My Lords, in light of Russia’s invasion of Ukraine, it is vital that we take new action to crack down on Russian dirty money and corrupt elites in the UK. The measures in the Bill—passed with cross-party support in the other place—will enable us to better identify, investigate and sanction the illicit wealth of those who wish to abuse our open economy. While we are rightly focused on taking action against Putin’s regime, these measures will strengthen our framework for tackling economic crime for the long term.
I have been heartened by the previous offers from those across all parties, including on the Opposition Front Benches, to support and co-operate with the Government on emergency legislation and to offer practical support to ensure that the Economic Crime (Transparency and Enforcement) Bill is implemented. I very much hope that we can continue to work in this spirit.
The Bill comprises some emergency measures, developed in light of Putin’s outrageous actions in recent weeks, and other measures that have been planned for quite some time. The first is a new register of overseas entities, which will require overseas companies owning or buying property in the UK to give information about their true owners to Companies House. This will provide more information to help law enforcement identify those using UK property as a money laundering vehicle.
Secondly, there will be reforms to unexplained wealth orders, which are a key tool for the investigation of suspicious assets. Through this Bill, we will improve their effectiveness and make sure that they can be applied to complex ownership structures.
Thirdly, we will streamline the sanctions Act to enable even swifter sanctioning of oligarchs and businesses associated with the Russian Government. The Bill also includes amendments to financial sanctions legislation, including strengthening the Treasury’s power to impose monetary penalties on those who violate our financial sanctions laws.
My Lords, we warmly welcome the arrival of the Bill and we are pleased that the Government have promised to introduce a further economic crime Bill in the next Session. In warmly welcoming the Bill, I would just like to make some points to noble Lords. This is significant progress compared with the position outlined by the noble Lord, Lord Agnew of Oulton, in January, when it appeared that the Government did not want to treat this as a priority issue. But now Putin has left them with no choice. Until now, I am afraid there has been a persistent and troubling lack of political will to act on these issues from the Government. It has taken war to bring about this change of position, and the Government should have acted sooner.
This is welcome, but we do not kid ourselves. The Bill does not resolve all our issues, but it is a stopgap and we will support it. It is the first instalment and we await the detail in part two. I welcome the noble Baroness’s assurances in her speech that part two will be extensive and we look forward to it. The Bill introduces a register of overseas entities, revisions to the function of unexplained wealth orders and changes to the Government’s sanctions regime.
There has long been a case for a new register such as the register of overseas entities. We have been promised it time and again, as far back as the Anti-Corruption Summit of 2016. But the Government have always failed to produce the goods when pushed to do so, and this we regret. We have had multiple consultation exercises on this issue, yet it has taken until now for the Government to move. We have known about weaknesses in the UK’s anti-money laundering regime for some time, with the Financial Action Task Force noting in 2018 that there was a need for substantial increase in resources devoted to financial intelligence as well as a series of other, fundamental reforms.
The truth is that for too long the Government have turned a blind eye to illicit funds being funnelled through the British economy—up to £100 billion per year according to the NCA. There is, as we know, no silver bullet to fight against economic crime. This new register is a much-needed tool, but it will not work unless we get the next Bill right, including by addressing the long-running concerns about the resourcing and powers of key investigatory and enforcement bodies.
My Lords, every day’s delay in bringing in these measures costs Ukrainian lives, so these Benches join in wishing to pass the Bill urgently. We have, however, been calling for the key property ownership elements in the Bill for years, and we wish we had had them at a time when we could have gone through it carefully, clause by clause, and amended their various flaws.
I am delighted that the Minister has given us an assurance that she will bring the sequel to the Bill promptly. We will be watching for that. It must, as she said, deal with Companies House, limited partnerships and cryptocurrencies, which I am glad she mentioned. I take note that Russia, on the day of the invasion of Ukraine, moved to control key crypto exchanges, and I say to the Government that it may be necessary to move on that issue ahead of part two, because it is an obvious escape hatch that Russia is taking full advantage of. We also hope that in part two the Minister will address two other areas: trusts, which appear not to be fully covered by Schedules 2 and 3, and freeports, with their secrecy privileges. There will be a great deal to do in part two.
As for this Bill, let me start with provisions that deal with the public register of the beneficial ownership of property in the UK. Why have those with property interests purchased with dirty money and hidden by shell companies been given a six-month transition period, during which implementation is suspended? I accept that this is less of an escape hatch than the original 18-month transition period in the first version of the Bill, but it still gives any oligarch plenty of time and scope to alter their arrangements, including by liquidating and moving assets out of the United Kingdom into a safe haven. I understand that the office of the registrar needs to be staffed, resourced and trained, but that should be done urgently and, if necessary, the registrar should be loaned staff to bring its capacity up as quickly as possible.
