevent fraud from being carried out on behalf of the company, they should personally be on the hook. Personal liability concentrates minds wonderfully. Finally, as we have heard, the amendment does not deal with the identity doctrine, which the amendment of the noble and learned Lord, Lord Garnier, tries to. Again, why not?

At Second Reading, the Minister, the noble Lord, Lord Johnson, said that this Bill

“will bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide … The Bill will ensure that law enforcement and the private sector have the tools needed to help tackle economic crime, including fraud and money laundering”.—[Official Report, 8/2/23; col. 1250.]

As currently drafted, it does not achieve those aims. The UK, sadly, does not have a reputation as a place where

“dirty money has no place to hide”—

depressingly, the opposite is true. If we want to make a real difference and repair our damaged reputation, we must take genuinely robust steps.

Throughout our debates in Committee, the Government have resisted a whole range of sensible suggestions that would strengthen our fight against economic crime. Here we are again, with a set of amendments from the Government that are just too weak. The suggestions of the noble Lord, Lord Fox, the noble and learned Lord, Lord Garnier, and others would not create a disproportionate burden on businesses but would strengthen our reputation. I am becoming baffled and rather depressed by the Government’s continued reluctance to take genuinely strong action to reduce the levels of economic crime and, without genuinely compelling reasons from the Minister, I will support the noble Lords’ amendments. We have heard many times in our debates that this is a once in a decade opportunity to tackle this. We really have to take it.

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[Lord Sharpe of Epsom (Con)]

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

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

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

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

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

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

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

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

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

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

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

[Lord Vaux of Harrowden (CB)]

If the Government have done some analysis on that, could they share it with us? That would be very helpful.

[Lord Sharpe of Epsom (Con)]

I am happy to investigate whether that is possible. If it is, I will do so.

An affirmative power to add a threshold in future, as proposed by the noble Lord’s amendments, would have limited impact on this burden, with the highest costs already borne should the offence apply to smaller organisations in year one. It is also important that we consider the cumulative compliance cost for SMEs across multiple government regulations, rather than seeing these fraud measures in isolation. Excluding SMEs from the new offence does not mean they can get away with fraud; powers already exist to prosecute small companies, their owners and their employees for criminal acts. It is currently easier to hold these companies to account than larger organisations with complex structures.

The Government’s proposed failure to prevent fraud offence will strengthen powers to tackle fraud by large organisations, ensuring that companies with the biggest customer bases which risk causing the most harm take extra steps to prevent fraud.

We will keep the threshold under review and can amend it through secondary legislation, if required. I know that some noble Lords argue that this power should be used the other way. However, given the potentially chilling impact on small businesses, I hope that noble Lords will agree that it is better to understand the impact on large companies once the measures are implemented, as my noble friend Lord Leigh has highlighted—as well as any trickle-down effect on smaller companies—before applying it more widely. The regulation-making power in the Government’s Amendment 84C enables this approach. The Government therefore firmly consider that the proposed failure to prevent fraud offence strikes an appropriate balance between the crime prevention benefits and the burden placed on business.

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[Lord Sharpe of Epsom (Con)]

We will come on to this in more detail on a later group. Perhaps we should leave the detail of this debate until the third group, which we will get to at some point.

[Lord Vaux of Harrowden (CB)]

The Minister referred earlier to questions about groups of companies and the fact that an employee of a subsidiary would still be an associate of a holding company. That does not address the question that I was asking. Are the thresholds in Amendment 84C on an individual entity basis or a consolidated basis? There is a big difference between the two. A group could happily have a small subsidiary and say, “An employee of that did it, so we are off the hook”.

[Lord Sharpe of Epsom (Con)]

I appreciate the point that the noble Lord was making and apologise for not addressing it more directly. I will refrain from answering that now and will write. I think I know how it is done, but I am not an accountant and I do not want to say something that he will pick apart. If he will indulge me, I will write on that subject with greater clarity to make sure that I am not making a mistake.

I thank all noble Lords for their participation in this debate and for their patience as I have taken them through a fairly long speech on the Government’s positions on these issues. We agree that reform is needed and, as we have made clear, the Government’s amendments represent a major step in delivering it. I hope that further explanation has reassured noble Lords on why we have presented the amendments with the scope and reach that they contain, and that the Government are committed to reform of the identification doctrine. I therefore very much hope that noble Lords will support the government amendments and not seek to move their own.

--- Later in debate ---

I therefore say to the Minister: as the noble Baroness, Lady Bowles, has already outlined, there are a number of Bills going through the House at the moment that touch on this area. There is this Bill, the Financial Services and Markets Bill and the Online Safety Bill, and I am sure that there will be others as well. On page 22 of the report, we set out what we call “common fraud typologies”: advance fee fraud; banking and credit fraud; business fraud; charity fraud; customer fraud; cyber fraud; investment fraud; insurance fraud; pension fraud; and telecoms fraud. I am sure that there are more. I suggest to the Minister—I think his officials are moving towards this—that, between now and Report, he writes to us, working through those different types of fraud and how he and the Government think those various bits of legislation will help to make sure that the figure of 40 million victims is not repeated again. I think that he would find that helpful in terms of managing expectations as well as potential opposition to his amendment and to other amendments put down to other Bills. If we can have that information and then have a discussion about it, we could have—as the noble Lord, Lord Coaker, suggested—perhaps some other amendments to the government amendment, and we could feel at the end of this Bill that we have really got somewhere in the UK signalling its intention to tackle fraud and to stop being the fraud capital of the world.

[Lord Vaux of Harrowden (CB)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Morgan, who so ably chaired the Fraud Act 2006 and Digital Fraud Committee of which I was also a member. She has given a lot of detail, so I will try to slash out bits of my speech that she has already covered and not repeat too much—I apologise if I fail slightly in that.

I think that we all know about the scale of fraud in this country. However, I think it is worth repeating what the noble Baroness, Lady Morgan, said about the impact that fraud has on the victims. This is not just a financial crime and “Oh, I’ve lost some money”. We heard stories about mental health issues, even suicide, arising from frauds. It is a really serious matter. Losing your life savings is serious but it goes way beyond that.

Yet we do not seem to have taken much action. We have heard several times about the 1% of law enforcement resources that are focused on it. The government response has been fragmented—we refer in our report to an “alphabet soup” of bodies dealing with it. Our report referred to this creating

“a permissive culture across Government and law enforcement agencies towards fraud and the criminals who perpetrate it”.

At the risk of sounding like a stuck record, we have been waiting for months for the national fraud strategy—I think I detect that the Minister is as frustrated as we are about the delay. I am pleased that it has moved from “shortly”, as he said on 15 November last year, to “genuinely imminent” today. We look forward to it. However, the delay does not inspire huge confidence in how seriously the Government are taking this.

The noble Baroness, Lady Morgan, described what we called the “fraud chain” in our report. It is sometimes known as the “kill chain”; we decided that that was not a particularly pleasant phrase, but it again conveys the seriousness of it. Some parts of the chain are, at last, taking action. In particular, the banking sector has taken a number of actions that have had a positive impact; the introduction of the confirmation of payee process is a good example. But why has that sector in particular taken action? I would argue it is because it has had, almost alone in the chain, a real financial incentive to do so with the voluntary reimbursement code. It has been on the hook for paying back and reimbursing, therefore it is trying to do something to stop it. The voluntary code is now becoming mandatory under the Financial Services and Markets Bill, which is welcome.

It is also interesting to see, in the financial services and banking area, some competitive elements creeping in. The TSB uses the fact that it now reimburses all APP fraud losses as a selling point, which is encouraging. On the other hand, those banks that did not sign up to the voluntary reimbursement code are often cited as being more likely to see greater fraud levels on their customers; with less incentive to take action, they have taken less action. Making the code mandatory will, I hope, force them to start to do so.

We have heard about the other players in the fraud chain, those who make it possible for the fraudster to carry out the fraud—the enablers, if you like. They have no such incentive to act at the moment and, as a result, they have not acted, or not in any meaningful way. These enablers are players such as social media companies, search engines, online dating companies, the telecoms industry, website hosting companies, email platforms, ISPs, online gaming platforms, intermediary platforms and those selling bulk SIM cards or SIM farms, which the fraudsters use—and many more. I am sure that, as this area moves and changes, as it does very rapidly, we will see fraudsters constantly jumping into new areas and doing new things. They will react; there will be plenty more that we have not thought about.

