Commons consideration of Lords amendments to the Economic Crime and Corporate Transparency Bill - Sep 4
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Mr Deputy Speaker (Mr Nigel Evans) I must draw the House’s
attention to the fact that financial privilege is engaged by Lords
amendments 6, 7, 9 to 12, 14 to 21, 30, 32 to 34, 54, 68, 115, 117,
120, 124, 125, 173, 174 and 178 to 201. If those Lords amendments
are agreed to, I will cause the customary entry waiving Commons
financial privilege to be entered in the Journal. After Clause 46
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Mr Deputy Speaker (Mr Nigel Evans) After Clause 46 Register of members: information to be included and powers to obtain it 6.50 pm
The Parliamentary Under-Secretary of State for Business and Trade
(Kevin Hollinrake)
Mr Deputy Speaker (Mr Nigel Evans) Lords amendment 151, and Government amendment (a). Lords amendment 153, and Government amendments (a) to (c). Lords amendments 115 and 117, and Government motions to disagree. Lords amendment 159, and Government motion to disagree. Lords amendment 161, Government motion to disagree, and Government amendment (a) in lieu. Lords amendments 1 to 22 and 24 to 55. Lords amendment 56, Government motion to disagree, and Government amendments (a) to (c) in lieu. Lords amendments 57 to 114, 116, 118 to 150, 152, 154 to 158, 160 and 162 to 229.
Kevin Hollinrake The Government made significant amendments to the Bill in the other place. It is now unquestionably a milestone piece of legislation that takes the UK’s fight against economic crime to an entirely new level. I will summarise a few key changes, starting with the game-changing reforms to corporate criminal liability. As the Minister for Security, my right hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), committed to, the Government tabled amendments to introduce a new failure to prevent offence, which will drive cultural change towards improved fraud prevention in organisations and, failing that, hold organisations to account with prosecutions if they profit from fraudulent actions.
Layla Moran (Oxford West and Abingdon)
(LD)
Kevin Hollinrake The Government have also introduced reforms to the identification doctrine for economic crimes to make it easier to prosecute corporations in their own right for these offences. The House will know that this is the largest and most meaningful change to corporate criminal liability in decades. It will have a transformative effect on our ability to hold corporates to account for the actions of criminal individuals. I thank my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) and my hon. Friend the Member for Bromley and Chislehurst (Sir Robert Neill) for all their work and engagement to further the cause for the reform of corporate criminal liability. We have also made amendments to tackle strategic lawsuits against public participation, known as SLAPPs, that feature economic crimes. We believe that this is the first national legislation in the world to combat SLAPPs. The new clauses will enable an appropriate, fair and effective early dismissal procedure against SLAPP cases. I very much thank the right hon. Member for Birmingham, Hodge Hill (Liam Byrne) for his work in this area. Members will also be pleased to hear that the Government have tabled amendments to improve the new statutory objectives for the registrar of companies, and I hope my hon. Friend the Member for Barrow and Furness (Simon Fell) and the hon. Member for Feltham and Heston (Seema Malhotra) in particular will welcome these improvements, given their previous amendments. We also recognise the points made by several Members of this House, as well as in the other place, about the role of authorised corporate service providers in the identification process, and we have tightened the framework. Our amendments will improve the transparency of ACSPs, including by requiring verification statements made by ACSPs when they carry out ID verification on behalf of an individual to be made publicly available on the register. Furthermore, we have tabled a number of important amendments to strengthen and increase the transparency of the register of overseas entities, which I trust the hon. Member for Aberavon (Stephen Kinnock) and the right hon. Member for Barking (Dame Margaret Hodge) will welcome, given the amendments they proposed in Committee. I must pay tribute to my ministerial colleagues Lord Sharpe of Epsom, Lord Johnson of Lainston and Lord Bellamy for all the work they have done to get this important Bill to where it is now.
Jim
Shannon (Strangford) (DUP) We as a party are of a mind to support the Government on this Bill tonight. I want to ask a question that is probably very specific. It relates to Northern Ireland, where criminal gangs—that is what they are; they masquerade as paramilitaries, but they are criminal gangs—delve into business and economic crime. I am seeking assurance from the Minister—I think he probably will respond positively, but at the same time I seek to get his response on the record. Will this Bill ensure that criminal gangs that use illicit money and launder money from across the whole of Europe and further afield will be accountable, by ensuring that we can catch them, detain them and put them in jail?
Kevin Hollinrake We must do more to tackle crime, but we must also ensure that the UK remains a great place to start and grow a business. As such, the Government strongly oppose putting additional burdens on legitimate business, unless there is a clear rationale for doing so. Any amendments made to strengthen the Bill have been carefully weighed up, and the Government are confident that we have struck the right balance in tackling economic crime and preserving the UK’s welcoming business environment.
Sir Jeremy Wright (Kenilworth and Southam)
(Con) “It is a defence for the relevant body to prove that, at the time the fraud offence was committed…the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have”. Why would one of those circumstances not be the size and capacity of the organisation in question?
Kevin Hollinrake
Richard Fuller (North East Bedfordshire)
(Con) 19:00:00
Kevin Hollinrake
Dame Margaret Hodge (Barking) (Lab)
Kevin Hollinrake We believe that the six non-Government amendments for debate would pose significant and disproportionate burdens on business, penalising reasonable companies and businesspeople with limited evidence that the burdens would be outweighed by any meaningful benefits. I will go into each amendment in detail, but I will begin by emphasising the Government’s position. We must insist that the balance achieved in the Bill through Government amendments made in the other place is maintained.
Dame Margaret Hodge
Kevin Hollinrake I turn to Lords amendment 23. The inclusion of lines 84 to 96 would require all UK companies to declare whether they are holding shares on behalf of or subject to the direction of another person or persons as a nominee, and if so to provide details of the person or persons. Fundamentally, that is not necessary. Provisions in the person with significant control framework, as strengthened through the Bill, already require the disclosure of a person of significant control behind a nominee on pain of criminal sanction for non-reporting. That achieves the same intent. A combination of measures already in the Bill, the material discrepancy reporting regime in the Money Laundering and Terrorist Financing Regulations 2022 and Companies House’s new intelligence hub will more effectively flush out undeclared PSCs and deter the provision of false information. I am afraid that the proposed approach is something of a blunt instrument. It would apply to all shareholders, when we should be focusing on the transparency of individuals exerting significant influence as already provided for under the PSC framework. As such, we would risk burdening millions of companies and their shareholders with new information requirements for no useful purpose. The proposition may sound sensible, but nominee arrangements can be complex, including having multiple layers of nominees and large numbers of beneficiaries for entirely legitimate reasons. For example, pension funds that own shares in a company would be caught. Listed companies would be particularly impacted as their shares are often held by nominee arrangements for legitimate administrative reasons—for example, in stocks and shares individual savings accounts, by custodian banks and by corporate sponsored nominees. Listed companies report similar information about those owning 3% or more of their shares to the Financial Conduct Authority, so the Lords amendment would partly duplicate existing arrangements. In summary, lines 84 to 96 of the amendment risk disproportionate burdens on legitimate actors and would most likely be ignored by illegitimate actors. Those acting as nominees on behalf of shady individuals behind the scenes are already adequately on the hook if found to have provided false information, as is the company itself. The effect of inserting those lines into part 8 of the Companies Act 2006 would be to cut across a tenet of UK company law: those running a company—usually the directors—must know its legal owners and act in the interests of the legal owners of the company. Those legal owners are recorded on the register of members. Companies shall have regard to their members record and not, for example, to anyone holding any underlying beneficial interest in their shares. Lords amendment 115 would introduce two new duties for overseas entities. It would first require event-driven updates on beneficial ownership information and, secondly, require overseas entities to update their record no more than 14 days before the completion of a land transaction rather than the existing requirement to do so annually. Although the amendments are well intentioned, they would significantly increase burdens on both overseas entities and third parties transacting with them, as well as introduce an element of risk in land transactions that the annual update prevents. As my ministerial colleague Lord Johnson of Lainston explained in the other place, in the case of an overseas entity that owns large commercial premises split into units, the amendment could result in the entity needing to provide updates twice a month, which is a disproportionate burden. There are a number of other technical challenges and impracticalities with setting such a duty on these entities. The Government are not alone in those views. The Law Society of Scotland, the Law Society of England and Wales and the British Property Federation have all expressed their concerns. The Government therefore cannot support the amendment. Lords amendment 117 would make information about trusts submitted to the register of overseas entities publicly available by removing it from the list of material listed as unavailable for public inspection. It is important to note that the information on trusts is already provided to the registrar when an overseas entity registers on the register. Furthermore, the registrar already discloses trust information to His Majesty’s Revenue and Customs, law enforcement and other persons with functions of a public nature if and when necessary and appropriate. This is not a loophole. In the other place and in this House, including from the right hon. Member for Barking, the Government have heard and acknowledged that there is a case for broader transparency over trust arrangements beyond law enforcement agencies. The Government therefore added a regulation-making power in the law to allow third-party access to trust data in certain circumstances. That will enable individuals such as civil society organisations and investigative journalists to access such information under certain circumstances.
