Economic Crime and Corporate Transparency Bill (Sixth sitting)

Seema Malhotra Excerpts

Committee stage
Tuesday 1st November 2022 Public Bill Committees

[The Chair]

Order. Will the Minister take a seat for a second? Seema Malhotra wants to make a contribution. If Members are looking to speak to amendments, may I remind them of the convention of bobbing? It helps the Chair out.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Thank you, Ms Bardell. I do not think we were fully clear between us. It is a pleasure to serve under your chairship. I rise to speak to amendment 76, which is in my name and the name of my hon. Friend the Member for Aberavon. I want to conclude on the remarks he has already made.

Clause 27 sets out exceptions to name change directions if the Secretary of State is satisfied that it is in the interests of national security, or of preventing and detecting serious crime, for a business to carry on operating under a name that goes against regulations. We have tabled this amendment to require any exemption to a name change direction on the grounds of national security to also be subject to appropriate transparency.

Amendment 76 is a probing amendment designed to clarify the purpose and circumstances in which the Secretary of State can use their powers of exemption, and who will be aware of how the exemption is being used. The Minister may tell me that some of this is subject to greater security. In that case, which body or Committee would be aware, even under Privy Council rules, of the use of these powers?

[Kevin Hollinrake]

It is a pleasure to serve with you in the Chair, Ms Bardell.

As Members will have noted, this group is large and includes both amendments and clauses. The hon. Member for Aberavon—I appreciate his kind words and those of the hon. Member for Feltham and Heston—has tabled many amendments, and they would make changes across multiple clauses. It will therefore be helpful for all Members if I lay out the effects of the clause as currently drafted, before turning to the amendments and the many points made during the debate.

Clauses 14 to 22 together form the majority of the chapter on registered company names. At present, the Companies Act 2006 leaves it to the discretion of the Secretary of State to determine the time period within which a company must comply with a direction to change its name. Clause 14 amends that to standardise the various direction-issuing powers already found in part 5 of the Companies Act 2006 and those that are inserted by this Bill. This means that in all instances where companies are directed to change their registered names, they must do so within at least 28 days of the date of the direction. [Interruption.] There are two things I would say to the hon. Member for Aberavon. Clause 14 must be looked at in context, and the point is that proposed new subsection (2A) of section 64 of the Companies Act would give

“a period of at least 28 days beginning with the date of the direction.”

Combined with new subsection (2) of section 76 of that Act, as inserted by clause 14(5) of this Bill, that means the direction will be a fixed period. There will be a fixed period, just as he wants, and in all likelihood it will be 28 days. It may sound like odd drafting, but the “at least” part is to ensure that the direction cannot be less than 28 days to give companies a reasonable chance to make the change. Once the decision has been made on how long the company will get, that will be a fixed period, unless the company provides justification for changing it.

[Kevin Hollinrake]

It is in the Bill. The point is that the company, in some circumstances, can effectively apply to have that time period extended. That is the point of this; that is where the “at least” bit comes in.

[Seema Malhotra]

Perhaps the Minister can clarify whether a period of 128 days given in writing would be in line with the terms of the clause. Did he go back to the lawyers to see whether the clause could be redrafted to read that the period must be a maximum of 28 days, beginning with the date of direction? That would still allow for the terms of proposed new subsection (2B) and a permitted extension within three weeks.

[Kevin Hollinrake]

We need to allow for some discretion when certain companies cannot comply because of certain consequences and for whatever reason. As a simple example, a company might have to get an agreed resolution between directors or shareholders to change its name. That is why the term “at least” applies in the clause.

I would like to move on, because there is more that I would like to share with you, which deals with the issue from a different direction. I will come back to you, I promise you.

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[The Chair]

Does the hon. Member for Feltham and Heston wish to move any of the other amendments?

[Seema Malhotra]

In the light of there being some connection between them all, I think we will not press them.

Clause 14 ordered to stand part of the Bill.

Clauses 15 to 27 ordered to stand part of the Bill.

Clause 28

Registered office: appropriate addresses

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[Kevin Hollinrake]

And I do not think the right hon. Lady imagines that the registrar could go around them all. I am glad we agree on that.

[Seema Malhotra]

Will the Minister give way?

[Kevin Hollinrake]

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

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

[Kevin Hollinrake]

No, not at this point in time.

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

The shadow Minister wanted to intervene.

[Seema Malhotra]

Does the Minister agree that being able to use analytics to determine that 1,000 companies are registered at one address would not mean manually going through and using resources in that manner, and would mean—taking a risk-based approach—that we would identify where something needed to be done?

[Kevin Hollinrake]

Absolutely. We all agree with that. The registrar will look at that.

[Seema Malhotra]

When?

[Kevin Hollinrake]

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

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[Kevin Hollinrake]

As for the period of compliance, we will let hon. Member know. There is a huge volume of records. We want Companies House to be more proactive. We do not want it to be swamped by information being supplied to it all at once. We need to make sure that the commencement order is carried out sensibly. Red flags could well be applied to a company address that has many other companies attached to it. If a company had registered multiple company directors or persons of significant control or had recognised multiple companies at one particular address, that should be the kind of red flag that, following a risk-based approach, would require checks and balances to be put in place. Those companies would be struck off the register and other actions would be taken against the individuals.

The new definition in clause 28 negates the need to include the reasonable suspicion element of amendment 86. Where the registrar, informed by the intelligence and information available to her, has reasonable grounds to suspect that the company does not have permission to use the address, she may come to the view that in the ordinary course of events, the appropriate address conditions will not be met. The registrar will then either reject it or change it according to the circumstances.

[Seema Malhotra]

If I am following the Minister’s arguments as he intends, is he saying that his view of objective 4 and how it would be interpreted means it would be implicit that the registrar would be expected to check addresses and ensure minimum fraudulent activity and so on? In response to the amendment tabled by my right hon. Friend the Member for Barking, which called for a duty on the registrar to verify the appropriateness of the address using a risk-based approach, I believe the Minister argued that that was implied and would therefore be done under the objectives as they stand.

I put it on the record that we agree with the new clauses and amendments that he has outlined and that were debated with clause 29. They are important. Does the Minister think that, even after his new powers and requirements are in place, the gap will be closed sufficiently? To say that the registrar could act on intelligence available to her either implies that somebody will give it to her or that there will be a function that will operate as if there were a duty. Is that his intention?

[The Chair]

I remind Members that interventions are supposed to be interventions and not substantive contributions.

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[Kevin Hollinrake]

The purpose of this set of amendments and new clauses is to better standardise address information requirements across the Companies Act 2006 to allow the registrar to take appropriate action when information is erroneous or misleading.

It is important for users of the company register that the information they find on it is accurate and has genuine utility for them. The amendments standardise the address information that companies will be required to file in relation to corporate directors, company secretaries, relevant legal entities and registerable persons—the latter two being the categories of people with significant control of a company. In future, a service address and a principal office address will be required for all those categories. The former measure will give certainty about where documents can be served, and the latter will give clarity about the physical whereabouts of the party concerned.

New clauses 5 and 6 address the circumstances in which it appears that the stated service address does not fulfil its requirements or that the person of significant control or the company cannot demonstrate that the stated address is their principal office address. The new clauses imitate section 1097A of the Companies Act 2006 as amended by clause 29 of the Bill.

Clause 29 amends the 2006 Act to give the Secretary of State the power to make regulations enabling the registrar to change a company’s registered office address when there is reason to believe that it is no longer appropriate. That power, and those contained within this group of amendments, will be an important weapon in the fight against identity hijack and abuses of innocent people’s address details.

Similarly, the purposes of the remaining amendments in the group are to strengthen the framework for changing address when it is expedient to do so, and to improve the utility of address data. I trust that the Committee will agree that these well-considered amendments and additions will add value for users of the Companies House registers and afford further protection against the nefarious use of private individuals’ information.

[Seema Malhotra]

I am grateful for the opportunity to speak in support the Government’s amendments and new clauses, which we welcome.

As the Minister has set out, new clauses 5, 6 and 8 give the Government the power to introduce regulations that authorise or require the registrar to change addresses and to serve documents to those with significant control. He also mentioned that new clause 5 mirrors section 1097A of the Companies Act, which confers a regulation-making power to enable the registrar to change a company’s registered address, and an equivalent power for a company’s service address. New clause 6 does the same for the registered principal address of a relevant person

As we have been discussing today, registering an address at Companies House does not require the permission of the owner or occupier of that location. It goes without saying that the negative impacts are significant, from visits from debt collectors or bailiffs to damage to a company’s credit rating. Under the regulations, anyone can apply to the registrar to have the registered office of a company changed, following a procedure. It is right that the Bill broadens that power to service addresses and principal addresses. Those are important steps, and the wider amendments close loopholes on company addresses.

New clause 8 allows documents to be served on persons of significant control over a company as well as on directors, secretaries and others. Amendment 44 requires a corporate director to include a principal office in all cases, rather than its registered or principal office. Amendments 46 and 47 do the same for corporate secretaries. Amendment 45 requires a company to provide a service address for directors who are not individuals. Amendment 48 requires a company to provide a service address for persons of significant control who are not individuals. Amendment 50 requires a principal office to be provided for all partners that are a legal entity in a limited partnership.

It goes without saying that all those amendments are welcome in limiting the value of registered offices used as a way of concealing where a company does its business. We support them, but a question remains about the missing link in the chain. We must ensure that, in the use of the powers that we have been talking about, the registrar will—I hope, from our discussions with the Minister—in due course have a duty to ensure that whatever can be done with a risk-based approach can make the most use of the additional powers and requirements being introduced in the Bill. Without that, it feels as if their impact will be far less, and the achievement of the goals of those powers and requirements will be considerably less than otherwise.

Question put and agreed to.

Clause 30

Registered email addresses etc

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

[The Chair]

With this it will be convenient to discuss clause 31 stand part.

[Kevin Hollinrake]

Clauses 30 and 31 relate to new requirements for companies to provide an email address to the registrar. When the Companies Act 2006 was drafted, the vast majority of filings presented by companies to Companies House were on paper, and communications to companies from Companies House were posted to the company. The effect of that, especially in the modern digital world, is to slow things down. These days, the vast majority of filings are made digitally, and the Companies Act needs to change to reflect that reality and more modern working practices.