From speaking to a major UK fintech, I know that around half the frauds it sees start from platforms operated by Meta, and more than half arise on just four platforms. In a debate on protecting vulnerable people from fraud on 2 December 2021, the noble Baroness, Lady Williams of Trafford, answering for the Government, said:

“As for discussions with Facebook, I have lost count of the number of discussions that I have had. One thing that we said way back in the day was, ‘Look, if you don’t sort some of these problems out, we’re going to legislate to sort them out’—and this is where we are now”.—[Official Report, 2/12/21; col. 316GC.]


A year and half later, we are still there.

As we have heard, we were particularly unimpressed with the telecoms industry, which was at best depressingly complacent. Who in this Room has not received a fraudulent SMS message or phone call appearing to come from a UK number such as HMRC or Royal Mail? I guarantee that nobody in this Room has not. To be fair, some telecoms companies are now taking action. EE, for example, flags suspicious calls, which proves that it can be done. But most have not taken action. They are paid for all these calls and texts, as the noble Lord, Lord Sandhurst, has said but, because there is no come-back on them at all, they have taken little or no action to stop them. I have not been able to find reliable data as to what proportion of scams originate from telecoms companies; rough data seems to indicate that it is somewhere around 20% to 25%.

Amendment 94 aims to create an incentive for all players in the fraud chain to take action. Effectively, it creates an offence of failing to take reasonable steps to prevent the use of a company’s services for the purpose of committing fraud—by a third party; it does not have to be related to the company. The amendment is deliberately scoped widely, rather than industry by industry; it tries to make it so that anyone providing a service that could reasonably be expected to be used by fraudsters should have to take reasonable steps to detect and prevent that use. That does not seem particularly extreme. It creates a defence that the company had in place such procedures as it was reasonable, in all the circumstances, to expect to detect and prevent the use of its services for the purposes of committing fraud, or that it could not reasonably have known that they were being used for such purposes.

When we get to the discussion that we will no doubt have about this being disproportionate, I will disagree. Any court is going to look at a small company, and that is one of all the circumstances that it will take into account when deciding what would be reasonable for detecting and preventing fraud. It cannot be too much to ask that companies should have to put reasonable procedures in place. I think that it is a pretty low bar, but I am sure that we would all be very happy to discuss how the amendment might be tweaked or changed to ensure that it does not have a disproportionate impact on businesses. But it would be good to hear whether, first, the Minister agrees that there is genuinely a problem in this area and, secondly, whether he agrees conceptually that creating a real incentive for companies to take more care to ensure that their services are not being used by criminals is necessary.

The Online Safety Bill goes some way to achieving this in some respects—and I thank the Minister for arranging for me to meet officials yesterday, who were extremely helpful in getting me up to speed on what that Bill does. It does that especially in relation to fraudulent advertising, and that is very welcome, but it does not cover all the enabling industries, even the ones we know about now, let alone those in future. It does not cover telecoms, email providers or web-hosting companies, for example, and is more focused on the large players. It also does not cover all the activities. Previously I mentioned people selling SIM farms or other tools used by fraudsters. They would not be caught by it. It will not catch the SMS with a link to a fake Royal Mail site, for example.

What worries me is that the approach of using lots of different pieces of legislation to deal with this problem, such as the Online Safety Bill and the others that the noble Baroness, Lady Morgan, mentioned, leaves us in danger of creating a piecemeal approach, mirroring the alphabet soup of responsible bodies that I mentioned. This amendment would create an overarching obligation on any business to take reasonable steps to prevent the use of its services by fraudsters, whether on or offline.

Amendment 91, in the name of Baroness Bowles, attacks the problem from the point of view of regulators, conferring a duty on them, or giving them the option, to create a duty to prevent or facilitate crime regulation. It names a number of regulators, including Ofcom in respect of telecoms and other communications platforms. It mentions the ICAEW, so I should remind the Committee of my interest as a member of that body—I keep doing that, I am very boring. Personally, I think these two amendments would actually work quite well together. If Ofcom, for example, set out a code of conduct for telecoms companies to follow, that could work as the defence mentioned in Amendment 94.

However we do it, we must incentivise all enablers in the fraud chain to do the right thing. There is an excellent opportunity in this Bill to do it now. Further delay will lead to countless more innocent people losing their savings and being traumatised. I very much hope the Minister will be willing to approach this constructively, even if he does not like some of the specifics in the amendments. I support the noble Baroness’s suggestion about the analysis of how all these Bills work together, which would be very helpful.

[Baroness Bennett of Manor Castle (GP)]

My Lords, it is a pleasure to follow the noble Lord, Lord, Lord Vaux, and everyone who has contributed to this crucial debate. I feel I should begin with an apology for not taking part in the debate on the failure to prevent in the first group, but that is because I was in the debate on the Online Safety Bill, with an amendment to which I had attached my name. It is a grave pity that we are debating two such important and closely linked Bills on a Thursday, with the pressures that is putting on your Lordships’ House, but in this group we have seen that we are overcoming those challenges and doing a great job of scrutiny, as we should be doing.

I will be quite brief and again try not to go over any of the same ground as others, but something that struck me when I looked at the Online Safety Bill was that action against fraud and other crime was utterly missing from it. In fact, I considered tabling amendments, but the drafting job was, frankly, beyond the capabilities available to me. The way it has worked out fits very well with this Bill and draws on the capacity of people involved with this Bill, whereas the other Bill has been taken in a somewhat different direction. It is worth noting that this is a safety issue—the noble Baroness, Lady Morgan, and the noble Lord, Lord Vaux, referred to this. The noble Baroness said that it does not only affect older people, but it is worth noting that it is particularly an issue for them. If you are hit by a fraud when working in a system that you already found challenging and difficult to engage with, you lose confidence in your ability to operate in the world. We have a loneliness epidemic, with many people struggling to survive, with the Government stressing digital first, digital first. The impact on older people in particular is an earthquake through their lives, and that needs to be noted.

Lots of people talked about the scale of that problem, but I do not think anyone has mentioned that UK Finance, the trade association for the UK banking and financial sectors, said that financial fraud is now a national security threat. That ties in with the earlier amendment of the noble Lord, Lord Alton. In the first half of 2021, more than £750 million was stolen, and that was a 30% increase on the same period from the previous year, so we are looking at something that is escalating and absolutely demands action.

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[Lord Sharpe of Epsom (Con)]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

[Lord Vaux of Harrowden (CB)]

I am a little confused, because we seem to be talking now about the previous amendments, where an associate of the body commits fraud with the intention to benefit the body, which is a very different thing to the amendments we are looking at at the moment. The situations we have been talking about—the scams, and so on—would not, as I think we established fairly clearly in debate on the first group, be covered by that. Will the Minister please address the issue of scams and what these amendments are trying to address, rather than the rather different offence that was created by the first group of amendments?

[Lord Sharpe of Epsom (Con)]

My Lords, I think I have already addressed that a little earlier when I was talking about the various codes that we are asking telecoms companies to sign up to via Ofcom. I am wrapping up now, so I am bringing it all together—or attempting to.

The Government therefore view these amendments as duplicative of measures already being taken forward and not achieving their intentions. I of course commit to read page 22, in answer to my noble friend, but I ask the noble Baroness, Lady Bowles, and my noble friend Lady Morgan not to press their amendments.

Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Report stage
Tuesday 20th June 2023 Lords Chamber

[Lord Johnson of Lainston (Con)]

My Lords, before we turn to the amendments tabled by my noble friend Lord Agnew of Oulton and the noble Lord, Lord Vaux of Harrowden, I shall briefly outline government Amendments 12, 13, 14 and 15 in this group. Clause 46(4) amends Section 113 of the Companies Act 2006, including by inserting new subsection (6A). This will require all companies to retain information about a member in their register of members where it changes, and to note the date on which the information changed and was entered into the register by the company. The requirements apply only prospectively, not retrospectively. The government amendments target the scope of this requirement, so it applies only to non-traded companies, to ensure that excessive burdens on traded companies with large numbers of shareholders are avoided.