Liam Byrne (Birmingham, Hodge Hill)
(Lab)
Kevin Hollinrake The Government have every intention of exercising the power and intend to ensure that access can be granted in a straightforward way. Information currently held by Companies House was submitted by overseas entities in the expectation that it would not be available for public inspection. Making such information available for public inspection would come with a number of risks, including the possibility of legal challenge. Moreover, publishing the data by default would likely have significant unintended consequences, including potentially exposing information about vulnerable individuals and minors. It is therefore right that the Government take the time to consult properly on this important issue to address the benefits and risks of greater transparency and how this can be achieved.
Nick Smith (Blaenau Gwent) (Lab)
Kevin Hollinrake
Sir Chris Bryant (Rhondda) (Lab)
Kevin Hollinrake
Liam Byrne
Kevin Hollinrake
John Penrose (Weston-super-Mare) (Con)
Kevin Hollinrake The Government firmly believe that their own amendment and their commitment to consult better achieve the aim of improving trusts’ transparency, as intended by Lords amendment 117, while ensuring that we have time to analyse and stress test the risks in greater depth, including legal risks. We therefore do not support the amendment. Lords amendment 151, in effect, removes the threshold, as right hon. and hon. Members have already raised, that the Government introduced as part of the failure to prevent offence, which exempts small and medium-sized entities. As I have set out, the Government are extremely mindful of the significant pressures that small companies are under, and do not want to place unnecessary and duplicative burdens on legitimate businesses.
Sir Robert Buckland (South Swindon) (Con)
Kevin Hollinrake 19:15:00 If the threshold is not reinserted, the new offence will apply to every single UK business and therefore increase the cumulative burden on UK businesses more than eightfold, from just under £500 million to £4 billion. That burden would disproportionately be shared by small business owners. All Members of this House will have hard-working businesses in their constituency, so we cannot support that. It cannot be taken in isolation; we must be aware of the cumulative compliance costs for SMEs across multiple Government requirements or regulations.
Dame Margaret Hodge
Kevin Hollinrake
Liam Byrne
Kevin Hollinrake
Sir Robert Buckland Secondly, money laundering is already a criminal offence under the Proceeds of Crime Act 2002, just like fraud, false accounting and theft. Why on earth are we conflating the regulations that are all about neglect, which are used by the FCA admittedly on some major cases, but not that often, with what is already a criminal offence? Why can we not just extend money laundering, which already is part of the regulatory burden of businesses in any event?
Kevin Hollinrake
Sir Robert Buckland
Kevin Hollinrake It is much easier to take that forward where the failure to prevent offence comes in, of course. The act of money laundering is a criminal offence—of course it is—and the act of fraud is a criminal offence. This is about a failure to prevent those activities and imposing that would, in our view, impose a significant regulatory burden on businesses.
Sir Robert Buckland
Kevin Hollinrake We have heard arguments that the threshold means 99% of companies will not be in scope, but we do not think the number of companies is the right metric by which to assess the effect of the new offence. We believe economic activity is more appropriate. I can assure the House that 50% of economic activity would be covered by the organisations in scope of this new offence with the threshold in place. It is, of course, already easier for law enforcement to prosecute fraud in smaller organisations that fall below the threshold. Given those factors, the Government cannot support the amendment. Lords amendment 158 seeks to introduce a failure to prevent money laundering offence. The UK already has a strong anti-money laundering regime which requires the regulatory sector to implement a comprehensive set of measures to prevent money laundering. Corporations and individuals can face serious penalties, ranging from fines to cancellations of registration and criminal prosecution if they fail to take those measures. The money laundering regulations and the money laundering offences in the Proceeds of Crime Act are directly linked and can be seen as part of the same regime. A failure to prevent money laundering offence would be hugely duplicative of the existing regime. In our conversations with industry, it has been very clear that that duplication would create a serious level of confusion and unnecessary burdens on businesses. We should be supporting legitimate businesses, rather than hampering them with overlapping regimes. The Government therefore do not support the amendment. Lords amendment 160 would prevent enforcement authorities from having to pay legal costs in unsuccessful civil recovery proceedings, subject to certain intended safeguards. This type of amendment would be a significant departure from the loser pays principle and therefore not something we should rush into without careful consideration. The risk of paying substantial legal costs is just one of a multitude of factors that inform an operational decision to pursue an asset recovery case. Several hon. Members and noble Lords have pointed to the similar changes made to the unexplained wealth order regime by the first economic crime Act, the Economic Crime (Transparency and Enforcement) Act 2022. The key difference is that UWOs are an investigatory tool that do not directly result in the permanent deprivation of assets, whereas civil recovery cases covered by the amendment could do so. There could, therefore, be a host of serious unintended consequences of such a change to the wider civil recovery regime, so the Government cannot support the amendment. However, we recognise the strength of feeling on the issue and the potential merits of reform. We have therefore tabled an amendment in lieu which imposes a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, and to publish a report on its findings before Parliament within 12 months. I hope the House is assured that the amendments the Government have laid are minor but sensible tweaks to the Bill. As I have set out, the Government have listened and made substantial important amendments to the Bill throughout its passage, significantly improving and strengthening the package where we recognise improvements could be made and where it makes sense for businesses. We must now, however, stand firm where we believe the amendments will not work or will place disproportionate burdens on businesses. I very much hope Members will support our position today and that the other place will note the Government’s movement on cost protection and reconsider its position on the six amendments when the Bill returns there. We must get on with implementing the vital measures in the Bill without further delay.
Seema Malhotra (Feltham and Heston)
(Lab/Co-op) We are in no doubt about the importance of the Bill. Britain has become a global hub for dirty money. The cost of economic crime now runs to as much as £350 billion, equivalent to our annual health and education budgets combined. Economic crime hits our constituents and our businesses. It hurts our public finances and it damages our reputation around the world. Action on economic crime was first promised in 2016, then 2018 and 2019. It matters because in the years from 2016 we saw a significant increase in economic crime, much of which could have been prevented if the Government had acted then. It took the invasion of Ukraine for the Government to step up. Strengthening the law has been urgently needed, which is why the Labour party has actively supported the Bill’s important passage through both Houses and sought to ensure that we leave no loopholes unchecked. Where the Government fail to act, we will. We recognise that the Bill has made real progress in strengthening the law to tackle economic crime and its enablers. I particularly thank my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my hon. Friend the Member for Rhondda (Sir Chris Bryant), and the all-party parliamentary groups on anti-corruption and responsible tax and on fair business banking for their research and relentless campaigning for change. I also thank other Members who have made significant contributions to our debates, including some who are here: the hon. Member for Cheadle (Mary Robinson), the right hon. and learned Member for South Swindon (Sir Robert Buckland) and the right hon. and learned Member for Kenilworth and Southam (Sir Jeremy Wright). The Bill brings significant reform of Companies House, improving the accuracy and transparency of the register, with new powers for the registrar to become a more active gatekeeper over company creation. Let me speak first to Government amendments which we support. I congratulate the Minister on the number of U-turns on areas that Labour argued for in Committee and on Report, including on closing loopholes around third party enablers and introducing a failure to prevent fraud offence. We welcome Government amendment 1, passed in the other place, which would expand the scope of objective 2 in clause 1, requiring Companies House to also take into account the accuracy of information already on the register before the Bill comes into effect. Government amendments 35 to 50, which all relate to the authorisation of corporate service providers, are vital amendments, especially amendment 35, which requires the registrar to publish the name of the authorised corporate service provider who has carried out ID verification. We welcome amendment 43, which requires the registrar to refuse the application for authorisation as a corporate service provider if it appears that the applicant is not a fit and proper person to become an ACSP. Government amendments 146 to 150 introduce further provisions limiting SLAPPs that feature economic crime. I particularly thank my right hon. Friend the Member for Birmingham, Hodge Hill for his advocacy on this issue throughout the passage of the Bill and in Committee. SLAPPs are a form of abusive proceedings. It is for us to send a signal and to change the law in the public interest. I would, however, ask the Minister for clarity on the Government’s intention to cap costs via secondary legislation, set out in one of the Bill’s factsheets. It would be helpful if he could give us an idea of when the Government are considering doing that, and how quickly he expects it to happen. Lords amendments 151 to 158 introduce an offence of failure to prevent fraud, which I know was a priority for the Minister as well before he took on his present role. This is a huge step forward, which also follows considerable pressure and work between the Government and both the Opposition and their own Back Benchers throughout the Bill’s passage. The amendments take us forward, but the evidence shows that we need to go further, which is why we will support Lord Garnier’s amendment 159. 