My Lords, I draw noble Lords’ attention to my registered interests, including as the director of and person with significant control of AMP Ventures, and as a shareholder of and person with significant control of several other companies. I do not believe that any of those are relevant to today’s debate.
Economic crime threatens our national security, prosperity and global influence. It underpins serious and organised crime and undermines legitimate business, causing great harm to individuals, our society and our economy. That is why this Government are determined to tackle economic crime and drive out dirty money.
We have already taken unprecedented action to prevent kleptocrats and organised criminals abusing our open economy. We were the first G20 country to establish a public register of domestic company beneficial ownership in 2016. We introduced new powers in the Criminal Finances Act 2017, including account-freezing orders, which in 2021-22 alone enabled £132 million-worth of assets to be frozen or seized. We secured £400 million through the spending review and the new economic crime levy to support law enforcement over the next three years. We established both the National Economic Crime Centre to co-ordinate the law enforcement response to economic crime and, more recently, the combating kleptocracy cell in the National Crime Agency to target corrupt elites.
With the support of this House, following Russia’s invasion of Ukraine, we took immediate steps by passing the Economic Crime (Transparency and Enforcement) Act. It introduced reforms to improve transparency in land ownership and to provide greater powers and more information to identify, investigate and take action against illicit wealth. It also helped the UK to act swiftly to impose sanctions against over 1,200 individuals and 120 entities linked to the Russian state. I was very pleased, as I am sure we all were, to hear President Zelensky praising these moves today in his moving speech to both Houses.
However, we know that this is a constantly evolving challenge. We must not be in any way complacent about the threat. Building on the first Act, we are pleased to bring to the House the Economic Crime and Corporate Transparency Bill. It will bear down even further on kleptocrats, criminals and terrorists who abuse our open economy, and it will strengthen the UK’s reputation as a place where legitimate business can thrive, while ensuring that dirty money has no place to hide.
The Bill will ensure that law enforcement and the private sector have the tools needed to help tackle economic crime, including fraud and money laundering, and it will deliver greater protections for members of the public and businesses. It forms part of the wider government approach, sitting alongside the key provisions in the Online Safety Bill, which will tackle online fraud, as well as the forthcoming second economic crime plan and fraud strategy, the delivery of which are all supported by the spending review settlement.
My Lords, I open by welcoming the Minister to his new position in his new department; we wish him well. I agree with all the sentiments that he has expressed when introducing this Bill, particularly that we are dealing with a “constantly evolving” threat and what he said about the mechanisms that are being addressed in this Bill. It went through a very lengthy process in the House of Commons, and I hope that we will have an equally thorough process in this House.
Although the Bill introduces many necessary changes, we must make sure that those changes are strong enough to stand up to the significant problem that economic crime has come to be in this country. The Government first promised action against fraud, money laundering and other forms of economic crime in 2016. It is regrettable that change has taken so long to reach us and that action has come only after the war in Ukraine exposed the deep connection that economic crime and dirty money have to war and the threat that not plugging the gaps in our financial system poses to the rule of law and democracy across the world.
In the Bill’s absence, the problem of dirty money within our system has not only been allowed to continue, but has grown significantly. Estimates of the total annual cost to the UK from economic crime are between £290 billion and £350 billion per year. These are huge sums, and around twice what we spend on our NHS in England every year. Over the past two years, 64% of businesses have experienced fraud, corruption or other financial crime—a figure that has increased by 50% over the past four years. In 2020, 4.5 million incidents of fraud were recorded, and many more remain unreported. This makes it the single most common crime perpetuated against people in the UK, and only 0.01% of cases are brought to court where somebody is charged with an offence. Only three convictions for serious fraud were secured last year, which is a decrease of seven since 2015. Reform is vital to ensuring protection and justice for individuals and businesses across Britain, but the scale of financial crime across the country also threatens our economic fortune, national security and international status. If we are to continue to welcome and encourage good business and clean money, we must firmly expel the bad.
My Lords, it is a great pleasure to follow the noble Lord, Lord Ponsonby, and to associate myself with his remarks about why the Bill is so important and why its effectiveness is essential. I also agree with him on welcoming the noble Lord, Lord Johnson, to his new and expanded role. It is lucky he did not have much to do on his first day in office, and we welcome him.
Over the years, as we have heard, the United Kingdom has, wittingly or unwittingly, become a haven for economic activity that should not be acceptable or legal in our country. We have become a haven for stolen wealth for some of the worst regimes in the world. That is why we want the Bill to succeed and for the objectives set out in it to be achievable. We will be supporting and working constructively with the Minister and across the House to make sure that the Bill that leaves your Lordships’ House is fit to deliver the things that have to happen.
When your Lordships’ House fast-tracked the first economic crime Bill through this House, and we all worked hard and very quickly to make sure we were able to deliver the sanctions immediately and quickly, there was much talk about what the next Bill should achieve. This is that next Bill, so we will be examining it on the basis of the hopes that were expressed during that debate: is it capable of achieving the objectives we discussed then and will be discussing now? The Minister in his introduction—and, indeed, his predecessor, when we met—laid great stress on the changes being brought to Companies House. This was, of course, a source of great discussion during the previous Bill, with many of us outlining the scale of the challenge that organisation faces, particularly given from where it was starting. With this Bill, that challenge has not got any less, but I think many of us fear that the journey that Companies House needs to take, from being a passive paper repository to becoming a data-led investigative doorkeeper, is still not fully appreciated. The scale of cultural change required for this to happen is great, and I think this is something we will come back to time and again through this debate.
My Lords, I remind the House of my interest as a non-practising member of the Institute of Chartered Accountants in England and Wales. I hesitate to do that, given the comments that I am sure will follow about enabling, but there we go.
Like, I suspect, everybody else, I welcome the Bill, which is an important step towards cleaning up the high levels of economic crime that have been allowed to build up in this country for far too long. However, like other noble Lords who have already spoken, I share the concerns that it does not go far enough; it is not strong enough at the moment.
I too welcome the Minister to his new role. I am going to be slightly unfair to him by referring to what his predecessor said during the passage of the first economic crime Bill, which was rushed through last year as emergency legislation. The then Minister was clear that the introduction of this second Bill would be an opportunity to revisit the first one. Accordingly, I start by asking the Minister, as the noble Lord, Lord Fox, has already done, to update us on progress with the register of overseas property. Has anything been learned from that process so far that might be of relevance to the Bill before us?
This is a good moment to look back, because the initial deadline for filing for the register of overseas properties was last week: 31 January. Transparency International issued a report yesterday on the progress made. It highlights that the register is starting to serve its purpose and that it reveals the names of many individuals who control overseas companies that own UK property; so far, so good. However, of the estimated 32,000 companies that are required to declare their ownership, nearly half had not yet filed; more than 3,000 listed anonymous companies as the beneficial owners; more than 4,000 indicated that they are held by trust arrangements; and 12% of all the companies that have filed claimed to have no beneficial owner. Therefore, while, to be fair, it is early days, it would be hard to claim that the register of overseas entities has so far been a resounding success. It is clear that those who wish to hide their identity are still managing to do so.
My Lords, I too congratulate the Minister on his new position, and congratulate the Government on bringing forward this Bill. It is probably the most significant of several steps which have been taken in recent years to begin facing up to the enormous problem that we face of financial crime generally, fraud generally, and money laundering. It also addresses the presence of overseas criminals in this country.
