Relevant documents: 22nd Report from the Delegated Powers Committee, 14th Report from the Constitution Committee
Clauses 1 to 3 agreed.
Clause 4: Application for registration
1: Clause 4, page 2, line 19, at end insert “and, where applicable, the statement and information mentioned in subsection (2A)”
Member’s explanatory statement
This amendment requires an application for registration as an overseas entity to include the information and statement required by subsection (2A) (information about trusts).
My Lords, we start with a group of government amendments to collect more information about trusts and overseas trust-like arrangements. These amendments address both the concerns raised in the other place by noble Lords on Second Reading in this House. I pay particular tribute to my noble and learned friend Lord Garnier, the noble Lords, Lord Vaux of Harrowden, Lord Faulks and Lord Fox, and the noble Baroness, Lady Jones of Moulsecoomb, all of whom drew attention to this important issue in their speeches.
As highlighted by those noble Lords, there is a particular difficulty with the availability of information about some trusts, including so-called discretionary trusts. This is where the assets are held in trusts to be used at the discretion of the trustees, because the beneficiaries can change. So we need to have some further information captured on trusts in this register, over and above what Her Majesty’s Revenue & Customs already captures on the TRS—trust registration service.
Both Houses can rest assured that this issue was not overlooked by the Government. Officials had already been working on amendments to the Bill, but it was important to table amendments only when we were sure that proposals were workable in practice and that the drafting fully achieved the policy intent. I have had a number of discussions with noble Lords, so I think everybody appreciates this is a complicated technical area.
These amendments set out that where a trustee of a trust—or of an equivalent arrangement that under the law of a country or territory outside the United Kingdom is of a similar character to a trust—is a registrable beneficial owner, the overseas entity must give them an information notice. That notice requires the recipient to provide information about the settlor, beneficiaries and other persons who have rights to appoint or remove trustees or rights over the exercise of the trustees’ functions—sometimes referred to as protectors.
The trustee must also provide other information about the trust—for example, the date of creation and about other trustees. It is an offence for the trustees to fail to comply with the notice without a reasonable excuse. The entity must then disclose this information to the registrar. Although this information will be unavailable for inspection on the public register, it may be disclosed to Her Majesty’s Revenue & Customs, law enforcement agencies and other specified persons with a public function for use in the execution of their functions. HMRC will also be able to disclose information to allow the registrar and the Secretary of State to take action in connection with offences.
While the abuse of trusts to prevent disclosure of beneficial ownership for high-end money laundering and tax crime has been well documented, it is important to remember when considering these amendments that trusts can be established for legitimate and highly personal reasons, such as protecting assets for children or vulnerable adults. So let me reassure noble Lords—the noble Lord, Lord Coaker, in particular, has raised with me directly—that this is the intention behind Amendments 45 and 46. I reiterate once again that this information will be available to law enforcement and other agencies.
Amendments 6 and 10 require overseas entities to disclose to the registrar where an individual or an entity which is a registerable beneficial owner of the overseas entity is a trustee. Amendments 1 and 2 require the overseas entity to provide to the registrar, on application under Clause 4, information about trusts where a trustee is a registerable beneficial owner. Amendments 21, 22, 25, 28, 29 and 30 provide for the same when overseas entities comply with their updating duty or apply for removal from the register under Clauses 7 and 9. Amendment 4 is an insertion of clause cross-references in part consequential on changes to Clauses 4, 7 and 9, which brings the trust information that I have just described within scope.
Amendment 15 sets out the required information about trusts within Schedule 1. This includes the name or, if it does not have a name, a description, the date of the trust’s creation, further information about trustees and information about the beneficiaries, settlors and other interested persons who have rights in respect of the appointment or removal of trustees or the exercise by the trustees of their functions.
Amendment 89 extends the provisions of Part 1 of the Bill in relation to trusts so that they apply to arrangements of a similar character outside the United Kingdom. It also allows the Secretary of State to specify descriptions of arrangements outside the UK that are, or are not, to be treated as of a similar character to a trust.
Amendment 16 allows for the Secretary of State to make further provisions about the required information about trusts. Amendments 38 and 39 provide that overseas entities must take reasonable steps to obtain information about trusts, including sending trustees information notices requiring them to confirm, correct or provide the required information. This will, of course, mean that Clause 15 will make it an offence for a trustee to fail to comply with the information notice without a reasonable excuse.
Amendments 45 and 46 provide that the required information about trusts will be unavailable on the public register. Amendment 46 removes protection of date of birth and residential address information because Amendment 47 creates different provisions governing the disclosure of information about trusts. Amendment 47 generally prevents the registrar from disclosing the required information about trusts. It also includes a new power to disclose information about trusts to HMRC or other specified persons with public functions. Amendment 48 is consequential on Amendment 47, ensuring that the new power to disclose information about trusts cannot be used in a way that would contravene data protection legislation.
Amendment 85 permits HMRC to disclose information to allow the registrar and the Secretary of State to take action in connection with offences.
Amendments 16, 26, 27, 31 and 32 are consequential on other amendments to ensure that the new amendments are consistent. I hope that is helpful to noble Lords. I beg to move.
My Lords, I rise to speak to Amendment 17. I am delighted that it has also been signed by the noble Lord, Lord Agnew. This would extend the definition of a registerable beneficial owner of an overseas entity to include anyone who is the beneficial owner of land or property held by the entity.
Why does this matter? Let me give an example. Mr X wants to buy a house in London and sets up an overseas company to own the land. In this scenario, he meets the conditions for being a beneficial owner of a company; the Bill works as intended. However, assume our Mr X rather likes his anonymity, so he approaches a Panama law firm which, after a payment, buys the house for him using its general nominee company which holds legal title to many such properties all beneficially owned by different people. The nominee company issues a declaration to Mr X that it is holding the land as his nominee and that he is the beneficial owner of the property.
In this scenario, the nominee company is the overseas entity owning the property and its beneficial owner is the law firm which set it up. Depending on its ownership structure, the partners at the law firm may or may not appear on the register. However, that is not the point. They may be the beneficial owners of the nominee company but are not the beneficial owners of any of the properties owned by the company. Mr X and the other beneficial owners of the properties held by the nominee company do not tick any of the boxes for being a beneficial owner of that company. The declaration issued by the nominee company is private, so in this scenario they remain anonymous.
Is this what the Government intend? Opening the Second Reading debate last week, the Minister, the noble Baroness, Lady Williams of Trafford, said that the Bill would
“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.”—[Official Report, 9/3/22; col. 1484.]
That suggests that this is not what the Government intended, and this is where Amendment 17 comes in. By extending the definition of a beneficial owner of an overseas entity holding UK property to include anyone who is the beneficial owner of land or property held by the entity, we would be giving this Bill the scope the Government appear to intend for it.
Responding to last week’s debate in the other House, the Minister there said that if nominee companies were “directed by someone else”—the beneficial owner of the land—then the person doing the directing would be “caught by condition 4” in the definition of a beneficial owner: significant influence or control. But that would only be the case if a separate nominee company is set up for the particular beneficial owner. If a general nominee company is used and this acts for hundreds of different clients, then it is difficult to see that any one of them exercises significant influence or control over the nominee company. That is why Amendment 17 is needed.
My Lords, I support the theme of what the noble Lord, Lord Clement-Jones, just said, which is the general weakness of the definition of beneficial ownership in this Bill. It is very striking that in other jurisdictions within the British Isles that hold registers of beneficial ownership and have done for some years, the beneficial owner is always defined as an individual and never as a firm or a trust. An individual who ultimately owns or controls the entity must be identified. The Bill as currently constructed has significant weaknesses, which will prevent the identification of individual beneficial owners in the way that the Government apparently intend but have not as yet achieved.
My Lords, we find ourselves in an unusual position. Normally, this House is trying to knock the edges off overzealous legislation and limit the powers the Government have a tendency to give themselves. In this Bill, we are trying to achieve the exact opposite: to strengthen the powers and close the loopholes so that the powers are as effective as possible.
We are trying to move quickly because of the awful situation in Ukraine. As the Minister said at the outset, the overseas entity register is not an emergency measure—although it will be useful in this situation. In normal times, it would be subject to much more detailed scrutiny, and we would not normally debate such wide groups as we are today. At Second Reading, I asked the Minister to confirm that the follow-up economic crime Bill would be sufficiently wide in scope to allow the matters we are covering now to be considered further, if necessary, as part of that Bill. While the Minister nodded vigorously at the time, he did not give that confirmation in his response. The House clearly accepts the need to move fast, and matters which would normally be voted on will not be pushed to a vote. I hope that the Government will reciprocate that flexibility. Speaking for myself, it would be much easier to accept the flaws and gaps in this Bill, if it were clear that there will be the opportunity to give the more detailed scrutiny which these important issues deserve in due course. Will the Minister please provide that confirmation today?
We all welcome the additional clauses that the Government are proposing on trusts, one of the more common methods to obscure ultimate ownership. Of course, trusts can be—and, as the Minister said, they usually are—perfectly legitimate. However, they can be misused. As such, I commend the Government for introducing these new clauses. That said, and in addition to the points made by the noble Lord, Lord Clement-Jones, there is still one area where an important gap remains: the classic way of camouflaging the identity of the ultimate beneficial owner is by the use of discretionary trusts. These will often have a stated beneficiary, such as a charity, but, because they are discretionary, the benefit can be passed to others who are not identified. That might be under a formal agreement, but it is often something less formal or traceable. In such situations, it can be difficult to ascertain who the real beneficiary is. The identity of “the settlor or guarantor” is one clue— government Amendment 15 rightly requires those to be identified.
The Minister kindly wrote to me yesterday afternoon—I apologise for spoiling his weekend. He said that HMRC already has access to information about beneficiaries through new data-sharing gateways and existing exchange of notes mechanisms. However, this is true only for UK resident taxpayers and for situations where money actually flows. It does not cover all jurisdictions, so the gap remains. Many of the ultimate property owners are not UK residents, and value can pass in different ways—for example, the simple right to use the property rent-free would not be picked-up by HMRC.
One other way of trying to see through such discretionary trusts is to identify who has benefited in the past, including those who have had the use of the underlying property at less than market rent. It would be relatively easy to add a subsection to the Government’s Amendment 15 to cover that, and it would not be difficult information for innocent parties to provide. Is this something which the Government could consider, even if it is in later regulation?
As a general theme, we should not be allowing overseas entities to register unless they are fully transparent. To be honest, the Government’s apparent reluctance to accept clauses which would improve that transparency is somewhat concerning. On that theme, I also wholeheartedly support Amendment 17. It seems rather pointless to have information on the overseas entity, if that still fails to show us who owns the property. I urge the Minister to look at that seriously.
My Lords, I shall speak in support of the noble Lord, Lord Clement-Jones, and his Amendment 17. I recognise that the Government have made big strides in the last few days to listen to the concerns which are so widely held. However, given all this effort, and given that the Bill has sat almost ready for four or five years, I feel that we could go further today and do the job properly.
There is no point in legislating for a Bill that leaves huge gaps for more anonymity. I am really sceptical about the need for endless anonymity. The people who strive to have anonymity do not always have it for the right motives. We need to recognise that. I said to the Minister before we came to the Chamber that we spend our lives being entirely reasonable in this country while trying to deal with very unreasonable people. Of course, we must stick to the law, but we need to have the levers in the law which enable us to tackle these bad actors. This is why, in my own slightly layman attempt with Amendment 23, I have tried to bring more focus on the promoters of these organisations. This is to ensure that there is much more responsibility taken by directors who promote organisations, and that they help to provide proper due diligence when working with the sorts of people they are busily defending anonymity for.
I thank the Minister for the way in which he has engaged with his officials to try to address some of the concerns which have been raised.
I will also pick up the point made by the noble Lord, Lord Vaux, about something which concerns all noble Lords about this Bill: it is going through on an emergency process because we face an emergency, yet not all of it concerns emergency legislation. Of course, the sanctions part is, but many of the other parts of the Bill about overseas entities have been on the stocks for years—as the noble Lord, Lord Agnew, said. Yet the Government have failed to act before now and it is only in the face of this emergency that they have done so. While that is to be welcomed, in some respects, it affects many of the things on which we would want to vote and would want to discuss in great detail, and many of the amendments which your Lordships have quite rightly brought forward which would improve the Bill. On the basis of not tying up this House or preventing this legislation from passing, in the face of the current national emergency, the Bill will go forward in a way which is not as good as it could be. I think that this is a feeling which is generally held across the House. It is certainly how we feel. Of course, we will support the Government in putting this legislation through—but that is not to say that we do not have very serious concerns about aspects of it.
Many noble Lords on Labour Benches and other Benches have raised these issues. Therefore, I very much agree with the noble Lord, Lord Vaux, that the Government need to recognise that the amendments being put forward—even though most, if not all, of them will be withdrawn—seek to do so from a position of needing to strengthen this Bill; it is about time we got hold of a problem which has been identified by many different reports over a number of years. As the noble Lords, Lord Agnew and Lord Clement-Jones, pointed out, transparency is everything. As we go through parts of this legislation and we see exemptions, and parts of the Bill where full disclosure is not to be statutory or guaranteed, one wonders whether it goes as far as it could.
The amendments tabled by the noble Lords, Lord Agnew of Oulton and Lord Clement-Jones, deal with related issues around nominees. We hope that the Minister can offer a full response to the points made by both noble Lords, because they are really important. A lay person reading this would be concerned about the fact that it provides a way to circumvent the regulations.
I thank the Minister for the clarification he made around government Amendments 45 and 47. I am sorry to detain noble Lords, but I briefly remind the House that this is a public document. What if you are not an accountant or someone trained in financial matters? This is the Government’s explanatory statement on government Amendment 45. The Minister has clarified it for me, but many people would think that there is something concerning about the amendment when it says:
“This amendment means that the required information about trusts will be unavailable for inspection on the public register.”
That is the Government’s only explanation of an amendment which they are passing. The Minister has just outlined this.
Similarly, government Amendment 46 states:
“This amendment excludes information about trusts from the definition of ‘protected’ date of birth and residential address information.”
I am sure that there are proper explanations for that. However, sometimes Governments need to be careful. I know the amendment was drafted in haste, but there must have been a better way of doing it.
I accept that there will be many valid reasons for excluding certain trusts from the public register—for example, if one has been established to benefit a child later in life. However, if we had proper time to debate this, an amendment surely could have been brought forward—I would have brought one forward—saying that the exemption could be tied to a specific criterion, rather than being drawn in such a general nature, as it has been. This is another example of the sorts of ways many of us would wish to see this legislation tightened.
We will not stand in the way of these amendments but, as we go forward, I hope that the Minister can give further thought to the very real concerns which have been raised by noble Lords.
I will just underline one point that the noble Lord, Lord Coaker, made. At Second Reading we got the impression that there was quite a limited list of items that were going to go into the second economic crime Bill. Can we have an assurance at this opening stage from the Minister that he will remain open-minded as to the shopping list of items—if I may use the phrase—which will need to be included, some of which may be revisiting what we have done today but others of which will be entirely new? Can he assure us that it is not a short shopping list?
I just make a very brief point to my noble friend. Because of migraine, I was unable to take part in Second Reading; I had to go home. I was going to make the point then that, if ever a Bill needed continuous post-legislative scrutiny, it is this one. Can my noble friend give an assurance that he will try to set up a special sort of post-legislative scrutiny to look continuously at how the Bill comes into force, what effect it has and where it fails?
First, I thank noble Lords for their comments. I do not disagree with the sentiments of a lot of what has been said. I say to the noble Lord, Lord Coaker, that I absolutely appreciate the points that he has made. This is a very complicated and technical area of law, and I assure noble Lords that we have gone into it in great detail. This morning, I met my noble friend Lord Wolfson, who is a trusts expert, to go through the provisions, and I have examined them closely with Treasury and BEIS officials.
We are doing this to close potential loopholes in trusts; the Government have no other agenda here. This is a difficult area. HMRC has recently established a trusts register for UK trusts, and we want to try to make sure that the same visibility exists for overseas trusts. If an overseas trust buys UK property, its interest is clearly covered and will need to be declared, but there is a potential problem with an overseas entity holding a property, and then that being owned by a trust. It is an attempt to control and close those particular loopholes in this complicated area of law, and what I totally accept are complicated amendments have been worked on at great pace to try to do that. So there is no difficulty and no difference between any of us in what we are trying to achieve with this legislation.
I also happily concede that we may not have got every last dot and comma absolutely accurate and right. One point that my noble friend made to me this morning was that we are if not the first then possibly the second in the world to attempt to do something like this, and it will be an iterative process—it is fair to accept that. A lot of international lawyers and others will be carefully studying this legislation and trying to find ways around it. I can certainly say that, if there are loopholes and if something is presented that we think needs closing, we will absolutely do that, if necessary, in the next Bill—although the full extent of the legislation may not be visible at that stage. But we are committed to doing this, providing that information and giving law enforcement the opportunity carefully to scrutinise many of these arrangements.
In particular, I give the assurance that the noble Lord, Lord Vaux, and possibly my noble friend Lord Cormack, were looking for: the further economic crime Bill, which the Government intend to introduce in the next Session, will be broad. We will, of course, carefully examine and consider any amendments proposed in either House that serve to strengthen our framework for tackling economic crime. I know from my long experience in this House that noble Lords will not be shy in coming forward where they can see improvements that could be made to legislation and where they identify any potential loopholes. There are some fine minds in this House and I am sure that they, along with some of our excellent officials, will turn their attention to doing just that.
I agree with the sentiments; there is no difference between us and what we want to try to achieve, and I am grateful in particular to the opposition parties’ Front Benches, with whom I have had extensive discussions, for their forbearance. I will happily concede that this is not necessarily emergency legislation; we have been trying to introduce this register for a while but until now it has not managed to get the prominence in the public sphere and sufficient priority in the legislative programme to allow it to be brought before this House. As the Minister responsible for it in the House and in my department, I am grateful that we have now managed finally to bring it forward. It will be a useful tool of transparency and of benefit to, first of all, the public, and then to the law enforcement community in attempting to target the small minority of overseas entities that hold property in the UK. Something like 59,000 overseas entities hold property, and the vast majority do so for perfectly legitimate, lawful and legal reasons—but within that there is, of course, a tiny minority we all want to target, and this is our transparency contribution to an attempt to do just that.
I move on to look at the amendments in detail. I thank the noble Lords, Lord Clement-Jones and Lord Fox, and my noble friend Lord Agnew, for their Amendment 17. I am grateful for the meeting that I was able to have with my noble friend Lord Agnew earlier to talk about this issue. As I said, I can see the good intent behind this amendment, but it would be ineffective as tabled—and I shall explain why.
It does not fit within the legislative scheme of the Bill. For example, the Bill provides five conditions for “beneficial owner” in Part 2 of Schedule 2. These five conditions, in general terms, relate to shareholdings, rights or control over legal entities, or other arrangements. Amendment 17 seeks to apply the term “beneficial owner” in the context of a qualifying estate—that is, the land itself—which would not work. Further, the amendment fails to empower overseas entities to obtain the information required which, for the most part, remains undefined.
To be clear, this Bill was designed specifically to capture the beneficial owners of overseas entities. This is because, if the land is held in the name of an overseas entity registered in a jurisdiction with poor levels of corporate transparency, law enforcement agencies here may struggle when investigating the affairs of someone of interest. If they cannot obtain information about the entity itself, they will almost certainly never be able to identify any ultimate economic beneficiary of the land. This register aims to ensure that investigators can find out about the overseas entity to further their investigations. There may be a wider policy debate to be had about capturing ultimate economic beneficiaries of land, but this register, focused as it is on overseas entities and not on land held by individuals or UK companies, would not be the appropriate vehicle.
The government amendments provide robust provisions to ensure that overseas entities provide information about beneficiaries, settlors and other persons who can appoint or remove trustees or have rights over the exercise of trustees’ functions, which some may refer to as protectors, where there is a trustee who is a registrable beneficial owner. These amendments go one step further and also apply where there are overseas arrangements with similar characteristics to a trust and those arrangements’ trustee equivalents are registrable beneficial owners.
The noble Lord, Lord Clement-Jones, suggested that nominees will be used to hide true beneficial owners of property. I point out to the noble Lord that there are regulation-making powers within the Bill allowing for amendments to prevent such abuse, if that is needed. I therefore hope that, with the information that I have provided, the noble Lord and his supporters will feel able not to press Amendment 17.
I turn to Amendments 1A, 22A and 29A, which seek to require a director who is acting as a nominee to provide a statement that they are satisfied by the legitimacy of the financial affairs of the beneficial owner and that the nominee will cease to act if information validating legitimacy is not forthcoming on a timely basis. I appreciate the intent of my noble friend Lord Agnew in tabling these amendments, and I understand that his intention is to further verify the legitimacy of the beneficial owner, to create an obligation for a nominee director to have regard to the financial affairs of those they are acting for, and to validate this legitimacy on a timely basis.
However, it must be noted that it will already be necessary for overseas entities to provide evidence of the verification of any information provided on beneficial owners before an application for registration, an update or an application for removal from the register is in fact made. The requirement for this is in Clause 16, which obliges the Secretary of State to make regulations to this effect. Additionally, it will be an offence to deliver, or cause to be delivered, any document to the registrar that is false, misleading or deceptive, or to make any statement that is misleading, false or deceptive. Any nominee director of an overseas entity acting on behalf of a beneficial owner would be obliged, on pain of criminal sanction, to file accurate information.
There are also safeguards set out in the legislation that make it clear that, if a nominee is being directed by someone else, such as the real beneficial owner, the person doing the directing is caught by Part 2 of Schedule 2—condition 4 under paragraph 6—and is, therefore, a registrable beneficial owner because they have significant influence and control over the entity. That is an important point.