Clause 30 will require that all companies maintain an appropriate email address. One benefit of that is that communications with a company can be expected to be quicker. In addition, it is a cheaper way to communicate and will provide savings for both Companies House and businesses. A failure to provide an appropriate email address will be an offence, and when a company notifies a change to its registered email address it will be obliged to provide a statement that the email address is appropriate. That will assist the registrar in instances where the email address is found not to be appropriate, and it turns out to be something other than a genuine mistake. I provide reassurance, however, that the effect of subsection (7) is that registered email addresses will not be made available for public inspection. That will reduce the risk of their being used fraudulently.

Clause 31 describes the means by which companies already on the register must provide their appropriate email address. Companies will be required to provide the appropriate email address in a statement submitted alongside their first confirmation statement after the requirements outlined in clause 30 come into effect. That transitional period has been selected to reduce the burden both on companies and on Companies House. Given the number of companies already registered with Companies House, it will provide a staggering of notifications of appropriate email addresses, allowing Companies House to deal with them in a timely manner. Companies will not have to provide an extra document to Companies House until they already have to make a required filing. That is a sensible and proportionate method of ensuring compliance with the new requirements. If the company does not supply the appropriate email address with its confirmation statement, it will be in breach of the requirements.

[Seema Malhotra]

I have just a few remarks. We have no issues at all with the clauses, and welcome them. Amending the Companies Act to require all companies to maintain an appropriate email address that can be used in correspondence and administrative matters with Companies House seems appropriate. The email address would be trusted, and any emails sent by the registrar would be expected to come to the attention of a person acting on behalf of the company. We therefore support clause 30.

It is also very sensible to have a transitional period. I am not sure whether clause 31 says how long the transitional period will last before the previous clause comes into effect, and I am not sure whether the Minister said so either. He may have a view on that, or he may come forward with it later.

[Kevin Hollinrake]

I am happy to come back to the shadow Minister with that information in due course.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31 ordered to stand part of the Bill.

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

Economic Crime and Corporate Transparency Bill (First sitting)

Seema Malhotra Excerpts

Committee stage
Tuesday 25th October 2022 Public Bill Committees

[The Chair]

Thank you. You are welcome. Given the time constraints, I will ask Members for short, snappy questions, so short, snappy answers will be very much appreciated. I start with the Opposition spokesman.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Q I will put one brief question to each of the witnesses, as I know colleagues have other questions.

First, thank you for giving evidence. Nick, I am conscious of your perspective for the whole of the financial services sector and I want to ask a question specifically about data and information sharing: is enough happening in the Bill to deal with what has been described to me as the chilling factor of sharing information? What might come back in the consequences of promoting sharing?

Ms Manku, you gave evidence in which you described the “unintended consequences” of requiring limited partnerships to have a registered office. I am not sure that we would necessarily agree with that, so I am interested in your argument.

Nick Van Benschoten: We welcome the provisions in the Bill for private sector information sharing. We are very glad to see that they apply across the AML regulated sector—not just banking, but payments, crypto, e-money and so on—which allows us to follow the money and the data as criminals move across sectors to obscure their tracks. That is very welcome.

We also welcome the protection from breach of confidence. That can be in common law and, typically, in terms and conditions. It is important to be able to encourage people to do the right thing without the fear that they might be subject to litigation. However, we note that the Bill falls short in the way in which we can share information with the National Crime Agency, which is a disapplication of all civil litigation. We would like to explore whether we could go further in the Bill, but those provisions are very welcome.

I will not say too much. An expert colleagues from one of our member banks is speaking to you later, but I stress the fact that we want to encourage the use of information sharing as much as possible. It is not just where customers are exited, but where a restriction is placed on them, such as additional monitoring or thresholds—there are a lot of ways in which the banks put each other on notice. We want to encourage that use as much as possible in true cases of economic crime.

Gurpreet Manku: We welcome the provisions in the Bill to ensure that limited partnerships are not abused by criminals—I want to make that clear. On the point about having a registered office, we agree that there needs to be a service address in the UK for the delivery of documents and for the registrar to contact the organisation, but our concern is actually in reference to the legal meaning of “registered office” in the Companies Act 2006 when it comes to standard companies. We know that the term means something else in that context, so it is actually quite a knotty legal point rather than an objection to the principle of having a link to the UK.

It is just about ensuring that any existing arrangements that have been set up for legal and regulatory purposes for international funds structures remain intact. We will need to work through the process of what this means in practice. We were speaking to BEIS officials as soon as yesterday to talk through what it means in practice. This is more of an implementation point, and we have suggested edits that will come through to officials.

[The Chair]

Would you like to follow up, Seema?

[Seema Malhotra]

Quite a lot of people want to ask questions, so I will make further remarks later.

[The Chair]

Dame Margaret?

--- Later in debate ---

[The Chair]

I call Seema for what is probably the last question.

[Seema Malhotra]

Q I want to come back to where I started and to pick up on the evidence given about regulated and unregulated sectors. Obviously, there are issues in banks and the financial sector, but we have not talked much about cryptocurrency or other areas such as gambling, where there may be flows of illicit finance—cash and so on. Do you think that more needs to be done about unregulated sectors? Does the perimeter need to be extended? What relationships are there between economic crime in the financial sector and that in other sectors?

Nick Van Benschoten: From a financial sector point of view, it is important to look at this as an ecosystem; that is definitely how the criminals look at it. They look for weak points. Sometimes the problems are upstream of the financial sector, but it crystallises in our sector because that is when people realise that the money has gone out of their accounts.

We are very supportive of the fraud provisions in the Online Safety Bill—we think they are critical. We also think it critical that everyone be incentivised to play their part. That includes potential issues around the scope of the economic crime levy, which applied only to the AML regulated sector. The Bill levels up powers for the cryptoasset seizures and freezing orders. That is welcome; it simplifies things. We work with crypto sector associations. They are now trying to realise that they are part of a regulated sector, and they want to be part of the gatekeeper community.

On what the Bill does, it is important, as I mentioned, that there be information sharing across sectors. That is key, because then we can see whether we all have a different piece of the puzzle to put together. A systems approach is definitely needed; that is maybe the context for our point that Companies House should really be an enabling hub. That includes giving access to information that may not be on the public register.

[Seema Malhotra]

Q If this legislation is to be as effective as it needs to be, will there need to be dependencies on other legislation?

Nick Van Benschoten: That is a very good point, yes. There are also the information processing provisions on the identification, prevention and detection of economic crime in the Data Protection and Digital Information Bill, as well as the Online Safety Bill. Obviously, consultation is ongoing about a statutory APP or authorised push payments code. There may also be other vehicles in one of those bits of legislation, or this one, for other measures that we are currently discussing with the Government. I think the Minister made reference to our difficulty with having to process payments within a set period—there is a hard regulatory obligation, even when we have identified economic crime risks. We are still exploring whether that needs guidance or legislation. All these things need to come together if we are to design the right ecosystem. That then raises the question of who is leading the system. We are working on that with the Government.

[The Chair]

We have less than one minute. Ms Manku, do you want to make a few final comments?

Gurpreet Manku: We are glad that these provisions are being implemented. We have been working on them since 2018, and stand ready to work with officials to ensure that they are implemented effectively to meet the Bill’s overall goals.

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[The Chair]

Thank you for joining us, Mr Kirby. We have until 10.35 am. Would you briefly introduce yourself, please?

Nigel Kirby: Good morning to the Chair and the Committee. I am currently the head of the group financial intelligence unit at Lloyds Banking Group. Across the industry, I am a representative on UK Finance’s information and intelligence committee and, for full transparency, as part of that I was deputy director of the economic crime command of the National Crime Agency.

[Seema Malhotra]

Q It is good to have you here, Mr Kirby. Could you give us a little flavour of the kinds of trends and patterns of economic crime that you are seeing? How are criminals behaving? Are you seeing new trends domestically and internationally?

Nigel Kirby: Perhaps I can give a couple of the examples that we used when we were speaking with the Home Office for the formation of the Bill. In one case that involved money laundering, Lloyds identified seven customers that were receiving cash payments into their accounts. We linked those seven customers because they used the same fraudulent documentation—a gas bill—to set up their accounts. They had all been linked using fraudulent IDs. They were sending money to one individual in another bank.

At the moment, we act on such cases by meeting our statutory obligations—we exited those customers—but from the criminal’s perspective, the second bank is not aware of the fact that they are receiving those funds, because we do not have the capability to share that information with them. Secondly, it is highly likely that those seven customers moved on to other banks and continued that activity because, again, at the moment we have no capability to share the information about our economic crime concerns in that space.

That is a fairly simple example, but to build on it, the same kinds of techniques were used to launder criminal funds in another case involving three companies that were banking with us. We recognised that they were receiving cash money from the same post office source. They were also receiving money from other companies in banks. That money all got consolidated and was sent out to, if you like, a fifth bank. I do not know what happened to it after that—we cannot see.

[Seema Malhotra]

Q A fifth bank domestically or internationally?

Nigel Kirby: It was, at that particular point, a UK domestic bank, yes. We have this sort of complexity of companies that are linked using different identities and are moving money around, layering it in the system, and sending it to other parts of the system. We are currently limited in what we are able to do.

On those three companies that we at Lloyds could see were receiving money from five other banks, at the time we could not inform those banks of our concerns or explore with them whether that money was legitimate—it is not all illegitimate; it could, of course be legitimate funding. Furthermore, when that money was consolidated and sent to another bank, we were unable to inform that bank.

Whatever the predicate crime—there are all sorts of predicate crimes—the layering is not that complex but it uses the banking system, across the banking system, to obfuscate and layer the funds, and then the criminals move on. The big challenge at the moment is that we can report those entities and companies, but they will just go and open up in another high street bank, and when they have exhausted the five major high street banks, they will go to the challenger banks, and when they have exhausted those, they will go to the fintechs. We are not aware of that in the way that other industries such as the motor industry might well be.

[Seema Malhotra]

Q That is extremely helpful. To follow up, will the measures in the Bill go far enough to enable the critical data sharing and the ability to inform other banks of what you think is important? In doing that and in going as far as you feel is needed, are appropriate safeguards in place for some things that may be legitimate finance and able to be explained by visitors or customers?