However, these amendments do include a power for the Secretary of State to make regulations which allow for a full or partial reversal of this scope restriction, allowing this requirement to retain old information and note the dates of changes to also be applied in future to traded companies, should it be judged to be useful and proportionate. In considering all the amendments in this group, I remind noble Lords that the UK already has one of the most open and accessible shareholder registers in the world. Disclosure of shareholder information is far from a global norm. In fact, the UK is one of relatively few international countries to have any publicly available shareholder information for companies not listed on its stock exchange. Noble Lords will know that many countries do not even disclose major shareholders or beneficial owners publicly.

The UK led by example with its public register of PSCs. We were the first G20 nation to institute such a register, back in 2016, and we have been a strong voice ever since in promoting the importance of collecting and sharing beneficial ownership information. Numerous jurisdictions, including the EU, the US and Australia, have been influenced by our approach. But a responsible Government must weigh carefully the benefits of further transparency regulations, and the inevitable rules, forms and penalties that would follow, against the costs and impact. The Government support the publication of accurate and useful shareholder information and we are one of the most open countries in the world in this respect—but do we need to go further, and if so how far? What really are we seeking to achieve?

There are over 10 million shareholders of UK companies. At a time when this Government are looking to reduce regulatory constraints on business, even small cost changes to shareholder obligations could very quickly add up to a large drag on our economy. I ask noble Lords to reflect carefully on the value of the amendments we are about to discuss. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I shall speak to the amendments in this group in my name, Amendments 16 and 17. I should remind the House of my interest in the register as a non-practising member of the Institute of Chartered Accountants in England and Wales. I also take the opportunity, since it is the first time I have spoken so far, to thank the various Ministers and their officials, and indeed the registrar and her staff, for their constructive engagement and the generosity they have shown with their time. The engagement process on the Bill has been exemplary. We are helped by the fact that this is generally agreed to be a fundamentally good Bill: we are all on the same side here, just trying to ensure that it is as good as it can be.

These two amendments are designed to improve the transparency of ownership of our companies, to ensure we know who really owns or controls them. I remind the House of the words of the Minister at Second Reading:

“The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business”.—[Official Report, 8/2/23; col. 1250.]


I think we all agree with that.

One of the classic ways to hide the real ownership of a company is through the use of undisclosed nominee arrangements, where a shareholder is named on the register but is in fact holding the shares on behalf of another person. At present, while the company must try to identify any persons with significant control, or PSCs, according to the guidance, all it really needs to do is look at its shareholder register: if there is no shareholder with 25% or over, it can reasonably conclude that there is no person of significant control. For example, if a company has five shareholders, each with 20%, the company can reasonably conclude that there is no person with significant control that needs to be named or verified.

However, what if those five shareholders were in fact holding the shares on behalf of a single third party? That third party would then control 100%. There is an obligation under the PSC rules for that third party to tell the company, but a dishonest actor probably would not do so. The problem is that there is no obligation for the person who is acting as the nominee to disclose that fact, which makes it far too easy for a dishonest actor to hide their identity. The company has the right to ask the nominees, but, remember, the company in my example is controlled by the dishonest actor—so it will not do that. If it is asked, it can point to the fact that it has followed the guidance, having checked its register and not found anyone with a share of 25% of more. In fact, all the dishonest actor has to do to hide their ownership is find five willing people who are prepared to have their name on the shareholder register and hold the shares on behalf of the dishonest actor. There is no comeback for these nominees. They have no obligation to disclose.

Where does one find five such willing people? I suggest that noble Lords would find it interesting to google “nominee shareholders”. They will find pages and pages of businesses that will do this, with few questions asked, for around £200 to £300 a year. They advertise specifically that the nominee service is for the purpose of hiding the true identity of the shareholder. In passing, it is worth saying that many of the people offering such services are the same people who will be the authorised corporate service providers and will carry out the ID verification under this Bill. That introduces an interesting conflict, but I stress: under the current proposals, these people will be doing nothing wrong.

Amendment 16 aims to close this loophole by making it a requirement for shareholders to state, as well as their name and address, whether they are—or, importantly, are not—acting as a nominee. If they are acting as a nominee, they would have to provide the name and address of the person on whose behalf they are holding the shares. I said that it was important that they should state that they are not holding the shares on behalf of someone else; that is because they would then have to lie actively if they are a nominee but do not disclose it. I believe that there is a real difference between lying actively and just keeping quiet passively—that is, turning a blind eye, as has happened all too often in the past.

This simple step of making people declare whether they are a nominee should make it much more difficult for dishonest actors to find people willing to act as nominees. They will need to find someone who is willing actually to lie on the record rather than just to keep quiet. Having this information will make it much easier for companies to identify hidden PSCs. Knowing which shares are held by nominees will also assist Companies House and organisations such as Transparency International to focus their attention where the risk is greatest.

We have heard the Minister telling us that we have to be careful not to create too great a burden on legitimate businesses. I agree with him, but I do not think that this would do that. Shareholders already have to provide their name and address. I struggle to understand why it would add any material extra burden to have to make a simple declaration—perhaps even as simple as ticking a box—and to provide the details of the actual beneficial owner. I really do not see that as adding any significant additional effort. In any event, there are significant benefits that arise from a company structure; it really cannot be too much to ask that the beneficial owner of the shares is disclosed in return for having those benefits.

I turn now to my second amendment in this group, Amendment 17. The Bill introduces a welcome identity verification requirement for persons with significant control, but that applies only to shareholders who own 25% or more. I should say that I know the Minister will correct me on that point, because it also applies to those who might have below 25% of the shares but otherwise exert control. He would be right, but in practice the 25% level is the driver. As my previous example shows, it is quite easy to structure a company so that there is no apparent 25% shareholder. There is certainly a legitimate debate to be had over where the correct level to trigger identity verification should lie, but I do not hear many people arguing that it should be as high as 25%.

Amendment 17 would reduce the level to require identity verification from 25% to 5%. Why 5%? There are a number of precedents. For UK listed companies, 3% shareholdings must be disclosed, with an exemption for fund managers, who must disclose at 5%, so 5% is deemed of sufficient importance for all listed companies to disclose. The rules around entrepreneur relief, which gives a reduction in capital gains tax payable on a disposal, state:

“A company is your personal company if you hold at least 5% of the ordinary share capital and that holding gives you at least 5% of the voting rights in the company”.


So tax rules consider that 5% gives sufficient influence for the company to be treated as your personal company, and there is a high degree of consistency supporting a 5% level. As I say, though, there is potentially a debate to be had about that level.

Again, I am sure we will hear that we should not create an undue burden on innocent parties, so let us consider the impact of that. I understand that the average number of shareholders for UK companies is two, so for the average company the amendment would create no additional burden; they already have to verify the identity of their shareholders. It would apply only where a more complex shareholder structure has been created with a greater number of shareholders. Yes, it would create a little more work for them, but in fact it would only increase the maximum number of ID verifications required by a company from a maximum of four to a maximum of 20, which should be easily manageable. We are not talking about companies having to verify hundreds of IDs.

Both these amendments would make a significant difference to the transparency of the register, helping to ensure—to get back to the Minister’s words that I referred to earlier—that we make it more difficult for criminals to use anonymous or fraudulent shell companies. I will listen carefully to what he has to say in response, but I give notice that I intend to divide the House on at least Amendment 16 unless he is able to provide very strong assurances.

[Lord Agnew of Oulton (Con)]

My Lords, I support Amendments 16 and 17 from the noble Lord, Lord Vaux. I shall also speak to my Amendment 19.

I do not want to repeat everything that the noble Lord has said, but I received a letter from my noble friend the Minister yesterday on this subject that included the subheading, “Transparency over shareholders and nominees”, and one of the arguments that the Government are making is that this could cause a significant cost to the economy. We have just heard from the noble Lord, Lord Vaux, that that is, frankly, a fantasy; if the average number of shareholders per company is two—perhaps the Minister could confirm that, but it is certainly my instinctive understanding—then what is the cost?

In any case, that should be put against the cost to the economy of the fraud and economic crime that is happening at the moment at an increasing rate. We have endlessly reminded ourselves that 40% of all crime in this country is now economic crime. I know from my time in government that the loss to fraud in government alone each year—this is the bottom-end estimate by the NAO—is £30 billion, and a lot of that is facilitated through the holes in the Companies House structure. I urge the Minister to think hard about this because it is a great opportunity, at minimal cost to the economy or to business, to make a substantial change.

