I must draw the House’s attention to the fact that financial privilege is engaged by Lords amendment 161B. If that Lords amendment is agreed to, I will cause the customary entry waiving Commons financial privilege to be entered in the Journal. Dame Margaret Hodge has tabled two manuscript amendments to Lords amendment 161B, which have been selected by Mr Speaker. Papers will be distributed as soon as possible.
The deferred Division has now resumed in the No Lobby and injury time has been added, but Members do not have long.
After Clause 46
Register of members: information to be included and powers to obtain it
It is always a pleasure to speak with right hon. and hon. Members on the Economic Crime and Corporate Transparency Bill, which they will know is close to my heart and contains many vital measures for which I have long campaigned. The Bill will give us the powers we need to crack down on those who abuse our open economy, while ensuring that the vast majority of law-abiding businesses can grow and flourish.
I am grateful that both Houses have reached agreement on several issues, including those relating to the register of overseas entities and on removing the extension of the failure to prevent offence to money laundering. However, we are here today as agreement is still outstanding on a handful of remaining issues. I urge this House to accept the Government amendments, to settle those remaining topics and ensure that we can proceed to Royal Assent and implementation of these important reforms without delay.
I will now speak to those remaining topics. In the other place, the Government tabled two amendments on nominee shareholders—amendments 23B and 23C, in lieu of Commons amendment 23A, and in response to Lord Vaux’s amendment 23 on this topic from Report stage in the other place.
The Government’s amendments will allow the Secretary of State to make regulations to make further provision for the purpose of identifying persons with significant control in cases where shares are held by a nominee. This will allow the Government to work with relevant stakeholders to target the regulations in an effective and focused way that does not impose disproportionate burdens. Members of the other place agreed with the Government’s proposal and I trust that Members of this House will therefore agree with it today.
Lords amendments 151B and 151C would apply the exemption from the failure to prevent fraud offence to micro-entities only, rather than the Government’s position of excluding all small and medium-sized enterprises. The Government appreciate that Lord Garnier has moved closer to the Government’s position in agreeing to the principle of applying a threshold. However, our position remains that such an amendment would still incur significant costs to businesses. Reducing the exemption threshold to only micro-entities would increase one-off costs for businesses from around £500 million to £1.5 billion. The annual recurrent costs would increase from £60 million to over £192 million.
We used very similar analysis to that used for the failure to prevent bribery and failure to prevent tax evasion offences. We have used a common methodology. I have not seen any figures that contradict our figures here, but in my view—having run a business and dealt with some of the failure to prevent bribery provisions—there is no doubt that there are significant costs. There may be external consultants to bring in, for example. Even if one is compliant, one might not know whether one is compliant, so there are definite associated costs to ensuring that reasonable efforts are made to prevent fraud, as it would be in this case.
Those costs would still be disproportionately shared by small business owners, when law enforcement can attribute and prosecute fraud more easily in these smaller organisations; and, as I have set out before, we must be mindful of the cumulative impact on SMEs across multiple Government requirements and regulations. In all the work I have done in the past from the Back Benches on failure to prevent, it was invariably the case that all cases involved larger businesses, not SMEs.
Large companies have the resources and specialist expertise to cope with additional burdens, whereas small businesses often have to dedicate a significant amount of time and resource, often paying for external professional advice to assess what new rules would mean for them. That is the case even where they subsequently assess that they already have adequate controls in place. That is time and resource that could otherwise have been used to grow and generate wealth for their businesses and jobs for their staff. The Government are extremely mindful of the pressures on companies of all sizes, including SMEs, and therefore do not feel it is appropriate to place this new unnecessary burden on over 450,000 businesses. I therefore urge Members of this House to support the Government motion to disagree with the Lords amendments, to ensure that we take a proportionate approach and do not impose unnecessary measures that would curb economic growth.
2:15 pm
The Government recognise the potential merits of reform, which is why we have added to the Bill 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 the findings before Parliament within 12 months. I therefore hope that Members of this House will agree with the Government’s position today.