Nigel Kirby: To take the first question first—about whether the Bill goes far enough—I commend and compliment the Home Office. It worked with us on the Bill. This piece of legislation was, fortunately, done by the Home Office but using our case examples. The Home Office explored whether the Bill would work with the scenarios we gave them. That helped the information provisions to be pretty much in the right place. There is one key omission from our perspective; I can come back to that, if helpful. There is also one key dependency in another Bill—

[Seema Malhotra]

Q Sorry, what is the omission?

Nigel Kirby: The omission was referred to by Nick Van Benschoten: the civil liability protection. In the UK, we have real trust and confidence built up in voluntary information sharing with the National Crime Agency under section 7 of the Crime and Courts Act 2013. That has been the basis of our voluntary sharing, and we have built confidence in it over seven years.

The legislation has two limbs to civil liability protection—I will have to read my notes to make sure I do not make a mistake. The first limb is

“an obligation of confidence owed by the person making the disclosure”—

that limb is also included in this Bill. The second limb that we rely on is

“any other restriction on the disclosure of information (however imposed)”—

that limb is not included in the Bill.

Our position is that the Bill should align with the existing legislation that we are comfortable with. We would have more comfort in sharing and be more incentivised to share if we had the same protections as we have when we share with the National Crime Agency. The further observation is that there is not just one precedent; another piece of legislation, the Criminal Finances Act 2017—under section 11, I think—had sharing provisions with the purpose, in effect, of bringing better disclosures to the NCA. It had exactly the same two civil liability limbs, written in the same way. We believe that the second limb would be hugely helpful in doing things.

You might want to come back, but the other dependency that is key for us is that the Bill is drafted as an interlink with the GDPR, as you well know. That is wise, and one of the protections—that it has that link with the GDPR—but because the Bill has that interlink, the provisions in the GDPR are really important. I am aware that there is a draft Bill that has not yet been laid before Parliament and, again, we—my colleagues in UK Finance—have worked on that Bill. Absolutely key for us in the draft Bill is a legitimate interest for sharing, because that Bill sets out legitimate interests.

At the moment, the GDPR cites only fraud as a legitimate interest, and no other crimes. To be able to make the measure in this Bill work, we need the revised GDPR to have the “prevention, investigation” and “detection” of crime—what the GDPR says at the moment—to be for all crime as a key part, so we can make the interlink. Otherwise, we are restricted only to fraud, but do not include wider economic crime.

[Alison Thewliss]

Q That is really interesting. I want to pick up a little on what you said earlier about receiving banks and where fraud has been against some of your customers. The Treasury Committee, in our report into economic crime, discussed fraud on online platforms, and the level of it. I understand from speaking to some of your colleagues in the past that that has been increasing. If someone tries to buy something on Facebook but is defrauded, the bank of that person will refund them. There is no obligation on the platform to take any action, and the receiving bank of the person who has done the fraud will take no action either. Could more be done in the Bill to break those types of transactions, with fraud being perpetrated on online platforms? What is the wider impact on the banking system?

Nigel Kirby: Your question is specifically about fraud and what we can do in that space. I suggest that tackling fraud is a shared responsibility. When you look at a typical fraud, you have the payment platform, as you mention; you have a sending bank and a receiving bank, and you have the victim. To tackle it, we need to look at the whole ecosystem, as Nick said, and have an approach that works. I am not convinced that there are things that one can put into the Bill for that—it is the wider point of the whole ecosystem coming together for any fraud strategy moving forward, how we tackle that and how we incentivise the right behaviours for tackling fraud in future.

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[The Chair]

We have literally one minute.

[Seema Malhotra]

Q I have a question about automatic strike-off procedures for companies that may have bank accounts with you and where that company may have been involved in economic crime and then is automatically struck off. Do you have concerns about that process and whether there should be reform?

Nigel Kirby: I think, with respect, that “automatic strike-off procedures” are your words, not mine. I used the fact of us taking an approach and considering whether to exit—that might be a similar thing—a customer. We take this really seriously. We look to understand whether we have economic crime concerns about those consumers. There is a range of things that we can do in that space. The ultimate one is about exit. We would exit that relationship, which is contractual, so we are able to do that. But there are other things that we do, and one is actually to speak to the customer and understand that transaction. We see some unusual transactions, but we have a conversation.

[Seema Malhotra]

It is more about Companies House automatic strike-off—but they might be your customers.

[The Chair]

Order. I am terribly sorry; we do have to leave it there. I must cut it off on the dot. Mr Kirby, thank you very much for joining us.

Examination of Witnesses

Andy Gould and Arianna Trozze gave evidence.

--- Later in debate ---

[Dame Margaret Hodge]

Q And that is really hard.

Andy Gould: Yes.

[Seema Malhotra]

Q I want to follow up on what you were saying about how you can follow the flows, but you do not always know who is sending and who is receiving. I want to understand a bit more about crypto accounts. I understand that you do not need an account in order to make a transaction, but if you do have an account you can see who is making transactions. Is there more that can—or needs to—be done to say that everybody must have an account? Is that practical and how could it happen? Secondly, what is the current level of identification and verification checks when setting up a crypto account, and what level should there be?

Andy Gould: The average member of the public using cryptocurrency will probably be using an account through one of the legitimate exchanges. They will go through the whole “know your customer” process that they would go through for a bank. Regulation pretty much covers that; I think we are in a good place with it. It is the criminal exchanges and criminal service providers that regulation would not affect. You would not be able to build an infrastructure that stops them being able to create their own wallets, as you could for those accounts with what are effectively crypto banks.

Arianna Trozze: There has been research that some of the KYC processes, especially in some of the higher-risk exchanges, are quite easy to fool with fake documents and other such things. There are companies serving UK customers that are still not registered with the FCA and do not meet its KYC or AML requirements, despite its best efforts. For example, none of the Bitcoin ATMs operating in the UK is registered with the FCA, even though they are supposed to be, and they tend to have quite lax KYC requirements. They may require you to put in a phone number. Some of them have more requirements, but whether it is a rigorous process remains in question.

[Seema Malhotra]

Q What more could be done about that?

Arianna Trozze: In my view, the only thing would be more enforcement efforts against non-compliant companies. I do not know how practical that is, or what kinds of resources there are to address the problem, but to me the only way forward is to make sure that those companies and operators know that it is not acceptable to be working and serving UK customers without a licence.

[Seema Malhotra]

Q What are the consequences for them if they do that?

Andy Gould: I think the FCA has prosecution powers and enforcement and regulatory options, but I could not say what it is doing about that.

[Seema Malhotra]

Q Do you know if there are cases where it has used those powers?

Andy Gould: I do not know. They only came in earlier this year, so I would be surprised if the FCA has got to the stage where it is able to exercise them in terms of investigation.

[Jane Hunt (Loughborough) (Con)]

Q Mr Gould, to follow on from that important point, I understand that the Bill removes the need for powers of arrest before you can do search and seizure. Can you explain the impact of that? Will it be useful for reducing the number of victims once you have spotted an issue happening?

Andy Gould: Yes, definitely. That is a huge benefit of the Bill; it is one of the provisions that we have been asking for. Imagine a scenario where you execute a search warrant on criminal premises: you go in and you can see stolen property, but at the moment, if they are not there, they are not under arrest and there is no existing investigation. You then have no power to take that crypto under the Proceeds of Crime Act 2002. So yes, that is a big step forward for us.

--- Later in debate ---

[The Chair]

Thank you for joining us. We will go straight into questions.

[Seema Malhotra]

Q I will be brief in asking this question, and then I have to leave. Do you think the NCA has sufficient resources to make use of the new recovery powers in the Bill, and do those powers go far enough?

Jonathan Hall: I do not know about the resources of the NCA, but in terms of whether the powers go far enough, I think there are some areas where they perhaps go too far, or at least where I think, from a fundamental rights and individual rights perspective, some attention may need to be drawn. There is the simple question whether you should be able to seize cryptoassets on the basis of the fact that they might be used by terrorists. Of course you should. Then you have the complicated question of how you bring about a seizure regime where assets are not physical. It is one thing if you seize a jewel or some cash, but it is another thing if you are effectively seizing information. What you have here is a very lengthy set of provisions to allow you to do that.

Generally speaking, I think it works, but there are one or two areas I want to draw to your attention. The first, which I think is acceptable but worth thinking about, is that the power is a power to seize not just cryptoassets but crypto-related items. In practice, you are not seizing a thing; you are seizing a code and that can be written down on a bit of paper or on a computer. What these provisions do, unlike all the other seizure powers that say you can seize the jewel, the cash or the contents of a bank account, is that they allow the police to seize any item, which could be a computer, or a piece of paper. So, it is quite a wide seizure power. I think it is kept effectively within bounds, but it is something that is worth drawing attention to, which is different from other aspects of seizure in this field.

The next point is that you have to be able to convert crypto and there are several reasons for that; one is because the prices may go massively up or down. Individuals whose assets are the subject of seizures may never be prosecuted—and this is a civil remedy—and, in fact, no final application for forfeiture may ever be brought. That is particularly true in the context of terrorism, because often what counter-terrorism police will want to do is disrupt the transfer, but they will not necessarily want to go on and apply to forfeit. The figures from last year show that there is a disparity between the number of accounts that are frozen and the amount of money that is finally the subject of forfeiture.

The Government did listen to my views on this issue. It is important that the Bill has provisions such that both the police can apply to convert the cryptocurrency into, say, pounds sterling, and that it is also open to the individual from whom it is seized, who might say, “Look, I bought this crypto. It’s gone massively up in value. You’re never going to apply to forfeit this. I don’t want to lose out on the rise of value.” There is provision in the Bill for the individual to go to court and say, “I’m a person from whom the crypto has been seized. Please can you convert it?” That will be decided by the court, but it is good that that provision is in the Bill; I think it works.

Is this too boring and long? I mean, there is a third bit, which I think is the most difficult bit. It is the power of a magistrates court to require a UK-connected wallet provider to freeze the cryptoassets and, even more significantly, to require that the UK-connected crypto wallet provider should actually pay the money over to the court. It is slightly in the weeds, but what the Government have done—and I understand it—is to try to be quite novel. They are really trying to push the law here, because they realise that many of crypto wallet providers will not be based in the UK, but this comes with a consequence regarding how the Bill is currently worded. I will just give you the bit that I think may need a bit of attention; it is clause 10Z7B—

[Dame Margaret Hodge]

Q Can you give that again?

Jonathan Hall: Yes, I will. It is clause 10Z7B(7).