19:30:00 Lords amendment 124, tabled by the Government, deals with tackling opaque company ownership through the use of trusts. While any commitment to action is welcome, we fear that the amendment simply kicks the can down the road by leaving access to trust information to be sorted out in secondary legislation, without providing any meaningful detail or certainty as to how this will work in practice. We therefore call on the Government to support a non-Government amendment, Lords amendment 117, for reasons that I will explain later. Let me now turn to the six important non-Government amendments. They include provisions that improve shareholder transparency, seek to close trust loopholes, expand the scope of the new “failure to prevent” offence, and extend cost caps for civil recovery cases. I thank the Lords for all their extraordinary scrutiny of the Bill, particularly Lord Agnew, Lord Vaux and Lord Garnier, as well as my colleagues Lord Coaker and Baroness Blake, among others. Let me deal first with Lords amendment 23, tabled by Lord Vaux. As he explained, one of the classic ways in which to hide the real ownership of a company is through the use of undisclosed nominees arrangements, when a shareholder is named on the register but is in fact holding the shares on behalf of another person. In simple terms, the amendment aims to close that loophole by making it a requirement for shareholders to state, as well as their name and address, whether they are or are not acting as a nominee. If they are acting as a nominee, they will have to provide the name and address of the person on whose behalf they are holding the shares. The Government’s argument against the amendment is that the existing “persons of significant control” declaration threshold and legislation would lead to those nominees effectively being declared. At present, while companies must try to identify persons with significant control, all they are really asked to do—as Lord Vaux explained—is look at the shareholder register. If there is no shareholder with 25% or more, they can reasonably conclude that there is no person of significant control, but if there is no obligation for the person who is acting as the nominee to disclose on whose behalf they own shares, PSC identity can remain hidden. It is far too easy for dishonest actors to hide their identities. The company concerned has the right to ask the nominees, but if the company is controlled by a dishonest actor, it is unlikely to do so. The amendment deals with that issue at its root, seeking full transparency over owners hiding behind nominees for illicit purposes, but instead of strengthening legislation here, the Government are watering it down. They have tabled amendment (a) to Lords amendment 23, which would remove the requirement to declare if a person is holding shares as a nominee, thus essentially removing the primary principle of the original amendment. We need Lords amendment 23, and we will vote against amendment (a). Lords amendment 115 creates an obligation for the register of overseas entities to be updated within 14 days of an entity’s becoming aware of any change, bringing it into line with the “persons of significant control” register. We have expressed concern previously about the fact that the register of overseas entities is one of the only registers that are required to be updated annually, rather than when a change occurs. This means that, at best, the register is providing only a snapshot of land ownership by overseas entities. We support the sentiment behind Lords amendment 115. Twelve months is certainly too long, and there is a significant risk that if the legislation goes through in its current form, overseas entities may be able to make changes within the 12-month period but change them back before their annual reporting requirement in order to evade transparency. There has been no solution to that loophole, but we need one. That solution, and a more appropriate threshold, need to be addressed, and with an evidence base. I do note the concerns expressed by the Law Society and others about the current amendment. We will not be voting on Lords amendment 115, but we believe that the Government must look again at instituting a period informed by data and analysis which will close this evident loophole. Lords amendment 117 was tabled by Lord Agnew—who, I remind the House, resigned from his role in Government tackling fraud because of the Government’s “lamentable track record” in this area. We must be driven by the principle of maximum possible transparency. The amendment would require Companies House to publish information about trusts controlling offshore companies holding land in the UK, which is vital for transparency of land ownership. This amendment is much stronger than Government Lords amendment 124, which kicks the can down the road when it comes to acting on trusts by prompting yet another consultation. New research published by a group of academics from the London School of Economics and Warwick University on the register of overseas entities has found that the true owners of more than 100,000 properties in England and Wales controlled via overseas shell companies are not public, despite the rules that came into force on 31 January. Analysis of the register by Transparency International shows that trusts are used to hide the ownership of about 7,000 entities, which is about a quarter of those on the register. Trusts are also notorious for their use in sanctions evasion, a case in point being last year’s story of Alisher Usmanov’s allegedly using trusts to obscure the beneficiaries of his £170 million UK property portfolio. I have heard some of the Government’s arguments in the Minister’s speech, but it still seems to me that on the issue of trusts we are dragging our feet when the time to act is now, and we will therefore oppose the Government’s motion to disagree with Lords amendment 117. The Government have tabled amendment (a) to the new clause entitled “Failure to prevent fraud” in Lord Garnier’s amendment 151. As we have said, we welcome the steps taken by the Government on failure to prevent fraud, but there are two problems with the current offence, about which the Minister has already heard during the debate: first, it applies only to large organisations as defined in the Companies Act 2006, and secondly, it does not cover money laundering. Government amendment 151, which introduced a failure to prevent fraud offence, was amended in the other place to remove the planned exemption for all organisations that do not qualify as “'large organisations”. If it is left as it is, the introduction of a “failure to prevent fraud” offence will apply to just 0.5% of all businesses in the UK. As Lord Gamier pointed out so aptly in the other place, with 99.5% of businesses being exempt, that would be the equivalent of only prosecuting murderers over the height of 6 feet 6 inches.
Richard Fuller What intrigues me is this. There is a balance to be struck here. I think the hon. Lady will go on to ask the Government not to press their amendment, or to else to oppose Lords amendment 159; but what, in practice, will this mean for smaller businesses if they are to be held to the responsibility to prevent fraud? Is it a certificate on the wall? Is it an annual process that they will need to go through? How much is it going to cost? Ultimately, who will give a guarantee to all the small business owners around the country who are worried about this new responsibility? How will they know that they have taken the actions under prevention procedures to ensure that they will not be subject to legal prosecution?
Seema Malhotra
Dame Margaret Hodge
Seema Malhotra The important point here is that it is for the Government to get this right, and I think we can all agree that there should not be disproportionate costs for small businesses. Lord Vaux, an experienced professional in these areas, also expressed concern over the credibility of the Government’s figures on the estimated costs for smaller businesses. Another important argument is that these policies can also protect SMEs, which are also the victims of fraud. We can sometimes lose sight of that. In 2022, 64% of UK businesses experienced fraud, corruption or other economic crime. That is much higher than the global average of 46%, and second only to South Africa. This is a matter of a cost to businesses as much as a cost for businesses, and what the extent of that would be in reality. We have also looked at the safeguards—particularly since my conversation with the Minister last week—that are in place to avoid disproportionate costs for SMEs, which the Government can use to get the balance right. Spotlight on Corruption has noted: “It is open to the government to make clear in guidance issued for the offence what reasonable procedures would be proportionate for SMEs, and in what circumstances it would be reasonable not to have them at all.” The offence also contains a defence for companies to be able to argue, in the event of legal action, that its procedures were reasonable in all the circumstances or that it was not reasonable to expect the body to have any prevention procedures in place. That is important for informing the debate today and it is the reason that, after deliberations and listening to the Minister last week, we have decided that we should support the debate in the Lords and that we do not want to see the exemption for SMEs taken out of the Bill. Amendment 159, on failure to prevent money laundering, was tabled by the noble Lord Garnier. It would expand the scope of the Government’s new offence of failure to prevent fraud so that the offence would also cover money laundering. The Government argue that this amendment is not needed as we already have an anti-money laundering supervisory regime, but I remind the Minister that a Treasury review into our anti-money laundering regulations published in June stated that “significant weaknesses remain in the UK’s supervision regime.” Hugely frustratingly, the Government have responded to that with yet another consultation. In addition, since the most recent money laundering regulations were brought in, the UK has had only one corporate criminal conviction for money laundering, so it is pretty clear that the existing safeguards against money laundering are not enough. Here is a chance to take stronger action and to include in the new offence a failure to prevent money laundering, and the Government should take it. We will be supporting this amendment to stay part of the Bill. 19:45:00 Lords Amendment 161 was tabled in the other place by the noble Lord Agnew. Crucially, it would extend the cost cap for civil recovery cases beyond the cap introduced for unexplained wealth orders in the Economic Crime (Transparency and Enforcement) Act 2022. Let me quote Lord Agnew: “We have a complete mishmash on the principles of cost capping at the moment. For example, cases taken in the magistrates’ court have cost capping, as do cases taken by the SRA. However, we do not have cost capping for the most important of all: those large cases where the enforcement agencies are trying to take on big-time oligarchs.”—[Official Report, House of Lords, 27 June 2023; Vol. 831, c. 674.] This Lords amendment would significantly aid the fight against economic crime in our country. Currently the balance is tipped in favour of the criminals and the kleptocrats and away from the prosecutors and their agencies who want to pursue these cases but cannot afford to do so. It is also strongly supported by Bill Browder. The reality is that far too often the other side can afford any cost to support their case. The Government have tabled a motion to disagree with Lords amendment 161 and have offered a counter-amendment (a), which would oblige the Secretary of State to report on potential policies to extend cost caps, but this is a serious issue to address now. I see no reasonable explanation as to why the Government would continue to oppose the inclusion of this amendment in the Bill and the strong backing it would give to the enforcement agencies, which we would expect to act with a strong threshold of evidence in order to bring any cases—a point that I hope will address any other concerns the Minister has. To conclude, this Bill is welcome but long overdue, and loopholes remain. Labour has laid out our arguments in support of the Lords amendments. They have been passed with cross-party support and in good faith, and they will clearly make the Bill stronger. The Government must seize the opportunity of this Bill to drive forward the transparency that we need and to help our law enforcement bodies to act. These are the choices the Government must make, and I urge them to reconsider the much-needed amendments from the other place today.