In conclusion, I encourage this House to agree with the Government’s position on the outstanding Lords amendments. It is vital that we achieve Royal Assent without delay, so that we can proceed to implement the important reforms in the Bill as quickly as possible.
It is a great honour to speak for the Opposition on behalf of myself and my hon. Friend the Member for Aberavon (Stephen Kinnock). I pay tribute to my predecessor, my hon. Friend the Member for Feltham and Heston (Seema Malhotra). I am also grateful to 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 many others across the House who have played such an important role in getting the Bill to this point.
By the Government’s own definition:
“Economic crime refers to a broad category of activity involving money, finance or assets, the purpose of which is to unlawfully obtain a profit or advantage for the perpetrator or cause loss to others.”
It poses a threat to our country’s national security, our institutions and our economy, and causes serious harm to our citizens and society. Failure to act allows criminals to benefit from the proceeds of their crimes and to fund further criminality. In the most extreme cases, we have seen the funding of organised crime groups, terrorist activity, drug dealing and people trafficking.
Economic crime has many victims. For too long, the Government have turned a blind eye to corruption and dirty money, allowing Russian illicit finance to flood into our country and let Putin’s cronies stash ill-gotten gains and even recycle the proceeds of crime into luxury properties across our cities. More than two thirds of English and Welsh properties held by foreign shell companies do not report their true owners. Research by the London School of Economics and Warwick University shows that the register of overseas entities is not fully effective. For 71% of those properties, essential information about their beneficial owners remains missing or publicly inaccessible, despite the register of overseas entities. It is not enough, and we need more action.
This is an important Bill and there is much good in it, but I am afraid that a number of areas require further attention. Now is not the time for discursive speeches, but I regret to say that notwithstanding the good in the Bill, the Government have fallen into error in relation to the two Lords amendments that they seek to reverse.
Let me say first that while a measure to deal with “failure to prevent” offences is a good idea, this measure is too widely drawn. The Minister made a point about the burden of costs on small businesses, but the definition of a medium-sized business is significant: the risk is less to do with the size of a business than with where it does its business, and also its corporate structures. One of the important things we have learned from the United States is that “failure to prevent” offences are not simply about prosecuting, important though that is, but also about changing corporate behaviour. I did not hear a word about that in the Minister’s speech, and I think it might be better to reflect on it again.
Lord Garnier tabled an amendment to compromise on micro-entities; perhaps we should think again about a third tier, consisting of medium-sized as opposed to small entities. That would not be unreasonable, given that many medium-sized entities do significant work abroad where there is some risk, and given that the costs are tax-deductible from profit. I urge the Government to think again, because having done so much good in the Bill, it will be a shame if we weaken its enforcement by widening the net too much.
As for the cost caps, when the Minister said that no prosecutions had been brought yet, he did not add that that was because of their chilling effect. People will not risk bringing prosecutions if their budgets are going to be eroded after the event by costs being awarded against them. Only yesterday, in the House of Commons, I had the pleasure of meeting Bill Browder, who has set out very clearly why that has been the case for a number of years. The Serious Fraud Office tried to bring a prosecution a few years ago and got its fingers burned, and there have been few prosecutions since then. This is about behaviours rather than outcomes.
I strongly very much with what the hon. Member for Bromley and Chislehurst (Sir Robert Neill) said. Let us just agree with the Lords. Let us get on with this. Let us do this legislation, and do it properly.
Let me say first that it is important for us to have as much information as possible about those who own companies. It is clear from all the evidence that has come before us that the lack of such information causes people to find ways of hiding their money, and the UK has become a magnet for that. The Minister has suggested that there will be a significant cost to businesses, but businesses are already doing work on failure to prevent bribery. As Lord Garnier said on Monday, there is a clear read-across: it would be easy to add fraud to the current provisions. It would not be difficult, and it would bring about an economic benefit. The Minister also suggested that economic growth would be hampered in some way, but he himself has said that
“ a corporate offence of failure to prevent economic crime and money laundering would reduce the amount of money that is illegally shifted out of the UK into foreign jurisdictions and increase the amount of tax that is paid.”—[Official Report, 22 February 2020; Vol. 672, c. 220.]