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Moved by

[Lord Vaux of Harrowden]

16: Clause 46, page 36, line 14, at end insert—
“113BA Required information about members: nomineesThe required information about a member includes a statement by the individual, or where the member is a body corporate, or a firm that is a legal person under the law by which it is governed, by an officer of that body corporate or firm, as to whether or not they are holding the shares on behalf of, or subject to the direction of, another person or persons, and if they are—(a) where any such person is an individual, the information required by section 113A in relation to that individual;(b) where any such person is a body corporate or firm that is a legal person under the law by which it is governed, the information required by section 113B in relation to that body corporate or firm.”Member’s explanatory statement
This amendment would require a person or firm holding shares as a nominee to declare whether or not that is the case, and to provide the details of the person or persons on whose behalf, or under whose control the shares are held. This would assist the company in identifying Persons of Significant Control, and would introduce an offence for a nominee who did not declare themselves as such.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank the Minister for his response and for his undertakings to bring further amendments at Third Reading. I will make just a few comments. First, in terms of Amendment 17, which I do not intend to move, I find the concept that it is going to cost £150 million a year frankly unbelievable. A small number of companies—as the Minister pointed out—verifying up to a maximum of an additional 16 shareholders, and in most cases fewer, cannot possibly come to £150 million a year. I am afraid I find that unrealistic.

To move to Amendment 16, I want to correct something that the noble Lord was saying about nominees having to declare that they are nominees. That is not actually correct. What has to happen is that the company has to look at its shareholder base and see whether it has anybody who is a PSC—a person with significant control. If it has no shareholders over 25%, it can conclude that it does not have any. If there is a PSC behind that, the PSC has to declare it, but if that is a bad actor, they are hiding and will not declare it. The nominees need to declare they are nominees only if the company seeks out and asks them. We are talking about a situation where a bad actor controls the company—so guess what? It will not. There is nothing there at the moment that makes nominees have to disclose the fact that they are nominees. I think the idea that disclosing nominees would create too much noise for Companies House is ridiculous. It does the opposite. It identifies where the risk lies.

We have heard from the noble Lord, Lord Agnew, about requiring risk assessments and a risk-based approach. This allows us to see which companies are most at risk of having bad actors who are hiding behind nominees, by ensuring that they are disclosed. The point here is to make it more difficult for bad actors. You make it much more difficult for bad actors if people are unwilling to be nominees. At the moment, there is no downside, so there is a huge industry of people who are prepared to do it for almost nothing—there is no risk to them. If we put a risk on those people and make them have to lie actively and on the record to say that they are not a nominee when they are, you will get many fewer people who are prepared to do it. That will make life a lot more difficult for the bad actors, and the nominee industry will have to clean up its act. So I am afraid that I have not heard anything that changes my mind, so I wish to test the opinion of the House.

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[Lord Leigh of Hurley (Con)]

My Lords, we have discussed this concept of disclosure at earlier stages. Of course, if a person does not want anything disclosed, they could become a sole trader or a limited liability partnership or a partnership, in which case very little, if anything, needs to be disclosed. My question and concern is just to understand the approach that government will take to this. Is it the intention just to give a blanket exemption for, perhaps, companies in defence or companies with complicated IP or companies in sensitive sectors? Is it to respond to those who make the request generally in the affirmative or to ask further questions to determine why a company should be exempted from disclosure? If a company simply asks to be exempted because it does not want its competitors to know, will that open the floodgate to everybody to do the same? I am not sure that “because we don’t want our competitors to know” is a particularly good reason, to be honest. I am therefore a little nervous about this clause, particularly because it is a bit vague. It just talks about regulations, and Section 1292 of the Companies Act 2006 is just an empowering section on regulations. We are opening the door very wide, and I hope that the Minister, in due course, will be able to give us some very clear guidance on what the Government have in mind.

[Lord Vaux of Harrowden (CB)]

My Lords, may I very briefly support what the noble Lord, Lord Leigh, has just said? This amendment troubles me a little bit. The Companies House information is important for people who are dealing with those companies, be they suppliers or customers. When we were doing the inquiry into digital fraud for the committee on digital fraud, we met a range of fraud victims. For those where it was relevant, what was interesting was that every single one of the people whom we met, before they parted with their money, had gone to Companies House and had a look at the company. They took comfort from that and lost their money. The information there is important, and reducing the amount of information on it should be done only with real thought and consideration.

I get it that in certain circumstances it makes sense for companies to be able to apply that certain information should not be made available—there are plenty of situations where one could think that makes sense. However, this amendment goes a lot further than that. It gives the Government the power to make regulations to allow micro and small companies to make all or parts of their accounts public on application or otherwise. In theory, therefore, those regulations could simply say that no micro or small entity needs to publish anything. That would be going far too far, so it would be good to understand from the Minister what is actually intended here.

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[Lord Agnew of Oulton (Con)]

My Lords, I thank the Minister for a very comprehensive set of government amendments. He has completely revolutionised the impact of the Bill in relation to ACSPs. I congratulate him and his staff on that. It is important to remind noble Lords about why this is so important. Around half of all company formations occur through the offices of an ACSP. Frankly, it has been a cowboy environment. At the moment, they are not even required to be approved under the fourth anti-money laundering directive. So at one stroke with this Bill we will see a much cleaner field and a proper alignment of interests in that it will be in their interest to behave with integrity if they are to remain in business. I will not go through the comprehensive package, but my noble friend should be congratulated. This is probably the single biggest improvement to the Bill in the Companies House section.

[Lord Vaux of Harrowden (CB)]

My Lords, I also thank the Minister for having listened to the points that were made in our previous debates about the importance of ACSPs’ verification statements being made publicly available and for making this comprehensive suite of amendments. Indeed, I think he has gone further than my original amendments on the subject and the Bill is considerably strengthened as a result. I am extremely grateful.

Perhaps I may add one quick word in support of Amendment 93 from the noble Lord, Lord Agnew. A very high number of the ACSPs are going to be authorised and regulated by HMRC, and it is an unfortunate truth that such regulation is not the principal function of HMRC. Accordingly, that regulation has been somewhat light-touch. I ask the Minister to reassure us that considering how HMRC carries out this role will be an important part of the forthcoming consultation on AML regulation? The only requirement to become an ACSP is to be regulated for AML, so we need to make sure that regulation is robust and that only genuine, suitable persons are therefore authorised.

[Baroness Altmann (Con)]

My Lords, I thank the Minister and congratulate him on this suite of amendments. I know that my noble friend is keen that this should be a really landmark Bill and that he has worked really hard to listen carefully and ensure that it is as robust as it can be. I know his dedication to this matter, and I thank him for it.

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[Lord Johnson of Lainston (Con)]

My Lords, as noble Lords well know, the Economic Crime (Transparency and Enforcement) Act 2022 created a new register of overseas entities, requiring overseas companies owning or buying property in the UK to give information about their beneficial owners to Companies House. The register launched successfully on 1 August 2022, and companies in scope that already owned property had until 31 January 2023 to apply for registration. As of 18 June, more than 28,000 entities out of some 30,000 had registered, which represents a very good rate of initial compliance. Since 1 February, all non-compliant companies have been restricted in their ability to sell, lease or raise finance over their land; this remains the case until they comply. Companies House is beginning the process of assessing cases for additional action. This second economic crime Bill we are debating today makes a number of changes to further strengthen the register.

I will speak first to Amendment 85, a fairly minor amendment that the Government have tabled to strengthen the register. Schedule 6, which was inserted into this Bill in Committee, sets out the anti-avoidance measures that we debated a few weeks ago. These measures require that beneficial owners must report every change in beneficiary for the relevant period to Companies House. The anti-avoidance measures are effectively time limited because they impose a requirement on overseas entities to make a one-off submission to Companies House as part of their annual update. The Government have decided that it is therefore appropriate to limit the time within which the power related to them can be exercised; this demonstrates the Government’s intention to use the power only for the purposes that I described during our previous debate. The measures include a power to exclude descriptions of beneficial owners from the requirement to comply with Schedule 6. As I set out in Committee, this power will be used to exclude structures such as large pension trusts, where this requirement would be disproportionately burdensome.