Mr Deputy Speaker (Mr Nigel Evans)
Mary Robinson (Cheadle) (Con) “legal actions typically brought…with the intention of harassing, intimidating and financially or psychologically exhausting opponents via improper use of the legal system.” In essence, people who have such a claim brought against them are threatened into silence. They are a tool of intimidation and censorship, often used by wealthy individuals such as Russian oligarchs or by corporations against individuals such as journalists who rarely have the financial means to fight back. SLAPPs are not brought with the intention of participants having their day in court; they are based on the power of inequality of arms and are intended to stifle free speech, with the allegations never seeing the light of day. For the purposes of this Bill, SLAPPs claims are defined as one where the claimant’s behaviour in relation to the matters concerned has or intends to have the effect of restraining the defendant’s freedom of speech, and that any disclosures they seek to restrain have to do with economic crime or would be made in the public interest to fight economic crime. These amendments seek to give people more protection when facing a SLAPP claim in relation to economic crime only. They will be able to use a new early dismissal mechanism and, where a case does proceed, they will have the umbrella of a new cost protection regime. This matters because costs can be prohibitive when fighting legal cases, and indeed the financial risks are intended to deter people from fighting back. However, we cannot let people who seek to silence and intimidate win. We should be concerned that, in 2022, the Coalition Against SLAPPs in Europe found that the UK was the top European destination for cross-border litigation, with 15 of 62 known transnational cases over a decade being filed here. Who knows, there may be more. One of the reasons we are in this position is that the UK has no anti-SLAPP legislation, and I therefore welcome the measures that are being introduced here. Although the Bill concentrates on economic crime only, I encourage Ministers to make it the first step in bringing a stop to SLAPPs altogether. SLAPPs are not just a threat to freedom of speech and freedom of expression, they seek to stop so many other disclosures that are in the public interest. As chair of the all-party parliamentary group for whistleblowing, I am committed to protecting and empowering people who speak out. I have been pushing for legislative change to ensure that people feel able, safe and supported to make disclosures that are in the public interest. Whistleblowers, as my hon. Friend the Minister knows, are pivotal in the fight against economic crime and fraud, with almost half of all fraud detected by whistleblowers. Because economic crime is often well hidden and difficult to trace, discovering it requires insiders to speak out and share their knowledge. Take, for example, the £178 billion Danske Bank money laundering scheme, which was exposed only as a result of a whistleblower who had worked in the bank’s trading unit and who raised concerns about breaches of anti-money laundering procedures in its Estonian branch. His internal reports ignored, he turned to the US Securities and Exchange Commission. Once allegations made the news headlines, Danske Bank itself ordered an investigation that confirmed the whistleblower’s claims. Although a worker may seek protection at an employment tribunal, journalists, who are often the target of SLAPPs, are not recognised as whistleblowers under UK law, and they are therefore afforded no protection. Yet due to the investigative nature of their work, they are among the most likely to acquire inside information and evidence of wrongdoing. At the moment our whistleblowing legislation, the Public Interest Disclosure Act 1998, applies only to workers and is meant to protect them from unfair dismissal or detriment at work that may result from their whistleblowing. Whistleblowers such as journalists, who fall outside our current laws and are prey to SLAPPs, will find support with these amendments where their disclosure relates to economic crime.
Sir Chris Bryant
Mary Robinson
Sir Chris Bryant
Mary Robinson As has been said, SLAPPs are used to silence and cover up. To effectively root out economic crime, it is right that we address their use, but I think the Government can go further still by reforming the UK’s whistleblowing laws. In doing so, we could encourage more people to come forward with evidence of economic crime, secure in the knowledge that the system is on their side. We must have a system that recognises any person as a potential whistleblower, not just an employee, as our current legislation does. We must have a system that values whistleblowers, not one that ignores or punishes them. We must have a system that makes whistleblowers feel supported and valued. I know the Government are currently reviewing the UK’s whistleblowing framework, and I will continue to push for the reform we need. Meanwhile, these amendments are an important step forward, and I am pleased to support them.
Alison Thewliss (Glasgow Central)
(SNP) I pay tribute to the work of the right hon. Member for Barking (Dame Margaret Hodge) on the all-party parliamentary group for whistleblowing, and to the organisations in this sector that do so much to bring light to what can be a very complex and detailed issue. The Minister talks about the UK having a reputation for allowing legitimate businesses to thrive, but we are here this evening to challenge the other reputation that has built up over the years. The UK has now become a hub for dirty money, which is funnelled through the UK’s financial system by an army of enablers. This Bill is an opportunity to dam that flow and to stop this dirty money, but as the excellent “Catch me if you can: Gaps in the Register of Overseas Entities” report, published by the London School of Economics and CAGE Warwick, says, “there is no point building a dam halfway across a river.” Without closing the loopholes and the gaps, that is what this Government are doing. The Minister has promised consultations and further things to come in the future. It is fine to dangle these things before us, but we all know that we are heading towards an election and the Government cannot promise to deliver on any of the consultations he hopes to bring forward. Whatever happens, there will be an election. This House is almost out of time, and we should take the opportunity tonight to do this Bill right. I will run through the Lords amendments, given the time constraints you mentioned, Mr Deputy Speaker. The Lords amendment on nominee shareholders was tabled by Lord Vaux, and as other Members have said, there is an awful lot more we could do on that. It is not enough for the Government just to say, as they did in their letter to Members, that such a measure would most likely be ignored by illegitimate actors and would be difficult to enforce. That is not much of a reason not to legislate and not to try. There is a real issue with how complex structures have been brought about, and the Government need to grab hold of it. This Bill is an opportunity to close a loophole before it is further exploited. Enforcement is a big part of this, and the Government do not enforce the current rules. Saying a measure would be difficult to enforce when they are not enforcing the rules to begin with does not give us great confidence. Between 2012 and 2022 only three fines were issued for false filing to Companies House. As of October 2022, only one fine of £210 has been issued for not filing the person with significant control of a Scottish limited partnership. If the Government do not enforce the rules they have brought forward, they cannot really ask for more rules. They need to get real about enforcement. They need to make sure the laws we pass this evening are effective. Updates to the register of overseas entities are a significant gap in the system. As others have said, updates can take almost an entire year, in which time other things could happen. Event-driven updates would hold companies to account. If we think about it, there will be paperwork when companies make any change, so they might as well do the update at the same time. That would be logical. Lords amendment 117 in the name of Lord Agnew, on the transparency of trust data on the register of overseas entities, makes a critical point. We must deal with trusts without further delay, without further consultation and without kicking the can further down the road. Here is the opportunity to do that. As Transparency International and the BBC showed in February, trusts are being used to hide the ownership of thousands of overseas entities under the current regime. They estimate that more than 7,000 overseas entities on the register, about a quarter of the total, are hiding the ownership of roughly 20,000 properties. Why would the Minister not want to close that loophole? Why would he not want to improve this system right now? 20:00:00 It is not as though the Government were not warned on this. They are talking about consulting and doing more on it, but they were warned about this when we had the Joint Select Committee on the draft Registration of Overseas Entities Bill. In March 2019, Professor Jonathan Fisher KC said: “If I was asked to advise, on the face of the draft legislation, the first thing I would say is, ‘Have you thought about setting up a trust?’”. He went on to say: “I might say to someone, ‘If you really want to do this Technicolor, why don’t you have an offshore company and have the shares of the company put in trust, and when you set that trust up, why don’t you think about setting it up as a discretionary trust?” If it is a discretionary trust, the beneficiary does not rank as a beneficiary in law; all they have in law is the right to be considered by the trustee when capital income is distributed.” So all kinds of things were already identified and very clear to the Government, having been highlighted in evidence, and they could have put these pieces of evidence into this Bill to make sure that we are closing the loopholes now, rather than allowing this to spiral yet further. It is also very evident that this database needs to be accessible to the widest possible group of people, because the law enforcement, particularly under this Government, does not have the money, expertise or time to go into this in significant detail. Let me highlight some of the scale of the issue. We owe a great debt of gratitude to Graham Barrow, as a researcher into these things, in his own time, as a Companies House geek. He says that the use of brass plaque addresses for company incorporations has increased since lockdown. He has done an analysis of two main addresses being used. In Shelton Street, between 2018 and 2022, the number of incorporations at the one brass plaque address grew by 340%, from 6,200 to 27,350. Similarly, the incorporations in Wenlock Road also grew significantly, by 40%. Those are just two addresses, and the numbers are increasingly significantly. That is due to the loopholes that the Government have allowed and the corporate structures that currently exist. We sought further amendments to tighten this and prevent these brass plaque addresses from being used for hundreds and thousands of companies. There is certainly more the Government could be doing to ensure that trusts do not fall down on this point; allowing people to register trusts in a similar way will result in the same issues.