My Lords, I remind the House of my interest as a chartered accountant—which I hesitate to do after the last speech, I have to say. Like most noble Lords, I welcome this Bill, although I greatly regret the Government having to introduce these measures in such circumstances and in such a rush. We have tolerated for far too long the UK—and London in particular—becoming a haven for the ill-gotten gains of criminals. Of course, we need to get this Bill onto the statute book quickly, so that we can effectively sanction those responsible for the atrocities taking place in Ukraine.
Economic crime, however, is a much wider subject than Russia, and we have a lot of work to do to remedy the laissez-faire attitude to economic crime that has pervaded government policy—or, perhaps, lack of policy—in the last decade. The resignation speech of the noble Lord, Lord Agnew, said it better than I ever could. There is much more to do than is covered in this Bill, and I was pleased to hear the reassurances about the follow-up Bill.
In my comments, I will concentrate on the overseas entity register, but I have one observation on the unexplained wealth order clauses. The Government have blamed the aggressive use of legal action by oligarchs as the major reason why UWOs have not been successful so far. I am sure that there is some truth in that, but I am unconvinced that it is the main issue. More likely, the major problem is the lack of a properly resourced enforcement agency—something we also see in the wider issue of fraud more generally. I understand the reason for introducing legal costs clauses, but I do feel uncomfortable that someone who is entirely innocent will not be able to recover the potentially huge legal costs to defend themselves.
The overseas entity register is a good start, but I am afraid I do not expect it to make much practical difference. Innocent people will provide the required information—which is useful in itself—but those who are using offshore structures dishonestly to hide their identity will still be able to do so. There are many other ways of hiding ownership, including discretionary trusts, undisclosed nominees, complex corporate structures and so on. The current alleged situation of Graham Bonham-Carter and Oleg Deripaska is a good example of how this can happen.
6:50 pm
The Lord Bishop of Leeds
My Lords, I welcome this Bill and the speed with which it is being brought to us, but I share some of the concerns that have been represented already. I do not intend to go into any of the detail of matters that have already been spoken about; I am sure other noble Lords would be better at that than I might be.
I hesitate to bring an ethical argument because, in my experience in this House, ethical arguments simply get ignored. Indeed, one Minister replied to an ethical argument made on a different Bill by saying, “We will not listen to strictures on morality from anyone.” That led me, at the next stage—on Report—simply to say that that implies there is no place in politics for ethics. But it is my ethical concerns, which one might represent as cultural, that cause me to stand now.
Culture is not cleaned up by one act or one reaction to a particular stimulus, albeit a serious one such as the invasion of Ukraine. Some months ago, the Foreign Secretary threatened that sanctions would be introduced if Vladimir Putin invaded Ukraine. At the time, I thought that we should not be threatening that as a reaction to something else that happens. This stuff is immoral. The money that is sweeping through the sewers of London needs to be cleared up for its own sake, not simply as a bargaining chip in relation to Ukraine. If we are going to get rid of dirty money, we ought to do so because it is a moral obligation, not because it is a tactic.
If money is dirty and people are—we keep hearing the word—corrupt, is it that the money is indeed dirty and these people are indeed corrupt, or is it just that the game has changed, so it is now convenient for us to label them in that way? They were not corrupt six months ago, a year ago or five years ago—that was just the reality of the world in which we lived. If it is just the game that changes, and therefore we react to that, I think we have an ongoing ethical, cultural problem. We are tactical, and that is all. If we are going to change the culture, we have to be led by conviction rooted in values, not simply the pragmatics of the particularity of the case we are dealing with.
I am very pleased that an amendment will be tabled in Committee to Clause 18, so I will not say more about that now. I welcome the Bill, but I am concerned about the wider culture within which it sits; I hope that that will be registered, even if disagreed with.
My Lords, I thank my noble friend the Minister for her clear opening to this debate on this very important piece of legislation. It is also a pleasure to follow the right reverend Prelate and to hear what he had to say.
I refer to my interests in the register and declare that, as a barrister in private practice, I have been instructed both by the Serious Fraud Office and by companies and individuals in whom the Serious Fraud Office has taken an interest.
Sadly, the context in which we debate this Bill this evening is the Russian invasion of Ukraine. We are reviewing a Bill that has been passed through the other place in a single day and which will, I am sure, go through your Lordships’ House, if not in a day, quite quickly. Not surprisingly, the criminal and, some may say, paranoid behaviour of Mr Putin in launching this savage attack on Ukraine has led us into thinking that something must be done—and done quickly—to curb the financial freedom of Putin’s benefactors, his nominees and his enablers. These are people who, over the past 25 years, have grown rich through the redistribution to them of what used to be Russian state assets, first by President Yeltsin and then by the current incumbent. They remain rich because Putin permits them to be so, and because they hold vast holdings of valuable property and money throughout the West on his behalf. Although they pretend to be independent operators, they are puppets controlled by a sick and dangerous man, and it is right that our laws do not allow villainy to hide in plain sight.