Under this legislation, consistent with existing rules for UK companies, the person required to be registered is the one actually exercising a right, rather than the person who legally owns the right to exercise significant influence or control. That is an important catch-all legal phrase that we have inserted into the Bill.
Again, with the information and, hopefully, reassurances that I have been able to provide to the House, I hope that noble Lords will feel able not to press their amendments.
My Lords, I think that everybody in this House, as was the case last week, is on the same page, and we do not want to be seen to be arguing amongst ourselves until the early hours of the morning about something that is so significant. But can I ask the Minister if he and his colleagues in his department will keep a rolling review of this going, even if the gap between this legislation and the next piece of legislation is comparatively short? The last thing we would want is to see some oligarch on the front page of a national newspaper smirking that he or she had circumvented and found some way of actually getting around the will of Parliament and humiliating us. It would be seen, I think, as a failure of policy. I am sure that the Minister is very conscious of that, but it would be helpful if he could tell us that his department will monitor this on an ongoing basis, and not deal with this as a one-off and just leave it to the next piece of legislation.
My Lords, perhaps I could just add to what the noble Lord has just said. The Minister mentioned the regulations which are possible post the passing of the Bill. Will he undertake to review some of the points made during the passage of this Bill and consider whether or not regulations might be needed to fill certain gaps?
Indeed, I am happy to provide the reassurances that both noble Lords have asked for—in the case of the noble Lord, Lord Clement-Jones, in terms of the regulations, and in the case of the noble Lord, Lord Empey, that we see this as an iterative process. As I mentioned, this is fairly unique legislation in the world; we are aware of only one other country, possibly, that has attempted to do something similar. When we introduced the provisions on PSCs—persons with significant control—in relation to UK companies, we had to make some iterative changes to that, as it became evident over time that aspects were not working as effectively as we had hoped. I hope that we have thought of everything on this one, and I hope that we have all of the details correct, but a lot of it—some of it anyway—has been drafted in haste and it is possible that we will have missed one or two complicated international devices. But, the noble Lord can be assured that we will keep it regularly under review, and if there are—I hesitate to use the word “loopholes”, although it is probably appropriate—devices that clever lawyers, of which there are several in this House, find to get around the provisions, we will not hesitate to close them if we need to.
Amendment 1 withdrawn.
Amendment 1A not moved.
Amendment 2 not moved.
3: Clause 4, page 3, line 21, at end insert—
“(3A) The registrar may request further information to be provided in a timely manner where there appear to be material omissions or suspected false statements.(3B) An application may not be accepted unless the registrar is satisfied that any request for further information has been adequately addressed.”
I really want to carry on in a similar vein to earlier comments, and what my Amendment 3 is trying to do is to give more levers to government and enforcement agencies to force out information when we are worried that the information is not clear. My noble friend made the point that the Explanatory Notes say that this will be subject to regulations, but those regulations will be subject to a negative resolution. Could my noble friend confirm that we could be involved in the drafting of those regulations, rather than being faced with a fait accompli at the last minute, because I think there is a lot more to be done here? This perhaps plays to my noble friend’s point about the iterative improvements this Bill is going to need over the next few years, because it is fiendishly complicated.
The other piece to this jigsaw is the likelihood of prosecution of bad actors. Having been in business many years, I am afraid that the phrase that has often been offered to me when one is trying to get things done is “It’s the cost of doing business.” If the fines are so weak and the enforcement so inconsistent, it sends a message to those bad actors to continue, because—let us be realistic—is the NCA or Companies House, or any of these other people, going to take an action against a promoter in the British Virgin Islands for £10,000 of unpaid fees? It is just not going to happen, unless we are very clear that there is a mechanism for that to happen and that the fines very quickly get to a level that makes it worth while for litigators, acting on behalf of the taxpayer and the Government, to do that. I beg to move.
My Lords, I rise to speak to a number of amendments in my name in this group—there are eight of them—and I will be fairly brief.
First, Amendments 5 and 13 basically ask the beneficial owners and various other parties to provide their former names. In Part 4 of Schedule 1, the Bill requires managing officers who are managing the beneficial owner’s interest to provide their former names. But the same is somehow not required for registerable beneficial owners where they are persons other than individuals—which could be companies that are forever changing their names, or other parties. What I am seeking to do through Amendments 5 and 13 is to, as it were, align the various provisions in the Bill, and I hope that the Government will be agreeable to that.
Amendments 8, 12 and 14 require the beneficial owners, or their managing agents et cetera, to provide a list of any criminal convictions and sanctions against them. At the moment, the Bill does not ask for that kind of information, so it is perfectly possible for somebody to look at this proposed register of property ownership and not know that the ultimate beneficiaries have various convictions, which may well be abroad. It really exerts pressure on them to either come clean or to avoid the UK altogether—which perhaps would be more preferable. Again, it is a fairly straight forward suggestion asking the Government to act upon that.
The meatier part of my eight amendments relate to Amendments 18, 19 and 20, which take issue with the Government’s provision of the definition of registrable beneficial interest, generally taken to be 25% of the shares or voting rights, or somebody having significant influence or control. As it is now defined it is too wide. Indeed, the provision of any number is too wide. If you say it is 25%, it is not inconceivable that half a dozen people will get together and make sure that nobody gets to 25%. If you specify 20%, that will be exactly the same. So four, five or six drug traffickers can get together and own a fraction of a company, and through that they can invest their proceeds in a property. Under this kind of approach, none of them would be identified as a beneficial owner or count as a person of significant control, because they do not meet the thresholds specified in the Bill.
The Bill as presently drafted leaves open the possibility that companies holding UK property would continue to hide the identity of true owners by claiming that there was no beneficial owner. This is already a major problem at Companies House for the companies already registered in the UK. That has been identified by a number of whistleblowers and a number of leaks that we have had. However, rather than tackling the issue, the Government have imported these problems into the Bill, and it is quite likely that the Bill will not achieve its assumed objectives.
So I suggest that there should be no numerical specification of the beneficial interest definition; rather, any interest should be disclosable. It is not every day that ordinary individuals want to buy UK property through opaque offshore companies. They have a reason why they want to do this, so we must make sure that absolutely no door is open to them. By leaving this definition, the danger is that the Bill simply will not achieve its objectives. I therefore recommend my amendments to the Government in the hope that this will help to end the abuses.
My Lords, I support most of the amendments in the group, including the government amendments, which are generally very helpful.
I will speak to Amendment 24 in my name and to the similar Amendment 23, in the name of the noble Baroness, Lady Chapman, both of which are intended to address the possibility of there being a very long period between a change in the ownership of the entity and that change being reported in the annual update. I thank the noble Lord, Lord Cromwell, for his support in this. Amendment 23 would require an update to be filed within 14 days of when a person has become or has ceased to be a registrable beneficial owner. My Amendment 24 is slightly wider, requiring any changes in registered information to be reported within 14 days. However, both amendments seek to bring the overseas entity regime into line with the persons of significant control regime that UK companies must follow. To be honest, I would be content either way.
As the Bill is currently drafted, an overseas entity could register and then immediately change its beneficial ownership and we would not get to know about that for a full year, during which time any number of actions could take place, including the sale of the property to an innocent third party who unwittingly might find themselves enriching a criminal or someone subject to sanctions.
The Bill rightly puts restrictions on the disposition and registration of property, but it does nothing to deal with the more likely scenario of the overseas entity itself, or indeed an entity further up the ownership chain, being sold; indeed, this 12-month grace period almost wilfully ignores that. It seems rather perverse that the overseas entity regime should be more benign than the regime that applies to persons of significant control for UK companies.
In his helpful all-Peers letter of Friday, the Minister explained that the reason they have done it this way is to protect innocent third-party buyers from not being able to register the purchase of a property if the overseas entity turns out to be in breach of the requirement to report a change. That is obviously extremely important. However, a very simple solution is already built into the Bill. The overseas entity has the ability, under Clause 7(8), to shorten the update period and file an update immediately before it sells. Any innocent buyer would simply insist that this happens before the sale is completed, and that would deal with the problem that the Minister explained. Accordingly, I see no reason why one of Amendments 23 or 24 should not be accepted, so that overseas entities would have the same reporting requirements as UK companies have. The whole point of the overseas entity register is that we should know who beneficially owns UK properties. Allowing that information to be potentially up to 12 months out of date cannot make sense. I cannot think of any other corporate register that would allow such a long period to notify changes.
Given the urgency, I will not divide the House, but this is just another example of a matter that requires proper, unrushed discussion, and I hope the noble Lord is ready to have those discussions as we progress through the wider economic crime landscape.
I want to comment also on Amendment 53 in the name of the noble Lords, Lord Clement-Jones and Lord Fox, and the noble Baroness, Lady Chapman. At Second Reading, the issue of enablers and how to disincentivise them was raised multiple times. The Minister referred to the UK’s existing robust system of anti-money laundering regulations, but he went on to rather undermine that by saying that the Solicitors Regulation Authority had issued only 14 fines in 2021 and that the Institute of Chartered Accountants in England and Wales had cancelled the membership of only six firms—I remind the House that I am a member of the ICAEW. These are tiny numbers given the acknowledged size of the problem, and the fines are almost irrelevant, averaging just £11,600 for solicitors and just £3,000 for accountants. That is self-evidently not enough to disincentivise the enablers, which must explain at least in part why London has become known as the “London Laundromat” or “Londongrad”. Amendment 53 goes some way to deal with this by creating an express offence if a professional fails to disclose knowledge or suspicion of false or misleading information to the registrar.
While I strongly support that, I would go further and introduce an active requirement that a regulated professional must make a positive statement, added to the register, that they have carried out their due diligence and have satisfied themselves that the information about beneficial ownership is correct. As I explained at Second Reading, there is a world of difference between a duty to report suspicions and an active requirement to confirm the information. In the former, the professional remains unnamed. They are only on the hook if a problem later becomes public. So they may feel that the risk of turning a blind eye is quite low, especially set against the small fines that they would face, which I mentioned earlier. Their reputation is not affected unless they get caught, which happens rarely. The noble Lord, Lord Cromwell, alluded to this in his Second Reading speech when he referred to certain bankers who seem surprisingly willing to act for apparently high-risk clients.
Making a positive statement that they have verified the information, on the record, would publicly associate the professional with the information registered. That would seriously concentrate their minds both reputation-wise and legally—they would be putting their reputation clearly on the line. There could be no wriggling off the hook because they relied on someone else. Turning a blind eye would be an active decision rather than a low-risk, passive decision not to say anything.
I considered adding an amendment to this effect, but it can more easily be dealt with in the regulations to be issued under Clause 16, particularly subsection (2)(c). Given the desire to pass the Bill quickly, I decided not to submit an amendment. However, it is an important point and I would like to follow this up as part of those regulations. Would the Minister be willing to meet with me and perhaps others to discuss the matter further?
Finally, the noble Lord, Lord Sikka, has tried to add a number of information requirements, all of which are sensible. I hope that the Minister will actively consider those under the powers to regulate in Clause 4.
My Lords, I will make a couple of observations on the amendments put forward by my noble friends Lord Sikka and Lady Chapman, and the noble Lords, Lord Fox and Lord Agnew. These observations are based on my experience as chairman of the Jersey Financial Services Commission. The Bill as drafted is significantly weaker than the requirements for registration in Jersey. For example, on the point made by my noble friend Lord Sikka, under the Control of Borrowing (Jersey) Order, any interest can be required to be registered without one of these numerical levels.
Secondly, with respect to the amendment proposed by my noble friend Lady Chapman and others, in Jersey, the requirement is that a change of beneficial ownership be registered within 21 days. This 12-month period is really foolish. It provides an open door to misbehaviour.
I support my noble friends Lord Sikka and Lady Chapman and friends in the amendments they have put forward. We should be able to achieve at least the level of seriousness achieved in Jersey.
My Lords, there is clearly a great deal we can learn from Jersey and I am very happy to follow the noble Lord, Lord Eatwell.
I will speak to Amendment 24, to which I have added my name, and will also make a couple of comments on Amendment 53—there may be a slight sense of déjà vu, as my noble friend Lord Vaux has done the same.
In relation to Amendment 24, on page 3 of his very helpful all-Peers letter of 11 March, the Minister explains that Companies House would not know if a legal entity registered abroad was compliant with the 14-day rule. Likewise, this would not be visible to a third party, whereas that third party could be confident that, if an annual date had passed, the register would be up to date.
I am not convinced that that is so clear-cut or indeed helpful. This approach means that, for up to 12 months, an entity could keep hidden its change in ownership structure. Only at that point would it be in breach if it had not disclosed the change—or possibly multiple changes. Assuming—which may be a bold assumption given some of the entities—that the entity indeed complied with a 12-month date to reveal changes, this would still leave the third party in the dark for up to 12 months and the entity under no obligation to register the changes and having that as a defence. In short, it is possible for entities to game the system by carefully timing their changes. Twelve months, or even one month, can be a long time in business.
This also makes it possible for an entity to waste the time and resources of the acquirer and the regulatory and enforcement agencies if, for example, it becomes subject to sanctions based on its ownership but can claim, at a time to suit itself, that the affected owner or owners actually no longer own it. A 14-day limit greatly tightens the ability of both the registrar and any third party to see, at least in the case of compliant entities, any registered changes in as close to real time as is practicable.
Where entities are not compliant and fail to declare changes in this timely way, should this emerge in due course, it should give the third-party acquirer grounds for withdrawal and the authorities grounds for pursuit. This does leave an obligation on the registrar to ensure that entries are kept up to date, but that is a technological and resourcing issue perhaps better addressed in other amendments. For these reasons, I added my name to Amendment 24 and support it. I urge the Minister to rethink the 14-day requirement.
I shall now make a few comments on Amendment 53. In paragraph 4 on page 2 of the same letter, in relation to the purpose of the Bill, the Minister acknowledges that there will be those who seek to exploit opportunities to avoid it—he also referred to this earlier today. I raised at Second Reading the issue that there are enablers whose approach to reporting suspicions is light-touch or simply to turn a blind eye. I also advocated the idea put forward very eloquently by my noble friend Lord Vaux a few moments ago of having a named senior official on the hook. Simply saying that existing regulations cover this is to deny the evidence that there are entities and enablers in the area addressed by this Bill that have been skirting round existing regulations too easily by claiming ignorance or that suspicion was only mild. I think this may be more specifically reflected in the reference in paragraph 5 on page 5 of the Minister’s letter of 11 March, which says in relation to verification of information that:
“We expect that this will include a role for professionals regulated in the UK by the Money Laundering Regulations.”
This amendment, by including suspicion rather than certain knowledge, covers the loophole by which enablers can claim not to have had certain knowledge even if they should have had reasonable suspicion. This makes it considerably more difficult for enablers and others to look the other way and strengthens the hand of those seeking to hold them better to account. I support this amendment.
My Lords, I shall speak to Amendment 53. I thank the noble Lords, Lord Cromwell and Lord Vaux, for their support, although I understand that they would like to see this tweaked to go further. I also thank the noble Lord, Lord Eatwell, for his supportive comments.
The Bill needs to be comprehensively amended to close the loopholes that currently allow professional enablers to undermine the effectiveness of, and even circumvent, the checks aimed at detecting, disrupting and deterring economic crime. One of the key ways this can be done is by imposing a positive duty on professional enablers to disclose knowledge or reasonable suspicion that misleading, false or deceptive information has been provided to the registrar of overseas entities.
As I set out on Second Reading, professional enablers, such as lawyers, accountants and bankers, are the gatekeepers of economic crime and the Government need to adopt a comprehensive strategy towards them. Given the nature of their work, there is an inherently high risk that these professionals may unwittingly enable economic crime, but there are also enablers that specialise in services aimed at concealing the source of wealth or ownership so as to frustrate the objectives of the law.
This poses a particularly acute challenge in the context of the Bill’s attempt to tighten the checks around the beneficial ownership of property by overseas entities. The UK’s 2017 national risk assessment of money laundering and terrorist financing revealed that 50% of suspicious activity reports related to the legal sector in 2016 were linked to the property market, illustrating that real estate transactions are especially susceptible to money laundering.
As the noble Lord, Lord Vaux, very eloquently deconstructed, the Minister prayed in aid regulation by the Solicitors Regulation Authority and the Institute of Chartered Accountants in England and Wales on Second Reading. Does the Minister really believe that these regulators are the way to tackle these professional enablers? The current model for supervising professional enablers is fragmented and weak. In the legal and accountancy sectors alone, there are 22 different professional body supervisors, or PBSs. In its 2021 report, the Office for Professional Body Anti-Money Laundering Supervision found that the vast majority—some 81%—of these legal and accounting PBSs do not implement an effective risk-based approach to supervising their members as required by the money laundering regulations. Where is the evidence that they can do the kind of job needed to root out corrupt behaviour in sanctions avoidance or as envisaged by this Bill?
In summary, it is critical that the Bill addresses the heightened risk that professional enablers, particularly conveyancers and lawyers, will frustrate the objectives of the register of overseas entities. Beyond this modest amendment, urgent reform is needed—I hope it will take place in the second Bill—to ensure that there is effective, comprehensive supervision of professional enablers. This should be fully addressed when we come to the second economic crime Bill.
My Lords, I had not intended to speak today. I came to learn and listen to the experts on areas I do not know much about. But listening to the noble Lords, Lord Cromwell and Lord Clement-Jones, I am reminded of an example. I know this would not be classed as money laundering, but the well-known spiv, Aaron Banks, was responsible for what is, I think, the biggest political donation in British history—I think it was £8 million—during the Brexit referendum period. When it came to investigation by the Electoral Commission, which had the responsibility for doing this, he was not an unwitting enabler. His conclusion was, “We’re cleverer than the regulator.” The Minister does not want to be faced with that during the passage of this Bill and its actions, so he would be very wise to accept the spirit of some of these amendments.
I think it is obvious that the Minister will accept a lot of these amendments, because they are from people who are much cleverer than most of us in this Chamber.
I support most of the amendments—even all the government amendments, because they are quite helpful, particularly those that require the disclosure of whether any beneficial owners of property are subject to sanctions, and the strengthening of the criminal offences for false declarations. However, it is obvious from the speeches of other noble Lords that the Government are still falling short and that the Bill needs to be tougher. For example, Amendments 23, 24, 57 and 58 all need to be inserted into the Bill.
All beneficial interests should be registered, not just those acquired on or after 1 January 1999. That is a completely arbitrary date and should be removed. The Minister shakes his head; I guess he will argue that it is a very important date. I disagree.
This legislation is being rushed through as an emergency, but the Government are content to wait another year, following initial registration, before any changes in beneficial ownership take place. I cannot see the logic in that and I think most people will not either. It makes much more sense to update the register within 14 days of any changes.
My Lords, this is the first time I have spoken today. I will make a couple of points from the Front Bench that reflect on the other groups as we debate them.
We on these Benches share the hopes of the Government and, indeed, Her Majesty’s loyal Opposition to get this Bill on to the statute book as quickly as we can. For that to happen, the Government seem to be moving on a number of issues, which will be helpful. For our part, we have had to suspend the level of scrutiny that this Bill would normally attract. That has been difficult for us because, as we heard at Second Reading and have already heard in debate on the first group, much could be done to improve and extend the Bill.
As such, and as we have already heard from the noble Lords, Lord Vaux, Lord Cromwell, Lord Cormack and Lord Empey, there are a number of solid assurances that the Minister can give us—he hinted without necessarily assuring in his response to the previous group. We would appreciate an undertaking from the Minister that, when we return to this topic on the second part of this Bill, or ECB 2 as we now have to know it, there will be a frank assessment from the Government as to the operations of ECB 1, and a chance to debate and modify ECB 1 in the light of that frank assessment.
Further, the four planned elements of ECB 2 were set out by the noble Baroness, Lady Williams, at Second Reading. They indicate a fairly narrow—indeed, dangerously narrow—focus for that Bill. A commitment from the Government that they will enable that Bill to be broadened, and that some of the issues we have already heard and some more that we will hear later will be added to the curriculum of that Bill, will be very important.
This is a large group of amendments; noble Lords will be pleased to know that I will not take them one by one and summarise them all. There are a number of amendments from the Government, which we welcome, but I will briefly highlight Amendment 24 in the names of the noble Lord, Lord Vaux and Lord Cromwell. We have heard from them so I will not reiterate their speeches. We believe that this important issue is possible and do not see why it is not something the Government could easily incorporate in the current form of the Bill.
I will primarily speak on my noble friend Lord Clement-Jones’s Amendment 53, to which the noble Baroness, Lady Chapman, and I have added our names. We have heard today and at Second Reading that this is the issue that hits at the heart of the problem we face, and the scale of the infiltration of stolen wealth that has come into the United Kingdom. It is why the kleptocrats have been so comfortable here: they have been feather-bedded by a welcoming committee of enablers, anxious to claim new clients and get some of the money. For some so-called enablers—indeed, most of them—that temptation was outweighed by their moral and practical concerns. We should note that clearly. Unfortunately, for others, such as the sorts that the noble Lord, Lord Vaux, identified, the temptation has been too great. A significant minority of practitioners have taken the “ask no questions and tell me no lies” philosophy to doing business.
This amendment would really do no more than reinforce what should be happening already, but it restates it in a different way. Within each of these enabler services, there needs to be a senior partner or director who signs off on the due diligence and is accountable to the law for doing so.
In closing, I note a briefing from the Law Society that arrived in my inbox this morning. It expressed concern about this amendment. The pressure group said that the amendment appears to extend a duty of due diligence to all stages of client take-on and transactional/advisory work. Its concern was that it would
“create a significant burden on professional services such as law firms that would be difficult for them to meet”.
In other words, this due diligence would be too hard to do. That tells us that there is work to be done in this area.