Why does the Minister now disagree with himself? Why does he disagree with statements that he has made in the past? He knows that this is an important measure, and that this is an issue that we can deal with here today and it will be done. We will not have to come back to it, we will not have to keep debating it, and the Minister will be able to see that he has finished it off and done a good job.
On the issue of adverse costs, I agree with what Bill Browder said in his evidence to the Bill Committee. By not introducing such a measure, we are inhibiting law enforcement when it comes to economic crime. We know that those on the other side of the equation who want to hide their money have plenty of it to throw at the best lawyers and at the best accountants to make things look a particular way. If we are to be in this fight, we need to give the law enforcement agencies the resources that they require, and cost capping is a key element of that.
I shall be brief. The hon. Member for Glasgow Central (Alison Thewliss) repeated her phrase of last week—and, indeed, we have passed this way again. I will resist the temptation to be too biblical today; I will simply reiterate to the my hon. Friend the Minister the points that I made last week. Lord Garnier has moved on the position in the Lords and offered an olive branch to the Government, in the sense that this is a different amendment. It rightly now affords what, in the opinion of many of us, will be greater protections for businesses. What is being ignored in this debate is the fact that businesses that take reasonable measures will not be the subject of a prosecution or investigation. Businesses that are not within this regime will not have that protection, so there is a cogent argument that failing to extend the “failure to prevent” offence to more businesses would leave them less well protected.
2:30 pm
I pray in aid the excellent speech by Lord Garnier, and in particular his reference to the guidance that was issued to the Bribery Act 2010, which states:
“To a certain extent the level of risk will be linked to the size of the organisation and the nature and complexity of its business, but size will not be the only determining factor. Some small organisations can face quite significant risks and will need more extensive procedures than their counterparts facing limited risks. However, small organisations are unlikely to need procedures that are as extensive as those of a large multi-national organisation.”
Herein lies the point. The Government at that point were taking the view that it was the extent of external risk that mattered, not the size of the enterprise, which begs the question: what on earth are we doing here? Why this change? Why this change from the policy of a Conservative Government, which was echoed in the tax evasion “failure to prevent” offence of 2017?
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Turning to Lords amendment 161B, made by Lord Faulks, on cost protection for law enforcement in civil recovery cases, the Government remain of the view that the amendment would be a significant departure from the loser pays principle and therefore should not be rushed into without careful consideration. There is no clear evidence that such changes would help to achieve their intended aim of increasing the capacity of law enforcement to take on more civil recovery cases. There have been no adverse cost rulings against an enforcement authority carrying out this type of civil recovery in the past six years.
Costs are just one of many factors that determine whether law enforcement will take on a case. For example, the evidence available to pursue a case, particularly where evidence is required from overseas, often proves more vital to an operational decision. There are already a number of ways in which an enforcement agency’s liability to legal costs can be protected under the civil procedure rules in England and Wales. For instance, rule 44.2 gives the court discretion as to the payment of costs by either party, including whether they are payable to another party, the amount, and when they are payable. In addition, a cost-capping order can be applied for under rule 3.19 to limit any future costs that a party may recover under a later costs order. If we are to introduce further legislation, we must consider what gap this is trying to fill. We should also consider civil liberties and property rights that underpin our economy. We will potentially be handing huge powers to the state, which could be held over an individual.
After the Grenfell Tower fire disaster, which claimed 72 lives, we have learned more about freeholders hiding behind offshore trusts and labyrinthine company structures to make it impossible for leaseholders to uncover who is responsible for replacing dangerous flammable cladding. Hundreds of thousands of people across the country are living in fear of Grenfell-style fires in unsafe blocks, while some owners hide abroad under company structures that help them to dodge paying for replacement cladding by setting up companies and trusts in overseas territories, lacking transparency. Our Government and our citizens must be able to access information about who owns what, and where responsibility lies.
This legislation is long overdue. As far back as 2018, the then Security Minister, the right hon. Member for Wyre and Preston North (Mr Wallace), was reported to have said that the BBC hit series “McMafia” was
“very close to the truth”
and condemned the
“impunity with which some of these people operate and the brutality of it”.