Economic Crime and Corporate Transparency Bill (Second sitting)

Seema Malhotra Excerpts

Tuesday 25th October 2022 Public Bill Committees

[The Chair]

No, I do not think so; we do not have time for that. I call Seema Malhotra to ask the first question.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Q76 I have two questions. The first is for Mr Swain. Thank you both for coming to give evidence today. The Treasury has allocated £63 million so far for the transformation of Companies House functions, but beyond that there is no clarity on the sustainable funding model for Companies House, with the extra work and demands that will be coming its way. With the increased responsibility that is going to be placed on Companies House, what do you think needs to be done? Is the £12 incorporation fee still an adequate amount for what Companies House will be doing?

My second question is to both of you. Do you believe the Bill should go further and reform the strike-off procedure for companies? There is a recognised issue where companies are building up debts, not filing a return and then being struck off as one of the routes through which money laundering may be taking place, with limited room for manoeuvre after that. Would there be any benefits to reforming that process? Is there any consideration, for example, of companies being placed in a compulsory liquidation procedure? I would be interested in your thoughts on that.

Martin Swain: As you say, we have £63 million through the spending review for transformation. We are two thirds of the way through our transformation programme at the moment. It is fair to say that we have been clear with the Department and Treasury that we are taking on significant new functions and responsibilities. Some of that will require more people and people with different skills from those that we have now. Companies House is a register of information, so a lot of our people do processing work. We will need to move those people off that. We will need to employ skills that we do not currently have, so we are actively talking to the Department and the Treasury about our funding model.

To your point on fees, yes, we could increase fees to pay for additional resources. I know there is some challenge around the fee being too low. Again, we have taken provision in the Bill to charge fees for different things that we currently cannot charge fees for. For example, we cannot currently recover costs for investigation and enforcement activity, as it is centrally funded. We are taking powers to do things differently. I do not think I am at a stage to be able to say we have a definitive figure that we have agreed with the Department or Treasury that would give us our funding model for the future.

[The Chair]

Mr Searle?

Adrian Searle: I think the question that was probably targeted towards me is not about the resources in Companies House, but the second, follow-up question relating to striking companies—

[Seema Malhotra]

It was about how to tackle economic crime and whether the reform of the strike-off process is important to that.

Adrian Searle: The strike-off process is not something I have a detailed understanding of. I suspect Martin might be better placed to answer that question.

Martin Swain: Again, it is something we are very aware of. Companies take advantage of the strike-off route to discharge themselves of debts and so on, and for other purposes. My sense is probably that the Bill as drafted gives us what we need. It is about how we take forward the policy in that area regarding where companies are moved to strike off. For example, we get lots of representation with regard to lots of companies being registered at one address—a registered office being used and abused. The route for that would be to default them to our address at Companies House, for not having a registered office address that is valid. The next step on that would be strike-off, but clearly if we do that we may be having an adverse impact on the system and giving companies a route to use it for criminal activity or to fold without paying their debts. We are very aware of the issue.

[The Minister for Industry (Jackie Doyle-Price)]

Q What we have here are the twin objectives of making it easier to do business and to tackle economic crime. I am really interested to hear from both of you whether we have the balance right in the Bill as it stands.

Adrian Searle: I think we have. There is, as you say, a real challenge to get the balance right between a prosperity and a security agenda. As we know, the Companies House reform elements of the Bill are a long time coming, so there has been lots of analysis and consideration of how you get the balance right. What I know from a law enforcement investigative perspective is that the changes being introduced under the Bill will certainly make the job of law enforcement far more straightforward in terms of our ability to investigate criminals and corrupt elites who are exploiting the complexity of the corporate structures to hide their assets, launder their wealth, and so on. I am confident that it gives Companies House and, by extension, the investigative agencies the powers we need. The indications that I have from exchanges with Martin and others in the industry are that the changes do not go so far that they inhibit transparent business practices in a way that undermines our economy. It feels to me that the balance is right.

Martin Swain: It is a very good point. It is a challenge for us as an organisation, because we have very clear direction from our Ministers that we should not create a burden for business, or make it difficult for companies to incorporate or for people to invest in the UK. The concept of balance is always there for us. We will bring in things such as ID verification, but we need to make that really efficient, and make it easy for people to understand the process, so that we do not create a burden for the vast majority of companies on our register that are legitimate businesses. That is quite a tension sometimes, because there is a significant spotlight on Companies House to become more than the passive register that we are at the moment, and to become—I hear this term—an “active gatekeeper” of the register. There is a potential that we move too far into that territory and make it harder for the vast majority of companies to deal with us.

I mentioned our transformation programme. There are two elements to our transformation. One is the legislative reform and all that is involved with that. The second part is digitising our services. That is what we have been focusing on in the last few years: making our systems really quick and easy to use, and to drive data, rather than receiving information on paper. You cannot work effectively with law enforcement from paper transactions; you have to have data.

--- Later in debate ---

[Dame Margaret Hodge]

Q The other brake on pursuing the bad people is the fear of failure, and therefore the burden of costs on the public purse. Would you like to see the cost capping that has been introduced on unexplained wealth orders extended here, or do you have other ideas about how we can try to make that brake less solid?

Michelle Crotty: The SFO would like to see those. We understand the concerns that other parts of the system have in terms of how you ringfence a cost regime just for economic crime. In terms of what the SFO can recover in any one year, we can retain £900,000 of legal costs if we win. Clearly, it is the other way if we lose, and there are ongoing discussions with the Treasury. I gave evidence to another Committee last week that, where we do not have a fund available to us for that that sits within our budget, we have to go and negotiate one with the Treasury if we lose. We would certainly welcome some protections, but we understand the challenges around fitting them into the broader scheme.

[Seema Malhotra]

Q I want to come back to some comments made by DCI Welch, which were very instructive on the challenges—we have heard it in some of the data as well. I think you referred to criminals not putting assets in their own names, thereby making them harder to find and seize. Do you think that the Bill gives sufficient powers for tackling fraud, especially through the use of fraudulent names and addresses? If not, what else needs to be done to help you all do your work more effectively, but is missing from the Bill?

Simon Welch: Obviously, we are putting more resource into this area. If we are to go after them proactively, we are building up our intelligence around this. Historically, fraud has not been given the same emphasis as other types of criminality, so I think we lack in some areas. If we start to build that up, to get more intelligence that is actionable for us to work on, and to go after some of these people proactively as opposed to reactively, we will be getting ahead of the game, and then we will be able to arrest these people and prevent other people from becoming victims. It is important to invest in this area. It is a difficult time for us, because recruitment and retention of staff are challenging. We are looking to build, and are getting investment streams coming into us. We are looking to develop that all across the piece. We are looking at the intelligence and at the proactive capability and the investigative capability to take this on.

[Seema Malhotra]

Q Is it all about resources, or is there more?

Simon Welch: Resources are a big part of it, but there is experience as well. If we bring in new people, they are unlikely to be the most experienced investigators. Unfortunately, in recent times, we have lost a lot of our middle-ranking, experienced investigators, so we are having to bring people through quite quickly. There is quite a quick turnover now, especially in things like crypto investigations, because those skills are very desirable in the private sector. It is really difficult for us to hang on to those people, so we are going through a bit of a treadmill trying to recruit and hang on to them. Mr Adams is looking at things like structures and strategies within the force to try to hold on to people and to look at different ways of retaining those skills and experience to make us that much better at investigating these things.

[Seema Malhotra]

Q Do the other witnesses have anything to add? Is there anything specific that will assist in some of these challenges? How much are resources constraining what you are able to do?

Michelle Crotty: It is fail to prevent for us, and it is capacity, capability and retention. As my colleague said, we can train people up with fantastic training, but the real challenge is that they are then very valuable recruits—not just to the private sector, but within the law enforcement community and in how we operate jointly to ensure that we build a pathway for people within law enforcement, as well as out into the private sector.

Commander Adams: The final thing to add to all of that is technology. The licences for the tools that we are able to use at the moment, particularly some of the tools for tracking crypto assets, are expensive. When you start to build up those layers of individual costs that Simon described on the tools and technology, to be really effective we have to bring those together with highly skilled and highly competent individuals. All that is a challenge for us at the moment, in the recruitment environment that we face.

[Liam Byrne]

Q Nik, I want to crystallise a couple of things. Is it your impression that economic crime is growing?

Commander Adams: I am not sure that my impression is the thing to take as gospel here. We see from the crime survey, our annual reporting and the growth in trends around victimisation that fraud is growing year on year. We predict that there could be anywhere from 25% to 65% growth in fraud over the next four to five years. If we were to go around the room and ask for a show of hands on who has received a smishing or phishing message, versus those who have been burgled in the past 12 months, I think we would be staggered at the volume.

--- Later in debate ---

[The Chair]

We now have evidence from Dr Susan Hawley from Spotlight on Corruption, John Cusack—via Zoom—from the Global Coalition to Fight Financial Crime, and Thom Townsend, representing the UK Anti-Corruption Coalition. Can I ask Dr Hawley and Thom Townsend to introduce themselves first?

Dr Hawley: Hello. I am Dr Susan Hawley, executive director of Spotlight on Corruption. We are a UK anti-corruption charity that monitors how the UK enforces its anti-corruption laws and keeps its international anti-corruption commitments.

Thom Townsend: Good afternoon, everyone. My name is Thom Townsend. I am the executive director of Open Ownership and the incoming chair of the UK Anti-Corruption Coalition. Open Ownership supports more than 40 Governments around the world to implement exactly these types of reforms.

John Cusack: Hello everyone. My name is John Cusack. I am the chair of the Global Coalition to Fight Financial Crime, which is an NGO. It is a 20-member organisation, both public and private, with large members such as Interpol and Europol, as well as Open Ownership—Thom’s organisation—and RUSI, which you may well know in the UK too.

[Seema Malhotra]

Q Thank you all for coming to give evidence today. I want to start with a couple of questions. First, in your view, does the Bill provide adequate guarantees against companies that have opaque corporate ownership based in secrecy jurisdictions? Could and should the Bill be further improved to prevent companies’ continued use of offshore and opaque corporate ownerships?

Secondly, does the Bill provide enough mechanisms to help with transparency around the new responsibilities of Companies House, and should there be reporting—to Parliament, or certainly publicly available—on new powers? What would you want to see in order to have confidence that measures are having impact?

[The Chair]

Who wants to go first?