My Lords, this is yet another group of amendments with contributions from across the Chamber that signifies some of the problems we have in fast-tracking this part of the Bill. Many noble Lords, including my noble friend Lord Sikka, have put forward sensible amendments that would improve the Bill, but we cannot accept them because we are in a rush to get it through. They are common-sense amendments. I take very much the point that the noble Lord, Lord Empey, made: if we are not careful we will have a situation where we pass the Bill and, in a week or a couple of months’ time, there will be an oligarch, a kleptocrat or whatever you want to call them—somebody living off dirty money—on the front pages of the papers parading themselves as having got round what the Government have only just passed.
Of course, that is the whole purpose of the amendments that so many noble Lords have put forward: to say to the Government that they have to address some of this. If they cannot address it in this Bill, which clearly they will not be able to do because it is emergency legislation—we all accept the crisis in front of us—let us have a cast-iron guarantee that the second economic crime Bill will come quickly to address these various issues and that we will be able to come back to them. Those are the reassurances that so many of us are looking for from the Government. I do not think that is too much to ask.
As my noble friend Lord Rooker pointed out, with his normal passionate use of the English language, we do not want a situation where people—I cannot remember who he referred to—parade around saying, “Look, we’re cleverer than the regulator.” That undermines democracy and Parliament. It undermines all of us. That is how serious it is when people flaunt their ability to circumvent the law. That is not in our interest, whatever the crisis we face. I know that the Minister would accept that.
I am grateful to all noble Lords who have tabled amendments in this group, which cover a variety of non-trust provisions relating to the register of overseas entities. I should give my noble friend Lady Chapman’s apologies. She cannot participate in proceedings for personal reasons, but she tabled Amendment 23, which, like Amendment 24 in the name of the noble Lord, Lord Vaux, seeks to accelerate the reporting of changes in beneficial ownership, for reasons ably supported by my noble friend Lord Eatwell. Again, this seems absolutely common sense; it does not seem to be a point of argument.
The Government are keen to stress that the vast majority of entities that apply to join the register will be entirely above board. We accept much of that. However, under the current provisions, a shell company could be registered under certain ownership on day 1, with new appointments to the board made on days 2 and 3, but it would be required to report that only 12 months later. That is clearly not acceptable or sensible. As my noble friends Lord Sikka and Lord Eatwell, the noble Lord, Lord Vaux, and others said, something should be done about that. The Government should see what changes they can make.
There are legitimate questions about enforcement, but do the Government agree that there should be a general principle that entities need to be proactive in reporting changes? The Minister should accept Amendment 23, or indeed Amendment 24, but if not, he should commit to giving this further thought as the Government begin to draft the next piece of legislation.
We are also sympathetic to other amendments in the group, including Amendment 3 from the noble Lord, Lord Agnew, and Amendment 53 from the noble Lord, Lord Clement-Jones, supported by my noble friend Lady Chapman and the noble Lord, Lord Fox, which tries to start to deal with enablers. On so-called enablers, it would be helpful to understand what steps, if any, the Government have taken since Russia invaded Ukraine. As this is an emergency piece of legislation, what emergency action have the Government taken with respect to enablers? There have long been stories of lawyers and estate agents who purposely avoid asking their clients probing questions because they know that the answers would preclude them from doing business with them. It is time to say, “Enough is enough and we will seek you out and do something about it.”
We know that some individuals have sought to urgently offload their UK-based interests and, if they are seeking to rush sales through, we would hope that estate agents and others were already querying the reasons for that. In addition to any steps that might have already been taken, what steps do the Government plan to take over the coming days and weeks to deal with that problem? This series of amendments asks various questions, but ultimately seeks to tighten up a Bill that is in all our interests.
First, I thank all noble Lords who have contributed to this debate. Before I address the amendments tabled, I reiterate the point I made earlier. This will be almost the first register of its kind in the world. We should accept that we are leading on this. I completely accept that we may not have everything perfect, but we will learn as we go—just as we did, in the example I cited, when we implemented the people with significant control requirements for domestic companies. We had to learn and iterate that, and now many other countries have followed our lead. That is a good thing. I re-emphasise that we will be perfectly willing to revisit these measures if it transpires that we have not got everything quite right.
I would be happy to debate with the noble Lord. When I queried this, my information was that Germany potentially has something similar, but nobody else. I am happy to exchange letters with him about numbers, but that is not the information I have.
Before I move on, perhaps I may correct something I said on the first grouping—which will teach me to pluck numbers from memory rather than consulting my notes. The correct figure is that there are 30,000 overseas entities registered in the UK owning approximately 95,000 properties. I think I may have said that the other way round. I slightly disagree with the noble Lord, Lord Sikka. The vast majority of those are perfectly legitimate entities. We are an open trading environment and welcome investment from all over the world. International companies owning headquarters in the UK do so perfectly legitimately. The vast majority of these entities are legitimate. A small minority are not, and they are the ones we seek to catch in this register, but we must be fair to the vast majority which are perfectly legal, above board and just seeking to use the UK to do business, which we encourage.
Let me also pick up the points made by the noble Baroness, Lady Jones. Although I am grateful that she is supporting the government amendments—I will write that down for posterity, because I am not sure it will happen again—we did not just pluck the dates of 1999 for England and Wales and 2014 for Scotland out of thin air. We did not just sit there and think what date we would make it retrospective to. Those were the dates of incorporation when that was required by the Land Registry, so it is appropriate to go back to them. Northern Ireland has never required this, so it is impossible to retrospectively apply the provisions there. I hope she will accept that we did not just make these dates up; they are put in place for a reason.
Moving on to the amendments, let me start with those tabled by my noble friend Lord Agnew and the noble Lord, Lord Sikka. These amendments broadly deal with additions to the required information that needs to be provided at the point of application in respect of beneficial owners and managing officers.
Amendment 3 in the name of my noble friend Lord Agnew would add to Clause 4 a provision to enable the registrar, on an application for registration, to request further information to be provided in a timely manner where there appear to be material omissions or suspected false statements. This amendment also provides that an application may not be accepted unless the registrar is satisfied that any request for further information has been adequately addressed. Amendments 5 and 13 would provide that registrable beneficial owners and managing officers also have to provide any former names. Amendments 8, 12 and 14 relate to information that should be provided by managing officers on sanctions that apply or any criminal convictions that are held.
Although I understand the motives for these amendments, it is fair to point out that a rigorous amount of information is already required for application, as outlined in Schedule 1. The register of overseas entities is itself designed to increase transparency. The information required on beneficial owners is closely based on the existing requirements for information required on people with significant control in the UK company regime.
Again, it is worth remembering that the majority of entities registering will be legitimate, and we have to balance the burden of this reporting for them with the benefits that the Bill will deliver. That is a balance that we have sought to strike throughout the development of the register.
I refer the Minister to an entity called Business Bank Italy Ltd. It was owned by a convicted Mafia person from Italy, who registered this bank here and it had a website inviting wealth management. At Companies House, there was absolutely no declaration of any criminal convictions. Previously, the same person registered as secretary and director of another company, where the same person provided information in Italian. When it was translated into English, it read, “My name is the Chicken Thief, my occupation is a fraudster”, and the address was “Street of 40 Thieves, town of Ali Baba in Italy.” There is no information on whether there was any criminal conviction or anything else. The Minister just said that there are robust checks at Companies House. Where are these robust checks? I could pick out that example. Companies House did not carry any out; neither did any government department. As he knows, I have been filing a lot of Written Questions of late drawing Ministers’ attention to all kinds of strange goings-on in companies. It seems to me that, by rejecting the idea that somebody has to provide their former names and a record of criminal convictions and sanctions, the Government are opening the door for these people to misbehave.
We are not opening the door. I assume that the companies the noble Lord is referring to are existing UK-registered companies; I know he has asked me a number of Written Questions about companies registered on the UK database, and I totally accept his point. He is pointing out an issue we are well aware of: that the existing UK companies register is a dumb register. The registrar is obliged under existing law to accept the information tabled to her. The noble Lord has raised a number of examples and tabled Written Questions to me about some patently ridiculous information that has been supplied. I get regular correspondence from noble Lords and from constituency Members of Parliament where false information is given and false companies registered at people’s addresses, unknown to them, and they then receive correspondence.
The difficulty at the moment is that the registrar does not have the legal power to query the information registered to her. If the noble Lord will be patient and wait for economic crime Bill part 2, which is coming, he will find that it will deal with this precise point. It will give the registrar the ability to query that information and provide that people must give identity details, passport information, et cetera, when they register. This is a massive change to the operation of Companies House—the biggest change for something like 170 years to the register database. It will give the registrar the power to query that information and people will have to provide evidence of their identity, addresses, et cetera. The noble Lord is right—there are a number of ridiculous examples—but we will deal with that. I am aware of it, and it will be in the next Bill.
In addition, information regarding designated persons who are listed on the UK sanctions list is already published for free via GOV.UK by colleagues in the Office of Financial Sanctions Implementation.
Finally, the verification mechanisms of the register, which will be provided for under Clause 16, will ensure as far as possible that the information provided is highly accurate. This register will provide vital information and in turn give enforcement agencies even greater information to take actions and carry out their own investigations. Therefore, on balance and taking into account the reasoning we have set out, we are unable to accept these amendments.
However, I am in agreement with the noble Lord on the particular importance of ensuring that there is clear information for users of the register about whether individuals identified as beneficial owners of the overseas entities are subject to UK sanctions. It is in the public interest for users of the register of overseas entities to be able easily to see whether a registrable beneficial owner is a designated person listed on the UK sanctions list.
The Government have therefore tabled their own Amendments 7, 9 and 11, which would mean that the required information about a registrable beneficial owner will include information about whether they are designated by virtue of the Sanctions and Anti-Money Laundering Act 2018. These three amendments would require overseas entities to confirm whether any of their registrable beneficial owners are designated persons listed on the UK sanctions list. It would be an offence not to do so. This information would be displayed publicly on the register. This will ensure that this information is then more easily accessible to the average user of the register. That fulfils a requirement raised by a number of noble Lords, and by Members of the other place when they debated this legislation. I hope that the noble Lord, Lord Sikka, will appreciate that these three amendments will deliver a good deal, if perhaps not all, of the intention of his amendments and those proposed in the other place.
I move on to Amendments 18, 19 and 20, also tabled by the noble Lord, Lord Sikka, which relate to the level of shareholding that would define a “beneficial owner”. His amendments seek to remove the 25% level altogether, to capture any person who holds any shares in the overseas entity in scope.
The 25% threshold contained in the Bill is in line with global norms with regards to beneficial ownership. The Financial Action Task Force, which sets global anti-money laundering and counterterrorist financing standards, has found that this threshold is acceptable as an example of how to determine beneficial ownership. As a result, 25%—or more than 25%—is used in many jurisdictions, such as in the US and in the European Union’s recent anti-money laundering directives. The 25% threshold also follows the UK’s PSC—person with significant control—regime, which similarly requires beneficial ownership information of UK-registered companies. When the PSC regime was in development—
I think it refers to rights of control—the actual percentage shareholding of the company—but if I am incorrect on that, I will certainly write to the noble Lord.
When the PSC regime was in development, significant analysis, including consultation, considered the question of thresholds. The threshold of more than 25% reflects the level of control a person needs in voting rights, under UK company law, to be able to block special resolutions of a company. It was considered that 25% represented the optimum opportunity to understand who is in a position to exert significant influence and control over a company. Collecting information on legal ownership below that threshold would be much less likely to do this. Removing the threshold altogether would have the effect of essentially creating a register of shareholders rather than a register of beneficial ownership, which—I hope noble Lords will agree—is not appropriate for the purposes of the Bill and the transparency involved in this register. Maybe the noble Lord, Lord Sikka, likes going through thousands of register entries, but I am not sure it would be helpful to most people.
For entirely legitimate entities, there could be hundreds or thousands of shareholders. For instance, think of a large foreign company that owns property in the UK. I am really not sure whether it would be tremendously helpful to have literally thousands of individual shareholders on the list of a property’s beneficial owners. For example, in the case of public limited companies with highly dispersed ownership, where shares can be bought and sold frequently and instantly, removing the 25% threshold would make the requirements of the register disproportionately difficult to comply with, as entities must first send a notice to those that they believe are their beneficial owners, and then allow time for potential beneficial owners to respond.
We are mindful of the risk that an individual wishing to disguise their beneficial ownership might, for example, deliberately reduce their shareholding. We have considered this, and so have made provision that means that anyone, regardless of their shareholding or voting rights, who exerts or has the right to exert significant influence or control over an entity is captured within the meaning of “beneficial owner”. This includes anyone who holds the right to appoint or remove a majority of the board’s directors. Perhaps that takes account of the point the noble Lord made earlier.
I am sorry that the noble Baroness, Lady Chapman, cannot be with us today. I thank her and other noble Lords for Amendments 23 and 24. In particular, I thank the noble Lord, Lord Vaux, for his engagement and for the points he has made. I am very happy to meet the noble Lord to discuss these matters further.
These amendments would require overseas entities to update the register not just annually but when there has been a change in beneficial ownership. I know this matter has been exercising a number of noble Lords. It was also raised in 2018, during pre-legislative scrutiny of the then draft registration of overseas entities Bill. At the time, the scrutiny committee accepted fully in its report that this requirement would be difficult to enforce without active investigation. This would also create great uncertainty for third parties transacting with the overseas entities. This is the key reason why we have adopted the 12-month threshold.
A change in beneficial ownership is not necessarily foreseeable and would not be knowable to any third parties, including Companies House, without detailed investigation. As I said, there are about 30,000 of these overseas entities. As such, a requirement for an overseas entity to update its information when there is such a change means that, at any point in time, it could be compliant one moment and then not compliant the next. Our problem is that we think this creates significant legal uncertainty for any third parties engaging with the entity and seeking to purchase the property from it.
Yes, but they would have to be tabling notices to any potential beneficial owners in order to update the register. We think that if we have a yearly update, any third party transacting with that entity would then have sufficient legal certainty to be able to proceed. The point is not that the entity might not register the change of ownership but that the third party, and indeed Companies House, have no way of knowing whether it has. Therefore, a third party could engage in a transaction thinking that the original entity is compliant and then discover afterwards that it has not updated its register and is non-compliant, and therefore potentially lose its money and be unable to proceed with the transaction because it cannot register the property. On balance, we think the better option is to have a yearly update cycle, but I realise that this is a point of debate and I am happy to discuss it further. I know that the noble Lord, Lord Vaux, is engaged in this.
The Minister has not addressed the point that this can easily be dealt with by bringing forward the annual update, which a company has the ability to do under—I think, from memory—Clause 7. If that were done as part of the property transaction, that solves the problem completely. Does the Minister disagree with that?
My Lords, on the same point, would it not be helpful for a third party to know who it is actually dealing with? Under the Minister’s proposal for 12 months, it could rely on the register and find out that it is dealing with someone it had not expected at all.
Indeed it would be helpful, and that is why we have the transparency of the register in the first place. Returning to the point made by the noble Lord, Lord Vaux, it would indeed be possible for them to update it, and it is of course perfectly possible that the advisers of the third party buying that property would wish to say to the entity that they wanted it to update the register in terms of formal ownership before they could advise their clients to proceed with the transaction, which is a point that the noble Lord made to me. That is different in terms of due diligence of the third party’s financial legal advisers, but in terms of the legal requirements, we think that it is best to leave it at 12 months. However, maybe we could have further discussions on this before we get to the second Bill.
To summarise, a change in beneficial ownership is not necessarily foreseeable and would not be knowable to any third parties, including Companies House, without detailed investigation. As such, a requirement for an overseas entity to update its information when there is such a change means that it could be compliant one moment and non-compliant the next, at any point in time. Our point is that this would create significant legal uncertainty for any third parties engaged with the entity.
I remind noble Lords that the key sanction for non-compliance with the new register—apart from the criminal penalties for non-compliance—which interferes with existing property rights is effectively to make it impossible for the buyer to then register title, if purchasing from a non-compliant entity. Of course, if they have transacted with an overseas company in a different jurisdiction, it might be very difficult for them to then take appropriate legal action to recover any sums that they have paid. This is not about providing a free “get out of jail” card for the overseas entity; it is genuinely about protecting the rights of third parties that wish to transact with them.
As the noble Lord, Lord Vaux, pointed out, the onus is on the buyer and their agents to ensure that they do not transact with a non-compliant entity. In order to protect the buyer, who is likely to be an innocent third party, it follows that there must be absolute legal certainty in every case as to whether the overseas entity doing the selling is compliant. An annual update with a transparent end date for the update period will give third parties transacting with the overseas entity the certainty that they need. The annual update already requires an overseas entity—
I do not wish to be argumentative with the Minister—well, perhaps I do—but can he confirm in respect of the third party buying the company that that company will be compliant even if, say, 11.5 months ago, they changed their ownership because they will not have had to register?
Yes, that provides the required legal certainty to the third party that is buying it, at the expense of, perhaps, a certain amount of transparency for that 11.5-month period. So, yes, I accept that.
The annual update already requires an overseas entity to provide information about its current beneficial owners, as well as any changes since its last update. This latter information was added as a result of the pre-legislative scrutiny of the Bill, providing a complete picture of an overseas entity’s beneficial owners. For these reasons we do not believe a change in the updating period is necessary or desirable, and I therefore encourage noble Lords not to press their amendments.
Turning to government Amendments 49, 50, 51 and 52, the Government have listened to the concerns raised about the need to deal effectively with anyone seeking to file false or misleading information or those who know or suspect that they may be filing false information, and we have taken on board those concerns. I thank all noble Lords who raised these concerns with me. They made the point that the evidential threshold to prove intent or recklessness is too high in the clauses as drafted. I have therefore tabled these government amendments to ensure that those who provide false or misleading information “without reasonable excuse”—in other words, a lower legal barrier—can be prosecuted and are subject on conviction to an unlimited fine. This will catch those who seek to facilitate and enable money launderers and the corrupt.
Furthermore, we have amended the threshold for what, under our amendments, constitutes an aggravated offence. This removes the reference to the word “recklessly”, which caused a lot of concern in the other place and to the noble Lord, Lord Fox, and others in this place. It also retains the potential for imprisonment and an unlimited fine if convicted of the aggravated offence of knowingly filing false, misleading or deceptive information. I hope this addresses the concerns.
I thank the noble Lord, Lord Clement-Jones, for Amendment 53, which would create a criminal offence of failing to disclose to the registrar certain information when a professional knows or suspects, or has reasonable grounds for knowing or suspecting, that misleading, false, or otherwise deceptive information was provided to them in their professional capacity. Again, I understand the noble Lord’s motive for proposing this new clause, but I hope that he will agree that his aims can be met by the existing provisions in the legislation regarding offences for the provision of false information, as developed in the way I have just set out by the Government’s amendments to lower the threshold needed for prosecution. We are confident that this will ensure that enforcement agencies have sufficient capacity to tackle those who seek to subvert the integrity of the register through the provision of misleading information.
I also take this opportunity to reassure the noble Lord—
My Lords, I am afraid I do not agree with the Minister; I am amazed that he thought that I would. The Government need a strategy to catch these enablers in the way that they currently operate. What strategy do the Government have? The Minister was just about to pass on to other things. He has prayed in aid the professional regulators, such as the SRA and the ICAEW, and he has more or less said that the legislation is absolutely fine: it will catch the enablers properly. But does the Government not need a proper strategy for dealing with enablers? They cannot gloss this over. Is the Minister prepared to look at this carefully before the next Bill?
Of course, we are constantly looking at these matters. The Treasury is implicitly engaged in pursuing crackdowns on the so-called enablers that the noble Lord has mentioned, and the anti-money laundering regulations exist. This register, which is a transparency measure, is designed to provide information to the public, HMRC and other law enforcement agencies that can then take the appropriate action under the other provisions. However—before the noble Lord, Lord Fox, gets up—I totally agree with the noble Lord that we need to look again at whether the anti-money laundering statutes are appropriate. It is not for this legislation, but I am sure it is something we will want to look at in detail before we get to the next Bill, because it is a complicated area of law. If we do not, I am sure the noble Lord will wish to table his amendments again then.
Each time the Minister speaks on this, I do not hear him acknowledge that there is a problem. In order for there to be a solution, there has to be an acknowledgement that there is a problem. So, does the Minister agree with me that there is a problem with unscrupulous enablers currently operating in the City and the United Kingdom? Unless the Minister agrees, I do not think that we can have much hope of a solution.
I am happy to agree with the noble Lord. If there is one firm of accountants or one legal practice that is turning a blind eye to these provisions, there is a problem with which we need to deal. Nobody wants to see that; we want to give the UK a reputation as the best place in the world to do business and to crack down on the small minority of the legal profession that are abusing their position and facilities—of course we would want to do that.
My Lords, I am sorry to interrupt the Minister and slow the proceedings but, on that point, the Minister began to move, gradually, towards thinking about the enablers, and mentioned anti-money laundering legislation. But it is wider than that: it is about sanctions, economic crime in general and the provisions of this Bill. Is the Minister prepared to undertake to look more broadly across the piece?
Yes. Obviously, a number of different government departments would be involved in doing this, but a number have been involved in putting the provisions into this Bill, and a number will be involved in the provisions of the next economic crime Bill. Of course, we want to take action against lawyers and accountants who abuse their positions to benefit some of these oligarchs and others. We have all seen the press reports and we all know the people that we are concerned about. I would not seek to defend them in the slightest, and I hope that we will be able to put the appropriate sanctions in place to deal with them.
Does my noble friend think it would be a good idea to set up a Committee of your Lordships’ House immediately after the Bill has gone on to the statute book, like these special Select Committees that are set up for specific purposes, so that you have a number of knowledgeable Members of your Lordships’ House, among whom I do not include myself, who will be able to provide expert examination of this Bill on a continuous basis?