I think that the main point of this debate and of your Lordships’ proceedings will be to make sure that the splendid policy intentions that lie before it, and which I suspect have almost universal support in this House, are turned into something that makes a real, practical difference on the ground. That has not always been the case in the various pieces of legislation that we have had since 2016. For example, one of the most important introductions that the present Government made was to introduce unexplained wealth orders—but we have not had many of them made. They are extremely difficult to enforce. The acquittal of someone charged under the unexplained wealth order is extremely expensive to the prosecuting authority and a considerable deterrent to proceeding. That kind of thing has been repeated in many instances in the more recent legislation.
I am particularly influenced by an experience that I had in my last period in the House of Commons, as Father of the House. I was one of quite a number of Conservatives who voted with Members from all the other parties in the House to defeat the Government and insert in a Bill a requirement that our overseas territories, places such as the British Virgin Islands and the Cayman Islands, should have a public register. The Conservative contribution to that vote was led by Andrew Mitchell. He is now in the Cabinet. I am almost certain that Kevin Hollinrake, now the responsible Minister, also supported that Conservative rebellion.
Of course, its practical effect was practically nil, because shortly thereafter I discovered that the public register that appeared in these places contained information that was almost comically valueless and misleading in the case of those suspicious companies that had registered in those territories. One rapidly discovered of course that Companies House here, which had moved to having a public register, was equally fooled by suspicious companies giving valueless information for those trying to enforce the law and those trying to protect themselves. So we do not want a repeat, whereby the legislation sets out a legal position that makes us all highly satisfied and proud but which on the ground makes remarkably little difference.
My Lords, it is an immense privilege to follow the noble Lord, Lord Clarke of Nottingham. He invites us all to be repetitive, and I will try not to be, except to this extent: I agree with every syllable, every word that was uttered by my noble friend Lord Ponsonby, followed by the noble Lords, Lord Fox, Lord Vaux and Lord Clarke of Nottingham. In trying not to be repetitive, I may inadvertently touch on some of the subjects they mentioned.
My thanks go particularly to the noble Lord, Lord Fox. His speech covered almost all the points that I want to make, so maybe I should go on to his Back Bench and support him, as he suggested his noble friends will be doing. I also welcome the Minister to his Front-Bench position and congratulate him. I look forward to working with him, particularly on this Bill, as we all do.
I noticed that the Minister used a form of words that the Government almost always use when talking about economic crime. He is not to be criticised for that consistency; it is a good thing. Almost every time I go on a government website about economic crime, in which I have an interest, the first sentence is to the effect that economic crime is not merely an enforcement or regulatory issue but—and this is what interests me—it poses a threat to the UK’s national security, economy and institutions, as well as causing serious harm to society and individuals. It is a threat to our national security because we seem to have an open door to some of the most dangerous and violent people in the world who either send their money or, in some cases, come to live with us because they can, partly because, at one stage, they could buy visas that would allow them to do that if they invested a significant amount inwardly.
It is not only that. I was pleased that my noble friend Lord Ponsonby started with the scale of this crime, which is extraordinary. It is estimated that economic crime costs this country somewhere in the region of £300 billion per year, but everybody who says this also says that the difficulties of assessing the scale of undiscovered economic crime means that this is almost certainly an underestimate. As we heard in the fraud Select Committee, which I will come back to, a large number of people are so embarrassed about being defrauded that they do not report the crime so it is never entered into the statistics. Even so, at that rate, it constitutes 15% of GDP. I do not think there is a measure of London buses that would help people realise what that means, but it is seven and a half times what the UK spends on defence.
My Lords, I join everyone else in welcoming the Minister to his role. I also join with them in a theme that I think will emerge from everybody: support for the objectives and intentions of the Bill, but a rather more cautious view about its implementation and the resourcing of the tools to deploy it.
Unfortunately, the word SLAPPs—the use by wealthy folk from around the world, including in the UK, to deploy UK law firms to intimidate those who wish to publish information in the public interest—has regrettably become part of our parliamentary lexicon. I have repeatedly raised this urgent issue, and as have others in both Houses, so I hope it is not necessary for me to detail tonight the tactics deployed in the action of SLAPPs.
I will, however, touch on their impacts. At a personal and professional level, being on the receiving end is not just stressful; as one victim said, it takes over your life. It involves huge amounts of time, in some cases years, and bills for legal advice that are simply unaffordable. On such costs, the report ‘London Calling’by the Foreign Policy Centre quotes a leading defamation lawyer as stating that:
“£500,000 is the ‘absolute floor’ for a full-scale libel trial, with most starting at £1 million. Even preliminary hearings, at which stage defendants might seek to get the case thrown out on meaning or jurisdictional grounds can run anywhere from £50,000-£100,000.”
At a public interest level, when people with fabulous wealth—perhaps from murky sources—can engage top London law firms to act as legal attack dogs to set on anyone going public, then who can blame a journalist or newspaper editor who decides, as many have done, simply not to investigate or publish public interest stories, no matter how well-researched or important? That is why so many stories never see the light of day.
My Lords, it is a great pleasure to follow the noble Lord, Lord Cromwell. I will pick up on quite a bit of what he has just said but, like other noble Lords, I will attempt not to be repetitive—certainly not unhelpfully so. I should say from the outset that I recognise that this is a very important Bill and my noble friends on the Front Bench will have my full support in getting it on to the statute book.
I feel a little bit like an interloper. As noble Lords who have observed my interventions in this Chamber over the years will know, I would not normally be found participating in a deep dive into economic crime and issues of corporate transparency law. However, I come to this Bill with my role as chair of the Communications and Digital Select Committee very much to the fore, because of the topic the noble Lord, Lord Cromwell, clearly and ably gave us an account of, which is SLAPPs—in full, strategic lawsuits against public participation. I will not go through a detailed description of what this means because the noble Lord has already done that, but I will add a couple of things to what he said.
Although this practice came to public attention last year when it became apparent that it was often deployed by oligarchs, it is important to bear in mind that it is not just something that rich Russians use. It is widespread and used by powerful and wealthy individuals but also by institutions. They reach for it as a defence when they do not like legitimate scrutiny or have something to hide.
When my committee first looked into this matter a year ago, we established that what we were aware of about this practice represented just the tip of the iceberg. In fact, the deployment of SLAPPs or very aggressive lawfare is so successful in deterring scrutiny that many cases never get anywhere near a court. I should add, as a former chair of the Charity Commission, that this practice of aggressive lawfare is also sometimes deployed against regulatory bodies, not just journalists.
My Lords, it is a pleasure to join the debate. This is the second instalment of the economic crime Bill; we had one earlier that created the register of overseas entities and required disclosure of beneficial owners of UK properties. As was pointed out during debates, that Bill—now an Act—was deficient because it made no reference to property ownership through trusts, even though it was pointed out to the Government that this was a deficiency. Also, the definition of beneficial ownership is incredibly malleable. Those caught by disclosures this time can easily rearrange the ownership structure to make sure that they do not have to disclose it next time. So I hope the Minister will revisit that and bring forward amendments. In my view, anyone who has a beneficial interest—it does not have to be 25%, 20%, 10% or 5%—needs to be identified, because they could well be dabbling in dirty money.