Thom Townsend: I think that there are significant areas of improvement for the piece of legislation that we see before us. Primarily, from our perspective, we focus on reform of company registrars around the world, so my focus is very much on how Companies House can better operate. The key area we would identify is around the verification mechanism, as you would expect, and that splits out into two points.

One is around how we verify someone’s identity versus how we identify and verify the statement of control and ownership that they are giving about their involvement with the company. That second part—their status—is not covered here. We are not putting in place mechanisms to understand whether the disclosure of beneficial ownership is accurate, and that is a significant problem. A colleague talked previously about having a gold standard, but we are far off that. We see company registrars in countries around the world taking meaningful steps to attempt to use their data and powers to begin to understand whether those statements are true. That needs to be significantly beefed up in this legislation.

On the second part—the ID of individuals—there are grave misgivings about that being outsourced to the trust or company supervisor profession. There are other ways of identifying people: in an ideal world, Companies House should be doing that. That is a big change for this piece of legislation, but frankly, that is where most of the world is going.

[Seema Malhotra]

Q Could you give an example?

Thom Townsend: It is worth saying that countries that are doing very well on this typically have a national identity card system that is the foundation of their ID process. There are other ways of doing it. I think about Estonia, France, Germany—the list could go on, but it is based around their national ID card system. Clearly, we do not have that. The Government have done significant work on their own identity verification programme, which has had mixed results. We know we can do this. It does not necessarily need to be outsourced to that profession, which of course is supervised, but we collectively have severe misgivings about it.

On the second point around the accountability mechanism, we would like to see a very strong mechanism for Companies House to be coming to Parliament on a regular basis to talk about how this is looking and how it is performing. It is a much broader conversation about the kinds of indicators we would like to see reported on. That is a much longer conversation, but I will pass over to colleagues at this point.

John Cusack: I share Thom’s views, principally, on this. I spent 30 years working in banking as an MLRO—that is the previous history to my current role—and I spent many, many occasions trying to establish beneficial ownership. It is not easy, but it is the key to understanding risk and understanding who owns and controls a bank account, real estate or a company. That is absolutely key. I would like to see an obligation on the companies register that is essentially equivalent to that which a bank has in relation to knowing its customer, to the extent that that is possible. That is where we need to get to. Thom was explaining that some of the better countries are trying to get to that kind of standard.

Secondly, I believe that the registrar of companies needs to have a much stronger obligation than is currently set out in the proposed legislation—it needs, again, to be slightly similar to my old obligations as an MLRO. There needs to be an obligation to operate an AML programme that is worthy of the name, and to have strong and meaningful controls in order to be able to demonstrate that Companies House and the companies register are doing a similar job to what other people do in the private sector.

Dr Hawley: I would like to strongly back that up. It is essential that the “know your customer” rules that the private sector has to use are used by Companies House as well. There is no point having a registry that SMEs cannot rely on because it is not as accurate as it needs to be. That has been a problem now that the big companies simply do not use the corporate register because it is so inaccurate. There is a long way to go on that.

We also have real concerns, as Thom mentioned, about the authorised corporate service provider provision in the Bill. In essence, it relies on another part of the system—the anti-money laundering supervision system—and the danger is that we are just playing whack-a-mole. We are just pushing the problem down the road. We know that HMRC, in its supervision of TCSPs, has had lots of very serious questions about whether it is up to the job, and it just recently revised its average fine level down from £250,000 to £8,000. There are real questions about whether that is a serious deterrent. In its recent report, it found that nearly 50% of its cases that went up to the governance panel had to be returned to the case officer for serious work to be done again. Either the Bill needs to address the AML supervision regime—I can tell you some of our suggestions, because it would not be that difficult to come up with a transition—or there are real questions over whether that clause should be in it at all.

A final point, which was picked up earlier by colleagues from law enforcement, is about how this will be funded. The registry will be meaningful only if there are proper resources. It can be completely cost-neutral to the Treasury. We are heading into a difficult fiscal time, so it needs to be cost-neutral. As the gentleman from the National Police Chiefs’ Council said earlier, we have almost the lowest registry fee. We are the 6th lowest, in company with Rwanda, Timor-Leste, Ukraine and South Africa. Most other countries charge an average of £150 to £300, compared with £12. That could go an enormous way to getting the right IT infrastructure. We know a lot of this will have to be done with technology and AI. Making sure that the fees for Companies House are set at a realistic level to make this properly verified is essential.

[Jackie Doyle-Price]

Q To follow up on that point, we have a principle in this country that the fees should match the operational costs. We are adding to what Companies House will be doing in that active management. That would make a case for an increase in the fee to meet the costs, would it not?

Dr Hawley: Absolutely. The key thing is what John alluded to—clause 88. What is the requirement in the Bill for how far the registrar has to go? If it is the minimum amount, the fees will be minimal. If we are going for the gold standard, the fees will need to be higher to reflect the greater verification work.

Thom Townsend: Just a quick thought: what strikes me, reading the Bill, is that it is not quite clear what Government want Companies House to be, when you delve into the detail. Is it around minimising criminal activity, as in the fourth objective? Is it about preventing, which comes up in clause 88? That needs to be resolved to give a very clear idea in primary legislation of what we want Companies House to be. It should be the first line of defence in the UK economy from the perspective of integrity and preventing crime.

--- Later in debate ---

[Liam Byrne]

We have registries of beneficial ownership for assets and property. We have to try to make it possible for law enforcement to connect companies, individuals and assets. Do you think we have the framework for connecting those three dots effectively?

Thom Townsend: As it stands, no. Some form of this legislation will go a lot further. We need to look at how we are uniquely identifying people. In that case, there is an argument for bringing that ID process in-house so you have clarity around it. You can assign that identifier, which then gets used across the panoply of datasets that law enforcement have in their possession to do that interconnectivity. We run the risk a little bit, as the legislation is currently framed, of creating another island that is a bit better connected but probably will not sit at the heart of the process and be that effective first line of defence that the UK economy should have.

[Seema Malhotra]

Q I want to come back to asset recovery. There is a question about automatic strike-offs by Companies House. Would any reforms to those procedures—for example, for companies that potentially want to be placed in a compulsory liquidation process—be better, and allow for investigation and potentially asset confiscation by insolvency practitioners where those companies may have been guilty of criminal activity and money laundering?

Dr Hawley: Ensuring that companies cannot just liquidate has been incredibly important to law enforcement in the past. I am very sorry, but we might have to get back to you on that because I have not looked specifically at that clause.

[Seema Malhotra]

Q I want to come back to some of what we have heard about Companies House. It feels as if quite a lot of the new functions might be outsourced in different ways. Mr Townsend, you made a point about what could and should be done in-house. I would really appreciate hearing your view on whether more can be done in-house. Is there not a danger that that might weaken the safeguards that we bring in?

Thom Townsend: I think there is a balance between speed and effectiveness. Companies House is fantastic at what it does now—it provides a really good service to register a business quickly, and it is really easy to use—but it has never had to do the kinds of things that we are now proposing it does. It will be a long journey to get from where it is today to the sort of high-functioning all-singing, all-dancing machine that we are proposing.

There is a balance between achieving the objectives of the Bill, and the wider goals of dealing with corruption and countering kleptocracy in the UK. We will probably have to look at some sort of transitional arrangement but, ultimately, we should have a much more aspirational and ambitious vision for what we want Companies House to be in five to 10 years’ time, put the resourcing in place, and ensure oversight and accountability to drive that forward and make it happen.

[The Chair]

Would anybody else like to answer that question? No? In that case, I thank all three members of the panel for their help in giving evidence.

Examination of Witnesses

Oliver Bullough and Bill Browder gave evidence.

--- Later in debate ---

[The Chair]

We will come to the questions in a minute. Oliver Bullough, would you introduce yourself, please?

Oliver Bullough: It is great to be here. I am sorry that I am not there in person. It is half-term and I have the children in the other room, with instructions to be quiet. It is an honour to appear alongside Bill, who I have known for a long time and whose work I have been following since even before he was an activist outside Russia—when he was still fighting corruption inside Russia.

I am a Russia enthusiast—a Russophile. I worked in Russia as a journalist for a long time. I inevitably came across corruption, because it is difficult to spend any time in Russia without coming across corruption, but the more that I investigated corruption and the more time I spent looking into it, the more I realised that it cannot be understood as simply a Russian phenomenon. The money does not stay in Russia; it moves out of Russia and too often it ends up in the UK, where it buys real estate, football clubs and many other things. I have been spending, I suppose, most of the last decade attempting to map how money moves from kleptocratic countries via tax havens and ends up in cities such as London, in order to work out how corruption really works and cut through some of the simplifications that are often used.

[Seema Malhotra]

Q Thank you both for taking the time to give evidence today. I have a broad question for you, because the contributions that you have already made and that I think we will hear from you will really enrich our discussions. Obviously the Bill makes progress on improving law enforcement bodies’ ability to identify fraudulent and criminal activity in our economy, but in the light of what you have just said, Mr Browder—on the lack of action that we have actually taken on the Magnitsky issue—where do we need to go further in identifying criminal activity and economic crime, and in seizing those assets? What can we learn from other countries about things that you say the UK does not do well, and where can the Bill be improved?

Bill Browder: Thank you. This is the crux of the whole issue. By the way, it was not just Magnitsky money that was not investigated. We have this problem; since Vladimir Putin has come to power, he and 1,000 people around him have stolen $1 trillion from the Russian people. This has been the largest destination of Russian money laundering. In 22 years since he has come to power, not a single money laundering prosecution has come out of Russia—not one—and we are talking about $1 trillion.

What is going on here? What I have learned is that the law enforcement agencies effectively refuse to open criminal cases unless they are 100% sure that they can win without any tough fight on the other side. Why are they so risk averse in opening cases? It comes down to simple risk-reward for them. Their budgets are very thin, as law enforcement does not have a lot of money, and when they go to court here on any type of civil case—it is not true in a murder case, but it is true in a civil case—if they lose at any point, not just at the end of the case, but at any point procedurally during the case, the loser has to pay the winner’s court fees, and there is no budget for that. Therefore, the UK law enforcement agencies will not take that risk.

I have seen it done differently. We presented the United States Department of Justice with the same information. They do not have that problem; they can open a case, conduct an investigation and build their case as they are doing their investigation, and if they lose, nobody loses their job, nobody is bankrupted, and no departments have to go back and beg for more money from the Government. Whatever money they have spent on their lawyers is the money they have spent.