The noble Lord often suggests setting up special Committees of this House. He will know that it is way above my pay grade to dictate to the House authorities what committees they wish to set up for examining particular Bills. I know from appearances that there are some extremely good and effective committees already in this House examining all parts of the Government’s legislative agenda and all departments—but, if the noble Lord can forgive me, I will not get into instructing the House authorities on what committees to set up to future scrutinise our work.
Relevant firms, including financial institutions, law firms, accountancy firms and estate agents, under the anti-money laundering framework, must inform Her Majesty’s Treasury as soon as practicable if they know, or have reasonable cause to suspect while carrying out their business, that they have encountered a person subject to financial sanctions, or a person who has committed a financial sanctions offence. They must state the information on which the knowledge or suspicion is based, and any information they hold about the person by which they can be identified. It is already an offence to fail to comply with this reporting obligation. I understand that the noble Lord does not think that the legislation is applied properly—perhaps we can look at that—but there is already an offence on the statute book.
Activity which seeks to evade these new beneficial ownership reporting obligations should be taken into account in the course of these firms taking a risk-based approach to anti-money laundering, and any suspicions of sanctions evasion should be reported in accordance with their legal obligations. I am pleased to say that Treasury Ministers will be writing to the anti-money-laundering supervisors of the relevant professional enablers on this matter, highlighting that the Government will be expecting everyone in these sectors to be particularly vigilant.
I hope that, with the reassurances that I have provided on this important issue, the noble Lord will feel able to withdraw his amendment.
The Minister was kind enough to offer to meet with me about my Amendment 24. I actually asked about meeting regarding the verification regulations in Clause 16. Is he prepared to do that, probably with others, as it is very important that these regulations get the input of all these highly intelligent people around the Committee before they are issues, rather than afterwards?
Amendment 3 withdrawn.
Clause 4 agreed.
Schedule 1: Applications: required information
Amendment 4 not moved.
Amendments 5 to 16 not moved.
Schedule 1 agreed.
Schedule 2: Registrable beneficial owners
Amendments 17 to 20 not moved.
Schedule 2 agreed.
Clauses 5 and 6 agreed.
Clause 7: Updating duty
Amendments 21 to 27 not moved.
Clause 7 agreed.
Clause 8 agreed.
Clause 9: Application for removal
Amendments 28 to 32 not moved.
I advise the Committee that if Amendment 33 is agreed to, I cannot call Amendment 34 by reason of pre-emption.
33: Clause 9, page 7, line 23, leave out sub-paragraph (i) and insert—
“(i) is entered, on or after 8 December 2014, as proprietor in the proprietorship section of the title sheet for a plot of land that is registered in the Land Register of Scotland,”Member’s explanatory statement
This amendment expands the scope of circumstances where an overseas entity is registered as the proprietor of a relevant interest in land for the purpose of Clause 9 (to include, for example, Keeper-induced registration) by removing the requirement for there to have been an application for registration.
My Lords, I start this grouping by speaking to the government amendments, which I have tabled. They are Amendments 33, 75 and 76; 35, 36 and 37; 63 and 77; 65, 66, 69, 70 and 72; 68 and 71; and 73 and 81. I hope that everybody is taking careful note, because there will be a check later.
These are technical amendments relating to land registration in Scotland, tidying up some of the drafting in the Bill. If it would be of assistance to noble Lords, I am happy to speak in more detail on any of these, but meanwhile, in the interests of time, I will move on to the more substantive government amendments in this group.
Amendments 73 and 74 make small but important technical changes to the Bill to ensure that Schedule 4 operates effectively in line with the land registration law of Scotland. These amendments add to existing provisions when an application must be rejected by Registers of Scotland because of the implications for who will be shown in the Land Register of Scotland as the owner of a plot of land. These amendments ensure consistency and clarity in setting out the circumstances in which a prescriptive claim application might result in a prescriptive claimant being provisionally entered as the owner of a plot in Scotland.
I am mindful that several noble Lords and Baronesses, including the noble Baroness, Lady Chapman of Darlington, and the noble Lords, Lord Fox and Lord Sikka, have tabled amendments to shorten the transition period proposed. To inform that debate, I thought it might be helpful to set out several government amendments that we hope will help to ease concerns about the length of the transition period for registering retrospective property ownership and the perceived risk of people moving illicit assets in the meantime—a concern that has been raised with me by several noble Lords.
Amendment 86 requires overseas entities when registering, who have disposed of certain land between 28 February 2022—the date that the Bill was published—and the date of their application to register, to submit a statement with their application setting out details of what has been sold and the beneficial ownership of the entity immediately before that transfer of title. The land in scope is that which otherwise would be caught by the transition period: that is, land that was registered after 1 January 1999 in England and Wales and after 8 December 2014 in Scotland. The noble Baroness, Lady Jones, now knows why we have selected those dates.
This is an anti-avoidance measure. It would mean that any overseas entity disposing of any of their property in the period from 28 February and the date of their application to register on the register of overseas entities must provide information about the entity’s beneficial ownership immediately before the disposal. They must provide that information by the end of the transition period. This will mean that law enforcement will therefore have access to a record of the beneficial ownership to aid the enforcement of historic cases, and the seller would no longer be able to avoid being under a legal duty to provide beneficial ownership information by disposing of a property in advance of registering—something that I know was a significant concern for many noble Lords. This new disclosure requirement should significantly strengthen law enforcement’s abilities to investigate and prosecute both buyer and seller, and all involved in the transaction, should the criminal law have been broken.
Crucially, it addresses the concerns that have been raised with me in both Houses that corrupt people must not be allowed to sell up and escape the transparency that the register will bring. It is my submission that this measure will be more effective than any further reduction in the transition period, which risks opening up the provisions of the register to legal challenge, something that would no doubt be exploited by those wishing to avoid it.
Amendments 55, 60, 64, 79 and 82 align the transitional periods under Schedules 3 and 4 with the period in the new clause inserted by Amendment 86.
Amendment 87 supplements Amendment 86 by making it an offence for certain overseas entities who do not apply for registration during the transitional period, and every officer in default, to fail to provide information equivalent to that required by Amendment 86. That means information about relevant dispositions in land made on or after 28 February 2022 and the end of the transitional period. In the case of continued contravention, an offence is also committed by every officer of the overseas entity who did not commit an offence in relation to the initial contravention. A person guilty of an offence is liable on summary conviction to a fine and a daily default fine of up to £2,500 a day in England and Wales.
Amendment 88 makes further supplementary provisions, including a power to make regulations in connection with the new clause inserted by Amendment 86.
Amendment 59 reflects the revised transitional period of six months. It requires the Chief Land Registrar to act as soon as reasonably practicable, and in any event before the end of the transitional period, to enter a restriction in relation to an estate in land owned by an overseas entity that became the registered proprietor of that estate following an application made before commencement of the Bill.
Amendments 66, 69, 70 and 72 are technical amendments relating to land registration in Scotland. In the interests of time, I propose to move on to other substantive amendments, but am more than happy to speak on these amendments in more detail if required. I beg to move.
My Lords, I apologise; I am not sure if it is my turn or someone else’s. I have four amendments in this group. I have listened carefully to what the Minister has said about Amendment 86. The real problem is that you can have an overseas entity that can be used to buy a property in the UK. When that property is sold, money is laundered, but before the six-month period is over the overseas entity is liquidated so there is no information of any kind to file. By giving anyone more than 14 days—this is a theme referred to earlier by the noble Lords, Lord Cromwell and Lord Vaux—the Government are inviting these kinds of cat-and-mouse games.
I recommend that no one should have more than 14 days. After all, that is what we give at the moment to UK companies to file information about persons with significant interest as per Part 21A of the Companies Act 2006, which says that the PSC’s details must first be recorded in the company’s internal register within 14 days of the change and Companies House must be notified within a further 14 days, which is the maximum permitted. So why are overseas entities to be given a longer period? We seem to be creating an opportunity here, a window, for these entities to misbehave, and at the end no declaration of any kind can be made. Fourteen days is not too demanding in the era of electronic filing. We must close all opportunities for anyone to circumvent the filing requirements and thereby get away with basically laundering their proceeds.
My second two amendments are Amendments 58 and 67, which, as has been referred to, are about the amnesty that is built into the Bill. The Bill grants amnesty from disclosures to those who acquired property in Scotland before 8 December 2014 and before 1 January 1999 in England and Wales. That is completely contrary to the Bill’s claim of adding transparency and providing no hiding place for dirty money. The amnesty will mean that large swathes of UK property are owned by overseas companies without any public knowledge of their true owners; people will simply not know who owns them.
I shall give some examples of Scottish property that is owned by anonymous offshore companies purchased before 8 December 2014 where people do not know who the true owners are: Strathfillan Forest, owned by Thar Enterprises in Jersey, registered at the Land Register in June 1999; Ardfin Estate, on the Isle of Jura, owned by Ardfin Lodge Ltd, again in Jersey, registered in November 2010; Glenogle Estate, owned by Glenogle Estate Ltd in the Isle of Man, registered in May 1999; most of Charlotte Square in Edinburgh, owned by Fordell Estates Ltd in the British Virgin Islands, registered in the Land Registry in 2010; Glenborrodale deer forest, owned by Luna Ltd in the Bahamas, registered at the Land Register in July 2000; and the Pitmain Estate, owned by Ranita Management SA in Panama. Even if these properties are acquired with clean money, people have a right to know who their neighbours are and who owns a large part of their locality. Are these people actually socially responsible? The Government are legally creating an amnesty, and that is really unacceptable.
This opacity is not just an issue in Scotland: it is an issue for the whole of the UK. Close to 250,000 residential properties in the UK are registered to individuals based overseas. UK property worth more than £170 billion is estimated to be held overseas, much of it anonymously. Last October, the Pandora papers leak revealed that Heads of Government, oligarchs, business tycoons, ruling families and Middle-Eastern monarchs were among the anonymous owners of at least £4 billion of property, held through offshore shell companies. When did they acquire that? We do not quite know: it might well have been before the dates specified in the Bill.
Some 6,000 properties in the Royal Borough of Kensington and Chelsea—which is the most unequal borough in the country—are thought to be owned by offshore companies. This pattern is repeated in Mayfair and Eaton Square, which is now home to 400 fake banks. Nobody knows who owns those properties. We are entitled to know, and therefore ask the questions.
This Government have not portrayed this as an amnesty—earlier, the Minister portrayed it as, “It was somehow administratively convenient”—but it is actually an amnesty. There is nothing else to it: the Government’s amnesty means that we will never know the true owners of these companies. Rather than adding transparency, the Government are adding opacity, and that is unacceptable. My amendment therefore seeks to remove that amnesty and make sure that all overseas owners with a beneficial interest in UK property—no matter where they are—are held to account and identified.
My Lords, it is a pleasure to follow my noble friend Lord Sikka, who again comes forward with a number of amendments that are common sense and seek to shine a light on what is actually going on, and would deliver the transparency that so many of us seek in the Bill. We come to the transition period and the retrospective application, which is the subject of one of the most important groups, if not the most important group, of amendments this evening. It relates to the speed at which the register is implemented, as well as new measures that will apply during a proposed six-month transition period.
My noble friend Lady Chapman, along with the noble Lord, Lord Fox—we are grateful for his support—tabled Amendments 56, 61, 80 and 83. They seek to accelerate the implementation of the register of overseas entities, requiring initial registration within 28 days of commencement—again, seeking to avoid a situation where individuals or entities simply circumvent the law. This is not just a view held by us: the ICAEW, an accountants’ body, in the briefing that it sent your Lordships, also supported three months as a new transition period, with the ability to extend it for a further three months, were there a need to do so.
It is also worth noting that the sanction provisions—Part 1 of the Bill—will not commence on Royal Assent. Rather, they will require a commencement order laid by the Secretary of State. We understand that various steps need to be taken before that order can be laid. Can the Minister indicate how many steps there might be and roughly how long that will take? Is the upcoming Prorogation of Parliament, for example, likely to delay the introduction of any of the enabling regulations? When the Government moved from 18 months to six months in the other place, that left many thinking that the register would be active before the year end. Could it not actually be longer, given the need to implement various IT changes, inform people of the new requirements and so on? The House requires some reassurance about the commencement: in other words, when do the six months actually start? It could be six months now before the six months start: that would be a year for the implementation period. That is of real concern to us all, given the concerns that there are about the six months; so while we welcome the measures outlined in government Amendments 86 and 87, they do not prevent land being sold, gifted or transferred, and neither do they further reduce the current six-month implementation window. As many noble Lords said at Second Reading, a register of overseas entities has been promised for a number of years, and we certainly do not want any further delay, but there are serious questions to be asked.
Along with the noble Baroness, Lady Kramer, we also tabled Amendment 92. This is an evolution of the David Davis amendment considered in the other place. We accept that one very high-profile person of interest was Roman Abramovich. He is now subject to sanctions, and he plans to leave Chelsea under whatever arrangements he manages to make—or not, given the sanctions on him. However, one of the concerns around his case was that the Home Office was actually studying his affairs, but had no powers to take interim action while that assessment was being carried out. Is there therefore not a great deal of merit in our amendment, which seeks to freeze assets on an interim basis where there is good reason for doing so? In other words, if we are looking to sanctioning somebody, surely we would want to freeze their assets to prevent them from getting rid of them before a full order is put in place. At the moment, as I understand it, that cannot happen. I am not sure that under the Bill it would able to take place either, without this amendment. The Government might wish to look at the interim freezing of assets.
It might be, for example, that a person of interest hails from Belarus, which continues to enable the actions of Russia’s armed forces. What can be done about that? Does the legislation cover people in that situation as well? Again, we pose these questions to be helpful to the Government and raise serious concerns. We want the initiatives to succeed, but it is only with scrutiny—and the Government reacting and responding to the scrutiny, and acting on the various amendments that noble Lords have put forward from across this House—that we can have confidence in them. There might be only a few bad individuals among the applicants to the new register but the truth is, as my noble friend Lord Sikka and others have said, that we simply will not know what the case is unless there is maximum transparency. That transparency cannot come quickly enough.
My Lords, my colleagues are doing all the heavy lifting from these Benches, and I am incredibly grateful to them. I have signed Amendment 92 in the name of the noble Lord, Lord Coaker, which I think found itself in drifting into the wrong group: it is actually part of group 3. One of the reasons why I signed it is this frustration, which I know the Government share, that, before a sanction is actually put in place, the individual who is likely to be sanctioned has, in a sense, plenty of warning signs and can use that opportunity to move various resources to a safe haven.
Much of the conversation around this Bill has been on fixed assets that are difficult to liquidate—property or complex companies—and I can understand why they might be less concerned about people knowing they are about to be sanctioned having the opportunity to move those. However, those same individuals tend to have very large investments in far more easily transportable assets—cash equivalents. I know that the Government are going to be looking at cryptocurrencies, which I have been very concerned about, when they get to the second phase of this Bill. It would, however, also be wrong to ignore such assets as jewellery and art. That is not just a tale from an Agatha Christie novel. I was a banker for many years in the mid-west, and most of my clients were exemplary people, but we certainly had one scoundrel who made the slight mistake of trying to impress a very charming young woman with an English accent and, as a consequence and with the aid of specialists, I was able to seize something worth close to half a billion dollars in artwork and jewellery against an attempt to defraud the bank. I ask therefore that the Minister think about these liquid assets, which play a part of the picture, but have been very little part of the discussion.
I think that is a story for the noble Baroness’s memoirs, and I look forward to reading it.
There are lots of good amendments in this group but I want to speak to Amendments 56, 57, 61 and 62 about the implementation period. For me, the six-month implementation period makes absolutely no sense. We are trying to rush this through—we here are going to sit until I do not know what time tonight or tomorrow morning to make this emergency legislation happen, but we are still giving people six months to do this. The Government are taking so long that activists are going into oligarchs’ mansions and seizing them in London and Paris to house refugees, if we ever get any refugees here. I cannot blame this Government for the Paris seizure, but it suggests that people are getting very tired of the fact that they are being so slow about this. Why would anyone need six months? If they have been honest about paying their taxes, declaring profits and detailing the origin of their money, why do they need six months? Surely, any decent accountant—I am sure that there are several in your Lordships’ House—could sort this out within 14 days or, at the worst, 28 days. I think there is no reason for the Government not to support one of these two pairs of amendments that shorten the implementation period.
My Lords, I shall speak about Amendment 92 in the names of the noble Lord, Lord Coaker, and the noble Baroness, Lady Kramer, which would introduce a new clause headed:
“Asset freezing in respect of individuals considered for sanctions”.
Before I address that amendment, I need to give a fuller description of my interests—or, more accurately, my non-interests—than I would normally give. The reason for that is because in the House of Commons last week during the Second Reading debate on this Bill, Mr Matt Hancock complained that the 2018 Act contained amendments that
“came from those who are acting for oligarchs and then legislating for loopholes.”—[Official Report, Commons, 7/3/22; col. 31.]
The Home Secretary responded that she “wholeheartedly” agreed with Mr Hancock.
The position is this: with the noble and learned Lord, Lord Judge, who I see is in his place, I tabled amendments to what became the 2018 Act. They were designed to ensure a fair procedure and compliance with the rule of law. On Report, on 15 January 2018, the Government brought forward at column 442 amendments of their own on these subjects which were supported by me and, much more importantly, by the Labour and Liberal Democrat Front Benches. The House of Commons was content with the provisions approved by your Lordships’ House.
It is correct that in 2017 and 2018 I did not mention that I have advised and represented one client on sanctions matters in the last 10 years. I mention it today for the avoidance of any doubt. It was President Putin’s close associate Arkady Rotenberg. I represented him in 2014 and 2015 in the Court of Appeal on a sanctions issue in family law proceedings. I also advised him in relation to his claim in the General Court of the EU in mid-2015 challenging the sanctions against him, although I did not represent him at the hearing of his case in Luxembourg in 2016.
Of course, I did not put forward amendments to the sanctions Bill in late 2017 and early 2018 to legislate for loopholes. I put forward amendments with the noble and learned Lord, Lord Judge, as I have done on so many other Bills, because I am concerned about the width of ministerial powers and the need for fair procedures.
I did not refer to the Rotenberg case in 2017 and early 2018 because the Guide to the Code of Conduct, even in the latest version, makes clear at paragraph 111 that:
“Declarable interests are usually current interests … Former interests may exceptionally be declarable”.
I took the view—I hope correctly—that there was and is no exceptional reason to refer to the Rotenberg matter. First, I had done no work for Mr Rotenberg for over two years and secondly, as the Minister, the noble Lord, Lord Ahmad of Wimbledon, said at Second Reading, the Bill was
“about powers and not policy”.—[Official Report, 1/11/17; col. 1374.]
He described it as “a technical Bill” to create a legal framework for a domestic sanctions regime after we left the EU. In his closing speech at Second Reading, the Minister said that
“it is a Bill based on principle”.—[Official Report, 1/11/17; col. 1420.]
I also did not think, and do not think, that I need exceptionally to refer to a past case because of the role of a barrister. I advise people on the law and argue their case in court, whoever they are and whether I agree with them or find them or their views or their conduct objectionable or, indeed, reprehensible. It is my professional duty under the Bar code of conduct. To quote from the code of conduct, a barrister cannot refuse to represent a potential client
“on the ground that the nature of the case is objectionable”
“on the ground that the conduct, opinions or beliefs of the prospective client are unacceptable to him or to any section of the public”.
The code of conduct adds that any such discrimination is
“inherently inconsistent with your role in upholding access to justice and the rule of law”.
I am quoting from the Bar Standards Board Code of Conduct, rules C28 and C29.d and the guidance at gC88.
The fact that I advised and acted in 2014 and 2015 for Arkady Rotenberg certainly does not mean that I support his conduct, sympathise with him, or would wish to change the law to promote his interests or those of other friends and associates of Putin. Indeed, I have also acted in the last 10 years for Mikhail Khodorkovsky, a prominent opponent of Putin who, for that very reason, spent many years in prison in Siberia. I represented him and his business partner in the European Court of Human Rights in a series of cases which established that they had not received a fair trial.
I am grateful to noble Lords for giving me the opportunity to explain the position. I very much care about the opinion of noble Lords and my reputation in this House. I have no declarable interests and I did not have any in 2017 and 2018
I turn to Amendment 92. I can understand that the 2018 Act needs revision in the light of President Putin’s appalling behaviour. I can understand concern at the slow pace at which the Government have proceeded to sanction individuals. I do not accept that the contents of the 2018 Act explain that slow pace. The EU has acted much more speedily even though it has a general requirement that sanctions, like any other administrative action, must satisfy a test of proportionality and comply with the European Convention on Human Rights. The real impediment to speedy action here—it is the subject of Amendment 92—is the lack of sufficient officials to address the cases.
In my opinion, Amendment 92 is unnecessary. Clause 53 introduces a new urgent procedure to designate anyone who has been sanctioned by the EU, the USA or our other allies and I do not understand or accept why another urgent procedure is required, especially one that will impose very substantial restrictions on individuals merely because, to quote Amendment 92, a person
“is being considered as a subject for sanctions.”
That would be an enormously broad discretionary power for the Secretary of State in circumstances where he or she does not currently have a proper basis for making a designation.
The power would be draconian indeed. Simply because the person is being considered for sanctions, they would, under proposed new subsection (3), only be allowed on pain of criminal penalty to spend money to meet “basic needs”, which are confined to ensuring
“that they and … family members are not imperilled.”
This could go on for six months, until the Secretary of State decides, as may be the case, that there is no basis for designating such a person.
As the noble and learned Lord, Lord Hope of Craighead, said in paragraph four of his Supreme Court judgment in HM Treasury v Ahmed in 2010, to freeze the assets of people makes them
“effectively prisoners of the state”.
The noble and learned Lord added that designation orders are
“intrusive to a high degree”.