As has been pointed out, the BBC and Transparency International recently reported that almost half the firms required to disclose beneficial ownership of foreign property have failed to do so. Some 18,000 offshore companies, which between them hold more than 50,000 properties in England and Wales, have either ignored the law altogether or filed information in such a way that it remains impossible for the public to find out who the beneficial owners of those properties are. I hope the Minister will reflect on that. The promise in the Act was that those who do not comply with the law—and that deadline has passed—will receive a fine of £500 per day or a prison sentence of up to five years. I hope the Minister will tell us what preparations are being made to implement that kind of retribution against those who have failed to comply with the law.
The Bill claims all over the place that it is trying to tackle crime and fraud, yet there is no reflection on whether we have the institutional architecture for dealing with that. I raised this during a debate on the Financial Services and Markets Bill. Our police forces are regional, whether in the City of London, Reading, Bristol or somewhere else. There is no national police force, and forces do not co-operate. If you find that somebody involved in an alleged crime is in another district, you have to seek the co-operation of the police force there. That force may be willing to co-operate with you, or it may not because it simply does not have the funds or personnel. That kind of issue has been recurring for the last 40 or 50 years, yet it is not really addressed.
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The Bill covers several areas, and I will now speak to the measures set out within it, starting with the reform of Companies House. The UK operates one of the world’s largest and most open economies. It is important to note that the vast majority of companies are formed and run by legitimate business owners, benefiting the economy and contributing to society. We want to maintain that ease of doing business and continue to welcome investment and legitimate business. However, while that brings prosperity and opportunity, it also exposes the UK to harmful practices, such as money laundering, corruption and terrorist financing. Our welcoming business environment is open to misuse by those who seek to undermine the business framework. The use of anonymous or fraudulent shell companies and partnerships provides criminals with a veneer of legitimacy and undermines the UK’s reputation as a sound place to do business.
The Bill will deliver significant reforms to the role of Companies House, marking the biggest change to our system of registering companies in over 170 years. The changes will improve transparency and bear down on the use of thousands of UK companies and other corporate structures as vehicles for economic crime, including fraud, money laundering, illicit finance, corruption, terrorist financing and illegal arms movements. The reforms will provide Companies House with the appropriate information, tools and powers to take action and better respond to abuse, thereby strengthening our business environment.
Through clauses in Part 1 of the Bill, we will introduce identity verification for new and existing directors, beneficial owners and those who file information with Companies House, helping to ensure that we know the real people acting for, and benefiting from, companies. The Bill also broadens the registrar’s powers so that the registrar becomes a more active gatekeeper over company creation and a custodian of more reliable data. Improving the financial information on the register will make it more reliable, complete and accurate, thereby supporting better business decisions and creating wider economic benefits. Part 1 will also provide Companies House with more effective investigation and enforcement powers and will introduce better cross-checking of data with other public and private sector bodies. We will also enhance the protection of personal information and addresses, thus helping to protect individuals from fraud and harm.
On limited partnership reform, Part 2 tackles the misuse of limited partnerships, including Scottish limited partnerships, while modernising the law governing them. We will tighten registration requirements and require limited partnerships to have a lasting connection to the UK. The Bill will also increase transparency requirements and provide the registrar with powers to deregister limited partnerships which are dissolved or no longer carrying on business, or where a court orders the dissolution because it is in the public interest.
Part 3 of the Bill makes some technical changes to the register of overseas entities that was legislated for in the first Act. These changes will maintain consistency with changes to the Companies Act and are intended to enhance the effectiveness of the register.
On crypto asset measures, the measures in Part 4 and its associated Schedules 6, 7 and 8 will provide additional powers to law enforcement officials, so they are able to more quickly and easily seize, freeze and ultimately recover crypto assets. The creation of a civil forfeiture power for crypto assets will mitigate the risk posed by those who cannot be criminally prosecuted but use their funds to further criminality or for terrorist purposes. These measures will modernise our proceeds of crime and counterterrorism legislation to ensure that crypto assets cannot be a conduit for money laundering, fraud, ransomware attacks or terrorist financing.
Measures in Part 5 of the Bill will enable better information sharing between certain businesses and with law enforcement to prevent and detect economic crime. It also provides new intelligence-gathering powers for law enforcement to tackle money laundering and terrorist financing. These reforms will enable the better detection and prevention of crime taking place across multiple businesses and will prevent criminals exploiting information gaps between them. Clause 174 also stream- lines the process for updating the UK’s high-risk third-country list.
The Bill will provide legal service regulators with enhanced enforcement powers to support them in upholding the economic crime agenda within their regulated community. A regulatory objective will be added to the Legal Services Act 2007—the LSA. The Solicitors Regulation Authority’s—SRA’s—statutory cap on the financial penalty powers for disciplinary matters related to economic crime will be removed, and the SRA will be able to proactively request information from its regulated community for the purpose of monitoring compliance with the economic crime regime. These measures will make clear to regulated bodies and individuals the expectations that government has of the regulators on this issue and support their ability to uphold sanctions and the wider economic crime regime.
The Bill will also enable the Serious Fraud Office to use its powers under Section 2 of the Criminal Justice Act 1987 at the pre-investigation stage in any SFO case, including fraud cases. This will support the Serious Fraud Office in delivering its functions and assist with the Government’s efforts to tackle fraud.
I conclude my opening remarks by highlighting the opportunity that we have in front of us. This Bill will make a difference to businesses, law enforcement and our citizens. Businesses will receive a better service from Companies House; law enforcement will receive new powers and better information to help root out criminals; and citizens will be better protected. This Bill is significant, and addresses several technically and operationally complex areas. The measures within it have undergone extensive and constructive scrutiny through the other place, particularly through the work of the Public Bill Committee. Through that process, we have listened and made several refinements and improvements.
In that vein, I also want to thank noble Lords for the support which was received during the passage of what became the Economic Crime (Transparency and Enforcement) Act. I am mindful of the pace at which that Bill was passed and noble Lords’ request to ensure that this second Bill is subject to a timetable which enables full and proper scrutiny. I welcome that further scrutiny, including today’s debate, and I look forward to engaging with all noble Lords on the Bill as we seek to ensure that it achieves the crucial objective of making our country, our businesses and our citizens safer. I beg to move.
On the day on which we welcomed President Zelensky to speak to us in Parliament, we must also reflect on the part that economic crime here in the UK has played in supporting crime and war worldwide. Crime within our financial system supports international organised crime, such as people trafficking, drug smuggling and illegal arms dealing. Through the corruption of political systems, it threatens peace, democracy and the rule of law across the world. President Zelensky spoke earlier of the bravery that Ukrainians have shown in the face of invasion and thanked the British people for standing with them, in his words, “from day one”. We must all work together in this House to make sure that this Bill is strong enough to play its role in helping Ukraine. Ending the flow of illegal Russian money through the UK, which is being used to fund the war in Ukraine, will be one important measure of this Bill’s success.
The Government must explore strengthening measures in the Bill in several areas. The overhaul of Companies House is welcome and long overdue. Verifying the details of nearly 5 million existing company directors and others with significant control is a large but achievable task. The Government have allocated £63 million to Companies House for this reform and stated their intent to raise registration fees. We do not wish to see fees raised to the point of discouraging enterprise, but they must cover the costs of preventing not only serious instances of large-scale fraud, but the day-to-day frauds perpetuated against ordinary individuals. I said that fraud worth up to £350 billion takes place every year. How does the Minister think that £63 million stands up against that figure? Given the large number of existing directors, as well as new directors, who will need to be verified, I am interested to hear from the Minister how long he thinks that it will take to complete the process and whether the balance between encouraging business creation through low fees and covering costs can be met.