Two points, however, flow from this. First, although the policy behind the Bill is well understood and universally shared by right-thinking Members of both Houses, the Bill that contains many complicated provisions, which are being considered very speedily. Of course, the war in Ukraine has forced us to act quickly, but the problems caused by passing legislation in a hurry are well known. Although I entirely accept the need for speed, we must be careful that we do not pass bad law which fails to hit the targets that we have identified. As my noble friend the Minister said, another economic crime Bill will be introduced in the forthcoming Session. The Government must stand ready to correct any defects in the current Bill which, through lack of proper consideration, are left in it. I hope it may be used to reform the law of corporate criminal liability—a subject on which I know I must sound like a cracked record.
My Lords, a considered assessment of this Bill requires some reflection as to why measures to thwart economic crime have failed so dismally up to now. At the centre of the Bill stands the registrar, embodied in Companies House. It is Companies House that is the prime source of the failings that have made London the money-laundering capital of the world. One of the political pantomimes of the last 10 years has been the spectacle of Conservative Prime Ministers referring regularly to the register maintained by Companies House as a gold standard, a beacon of openness, an example to the rest of the world. In reality, the manner in which the register is constructed has been and remains the key element in the inability of this country to stem the inflow of dirty money and the total failure to slow the growth of economic crime.
As has been known for years, the scandal derives from the fact that Companies House does not verify the beneficial ownership of the companies registered. Companies House is a library in which any shameful book can be deposited, as the noble and learned Lord, Lord Garnier, has just argued. That so many shameful books have been deposited is a matter of record. By the way, Companies House has led one prosecution in 150 years. That was of a person who deliberately registered a false company in the name of government Ministers to show how hopeless Companies House was at verifying the data. It then prosecuted this man when he owned up to what he had done.
Today, the Companies House register includes about 4.5 million UK businesses, but it operates in much the same way as it did 150 years ago, meaning that criminals have been able to set up seemingly legitimate shell companies without even the most basic identity checks. A study by Professor Jason Sharman of Cambridge University found that it was impossible to establish a shell company in the Cayman Islands, the Bahamas or Jersey, but easy to do it in London. A further study by Transparency International, in November 2020, reported that British shell companies were implicated in nearly £80 billion worth of money-laundering scandals. On top of that, the anti-corruption group Global Witness reported in 2019 that more than 336,000 companies on the register did not disclose their beneficial owner. It also found that just over 2,000 company owners were actually directors who had been disqualified, yet they were accepted by Companies House. It is this same organisation that we now ask to do more: to manage the new register of beneficial ownership of real property envisaged in the Bill.
My Lords, it is a pleasure to follow a speech of such forceful clarity as we have just heard from the noble Lord, Lord Eatwell. I should start by declaring my interests. The first is similar to those declared by the noble and learned Lord, Lord Garnier, as a practising barrister, although these days I do not do contentious advocacy in courtrooms. The second is that I am the director of a consultancy company that provides advice to foreign entities and foreign individuals—although, I hasten to add, not Russians. I shall say a little about the sort of interests that arise in a few moments.
In ordinary circumstances, I suspect that many of us in your Lordships’ House would be reluctant to support a Bill such as this without the normal debating time that we are given in conventional legislation. A high degree of trust is being placed in the Government to ensure that the Bill reaches the statute book fit for purpose and is applied in a way that means it will bite. However, we are in extraordinary circumstances. There is no doubt that the war being conducted by President Putin, and indeed Russia, against Ukraine is funded at least in part by the product of money that has passed, and passes, through the United Kingdom, and that it is in many ways money that has been obtained illegitimately through the plundering of the public purse of Russia.
That is brought into high relief today by the news that the Mariupol children’s hospital was bombed by the Russians, including its maternity unit, and the photographs of what is left are terrifying and ghastly. Russia has now become a clear enemy of international law, and its agents, including its oligarchs, have no right to expect us to apply in full our normal ethical legal standards to their behaviour, as in their complicity with the Russian state. Indeed, our prime task, alongside doing whatever we can to assist Ukraine, is to protect our own country, the United Kingdom, against being used as an unwitting instrument of international crimes against humanitarian law.
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These are the actions that we can take most swiftly but they are not the sum total of our ambition. We will introduce a second economic crime Bill with further measures as early as we can in the next Session. This will include major reform of Companies House, reforms to prevent the abuse of limited partnerships, new powers to make it easier to seize crypto assets from criminals and measures to provide businesses with more confidence to share information on suspected money laundering. This second Bill will be a substantial piece of legislation. I know that some of the measures it contains have long been called for. I can assure the House that drafting is under way and we will bring it forward as soon as we are able.
I will now provide more detail on the measures in today’s Bill. The Bill will create a register of overseas entities which will require anonymous foreign owners of UK property to reveal their real identity, ensuring that they can no longer hide behind secretive chains of shell companies. We know that corrupt wealth is stored in property in this country, and this new register will help us to find it. Too often, investigators at the National Crime Agency and other bodies reach a dead end when they find that a property of interest to them has its title registered in the name of a foreign company. It can be very difficult to obtain adequate information about that company, depending on where it is registered.