Kevin Hollinrake
Alison Thewliss Let me turn to the amendment on failure to prevent fraud, from Lord Garnier. I recall the Minister being keen on such an amendment beforehand and there is an awful lot more the Government could be doing on this. As other Members have said, if this can be done for bribery and tax evasion, there is no reason why doing it for fraud should present an additional burden. As the Minister himself pointed out, 99% of businesses are not in scope under what is being proposed here—again, that is ludicrous. There is also an effect on small and medium-sized businesses to consider, because they also stand to lose money through fraud. They stand to be targeted by those who want to commit this fraud. So those businesses that are perhaps more exposed—those local businesses that do not have the power to stand up to those who would bully them to engage in such activity—are put at risk and should be better protected by this legislation, were they to be kept in line with it.
Richard Fuller
Alison Thewliss
Richard Fuller
Alison Thewliss I move on to the cost protection for civil recovery cases. Again, this is incredibly important, because the balance we have is not right. Those who can pay—the enablers, the lawyers, the sharp accountants—have a huge advantage over law enforcement agencies, which do not have significant resource and expertise to do this. As Bill Browder said when he gave evidence to the Bill Committee in October 2022: “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… If you make that point, it will change the whole dynamic—the whole risk-reward—for these people.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 66, Q140.] On adverse costs, the Government are saying that they are sympathetic to this, and they are going to consult and do some other things later on, but by not putting this measure in this Bill, they are allowing this uneven playing field to continue and be perpetuated. Because the law enforcement agencies know that it is going to cost them an absolute fortune, which they do not have, these cases go unpunished and those who perpetrate all of this money laundering, with all this money washing through the UK financial system, will see this continue, because people can afford to get away with it. The Government should be deeply concerned about that. Let me recommend to the Minister Bill Browder’s latest book—if he has not already read it. It exposes the capture of all of these enablers, from lawyers to everybody else; we need to be looking to close the door on that in this Bill. The Government have an important opportunity here. This important situation does not come along very often and we do not know when we will pass this way again. We have a Bill in front of us. The Government could go for accuracy and for transparency in the register. They could close the door, fix the loopholes and do all of these things that they must do. They could accept these Lords amendments tonight. They could fix this Bill and do it right, and we would not have to come back here to legislate again.
Sir Robert Buckland I hoped that tonight could have been a Simeon moment—I could have sung my Nunc Dimittis and departed in peace—but no, I am afraid that, as a result of the welcome but somewhat limited amendments made by the Government in the Lords, I am reduced to the role of Moses; I can see the promised land but I am not, it seems, according to the Government, destined to get there. Therefore my exhortation to my good friend the Minister is, “You can be Joshua. You can knock the walls of Jericho down. You can go the extra mile and finish the job.” We have heard a lot about this failure to prevent offence, and the word “fraud” has been bandied about as if we were dealing with fraud in general. May I, perhaps uncharacteristically for some hon. Members, draw the attention of the House to the Lords amendments themselves, because they are what we are considering? I, like you, Madam Deputy Speaker, am a stickler for ensuring that we stick to the point, so I turn to page 46 of the bundle and, in particular, amendment 151, which is the proposed new clause “Failure to prevent fraud”. It ain’t any old fraud; it is fraud intending to benefit “the relevant body”. That is not a fraud in general, about loss to the taxpayer or the company—in fact, there is a specific defence on that basis that says if the fraud causes loss to the company, it is not a criminal offence—but a very targeted type of fraud that is about benefit to the company. As a lawyer, Madam Deputy Speaker, you know that we have something called the criminal standard of proof. This is not any old regulatory device; this is a criminal offence. The threshold and standards that have to be applied by the police, the investigating authorities and the prosecutors are high. As my right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright) said, the defence set out in clause 4, about reasonable prevention proceedings, is crucial. When I hear people talk about regulatory burden, I have to say, in all candour, that that is a misplaced understanding of what this rather limited offence will achieve.
Richard Fuller
Sir Robert Buckland
Richard Fuller
Sir Robert Buckland My hon. Friend the Member for North East Bedfordshire (Richard Fuller) is well experienced in business, over many years in financial services, and I bow to the expertise and experience that he has brought to the House, and indeed to ministerial office—all too briefly, which was a shame. He will understand the law of corporate liability in the United States—a vigorous free market economy, the biggest economy in the world, where people go to invest and grow businesses. I can tell him that corporate criminal liability in the United States is pretty draconian, because companies there are liable, even if their employees go off on a frolic of their own and defraud to their hearts’ content, yet corporate criminal liability there will bite upon United States entities. That is far more draconian that anything we have in this jurisdiction and far more onerous, potentially, when it comes to regulatory burden, yet my hon. Friend cannot argue with me that the United States is anything other than a vigorous free market economy.
Richard Fuller
Sir Robert Buckland
Sir Jeremy Wright
Sir Robert Buckland I am sorry if I might have inadvertently upset my hon. Friend the Minister by mentioning His Majesty’s Treasury, but I detect the hand of my friends in Parliament Street. I know their view about failure to prevent fraud; they do not like the offence and never have done. They have always put up arguments against it. Perhaps it is their role to do that—I do not know—but I detect their hand in this. That is an unfortunate coda to what would have been a magnificent symphony, had my hon. Friend the Minister stuck to the line and done what I thought he was going to do. To return to the point made by my hon. Friend the Member for North East Bedfordshire, I agree that the United States is a litigious society. We, in the United Kingdom, do not necessarily want to go down that road when it comes to civil litigation, but what the United States does well is prosecution of fraud. It regularly and rigorously enforces the criminal law of fraud, particularly in the jurisdiction of New York and in other major financial centres, which enhances the reputation of that jurisdiction as a safe place to do business. Here is the argument that you, Mr Deputy Speaker, do not hear, in contradistinction to the argument about the regulatory burden. Where there is a criminal legal framework that is clear, certain and stable, that can only encourage investment into the United Kingdom, not discourage it. A jurisdiction with a robust and independent judiciary and a fine legal tradition, which rigorously polices the law of corporate criminal liability, is one that investors can have the greatest confidence about investing in. What on earth is happening here to undermine that very powerful argument? Prosecutors, including the Crown Prosecution Service and the Serious Fraud Office, have made the case consistently that a “failure to prevent” offence of this nature would help them in the important work they do in bringing wrongdoers to book. We do not want to be a jurisdiction where it is too easy to commit fraud that benefits corporates. We do not want to be that sort of place—that is not a healthy place within which we should be operating. If we are truly committed to a vigorous free market economy, then, in the traditions of Adam Smith, we should be absolutely committed to its policing and its boundaries. I sound a bit evangelical about this—a bit biblical, a bit Old Testament—because it is important that we get this right at this last stage of the Bill. That brings me to my noble Friend Lord Garnier’s amendment about money laundering. He made the argument very well and, having read his entry in Lords Hansard, I will adopt it. I am in danger of sounding like a broken record, but I make no apology for that. Money laundering is already a criminal offence. The regulatory argument does not cover the full gamut of what we are dealing with, and Lord Garnier’s amendment is a sensible reflection of the importance of ensuring we cover offences of money laundering. Remember again that this is about benefiting the company; it is not money laundering in general, but a targeted offence, with the same caveats and qualifications that I mentioned in the context of the “failing to prevent fraud” offence. So I say to my hon. Friend, “Repent!”. He should follow the true path and come back and finish the job. We can all then take equal pride in the work that he and others have done to make sure that this jurisdiction is a fairer and better place in which to do business. Let me end on this note. I will not dwell too much on the rather milquetoast amendment about the capping of cost orders for proceedings for civil recovery. We know that it is a problem. We know that it is a disincentive to the bringing of civil proceedings under the Proceeds of Crime Act 2002. We should just get on with it. The particular rules and proposals about costs are well reflected in other parts of legal procedure and other types of proceedings, so this is nothing new. I think that it is time that we grasped the nettle rather than having yet another report. Finally, Lord Agnew made a very powerful point: just a few words is all it takes to make a difference when it comes to trusts and the arguments that have been very cogently made about that by others. Only a few small steps need to be taken by my hon. Friend and His Majesty’s Government to allow us to reach that promised land. I urge him to take us there and then we can all celebrate in a land of milk and honey.