The Bill as written also fails to mention all the loopholes connected with the use of trusts and with companies registered in British Overseas Territories. In fact, it remains completely silent on this point. The Bill will be marked down as a missed opportunity, and we will return to this issue as it progresses through this House.
The Bill also needs strengthening in its enforcement measures. The Government have not yet set out a clear strategy to recoup assets seized through economic crime enforcement and to compensate victims. It is welcome that the Government have indicated their intent to introduce further measures on corporate criminal liability after significant concerns were raised in the other place. The lack of measures to hold directors to account for fraud and money-laundering conducted by their businesses is a clear omission in the Bill in its current form, and we look forward to seeing what measures the Government will bring forward, as was promised in the other place.
We must ensure that this Bill allows us to get ahead of those wishing to abuse our financial system through economic crime. The delay in bringing forward these reforms, and the gaps that remain in the Bill, risk us being condemned instead to playing catch-up with the criminals. We are pleased to support its Second Reading, and I look forward to working with the Government and colleagues from across the House to address the issues and make this a better Bill.
Perhaps the first test was the UK property register. Only last week we learned from the Financial Times, and I think there was a report this week from the BBC, that thousands of offshore companies have missed the UK property registration deadline. It was aimed at identifying owners of around an estimated £100 billion of illicit financing, much of which is channelled through British real estate. The new register requires previously anonymous foreign owners or buyers of UK property to reveal their identity, yet thousands of offshore companies owning properties in the UK had not declared their real ownership on the new government register by the deadline, which was a couple of weeks ago. The previous Minister is on the record as saying that the Government
“will be using all the tools at our disposal, including fines and restrictions, to crack down on foreign companies who have not complied.”
Can his successor explain how anonymous foreign owners will be fined? Can he tell your Lordships’ House how many Companies House employees are currently investigating the unregistered owners?
According to data taken from Companies House at the end of December and analysed by the research organisation Open Ownership, some 2,800 companies had said they were based in the British Virgin Islands, with Jersey and the Isle of Man also at the top of the league. I am sure my noble friend Lord Wallace will expand in due course on the role of overseas territories.
Looking forward, I note that new purchases that involve anonymous foreign buyers should now disclose the beneficial owners to Companies House before any application can be made to the UK’s various land registries. Can the Minister tell your Lordships’ House whether this is now happening in all cases, and how he knows it is happening? In other words, what is the reporting structure and data structure that the Government have on the performance of Companies House?
The Minister mentioned the excellent debate at Report stage in the Commons. During that debate, MPs called for stronger reporting to hold the whole of Companies House’s works to account. As Dame Margaret Hodge MP put it, it should
“ensure that it delivers what we have in mind in being at the front end of fighting economic crime through the data that it collects.”—[Official Report, Commons, 24/1/23; cols. 916.]
In other words, we believe this Bill needs to be strengthened in terms of the reporting regime to Parliament from Companies House.
As the Minister highlighted, identity verification is a vital tool in the policing of the sector, if it is to be successful. On that basis, I would have thought that it should be a core competence of the new model Companies House. However, it seems that much of this work is being outsourced to corporate service providers. These are the same firms and sector that provide identity support for at least 50% of the applications that Companies House is supposed to verify. To hand the role of identity verification to the very sector that is seeking to obscure identity for its clients is absurd. I believe the Minister should look again at what is happening on this front. I would like to hear the justification for outsourcing what should be a core competence of Companies House.
We then turn to the funding of Companies House and related activities. In the Commons, there was considerable debate about the fees paid to register. The current level is ludicrously low. The Commons proposed £100, which to my mind remains a relatively small sum and in no way a barrier to serious players. I understand why the Minister may not want to enshrine this in primary legislation, but I would ask that the Minister tells your Lordships’ House—either now or perhaps in Committee—what figure the Government intend to bring forward, and will the Government commit to linking this to inflation and ring-fencing it from HMRC siphoning off, because the money is needed to bolster the whole process of policing this?
I have allowed Companies House to dominate much of this speech as its effectiveness is key. I know that my noble friend Lady Bowles will look at this more, and there are other issues too that my noble friends and your Lordships will no doubt raise, both today and in Committee.
We were heartened that the Government took on the challenge laid down in the amendment moved by Robert Buckland MP and supported across the Commons. This sought to address the need to make a failure to report into an offence. The aim is to start to better address the role of enablers—the lawyers, the accountants and other professional services—in the laundering of dirty money. The details in this are key and, like others in this House, we will look at the Government’s version of this amendment. Can the Minister undertake to have it published well before the first day of Committee? I expect my noble friend Lord Clement-Jones to speak to this in more detail in Committee, and I am afraid he is unable to participate today.
One of the ways that service providers will be brought to book is through whistleblowers. My noble friend Lady Kramer has been the lead in the debate to better facilitate and protect whistleblowers. I am afraid she also is unable to attend the Second Reading, but I know that both she and the noble Lord, Lord Clement-Jones, are following this debate very closely. Whistle- blowing is crucial in the fight against economic and financial crime. Unfortunately, many of the whistleblowers who have come forward and contributed vital evidence have suffered from the consequences of doing so. This Bill should do more to reinforce their position and encourage others to step up. We believe that, so far, the Bill fails to do that.
In the Commons, Dame Margaret Hodge MP, again explained that all the work on economic crime done by the Public Accounts Committee in her time as its chair came from whistleblowers. Similarly, Kevin Hollinrake MP, now the Parliamentary Under-Secretary of State at the Department for Business—at least, I think he is; the Minister is nodding to confirm—asserted that he believed that 100% of economic crime detection could be attributed to whistleblowing. This is important. That is why Mary Robinson MP, chair of the APPG for Whistleblowing, moved an amendment in the House of Commons to provide meaningful protection to whistleblowers by creating an office of the whistleblower. Even Tom Tugendhat, the Minister of State for Security, while refusing to accept the amendment, conceded that the country needs an office for whistleblowers. There is work to do on this, and we should address this hole.
Moving on, none of this matters a jot if there is no effective enforcement. We have to ask ourselves: why does Latvia have a better record of enforcement on economic crime than we seem to have in the United Kingdom? According to my reading, there have been essentially no economic crime cases brought in this country since Putin came to power. Why? One of the most charitable explanations is that the fear of costs generated by super-rich litigants in the setting of a civil court can lead to budget-busting costs if they are awarded against the prosecuting authorities. This fear that the costs will be so high breeds a risk-averse attitude in the prosecuting authorities, but this would not be a problem if it was happening in a criminal court. I am sure we will want to try to find ways of probing this in Committee.
Then there is the role of lawyers in intimidating people such as journalists seeking to shine a light on the sort of practices that have shamed our country. Essentially, this is legal bullying. It has another name in this country: SLAPPs, or strategic lawsuits against public participation. As we will hear from my noble friend Lord Thomas, SLAPPs are a form of legal intimidation used by wealthy persons to avoid what often turns out to be the truth from coming out. There has to be action to stop this, and I am sure he and other noble Lords will raise this.
To speak briefly on crypto assets, there were something close to 50 amendments to the Bill brought in the House of Commons on this subject. I am intrigued by the idea of what is a UK-connected crypto asset and how the Government will go about seizing a crypto asset when it certainly does not reside within a UK-governed territory and often does not really reside anywhere at all. The intentions within the part of the Bill on crypto assets are good, but I think the practicalities may be well beyond the words we see in it. I am interested to hear about that.