This new register would apply essentially the same beneficial ownership requirements to these companies as already apply to domestic companies registered at Companies House. An overseas entity that owns or wishes to own land in the UK will be required to take steps to identify its beneficial owner or owners and register them with Companies House. They will be required to verify that information and evidence that verification, and they will be required to update information annually. The provisions will apply retrospectively as far as Land Registry data allows: 1999 in England and Wales, and 2014 in Scotland. Should a foreign company not comply with these new obligations or submit false filings, its managing officers can face criminal or civil penalties. In many cases, these officers may be overseas and beyond the reach of UK law enforcement. That is why the key sanction will be the loss of rights to sell or lease the property until the register is populated with verified information.
I emphasise to the House that this is an information measure—an additional tool for law enforcement to use to inform investigations, including the case for making an unexplained wealth order. It is not a necessary underpinning of the actions we are taking right now to sanction allies of Putin. Rather, it will help to clean up our property market over the long term. However, I am mindful that many in your Lordships’ House will want to see it implemented as swiftly as possible, and I can assure the House that work to deliver the register will begin as soon as the Bill receives Royal Assent. A transition period will be in place as an essential protection for the many legitimate businesses and individuals who are likely to be holding property through overseas entities. Noble Lords will know that the Government have already amended the Bill in the other place to reduce this period to six months. We have committed to looking at how any entity in scope of the register selling its property before the register is operational should not be able to evade that scrutiny.
I turn now to the reforms to remove barriers to the use of unexplained wealth orders. These changes will increase the time available to law enforcement to carry out investigations, allowing them to be more comprehensive. We will also reform cost rules so that agencies will not be required to pay respondents’ costs unless they act dishonestly, unreasonably or improperly. This will remove a key barrier that discourages the use of UWOs and will increase and reinforce operational confidence in their use.
With this legislation, unexplained wealth orders will become more effective against those who hold property in the UK through trusts and other complex ownership structures. By targeting those who manage the properties on behalf of the beneficiaries, law enforcement will be able to obtain information that may be obscured by the beneficiaries. Individuals will not be able to hide behind shell companies and foundations any more.
I turn now to the amendments introduced to the Bill in the other place by which we propose to revise the sanctions Act. They will allow us to sanction oligarchs and businesses associated with the Russian Government even more swiftly, in concert with our allies. The new measures will ensure that we have the power to use urgent designation procedures to temporarily mirror the listings that have already been adopted by our allies. The United States, Canada, Australia and the EU are listed in the Bill, and others may be added by regulation.
We will remove the statutory test of appropriateness for making designations, thus simplifying the process. Ministers will still need to be satisfied that there are reasonable grounds to suspect that the person to be designated is “an involved person”, usually on the basis that have been involved in a specified activity. In the context of Russia, the activities specified in regulations include destabilising Ukraine, undermining or threatening its territorial integrity and supporting the Government of Russia. This is the right test to focus on in sanctioning an individual, without unnecessary statutory hurdles.
The Bill will remove some of the constraints on designations by description so that the Government can designate groups of individuals more quickly—for example, members of defined political bodies such as the Russian Federation Council. The Bill will also remove burdensome requirements to formally review each and every sanction every three years, freeing up vital resource to focus on developing new designations. However, designated persons will continue to have the opportunity to ask for their designation to be reviewed through an administrative review, and for the outcome of that review to be considered by the courts. Ministers will continue to be under a duty to revoke a designation where the relevant tests are no longer met in respect of it. The Bill will streamline reporting requirements while ensuring that Parliament can continue, rightly, to hold Ministers to account.
We are seeking to protect the public purse by permitting the payment of damages in connection with designations only in the case of bad faith. The Bill also provides a power to impose a cap on damages applying to any proceedings issued after 4 March, when the amendments were originally tabled in the other place. This will limit the ability of deep-pocketed oligarchs to claim massive payouts from sanctions challenges.
The Bill will also enhance the enforcement of financial sanctions. It will make it easier for the Treasury to impose significant monetary penalties, to name publicly those who have breached financial sanctions and to expand information-sharing powers.
We are collaborating with the devolved Administrations on this Bill. Provisions in it relating to the register of overseas entities and unexplained wealth orders engage devolved powers in both Scotland and Northern Ireland. We will continue to work with them on implementation and I am confident that we can rely on their continued support, for which I am very grateful.
The Government have consulted on the measures in the Bill. The register of overseas entities was the subject of extensive consultation and pre-legislative scrutiny. The Government accepted and acted on most of the Joint Committee’s recommendations. We have designed the reforms of unexplained wealth orders in close consultation with law enforcement agencies and representatives from the accountancy, financial and legal sectors. The Treasury will engage with industry on updating the guidance for financial sanctions before this reform takes effect. I can therefore assure the House that the Government are not acting rashly, and I urge it to support the Bill.