Dame Margaret Hodge I say to the Minister: do not undo that good work; do not emasculate what has happened and where we have got to; and do not give into the voices of enablers who want to make a fortune on the back of dirty money. I wonder, as the right hon. and learned Member for South Swindon has wondered, why on earth is the Minister not listening to what we are saying. Everybody in Parliament wants this. Everybody in the country wants this. Nobody supports dirty money. As I have said time and again, the country will not sustain economic prosperity and wealth on the back of dirty money. There is no future in that. I give the Minister another commitment, which I really regret having to say. I will not be here, but I want a future Labour Government to commit to never having a system that allows any political party to exist on the back of donations of dirty money. I say: do not let this opportunity go. Do not betray the principles and do not cave into the lobbying. The Government should look at the excellent amendments and please go forward. I wish to focus on some new points. Lord Agnew’s excellent amendment in relation to trusts needs to be considered. The Minister said that he did not accept the research that was published today by really respected academics. These are people I have worked with over the years in whose work I have total and utter confidence. I challenge the Minister to bring them in and talk to them and then see if he comes to the view that what they are saying is not true. What they are saying is that we do not know the beneficial owner of 70% of the properties identified as owned by an overseas entity. And we do not know the beneficial owner of two thirds of that 70% because there is a trust that hides the real beneficial ownership. The Minister should have regard to what they say, as they are distinguished. I urge him to talk to them. I am happy to join in a meeting with them. In 87% of cases where information is either missing or inaccessible, it is because of Government choices in the design of the scheme. It is not because people are not obeying the law. It is because the Government have chosen to design the scheme in that way.
Kevin Hollinrake
Dame Margaret Hodge
Kevin Hollinrake
Dame Margaret Hodge Let me put in this basic point. He and I own properties. We are not ashamed of showing the ownership of those properties. Why should we reveal the ownership of the properties in which we live, when rich people—often kleptocrats, often criminals, often money launderers—are able to use trusts as a mechanism to hide their ownership? That is a basic unfairness that the Minister should deal with. May I quote to him the words of one of the firms of lawyers that is exploiting the loophole? It is Payne Hicks Beach—Baroness Fiona Shackleton is a member of that firm. The firm says: “On the face of it, the lacuna would seem to defeat the purpose of the legislation”— this is lawyers saying this— “so may be tightened up”— hopefully tonight— “in the future, but for the time being, using a nominee to hold UK property will continue to provide privacy as far as the ROE is concerned.” Lawyers are exploiting that loophole, and we should stop it because—I hope that the Minster will agree with this—it is damaging our sanctions policy. Usmanov has been able to hide a lot of his wealth in property through trusts. Abramovich has done it, Fedotov has done it, and it is time that we brought it to a stop. The other key issue is the failure to prevent. I will quote to the Minister what he said time and again. This is not about additional burdens on SMEs, or filling the courts with criminal cases; this is about trying to change the behaviour in our society, so that preventing fraud and money laundering becomes embedded in our culture, in the same way that preventing bribery has become embedded in business culture. The example that the Minister used when he was on the Back Benches is very potent. When we used to have a lot of accidents and deaths on construction sites, we reformed the health and safety at work legislation. We did not suddenly fill the courts with builders and construction people being taken to court, but overnight the number of accidents went down by over 90%. That is the principle that we are working on. That is the evidence that we want to use, and it is vital that we do it here. 20:30:00 The failure to prevent clause, so ably moved and worked upon by Government Members, is the key clause that would really be the game-changer on the whole issue of dirty money. If we can only get that clause as agreed in the House of Lords through, we would really see a difference in what is happening. Taking out the provisions on SMEs and on money laundering is ridiculous. The Minister knows that it is absurd. There has been one prosecution on money laundering. When the Financial Action Task Force came here in 2018, it said that it was looking at 180 high-end money laundering investigations. Out of that we have had one case, so do not tell us that things are currently working. I want to keep to time, but quickly on cost caps, crooks have such deep pockets. We saw that with the unexplained wealth orders. It is outrageous that the people who managed to win the case in the courts—although investigative journalists have subsequently suggested that they lied to the courts, in effect; that the evidence that they gave was not the truth—have claimed £1.5 million in costs from the National Crime Agency. The NCA’s total budget for fighting corruption is £4 million a year. If it loses £1.5 million on one case alone, the idea that it will have any confidence in litigating when it comes across cases of bad actors and malpractice is for the birds. If we do not tackle the cost-capping issue, we will never get on top of the really bad people whom we want to eliminate from our economy. This is one area where we just have to look at the Americans and the way that they pursue money launderers and fraud much more aggressively. The money that they bring back into the public coffers, which can then be spent on public services, is enormous. In 2021, we managed to extract £354 million in fines; the Americans took £1.2 billion-worth of fines—$1.5 billion-worth. Our £354 million is 0.3% of the amount that was laundered there. Bill Browder, who has been a real advocate in this area, believes that this is another amendment that would change things. On nominees, this is such a simple amendment. I cannot understand the resistance to it. All it does is give us more information and enable us more readily to know who are the genuine owners of particular companies. Allowing individuals to hide behind nominees is absurd. Those are the things that really matter to me and that could make the difference and turn a Bill that is much better than it was but is still not perfect into a very powerful instrument that would allow us to go out and turn around very effectively the malignant disease that has infected the UK economy of massive money laundering, fraud and economic crime. I urge the Minister, “Be bold! You’ve got a year left to do it. Be bold in that year.”
Mr Deputy Speaker (Mr Nigel Evans)
Sir Robert Buckland
Mr Deputy Speaker (Mr Nigel Evans)
Richard Fuller It is with some temerity that I wish to make a few points perhaps not in accordance with some of the comments made particularly by my right hon. and learned Friends the Members for Kenilworth and Southam (Sir Jeremy Wright) and for South Swindon (Sir Robert Buckland), who make the case for extending the failure to prevent fraud provisions to smaller businesses. I must say that they have not convinced me of the merits of their argument at this stage, and I think on balance I am with the Minister on this. I am a Conservative and therefore change is perhaps always difficult for me, but I think particularly of what the implications may be for smaller businesses. I have not been persuaded by the other examples put forward of health and safety or bribery; I think there will be quite a chilling effect if the responsibilities for preventing fraud are extended to small business owners. I think it is appropriate and prudent that we build the measures, as the Minister has said, in his amendment (a) to Lords amendment 151. That is all I will say on Lords amendment 151, However, I want to talk about another amendment that affects small businesses, which no other hon. Member has referred to in this debate: Lords amendment 30 regarding the disclosure of profit and loss accounts for certain companies, which the Bill will require of small businesses and microbusinesses that had previously been exempt. It potentially causes considerable concerns for owners of very small businesses if they are to have their profit and loss and their balance sheets publicly declared through Companies House reporting. I ask hon. Members to imagine, if they will, that in a town or a community there are two or three competing laundries or plumbers, all of them maybe husband and wife, father and son or whatever—concentrating on what I want to say of a small business—or just sole proprietors, competing with each other in a small market. If their profit and loss statements were to be a matter of public knowledge, that would have very serious implications for local understanding of that person’s or that family’s personal wealth. It would have significant implications for local competition. The provisions that were in place in the Bill originally provided no protection for people in those circumstances. Yes, they will still provide the information, but surely it makes sense for companies in those circumstances not to have all their very specific financial information in the public domain. I believe Lords amendment 30—the Minister might refer to this if he has time—seeks to provide a mechanism for a restriction on that disclosure of such personal information. The amendment lays out in proposed new subsections 468A(1) and (2) of the Companies Act 2006 that the Secretary of State “may by regulations make provision requiring the registrar, on application or otherwise”, and goes on further to say that regulations “which provide for the making of an application may make provision” as to who may make an application, the grounds on which an application can be made, the information to be included in it, the notice to be given, how an application is to be done and so on. My concern here is that Lords amendment 30, in seeking to correct the over-disclosure of public information, has put in its place quite a complicated application procedure. Therefore, it would be helpful if the Minister could say what he has or what the Government have in mind about that application process. It would be ideal if that process were just a tick box. It would be ideal if that information could be communicated to accountants across this country who regularly have to file accounts on behalf of very small businesses, and it would be helpful if the Minister could advise that it is the Government’s intent that very small businesses in the circumstances I have outlined will not have very private personal financial information put in the public domain, although their information will still be required by Companies House and therefore placed under the protection that the Bill seeks to address.