There are, of course, cases where designation orders are appropriate and we have seen many of them in the last weeks, particularly in the last few days. But I do not accept that it is appropriate or necessary for Ministers to have a power to freeze someone’s funds simply because they are being “considered” for sanctions. That would be an unacceptably broad power which would be quite impossible to reconcile with the rule of law.
It did indeed, and I am glad that the noble Lord has had the opportunity to speak.
Once again, we have a huge number of varied amendments lumped into the same group, which I think is a side-effect of the process we are travelling through. I am going to focus on two themes. I am not going to interpose myself between lawyers on the subject of Amendment 92, but I look forward to the Minister’s response to the comments of the noble Lord, Lord Coaker, and my noble friend Lady Kramer.
I will turn to Amendments 56, 61, 80 and 83 in the name of the noble Baroness, Lady Chapman, and signed by myself. I will be brief because I do not think we have to speak for very long on this. The noble Lord, Lord Coaker, has been eloquent in this vein already in the unfortunate absence of the noble Baroness, Lady Chapman.
During Second Reading we heard a chorus of disapproval on the six-month transition period, and there is a good reason for that. The noble Lord, Lord Coaker, was clear on those reasons, as were other speakers, including the noble Baroness, Lady Jones, and the noble Lord, Lord Sikka. We have to focus on what the Government are seeking to achieve and how they are going to achieve it. While that number is very important, the second number, introduced by the noble Lord, Lord Coaker, may be even more important, and it is the one covered by Amendment 97 in my name. It seeks to bring commencement forward to the First Reading of this Bill in the Commons. When I tabled that amendment, I was thinking of the National Security and Investment Act, which did just that.
In one of the meetings that the Minister kindly invited me to, he set out a number of reasons why that commencement date is, in Government’s view, not popular. The longer the Minister’s explanations were, the more alarmed I became, because it is clear now that the commencement date is subject to the pace of the slowest moving IT project. That is a matter of great concern, and certainly should be to your Lordships’ House.
In looking at the six-month transition period, we cannot isolate it from the commencement period, as the noble Lord, Lord Coaker, wisely stated. What the Minister has to think about and convince your Lordships of is how these two times work together. Can they be concurrent? Indeed, can commencement start without the whole system being in place? In other words, can there be some flexibility in how parts of the Bill come in? That would be controlled through statutory instruments, which the Government have control over.
Commencement is one thing, statutory instruments are another and the transition period is a third. They all add up to either a long time or a medium amount of time. The Minister needs to explain the formula the Government have in mind, because at the moment it seems to be a blank number. We do not really know when the terms of this Bill will be in place.
I am mindful that several noble Lords, including the noble Baroness, Lady Chapman of Darlington, and the noble Lords, Lord Fox and Lord Sikka, have tabled a number of amendments in this group. I will start with Amendment 34 in the name of the noble Lord, Lord Foulkes, who I see is not in his place. I will speak to it alongside Amendments 58 and 67 tabled by the noble Lord, Lord Sikka, as they cover the same subject of retrospectivity and the subject the noble Baroness, Lady Jones, raised earlier.
These amendments seek to extend the scope of the definition of overseas entities registered as the proprietor of a relevant interest in land by removing the registration dates currently stated in the Bill. This has obviously been an area of interest in both Houses. The Government, of course, agree that the register should be as comprehensive as possible. However, there is no benefit to be gained from removing the dates as suggested, as I explained to the noble Baroness, Lady Jones, earlier. Doing so would instead create legal uncertainty. Due to the way information was collected prior to those dates, the land registries would have no way of reliably and consistently identifying properties owned by overseas entities and those that are not. It was not compulsory in England and Wales, for example, to register the jurisdiction of ownership before 1 January 1999. As such, the Land Registry would have this information only where the overseas entity had voluntarily supplied the information itself.
The amendment would result in inconsistent application, as the information needed to enter restrictions on disposition on to relevant titles is not readily available before these dates. They were not just dreamt up arbitrarily; these dates are put in for good reason. The result of removing the reference to the registration dates would be that only those entities that could be identified as being overseas entities could be brought properly into scope. Others that could not be so identified would not be.
This situation would also introduce significant uncertainty for buyers. There would be no way of providing absolute legal certainty as to whether an entity should or should not be in scope for those properties registered before 1999 in England and Wales, and before 2014 in Scotland. Third parties who were in the process of or considering purchasing a piece of land in the UK registered before those dates could not be sure whether they were engaging with an overseas entity that was in scope of the Bill, and which could become non-compliant at any time. The existing clauses are therefore essential for the register to be effective and operable, and to provide certainty as to which overseas entities are actually in scope of the requirement to register once the register goes live.
Finally, I remind the House that the agents who support property transactions are, as we have said earlier, all covered by the provisions of the anti-money laundering regulations. If there are properties with titles held by overseas entities going back further in time, when those entities next come to sell or lease those properties, the agents involved will be obliged to conduct appropriate checks for money laundering.
I turn now to Amendments 56, 57, 61, 62, 80 and 83 on the transition period. I thank the noble Baroness, Lady Chapman, and the noble Lords, Lord Fox and Lord Sikka, for their amendments to shorten the transition period as proposed. Of course, as the noble Lord, Lord Fox, has just said, I am aware that speed of implementation of the register and of the transition period has been the focus of much debate in both Houses so far. The Government have already reduced the transition period from the initially proposed 18 months to six months.
I have also tabled amendments, which I have just spoken to, to further ensure that there is no gap in coverage of overseas entities selling their property now. These amendments will require overseas entity sellers to declare beneficial ownership and provide information to Companies House if they sell at any time from 28 February this year, when the Bill was first published, up to the end of the transition period. I hope that this will alleviate concerns that criminals who are currently selling their property can get off scot-free.
This will be more effective than any further reduction in the transition period; first, because the shorter the transition period, the greater the risk that the provisions of the register might be challengeable under the European Convention on Human Rights, especially the right to enjoyment of property. Property owners who do not comply in time will have their property rights affected; that is quite a severe sanction and it is retrospective. The Government do not interfere with individuals’ rights lightly and this interference could not have been reasonably expected when rights over the properties within scope of the register were first acquired. This is a serious point. No doubt, those who wish to avoid these requirements and who are able to afford expensive legal teams will take advantage of any opportunity to do so. The legal risks are heightened because limitations in Land Registry data will not allow us to write in advance to all affected by the new requirements. Therefore, it is essential for legal reasons that we give owners reasonable time to register.
Secondly, in considering a shorter transition period, it is important to remember that the majority of properties held via overseas entities will be owned by entirely law-abiding businesses and people; this is a point that I have made a number of times. As I said earlier, we are talking about around 95,000 properties in England and Wales owned by some 30,000 overseas entities. Only a tiny fraction of these are likely to be held by criminal or corrupt interests. Many of the ultimate owners will be law-abiding British companies who have adopted these structures for legitimate commercial reasons. In some cases, complex chains of ownership may make it difficult to identify the beneficial owners if the timeframe given is too short. It is not the case that the managing officers of the entity itself will necessarily know, and they will need time to take legal advice and make any necessary enquiries. Others in scope of the new requirements will be British nationals who have adopted the arrangements for legitimate reasons of privacy; for instance, celebrities who do not want their addresses to be known publicly. These individuals may want to apply to Companies House for their personal details to be protected from public view on the new register, but the threshold for exemption from the public register will be high, and it is right that individuals have time to seek advice on their options and how to make a case to the registrar.
To conclude, any legal challenge, whether brought by someone deliberately seeking to evade it or by a law-abiding organisation or individual unhappy with the time they have been given to comply, could jeopardise the implementation of the entire register. A balance must be struck between ensuring that there is no place to hide for corrupt elites and kleptocrats and allowing for the free enjoyment of property and maintaining the UK’s reputation as a stable investment environment. The six-month transition period, along with our proposed amendment to require sellers to declare beneficial ownership for disposals now, achieves this purpose. We believe that the register will have an immediate dissuasive effect and sends a strong message that the UK will not be a home for illicit wealth. However, implementation of this register is not essential to the UK placing effective sanctions on Russian nationals now. Other measures in this Bill will help us to do that.
The new register should be seen as a longer-term measure to help us to clean up our property market and will be a key tool for the NCA as it deploys more unexplained wealth orders in future. We have included it within this Bill as a message of intent, alongside measures that will have more immediate impact. I am acutely aware of the strength of feeling that this register is overdue and must be implemented as swiftly as possible. I can assure noble Lords that I share this wish. Companies House is readying a team right now and will move forward as soon as this Bill achieves Royal Assent. I also remind the House that what we collectively want to achieve is not just speedy but effective implementation. The six-month transition period, coupled with the new requirement to report disposals to Companies House where these have occurred since the publication of this Bill, will achieve this aim. I therefore hope that, in the light of that information, noble Lords will not press their amendments and that government amendments will be supported. I shall withdraw the government amendments now, but retable them on Report.
I move on to Amendment 97, tabled the noble Lord, Lord Fox. I am sure that the House can be in no doubt about the Government’s appetite to bring the register of overseas entities into force as quickly as possible. I can assure the House, as the Minister responsible, of my personal commitment to bringing the register into operation as quickly as possible. I commend the noble Lord’s enthusiasm to expedite it further, but I am afraid that I cannot agree to this amendment, because I do not believe that it would have the desired effect.
It is clear that compliance with Part 1 of the Bill cannot be achieved overnight, hence the need for there to be a transitional period within which overseas entities can take the necessary steps in that regard. Backdating the commencement of Part 1 to 1 March 2022 would defeat the point of the necessary transitional period. It is also important that industry has time to understand the changes to the new sanctions legal test and that we are able to engage on guidance before it comes into force. While the end of the Part 1 transition period will be the key date for compliance, Members can draw reassurance from the fact that the requirements of the register clauses, in terms of information to be provided by overseas entities, encompass acquisitions of property and land that long predate the First Reading of this Bill, in some cases by decades. I therefore hope that the noble Lord will not press his amendment.
I thank my noble friend Lord Agnew for his Amendments 62A, 76A and 84A. These seek to prevent an overseas entity that makes a registrable disposition of property valued over £1 million during the transition period from accessing or removing the proceeds of their disposition from the UK for a period of six months. It would require that the money is held in a UK stakeholder account for that amount of time. I understand the spirit of this amendment, which is aimed at preventing the criminal minority from selling up and taking their assets out of the UK in the short term. However, I have already explained to the noble Lord personally, and to the House, how the transition period is in place to allow owners of property, who in the vast majority of cases are entirely law-abiding, to register or dispose of property before the registration becomes obligatory, and any restrictions on their property come into effect.
This amendment would have a disproportionate impact on legitimate owners and would also be difficult to justify in relation to interference with property rights. I have no doubt that those malingering entities that wish to avoid the requirements of the register and can afford expensive legal teams will take advantage of the legal risk that this poses. I have already tabled amendments to require overseas entities sellers to declare beneficial ownership and provide information to Companies House, if they sell at any time from 28 February this year up to the end of the transitional period. This is an appropriate and proportionate anti-avoidance measure imposed on those overseas entities selling properties before the end of the transitional period, ensuring that law enforcement will have the right information to pursue any subsequent investigation, if appropriate.
If a property has already been identified as belonging to a sanctioned person, there will already be a freeze on that asset. If it has not been so identified, but it later transpires that anyone involved in the transaction knew that they were or might be dealing with an asset linked with a sanctioned individual, all those involved in the transaction will have committed an offence and can be pursued by law enforcement.
In addition, my noble friend’s amendments as drafted are likely to cause legal uncertainty. The term “registrable disposition” carries legal significance in England, Wales and Northern Ireland but has no directly corresponding concept in Scotland. The amendment as drafted would therefore introduce a great deal of legal uncertainty in Scotland and may fail to achieve the desired legal effect. Also, the term “stakeholder account” is undefined by these amendments. While the intent could potentially be understood by the drafting that the account would belong to, say, a solicitor, I am afraid that there would be a great deal of legal uncertainty as to what qualifies as a stakeholder account. For these reasons, I hope my noble friend will understand that the Government cannot support these amendments.
Moving on to the fabled Amendment 92—
I am very grateful to the noble Lord for giving way. He talks, understandably, about a transition period and the need for everybody to adjust to the new provisions. However, while Ukraine may have come as a surprise, the existence, or likely existence, of this register cannot fall into that category. I am sure the noble Lord would agree with me that anybody who had owned property would have had years to prepare themselves since it was first mentioned in 2016. It was mentioned in the Criminal Finances Act and again in the Sanctions and Anti-Money Laundering Act. Why is there so much need for further transition, when anybody would have been aware of these provisions?
The noble Lord will know from his time in Government that the law officers provide confidential legal advice to Ministers. I can only say to him that I am personally satisfied that this six-month period is appropriate. We are taking a severe step with this legislation; we are retrospectively interfering with property rights. Whether the legislation has been flagged in advance—I think David Cameron first promised it in 2015—does not, as I understand it, alter the legal case that somebody who wished to purchase expensive legal help to challenge the legislation would be able to do so under the Human Rights Act. I can do no more than assure the noble Lord that the officials and I are acting under the legal advice that we have received about the appropriate period. I can assure him that I wish to bring this in as quickly as I can. He will be aware that the Government originally proposed a period of 18 months. Following fairly significant political pressure, we have taken further advice and have managed to reduce it to six months. I am seriously concerned that, if we reduced it further, we could be subject to legal challenge. I am happy to speak to him outside the House.
My Lords, I assume that the noble Lord, Lord Faulks, has had the answer he required. To come back to implementation and commencement, it is not clear what the trigger for commencement would be. Can the Minister be clear on what the trigger for commencement will be and, having stated that, can he perhaps undertake to maintain a dialogue with your Lordships’ House on how reaching that trigger is getting along and when we might expect the commencement of this Bill?
I totally understand the point the noble Lord is making. I cannot give him a precise date; all I can say is that I am keen to commence this legislation as quickly as possible, but there are number of steps that we need to take. We need to publish and implement a number of statutory instruments on the back of this. Companies House needs to put the systems in place; it has already been given the funding for that. The computer systems need to be set up and the register needs to be activated. I am very happy to maintain a dialogue and keep the House informed, but the ultimate answer to the question of when the legislation will be commenced is: as soon as we possibly can.
It is a number of different things. There are administrative procedures to be put in place; the IT system is of course important—I am hesitant to give assurances on when a government IT system might operate. It is not a hugely complicated system, but it needs to be done and to be put in place. Of course, we also need to go on to the next step, namely the economic crime Bill which will follow this one and will give Companies House the right to query the information that has been provided, as I outlined to noble Lords earlier. However, I am very happy to keep the House informed as to commencement dates. I am sure a lot of people will be writing to me about it and will be using the devices of the House to table Questions to ensure that my feet are held to the fire on this one.
I am sorry, but I had not quite got an answer. I absolutely appreciate the Minister’s sincerity in wanting to get this register ready. My point was that the transition would come as no surprise. His answer—as I understood it—was that the Government are concerned about possible legal action, which is not quite the same thing, because I think he is talking about a possible challenge under Article 1 of Protocol 1 to the European convention. I respectfully suggest to him that lawyers are being extremely cautious about this because, in the circumstances, it would be quite a brave court that would decide that the time allowed for transition was so short that they would be allowed to retain possessions.
I thank the noble Lord for his legal advice; I should not let my prejudices against lawyers get in the way here, but no doubt there are others who one might want to employ who might give a different opinion. All I can say is that we are acting under the advice that we have received. I am told that while people may have had an idea in advance that we would be introduce such legislation, the fact of Parliament actually passing it will, I suspect, be the legal test for when the register starts and when the requirements come into force—whether or not it had been flagged up in advance. However, that would be my opinion as a mere engineer, not a lawyer; I am sure that other opinions are no doubt available.
I turn now to Amendment 92—
My Lords, I apologise that I was not here for Second Reading. I went down with a very bad cold and I wrote to the Convener’s office to say that I could not be here, so I apologise.
Can the Minister explain why the Government had gone for 18 months instead of six? Was the legal advice for 18 months that someone could challenge, so a longer transitional period was needed? Yes, there could be cases that come up, but if the intention is quite obvious and very clear why the decision is being taken, could he tell us why—no matter the number of days that you give for the transition—a very rich oligarch could not still bring a case regardless? I cannot understand why we have gone from 18 to six months, and now the Government are saying to stick at six because there will be a legal case. As a legislator, I just do not understand that.
I am happy to explain it to the noble and right reverend Lord. This is a severe piece of legislation retrospectively interfering with someone’s property rights going back—in the case of England and Wales—to 1999. Somebody could not have known when they entered into that transaction that we would wish to retrospectively legislate for that. There is a section in the Human Rights Act—I think it is the section quoted by my noble friend—about enjoyment of property and we are interfering with that. Bearing in mind that these are overseas entities for which contact details are sometimes not available, my advice is that we need a reasonable period for the entity concerned to become aware of their legal obligations. The rich oligarch mentioned by the noble and right reverend Lord may wish to bring a challenge against us on the basis that we had not allowed a reasonable period. What a “reasonable period” is then becomes a matter of legal definition and argument, for which there are obviously a variety of views. That is probably the best summation I can give of the case. I hope that satisfies the noble and right reverend Lord.
Moving on to the famous Amendment 92, I thank the noble Lord, Lord Coaker, for his innovative suggestion for a wide-ranging power for the Secretary of State aimed at preventing asset flight before the formal imposition of sanctions. I hope the measures we have added in the other House go a significant way towards dealing with the kinds of situations the noble Lord may have in mind. The sanctions measures in the Bill are designed to ensure that we are able to respond even more effectively to world events using those sanctions. While, of course, we are living in unprecedented times, I am concerned that his proposals would give huge amounts of power not just to the Secretary of State in relation to Putin’s regime but to future Secretaries of State with regard to people who are not yet the subject of sanctions regimes. Much as I hate to admit it, I think I agree with the noble Lord, Lord Pannick—for a change—on this one. We need to tread carefully on such matters. Indeed, this amendment would provide an open-ended power to freeze assets for an unspecified period prior to sanctions being imposed and includes custodial penalties for those who breach it.
I think we have led the world in sanctioning Putin and his cronies. In some areas we have gone further than the EU; for example, we have banned all 3 million-plus Russian companies from getting loans in the UK or from listing. The Government strongly support measures to ensure that sanctions are effective and will continue to keep under consideration all steps necessary to achieve that. In light of what I have said, I hope the noble Lord will not press the amendment, but this is on the understanding and with the commitment that the Government will continue to keep under review how we ensure that we have all the tools at our disposal to ensure that sanctions are as effective as possible.
In conclusion, I am aware of the strength of feeling in the House on this issue of the transition period. It has been made clear to me in meetings, in particular with the noble Lord, Lord Coaker, and the Opposition Front Bench, and the noble Lord, Lord Fox, and the Liberal Democrat Front Bench. I have listened carefully to the points made in this debate, particularly the powerful remarks made by the noble Lord, Lord Coaker, and I am grateful for the constructive approach that the Opposition in particular have adopted on this matter. I will, of course, continue discussions with the noble Lord, and I am sure we will continue to talk these matters through before we commence Report on the Bill. I beg leave to withdraw the amendment.
Amendment 33 withdrawn.
Amendments 34 to 37 not moved.
Clause 9 agreed.
Clauses 10 and 11 agreed.
Clause 12: Identifying registrable beneficial owners
Amendments 38 and 39 not moved.
Clause 12 agreed.
Clause 13 agreed.
Clause 14: Sections 12 and 13: supplementary
40: Clause 14, page 9, line 34, at end insert—
“(1A) The Secretary of State must, within 6 months of this section coming into force, by regulations, establish within the office of the registrar a whistleblower office to receive whistleblowing reports on the accuracy of information provided under sections 12 and 13 and to provide confidentiality and protection from retaliation for any such whistleblowers.”Member’s explanatory statement
This amendment would require the Secretary of State to establish a whistleblower office within the office of the registrar to receive whistleblowing reports on the accuracy of information provided under sections 12 and 13 and to provide confidentiality and protection from retaliation.
My Lords, I will try to be brief on this issue. Amendments 40 and 41 both refer to whistleblowers and protection for them. Whistleblowers will be absolutely crucial if the register proposed in this legislation is to be accurate, but they will also be crucial for unexplained wealth orders and sanctions to be fully effective. Where those whistleblowers expose kleptocrats, hidden assets, money-washing schemes and individuals linked with owning, hiding and laundering, they will be taking really serious risks, both for themselves and for their families.
Confidential disclosure to a regulator or an enforcement agency only sometimes provides anonymity. It may be obvious who the whistleblower is because the information is held by so few people, or, as we have seen in many instances, it may be that the less scrupulous—whom we are going after—hire investigators in order to expose the identity of whoever spoke out.
At the very least, we need to be sure that there are genuine safe disclosure channels, and they need to be communicated in a very powerful way to everyone who might have information. The risk is not just physical harm by criminals, although that comes to mind when we think of the particular pool of individuals that this legislation is aimed at; it is also retaliation by enablers—the banks, the legal firms, the accounting firms and others. I fear that they have an unfortunate track record of quite devastating retaliation. Some obviously are very much better than others, but I anticipate that the kinds of entities that are sufficiently lax internally that they are willing to provide support to those engaged in money laundering and whose money has come through kleptocracy will be among the sternest in using retaliation against a whistleblower.
Individuals who lose their job or their contract are informally but effectively blacklisted—that probably is the least of their problems. Those who lose their jobs turn to employment tribunals. I know that the Government often pray in aid employment tribunals, but I suspect that many people are not aware of how costly an employment tribunal is for the individual seeking to make their case: we are talking about thousands of pounds and it can easily reach £100,000 or more. The entity they are up against can obviously afford the best lawyers and the most significant QCs. It is also very possible for an employer to string out an employment tribunal through various legal tools. Three years is not at all unusual, and seven years is not unknown, even for a successful whistleblower. During that time, the whistleblower has no income and must pay the high legal costs, with all the consequences for their family and their friends, from whom they borrow. This inequality of arms and the general stress of the whole process force many whistleblowers to settle and to sign agreements that prohibit disclosure.