Furthermore, turning to Amendment 86, because regulations made using this power may engage issues of devolved competence in Scotland, we have inserted a mechanism to ensure that Scottish Ministers must be consulted before regulations are made, if those regulations would be within Scottish legislative competence. These minor changes to the power will have no impact on the effectiveness of the anti-avoidance measures. I hope noble Lords will agree that they are appropriate.

During the passage of this Bill many concerns have been expressed about the use of trusts. I note that my noble friend Lord Agnew of Oulton has tabled Amendment 89, which would require Companies House to publish information about trusts that is obtained for the register of overseas entities but that is not available for scrutiny. The Government have tabled a number of amendments that are intended to address concerns in this area.

Amendment 71 will strengthen the reporting requirements and close a potential gap in the information provided to Companies House. Overseas entities registered on the register of overseas entities are required to update annually the information that they have provided to Companies House. They must provide an update that includes all in-year changes to the entity’s beneficial owners. Where the entity is associated with a trust, only a snapshot of the trust information is currently required to be provided with the annual update. This leaves a small risk that a beneficiary determined not to be registered might use convoluted means to ensure that they are not a beneficiary at the time of the update but become so immediately afterwards.

We have discussed this issue at length, and I hope noble Lords are pleased with the amendment that we are bringing forward at this time. It will ensure that in-year changes to beneficiaries must be reported to Companies House in the same way as is required for beneficial owners. There is nowhere to hide. Information supplied to Companies House via this amendment will be required to be verified along with all the other information that is being provided.

The amendment also includes a power for the Secretary of State to make exceptions to the duty to provide the in-year beneficiary information. This power will be used to exempt structures such as large pension fund trusts, where it would be disproportionate to expect them to provide every change that occurs in a given period. A number of multinational corporations use trust structures for their pension funds. One example we are aware of, which is a British multinational, is a fund registered on the register of overseas entities with over 8,000 beneficiaries. There are numerous and regular changes to the beneficiaries in circumstances such as this and the Government consider it unreasonable to expect such structures to deliver the new information that will be required.

Before regulations under this power are made, the Secretary of State must consult the Scottish Ministers and Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence. A number of consequential amendments, Amendment 76, 77 and 84, are also required so that the new provisions work as intended.

I turn to government Amendment 78. We have listened to the strength of feeling among parliamentarians, on all sides and in both Houses, that information about trusts supplied to Companies House as part of the registration of an overseas entity should not be withheld from public inspection. I stress that all the information held by Companies House about trusts is available to HMRC and law enforcement bodies. While the Government remain of the view that, in most circumstances, it is appropriate to withhold information about trusts, good arguments have been made that more transparency is required. In particular, it would seem appropriate to allow certain people, such as investigative journalists, to access the information under certain circumstances.

That is why we are tabling an amendment to create a regulation-making power by which the Secretary of State can set out details of who may apply to access trust information, how to apply and the circumstances in which an application can be made. To achieve this, we will also need to widen the scope of the protection regime in Section 25 of the Economic Crime (Transparency and Enforcement) Act to allow for people who are involved in trust arrangements—settlors, beneficiaries et cetera—to make an application. This does not require an amendment to this Bill as it can be achieved via regulations using the Section 25 power.

The Government intend to use this new power to provide a mechanism for access that is as straightforward as possible. My officials will work with Transparency International and other stakeholders and prepare regulations as soon as possible. I am happy to commit to keeping interested Peers informed and involved. Minister Hollinrake and I will keep a close eye to ensure that the processes Companies House put in place off the back of these regulations are indeed straightforward.

There will be some information that will not be appropriate for release, such as the day of date of birth of a person or their usual residential address. These will remain protected. In addition, given that most trusts are family affairs, and many are set up for minors or other vulnerable people, there may be other reasons why a given piece of information may not be suitable for release.

Before regulations under this power are made, the Secretary of State must consult with the Scottish Ministers and the Northern Ireland Department of Finance. This is because these issues may engage areas of devolved competence.

Finally, this group contains minor and technical Amendments 87 and 88. I hope that these amendments, in addition to the mechanisms already in place on the register of overseas entities, will provide sufficient reassurance to noble Lords and I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I have submitted Amendments 72 and 73 in this group.

Amendment 72 is designed to close an anomaly that arose in part because of the rushed nature of the emergency first Economic Crime Act. Unlike any other corporate register that I can think of, the register of overseas entities is required to be updated only annually. In contrast, the register of persons with significant control of UK Companies must be updated within 14 days of the company becoming aware of the change. This does matter. It means that the register can be as much as a year out of date, with changes potentially made to who owns or controls the overseas entity in the meantime.

The purpose of the register is to ensure that we know who owns UK property, so this anomaly creates a very real gap. There is a risk, for example, that an innocent third party could unknowingly find themselves buying a property from a sanctioned individual, thus allowing that sanctioned individual to realise and export the value of the property. By the time the register is updated, perhaps many months later, the money will be long gone.

There was a rather technical reason why we could not close this anomaly at the time of the first Act. The main penalty for failing to update the register is that property transactions cannot be registered. That would create a risk for an innocent buyer, if the register had to be updated within 14 days, because the innocent buyer could not know whether or not the company was in breach, and therefore the innocent party might not be able to register the transaction.

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[Lord Vaux of Harrowden (CB)]

It is not trusts.

[Lord Johnson of Lainston (Con)]

My apologies, it is the register of overseas entities. I thank the noble Lord for the correction.

I can see where the noble Lord is coming from here, but I think we have to be quite careful. Perhaps I might be allowed to go through some specific points which may help this House come to a better conclusion, and then the final point is relatively brief.

It remains the case that the Government do not believe that these amendments will achieve their aim without causing additional burdens on both overseas entities and third parties, or without adding a further layer of risk and complexity for third parties transacting with the entity. Again, I stress my significant sympathy with the noble Lord for this amendment and with the people who support this amendment. Personally, I am extremely desirous of making sure that we have timely information that could be presented, but there are specific technical reasons why we would resist this. However, we would be delighted to have further conversations. It is important that the Government get the balance right between ensuring that we know who the beneficial owners of these entities are and continuing to provide a welcoming investment environment. I would not underestimate the need for a simple structure that enables people to use our systems as company structures in order to do business here and in the rest of the world.

In England and Wales, the Land Registry estimates that it receives around 3,000 applications each month affecting titles registered to overseas entities. Around two-thirds of these are registrations of leases, transfers or charges. Each of these transactions would trigger the proposed requirements. This is the point of having to register at each transaction. Even if the update is simply a statement confirming that there are no changes to report, the statement must be verified each time, filed at the right time and repeated if the completion date of the transaction changes. That is important to note, because anyone who has been involved in a property transaction knows that the transaction date can change regularly and I do not think it is necessarily proportionate for these entities, particularly when we have made it very clear—and this is thanks to the interventions of noble Lords on all sides of the House—that we are ensuring that the history of activity in these trusts is properly recorded, so there is, as I believe the noble Lord, Lord Fox, said, nowhere to hide. Also, 14 days is considered to be a challenging timeframe within which to require an update, especially given that it is required to be verified before submission to Companies House. Again, I sympathise with the concept, but the practicalities and mechanics of this are believed to be highly impractical.

As I have mentioned, some overseas entities would have to make many updates each year. Any noble Lords who have bought a property will know that completion dates can change, which can be very frustrating. Every time they change you would be required to provide the register with further information no more than 14 days before the new completion date and have that information verified. This would be burdensome.

My officials have also informed me that, in discussions on this amendment, while the Law Society understood the purpose of the amendment, it also highlighted how onerous it could be in least some situations. It expressed serious concerns about the drafting of the amendment relating to the provision of a statement no more than 14 days before the completion date of a transaction. The Law Society of Scotland, in discussion with my officials, also expressed reservations—so we have the Law Society and the Law Society of Scotland expressing significant reservations. I do not think any noble Lord in this House would want to go against the significant reservations of either the Law Society or the Law Society of Scotland, which have significant concerns about the potential negative impact on the Land Register of Scotland and people transacting with overseas entities.