The Bill will ensure that our economy becomes more transparent and stronger at the same time. It will give our enforcement agencies the powers they need to effectively tackle dirty money. The House will be in no doubt, and will have noted, that the other place overwhelmingly supported the Bill when it was considered there on Monday. The Government worked with the Opposition there to strengthen and accelerate the package, and there was a clear and strong desire across party lines to present a united front by passing the legislation as swiftly as possible. I urge noble Lords to take a similar approach in this House. With that, I beg to move.
Turning to unexplained wealth orders, this tool has not been as effective as hoped so far, so we welcome the various moves to strengthen the unenforced wealth order regime. It is vital that these orders are used. It is important that we understand why so few of those orders have been implemented so far—only 15 orders and four cases. This cannot be explained away entirely by the risk of legal costs. The capacity of the NCA, SFO, FCA, HMRC and CPS to handle these orders also needs to be considered. The Government’s new Clause 31, requiring the Secretary of State to publish annual reports into the use of unexplained wealth orders, is definitely a positive step and we welcome it.
The Bill amends the Sanctions and Anti-Money Laundering Act 2018. The Government are making it easier to replicate the EU’s decisions in this and we welcome the collaborative working in this area with our international partners. This is a demonstration of strength and we back it. The campaign for an effective sanctions regime, though, began following the death of Sergei Magnitsky in 2009. The measures we are finally seeing now are welcome, but we do ask ourselves whether we will not be looking back and wondering whether we would be in a stronger position today had we acted sooner.
If we are to isolate Putin and his network of oligarchs and kleptocrats, the Government need to use these new powers immediately, bringing both pace and breadth to their response to events in Ukraine. While the Bill is not solely about Russia’s illegal and immoral invasion of Ukraine, it is regrettable that recent events have had to unfold before the Government have been prepared to bring these measures forward. Nevertheless, we will show solidarity with Ukraine by assisting the Government in the swift passage of this legislation. It is a common-sense approach to beginning to crack down on the shocking level of economic crime that has taken root in this country.
The Opposition have worked constructively with the Government since they announced the Bill and I am grateful to Ministers in the other place for adopting several of our key asks, including a reduced grace period for registering beneficial ownership and much harsher fines for those who break the rules. There remains, though, more to do. The grace period may have fallen from 18 months to six, but we on these Benches think it is still too long. Properties will be sold and other assets disposed of in far less time, severely undermining the effectiveness of the new register.
As drafted, the Bill does not yet do enough to crack down on the so-called enablers of money laundering and other forms of economic crime. They are arguably as guilty as those who seek to bring illicit funds to our shores in the first place. We know that Ministers are looking to bring forward amendments in a number of areas; we hope they will respond to concerns voiced by noble Lords in this debate today. Can the Government also offer us assurances that the follow-on Bill will be subject to normal processes, allowing both Houses to study and debate all the relevant measures in detail? I hope your Lordships will pass the Bill without undue delay but, in doing so, can we commit this evening to finally tackling the shameful spectacle of illicit money being laundered through our country?
Surely, penalties for breaching the rules should be retro-effective. It is a technique used by HMRC, particularly against small taxpayers under the loan charge, and it seems ideal to be adapted to this particular set of circumstances. Perhaps the Minister could also tell us whether there are existing powers that could be sharpened to cover the transition period.
Why does the Bill give the Secretary of State sweeping powers to exempt anyone from the register in the interests of the economic well-being of the United Kingdom? That is an incredibly broad criterion, but particularly inappropriate in this country, where allies of Putin are utterly enmeshed as major players in our economy, from media to sport to manufacturing. I am sure that no Minister would dream of making an exemption now, during the Russian invasion of Ukraine, but the clause is a message—and not a subtle one—that, once the crisis fades, anyone with a significant investment in the UK economy, regardless of the source of their money, can expect the privilege of an exemption.
Again and again in this House, your Lordships have warned that the Bill must deal with the network of enablers: the legal firms, the accountants, the developers, the banks—in effect, those who have opened the gate to dirty money and used all their skills to keep it open. I said a few days ago that this would be painful. Enablers include many respected names with very close ties to the political establishment; but why does the Bill not crack down on them and why is there no failure-to-prevent clause included in the Bill, or some equivalent kind of action? It is absolutely vital.
I will say only one thing about unexplained wealth orders. I do not wish to belittle them but, given the extraordinarily high income that oligarchs and kleptocrats enjoy from their many business interests, how useful are these orders and these clauses in our current emergency? Do they really have very much practical relevance? I am not opposed to them, but let us not put undue weight on them.
I welcome the strengthening of sanctions, but I say to the Government that, whenever anything is done in hot haste—and it has to be done that way on this occasion; I fully accept that—it is very sensible later to do a review and work out whether what was needed was done, whether there was any overreach and whether the measures were entirely appropriate. I hope we will hear that from the Government.