What has to happen here—this is plain as day—is that you have to get rid of this adverse costs issue in a civil case brought by the Government. You could easily write an amendment to the law as it is written, because it is not here right now, to say that if the Crown Prosecution Service brings a money laundering case or an economic crime case, there are no adverse costs. If you make that point, it will change the whole dynamic—the whole risk-reward—for these people.

[Dame Margaret Hodge]

Q You talked about civil cases, Bill, and I think we should publicly recognise the contribution that Bill Browder and Oliver have made in this space—it is brilliant. You talked about civil cases but say, fingers crossed, we get a criminal offence for failure to prevent, what would you do in those cases to ensure that costs do not act as a brake on the enforcement agencies taking action?

Bill Browder: The same thing.

--- Later in debate ---

[Alison Thewliss]

Q I want to ask about Scottish limited partnerships, the implication being that they are used in sanctions-busting and various other things to do with the war in Ukraine and Russia’s activities around the world. Does that misuse cause a reputational damage to the UK and to Scotland?

Bill Browder: Well, Scotland is so dwarfed by London that you do not have to worry about your reputation, because the reputation is so bad here that no one will even be paying attention.

[Seema Malhotra]

Q Coming back to law enforcement, the Bar Council has suggested that the new regulatory objective that the Bill will add to the Legal Services Act 2007, focused on promoting the prevention and detection of economic crime, is incompatible with barristers’ duties and may confuse the role of lawyers. What is your view on that?

Bill Browder: I have written a whole book about this. The bad guys in Russia are a big part of the problem, but you cannot export this type of corruption and money laundering unless you have somebody doing the importing. And who is involved in the importing? It is the western enablers—the lawyers.

I have had shocking experiences with western law firms that are benefiting from this. If there were some kind of duty whereby they had to actually look into the source of their funding or the legitimacy of the business, I think that would be an extremely powerful thing, if it was actually enforced. There is a whole other long discussion of law that one could have about the role of western enablers, and particularly the lawyers.

[The Chair]

I am afraid that under the rules that we operate on, I have no discretion to allow this very interesting sitting to continue, so we have to finish. I thank both our witnesses for a really fascinating sitting. Their great insight and knowledge on this subject has been of immense value. Thank you very much indeed.

--- Later in debate ---

[The Chair]

We now come to the ninth panel. We have Professor John Heathershaw from the University of Exeter appearing via Zoom and Thomas Mayne from Chatham House. Good afternoon. I am going to ask Professor Heathershaw, first, to introduce himself briefly.

Professor Heathershaw: My name is John Heathershaw. I am professor of international relations at the University of Exeter. I work on aspects of money laundering related to post-Soviet political elites.

Thomas Mayne: I am Thomas Mayne. I am a research fellow at the University of Oxford and a former visiting fellow at Chatham House. I am one of the authors of “The UK’s kleptocracy problem”, a report we released at Chatham House in December.

First, by way of very quick introductory remarks, on the day we launched the report, the then Foreign Secretary, Liz Truss—how time flies—was also speaking. That was a nice coincidence. She was asked about our report and her response was that the UK has the strongest money laundering regulations and laws in the world. As we have heard today, we could debate whether that is true or not; there is some evidence to suggest that it is. However, as we have heard a lot today, without enforcement, laws are useless.

Secondly, I am an expert in kleptocracy and anti-corruption measures. Kleptocracy and money laundering are two slightly different things, and I hope we will get into some of the differences today.

[Seema Malhotra]

Q Thank you for coming to give evidence to us. I have two questions for the panel. First, we have heard about weaknesses in the UK’s anti-money laundering supervisory system. I think the estimate from OPBAS was that last year only 15% of supervisors were effective in using predictable and proportionate supervisory action. To what extent do you think the Bill is bridging the gap to where we need to be? In your view, how do we compare with our allies across the world on this matter?

Secondly, would you expect kleptocrats, in the light of this regulation, just to move their assets to unregulated sectors? Are we going to have the protections we would want for Britain, or are we in danger of seeing some of the behaviour simply displaced?

Thomas Mayne: First, on supervision, I do not think there is enough in the Bill. The findings of OPBAS—that the risk-based approach we have put in place really is not working—are quite shocking. What is the solution to that? I know that Dr Hawley was here earlier; Spotlight on Corruption has just released a report on the supervision of the legal sector. There is a debate in that on whether there should just be a single sector supervisor, which is something we should look at.

Generally, I think supervision is lacking and it is very uneven. Across sectors, we are seeing very different layers of enforcement actions. For example, I think the Council for Licensed Conveyancers—obviously, it deals with real estate, which, as we know, poses some of the highest risks for money laundering—produced zero enforcement actions in a three-year period. There are varying levels of not only supervision but enforcement activity. That is definitely something that we should look at that is not really in the Bill. John, do you want to say anything on that question, before we move on to the second one?

Professor Heathershaw: I think the accountability question pertains to parliamentary supervision of those regulatory agencies. As I understand it, there is nothing in the Bill to enhance that. There would be scope for a specific cross-departmental parliamentary Committee in this area, I think. As we know, money laundering crosses different Departments, so greater accountability for poor performance by the supervisors could be tackled through that kind of oversight.

Thomas Mayne: Was the second question whether we are worried about capital flight from the UK?

[Seema Malhotra]

Q No, it was to ask whether, unless we perhaps look at making other sectors regulated, you would expect kleptocrats who are abusing our economy to just move their assets in the light of this regulation, if it starts to make it harder, to unregulated sectors. Some of that could be unregulated sectors of the crypto economy, and it might be other sectors as well.

Thomas Mayne: That is certainly a risk. We are way ahead of the game, in some respects, in terms of which businesses we regulate. I know that there is an ongoing discussion about whether PR agencies should have regulation. I am not an expert on crypto, but I think we should look at bringing it into the existing regime where, if there is a suspicion of money laundering, you have to report it by law.

Professor Heathershaw: To add to that, it is not simply a matter of liquidating assets to move them into other denominations or unregulated sectors. The nature of money laundering is that it is a social and political phenomenon as well. It is about achieving a place to stay where you can protect your assets through the rule of law, and maybe gain some social influence, get your kids into school, and use your residency to garner a wider profile and clean up your reputation. That means that the property and bank accounts are hugely important; they will not just be liquidated overnight.

When we are talking about the kind of money laundering that Tom and I look at by political elites and those from kleptocracies, they are seeking to gain a whole set of goods that you cannot simply get through putting all your assets into crypto, or into a more loosely regulated jurisdiction such as Dubai. There are certain things that the UK, and London in particular, offer that will not simply fall out of the way in a beggar thy neighbour, “Well, we’ll just move ourselves into a sector or jurisdiction that is loosely regulated,” way. I do not think that that should cause us to worry about losing market share, or the problem shifting into another sector, because the problem will always remain in the legal and regulated sectors that are our principal concerns. They will always be there, too.

Thomas Mayne: I have one thing to add on real estate. We now have the registration of overseas entities as part of the previous Act. It will be fascinating to see what happens in January, when the deadline comes in, with the existing properties that we know are owned by oligarchs or kleptocrats, and what kind of information they put on record. It is not a magic bullet. One problem with the ownership of property is that we will not, and should not, have a searchable database where we put in somebody’s name and see whether they own a property in the UK. It does not work like that, so there may be other properties that are perhaps owned by proxies. Those proxies will have their name on record as the so-called beneficial owner, but they will not be discoverable because we do not know about them, and we do not know that proxies are being used. What will be interesting is, as I say, what information will be revealed about the properties that we do know by January.

Oral Answers to Questions

Seema Malhotra Excerpts

Tuesday 25th October 2022 Commons Chamber

[Mr Speaker]

We come now to the shadow Minister, Seema Malhotra.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

In recent weeks, having crashed the economy, the Conservatives have increased the barriers facing small firms, with spiralling costs making it harder than ever to do business. Last week, the Federation of Small Businesses reported business confidence falling to its lowest levels since the pandemic. Yet, as almost half of small businesses reported falling revenues this quarter, the Secretary of State spent the weekend saying it was “Boris or bust”. Surely recent Government chaos shows that, for small businesses, it is Labour or bust. If the Secretary of State really wants to reduce the cost of doing business, will he back Labour’s call to raise the small business rate relief threshold for this financial year, saving local firms up to £5,000?

[Mr Rees-Mogg]

The hon. Lady has been in this House long enough to know that rates are a matter for the Chancellor of the Exchequer. She is raising the question at the wrong Question Time. It is worth bearing in mind, with unemployment at its lowest level since 1973, that every single socialist Government, including their brief period in office in 1923, have led to higher unemployment. What are they talking about?

Oral Answers to Questions

Seema Malhotra Excerpts

Tuesday 7th June 2022 Commons Chamber

[Lee Rowley]

I absolutely agree with my hon. Friend that his constituency has a very important role to play in the future of life sciences, and I commend his work on that strategically important sector. He mentioned the life sciences memorandum of understanding that we signed with Sweden last week. Our relationship with Sweden goes back more than three centuries and is worth £20 billion, and there are 100 Swedish life science companies in the UK. That is another example of close working across the globe on progress for everyone’s benefit.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

The Centre for Policy Studies is not alone in having just published damning research from business leaders. It states that Britain is becoming a less attractive place to invest; the UK is slipping behind other countries because of red tape, rising taxes and ministerial complacency. Could it be because we have a chaotic, rudderless, high-tax Conservative Government, with no industrial strategy and no plan for growth? Is it not time that the Secretary of State listened to businesses, tackled rising business costs and backed calls to spike the national insurance hike? He should know that it is the wrong tax at the wrong time.

[Lee Rowley]

That is a curious line of questioning from the Opposition Front-Bench team, given that Nissan has made £1 billion of investment in recent months in Sunderland, Stellantis has made an investment of more than £100 million in Vauxhall at Ellesmere Port, and there is additional investment in green technology and life sciences—the list goes on and on. Of course there is more to do, and of course as a listening Government we will always look at what more we can do to make us the most attractive place to invest in the G7 and across the world. We have a good track record that we will continue to build on.