I believe that this amendment would be disproportionate. We have made significant changes to how activities are reported, so that no one can hide in the accounts of these entities, which previously they could, by selling and buying during the process of the annual update. I ask the noble Lord, Lord Vaux, not to move his amendment.

I thank the noble Lord, Lord Vaux, for tabling Amendment 73. It relates to scenarios in which land is held by an overseas entity under a nominee arrangement. For example, a trust can instruct a law firm to act on its behalf as a nominee and the law firm therefore appears on the register in its capacity as the registered beneficial owner of the overseas entity holding the land. The overseas entity is required to provide information about its beneficial owners to Companies House. However, in this case, because the law firm nominee is not a trustee of the trust that has instructed it, no information about the trust is required to be provided.

We agree that this gap in the requirements should be closed. I thank the noble Lord for his input and, along with Transparency International, for bringing it to our attention. However, the drafting of the amendment is not quite right, so I cannot accept it today. Instead, the Government will undertake to table an amendment to address this gap at Third Reading. I trust this will satisfy the noble Lord. and respectfully ask him not to move his amendment.

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Moved by

[Lord Vaux of Harrowden]

72: After Clause 160, insert the following new Clause—
“Updating the register of overseas entities
(1) The Economic Crime (Transparency and Enforcement) Act 2002 is amended as follows.(2) In section 7, after subsection (8) insert—“(8A) A registered overseas entity must, as soon as reasonably possible and in any event within 14 days of becoming aware of any change, deliver to the registrar details of any change to the information that has been previously provided to the registrar in accordance with section 4 or, if information has been previously delivered to the registrar under this section, any change to the latest information provided under this section, including the date such change occurred. (8B) A registered overseas entity must deliver to the registrar the information required in accordance with subsection (8A), or deliver to the registrar a statement that there has been no change to the information currently held on the register, no more than 14 days prior to the acquisition or disposal of any qualifying estate in the United Kingdom.(8C) For the purposes of this section, “qualifying estate” has the meaning given by paragraph 1 of Schedule 4A to the Land Registration Act 2002.”(3) In section 8, at the end of subsection (3) omit “(1)”.”Member’s explanatory statement
This amendment would require that changes be notified to the registrar within 14 days of becoming aware of such change, bringing the register into line with the rules that apply to Persons with Significant Control under the Companies Act 2006, and adds an obligation to update the register immediately prior to property transactions in order to protect innocent counterparties.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank all noble Lords who have taken part in this short debate. I thank the Minister for engaging on the subject as he has done. He used the words “jaded” and “cynical” earlier, and I hope he does not think they apply. In most cases, our engagement on all this has been extremely constructive, and I thank him, in particular, for what he has just said on Amendment 73. We will wait with interest to see the amendment, but I am glad that the Government recognise that there is a real problem.

In respect of Amendment 72, the Minister made a few points. First, he suggested that it would introduce a further layer of cost and risk. As I said before, I fundamentally disagree with that. The costs are pretty small. All we are asking is that, in the same way the PSC register is updated, it is updated on a timely basis within 14 days of any change, and that it is updated 14 days before a transaction. Yes, there is a small cost there, but, in most cases, because the register is updated regularly anyway, all that would be required is a confirmation that it is up to date. There are lots of papers and documents and things that are brought into a property acquisition—the usual searches, et cetera—and this would just be another one. It would not add a significant cost, in my view. It would actually reduce the risk to the innocent party because the innocent party would now know who they were dealing with. If we do not do this, they will not know that, because it could have changed any time in the last 12 months. To be clear, we are not talking about trusts here; we are talking about overseas entities.

Another comment is that 14 days is too difficult. I do not understand that. It is apparently because it has to be verified. It is exactly the same requirement as it is for persons with significant control, who also will need to be verified. There is no difference. If it is too difficult for this, it must be too difficult for that, or, if it is okay for persons of significant control, it is okay for this. I reject the concept that it is too difficult.

The Minister mentioned significant reservations from the Law Society. I think that was the meeting that I was at. I know first hand that it had significant reservations about my initial drafting of the amendment, which is why, as I explained earlier, the amendment changed to meet those reservations. My understanding when I left that meeting was that, while it did not necessarily like this concept—to be honest, it would not, would it?—I think it was relatively comfortable that it now worked. We are getting into he-said-she-said territory here.

I did not hear anything that changed my view that we needed to change this anomaly. It is not acceptable that innocent parties can end up accidently enriching a sanctioned individual, for example. I would like to test the opinion of the House.

Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Report stage
Tuesday 27th June 2023 Lords Chamber

I have said all of this so many times before that I no longer need to say it again; but I have. I have now finished. I may well be saying the same thing next year, but I hope not. If I do, please bear in mind that you will not be hearing it for the first time.

[Lord Vaux of Harrowden (CB)]

My Lords, I will briefly add my support to the amendments proposed by the noble and learned Lord, Lord Garnier, which try to strengthen the failure to prevent clauses the Government have proposed. I welcome those clauses and the changes the Government have added at this stage. In particular, I strongly support Amendment 110, to which I have added my name, which removes the restriction of this offence to large companies.

Let us be clear what this failure to prevent offence deals with. It does not cover, for example, the use of a company’s services by fraudsters, something I greatly regret. I am sure that—along with, I hope, the noble Baroness, Lady Morgan—we will come back to this in another Bill. It actually applies only to situations where somebody associated with the company, such as an employee, commits a fraud that is intended to benefit the company. Let me emphasise that: it applies only to frauds carried out by associates such as employees or agents, and only where those frauds are effectively committed on behalf of the company. It is pretty restricted.

When I was in business, frankly, it never occurred to me that such situations were not already caught by the law. Surely, it must be a fundamental principle that a company should take reasonable steps to prevent its employees committing fraud on its behalf. But the Government seem to take a different view. Having been dragged somewhat reluctantly into putting forward their own amendments to create this offence of failure to prevent, they have decided it should apply only to larger companies. As we have heard, they have set the threshold so that less than 1% will be covered.

The argument, as we have heard, is that the cost would be disproportionate. The Government have come up with some costings to support this. I am afraid I do not think I am the only person who simply does not find those costings credible. Any reputable company should, and I believe generally will, be doing this already. There are some things we should ensure that companies do anyway. A good example is that companies must ensure that health and safety rules are followed. It is not an excuse to say, “It wasn’t me; an employee caused the accident”. Nor is it an excuse to say, “My company is too small to follow health and safety rules”. We do not give small companies an exemption from health and safety, tax evasion or bribery legislation. Why would we do so, uniquely, for fraud—committed on the company’s behalf?

If the Government are genuinely worried about the cost, they can deal with that easily enough by issuing timely guidance that sets out what steps would be reasonable and the circumstances in which no additional procedures would be required, which is likely to be the case for most small enterprises. Amendment 125D makes some sensible suggestions in that regard.

Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

3rd reading
Tuesday 4th July 2023 Lords Chamber

[Lord Johnson of Lainston (Con)]

My Lords, I will now speak briefly to the government amendments, which deliver on the undertakings I made on Report, first in response to concerns raised about the robustness of the people with significant control—PSC—framework and secondly to close a gap in the register of overseas entities information requirements. I thank the noble Lord, Lord Vaux of Harrowden, in particular, for raising these issues. I also welcome the contributions of my noble friend Lord Agnew of Oulton and of the noble Lords, Lord Fox, Lord Ponsonby of Shulbrede, Lord Cromwell and Lord Clement-Jones.

The majority of the amendments fall into the former category of the PSC framework. I reassure noble Lords that, although the number of amendments is higher than we might have liked to table at Third Reading, the majority are minor consequential or tidying-up amendments, and a lot of the new material is in fact a refashioning of existing rules to make them work in the new context of a central register, rather than locally held PSC registers. These amendments improve this by requiring companies to collect additional and more useful information, and by improving the mechanisms through which companies collect the information and report it to Companies House.

Currently, companies must record various “additional matters” in the PSC register. The Bill as drafted removed the regulation-making power through which these additional matters are prescribed. Amendments 26 and 32 preserve those requirements in the context of a centrally held PSC register. Amendment 26 means that a company will notify the registrar if the company knows, or has cause to believe, that a person has become a PSC but the company has not yet had confirmation from them. Amendment 32 means that a company must give notice to the registrar if it knows or has cause to believe that the company has no PSC. This will provide a hook for the registrar to query the statement that a company has no PSC, if she has intelligence to suggest otherwise.