Lastly, enforcement absolutely matters. How confident are the Government that the Crown dependencies and overseas territories have adequate sanctions and controls and enforcement capacity? For us, what is the Government’s resourcing plan? The registrar’s office, which will have to verify all this hoarded information, will face a mountain of data and process. When will it be staffed? At the last asking, the National Crime Agency, on which we heavily depend for enforcement, had only 118 staff to investigate all financial crime, despite its complexity and the powerful lawyers and accountants used by the other side. How many additional staff, rather than transferred staff, will there be in the new kleptocrat cell and when will it be up and running, effective and fit for purpose?
If ever there was a time when we needed whistleblowers—and fast—it is now. They are not even mentioned in the Bill. The United States recently passed the Kleptocracy Asset Recovery Rewards Act, with cross-border and extraterritorial jurisdiction. Are we seriously telling whistleblowers, “Go to the Americans—we can’t be bothered”? Or will the Government commit to tackling this omission, hopefully in this part of the Bill, but, if not, absolutely, definitely in Part 2?
So, in the spirit of being helpful, how might we improve this? First, while the reduction from 18 months is welcome, the time period of six months is still too long. In fact, the period is more than six months, because these clauses do not commence until such date as the Secretary of State decides. Can the Minister say when that will be? Six months still gives a lot of time for people to rearrange their affairs to avoid the rules. I would have favoured 28 days, but perhaps the three months that the Institute of Chartered Accountants has suggested might be a good compromise.
Secondly, while the new rules will prevent a property being sold once the rules are in force until the entity is registered, this does not stop the sale of the company, or, indeed, of a company further up the chain. The Bill will therefore not prevent a criminal realising the value of the property. Frankly, there is probably not a lot we can do about that, but I note that the register will only have to be updated annually, so it may be a very long time before we discover the change. It would be better if the changes to the beneficial ownership had to be updated on the register immediately after the transaction takes place. The Companies Act 2006 requires the persons of significant control register to be updated within 14 days. Perhaps the Minister could explain why the overseas entities register is different from that?
Thirdly, the register will be pointless if there is no real verification of it. One way to improve that would be to leverage the due diligence that should already be happening under anti-money laundering legislation, although clearly this does not always happen as well as it should do. At the moment, we rely on the passive, risk-based requirement to report suspicious activity. It would seriously concentrate the minds of lawyers and accountants who advise those using offshore entities if there was an active requirement for them to place a statement on the register that they have carried out their due diligence and are satisfied that the beneficial ownership is correctly stated, and if we also made sure they were liable for that statement under Clause 15. As well as improving the integrity of the register, this would have the additional impact of making those who are enabling the hiding of assets to think very seriously about it. The requirement for such a statement could easily be included in the regulations to be made under Clause 16. Is that something the Minister would consider?
This Bill is a start, but it is a rushed Bill, issued to deal with an emergency situation, and scrutiny is being substantially curtailed. It is not without flaws. As I said, the subject of economic crime is much wider, and deserves much greater work and consideration. I was pleased to hear the details of the follow-up Bill, which needs to be comprehensive. Can the Minister please make a clear statement that the follow-up Bill—given the curtailed nature of the scrutiny here—will allow the matters covered in this rushed Bill to be looked at again, with the more detailed scrutiny the subject needs and deserves?
Secondly, I do not want to be misunderstood in what I am about to say, but we must be careful not to allow our understandable moral indignation to cloud our judgment about what we need to do through this Bill. If there is one thing worse than failing to scrutinise legislation because of haste, it is to pass legislation while caught in a moral spasm. Hard as it is, although I have no doubt that your Lordships’ House and the Government are both capable of doing this, and although it is correct to have a moral purpose behind the policy—here I wholly agree with the right reverend Prelate—we have to pass a Bill now that works effectively for all times and all circumstances against all money launderers, every corrupt actor and kleptocrat from across the globe, not just the Russian ones currently propping up Putin.
Now is not the time to drill too far into the detail of this Bill, nor to lament that, had legislation of this sort been introduced soon after David Cameron’s anti-corruption summit in 2016 or shortly after the work of the Joint Committee on the Draft Registration of Overseas Entities Bill was completed in 2019—I was a member of that committee under the chairmanship of my noble friend, Lord Faulks—we would have considered it in an altogether less fraught atmosphere. That committee made a number of recommendations, which are now in this Bill, but we have lost three years. So I find it a little strange that in the other place Ministers claim to be acting with all due speed. But now is better than next year or never.
Having got that off my chest, I want to pick out a few points from the Bill for later consideration. We need to make sure that, in preventing the criminal concealment of the ownership of property in this jurisdiction, we encompass not only relevant individuals and overseas companies but the owners of shares in those companies, be they individuals, other companies or trusts, and the legal and beneficial owners of the shares. It is not difficult to set up a shell company in an overseas jurisdiction through a nominee. Unless the Bill and those tasked with enforcing the law, once enacted, can get to the actual owner, as opposed to being blocked through a series of impenetrable veils, we will get nowhere.