Subsidy Control Bill

Seema Malhotra Excerpts

Consideration of Lords amendments
Wednesday 20th April 2022 Commons Chamber

[Paul Scully]

Indeed, yes. Levelling up does not exclude any one area of the United Kingdom. It also does not exclude levelling up within regions; that is really important. This legislation only provides the framework; the levelling-up fund, the shared prosperity fund and other measures that can use the framework will, I am sure, benefit the hon. Gentleman’s constituency and Northern Ireland as a whole. It is really important that we get this right.

I am happy to report that we produced Lords amendments 1, 5 to 8, 10 to 12, 39 and 40 to respond to concerns about the Bill in the 17th report of this Session by the Delegated Powers and Regulatory Reform Committee. Lords amendment 1 addresses a concern with clause 10. Parliamentary scrutiny of streamlined subsidy schemes made under clause 10 has been strengthened by giving either House the ability to annul any streamlined schemes after they have been made, by applying the negative procedure.

Lords amendments 5 to 8 replace the direction-making power in clause 16 relating to the designation of marketable risk countries with a power to make regulations for the same purpose. Lords amendments 10 to 12 relate to the powers in clauses 25 to 27 to change definitions in secondary legislation. Those powers will be removed. Finally in this group, Lords amendments 39 and 40 address concerns raised by the DPRRC about secrecy regarding the financial stability direction-making power in clause 47. These amendments make it clear that such directions will need to be published in due course. In addition, the Economic Secretary to the Treasury has written to the Public Accounts Committee and the Treasury Committee to commit to notifying the Chairs of those Committees confidentially about the use of a financial stability direction.

I turn to Lords amendments 41 to 43 and 49, relating to the Competition and Markets Authority and the Subsidy Advice Unit. Although the Secretary of State could already direct the SAU to complete a monitoring report for a specified time period under clause 65(4), these amendments make specific provision in the Bill for more frequent scrutiny in the early years of the new regime. Instead of mandating a report within five years of the implementation of the regime, the tabled amendments require an initial report after only three years, to be followed up with a further report after another three years. After that, reporting will revert to a five-year cycle. The Secretary of State will retain the ability to direct that a report be made at a specified period after the publication of the second three-year report. The sunsetting provisions in clause 87(6) have been extended so that they take effect after the second three-year report. Lords amendments 2 to 4 and 48 are minor and technical in nature. They clarify definitions under clauses 11 and 82.

In summary, this substantial package of amendments represents an improved set of measures that will strengthen the new domestic subsidy control regime and make it more transparent and accountable. There will now be greater transparency of subsidies awarded, and improved oversight and monitoring of the regime by Parliament and the CMA. I am grateful to colleagues in both Houses for their hard work on, and attention to, this important Bill. They have helped to bring about these improvements, which I hope will be endorsed by Members from across this House.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to speak in the debate. I start by acknowledging all the efforts in the other place, and thank the peers, staff and civil servants who have helped to move the Bill along to this stage. I also thank colleagues on both sides of this House, including all the Opposition parties.

As Labour has outlined throughout the Bill’s progress, we support the principle of a quicker, easier subsidy regime now that we have left the EU. However, we recognise that any subsidy regime must provide sufficient transparency and accountability for the spending of billions of pounds of public money each year. We have also repeatedly raised our concerns that this regime has failed to match up to the Government’s levelling-up rhetoric. We are pleased to see that many of the Lords amendments, including our amendment to Lords amendment 13, will improve the Bill in some of those areas.

I turn briefly to areas in which we would have liked the Government go further, and I would be grateful for the Minister’s comments on these issues. The first is net zero. Labour has been clear that while this is framework legislation, it should not be an empty vessel. The Government should have used the opportunity of an independent subsidy policy to design a regime that supported their wider industrial policy and our national priorities. We were also disappointed that the Subsidy Control Bill was not published alongside a subsidy strategy. Net zero is a good example of this. The climate crisis is the greatest long-term threat facing our country and the world, and we need urgent action to drive down emissions. That is why, in Committee, we called on the Government to support our amendment to hardwire net zero into the principles that public authorities have to consider when awarding any subsidy or designing any scheme. There was cross-party and cross-Bench support in the other place for a similar amendment.

--- Later in debate ---

[Paul Scully]

I thank all hon. Members for their engagement throughout the passage of this Bill and for their contributions this afternoon. I am glad that there has been broad consensus, albeit with some questions, which I will try briefly to address. The importance of that new independent subsidy control regime has been clear throughout the passage of the Bill and it was evident again today, so I thank hon. Members for their broad support.

Let me respond to the question from the hon. Member for Feltham and Heston (Seema Malhotra) about P&O and that kind of example. Clearly, we are shocked by the action of P&O Ferries and angered by the lack of empathy and consideration it has demonstrated towards its employees. The Government are continuing to work to establish whether P&O Ferries or DP World are in breach of any requirements of them as partners in the Thames and Solent freeports. Speaking more generally, I can confirm that the Bill ensures that public authorities can recover a subsidy where it has been misused, but it is important to note that the purpose of a subsidy is to achieve specific change in behaviour to facilitate a specific policy objective; it is not to give the Government ongoing leverage over how a company conducts its affairs. It is for other areas of law to set out the limits of what is acceptable corporate behaviour. None the less, because the subsidy is there to have that specific policy objective, we will make sure that that policy objective is met as best we can. However, it is difficult to enforce—

[Seema Malhotra]

I am grateful to the Minister for his consideration of this point, but will he clarify whether a company that breaks the law and does not meet minimum standards on employment law, on environmental law or in other areas could still be in receipt of public subsidies through the subsidy control regime?

[Paul Scully]

It is difficult to come up with the examples, but in essence a subsidy is there to determine a particular policy objective. We would want to partner with businesses and companies that are most likely to deliver those policy objectives: reliable partners. Clearly, ones that are in breach of the kind of examples that the hon. Lady mentions are less likely to be those reliable partners. Technically, she is correct, but this is about how we enforce something, probably after the event; similarly, had we given P&O Ferries a subsidy last year, we probably would not have been able to get that subsidy back. That is the difficulty with enforcement after the event. None the less, the sentiment is absolutely there: we do not want to be partnering with unreliable companies to achieve our policy objectives.

[Paul Scully]

We will work out how the subsidy control regime is working; it is part of what I will come back to in a moment about the CMA’s approach to reporting back how the regime is working. We have to make sure that this is watertight—excuse the pun—if we are going to go down the road of making sure that we can recover any subsidies. I suspect that other areas of law will be better suited to approaching that, rather than specifically dealing with it within this framework Bill.

[Seema Malhotra]

I am conscious of time, but let me make this brief point, for clarity. There is an important distinction between companies or businesses with which the Government may be working to achieve policy objectives, and their eligibility still to receive public subsidies, potentially to the tune of hundreds of thousands of pounds or millions, where they have explicitly even admitted to this House that they have broken employment law. There is an important distinction here about how public money could be spent and about rewarding those who have behaved badly.

[Paul Scully]

I thank the hon. Lady for her intervention. This is what I mean about using other areas of law; other areas testing the value of the use of public money will be better suited for addressing exactly those points, but I very much take the one she makes.

Energy Security Strategy

Seema Malhotra Excerpts

Tuesday 19th April 2022 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Onshore wind is the cheapest power available to us, and the cleanest. Does the Secretary of State accept that bills for families and business will be much higher as a result of his failure to back it?

[Kwasi Kwarteng]

We have done more than many in driving onshore wind. The hon. Lady will know that we suspended the pot 1 auction and have brought it back, that we have more onshore wind than pretty much any other country in northern Europe, and that we continue aggressively and passionately to promote onshore wind.

Covid-19 Pandemic: Royal Mail Services

Seema Malhotra Excerpts

Tuesday 19th April 2022 Westminster Hall

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

It is a pleasure to service under your chairship today, Ms Ali. I congratulate my hon. Friend the Member for Dulwich and West Norwood (Helen Hayes) on securing this important debate and thank all hon. Members who have spoken. I will reflect almost all their comments in my remarks this afternoon.

The postal industry is hugely important to the well-being of our country. The covid-19 pandemic highlighted the importance of the service and of its workforce. For the past two years, Royal Mail workers have selflessly provided key services delivering vaccinations, shielding letters, covid-19 tests and PPE items, as well as enabling people to communicate with their loved ones when they were unable to visit them in person. It is right that today we have heard hon. Members across the House recognise them for their extraordinary efforts. It is also important that we review together how we can better hold Royal Mail management to account. I want to mention one of my constituents, Councillor Poonam Dhillon, who was a dedicated Royal Mail worker who sadly died of covid last year.

Royal Mail has a long and storied history dating back to 1516, roughly taking the shape that we know today in the 19th century with the introduction of the first stamp in 1840 and with the first pillar box erected in 1852. Those were important reforms, as was the setting of a duty on the postal service across our islands that Royal Mail must deliver to every address in the UK six days a week at a uniform price.

The Postal Services Act 2011 gave a statutory basis to the universal service order, which defines what should be considered part of the universal postal service. The Act sets out the minimal requirements that Royal Mail must deliver. The USO can be amended by Ofcom, which designates regulatory conditions, including pricing and performance targets.

The Royal Mail is the UK’s universal services provider, which is a sign of the respect and trust we have placed in the postal service in our country. A character in a book by Anthony Trollope, the Victorian novelist who also invented the pillar box, once exclaimed of the stamp: “Surely this little Queen’s head here can’t be untrue!”.

Trust matters, yet trust in this very significant public service has been significantly weakened since Royal Mail was privatised by the coalition Government in 2014. The Business, Innovation and Skills Committee at the time concluded that it had been undervalued in that sale by David Cameron’s Government—to the tune of £1 billion to the taxpayer.

What was the result? In 2020-21, Royal Mail significantly missed its targets that a minimum of 93% of first-class mail is delivered the next working day and a minimum of 98.5% of second-class mail is delivered within three working days. Just 74.7% of first-class mail and 93.7% of second-class mail met those service targets.

Although we all acknowledge the unique conditions of the pandemic, during which sickness eroded staffing levels and isolation increased the parcel load, data from Citizens Advice’s 2022 state of the sector report suggests that the service has not recovered. It found that at the beginning and end of 2021, letter delays were widespread across the country. During Christmas last year, almost 15 million people were left waiting for post. Over half of those reported going at least a week without letters, as we have heard today.