He promised new powers to crack down on gangsters, criminals and corrupt members of the global elite, with the full force of Government to be used against them. While some steps have been taken, it took Russia’s invasion of Ukraine for the Government to step up and introduce further legislation. The Government have delayed legislation for too long, and in that time money has been lost, economic crime has persisted, and the UK economy has once again lost out. Shamefully, our city—our capital—has taken on the reputation of cleaning up much of the world’s dirty money.
The illegal Russian invasion of Ukraine has merely highlighted a shameful situation that campaigners have long decried. For years the UK has been awash with cash from kleptocrats and oppressive regimes. Transparency International UK has highlighted that £6.7 billion worth of property has been bought with the use of suspicious wealth. I recently visited Ukraine, where I witnessed the terrible impact of the Russian aggression on the civilian population, who are constantly living in fear of airstrikes. It is sickening to think that the people who are responsible for these atrocities today could be enjoying luxury apartments and houses in Belgravia and Mayfair, just a stone’s throw from this House. However, it is not just the Kremlin; as The Times has reported, more than £200 million-worth of UK property is owned by the children of notorious rulers and their henchmen from failed states and autocracies around the world. The cost of economic crime is as much as £350 billion.
There is much to do. Law enforcement must be backed up; we must have the transparency that justice demands, and send a clear signal that there cannot be dark corners where kleptocrats can stash their money. The Bill is a starting point, not an end point. We will be holding the Government’s feet to the fire to ensure that this legislation makes an actual difference. Crucially, tackling economic crime requires support for key institutions such as the National Crime Agency, His Majesty’s Revenue and the Customs Crown Prosecution Service. It is not enough just to introduce legislation; we need enforcement, and we need these institutions to be properly resourced and supported.
We have had the FinCEN files, the Panama papers and the Paradise papers, as well as numerous inquiries by Select Committees—including the Treasury Committee, on which I served for a number of years—but we have seen only incremental change, which is very frustrating for many Members on both sides of the House. Further action is needed to ensure transparency in respect of the ownership of UK property by overseas companies, and on compensation for victims of economic crime. There remain huge gaps. However, we welcome the changes that the Government have made in relation to strategic lawsuits against public participation, which have been worked on by a number of Members.
We support Lords amendments 151B and 151C, and welcome Lord Garnier’s focus on the failure to prevent fraud in non-micro entities. We also support Lords amendment 161B, tabled by Lord Faulks. As he has explained, subsection (2) should state that the court should not normally make an order
“that any costs of proceedings relating to a case to which this section applies”,
and so on. My right hon. Friend the Member for Barking has tabled an amendment to that Lords amendment, which has been accepted, and we accept the Lords amendment on that basis.
This Bill is almost over the line. It has been improved since Ministers first embarked on it. However, there is much more to be done. We hope we can ensure that enforcement takes place once it is on the statute book, so that dirty money can be exposed, illegal assets can be seized, and action is taken against those who are guilty of economic crime. We must not have further delay in pushing for transparency and action in tackling economic crime.
I have to say—with apologies to the Minister, whom I like and respect—that the Government have taken an unduly restrictive and literalist approach to these matters. It would be far better to find compromises—to think again, go back to the Lords, and see whether there is somewhere between Lord Garnier’s position and that of the Government. Perhaps that third tier of the medium-sized entity is a way around this. The Government are committed to a review of cost caps in 12 months’ time, but, as my right hon. and learned Friend the Member for South Swindon (Sir Robert Buckland) said the last time this came up, what is there to review? The evidence is there: cost caps are chilling. As the Minister will see if he reads the evidence given to the Cambridge economic crime summit—at which I had the pleasure of speaking last week—it is overwhelmingly clear that not a single one of the experts could understand the Government’s position on this, so I ask them please to think again about it as well.
As I said the previous time we debated these matters, there is no need for a review. We need to get on with things. An election is coming, and we do not know when we will pass this way again. The Minister should accept the Lords amendments, and get on with the work.