If what the Government want, as suggested in some government statements, is to reveal the real identities of foreigners who own UK property, we need to ensure that the Bill will achieve precisely that. The legislation, as currently drafted, does not require the disclosure of the ultimate beneficial owner of the property, but rather the disclosure of the beneficial owner of the overseas entity which in turn owns the property. By Clause 33(1), the Secretary of State may by notice require an overseas entity to apply for registration in the prescribed manner within six months.
I agree with the concerns of the noble Lord, Lord Vaux, about the timing issues and the need to register entries on to the register, and I also agree with the noble Baroness, Lady Kramer, on the reduction of the 18-month period to six months. The Government should urgently take accountancy, legal and other professional advice about whether even six months is too long. Nowadays, money flows around the world at the press of a computer button. Should we not think of a far shorter period, with discretion for the Secretary of State or the High Court to extend that period on reasonable grounds in an individual case?
Unexplained wealth orders have not worked as well as they were expected to when they were introduced. Clause 53 allows for urgent designation of named individuals in certain circumstances. I hope the necessary work has already been done, because it may be that many such designations will need to be made immediately on Royal Assent. I have no doubt that the people we want to target will already have anticipated the Minister, and only the unwary minnows will end up being subject to these orders.
Finally, I need convincing that Companies House is the right body to enforce the provisions relating to the registration of overseas entities. It is essentially a recording organisation, a keeper of information provided to it by others. It is not, or not notably, an investigating or prosecuting body, but if it is to have this work, it will need a large injection of specialist staff from the Treasury, the sanctions sections of the FCDO, the National Crime Agency, the City of London police, which is the lead police force in relation to economic crime, and the Serious Fraud Office. It will also, I dare say, need to take additional advice from the security services, and all those agencies will need to be properly resourced to assist in this work.
The Bill must pass, but we must not think it answers all the questions that money launderers and other economic criminals will throw at us. If it assists us, even if indirectly, to get the Russian army out of Ukraine and persuade those supporting Putin to think again, it will most certainly have achieved some good.
In assessing whether Companies House can actually do the job, it is important to dismiss the comfortable fantasy that an open register provides sufficient scrutiny to detect wrongdoing. Protection against even moderately sophisticated financial crooks is provided only by verification and regular reverification of beneficial ownership by skilled forensic accountants. This fact was acknowledged by the noble Lord, Lord Callanan, in his foreword to the September 2020 White Paper Corporate Transparency and Register Reform—note that this was a document published two years ago.
The section on verification is to be found in Clause 16. Clause 16(1) refers to verification of information before an application is made by the overseas entity—that is, before the registrar is even aware of the application. I am sure that noble Lords have noticed that the wording of Clauses 4(1)(c), 7(1)(d) and 9(1)(e) indicates that the task of verification is assigned to the overseas entity. The Government may take some comfort from that, but I assure them that I do not. Clause 16(2) refers to
“the person by whom the information must be verified”,
and
“evidence or other information to be delivered to the registrar”.
Again, this suggests verification by a person other than the registrar, Companies House, to which the information is to be delivered, all ready, tied up with a fancy ribbon and a label reading “Nothing to see here.”
Nowhere in the Bill can I find a statutory obligation for the registrar, Companies House, to verify the data submitted to it. The Institute for Government has noticed the same omission, saying that
“without strengthening the organisation—expanding its powers of inquiry and resources to investigate and remove false information, and requiring mandatory identity checks on those incorporating companies, on company directors and on those who ultimately control companies—the new register could have little impact.”
There is also a clear suspicion that the Government are not willing to provide the resources the job requires, as the noble and learned Lord, Lord Garnier, pointed out earlier. To quote the Institute for Government again:
“the provisions in the new bill will make little difference unless authorities are provided with additional resource to enforce them … the UK already has strong tools to target illicit funds but law enforcement agencies have struggled to make full use of them because of resourcing issues.”
In her introduction, the Minister informed the House that a new economic crime Bill, including reform of Companies House, will be brought forward in the next Session. This has been promised time and again by this Government: it is always in the next Session—and the next Session never comes. On verification, we must act now. Making the verification of data by the registrar a statutory requirement is essential if the Bill is to be a meaningful measure and not just another PR exercise. Without a statutory requirement for verification by the registrar, and without the resources to do the job, this House will be participating in a sham. We must ensure that this is not the case.
I shall start in substantive terms by referring, as others have, to unexplained wealth orders. I echo what was said by the noble and learned Lord, Lord Garnier, and my noble friend Lord Vaux in their very eloquent speeches. UWOs have been around for a long time but it is a fact that very few proceedings have been taken by the National Crime Agency. There have been four cases, of which one failed. I can tell your Lordships that around the members of the legal profession that I speak to, and there are many on a daily basis, there is astonishment that the NCA has not brought scores of applications to court for UWOs. The reason for that is plain and twofold: one is the risk of costs, which can be dealt with, but the other, which is more difficult to deal with, is that the NCA is simply horribly understaffed to deal with these cases. It is not that there are not people who could do it, but we have to commit to employing those people and they have to be of sufficient quality. They need to be good lawyers and good investigators so that we are not standing here in a few months’ time saying, “The NCA really hasn’t been effective”.