In previous debates, Members have complained about mail arriving late for their constituents and, worryingly, the Citizens Advice report also found that one in 14 UK adults had experienced serious negative consequences of struggling to receive their post, missing important documents such as insurance letters or fines. Last July, Royal Mail committed to returning to pre-pandemic quality by the end of August, but as the CA report makes clear, it did not. In response to this persistent failure to meet its targets, Ofcom has told Royal Mail that it must take steps to improve performance as the effects of the pandemic subside.

May I ask the Minister what expectations the Government have of Royal Mail for the timescale in which its performance will return to pre-pandemic levels? Will he tell the House what discussions he has had with Ofcom about the next steps for Royal Mail, and say what potential repercussions Royal Mail executives could face if they do not meet their targets?

Although Ofcom has the power to fine Royal Mail, as it did in response to missed delivery targets in 2018 and 2019, more stringent measures might need to be taken. A further significant issue has been the closure of Royal Mail delivery offices and the impact of such closures in some areas is still very much ongoing. My hon. Friend the Member for Dulwich and West Norwood has been a dedicated campaigner for her constituency ever since the SE22 delivery office was closed in 2018. She spoke very powerfully about that closure in her speech today. Despite being warned by my hon. Friend and community stakeholders that that closure would make delivery more difficult, Royal Mail pressed forward and closed the delivery office in East Dulwich anyway. That decision continues to impact the performance and services that local businesses and residents are receiving. My hon. Friend has also talked about there being no resilience in the SE15 service, and the poor and unreliable services for a range of her constituents. We need to look at the measures that have been raised today, including reporting at a more detailed postcode level, because transparency is not the enemy of democracy.

Royal Mail’s recent history has raised concern that it seems to be driven by a mission to increase dividends for shareholders ahead of genuinely fulfilling its responsibilities as the nation’s universal service provider. Following the cuts of 2,000 managerial roles in 2020-21, in January this year Royal Mail revealed plans to cut a further 1,000 management jobs. Although Royal Mail has said that cuts are intended to streamline operational management and to improve focus on performance at a local level, they come in a year of record-breaking profits for shareholders and an increase in the cost of first-class stamps of nearly 12%. At the same time, Royal Mail will bring in a lower-paid managerial role, in a move that Unite the union has compared to fire and rehire practices. That is absurd at a time when the service is already struggling to meet basic performance targets and when data suggests that Royal Mail has the capital needed to make investments without such a scale of job losses.

Will the Minister say what discussions he has had with Royal Mail and the relevant trade unions—Unite and the Communication Workers Union—about the scale of job losses? Has he discussed the service’s prospective plan to streamline operational management in terms of equipment, transformation for future business and staffing? Does he recognise the work of the unions, including the CWU’s acknowledgement of the need for modernisation? That need is understood: unions want to work with management to reform an organisation that their members work for with pride.

May I also ask the Minister whether he has considered the CWU’s proposal to integrate a high level of corporate social responsibility on environmental issues and employment standards into the postal regulatory framework? What discussions has he had about the affordability of postal products?

We need better communication with Parliament. As Royal Mail moves into a new regulatory framework for 2022 to 2028, I want it to be open to better communications with Parliament, stakeholders and communities. Although Royal Mail is technically independent of Government and overseen by Ofcom, it remains an essential public service. Yet it has been hit by a decade-high rate of more than 1 million complaints and high sickness absence rates. There were boosts otherwise for shareholders last year, as parcels helped Royal Mail to achieve a £311 million profit. For that reason, Labour will continue to call for Royal Mail to be held more strongly to account, for the Government to actively listen to the debate and for a better postal service in all parts of our nation, as the public expect and demand.

Long Covid: Impact on the Workforce

Seema Malhotra Excerpts

Thursday 31st March 2022 Commons Chamber

[Layla Moran (Oxford West and Abingdon) (LD)]

I beg to move,

That this House has considered the impact of long covid on the UK workforce.

I thank the Backbench Business Committee for allowing us to hold this updated debate on long covid. I also thank my co-sponsors, some of whom, I am sad to say, are at home ill with covid and very much wanted to be here today. Also the fact that the debate has moved weeks has not helped. For those watching at home, I have been contacted by several Members who are very sorry that they are not able to be here. I also want to put on record my thanks to the many hundreds of people who, over the years, have contacted the all-party group on coronavirus with their personal stories, many of which are very heart warming, but also moving and worrying because it is a debilitating condition. What I say to all of them is: “We hear you, you have not been forgotten and we will continue to fight for you.”

I want to recognise the actions that the Government have taken so far. I was pleased that, after the first debate we had on the issue in January 2021, the Government made some £18.5 million available for research into long covid, including treatment, and delivered even more funding in the summer, which is incredibly welcome. In that debate, I also welcomed the new dedicated long covid clinics and the publishing of guidance to medical professionals by the National Institute for Health and Care Excellence, the Scottish Intercollegiate Guidelines Network and the Royal College of General Practitioners. However, despite that welcome action, it has felt, over the past eight months, that long covid has totally dropped off the radar and, on this issue, there has been very little debate.

I thank the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully) for coming to the Chamber to answer this debate. I believe that it is the first time that the Department for Business Energy and Industrial Strategy has answered in the Chamber on this. I will focus my remarks on the effect that long covid has had on the workforce because our belief is that this is a looming crisis that we need to think ahead about and that it would be wrong for us just to focus on the medical side— there are broader implications here.

Although there are many understandable reasons why this matter may have dropped off the radar, including the cost of living crisis and the war in Ukraine, I argue that these things are very much linked. How are we going to have a strong and productive economy if large swathes of our workforce are struggling to do the jobs that they are meant to be doing? How can we help them to recover?

Over this past year, we have had more information and learned more about long covid, although it is worth saying that there is still no cure. There are treatment plans that can help with symptoms, but the past year has been awful for many, including Andrew, a headteacher whom I spoke about in the debate a year ago, who received multiple written warnings about his inability to do the job in the day. I went back to him and asked how he was. He said:

“I made the difficult decision to resign from my post as a headteacher, so my limited energies could focus on coming to terms with my illness rather than continuing to face dismissal from a career that I had committed the past 25 years to and one that I dearly love.”

I also got an email from Nell, one of my constituents, who is a doctor. She said:

“I adore being a hospital doctor. I love my patients and I trained for years to do this. It’s been nearly two years of struggling with my health after covid, and while I continue to slowly recover, I don’t know if I can do this much longer. I’m so very sorry—I feel that I have let you down writing this.”

To Nell, I say that I do not believe that she has let anyone down, but I think that, to an extent, the Government have let her down.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I thank the hon. Member for giving way and for her excellent speech. I also thank the Backbench Business Committee for granting the debate. She has raised a couple of cases that she has heard about. I have been in touch a lot with Sam, a carer in my constituency. At the very beginning when she had long covid, people did not understand the condition and it was not taken seriously, and it has affected her ability to work ever since. Does the hon. Member agree that, as well as dealing with the health side and getting more research on how the condition affects people so differently, it is important to have guidance for employers—she will probably come on to this—on how to deal with this and how to support those who may have long covid through that very difficult period? As we do not know how long the condition lasts, we need a proper long-term strategy for those who are affected and for their families.

[Layla Moran]

The hon. Member hits the nail on the head. People can recover, and very often do, but the way to help them do that is very badly explained to employers right now. Indeed, I will come on to talk in some detail about that.

Many people were told, especially at the beginning, that long covid was something that they were making up. They were told that it was all in their head. I have a research paper here that shows that scans have been done on people’s chests and the reason they were suffering from breathlessness was that the tissue was fundamentally damaged. This is very much a real disease, which now needs a real response.

It is not just public sector workers who have dealt with this. I spoke to Rebecca, who gave evidence to the all-party parliamentary group. She was a fitness instructor, Madam Deputy Speaker. You would think that a fitness instructor would be very healthy and would have very good lungs—before the pandemic, anyway. She used to teach 14 high-intensity classes a week and ran her own business. Now long covid means that she is in bed 60% of the time and describes being

“unable to return to work, and to be the mum, wife or friend I once was”.

It is utterly heartbreaking. We now need to accept that, if we are going to live with covid, we also have to live with long covid. In the evidence sessions that the APPG took in December and January, we heard how the condition is still severely impacting the lives and livelihoods of people across the country. They described how the condition has left them unable to work, sometimes unable to move, forcing them into long periods of absence from work, dipping into their savings and doing anything to stay afloat—something that is much more difficult now with the cost of living crisis.

A study released this month by Queen Mary University concluded that becoming infected with covid increases the risk of economic hardship, especially if the individual develops long covid. Those individuals describe a patchwork of uneven availability when it comes to long covid clinics and many are desperate for treatment. We heard from one nurse, for example, who has spent thousands of pounds going to Germany to get treatment that she is not able to access here. Public sector workers gave their lives for us. When we were all allowed to be at home, they went in, and they are the ones, according to Office for National Statistics surveys, who have the highest prevalence of long covid. I believe that we owe them so much more than they have had so far.

Unsurprisingly, though, it is not just about public services. We have 1.4 million people across the country experiencing self-reported long covid symptoms. That is 2.4% of the population and that cuts across every single sector, not just the public sector.

In the hospitality sector, which, as the Minister will know, is already struggling, 2.6% of workers have long covid. If we take the 3 million workforce estimate from UKHospitality, that equates to 70,000 workers unable to do their jobs as they did before. In retail, it is 2.3%, which equates to just under 70,000 workers; for personal service, such as beauticians, it is a bit less at 6,000, but still 2.1%. Those are big numbers in sectors that are already struggling post pandemic and struggling with workers’ visas following Brexit. They do not need this.

Oral Answers to Questions

Seema Malhotra Excerpts

Tuesday 29th March 2022 Commons Chamber

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Businesses face a barrage of rising costs: inflation at a 30-year high, taxation at an 80-year high, and rocketing prices for materials, energy, food and fuel that are hitting businesses and consumers hard. This is a Government of photo ops but shuttered shops, with no clear plan to support businesses and workers, and their spring statement does not go far enough. Does that not make Labour’s call for an increase to the small business rates relief threshold even more urgent? Or is the truth not plain to see that small businesses can no longer afford the Conservatives?

[Paul Scully]

Nobody—whether in a domestic or business setting—can afford Labour. We have put £408 billion of support into wrapping our arms around jobs, livelihoods and businesses. We have 408 billion reasons to get this next bit right. The Labour party can talk about scrapping business rates, but it has not made any suggestion of what to replace them with. Fine words, but we will act.