Liam Byrne The Minister is not too bad, either. I think that he has done a Herculean job over quite a long time, and he has sought to do the right thing with the Bill. Crucially, he took the time to reach out and listen to members of the Committee and Members across the House to ensure that we were up to speed with where he was going and what he was trying to achieve. The result is a better piece of legislation. However, it is not yet perfect, and we are here tonight to encourage him, having gone so far, just to go those final few yards and give us a Bill that will truly be a legacy to his work here in Parliament. Mine is a starting point that we have not yet talked about in this debate: the terrible state of wealth inequality in this country. It is so bad because economic crime is so bad. Since 2010, the wealth of the top 1% in this country has multiplied by 31 times that of the rest of us. That is, in part, because of the problem of economic crime. It is a problem that our country is a global capital of money laundering and fraud reckoned to be worth some £350 billion a year—that is a mark of national shame. It is a problem that we potentially allow the ownership of more than 100,000 of our most prestigious and expensive properties by names we just do not know. It is a problem that, last year alone, nearly £7 billion of property was bought with what Transparency International calls “suspicious wealth”. What unites us all in this debate—indeed, what unites us all in this House—is that we know that, if we want to be a country of free trade, we have to be a country of fair trade. But if we are to be a country of fair trade, we need to be a country of clean trade, and that is why the Bill, and getting it right, is so important. When we leave holes, gaps and spaces in our defences, dirty money floods through and pollutes both our economy and our democracy. We have already passed an Elections Act that did not put in place tough enough safeguards on the kind of money that could be used to elect people to this House. We risked an Elections Act too weak to protect our democracy from dirty money, and tonight we risk compounding the error by failing to ensure that we have an Economic Crime and Corporate Transparency Bill strong, tough and robust enough to stop our economy being polluted by dirty money. The Bill is welcome, and the Minister has done a good job. He has taken forward many of the ideas that have been discussed for a long time on all sides of the House. I am particularly grateful to him for the way in which he has used the Bill, in the SLAPP clauses, to put in place protections for truth-tellers. We know that it is not yet job done and that there is further to go, but free speech will be freer because of the provisions in the Bill. We need now to work together to finish a job that is almost complete; we need to ensure that, for once and for all, we end the ludicrous secrecy around trusts; we need to strengthen the declarations of nominees so that we truly know who owns what; we need to ensure that failure to prevent fraud is something that bites on 100% of companies and does not provide carte blanche for 99% of companies to behave without that obligation; and we need to defend our law enforcers and equip them with the tools that they need to police the legislation that we plan on passing tonight and in the days and weeks to come. I will underline three points very quickly, Mr Deputy Speaker. The first is about secrecy. The London School of Economics report from Andy Summers, Arun Advani and their colleagues is compelling reading, and I am interested in the Minister’s take on it. The report states that we are missing information about more than 70% of the 152,000 properties that are owned by trusts standing behind overseas entities, which means that “even law enforcement agencies do not know the true identities of the beneficial owners.” That is of real concern, especially when we know how many billions in wealth are owned in this country by people who are bad actors and who made their money by, frankly, stealing it from people abroad. If we have learned anything from tackling economic crime, passing tougher sanctions legislation and voting for new budgets for our law enforcers, we surely have to recognise the reality that we cannot have a situation where we do not know who owns what. 20:45:00 My right hon. Friend the Member for Barking was absolutely right to ask how it can be right that there is one law for the citizens of this country—they have to declare who owns what—yet the same obligation does not bite on the rich, who often live abroad. We in this country do not believe that there is one law for the rich and another law for everybody else, so I ask the Minister again to think seriously about acting to fix these secrecy provisions. When Transparency International and the BBC, of all people, are saying that trusts are used to hide the ownership of 7,000 overseas entities controlling 20,000 properties, we know that we have a problem. When we remember the case study of Mr Usmanov, who used those secrecy provisions to hide £170 million, we are forewarned that secrecy brings a risk of sanction busting. That is something we in this House cannot permit. We know that the law enforcement budgets are tiny. Many of us have heard from the senior leadership of the National Crime Agency, who have come to tell us that they have to think about what harms they police. When they are trying to deal with drugs, illegal immigration and human trafficking, the truth is that, very often, they do not have the budget they need to get to the bottom of economic crime. That is why we need to harness civil society, the media and the campaigners, and the fastest and surest way of doing so is making sure that we strip away those secrecy provisions. We must make sure that finding and tackling economic crime—hunting it down—is something that all of us are able to engage in. The point about nominee declarations was made brilliantly by my right hon. Friend the Member for Barking, so I do not need to repeat the argument. All we would say to the Minister is that, when it comes to tackling economic crime, it is sometimes not a bad idea to have belt and braces. We understand the regime of persons of significant control that he has included in the Bill, and we welcome that, but why not gold-plate it? Why not make sure that it is copper-bottomed and absolutely as strong as possible? My final point is about failure to prevent. As I have said, I know what it is like to grow a business of two people with a business plan on the table into a multimillion-pound business. Business in this country is stronger when it is cleaner, and competition is healthier when we are competing on a level playing field where companies are not able to defraud others. As was brilliantly said by the right hon. and learned Member for South Swindon (Sir Robert Buckland), given that many provisions already bite on 100% of businesses, such as failure to prevent corruption, why not apply the provision of failure to prevent fraud to all businesses, too? Why are we saying to our business community that they only need to be half virtuous? Frankly, that is a recipe for disaster. I am seriously worried that we will have a situation whereby people will set up companies with a turnover of below £36 million in order to create bank accounts through which bad money is broken up into little chunks and laundered in bad ways, and I think there should be an obligation on company directors to act to prevent fraud and, indeed, money laundering. I think our economy would be healthier for that. The Bill is tremendous progress. It is the work of many people in this House, and we should be grateful for that, but we say to the Minister, why leave this Bill imperfect? He has it within his grasp to get a Bill that will be cheered from this House. He should seize that opportunity with both hands tonight.
Mr Deputy Speaker (Mr Nigel Evans)
Ms Marie Rimmer (St Helens South and Whiston)
(Lab) I want to focus on the importance of legislating on the failure to prevent fraud and money laundering, which are crimes committed in the shadows. Currently, there is a severe lack of provisions to prevent economic crime, which we know is the best, cheapest and most effective way to tackle our dirty money problem. These crimes are committed and witnessed by some of the most senior professionals at a company, and even if they are not participating but just happen to witness fraud, surely they must be under a legal duty to report it. Amendment 159 was introduced in the other place, and I pay my respects to the other place for its absolutely wonderful scrutiny of the Bill. I commend it to the Minister. He has spearheaded the Bill to where it is now, but he just needs to go that bit further. We must have reasonable prevention mechanisms in place. The failure to prevent measures would work on multiple fronts. First and foremost, they would act as a deterrent, forcing companies to act and to take economic crime seriously if they know they would be held liable. Deterrence is proven to work. As a health and safety professional, I know that regulations to make companies and directors liable made tremendous inroads on health and safety. We may wonder why there were always so many disputes on construction sites, but it was because there was no health and safety. The workers had to fight for everything, and they could not do it without legislation. That is why we are here: to tackle things when they are not being tackled, and economic crime is not being tackled at the present time. That legislation resulted in a 90% drop in deaths and serious injuries on construction sites, which could have involved just building a few houses. Secondly, regulatory factors such as the fines that exist are not sufficient to bring about the required change. After all, the fines could be a lot less than these companies are earning from economic crime, and they become a cost factored into doing business for those companies. This cannot be right, and it simply cannot continue. To our shame, Britain is the global hotbed of economic crime, at a cost of £350 billion a year. The people of Ukraine are feeling the impact of this unchecked economic crime, as some of the main benefactors have been Russian oligarchs, the Russian state and Putin himself. There are the Magnitsky sanctions, but it tells us a lot, does it not, when Putin kills his own people as a deterrent? When we look at the invasion of Ukraine, we cannot sit back and let this continue unchecked. The Government amendments to cover this do not go far enough. Well-organised criminal entities would easily get around legislation that only touches the largest companies and the largest businesses. They take advantage of small and medium-sized businesses, as my right hon. Friend the Member for Birmingham, Hodge Hill said. That is exactly what they do—they do whatever it takes. They are cleverer than us, and they are doing it now. Well-organised criminals will get around it. As 64% of companies have experienced fraud, this would help those companies. The Government legislation fails to make failure to prevent money laundering an offence. The justification for doing that is the money laundering regulations, yet there has been only one corporate conviction since they were introduced—that of NatWest in 2021. Clearly, the money laundering regulations are not good enough. The new legislation would make companies prove that they have the right procedures in place to prevent money laundering. This is the type of tough legislation we need to crack down on economic crime. For too long Britain has been the laundromat for foreign despots and dictators. I heard a Member across the Floor talking about feeling the chill; what is more chilling than seeing what is going on and turning a blind eye, not washing the blood off our hands for the crimes against humanity committed for the very money being laundered around our country? I urge the Minister—I know where his heart is—not to throw away this wonderful opportunity to save so much. Democracy is at risk. It really is not acceptable. Please be brave enough—be brave enough and you will sleep at night.