Then, as the noble Lord, Lord Eatwell, referred to, there is the role of Companies House. It just so happens that professionally, in my consultancy company, I made an application on behalf of a client to Companies House some weeks ago now, in full detail, for a company to be deregistered. The evidence in the case could not be clearer. The company concerned is an impostor; it is pretending by its name and its fraudulent activities to be a very great international entity, but it is not—it is just a bunch of fraudsters. It is probably six weeks since I sent that application to Companies House. It is not just that they have not done anything; they have not even acknowledged—apart from the most formal immediate acknowledgment—the receipt of the application that I put in on behalf of my client. So I am absolutely with the noble Lord, Lord Eatwell: Companies House either is not fit for purpose or has to wake up and achieve that part of its purpose. Companies House, like the NCA, needs the staff to deal with these issues because it does not have them.
I have two other substantive points. The first I raised in the debate on Ukraine on 28 February, which was answered clearly, eloquently and helpfully by the noble Lord, Lord Ahmad of Wimbledon. My point relates to law firms and, indeed. other professionals—I deliberately turn to a chartered accountant when I say that—who, mostly in perfectly proper circumstances before this conflict arose, without any breach of law or ethical standards, have been involved in actual or intended transactions that may well have brought financial benefit, and therefore belligerent facilitation, to the Russian state. Some of those are property transactions, although not all, and some are transactions that are worked on but not fulfilled. A great deal of work is going on in law and other professional firms in relation to transactions that benefit the Russian state and it could tell us a great deal about what the Russian state is doing, as well as revealing criminal activity. I hope there is no single lawyer in the UK, whether in the square mile or elsewhere, who would find it ethically acceptable to bring benefit to an enemy of the United Kingdom, but the opacity of the sorts of transactions that I am describing means that lawyers and other professionals may well be complicit—entirely unintentionally, although there are of course rogues in every profession—in the sorts of transactions that I have referred to.
It is important that legal professional privilege should continue to apply to legitimate transactions. I hope that no one in this House wants to wipe away legal professional privilege in a transaction because someone happens to be a Russian; after all, there must be some very respectable Russians around because quite a lot of them have given money to one of the major political parties in this country. I hope that will not be taken amiss, but as far as I can tell it is true. So how do we achieve the scrutiny of such transactions?
After the debate on 28 February, I wrote to the noble Lord, Lord Ahmad—I have not heard from him yet but this was very recently so I would not have expected a reply—suggesting that we should adopt the architecture of the National Security and Investment Act 2021, an architecture that is now up and running in, among other places, the Ministry of Defence, with a substantial group of people working on it. They are applying the national security principles, the 17 national security categories, that are exactly relevant to the sorts of transactions that I am referring to. I respectfully suggest to the Government that they should adapt the NSIA architecture to a register of transactions by lawyers that lawyers and other professionals would have to report in clearly described circumstances, even though legal professional privilege would continue to apply as an inviolable principle unless there was an effect on our national security, as described in the NSIA. It seems to me that that sort of architecture would satisfy what is in my view a need for professional firms, if they participate in transactions that now seem to be politically dubious apropos the Russians, to be examined.
The other issue I wish to raise is about non-Russianswho own property in London. A significant number of special purpose vehicles have been created for well-known foreign people to purchase. These people are huge investors in this country—entirely honestly, in good faith and with strong ethical standards—who do not wish it to be known that they, as individuals, are the beneficial owners of those properties. They have good reasons. One good reason, as one might think, is simply to protect their privacy from unwelcome curiosity and criminals. Another possibly legitimate interest may be to protect themselves from unwanted curiosity from overcurious journalists. A third reason, and possibly the most important, is for national security issues—not ours, but theirs for the country in which they live.
I will briefly give a couple of examples. I remind your Lordships of the events of 2 October 2018 when Jamal Khashoggi was murdered in Istanbul by agents of Mohammed bin Salman and the Government of Saudi Arabia. This is an example of a Government finding out everything they need to know so that they can take out an enemy of the state in completely unlawful circumstances—in a friendly country—through an outrageous and brutally executed crime. People are entitled to defend themselves against that, as are the victims of Russian-led incidents. On 23 November 2006, in Bloomsbury, just yards from my own office in Gray’s Inn Square, Alexander Litvinenko was taken out by the Russians. By whose agents was he murdered on our territory using radioactive material? Vladimir Vladimirovich Putin. Perhaps we should have been warned then. Afterwards, there were the shocking events which took place in Salisbury and affected life in one of our most beautiful cities.
When he replies, I would be grateful if the Minister could confirm that, when registration is required, the legitimate privacy and interests of good foreign investors will be protected under the provisions of this Bill, particularly Clauses 21 to 25.
Finally, I apologise for not being able to be here next Monday when the Committee takes place. This is because I have a long-standing commitment aboard, otherwise I would have come to contribute further.