The Government will say, “They can always make disclosures to regulators and enforcement agencies”, but it is certainly true that many whistleblowers become so afraid after they have been through the grinder of this process that they do not even dare to do that. This is part and parcel of how legal firms and others try to shut down anyone exposing wrongdoing by the powerful. We discussed SLAPPs at Second Reading, when my noble friend Lord Thomas went through some of the kinds of strategic lawsuits against public participation that have been levied against authors and journalists who have exposed kleptocrats. Imagine that same energy and attention turned on someone who is seen as an insider or an employee—it would be an even more bitter and devastating reaction.
The United States knows the value of whistleblowers in a way that is, frankly, ignored in this country. It is why we have a history of so many fewer prosecutions and convictions. Indeed, most financial scandals are exposed first by the Americans. You can almost go through a list—if there is any American connection, you can pretty much guarantee that it was a US agency that first exposed the problem. US prosecutors, and I have talked to many, will tell you that at least half of the convictions for financial crime in the US depend fundamentally on whistleblower evidence. Whistleblower evidence also assists in many more cases. In this country, if you ask the regulators and enforcement agencies, they will say that whistleblowers make only minor contributions. That may explain why prosecution in this country is, frankly, quite rare.
Last year, the United States, in anticipation of the issues we are facing now, passed the Kleptocracy Asset Recovery Rewards Act with extraterritorial reach, both as an incentive to whistleblowers and to compensate them for what are recognised to be career-ending and, in these particular instances, potentially life-threatening disclosures. There is a very interesting preamble to the legislation that makes clear the depth of concern that Congress had. At this moment, I would have to say to any potential whistleblower in a case where there is the slightest US connection, “Go to the Americans, your information will be taken seriously, you and your family will be protected and you will not end up ruined”. I cannot say the same thing to any potential whistleblower here in the UK and I think that has to change, and quickly.
The Government have said they will review the whole whistleblower framework at some point, but we need that flow of information to be coming in as rapidly as possible, particularly in this crisis time, when we have the Russian invasion of Ukraine. If we take the actions that make it possible for whistleblowers to speak out and provide that information, although we can never fully eliminate the risks, we can go an awfully long way towards that. I know there is no chance of getting it incorporated into this legislation, but I would really like the Government to onboard the importance of it and make sure that it is in the economic crime Bill part II.
My Lords, I rise very briefly to make my first contribution in Committee on these two very important amendments. Both were very comprehensively introduced by the noble Baroness, Lady Kramer.
As a former journalist, I reflect on how protecting your sources is something that is drummed into you from a very early stage in your career. However, one thing I have observed over 20-plus years as a journalist is how much more complex this has become. Having been an editor at the Guardian Media Group, I know what difficulties there are in trying to protect sources these days. That is on the technical side of things. But, as the noble Baroness, Lady Kramer, said, there is also the issue of how torrid a time some people have had even when whistleblowing about what you might describe as ordinary and mainstream companies. We have seen that with people who have exposed safety and financial issues. With some of the people we are looking to target here, it is crucial that there is the security of knowing that, if information comes out and others seek to prosecute, uncover and expose them, there will be a group looking after the whistleblower. The noble Baroness has made a very important point.
I support the amendment of the noble Baroness, Lady Kramer. I accept that it is unlikely to go into this Bill, but I very much hope that it will go into mark 2.
I do not share the somewhat Panglossian view of my noble friend the Minister that this whole crime issue is a tiny issue. There is a wall of bad money out there trying to get in, and we have been far too complacent. The Transparency International report of 2018 looked at the BVI and found over 1,100 companies involved in 200 major frauds to the value of tens of billions of pounds. This was just one territory.
Whistleblowers are a vital source of information and intelligence. The noble Baroness, Lady Kramer, is right in saying that we do not recognise them nearly enough in this country. I will not go on further, save to ask the Minister replying that she will take back this issue and ensure that it is plumbed into the next Bill.
I rise briefly, in part to support this whistleblower amendment. I have asked questions on this in the House before. They are very poorly treated—this is just a fact. I agree with the noble Baroness, Lady Kramer, that we need to do better, but I also agree with her that it probably does not fit into this Bill. The noble Baroness has been a tireless advocate for an office for the whistleblower, and such a facility needs to be brought forward rather than permanently left to wither on the vine, as has been the case.
When I asked a question about whistleblowers before, a Member of the House, who was sitting behind me and is no longer with us, said, “Don’t you mean snitches?”. That is exactly the kind of culture we face. I hope that the Government, broader than this Bill, will look seriously at an office for whistleblowers.
My Lords, in some ways, the amendments from the noble Baroness, Lady Kramer—she has done the House a service in tabling them—go to the heart of some of the issues that we have with the Bill as a House. It is that tension between recognising that the Bill is inadequate in many ways and recognising its necessity and why we are passing it today.
I am grateful to the noble Baroness, Lady Kramer, because her speech tonight was very powerful in setting out the reasons why such measures are essential. From what she was saying and in listening to the Minister earlier, and given the impact that these measures could have on the implementation of the measures in the Bill, it seems to me important that the Government look at this as a matter of urgency. There are huge merits to her arguments and it would be useful to know what the Minister can say on behalf of the Government.
It has been clear over a number of years that there is a multitude of undesirable activities that have come to light only because of the bravery of whistleblowers. The process started by this Bill—to be continued, as we have heard, by the second economic crime Bill—will, we hope, result in a lot more information coming forward. If that is the case, we should recognise that those who bring forward information of wrongdoing are performing a public service, and we rely on them to do that. No one should be in the position that they fear giving evidence because of reprisals or because they think no one is going to take them seriously and nothing will be done about it. Both are equally bad.
We accept not only that the registrar’s office should have a mechanism for receiving and processing the information but, on the point the noble Baroness, Lady Kramer, raised, the importance of doing everything possible to protect the individuals who have raised concerns. Without that protection, we are not going to get the people we need coming forward or they will do so at huge detriment to themselves. I hope the Minister will be able to tell us what the Government are doing on this. We have heard previously that this is something they are looking at and that something will come forward, but we need something a little more concrete, given the importance of this to this Bilal.
The noble Lord the Minister spoke earlier about the measures that will be in the second economic crime Bill. I think we really needed a commitment not only that something like this will be considered for that Bill—we are happy to have discussions about how that could be done—but that it will come forward not just in the next Session but early in the next Session. To delay anything undermines the very purpose of being here tonight, to see through legislation which is now an emergency but need not have been an emergency. As the noble Lord, Lord Faulks, mentioned earlier, many of these things have been known about and talked about, but they have not come to fruition. Tonight there is an opportunity to say that we recognise the inadequacy of the Bill but also the necessity of it. I hope we will hear a very positive response from the Minister that there will be something to address this in the next Bill and that this will come very early in the next Session.
I thank the noble Baroness, Lady Kramer, for this amendment. I acknowledge that she has a very impressive record of championing the whistleblowers’ cause. Indeed, as a number of noble Lords have said, this is clearly a common cause in the House.
Amendment 40 seeks to establish a whistleblowers’ office within the office of the registrar to receive whistleblowing reports on the accuracy of information and provide confidentiality and protection from retaliation. This amendment would do so by conferring an obligation on the Secretary of State to create the office within six months of Part 1 of this Bill coming into force.
This amendment would make changes to Clause 14, a supplementary clause that relates specifically to Clauses 12 and 13. Clause 12 sets out that an overseas entity must take reasonable steps to identify registerable beneficial owners and obtain the required information. The steps that must be taken in this regard include giving an information notice to any person that it knows or has reasonable cause to believe is a registrable beneficial owner. It also gives the person who is thought by the entity to be a beneficial owner an opportunity to correct inaccurate information where necessary.
Clause 13 builds on what is presented in Clause 12 by providing an overseas entity with additional powers to obtain information in order to identify beneficial owners if necessary. It provides that an information notice can be presented to a person who is thought to be able to assist with providing beneficial ownership information. This clause allows for entities to take extra steps in ensuring they have taken all reasonable steps to identify the beneficial owners. The Government believe that the provisions in Clauses 12 and 13 will help in making sure that the correct beneficial owners are identified and registered.
Companies House already offers an anonymous “report it now” function for anyone to raise concerns about the accuracy of information it holds. We will ensure that this functionality is extended to the new register of overseas entities. It is also worth noting that Companies House will be provided with expanded and stronger powers to challenge and pursue suspicious filings in the forthcoming second part of the economic crime Bill, as set out in our recent White Paper. This will include a new power for the registrar to query information, including in light of concerns raised by third parties. Those concerns might be raised through the “report it now” function or through other mechanisms, including duties on the regulated sectors. We will take care to ensure that those third parties are suitably protected.
The noble Baroness, Lady Kramer, mentioned the American scheme. There are different opinions on the impact of providing financial incentives to whistleblowers, reflecting local legal, political and social norms. However, organisations representing UK whistleblowers, such as Protect, do not recommend the introduction of financial rewards or incentives. The FCA and the PRA undertook research considering an incentive scheme for whistleblowers and published their conclusions in July 2014. They concluded then that providing financial incentives to whistleblowers would not encourage whistleblowing or significantly increase the integrity and transparency of financial markets.
The noble Baroness, Lady Smith of Basildon, asked what the Government had done to improve the whistleblowing framework. This work is ongoing, but we have already increased the scope of those protected by our whistleblowing laws by extending protection to groups previously not included. This greater transparency around the work of prescribed persons aims to increase confidence among whistleblowers that their disclosures are taken seriously and to improve consistency across different bodies in the way they respond to disclosures.
Sorry; I misunderstood.
It is right and proper that the Government review the whistleblowing framework once we have had sufficient time to build the necessary evidence of the impact of the most recent reforms. We acknowledge that an effective whistleblowing framework is an important part of the UK’s ability to tackle corruption and all forms of economic crime and illicit finance. These acts are, by their nature, often covert. The Government are committed to ensuring that individuals are able to speak up about the behaviour of bad actors.
In recent years the Government have continued to improve the whistleblowing framework, and we will continue to do so in future. It is important that whistleblowing disclosures are dealt with properly and by the right body. This is why BEIS maintains and regularly updates the prescribed persons order. Officials work closely with other government departments, the devolved Administrations and regulators to ensure theusb list is up to date. I can assure noble Lords that this work is ongoing, and we will continue to improve the whistleblowing framework in the near future.
With that, I ask the noble Baroness to withdraw her amendment.
Amendment 40 withdrawn.
Amendment 41 not moved.
Clause 14 agreed.
Clause 15 agreed.
Clause 16: Verification of registrable beneficial owners and managing officers
42: Clause 16, page 10, line 24, at end insert—
“(A1) All information delivered to the registrar for the purposes of sections 4(1)(c), 7(1)(d) and 9(1)(e) must be verified by the registrar.”Member’s explanatory statement
This amendment places a statutory responsibility on the Registrar to secure the verification of the relevant information in the register.
My Lords, I explained at Second Reading that lack of data verification at Companies House has been a fundamental factor in enabling—indeed, encouraging—the flow of dirty money to London. Lack of data verification has played a major part in securing London’s position as the money laundering capital of the world. As I argued last week:
“Companies House is a library in which any shameful book can be deposited”—[Official Report, 9/3/22; col. 1496.]
and accepted without fear of exposure or retribution. Indeed, just earlier this afternoon, the noble Lord, Lord Callanan, described Companies House procedures as “dumb”.
This afternoon, we have been debating amendments to the Bill that will define more accurately and more widely the sort of information that will, as a result of the Bill, be required to be offered to the registrar. However, nothing we have discussed so far will guarantee that the information is accurate. If it is not accurate, it is useless or indeed worse than useless.
We are dealing with sophisticated crooks. In the past they have been successful in subverting our financial system by providing inadequate, misleading or downright false information to Companies House, which has meekly accepted it. The crooks will try to do the same in the future, perhaps especially with respect to the information required as a result of the Bill. The only way to prevent the objectives of the Bill being undermined is to have in place the best possible system of data verification. What does that involve? It involves forensic accountants using the wide range of electronic information systems that is available today, reinforced by the National Crime Agency, backed up by agreed information gateways with fellow regulators in other jurisdictions and with foreign economic crime enforcement agencies such as the FBI, and, of course, supported by our own security services. It is quite obvious that that sort of programme can be conducted only by an official public agency—an official public registrar.
This amendment would make it a statutory requirement for the registrar to secure the verification of the relevant information in the new register. It would place the registrar at the heart of the verification process. Noble Lords should note that this does not mean that Companies House must right away have in place the trained staff and appropriate systems, or in six months’ time. In due course, Companies House must have those capabilities, but even if in the short run it does not have the necessary technical resources, they exist within the British Isles and can be commissioned to help to do the job.
The statutory requirement would also pose the financial resources question: does Companies House have the financial resources to do the job? If it does not, then, as pointed out by the Institute for Government in its discussion of the Bill, we have all been wasting our time. Making verification a statutory requirement would place the financing question at centre stage. It just cannot be fudged. Of course, even a thorough verification system will not be infallible, but, without it, all our efforts this afternoon will have been in vain. I beg to move.
My Lords, I entirely support what the noble Lord, Lord Eatwell, said. It is very much along the lines of the recommendations of the Joint Committee which I had the privilege of chairing. I quote just one paragraph:
“It is regrettable that, as currently conceived, the proposed Register of Overseas Entities will have insufficient verification checks to deter criminals who wish to submit false information. It therefore seriously risks failing in its central policy aim: to provide a reliable and transparent record of the beneficial ownership information of overseas entities investing in the UK property market.”
We discussed a number of the points that the noble Lord made so eloquently at Second Reading and today, including placing a greater burden on professionals to verify information. It is clearly fundamental; without verification, the Bill will not be as successful as it should be.
My Lords, I will speak briefly on this issue, because I am very much of the opinion, as are many in the Committee, that a combination of both a public register—so that civil society groups, journalists, activists and people in different countries will have access to different kinds of information—and vigorous verification is the kind of safeguard we need if we are to end the history of the London laundromat and prevent London remaining a magnet for a great deal of dirty money that is floating around the globe.
Like many people, when I heard that there would be a register of beneficial owners of property that would have a verification component and that verification would be introduced at Companies House, I was elated. Then I actually read the language in the Bill and it seemed, as the noble Lord, Lord Faulks, said, so light touch that there might be something vigorous, but on an exceptional basis and not as a matter of routine. As there is little in the Bill to strengthen the responsibilities of the enablers, I am worried that we will end up with the worst of all worlds—a headline that makes it looks as though we are taking significant and serious action, but implementation that completely misses the mark.
I know the Minister has sometimes said that we have plenty of legislation to deal with enablers, and which has been strengthened somewhat, but if we had adequate legislation to deal with enablers we would not have a single instance of money laundering in this country, because nobody bringing in dirty money is able to buy a single piece of property, take control of a company or engage in any other activities without using an enabler. You need the lawyers, accountants and property developers. We clearly cannot choke off that particular avenue to sustain the London laundromat. All these things come together. I hope the Minister will look again at verification. It will partly be a matter of resources—those absolutely matter—but it also has to be standard practice that a very high level of verification is embedded to deal with every item in the register.
My Lords, I share the concerns expressed about the need for rigorous verification. I note that Clause 16 confers a broad power on the Secretary of State to make regulations in this field. Is the Minister able to assure the Committee that those regulations will impose a rigorous form of verification and requirements along the lines of those that have been proposed?
Before the Minister tries to answer that, we need to recognise delivering what the noble Lord, Lord Eatwell, wants would be absolutely transformative to Companies House. There is no tinkering at the edges here; this would be a massive transformational change and, unless we get that, this amendment will not deliver what is being asked of it.
I will quickly add to the comments from the noble Lord, Lord Pannick. Clause 16 sets out the regulations must
“make provision … about the information that must be verified … about the person by whom the information must be verified … requiring a statement, evidence or other information to be delivered to the registrar for the purposes of sections”
et cetera. Perhaps the Minister could enlighten us as to what he has in mind there.
My Lords, I am grateful to my noble friend Lord Eatwell for moving Amendment 42. As we all know, he has a huge amount of experience in this field, having overseen many of these matters in another jurisdiction. He has long pressed the Government to introduce a register of this kind, but Amendment 42 calls for proper data verification. As we have heard from a number of noble Lords—the noble Lords, Lord Vaux and Lord Cromwell, the noble Baroness, Lady Kramer, and others—it is essential to the credibility of this Bill to ensure that any data is verified and accurate, as my noble friend Lord Eatwell put it.
The Government moved a little on this topic when the Bill was in the House of Commons, passing what was then Amendment 49, as we heard from other noble Lords, requiring the Secretary of State to lay regulations outlining the verification process before the register goes live. We welcome that move as it provides greater certainty, but as we have already heard, it prompts a number of supplementary questions and, in our view, does not go far enough. That is what Amendment 42, which we support, seeks to address.
When will we see the regulations? Will the process be based on previous consultations or require a separate engagement exercise? What if they are brought forward and the envisaged process is deemed inadequate? What if we end up getting the Bill before the SI has been laid? As with the earlier group on the transition period, we need greater clarity on process and timescales. Surely, accurate, verified data as required by my noble friend Lord Eatwell’s Amendment 42 is essential; without it, the Bill simply will not succeed.
I first thank the noble Lord, Lord Eatwell, for tabling Amendment 42 and for his thoughtful contribution at Second Reading on the same subject. He is, of course, absolutely right: I agree wholeheartedly that ensuring the public can be confident that the data on the register is reliable is of the utmost importance. That is why, as has been referred to, the Bill already provides for the making of regulations to create a robust and effective verification mechanism.
Clause 16 sets out that:
“The Secretary of State must by regulations make provision requiring the verification of information”,
which must be in place before an overseas entity can undertake certain actions. These actions include applying for registration to, or removal from, the register. Clause 16 sets out that these regulations can include provisions about
“the information that must be verified … the person by whom the information must be verified … requiring a statement, evidence or other information to be delivered to the registrar for the purposes”
of registration, updating of information and removal from the register.
This amendment seeks to add a statutory responsibility on the registrar to ensure the verification of any information provided to the registrar in accordance with the regulations made under Clause 16. The amendment would place responsibility for ensuring that information is verified on to the registrar, which means that the registrar would have to be satisfied that the information provided at the application stage is verified. We believe that such an addition would be nugatory to the already robust verification process that will be set out in regulations attached to this Bill once it has passed through Parliament.
The regulations that will be made under Clause 16 include the ability to specify the types of statements and evidence that the registrar can require in order to be satisfied that the information submitted to the register is appropriately verified. We expect that UK professionals regulated under the money laundering regulations will have a role to play in the verification process. We are, of course, aware of concerns raised in this House about enablers who might seek to undermine our systems. The verification process that will be set out in regulations will ensure that, whatever process is used, it cannot be undermined by enablers of unlawful activity. To support this, as was referred to by the noble Lord, Lord Coaker, we have also put forward an amendment that would ensure that, where anyone submits information that is false or misleading without reasonable excuse, they can be held to account for that.
I would also direct noble Lords’ attention to the amendment tabled by the Government in the other place, which committed to bringing regulations made under Clause 16 into force before any applications for registration may be made under Section 4(1). Therefore, creating a specific statutory requirement for the registrar to secure verification, as the amendment proposes, is in my opinion not necessary. The verification mechanism already contained in the Bill will ensure that those engaging with the regime have confidence in the information held on the register. I therefore hope that the noble Lord will feel able to withdraw his amendment.
My Lords, I always think that the government defence of “not necessary” is the weakest we ever hear in this House. My amendment calls for a clear statutory requirement for verification. Just think of the contrary, which the noble Lord is supporting: that there will not be final statutory verification, and that information will be provided by professionals, enablers. He says that we can ensure that this will not “undermine the process”. If he believes that, he will believe anything. How can he ensure that it will not undermine the process, unless there is a means of checking that it is not undermining the process?
We are dealing with very sophisticated crooks with the best legal advice that money can buy and the Minister is leaving the Bill naked, with the key protection lacking that is necessary to sustain confidence in financial markets in this country. This is a sad day for the probity of those markets. Having said that, regrettably, I beg leave to withdraw the amendment.
Amendment 42 withdrawn.
Clause 16 agreed.
Clause 17 agreed.
Clause 18: Exemptions
43: Clause 18, page 11, line 18, leave out paragraph (b)
Member’s explanatory statement
This amendment removes the ability of the Secretary of State to exempt an individual from the requirements to register their overseas entities on the grounds of the economic wellbeing of the United Kingdom.
My Lords, Amendment 43 is also signed by the noble Lord, Lord Coaker. During Second Reading, I spoke at length on this issue, so noble Lords will be pleased to know that that allows me to be brief in Committee. The amendment is clear, but I shall briefly explain its purpose. Frankly, it is one of the simpler amendments we have before us.
Clause 18 deals with exemptions. Subsection (1) gives the Secretary of State the power to write to a person to exempt them from this part of the Bill if said Secretary of State is satisfied that one of three conditions is fulfilled:
“(a) in the interests of national security … (c) for the purposes of preventing or detecting serious crime”—
I do not think any of your Lordships would find that an unacceptable condition—but
“(b) in the interests of the economic wellbeing of the United Kingdom”.
First, what does that mean, and secondly, why is it there?
The Minister heard not just my words but the compelling words of the right reverend Prelate the Bishop of Leeds, my noble friend Lady Kramer and others who explained—and I hope the Minister understood—why Clause 18(1)(b) is the wrong message to be sending, particularly at this time. I explained this issue to some members of the general public—people who do not actively engage in the sport of politics—and asked them what they thought. Their reply was, “Isn’t that the approach that got us into this trouble in the first place?” Quite. That is the message that the clause is sending.