Kevin Hollinrake My right hon. and learned Friend the Member for Kenilworth and Southam (Sir Jeremy Wright) made some points that were also reflected by my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland). My right hon. and learned Friend the Member for Kenilworth and Southam challenged me to explain why subsection (4)(a) of the proposed new clause in Lords amendment 151 does not prevent excessive burdens on SMEs. That measure says we must have in place “such prevention procedures” and there is a concern that many millions of SMEs across the country would have to put in place prevention procedures despite there probably being no chance of any fraud at that organisation. So there would be burdens that otherwise would not exist on those businesses.
Sir Jeremy Wright “such prevention procedures” as are “reasonable in all the circumstances”, so in very many cases that would be a very minimal requirement and probably only what companies that are behaving responsibly are doing already. Secondly, as I am sure the Minister is about to point out, subsection (4)(b) states that it might not be “reasonable in all the circumstances to expect the body to have any prevention procedures in place.” So if it was not considered reasonable to have any, it would be possible to rely on that defence if they did not.
Kevin Hollinrake Let me correct myself to the hon. Member for Rhondda (Sir Chris Bryant). I was only out by a factor of 100 when I talked about the number of warning notices sent to overseas entities; 1,000 warning notices have been sent. The hon. Member for Feltham and Heston (Seema Malhotra) talked about the introduction of SLAPPs, and we are clearly keen to do that at the earliest possible time. We have to work with the Civil Procedure Rule Committee to implement a new cost protection scheme for SLAPPs defendants and the early dismissal mechanism via secondary legislation as soon as possible. We cannot give a definite date, however. I thank my hon. Friend the Member for Cheadle (Mary Robinson) for all the work she does with the all-party group on whistleblowing, which I was heavily engaged with as a Back Bencher. We have a review of whistleblowing that should conclude by the end of 2023. On extending SLAPPs to areas of our economy outside the economic sector, we are considering further legislative options. Clearly, in this proposed legislation it could only pertain to economic crime due to the extent of the Bill. The hon. Member for Glasgow Central (Alison Thewliss) rightly talked about enforcement resources and also some of the limitations in the current regime, and that is exactly why we are legislating. The provisions we will make will increase the incorporation fee for Companies House. In addition to the £63 million we have put in to pump-prime this work—the extra people at Companies House will therefore be resourced, and there are already 400 people there to enforce the provisions of this legislation—we expect to increase incorporation fees to around £50 and also to extend the costs of annual returns to raise the money as necessary to make sure that the requirements of the Bill are fully implemented.
Alison Thewliss
Kevin Hollinrake 21:00:00 The right hon. Member for Barking (Dame Margaret Hodge)—my former partner in fighting economic crime, of course—made many good points, many of which I am sympathetic to. May I correct her on one particular area? She talked about people such as Abramovich and Usmanov and said that we have no idea about the stuff they are hiding in trusts. That is not the case, because HMRC and other law enforcement bodies have access to that information about trusts; it is not hidden from them. So it is not the case that we do not know about the assets held in those kinds of vehicles for those kinds of people. Clearly we will always listen to what she and others say to make sure we do the right thing to tackle economic crime without putting new, undue burdens on businesses. In terms of money laundering, I might have got the right hon. Member’s figure wrong, if she said there was one fine for money laundering. There were 240 fines for money laundering by HMRC in the last six months of last year. There have been some very big fines, including the FCA fining Santander £107.7 million and HSBC £63.9 million for failings in their anti-money laundering controls. There is a significant regime already, although of course it can always be improved. My hon. Friend the Member for North East Bedfordshire (Richard Fuller) does a brilliant job in standing up for SMEs and understanding the corporate governance process and regime. He is quite right: amendment 30 to clause 56 means that we will look at this area and make regulations to specify what it will mean to ensure that certain companies can hide some of the information we now require, such as accounts and balance sheets. My ambition is exactly as his is: that it should be a simple process like a tick box to conceal that information from public view in the cases he describes. The right hon. Member for Birmingham, Hodge Hill (Liam Byrne) has done fantastic work in all this, and I am grateful for his kind words. He challenges why we would not gold-plate some of the existing provisions, such as on nominees or failure to prevent. The reason is that gold-plating costs money for businesses. That is why we are careful about duplicating existing regimes in the way we have set out already. I accept he wants us to go further, but we think we have good reasons for not going further than we have currently. I am grateful to the hon. Member for St Helens South and Whiston (Ms Rimmer) for her kind words and her support for the offences on failure to prevent. Again, we want to make sure that those burdens are proportionate, as we have set out previously. I know she would challenge us to go further, but we think we are striking the right balance. To conclude, I urge all Members on both sides of the House to note the improvements that the Government have already made to this Bill and the critical importance of striking the right balance between taking action to tackle economic crime while being mindful of the burdens on legitimate business and therefore to vote with us today. Question put, That amendment (a) to Lords amendment 23 be made.
Division 310 Amendment (a) made to Lords amendment 23. Lords amendment 23, as amended, agreed to. After Clause 180 Failure to prevent fraud Amendment (a) proposed to Lords amendment 151.—(Kevin Hollinrake.) Question put, That the amendment be made.
Division 311 Amendment (a) made to Lords amendment 151. Lords amendment 151, as amended, agreed to. Government amendments (a) to (c) made to Lords amendment 153. Lords amendment 153, as amended, agreed to. Lords amendment 115 disagreed to. Motion made, and Question put, That this House disagrees with Lords amendment 117—(Kevin Hollinrake.)
Division 312 Lords amendment 117 disagreed to. After Clause 180 Failure to prevent fraud and money laundering Motion made, and Question put, That this House disagrees with Lords amendment 159.—(Kevin Hollinrake.)
Division 313 Lords amendment 159 disagreed to. 21:58:00 More than three hours having elapsed since the commencement of proceedings on the Lords amendments, the proceedings were interrupted (Programme Order, this day). The Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83F). After Clause 187 Civil recovery: costs of proceedings Motion made, and Question put, That this House disagrees with Lords amendment 161.—(Kevin Hollinrake.)
Division 314 Lords amendment 161 disagreed to. Government amendment (a) made in lieu of Lords amendment 161. Lords amendment 56 disagreed to. Government amendments (a) to (c) made in lieu of Lords amendment 56. Lords amendments 1 to 22, 24 to 55, 57 to 114, 116, 118 to 150, 152, 154 to 158, 160 and 162 to 229 agreed to, with Commons financial privileges waived in respect of Lords amendments 6, 7, 9 to 12, 14 to 21, 30, 32 to 34, 54, 68, 120, 124, 125, 173, 174 and 178 to 201. Motion made, and Question put forthwith (Standing Order No. 83H(2)), That a Committee be appointed to draw up Reasons to be assigned to the Lords for disagreeing to their amendments 115, 117 and 159; That Kevin Hollinrake, Scott Mann, Jane Stevenson, Alexander Stafford, Seema Malhotra, Taiwo Owatemi and Alison Thewliss be members of the Committee; That Kevin Hollinrake be the Chair of the Committee; That three be the quorum of the Committee. That the Committee do withdraw immediately.—(Julie Marson.) Question agreed to. Committee to withdraw immediately; reasons to be reported and communicated to the Lords. |