The Bill as drafted removed an important measure to ensure that personal information is protected appropriately. Amendments 14, 17, 20, 22 and 25 ensure that protection mechanisms remain in place, otherwise a person who is at serious risk of violence or intimidation could be reported as a PSC without ever knowing, meaning that they may not have had the opportunity to apply for their personal information not to be displayed publicly.

To improve accuracy and transparency, and to make it easier to monitor and prosecute non-compliance, Amendment 1 requires a company that is exempt from the PSC requirements to explain why it is exempt in each confirmation statement. Amendment 15 improves existing provisions of the Companies Act 2006 which require companies to investigate and obtain information about their PSCs.

Amendments 33 and 34 widen the scope of a regulation- making power in the Bill so that the power can amend relevant parts of the Companies Act 2006 and to make consequential amendments to other parts of the Act. This is to ensure that the legislation is coherent, by avoiding having similar provisions spread across primary and secondary legislation.

Amendment 39 creates a reasonable excuse defence relating to the offence of failing to comply with information notices. This aligns the drafting of the offences with other similar offences.

All other amendments are consequential. I hope that noble Lords will support these amendments.

I turn to Amendment 9. On Report, the noble Lord, Lord Vaux of Harrowden, tabled an amendment seeking to close a gap in the register of overseas entities’ information requirements relating to overseas entities acting as nominees. The Government agreed that this gap exists, and I thank the noble Lord and Transparency International for bringing it to our attention. The amendment tabled by the noble Lord was not quite right, but I hope that this amendment addresses his concerns. It amends Schedule 1 to the Economic Crime Transparency and Enforcement Act 2022 to ensure that, where there is a nominee relationship, this is declared. It then inserts a new definition of beneficial ownership into Schedule 2 to the 2022 Act: “registrable beneficial owners”. I hope that noble Lords will welcome this amendment and agree that it closes the gap that we discussed on Report. I beg to move.

[Lord Vaux of Harrowden (CB)]

My Lords, I thank the Minister for these amendments. As he said, I described at Report the loophole in the register of overseas entities that allows people to hide the true ownership of UK properties through nominee arrangements. As the Minister described, he tabled Amendment 9, as he undertook to do, which effectively closes that loophole. I am not sure what conclusion to take from the fact that my original 11-line amendment has turned into one that runs to three pages—it presumably says something about my amendment drafting skills—but I am most grateful.

The other amendments that the Minister tabled relate to the register of persons with significant control. These new amendments tighten the rules and will improve the ability to identify PSCs. In particular, I welcome the requirement for the information to be filed on a centrally held register, rather than locally held registers managed by the companies themselves. The requirement to explain why a company is exempt from the PSC requirements is also an important improvement.

I was slightly confused as to what happens if a company has become aware that it has a PSC but the PSC has not yet confirmed their status or information. Amendment 20 appears to deal with that situation; it requires the company to notify the registrar if it knows, or has cause to believe, that a person has become a registrable person but has not yet had confirmation. However, that seems to conflict with the explanatory statement to Amendment 17:

“This means that a company will only need to notify the registrar of a person with significant control if the person has confirmed their status and information about them”.


Amendment 20 says that the registrar must be notified of an unconfirmed PSC but Amendment 17, or at least the explanatory statement to it, seems to say exactly the opposite. Can the Minister please explain which is right and how the two work together? More importantly, can he reassure me that a PSC will not be able to avoid being notified to the registrar simply by failing to confirm their status or information.

I put on record that, while I welcome and support the amendments, I do not believe that they deal with the problem of nominee shareholders not having to declare themselves as such. The new amendments are not an alternative to the amendment that the House passed on Report that required shareholders to state whether or not they are acting as a nominee, and if so who for. I hope that the Government will continue to consider that amendment and look at it favourably in the other place, or at the very least meet with me and others to see whether we can find a workable compromise. It should not be possible for bad actors to hide behind nominees, and there should be consequences for those who act as nominees to conceal such bad actors.

I am extremely grateful to the Minister and his officials for their helpful and constructive engagement throughout this process; they have been extremely generous with their time. In particular, I thank them for having addressed a number of issues, including the one we have just talked about, throughout the progress of the Bill. The level of engagement from all Ministers involved has been exemplary—if only all Bills were managed so constructively. I also thank all noble Lords who have been so generous in their support of the various amendments that I have proposed. When the Bill started in this House, it was generally seen to be a good Bill, and I think that it emerges from this House in even better shape.

[Lord Fox (LD)]

My Lords, there are times when your Lordships’ House is confronted with so many Third Reading amendments that it can be somewhat irksome, but this is not one of those occasions. This is a useful and helpful response from the Minister and his team to the debate we had on Report, and for that I thank them.

I reinforce the point made by the noble Lord, Lord Vaux, that these amendments do not replace those that we passed on Report, which I similarly hope the Minister and his team will continue to consider as we go forward.

Transparency of ownership and the registration of overseas entities are important to this. The point we have made on a number of occasions about keeping the whole Bill under review and looking at how it works once it becomes an Act will be vital. It is clear that we cannot second-guess all the reactions we will get out there, so having the fluidity and agility to deal with that will be important.

Although it is slightly confusing, I will offer my thanks and congratulations at this point, so that I do not do so twice. First, I congratulate the Ministers on getting legislative consent so smoothly. For many of the Bills that I have been working on of late, legislative consent never seems to come. However, unlike many of those Bills, this is one where all the House agreed on its objectives, so all we were discussing were the ways in which we could achieve those objectives. In that regard, I thank the Ministers for the great amount of time and effort they have devoted to listening to, and having meetings with, Members across your Lordships’ House and for seeking ways of accommodating our helpful suggestions. Particular thanks are due to the noble Lords, Lord Johnson and Lord Sharpe, and the noble and learned Lord, Lord Bellamy, as well as the noble Lord, Lord Goldsmith, and the noble Earl, Lord Minto, who made appearances in Grand Committee.

Similarly, the whole Bill team, and organisations such as Companies House, have given up a lot of their time to speak with us, so thanks should be given to them. There have been many contributions from the Cross Benches and the Benches opposite. I will not single out anyone for praise, except to say that it has been a great pleasure working with everyone on the Bill; I felt that we were all pulling in the same direction.

I also thank the noble Lord, Lord Ponsonby, and the noble Baroness, Lady Blake, for their camaraderie on the Bill. I thank my noble friends Lady Bowles, Lady Kramer, Lord Clement-Jones, Lord Wallace of Saltaire, Lord Thomas of Gresford and Lord Oates on our Benches. Finally, thanks go to Sarah Pughe in our Whips Office, who has kept us all in order.

Economic Crime and Corporate Transparency Bill

Lord Vaux of Harrowden Excerpts

Consideration of Commons amendments
Monday 11th September 2023 Lords Chamber

Motion A1 (as an amendment to Motion A)

[Lord Vaux of Harrowden]

Moved by

Leave out from “House” to end and insert “do agree with the Commons in their Amendment 23A, and do propose Amendment 23D to Lords Amendment 23 in place of the words left out by Amendment 23A—

23D: Line 83, at end insert—
“113C Required information about members: nominees
If a member holds 5% or more of the share capital or voting rights of the company, the required information about a member includes a statement by the individual, or where the member is a body corporate, or a firm that is a legal person under the law by which it is governed, by an officer of that body corporate or firm, as to whether or not they are holding the shares on behalf of, or subject to the direction of, another person or persons, and if they are—
(a) where any such person is an individual, and the shares held on that person’s behalf or subject to their direction amount to 3% or more of the share capital or voting rights of the company, the information required by section 113A in relation to that individual;
(b) where any such person is a body corporate or firm that is a legal person under the law by which it is governed, and the shares held on that person’s behalf or subject to their direction amount to 3% or more of the share capital or voting rights of the company, the information required by section 113B in relation to that body corporate or firm; or
(c) a statement that the member is not holding shares on behalf of, or subject to the direction of, such person that amount to 3% or more of the share capital or voting rights of the company.””

[Lord Vaux of Harrowden (CB)]

My Lords, I hope that Motion A1 is clear. Before I start, I remind the House of my interest as a non-practising chartered accountant.