Finally, I will mention the issue of seizing assets that have been frozen, as the noble Lord, Lord Ponsonby, also raised. Very few of us who witnessed it could not have been moved by what President Zelensky had to say today, but we need to match our applause with action. One issue he raised was compensation; one way to do this is to use frozen assets to effect some sort of redress. In the case of Ukraine, I believe there is some $350 billion of Russian assets currently in the international freezers. As I am sure the Minister is aware at the moment, moving assets from being frozen—perhaps interminably so—into a place where they can be legally redistributed is fraught with legal problems. Before the Minister tells me that this is because of sovereign immunity and above our respective pay grades—it is certainly above mine—I agree. But that is why an amendment was tabled in the Commons to propose that the Government look into this and report back to Parliament within six months on how these assets can be put to use to make good some of the harm that has been caused to Ukraine. There is a Private Member’s Bill in the Commons on this topic, so perhaps the Minister, either now or otherwise, could come back with some idea of what the Government’s feeling on that Bill is or how some of the debate around it might be incorporated into what we are talking about here.
To conclude:
“The UK’s and its overseas territories’ lax laws on company formations, trusts, our financial centre, our huge expertise, our lack of resources for enforcement and our weak whistleblower protections enables economic crime, probably more than any other nation on earth.”
Those are not my words but those of Kevin Hollinrake MP, before he came Under-Secretary, who now has some responsibility for the Bill. We agree with him: now is the time for his department to rise to the challenge that he himself so savagely outlined when on the Back Benches. We commit to help the Government make the important strengthening that this legislation needs.
The Transparency International report highlights five methods people are already using to hide their beneficial ownership: simply failing to submit information or filing non-compliant information, listing opaque companies as beneficial owners, trust companies hiding the real owners, companies claiming to have no beneficial owner, and naming service providers as beneficial owners. I would be interested to understand what the Government are now doing to follow up on these, and in particular what action is being taken to identify regulated entities which have verified the information and remind them of their liability, as well as reporting them to their regulators. It would be interesting to know whether there are any trends in particular verifiers or types of verifiers using any of those methods to hide identity. All these things have obvious implications and lessons for this Bill, as well as highlighting the need to continue to strengthen the last one. Therefore, again, what have the Government learned from the experience so far?
The Bill’s main purpose is to strengthen Companies House and enable it to ensure that it can verify the information provided to it. That is extremely welcome, if very long overdue—did the noble Lord say 150 years? The importance of Companies House cannot be overstated. Your Lordships’ Fraud Act 2006 and Digital Fraud Committee, of which I was a member, met a number of fraud victims as part of our inquiry. One thing that stood out was that in all cases where the fraud was carried out involving an apparent business, the victims we heard about had checked that the company existed with Companies House before parting with their money. The fact that the company was registered actually helped the fraudster. The Bill is therefore essential, but there are areas where it could be improved.
The success or otherwise of the Bill is extremely heavily dependent on how well the authorised corporate service providers, or ACSPs, carry out their verification responsibilities. Let us be honest: history is not terribly encouraging in that respect, especially regarding trust or company service providers. The proliferation of regulatory bodies is a major issue—there are 13 alone for the accountancy profession. In particular, there is nothing in the current supervisory regime that obliges the supervisors to check the verification standards of the entities they supervise. I know the Treasury is looking into reforming the supervisory regime—that cannot come quickly enough—but in the meantime, it is essential that Companies House is proactive in its oversight of the ACSPs and that it has an obligation to check that they are carrying out the required verification properly. It should not just rely on the fact that ACSPs will be regulated, as is currently proposed.
More generally, will ACSPs be publicly identified for each filing, in the same way that now happens with the register of overseas properties? Identifying them publicly would make them much more likely to take verification seriously and would enable public analysis of which ACSPs are verifying the more dubious-looking companies. If they will not be publicly identified, why not?
As we have heard, none of this will work if Companies House is not sufficiently resourced. At the moment, the fee for creating a company is the laughably low £12, which is among the lowest fees in the world and nowhere near enough to cover the costs we are asking Companies House to incur in strengthening the regime. Indeed, it could be argued that the very cheapness and ease of creating companies may actually encourage wrongdoing. The EU average is about €300, and in the US it ranges from $570 to $1,400. An increase to, say, £100 will not disincentivise legitimate companies but would greatly increase the resource available to Companies House without increasing government funding. What consideration are the Government are giving to that?
Moving on briefly to other economic crime, and specifically fraud, I mentioned earlier the inquiry carried out by the Fraud Act 2006 and Digital Fraud Committee, which was expertly chaired by the noble Baroness, Lady Morgan of Cotes, who we will hear from later. That report made many recommendations on how we might break the fraud chain and start to reduce the 42%—I stress, 42%—of all crime against the individual that fraud now represents. In passing, I note that the Government’s response to that report is now nearly a month overdue and that the long-awaited national fraud strategy was also expected before Christmas. Both those documents would be extremely helpful in our deliberations on the Bill, so can the Minister please commit that we will see these well in advance of Committee?
One of the key recommendations in our report was the introduction of a new corporate offence of failure to prevent fraud. The report concluded:
“Until all fraud-enabling industries fear significant financial, legal and reputational risk for their failure to prevent fraud, they will not act.”
To be effective, the offence needs to cover the whole range of fraud enablers. It must cover, for example, a telecoms company failing to take reasonable steps to stop fraudsters using its network to contact victims, and social media and other platforms failing to take reasonable steps to prevent fraudsters using their platforms to carry out fraud. I understand that the Government intend to introduce a “failure to prevent” amendment. To follow up the comment of the noble Lord, Lord Fox, when might we see that amendment, and will it cover the area I have described, especially telecoms and social media platforms? I understand that that might not be the case, because the Government intend that the offence will depend on the company itself having benefited from the fraud. That would not cover—or it would be difficult to make it cover—a social media company failing to take reasonable steps to prevent its platform being used by fraudsters, for example. This is not a small issue: according to TSB, 70% of all investment frauds originated on Meta platforms, and Action Fraud tells us that 80% of all fraud is cyber-enabled. Do the Government really not intend to put a stop to that?
One could say an awful lot more about the Bill but I am conscious of time, so I will wind it up there. However, I welcome the Bill and look forward to working with the Minister and others around the House to strengthen it and make it better.
In recent years, sadly, I have got into the habit of referring to London as the money laundering capital of the world. Most of the most sophisticated and prosperous financial criminals know perfectly well that London is an attractive place to go to and that, while it has quite a good reputation in most ways, it is a comparatively easy place to find some professionals, lawyers and accountants to help you clean the money, obscure its origins and invest it in a variety of attractive and realisable assets, ranging from very expensive accommodation in Chelsea to football clubs or anything else that takes your fancy. So what we actually need is not attractive legislation on the subject but legislation which turns rapidly into considerable change on the ground, where London is no longer an attractive place for criminals from around the world and is no longer subjecting our society to the ever-increasing volumes of financial crime which we have been experiencing in recent years.
In the Commons, a very large number of cross-party amendments were tabled with this objective. Quite a few have already been referred to today. I find myself in the position of being lucky enough to be allowed to speak fifth in the debate but already having to avoid being repetitive. I hope that the entire debate continues to be repetitive, because that will give the strongest possible message to the Government that, again, while I congratulate them on having been responsive in the House of Commons, adopting some changes and responding to them, we have been promised more and we wait to see what will be done as soon as possible in the Lords to give effect to the intentions already pronounced in the Commons. The Government should take on board that there is almost universal support for their policy but not yet adequate satisfaction that it will make the significant difference that we hope for in rescuing people and rescuing the country from financial crime.