This part of the Bill is designed to deliver transparent information that can be used by authorities, potential business partners and others to avoid trading with kleptocrats, thieves and money launderers. Hiding that information unnecessarily cannot be good for the economy. Why would a Secretary of State want to do that in these conditions? Amendment 43 removes that power from the Bill, and I beg to move.
My Lords, it might be helpful for the Committee, before it debates this amendment, if I set out that of course I am aware of the strength of feeling on this issue and am very grateful for the engagement with the noble Lords, Lord Coaker and Lord Fox, and others on it over the weekend and the past few days.
As I indicated earlier, we are keen to progress this vital legislation collaboratively and swiftly, and I again pay tribute to the Opposition for helping us to do that. Therefore, if I tell the House that the Government are prepared to accept Amendment 43 tabled by the noble Lords, Lord Fox and Lord Coaker, should they wish to re-table it on Report, perhaps that would enable a more speedy consideration of this group.
I said it would be swift, but I had not calculated that it would be quite this swift, so I thank the Minister for meeting us in this way and making this move; it is much appreciated. With that, I beg leave to withdraw Amendment 43. I will bring it back on Report.
Amendment 43 withdrawn.
Amendment 44 not moved.
Clause 18 agreed.
Clauses 19 to 21 agreed.
Clause 22: Material unavailable for inspection
Amendments 45 and 46 not moved.
Clause 22 agreed.
Amendment 47 not moved.
Clauses 23 and 24 agreed.
Clause 25: Data protection
Amendment 48 not moved.
Clause 25 agreed.
Clauses 26 to 30 agreed.
Clause 31: General false statement offence
Amendments 49 to 52 not moved.
Clause 31 agreed.
Amendment 53 not moved.
Clause 32: Land ownership and transactions
54: Clause 32, page 19, line 13, at end insert—
“(5A) The Secretary of State must consult the Department of Finance in Northern Ireland before making regulations under subsection (4).”Member’s explanatory statement
This amendment requires the Secretary of State to consult a Northern Ireland department before making regulations under Clause 32(4).
My Lords, Amendments 54 and 84 require the Secretary of State to consult the devolved Administrations before making regulations on devolved land matters. It is appropriate when the Secretary of State is legislating on devolved matters in this space to consult the responsible devolved Ministers. This approach is supported by Ministers in the Northern Ireland Executive and in the Scottish Government.
The Bill seeks to make amendments to the Land Registration Act (Northern Ireland) 1970 to capture properties in Northern Ireland within the register of overseas entities by adding a new Schedule 8A. Clause 32 of the Bill allows the Secretary of State to amend by regulation the new Schedule 8A measures on Northern Ireland land provisions and the register of overseas entities.
It is, of course, convention that Westminster shall legislate only with the consent and support of devolved Ministers on devolved matters. The support of Northern Ireland Ministers has been secured for the provisions of the Bill but, should the measures be amended in the future, it is justified that the Secretary of State ought to consult with the Department of Finance before laying regulations. It is for this reason that Amendment 54 is being made. It will ensure that devolved Ministers continue to contribute on devolved matters.
The Bill also makes amendments to the Conveyancing (Scotland) Act 1924 and the Land Registration etc. (Scotland) Act 2012, including adding new Schedule 1A to the 2012 Act to include Scottish properties bought on or after 8 December 2014 within the scope of the register of overseas entities. Paragraph 13 of Schedule 4 to the Bill allows the Secretary of State to make further provisions for the purpose of requiring or encouraging an overseas entity owning land in Scotland to submit to the register of overseas entities.
As with Northern Ireland, Scotland has devolved competence for land provisions. I am pleased to say that the Bill has secured a legislative consent Motion from the Scottish Parliament, but this amendment would ensure that Scottish Ministers are consulted before regulations are laid, which will further impact those devolved matters. I beg to move.
My Lords, as someone who takes a close interest in devolution matters, I am delighted with these amendments. I have quite often moved amendments in similar terms and not been successful. It is a pleasure to see the Minister produce amendments in the very terms that I would have liked to have seen in the Bill. I very much welcome them both.
As a fellow member of the Constitution Committee, I endorse what the noble and learned Lord said. This is one of the points that we as a committee regularly make: it is one thing to have the Sewel convention in primary legislation; it is another to have it in subordinate legislation. We very much welcome this as a matter of practice.
Never has the noble Lord, Lord Callanan, received such glowing praise, in my experience, and here am I to heap more of it on. These amendments are very welcome, as is the legislative consent from the Scottish Government. I have one point that I am sure the Minister will be able to confirm: I hope the Government will be able to continue the level of consultation the Minister could show through the regulation-making process and the statutory instruments.
I can add to the Minister’s embarrassment. We are pleased to see these amendments brought forward. I have two questions. I think I understand why it is different, but it might be helpful if the Minister could put on record why one amendment refers to the Department of Finance in relation to Northern Ireland yet in the other, for Scotland, it is Scottish Ministers. It seems slightly odd. Secondly, has formal engagement begun already and, if not, when will that start? Overwhelmingly, we thank the Minister and hope that this is a sign of things to come.
I should quit while I am ahead on this one. I am not sure this will continue with other Bills, but let us welcome it when it happens.
I thank noble Lords for their brief comments. I am happy to confirm to the noble Baroness, Lady Smith, that engagement has already started. I have spoken to Scottish Ministers. I think I spoke to Welsh Ministers, but if not some of my colleagues have. I definitely also spoke to Ministers from Northern Ireland. I will get back to her with the precise reasons why it is the Department of Finance. I suspect the problem is that we have not been able to get a formal consent Motion from the Northern Ireland Assembly because it is not sitting, but we do have written confirmation from the Ministers that if the Assembly had been sitting they would have recommended that a legislative consent Motion be granted. I suspect that is why the Department of Finance is mentioned, rather than the Northern Ireland Assembly.
After moving the amendment, I now ask that it be withdrawn so that I can retable it and the other amendments on Report.
Amendment 54 withdrawn.
Clause 32 agreed.
Schedule 3: Land Ownership and Transactions: England and Wales
Amendments 55 to 64 not moved.
Schedule 3 agreed.
Schedule 4: Land ownership and transactions: Scotland
Amendments 65 to 84 not moved.
Schedule 4 agreed.
Schedule 5: Land ownership and transactions: Northern Ireland
Amendment 84A not moved.
Schedule 5 agreed.
Clauses 33 to 38 agreed.
Amendments 85 to 88 not moved.
Clause 39: Interpretation
Amendment 89 not moved.
Clause 39 agreed.
Clauses 40 to 46 agreed.
Clause 47: Limits on costs orders in relation to unexplained wealth orders: England and Wales and Northern Ireland
90: Clause 47, leave out Clause 47 and insert the following new Clause—
“Civil recovery: costs of proceedings
After section 316 of the Proceeds of Crime Act 2002 insert—“Civil recovery: costs of proceedings316A Costs orders(1) This section applies to proceedings brought by an enforcement authority under part 5 of the Proceeds of Crime Act 2002.(2) The court may not make an order that any costs of proceedings relating to a case to which this section applies (including appeal proceedings) are payable by an enforcement authority to a respondent or a specified responsible officer in respect of the involvement of the respondent or the officer in those proceedings, unless—(a) the authority acted unreasonably in making or opposing the application to which the proceedings relate, or in supporting or opposing the making of the order to which the proceedings relate, or(b) the authority acted dishonestly or improperly in the course of the proceedings.””
This amendment would provide limits on costs orders in relation to all civil recovery proceedings brought by an enforcement authority under Part 5 of the Proceeds of Crime Act 2002, which enables law enforcement authorities to recover property obtained through unlawful conduct without the evidentiary difficulties of securing a criminal conviction. The effective exercise of these powers is essential if civil recovery is to fulfil its purpose of deterring criminals who are as concerned, if not more concerned, with losing their assets than they are with losing their liberty.
The current costs regime for civil recovery is fragmented, with different rules applicable in different courts. I am very well aware that on the other side of the aisle are some of the experts in this area. Civil Procedure Rules apply in the High Court, the Court of Appeal and county courts. Rule 44.2 of the CPR sets out the general principles in civil proceedings that costs follow the result—that is, the winner pays the loser’s costs, but the court retains discretion to make a different order and determine the amount of costs to be paid. The principles relevant to the exercise of judicial discretion to award costs in civil proceedings in the Crown Court and magistrates’ courts have evolved over time through case law.
In civil proceedings brought by public authorities in the Crown Court and magistrates’ courts, the approach to costs is reflected in the so-called Perinpanathan principle. This includes civil recovery proceedings brought under Part 5 of the Proceeds of Crime Act 2002. In the Perinpanathan case, the Court of Appeal held that, where a public authority is unsuccessful in bringing an application, the default position or starting point is that no order for costs is made. However, a successful private party may be awarded costs if the conduct of the public authority justifies it. As a result, enforcement authorities will rarely have to pay costs when pursuing civil recovery in the magistrates’ court, but are exposed to significant costs in High Court proceedings, where the general rule is that the unsuccessful party pays the legal costs of the successful party.
Clauses 47 and 48 reflect a recognition that significant and deterring costs have made enforcement authorities reluctant to utilise unexplained wealth orders in their current iteration. Only nine UWOs, relating to four cases, have been obtained by the National Crime Agency since this investigative tool was introduced in January 2018. The unsuccessful UWO application in the Aliyev case, which I mentioned at Second Reading, left the NCA facing £1.5 million in legal costs.
Limiting the liability of enforcement authorities to pay costs in UWO proceedings is a welcome step, but it is a piecemeal intervention which does not address the chilling effect of adverse costs orders in civil recovery proceedings more broadly. This proposed amendment seeks to ensure consistency of approach in civil recovery proceedings so that adequate cost protections encourage enforcement authorities to put their economic crime-fighting tools to effective use. At present, the prospect of prohibitively expensive legal costs effectively renders certain assets out of the reach of underresourced law enforcement agencies. We need a new, consistent cost protection regime for law enforcement agencies and regulators under the Proceeds of Crime Act as a whole.
I am very grateful to Spotlight on Corruption for raising this issue and laying the grounds for this amendment. The starting point should be that a law enforcement body or regulator should not be ordered to pay costs where it is unsuccessful in bringing or defending civil proceedings. This would have the effect of each party bearing its own costs. However, the court should retain discretion to depart from this default rule in cases where there is good reason. This could include where the law enforcement body or regulator has acted unreasonably in bringing or defending proceedings and where the interests of justice and fairness would be offended, including where substantial financial hardship is likely to be suffered by the successful party if a costs order is not made.
I very much hope that the Government see the merits of Amendment 90 and of applying it in the same way to Scotland—the notice to oppose the Question that Clause 48 stand part of the Bill would have exactly that effect. I beg to move.
My Lords, I will be brief. I have listened very careful to the noble Lord, Lord Clement-Jones, and my understanding is that the Government are seeking to protect the enforcement bodies, such as the National Crime Agency, from the costs of legal action. Clearly, it is important to provide these agencies with an element of cover from being pursued for costs, as they must be free to investigate activities as they see fit and not fear the potential costs of bringing what they believe to be a legitimate case. As we have heard already tonight, the resources available to those being investigated is often hugely significant.
The noble Lord, Lord Clement-Jones, is proposing a much broader approach on this than in the government clauses, applying the principle to all civil recovery proceedings under Part 5 of the Proceeds of Crime Act 2002, not just to unexplained wealth orders. The Bill is quite narrow in scope, and the Government may not see fit to put this into this legislation, but I hope that there is an opportunity to debate this further. I would be grateful if the Minister could say something not just on whether it fits into this Bill but on the Government’s general approach to the issue.
My Lords, I thank both noble Lords for their points on this amendment. The Government are as one with the noble Lord, Lord Clement-Jones, that agencies must not be limited in their efforts to investigate wrongdoing and protect the public from harm. He has tabled an amendment which touches on this very concern.
The noble Lord will be aware of the significance of the amendments that the Government have introduced to reform the cost rules as applied to UWO cases. Protection from costs mean that the court only has discretion to award costs against an enforcement agency, as he knows, if it acted dishonestly, unreasonably, improperly, or not on grounds that appear to be reasonably sound. The UWO procedure is an investigative tool and is not determinative of civil rights or obligations. It is used to obtain information about the ownership of certain property that may not otherwise be available to an enforcement agency.
Existing case law—as the noble Lord has pointed out, in magistrates’ courts through Part 5 applications—enables them to routinely adopt a position that they will not order costs against law enforcement where the agency has acted honestly, reasonably, properly and on grounds that reasonably appeared to be sound. However, this does not occur in High Court cases, where the costs involved are often much higher and for which protection is now given in the Bill in relation to UWO cases. The Government will ensure we are doing everything appropriate to ensure law enforcement agencies are equipped to take on corrupt elites, and their costs liabilities are appropriately mitigated. I hope that gives the noble Lord the comfort that he needs.
I just have a question. In the context of this Bill, the choice of UWOs was regarded by many as curious because it was a niche activity until such time as it was plunged centre stage by this Bill. There is a whole range of other things. In choosing to deal with cost protection for one element, there seems to be an imbalance. My noble friend used the words cost protection regime. Would the Minister acknowledge that there is scope for going away and spending time on a review of the overall cost protection landscape and coming back with something that is joined up rather than piecemeal—which is what we have got here?
Yes, I think I was clear in my opening remarks that I am not at odds with the noble Lord, Lord Clement-Jones, at all. The noble Lord, Lord Fox, is absolutely right that, in the longer term, we should look across the whole cost landscape. What I am trying to say is that, in protecting agencies incurring costs in Part 5, it unintentionally removes the current clauses relating to Part 8. I am trying to differentiate between Part 8 and Part 5 of POCA. It is utterly unintentional, I am sure, but I hope that helps the noble Lord.
My Lords, the Minister is speaking the language I understand now—if it is technically flawed, then of course it is ripe for withdrawal. I welcome what the Minister said about getting consistency across the landscape, because that is clearly important. There is absolutely no reason why it should not be across the whole of the proceeds of crime landscape.
Perhaps I can squeeze a commitment out of the Minister. We managed to get the noble Lord, Lord Callanan, to commit to looking at certain aspects of enablers in the second economic crime Bill—I think we need to call it the ECB 2 now. If the Minister could give us a commitment that the Government will look at this question of the cost landscape as part of the second round, when we can consider these issues in much greater detail and at greater length, then I would be entirely satisfied.
I was somewhat concerned by the lack of response to what the noble Lord, Lord Fox, said about UWOs being a niche activity. I hope the Minister can reassure the Committee that one of the effects of the change in the Bill will be that they will very much not be a niche activity. Certainly the original intention—I understand, having read the legislation that brought them in—was that there would be 20 per year. Can we have some reassurance that there are going to be a great deal more and it will not be a niche activity?
I share the sentiment of my noble friend that they will not be a niche activity. The measures in this Bill, particularly in terms of costs, will make it far easier for our law enforcement agencies to not be stymied by costs in bringing these things forward.
My Lords, I am grateful to the Minister for her responses. As she understands, one of my main motives is to bring pleasure to the Treasury. Given that the NCA’s budget—we talked about its budget—for crime prevention is, I think, something like £4 million and there was £1.5 million in costs in the Aliyev case, we would clearly all be winners if this review takes place. I thank the Minister for that commitment and, in the meantime, beg leave to withdraw the amendment.
Amendment 90 withdrawn.
Clause 47 agreed.
Clauses 48 to 51 agreed.
Clause 52: Streamlining process of making sanctions regulations
91: Clause 52, page 32, line 35, at end insert—
“(2A) In section 1, after subsection (10) insert—“(11) Before making any regulations under this section the Secretary of State must lay an impact assessment before Parliament.(12) The Secretary of State must specify a date on which regulations made under this section cease to have effect.””Member’s explanatory statement
This is a probing amendment and is intended to seek confirmation that an impact assessment will be prepared before such regulations are laid. It also provides for appropriate sunset Clauses.
My Lords, as we move on to the final group, I rise to move my Amendments 91 and 96. I was sorry that the short notice prevented me speaking at Second Reading, and as the Bill may have implications for trade and investment, I declare my interest as the chair of the UK-ASEAN Business Council.
Today we are rightly focused on Russia, and are full of sympathy and horror for all that is happening in Ukraine. This Bill has been accelerated and we all want to speed it on its way. I am well known for taking a contrarian view to try to tease out important issues as part of the vital role of scrutiny by the House of Lords. For example, on the Covid legislation, I emphasised the importance of perverse effects and cost benefit, and I think I was right to worry about the adverse impact on health problems other than Covid, such as cancer, and the harm to children’s education, and on the social agonies of the pandemic. Happily, that is behind us thanks to the Government’s brilliant record on vaccination.
As my noble friends the two Ministers said in their very helpful recent letter, the economic crime Bill is novel, particularly in relation to property rights, and largely unprecedented in other countries. In most respects, it will also apply very widely and way beyond Russia, as the Minister made clear. It is concern about that which is behind my amendments.
There are three aspects. First, while a good deal is on the face of the Bill, there are also wide-ranging regulation-making powers, so I propose that any such regulations should be subject to an impact assessment before being laid. The object of this is to ensure that they are properly thought through and to minimise red tape, bearing in mind that the Bill extends beyond the current crisis. I am very grateful for the three impact assessments that have been produced by BEIS, the Home Office and HM Treasury. Helpfully, the BEIS impact assessment discusses on page 36 a Malaysian investment—Battersea power station. Fortunately, it concludes—presumably with its knowledge and agreement —that the new rules would not have resulted in new information being made available or any substantive compliance costs relative to the value of the investment.
However, with my practical mien and business experience, I know how easy it is to get the detail wrong in legislation and regulation of the kind we are debating. The money laundering regulations are a good example. The compliance costs on the honest, including, but not confined to, the rules on politically exposed persons—such as affect some noble Lords—are often burdensome. The bureaucracy involved is also bad for the UK economy without, apparently as we have heard, actually catching the bad guys. So I believe we must stick to the discipline of impact assessments which requires us to balance these matters and do our best to get the rules right, simple and clear across the wide areas covered by this Bill. We also need proper enforcement, probably by investment in tough public sector experts, not external lawyers.
Secondly, I am seeking assurances on the use of sunset clauses. To those noble Lords who are remainers, I refer them to some good practise by the EU—the five-year reviews in single market legislation. These reviews were uncomfortable for incumbents, both the civil servants or the large or dominant external players, but they were good for new thinking and for new entrants. My amendment asks for a specific end date to regulations. But, of course, it is possible to vary the timescale and provide for extensions, as was done with the Covid regulations.
My final area of concern, articulated in Amendment 96, is that there should be a review of all the provisions we are putting so rapidly into law in this Bill and the regulations and guidance made under it. That would take place a year after its passage or at some other suitable period, allowing for the economic crime Bill part 2. It would cover, first, its effectiveness in achieving the objectives set out in the Explanatory Notes; secondly, its impact on parties involved, including small business, whose investments in the UK might dry up needlessly; and, finally, enforcement, especially enforcement by Companies House. I share the concerns expressed by others on the need for accuracy, resourcing and effective enforcement, and I look forward very much to hearing from the noble Lord, Lord Brennan, and my noble friend Lord Agnew of Oulton.
I have no wish to delay the Bill. Indeed, I am proud to have played a part as the Minister responsible for the Small Business, Enterprise and Employment Act 2015, which contained the domestic provisions on beneficial ownership discussed here in this very House. I also worked on the groundwork for David Cameron’s commitment to a register for foreign companies which own or buy property in the UK. The importance of getting this on to the statute book quickly has been underlined today by Ukraine’s tragic circumstances. I beg to move.
My Lords, I recognise that we are on the home straight. On Amendment 91, the House needs to be clear whether we are having a sunset clause or not. My understanding from the outset from talking to Ministers is that we are not, and that this is going to be a permanent piece of legislation. In fact, throughout the two days we have debated this, we have been talking up having ECB 2—something I coined, which I am glad everyone has adopted—to fill in the gaps and be the unspecified bag at Christmas in which we are all going to find our favourite toys, but we shall see.
My mistake; I struggle with joined-up writing.
Since I get only bite of the cherry and have an amendment coming up in my name, I will tackle both Amendments 93 and 95 on resources. It is widely acknowledged and was highlighted emphatically by speakers at Second Reading that the resourcing of those responsible for the difficult work of identifying, investigating and prosecuting those covered by the Bill are currently inadequate. In the Minister’s letter of 11 March, which I referred to earlier, page 6 refers to an overall package of £400 million and the creation of a kleptocracy cell in the National Crime Agency and says that the NCA has “surged additional officers”. I am aware that the NCA has obtained fewer than five prosecutions for economic crime offences in the last five years and has seen its budget cut, despite calls for increases. The number of investigators at the proceeds of crime centre has declined, despite Parliament raising concerns. I simply do not know whether the resourcing now referred to is sufficient, but I am told that a figure of £1.7 billion is a more realistic amount to get this job done.
Amendment 95, to which I have added my name, calls for an annual review of the suitability of funding arrangements for enforcement agencies. A theme of our debates has been the need to revisit what we have discussed and agreed to here. It is pure vanity to pass legislation that cannot be enforced and resourced effectively. This amendment will be useful in making sure that a proper focus on resourcing is maintained. I therefore support Amendment 95 or, if it is preferred, Amendment 93, which has much the same effect.
Turning finally to Amendment 94 in my name, I am very grateful to the noble Lord, Lord Thomas, for adding his name to it. We have heard an awful lot about enablers during our debate, which draws a pantomime hiss that used to be reserved for lawyers, accountants and bankers—but, unfortunately, we all fall into that category of enablers now.