On Report, your Lordships agreed Amendment 23, which included a requirement that shareholders should have to state whether they are holding shares on someone else’s behalf and, if so, on whose behalf they are holding them. This requirement was rejected, as we have heard, by the other place. Motion A1 aims to reverse that, while trying to take on board some of the matters raised in debate in the other place. If I may, given that the debate we had in this House was now some months ago, I will briefly remind the House of the issue that that amendment was trying to resolve.

One of the easiest ways to hide the true identity of an owner of a company is to use a nominee—somebody whose name will appear on the register of members but who is in fact acting under the instruction of and for the benefit of the actual beneficial owner. A substantial industry has grown up to provide these nominee services. There are of course legitimate reasons for using a nominee, such as an asset manager holding and managing a range of shareholdings, but it is quite revealing to do a Google search of nominee shareholding services.

A near-endless list of such services appears, and these services are usually sold very clearly as being primarily about creating anonymity for the true shareholder. Let me quote from one of them:

“The beneficial owner may choose to appoint a Nominee Shareholder because they do not want to register the shares in their own name. A Nominee Shareholder is a great way to keep shareholder information away from public records”.


Another one states:

“In the United Kingdom, the purpose of using nominees is confidentiality. Because of the confidentiality requirements, owners are reluctant to associate themselves with beneficial ownership, and the practice of nominating shareholders will hide their association”.


Most nominee service providers market their services in the same vein. A few of them refer to the PSC—persons with significant control—rules or to anti-money laundering in the marketing literature, but they are very much in the minority. As I said, there are legitimate reasons for holding shares through a nominee, but not wanting to register the shares in their own name and keeping shareholder information away from public records are not legitimate reasons. In fact, that is precisely what this Bill is trying to stop.

The amendment originally passed by this House was intended to strengthen the Bill to prevent the misuse of nominees to hide the true ownership. I continue to believe that this is a very real issue and, as a result, I have tabled Motion Al, which tries to reintroduce the original amendment, but changed to reflect some of the reasons for rejecting it made in the other place—in particular, the question of undue burden that the Minister referred to a moment ago.

However, since I tabled my Motion A1, I am very pleased to say that the Government has tabled Amendment 23C within their Motion A. It shows that they now recognise that there is a genuine issue here and, in particular, that the enabling industry needs to be incentivised to clean up its act. I especially welcome the fact that proposed new subsection (2)(b) will specifically allow the Government to impose obligations directly on those who act as nominees. The real flaw in the current rules is that those enablers face no real risk at all when acting as they do. I hope that this specific mention in the Government’s Amendment 23C will cause the nominee industry to take note and clean up its act, in the knowledge that if it does not, it will face regulation.

While I would have preferred to have taken action now and introduced something in the Bill, the fact that the Government recognise the issue and are proposing a regulating power to deal with it is most welcome. I very much welcome the commitments made by the Minister a moment ago. I thank him and, given that and what he has just said, I will not press Motion A1. I thank him and his officials for their continuing very constructive engagement, which has been the case throughout the Bill. I look forward to seeing the proposed regulations before too long—he will know that I will not be dropping the issue until we see the regulations.

I shall also comment very briefly on Motion C, which moves an amendment passed in this House that aimed to fix an anomaly in the register of overseas entities, which is that it has to be updated only annually. First, I point out the reason given by the Commons:

“Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason”.


That, frankly, is totally inadequate and nonsensical in this case. It has to be updated only annually. Other registers, such as the register of persons with significant control, have to be updated within 14 days of any change being identified. This anomaly means that the register of overseas entities can be up to a year out of date at any time. That introduces the risk that an innocent part might unknowingly find themselves entering into a transaction with a sanctioned person, for example.

Unfortunately, because of the way the register works in conjunction with the registration of property, this all becomes extremely complex. I thank the Law Society for its helpful and constructive engagement in many meetings over the Recess to try to find a solution to this. While we did find a possible way through, it was so convoluted as to be impractical—so I am not going to oppose the removal of this amendment, even if the issue it was trying to solve remains real.

The register of overseas entities is still in its early stage. While it has been successful up to a point, as I am sure we are going to hear from the noble Lord, Lord Agnew, there are still many properties the ownership of which is, at best, unclear. I am very pleased to hear the commitment the Minister made in his speech just now that they will keep this anomaly of annual updating under review. In the meantime, I caution any person who is buying or selling property from or to an overseas entity, or who is entering into a lease over a property with an overseas entity, to require it to be a condition of the transaction that the entity’s entry in the register is updated immediately prior to the transaction completing. Only by doing that can the innocent party know who they are actually transacting with. With that, I beg to move.

[Lord Agnew of Oulton (Con)]

My Lords, I shall speak in favour of my Motion D. I am grateful to my noble friend the Minister for his ongoing dialogue with me as we grind to the end of this Bill: he has been patient and courteous, as ever. My problem is that the Government continue to say one thing and then do something different. Just to remind noble Lords, the reason I pressed my original amendment was that a gaping hole had opened up in this newly created register of overseas interests. It is barely a year old and we have more than 50,000 properties owned by an entity whose beneficial owners are withheld from public view. That is approaching one-third of all entries. It is rapidly becoming the default advice from cute law firms to their overseas clients to use a trust structure that is opaque.

In rejecting my original Commons amendment, the Government claimed refuge behind the principle of financial privilege. This is bizarre, if not worse, but in a spirit of collaboration I will not use the word that I had planned to use. The costs to Companies House of publishing trust information are estimated on the back of an illusory envelope at between £600,000 and £2.8 million—a figure supported by absolutely no methodology—but under the Bill, Companies House funding is going to rise exponentially. The current filing fee of £13 will rise to anywhere between £60 and £90 if the guidance we have been given is followed. Taking the bottom-end number, £60 means an increase of £47 a year times 4 million companies, or £188 million a year, against this odd figure of £600,000 to £2.8 million. Even if the higher filing fees deterred some company creation or dissolution for non-viable entities, the additional cost, frankly, is a rounding error. Indeed, if the Government were to approach this logically and calculated that as a transparency cost, it would be around about 70p per registered company per year, or about 1.25%.

I give this example only because I continually worry that I get very clear assurances from the Minister but the actions taken by the Government are rather different. I accept through gritted teeth that we cannot debate that amendment as I was blocked from tabling it. This leaves us with a much watered-down proposal to try to hold the Government to account to get on with the consultation they say they need to ensure that there are no legal challenges. The Government have accepted that they need to start straightaway, in this calendar year, but they do not yet accept the principle of my proposed new subsection (2) that the consultation includes the principle of public access to protected data on a bulk basis.

This sounds arcane, but it is crucial because currently HMRC is not providing the information when requested, and it can be requested only on a case-by-case basis. As I have shown, there are already more than 50,000 hidden owners where the public are being denied the information, so doing it individually is simply not practical. I have consistently said that those with a bona fide need for confidentiality should have it, but this would be a very small proportion of the 50,000.

On the terms of the consultation, there are a couple of elephant traps that the Government should be aware of. A few years ago, when the consultation was issued to tighten up the non-dom loopholes, the lawyers’ excuse for not tightening them up was that anyone who declared non-dom status should have a reasonable expectation that it should last in perpetuity. That sounds pretty sinister to me, but apparently that argument has already been rolled out to civil servants on the issue of more transparency with trusts. I warn the Minister to be alert because, as I understand it, civil servants have already expressed their compliance with this idea. I hope that we as politicians are still running the country, not the civil servants.

We have heard from my noble friend the Minister and he has given commitments, which I very much appreciate. However, I hope he understands why I am extremely nervous: what he says and what the Government do are not always totally aligned. I will take his words exactly as he says them, though, and I ask him to keep a very careful eye on this process over the next few months. I think he has learned enough about me to know that, for all my many weaknesses, one thing I am is dogged. We will keep a careful eye on this. On that basis, I will withdraw my amendment.

--- Later in debate ---

[Lord Vaux of Harrowden (CB)]

My Lords, I thank the Minister for his generous comments. I also thank noble Lords who have been so generous with their support throughout the passage of the Bill on these matters, which has allowed us to get to the point of achieving at least this compromise. With that, I beg leave to withdraw Motion A1.

Motion A1 withdrawn.