The key part of the Bill, and the only part that I will touch on without repeating what has already been said by the noble Lord, Lord Fox, and others, is the transformation of Companies House, which I think will take place. It will be transformed from being just a registrar of companies to being an accurate registrar of companies, and one that investigates the accuracy and verifies the accuracy of its own register and has enforcement powers. The Bill gives Companies House very extensive new powers. The broad-brush point underlying the changes that are being pressed for is that those powers should be turned into legal obligations to verify the information being given and which Companies House is publishing. Also, Companies House and the registrar should be made accountable to this place and to the public for the delivery of its duty to make sure that it is putting forward a verifiable register that can be of use to individuals who are suspicious and wish to be reassured before they entrust their money to a body that they wish to know more about.
The points that need to be verified are quite clear. Someone should verify that those who are described as the beneficial owners of entities actually are the beneficial owners. Who are the main shareholders? Is the address that is given for the organisation a useful and plausible address? When one reads accounts of frauds in this area, one discovers that the beneficial owners, the main shareholders, are useless nominees who can give no guarantee of security to anybody. It is quite common for a shell company to register some stray residential address in some suburb of London where the residents, quite genuinely, have never heard of the company and cannot assist anybody in moving towards it. So we have been publishing a register since 2016 that publishes what appears to be vital and helpful information but is actually an abuse. People have rather amused themselves by giving the information on the basis that this will help to deceive the victims of their crime. We are going in the same direction.
I will add to the other subjects. A criminal offence of failure to prevent financial crime should be explored seriously. The Government have already said that they are coming back to us on that, so I hope that they come back with something that matches the arguments in the lower House, not something touches on that but is actually trying to move away from it.
The lobbying of professional bodies, such as the Bar Council and the Law Society, disappoints me. In the dim and distant past, for a long time I practised as a barrister at the criminal Bar and I quite understand the cab-rank principle and that it is for the jury, not you, to determine the guilt of the accused, but the moment that you feel you are participating in or furthering a crime, the moment that your client—I never had one do it, actually—admits his guilt to you and asks for your advice on how he should avoid the consequences, you return the brief. It is not a respectable part of the legal profession or the accountancy profession, which at the moment make so much money by offering their services to people from overseas and elsewhere who ask for help, to turn dishonest, dirty money into clean money that they can enjoy the benefits of here.
I have indicated my strong support for the principles of the Bill and expressed my congratulations to the Government on how far they have got. If the debate in this House continues along the same lines, as I expect it will, I hope the Minister who replies will take on board the message that the Government will have to further strengthen the Bill in its process here. We want to turn out a Bill that makes a real difference to the reputation of this country and the financial security of our citizens.
The prize for all this and the contribution it would make to the good order of this country is that, if we can interdict this behaviour, there is an enormous amount of money to be gained. There would be no problem with the Government paying public servants what they want if we could get that money back or, better still, stop it leaving the country in the first place. That is where our focus should be.
This debate takes place directly in the shadow of the UK’s fall from 11th to 18th place in the Corruption Perceptions Index. This should concern us because it suggests that the systemic failures, which we have often discussed in your Lordships’ House and will be discussing today and throughout the passage of this Bill, are being noticed by our partners abroad and causing trust in the probity of our institutions to ebb.
Against this backdrop, the provisions in this long-overdue Bill are welcome. I think they will be welcomed by all the speakers who contribute to this debate, but my welcome is not unqualified. The reforms to Companies House, the enhancement of transparency, the disclosure requirements for limited partnerships and the strengthening of the scope and ability of law enforcement agencies to confiscate illicitly acquired crypto assets—although I share the bemusement of the noble Lord, Lord Fox, about how that is going to be done, because I have no idea how you can take an illicitly acquired crypt asset off somebody; that will have to be explained to me at some stage—have all rightly garnered cross-party support, but with this support, and we have the other place to thank for it, comes a helpful, cross-party and expertly informed call for the Government to strengthen certain measures further and include a few well-thought-out additional provisions.
In the 10 or more years that I have been in this House it has been almost a tradition for many speeches at Second Reading to include a criticism of the other place for a failure to scrutinise the detail of the legislation, consequently delivering it to your Lordships’ House in a state where fundamental repair or, in some cases, reconstruction work is necessary. Nothing could be further from the truth in respect of this Bill. The Report stage debate on 24 and 25 January in the other place is a model of parliamentary legislative scrutiny. It was cross-party, informed and detailed, and in almost every line of the excellent speeches an improvement of the Bill emerged. It turns out that—people who have been around Parliament long enough know that this invariably happens in debates on Bills—the Government resisted the temptation to accept any of those amendments although, in this case, they promised to come back to some of them.
The deep irony was that the two Ministers who were being persuaded—one was the current Security Minister and the other was Kevin Hollinrake—were partly responsible for the process that generated these amendments in the first place. Behind this—a virtual industry, over the years—were two All-Party Parliamentary Groups. The people who spoke in the debate were either members of those groups and had contributed to these amendments or were members of the Treasury Select Committee, which had been debating and promoting them for some years. It was a virtual treasure-trove of advice and suggestions to improve the Bill significantly.
Over the period of time that we have the Bill, it is almost certain that this House will nurture it and bring it forward through a process in which all this will be repeated and debated. From my experience of the House, particularly recently, the Government will have greater trouble here in getting the votes to go with them when they resist common-sense and well-thought-through improving amendments to the legislation. I am not suggesting that we just jump to that process—we have to go through it and we will—but that is my confident prediction about where this Bill will end up. We will give it back to the other place in the state that it hoped it would come to us in.
This will be a big challenge for the Government but, in my view, it will be a much-improved piece of legislation that starts to deliver what the Government want, which is to make us more resilient against what has become a disease in this country, that is, corruption and fraud. It is costing us phenomenal amounts of money. There is a big prize.
I had intended at this point to refer to some of these points, but since the noble Lords, Lord Fox and Lord Vaux, have done it for me, I will not. I think that we have laid out the menu. However, I will ask the Minister one important question. I too was a member of the fraud Select Committee, immensely ably chaired by the noble Baroness, Lady Morgan of Cotes, and there are other speakers in this debate—such as the noble Lord, Lord Young—who were also members. I think that we are all very proud of the work we did and commend the report, which should be read. However, I say to my noble friend Lord Vaux that I am not certain I want the fraud strategy to be published in the current circumstances, for the reason that I am about to come to.
Coincidentally, alongside the publication of the committee’s report—we did not set this up—the National Audit Office published a value for money report on combating fraud, which is the responsibility of the Home Office. Five years before, it had published a value for money report and been deeply critical of the Home Office for not having, among other things, data about the level of fraud, so it must have been to its surprise—it was to mine—that this report, which it published at the same time, said among other things that the Home Office had no reliable way of measuring the financial impact of fraud or the value for money of its own policies to tackle it. That is because its data was—guess what—six years out of date, coincident with the last time that the Home Office told it that it had no data to measure fraud. That struck me as appalling, given the Home Office’s responsibility, as I am sure it did the National Audit Office. This is now with the Public Accounts Committee, so we cannot debate it in any more detail in this House until that comes out.