A number of speakers, myself included, raised the issue of SLAPPs, or lawfare, at Second Reading. As is appropriate at this stage, I do not propose to rehearse in detail what was said then. Nevertheless, it is a well-established fact that UK law firms and others—some, anyway—undertake deliberate intimidation tactics known as lawfare to prevent journalists and others bringing matters of public interest to light.
It is further well known that this has ensured that information in the public interest is regularly neutered or hidden. The rule of law requires equality before the law, but this behaviour goes well beyond any reasonable approach to a defence of reputation. It is the dark side of our legal system, where inequality of arms means that the wealthy can—at times, using ill-gotten gains—out-resource those on whom we as a society rely to find out the truth and shine a light into dark places.
The Defamation Act 2013 sought to introduce some protective measures, but this is a complex area of law that not only is costly but carries the risk of liability for the other party’s costs. It is this prospect of bankruptcy or insolvency that is primarily used to intimidate journalists and other organisations. Furthermore, such a defendant against a claim may be unable even to obtain a legal representative willing to take on the risk of cost recovery from the other side. Even what are known as “trials of preliminary issue” regularly run up costs of £25,000 or more, and a full trial will often cost well above £500,000. Even if successful, the defendant will be faced with the irrecoverable portion of their costs, which can also be very substantial—and we should remember that this does not take into account all the work, time, disturbance and anxiety before a court action even arises.
We must not allow the Bill’s purpose—tackling dirty money and illicit practices of the sort that it covers—to be undermined by allowing the wealthy to abuse our legal system in order to intimidate and muzzle the free press in this way. Amendment 94 would require the Government to assess how the Bill might be frustrated, have its impact blunted and its implementation thwarted by such conduct, and it would require the Government to share their findings with Parliament.
The Bill is operating in a very compressed timeline, and I am grateful to the Minister for his email exchange with me over the weekend on this issue. I note that the Deputy Prime Minister announced on Friday the launch of an urgent call for evidence in this area, and I have the Minister’s assurance that this call for evidence will not be just a listening exercise but that:
“Where action is needed, we will take it quickly and effectively”.
The origin of the Bill’s arrival here is the Russian invasion of Ukraine. An immediate step by the Putin regime has been to shut down the channels of free communication and free media within Russia. Surely we must ensure that we do not allow the same regime to do the same in the UK. I therefore invite the Minister to confirm on the record the Government’s commitment to this, not just as a one-off inquiry but on a regular basis, as foreseen in Amendment 94. I also ask him to confirm that the action he has referred to will include specific provision for it in ECB 2. I beg to move.
It is a real pleasure to follow the noble Lord, Lord Cromwell. I spoke at length on this matter last Wednesday and I do not propose to speak on it again. Three things have happened since then. The Lord Chancellor has called for evidence, as the noble Lord pointed out. My Private Member’s Bill, which I referred to, seems to have reached its final form, and I hope it will be progressed quickly. I very much hope that this problem is properly dealt with in a very short time, and I await the Minister’s response.
My Lords, I shall speak in support of my amendment, which seeks to achieve two things: an annual review of the funding adequacy of our crime-fighting agencies in this area, and a report within three months of the Bill, and annually thereafter, to set out how well we are managing this whole area.
I know we will hear warm words from the Minister about various sums of money—£400 million and so on—but the brutal reality is that this whole thing has been abysmally funded; that is the only way we can describe it. The noble Lord, Lord Cromwell, is right that the NCA’s own funding has fallen by some 4% in real terms at a time when international crime has been soaring.
Our efforts are also so fragmented. The area that is of concern to me, as noble Lords will be aware, is the failure of the bounce back loan programme. One little example highlights the problem of the lack of clarity around funding. When the British Business Bank and BEIS failed to get a grip of the data on the fraud going on with bounce back loans, the counter-fraud team in the Cabinet Office stepped in with a very small sum of money—£2.6 million—to analyse a tranche of loans in the bounce back loan book. It identified £1.5 billion-worth of potentially fraudulent loans. That cost £2.6 million but the funding will run out in about two weeks’ time and the British Business Bank has decided not to continue the exercise, saying that it does not have any money. This gives a sense of the failure, because there is no consistent funding to go after these things. NATIS is similar. A tiny but effective organisation, it goes after some of the most serious crime. It is given tiny sums of money to pursue complex cases but then does not have the money the next year, so it has to drop those cases.
The Treasury will of course hate my proposal for an annual report to Parliament to set out some of these examples, which simply do not get aired, but it is the only way we can be serious about dealing with these issues when we get this and the next Bill through. They will be empty letters if we do not have the resources available to go after these people. I am probably one of the most hawkish politicians when it comes to spending public money but, if there is one area where we will get a dramatic return on investment, it must be this one. Indeed, I expect all the agencies to be held to account on this. If they do not return a dividend of three times what they get, they are not doing the job properly, frankly. In this legislation and ECB 2, we are giving them the tools. They need to know that they need to spend the money well.
That leads me to the second part of my amendment, which is about an annual report to Parliament to account for progress in these areas. The agencies must be candid on the areas in which they are failing but also set out their successes. However, as was mentioned earlier in the debate, there are some 20 different agencies all scrambling around here, with no proper central co-ordination. I pushed for a central body to oversee counter-fraud across government. I hope that it is being thought about, but it does not exist yet. An annual report bringing all this together would start to provide the proper spotlight on this activity.
My Lords, given the hour, I will be concise and crack on in support of the need for sufficient human and financial resources being made available, given the global implications.
Despite high-level government commitments on fighting economic crime, the Government have hitherto failed to invest sufficient resources to ensure that enforcement is effective. Reinforcing the case is paramount. We should double key law enforcement annual budgets from £852 million to £1.7 billion. A £2.7 billion increase in funding for national and local agencies to tackle serious and organised crime and to improve the system’s capabilities across digital, forensics, covert surveillance and financial investigations, to match the increasing technological sophistication of the serious and organised crime groups operating in the UK, is necessary, with budgets to invest in structures, skills, capabilities and technologies across the system.
We should double the budget for sanctions enforcement. In the past three years, the NCA has conducted only three criminal investigations into sanctions breaches, with no resulting prosecutions. It has just 40 employees.
We should create a central economic crime-fighting fund out of the money generated by law enforcement’s economic crime activity. If the proceeds had been reinvested into the agencies, on top of their core budgets, overall enforcement spending could have been provisionally increased by an additional £748 million a year—an increase of approximately 93% on current funding levels. This would allow investment in state-of-the-art IT infrastructure and data analysis capabilities. This central fund would replace the system for redistributing the proceeds of asset recovery—the asset recovery incentivisation scheme—which is broken.
Working with the judiciary to ensure better judicial management of cases to strike out abusive litigation tactics is key, in addition to working with industry to develop an enforceable model litigant code for lawyers, to prevent the use of stalling and spurious tactics that waste court time and drain public resources, and allowing law enforcement bodies to raise salaries within their budgets, so that they can be more competitive in the salaries they provide to attract the best and brightest.
I will bring my remarks to a close. We must allow law enforcement to spend more on legal fees to get the best legal advice; prosecuting and investigating bodies cannot compete. We need specialist economic crime judges; enforcement bodies face a UK court system with few judges specialised in economic crime or confiscation. Finally, we must raise Companies House fees to £100. Current fees of just £12 for an incorporated company are too low, allowing considerable abuse of the system. Companies House needs to become a key digital data hub to help law enforcement and provide a service for the whole of the UK about suspicious corporate behaviour, rather than its current state as a passive receiver of false or inaccurate information.
My Lords, I rise briefly to support the amendment from the noble Lord, Lord Agnew. Over the years, one has seen concentrations move as to what parts of the criminal justice or investigation system matter. It is important to appreciate that this will be expensive, but we must have a system that, as regards the resources we give to justice, is open and transparent. There is no way this can be done without a proper annual report. Too often have I heard, “Oh, we can have an efficiency here or an efficiency there; we’ll do a little bit less of that or find incentives somewhere else”. No, that is not good enough for the task that faces us, and our nation, in ensuring the reputation of the City of London. I therefore warmly support the view that we should have a proper economic and financial analysis of the tools needed.
We are in danger of reaching the end of this in unanimous agreement, so I shall introduce a little rancour in responding to the amendment from the noble Baroness, Lady Neville-Rolfe. When she read the Hansard report of the Second Reading, she will have seen a strand going through a number of speeches that said the purpose of the Bill must be permanent rather than a “here today, gone tomorrow” sort of purpose—a fashion. Her notion of sunset clauses hits counter to that. She is right that regulation has to be fit for purpose and that there should be reviews, and I welcome her joining the chorus for reviews that has been going throughout both the Second Reading and the Committee stage. I think the first opportunity for a review of the performance of ECB 1 and the regulations that make it work will probably be when we get to ECB 2. Thereafter, an annual review is a good idea.
We have heard from many noble Lords about progress on the subject of strategic litigation. I hope the Minister is able to confirm that this small amount of momentum will be able to pick up over the next few months as we go forward, perhaps focusing on my noble friend’s Private Member’s Bill.
A few moments ago the noble Lord, Lord Faulks, asked the noble Baroness, Lady Williams, whether UWOs were going to be a minority sport or something pursued in number. She has left, leaving the noble Lord, Lord Ahmad, to explain how it will be paid for. Unless there is money to pay for it, it will remain a minority sport. The noble Lord, Lord Agnew, and the noble Viscount, Lord Waverley, clearly encapsulated the point that none of this can happen unless the investigating and prosecuting forces are both skilled and resourced to deliver it. That is why I was pleased to co-sign Amendment 95 from the noble Lord, Lord Agnew. I look forward to hearing from the Minister how much money will be forthcoming and when.
My Lords, this seems an appropriate group on which to end Committee. It seems almost as if we have gone full circle, as there has been a similar theme throughout the debates at Second Reading and in Committee.
This group of amendments brings two things to the debate. When I spoke first today I made the point about the tension between us recognising the inadequacies of the Bill, with the comments made about ECB 2—which has now become part of the common language of your Lordships’ House—alongside acknowledging the necessity of the legislation. However, it also shows the determination—I am distracted by someone talking—of your Lordships’ House to make sure that the legislation is effective.
The only way we can do that is through the kinds of reviews that have been talked about, to ensure that, when we come to ECB 2, we will use the information—both the positives and the negatives as regards whether this legislation is working—to ensure that we can plug the gaps and take on other issues. I hope to see Companies House issues in the next legislation as well. On the issues we have been talking about—the resources needed, the commitment needed and the reports to Parliament—unless we have those reviews and assessments in place, we will not be able to do what needs to be done in ECB 2 or to plug any gaps we find here. Some kind of assessment, perhaps on the timescales envisaged in the amendment—an annual review to Parliament seems a very sensible way forward—are absolutely essential.
The only thing I disagree with the noble Baroness, Lady Neville-Rolfe, on is the importance of getting regulations as quickly as possible. I hope that, alongside those regulations, we will see some kind of impact assessment. Unless the Government know at least in part the impact that the regulations will have, there is no point in tabling them. We would not want to delay essential regulations in waiting for that but it is important that we have more information at all times.
I will flag up something that I raised in an earlier debate and which the Whip who was answering for the Government did not respond to. We hope that, when we come back on Report, we will have a commitment that we will see ECB 2 in the next Session of Parliament. We also want an assurance that that will be early in that Session. We have seen already that there is huge expertise in your Lordships’ House and that, when we have proper time for debate, we have better legislation. One of the saddest things about this Session of Parliament is that we have only just had the Second Reading of the Elections Bill. We have weeks to go and we are trying to cram a quart into a pint pot, and, having been here at two and three o’clock in the morning, I do not think that is a great way to make laws. I hope that we will see something of this importance very early on in the next Session of Parliament, which will enable this House to use its expertise to have proper debates and make a proper contribution.
All that remains to be said is that we want to have reviews in whatever form they take. These reviews and assessments will be absolutely essential if we are in any way serious about making this work.
My Lords, I thank all noble Lords for these amendments. I must admit that, as we reach the end of Committee, I find myself in a somewhat novel position as the Foreign, Commonwealth and Development Minister to your Lordships’ House, talking to some amendments which have been raised in other departments. I am grateful to all noble Lords who have engaged directly with my noble friend Lord Callanan, my noble friend Lady Williams and me on various issues.
I thank all Front-Benchers for their direct engagement. It was an intense weekend of toing and froing for many people, but again, it shows the best of your Lordships’ House when we come together on such an important issue. Talking more broadly as the Sanctions Minister and the FCDO Minister, everyone understands the importance of getting the Bill through at the earliest opportunity, and I am grateful for noble Lords’ engagement in Committee.
I thank my noble friend Lady Neville-Rolfe for tabling Amendment 91. This seeks confirmation that an impact assessment will be prepared before sanctions regulations are laid, and proposes that sunset clauses are included in the sanctions regulations. On her first point, I reassure her that the FCDO conducts impact assessments in appropriate cases. An impact assessment was carried out and published for the Sanctions and Anti-Money Laundering Act 2018, for example, and others have been published directly for the autonomous sanctions regulations. These include those for the Global Anti-Corruption Sanctions Regulations 2021, and those specifically in relation to certain recent changes to the Belarus and Russia sanctions regimes.
Let me turn now to my noble friend’s second point. The noble Baroness, Lady Smith, and the noble Lord, Lord Fox, have also pointed to this issue—sunset clauses. While I thank my noble friend for her recommendation, foreign policy and national security objectives do not neatly fall within defined periods. Our sanctions need to be sufficiently flexible to respond to changes in circumstances. The inclusion of a sunset clause could also reduce the impact of sanctions if it implied that there might be an automatic expiry unrelated to achieving the purposes of a given sanctions regime. In addition, ongoing certainty in our sanctions legislation is needed in respect of our ongoing United Nations and international obligations. I assure my noble friend, however, that there are routes for designated individuals to seek review of their designations at any given time. The amendments brought forward by the Government in the Bill will allow for maximum impact to be brought on Mr Putin and those who support him. I hope that, in outlining our current policy, I have been able to reassure my noble friend as to the Government’s intention, and I hope she will be minded to withdraw her amendment.
Amendments 93 and 96 seek to place an obligation on the Secretary of State to provide an annual report on the operation of the Bill and its impacts. Let me say from the outset that I agree very much with noble Lords who, throughout this Bill, as the noble Lord, Lord Fox, pointed out, have called for its scrutiny. However, as my noble friend Lord Callanan explained earlier today, the entirety of the measures in the Bill will of course be subject to the usual post-legislative scrutiny process. This is a proportionate approach and, as such, it is unnecessary to include additional reporting requirements.
Companies House also publishes an annual report covering performance, accountability, financial statements, a trust statement, and late filing penalties. As the registrar’s role expands to deliver on the Bill and the one to follow, the Government will expect Companies House to expand the coverage of its performance-reporting accordingly. I am sure that this will be a point very much debated in ECB 2, as it has come to be known. However, I stress that I very much agree with my noble friend’s amendment that the new register of overseas entities needs to support a clampdown on the misuse of UK property as a means to launder illicit funds while protecting the ease of doing business. I assure my noble friend that this has been central to our considerations.
The vast majority of overseas entities will be owned by entirely legitimate individuals, and it is important that the Bill respects their existing rights and secures their compliance at the minimum additional burden. That means having only requirements that are strictly necessary and providing adequate transition time for legitimate entities. I also assure noble Lords that we have consulted extensively on this package, and it has won broad stakeholder support from businesses, professional groups and, importantly, law enforcement agencies and civil society for the balance it is striking.
Turning to Amendment 94, I am grateful for the typically considered views expressed by the noble Lord, Lord Cromwell, during Second Reading. As he pointed out on a lighter note on a serious issue, it seems interesting that, while we are talking about sanctions, we come up with the acronym “SLAPPs”, which is appropriate in its intent. “Strategic litigation against public participation” is a mouthful but, as he pointed out, the Government are already seized of the importance of this importance. This issue applies more widely than just to this Bill, and it is important that the Government take a strategic approach to addressing it.
As we have already heard, SLAPPs are typically brought against journalists, writers and publishers, although an action may be brought against any person or group perceived as a threat in exposing or criticising the claimant’s practices. The noble Lord, Lord Cromwell, acknowledged a letter which he has received about this. He is correct; I can confirm that the Deputy Prime Minister and the Justice Secretary announced on 4 March that the Government would launch an urgent call for evidence. This will enable us to follow up on a number of key areas. My noble friend Lord Wolfson will also be engaging with noble Lords on this very key issue directly. This means that we will be able to hear at first hand the personal and professional experiences of those who have been involved in SLAPPs. That includes those with expertise and experience in this field, whether from the media and publishing world, the legal profession, the judiciary or a campaign group.
The other aspect is the chilling effect of SLAPPs, and the perfectly appropriate news investigations that may be curtailed, or not even started, because of the fear or risk of incurring the crippling expense of High Court litigation. However, I assure noble Lords that we are clear that the call for evidence should not just be a listening exercise, something which I know concerns them. It will be critical that we move quickly on reforms to address the problem of SLAPPs. We will explore and consult on a range of measures. As the letter received by the noble Lord acknowledges, where action is needed, we will take it quickly and effectively. Indeed, if legislation or changes to rules of court are required, we will pursue them. Given the wider action and assurances I have provided, I hope that the noble Lord, Lord Cromwell, will be minded to withdraw his amendment. As I said earlier, I know that my noble friend Lord Wolfson will engage on this very issue.
Amendment 95 concerns additional reporting on the funding of enforcement agencies in relation to this Bill and economic crime more generally. I agree with noble Lords, including my noble friend Lord Agnew, that we can make legislation and establish new departments and units. However, as the noble Baroness, Lady Smith, said quite appropriately and accurately, we need to ensure that they are effective and that they can do the work they are designed to carry out. The NCA, and other enforcement agencies like it, have a duty to be open and transparent in their deployment of public funds. As noble Lords know, these agencies publish annual reports on their expenditure, which can be found online. The Government have developed a sustainable funding model that demonstrates our commitment to tackling economic crime, a point made by a number of noble Lords in this debate. The combinations of this year’s spending review settlement and private sector contributions through the levy will provide economic crime funding totalling, as has been acknowledged, around £400 million over the spending review period.
I share with noble Lords that my noble friend Lady Williams and other Home Office Ministers have worked hard to increase the agency’s core baseline funding. It has risen from 62% to more than 80% following the findings of the cross-departmental review of the NCA’s funding model. Importantly, this will allow enforcement agencies to invest in their core infrastructure—a point made by a number of noble Lords—and provides them with increased stability of funding and improved operational flexibility to address changing priorities. I trust that noble Lords are assured, to this extent, that the Government remain committed to being transparent, and that the existing parliamentary oversight of the funding of enforcement agencies is currently sufficient.
In the assurances I have given in addressing the amendments, I hope that I have been able to address the questions raised by noble Lords, including my noble friends, during this debate. In this respect, I once again assure noble Lords that the intent behind bringing this Bill forward is very much to ensure that we can act quickly. I am sure that further discussions—both as we move forward in the implementation of aspects of this Bill, and indeed in our debates and discussions on ECB 2—will also return to some of the themes which have been raised during the passage of this Bill.
The noble Baroness, Lady Smith, raised a valid point about the timing of the new Bill. I am sure she will appreciate that I cannot confirm the specifics of that, but she has made that point and I assure her I will take it back—others have noted its importance. Equally, I respect and have regard for your Lordships’ House and all the contributions made during the course of the Bill, recognising the importance of holding the Government to account on these important issues. The passage of the Bill has demonstrated not just the accountability of the Government to your Lordships’ House, but your Lordships’ House at its best in how we work together when it is required.
Before the Minister sits down, while progress has been made on providing funding for the investigatory bodies, given that we expect imminent and immediate impact on investigations from the passage of the Bill, what assurance can he give the Committee that personnel with the necessary qualifications and experience will be available in the very short term, even though the funding may be following them?
My Lords, within the agencies, particularly the NCA, of course we have great expertise and insights. I cannot provide the noble Lord with specific numbers but, as I said earlier, the Government very much stand by the principle that in introducing these regulations and these new powers, and when it comes to the implementation of our sanctions policy, we need to ensure that we are fully and appropriately resourced so that those people who are sanctioned can be acted upon.
Further to the question from the noble Lord, Lord Empey, has the Minister consulted the Inland Revenue, which deals with anti-avoidance matters on a daily basis and has considerable expertise in these matters, and in the artificial transactions that often occur and come under its scrutiny?
My Lords, I stray into the work of other departments—both the Home Office and the Treasury—but I can assure noble Lords that this is an all-of-government approach, ensuring that not only are we acting appropriately in whatever department we need to act, but of course that there is appropriate funding and support for the actions we are taking.
My Lords, I am very grateful to all those who have taken part in this short debate. I thank my noble friend the Minister for his response. My probing amendment applied to Part 4 of the Bill, of course—so, to all regulations made under it—but I understand exactly where he was coming from on the sanctions provisions.
As we are short of time, I will dispense with the customary summary of the excellent points that have been made this evening, except to emphasise to the noble Baroness, Lady Smith of Basildon, that I am as keen as anyone else to avoid delay. I was glad that she also saw value in impact assessments appropriately tabled.
I think there is a measure of agreement across the Committee on the need for adequate enforcement of the provisions in the Bill and on the need to provide the necessary resources. I will return to this matter, to the idea of effectiveness reviews and indeed to the various regulations, in due course. I agree with my noble friend the Minister that the House has worked well on this Bill to get it through Committee in such a short time—but for now I beg leave to withdraw my amendment.
Amendment 91 withdrawn.
Clause 52 agreed.
Amendment 92 not moved.
Clauses 53 to 61 agreed.
Amendments 93 to 96 not moved.
Clauses 62 and 63 agreed.
Clause 64: Commencement
Amendment 97 not moved.
Clauses 64 and 65 agreed.
Bill reported without amendment.