Believe it or not, the Home Office put up a spokes- person on the day who said, and I paraphrase—responses of all Governments of any hue to crises start off by saying, “We take this issue very seriously”; the answer to that in many cases is, “No you don’t, because if you did then there wouldn’t have been a crisis”—that they took this issue very seriously, were in the process of drafting a national fraud strategy and would take into account the criticism of the National Audit Office. They should have said: “We will delay the publication of our national fraud strategy until we have some data on which to base it.” I am not so desperate to get from this machine a national fraud strategy until they have corrected the problem that the National Audit Office described.
I am conscious of time; I had promised myself that I would not go any further than eight minutes. I think that I have said enough; I will say no more. I support this legislation, but it must be improved, exactly as the other place tried to improve it.
At the level of the legal profession and the rule of law, we must recognise that many lawyers do not participate in SLAPPs. However, there is no shortage of firms willing to deliver such harassment and look the other way from the source of their client’s funds. This brings into disrepute the UK’s much-vaunted rule of law. At the level of the economy, it corrupts our financial markets. Suppressing public interest information about substantial business figures and their activities is market abuse by those who gain from it. It sits squarely in the purview of this Bill on economic crime and transparency.
Let us not get carried away. There are two problems here. First, surely everyone has a right to defend themselves before the law. If they want to spend millions on doing so, is that not their choice? The second problem is what can actually be done about this. This House is uniquely rich in legal expertise, and I can think of no better way to answer these two conundrums than to quote from the recent letter of the noble Lord, Lord Pannick, to the Times, where he considered both problems and said that
“the rule of law … requires that all persons, however ‘dubious’, have access to legal advice and representation.”
I agree with him. Crucially, he then added:
“There are exceptions to this … and rightly so, in particular that we may not assist litigation which we believe to have no reasonable basis or which is being pursued to harass others.”
Again, I agree with him, but some lawyers do not follow this sound advice. They grasp instead the substantial fee opportunities available for acting as legal heavies; it is these harassment tactics that constitute a SLAPP. The noble Lord’s letter concludes that it is for judges, not lawyers, to determine the nature of such litigation. Once again, I agree.
What can be done? The answer is a vital but modest amendment to current practice to address the proliferation of SLAPPs. We need a process whereby, for example, a journalist subjected to SLAPP tactics can obtain a hearing in front of a judge far earlier than is currently available. This both reduces the time and keeps down the cost. Evidence can be presented by both sides and the judge can then rule on whether the case is vexatious or not. There are details to be resolved, such as the criteria and evidence required, but this has already been considered and clauses drafted, which I shall refer to again shortly.
Why this Bill? Well, the Government have repeatedly stated on the record from as far back as July last year that they are appraised of the issue and absolutely determined to legislate. I sat in on the debate on this Bill in the House of Commons and there was loud—I might say impatient—support from all sides of the House for the Government now to act, as I believe is also the case in this House. Instead, on Bill after Bill we hear, “Sorry, not in this Bill”, or reference to the Bill of Rights Bill, which is under fire from all sides, including from the Joint Committee on Human Rights, or even suggestions of deferring to stand-alone legislation at some future unspecified and distant date. This Bill is the right and logical opportunity to address this growing issue. If we miss this opportunity then nothing will happen in this Parliament and those reporting on economic crime will continue to be unprotected until goodness knows when.
So what to do? As has been mentioned, the Government have had many months to think about this and we have further time between now and Committee, so they have ample time to turn their publicly and repeatedly stated commitment into a government amendment to the Bill. It might help the Minister to know that professionally drafted clauses have already been prepared by lawyers and have been shared and discussed with, and improved by, highly respected Members of this House with legal expertise. I offer to share these with the Minister and the Bill team if it would assist them in producing a government amendment. I therefore ask the Minister to tell us whether he will agree to stand by the Government’s declared policy and work with us to bring forward a suitable government amendment in Committee.
In concluding, I highlight again that our free press, our legal profession, the rule of law and the proper functioning of our markets are all things that we are usually and justifiably proud of in the UK, but all four are under threat and are being damaged and dragged down by the bullying and abuse that SLAPPs embody. This Bill, which is after all dedicated to preventing economic crime and to promoting corporate transparency, is the realistic and logical place to enact a suitable amendment. I therefore look forward to the Minister’s reply and to his doing more than reading out a statement about the Government’s commitment to some unspecified future date. It is now or never to bring this vital amendment into the Bill and on to the statute book. It must be now.
The Communications and Digital Select Committee recently held a follow-up session on SLAPPs and took evidence from the regulator, the Solicitors Regulation Authority, to find out what it is doing to identify, deter and punish British law firms that profit from facilitating these abuses of our legal system. I am pleased to say that the committee heard that it is now taking the issue seriously, but I was concerned to find that there are completely inadequate deterrents against lawyers taking on SLAPP cases. In a moment I will comment on what the noble Lord, Lord Cromwell, said as a more expansive solution to this issue, but two specific points stood out to me that are directly relevant to the Bill whether or not the Government support the noble Lord’s proposal to use the Bill to address the matter more comprehensively.
First, the regulator can fine wrongdoers up to £25,000. This has just been increased from £2,000. Noble Lords do not need me to point out just how ludicrously small that sum is; it probably amounts to a few hours in legal fees for the top law firms. I cannot imagine that many lawyers working for billionaire oligarchs or any other rich and powerful figure would live in fear of such a punishment.
The Bill provides a crucial opportunity to change that. It will give the regulator unlimited fining powers in relation to economic crime. That is welcome, but most lawfare cases would fall outside of that scope. I therefore recommend changing Clause 181 to allow the regulator to fine solicitors up to £250 million for pursuing SLAPP cases, whether they relate to economic crime or not. This amount is in line with what the SRA can fine other types of organisations, such as alternative business structures. To be clear, ABSs are law firms that are run by non-lawyers or whose partners are a mix of lawyers and non-lawyers. That means that the big accountancy firms qualify for this status, so in theory the SRA could fine those big accountancy firms that provide legal services up to £250 million but not the majority of law firms. I do not know about other noble Lords, but that strikes me as rather odd. In correspondence with me following my committee’s public hearing, the regulator confirmed that it supported this suggestion. The money this would generate could go into a defence fund for journalists and others facing such SLAPPs.
Secondly, I learned that payment for legal advice is not subject to the same type of money laundering regulation checks as other legal services. In addition, key parts of the Proceeds of Crime Act, which should require solicitors to report suspicious activity to the National Crime Agency, apparently do not apply to the conduct of litigation by lawyers. I accept that lawyers will need to represent individuals from all walks of life, including criminals, but that does not mean they should profit from dirty money. Again, this loophole is odd, to say the least, because it suggests a risk that dirty money can be used to pay lawyers to pursue abusive lawsuits aiming to silence journalists. That is particularly ironic, given that money laundering tends to be a key topic of interest for investigative journalists. Indeed, one of our witnesses made explicit allegations that the law firm pursuing a SLAPP case against her was working for someone using illegitimate funds. I recommend taking this opportunity to close that loophole and send a message that law firms should be doing everything in their power to uphold proper standards of due diligence.
The SRA has said it will write to lawyers about money laundering but, in all likelihood, the lawyers carrying out these cases know exactly what they are doing and how to game the system. The only way to stop them is with meaningful deterrents and sanctions. On that topic I have written to the Lord Chancellor and the Chancellor of the Exchequer. I hope my noble friends the Ministers will agree that these changes would be a valuable and proportionate contribution to the Government’s commitment to stamping out abuses of our legal system.
As the noble Lord, Lord Cromwell, said, we need to do more to stamp out the practice of SLAPPs and end London’s disreputable status as the best place for wealthy and powerful bad people to hide from legitimate scrutiny. If the noble Lord, Lord Cromwell, seeks to use this legislation to bring forward wider measures to tackle this—and I very much urge the Government to seize this opportunity to deal with this practice—it is possible that we will be able to achieve more than I had hoped we might in what I have covered today, which is quite modest and precise, in amendments that I propose to the Bill.
A classic example is the HBOS frauds. Two police forces looked at the issues, found that it was too expensive to pursue bankers from HBOS for fraud and simply did not wish to proceed. The Thames Valley police and crime commissioner decided that he would pursue them—and he did. He eventually secured convictions and just under 50 years of prison sentences for a few people, but he had to spend £7 million of his own budget. He did not get a single penny from central government for securing convictions. After the event, the FCA decided that it now needed to show a brave face because it had done nothing for years. It fined Lloyds Bank £45 million—all of which went to the Treasury. When the police and crime commissioner for Thames Valley requested reimbursement from that, the Government said no. He appealed to then Prime Minister Theresa May, and the Cabinet Secretary agreed to arrange a meeting with him. He then provided more details and mentioned the names of banks—especially Lloyds Bank—that was involved in this, but mysteriously, a couple of weeks later, the invitation to meet was withdrawn. It disappeared; nobody wanted to see him about it.
So I hope the Minister will tell us what kind of institutional architecture there is. We just do not have any, which is why these things do not get prosecuted. We need resources, and the resources are there. They can simply be levied on the institutions engaged in fraud. If the Minister thinks that corruption and fraud are not rife in the City of London, perhaps he would care to name a pristine bank. Just one example of a major bank will do—I will accept his word for it. If he cannot, he knows that plenty of resources can be raised to clean up the world of finance.
I agree with the possibility of new checks at Companies House on company formation, but I totally oppose the idea that those checks are to be outsourced. There are too many conflicts of interest, as has been pointed out. Outsourcing is a bad practice. It means that you do not build in-house knowledge and you do not have an institutional memory of what happens, has happened or could happen. Therefore, regulation is poorly designed and poorly enforced and there are simply too many exceptions.
The Bill is fairly vague on what kinds of checks will actually be made on company formation. I point out to the Minister that it is not just checks at company formation; they need to be continuous. Companies’ directors, secretaries, addresses and many other details, including persons with significant control, change, so these checks are not going to be a one-off; that simply will not work.
In some of the examples of fraudulent practices I have come across—over the last couple of years I have referred many of them to the government department through Written Questions, and I will come back to one or two of those—individuals have used a variety of names as company directors. Imagine if somebody’s name was John Brian Smith. They might call themselves John Smith, Brian Smith, J Smith, JB Smith and numerous other names. This way, they get around the issues when they are disqualified. They keep appearing again and again, in many other guises. In some cases, individuals have changed their name by deed poll so that they can become a company director.
I do not see anything in the Bill that tells me what exactly is going to happen and what kind of checks there will be. Those kinds of things really need to be debated and discussed, rather than the Government saying that later on there will be some kind of magic formula developed by somebody. What kind of evidence will be sought to authenticate the names, addresses and any other details?
I have given Ministers numerous examples of companies which have never traded, have been used as fronts for crime and have filed false information. Will Companies House be authenticating financial numbers in any way? I shall give one example. There was a company, which I have referred to in my Written Question, called Aflak Traveling Abroad Ltd. It was dormant, had never traded and had no employees but, according to the accounts, its share capital was £1.46 trillion, and Companies House happily accepted that. Someone filed those accounts so that they could impress people: “Look, chaps, I run a company in London and the British Government have given me a certificate of incorporation, which is vital. There you are, you can do business with me.” The British state is then complicit in facilitating these frauds. Will Companies House be checking for those kinds of numbers? That is not an isolated example.
Currently, anyone from anywhere in the world can set up a company in this country, using any name and address. I see nothing in the Bill that would prevent someone living in Latvia, Timbuktu or anywhere else forming a company in the UK. How will we authenticate their details? What language will the information be in? How will we know it is genuine? Would it not be better if every company registered at Companies House was required by law to have at least one UK resident director, so that we would know where the buck stopped, who was actually responsible and who we could go after if things went wrong?
Companies have used very strange names for their directors that have been easily accepted. Companies House has been accepting names and details in other languages. A head of the mafia filed accounts in Italian that contained a lot of information. Companies House did not translate it; if it had bothered, it would have found that the translation in English was that the director’s name was “The Chicken Thief”, occupation “Fraudster”, living at “Street of the 40 Thieves” in the town of “Ali Baba” in Italy. Companies House happily accepted that filing for years.
In other companies, some directors’ names have been given as “Mr Adolf Tooth Fairy Hitler”, “Lord Truman Hell Christ”, “Judas Superadio Iskariot” and “Victor Les-Appy Hugo”. Another director was called “James Bond” and his occupation was “security controller”. Another had a director named “Joseph Smith Jr”, whose occupations were listed as “Steward of the Ring of Mormon”, “Profit and Ringwatcher” and “Guardian Angel of the Ring of Mormon”. Another was “Lord Truman Michael Spypriest”, whose occupations were given as “Secret Espionage Service”, “War Lord”, and “Weapons System and Tuba (Latin)”.
How can we stop this? I see nothing about it in the Bill, especially given that we are allowing foreign residents to register companies in the UK. I think the House has a flavour of some of the practical issues here. There are numerous examples of companies being registered with false addresses. I shall explain what I mean by that. The miscreants use a genuine address but without the knowledge or permission of the genuine owners of the property. Those owners become aware that their address has been used only when threatening letters from various people arrive on their doormat. They go to Companies House and say, “We’re nothing to do with this company”, but Companies House says, “No, we can’t remove that address unless you get a court order.” Innocent people have to incur legal costs of thousands of pounds to remove their address, which has been fraudulently used, and I can see no remedy in the Bill for that. What are those people to do? I hope the Minister will explain that.
Individuals from sanctioned countries such as Russia can easily form a company. Do government departments talk to each other? Should it be possible that those companies can be used as fronts for sanction busting? That is not explained either.
We have heard that the Government are going to introduce an offence of failure to prevent fraud. I welcome that but I look forward to hearing the details, specifically about the regulatory architecture for that, especially as the Government are not doing anything to reform accounting, auditing, insolvency or corporate governance.
The Bill has “corporate transparency” in its title but I do not see much about that. For example, there is no proposal to require rich people to make their tax returns publicly available. As the Prime Minister would testify, if he had known about the tax returns of a certain former Chancellor, he might have made a different ministerial appointment. Why is that missing? Why are large corporations not required to publish their tax returns?
Throughout this Bill, the previous Bill and company law, we are constantly redrawing the boundaries between what is public and what is private; they are always shifting. Why does the Bill not really demand transparency of tax returns? That is one way of dealing with a large part of economic crime. Up to £1.5 trillion of taxes has not been collected since 2010. That is a hell of a lot of money. HMRC admits to only £400 billion but its estimate is wrong, and we can have a debate about that another day.
I hope the Minister will bring forward some amendments to require greater transparency of everyone’s tax returns or, if not, then at least of wealthy individuals and large corporations. I look forward to the Minister’s response.