Economic Crime and Corporate Transparency Bill update

22 Jan 2023

The Economic Crime and Corporate Transparency Bill returns to the floor of the House of Commons next week (24-25 January) having completed its committee stage in late November. While not containing any tax changes it does include measures relevant to tax professionals. This report summarises the Bill's committee stage.

Measures of particular interest to tax advisers and related professions in the Bill include:

  • Reform of Companies House with more powers for the Registrar
  • Regulation-making power to require general partners of UK-registered limited partnerships to provide accounting information to HMRC
  • New exemptions from money laundering offences to reduce unnecessary reporting by businesses
  • Enabling businesses in certain sectors (including large accountancy and law firms) to share information more effectively to prevent economic crime
  • Giving legal regulators a duty to uphold the economic crime agenda

This is a lengthy Bill, standing at 250 pages when first introduced but now 318 pages following a substantial number of committee stage amendments. These are summarised below (drawing on House of Commons Library committee stage summaries), alongside relevant extracts of debate on both government measures and opposition amendments and new clauses.

None of the opposition new clauses were successful, but a number were received sympathetically by ministers. These included proposals from Labour veteran Dame Margaret Hodge for a new offence of ‘failure to prevent fraud, false accounting or money laundering’ – where the minister hinted the Government would come forward with its own reforms – and for greater protection for whistleblowers. Ministers also promised to move forward determinedly with the strengthening of the UK’s anti-money laundering regime.

We have also produced a preview of the Bill’s report stage, including amendments and new clauses tabled for discussion.

The Bill

According to the Government’s explanatory notes the Bill has three key objectives:

  • Prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy.
  • Strengthen the UK’s broader response to economic crime, in particular by giving law enforcement new powers to seize cryptoassets and enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.
  • Support enterprise by enabling Companies House to deliver a better service, and improving the reliability of its data to inform business transactions and lending decisions across the economy.

Useful documents:
Original text of the Bill
Current text of the Bill (as amended after committee stage)
Full text of committee stage debate (380 pages)
Full text of committee stage amendments (all, not just successful ones)
Full text of report stage amendments tabled so far
Other publications related to the Bill
Report on final stages of the 2022 Economic Crime Act

Committee stage debate

Oral Evidence Sessions (25-27 October)

The 17 MPs on the Public Bill Committee took evidence from a wide range of witnesses over four sessions, including representatives from financial and professional services, the police, academics and anti-corruption campaigners.

A representative from UK Finance said that the Bill’s provisions for Companies House reform ‘definitely point in the right direction’ but posed the question: “Are they going far enough and will they be implemented fast enough?” “A key thing we have noted is that the Bill does not provide for order-making powers to allow Companies House to verify the status of directors or beneficial owners, and for that sort of requirement on company information agents and so on,” he said. “That seems an odd gap.”

Andy Gould, who runs the cyber-crime programme for the National Police Chiefs’ Council, was asked whether he thought the enforcement agencies have the expertise that they need to deal with the economic crime relating to cryptoassets. He replied that he thought they did have the capability, but what they lacked was capacity. He said one of his sergeants has just been offered £200,000 to go to the private sector. “We cannot compete with that. That is probably the biggest risk that we face within this area at the moment.”

Thom Townsend of the UK Anti-Corruption Coalition identified ‘significant areas of improvement’ needed in the Bill. “The key area we would identify is around the verification mechanism… We are not putting in place mechanisms to understand whether the disclosure of beneficial ownership is accurate, and that is a significant problem.” Additionally, on the ID of individuals he said there were “grave misgivings about that being outsourced to the trust or company supervisor profession. There are other ways of identifying people: in an ideal world, Companies House should be doing that.”

Angela Foyle, representing ICAEW, was asked about this issue in a later session. She noted that the Bill has two forms of verification, by either Companies House or authorised corporate service providers, but it “does not appear to have the wording that would be in the money laundering regulations, which requires there to be reasonable verification measures using a risk-based approach. I think those kinds of words always assist, so that you actually have to assess and understand the risk surrounding the people you are trying to verify first, and therefore, if necessary, enhance your level of verification.” She agreed this was a weakness in the Bill that we should think about strengthening but warned that while an accountant can look at documents and take careful measures to ensure that those documents are, or appear to be, valid, they cannot ever say with 100% certainty that something is the case.

Susan Hawley of Spotlight on Corruption said it was essential that the “know your customer” rules that the private sector has to use are used by Companies House as well. “There is no point having a registry that SMEs cannot rely on because it is not as accurate as it needs to be. That has been a problem now that the big companies simply do not use the corporate register because it is so inaccurate.”

Part 1 – Companies House Reform (clauses 1-98 in the original Bill, debated 1-15 November)

The main measures in this part of the Bill are:

  • Broadening the Registrar’s powers so that the Registrar becomes a more active gatekeeper over company creation and custodian of more reliable data concerning companies and other UK registered entities such as LLPs and LPs – including new powers to check, remove or decline information submitted to, or already on, the register.
  • Introducing identity verification requirements for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar. This will improve the reliability of the Registrar’s data, to support business decisions and law enforcement investigations.
  • Providing the Registrar with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies.

All clauses in this part of the Bill were agreed by the committee, along with a substantial number of government amendments and new clauses.

The House of Commons Library summarises these as follows:

These new clauses seek to allow for: (1) Part 1 to apply to overseas companies; (2) rectification of the register relating to invalid service and principal office addresses; (3) the Secretary of State to require businesses to identify discrepancies between its own information and that on the public register; and (4) the registrar to omit from public inspection company names for companies that have been directed to change their name.

Many largely technical and consequential government amendments were also made. The only government amendments divided upon were amendments to clause 32 (passed along party lines by 10 votes to 7). These amendments provided that a sanctioned person would only be disqualified from being a director if those sanctions related to asset-freezing.

No non-government amendments or new clauses were made or added to Part 1 during Committee stage.

While broadly supportive of the measures in this part of the Bill as far as they go, opposition MPs stressed the importance of adequately resourcing Companies House and proposed a range of amendments towards this. “If it is not funded as well as empowered to do the work, it seems very unlikely that it will complete the tasks that the Government and all of us in this room expect of it,” said SNP spokesperson Alison Thewliss.

The opposition also proposed amendments to strengthen Companies House verification checks. “I understand that we do not want Companies House to go knocking at every door—that would be hard—but we could introduce a risk-based assessment, as we are trying to through my amendment 94,” said Margaret Hodge.

For the Government, new business minister Kevin Hollinrake – until recently an active member of the All Party Parliamentary Group on Responsible Tax and Anti-Corruption, alongside Margaret Hodge and others – said he was ‘incredibly ambitious’ for the Bill. But he suggested that what Hodge “seems to want is to have armies of address checkers going around the country. This [ie the Bill] is ex post regulation, which is a more effective means of regulation.”

Shadow Home Office Minister Stephen Kinnock backed Hodge’s amendment, saying “we need somewhere in the Bill a very clear indication that it is the duty of the registrar to conduct risk-based assessments. If not, the Bill will leave a loophole, and we should not allow that to happen.” The amendment was pressed to a vote but defeated by seven votes to nine.

The committee discussed whether there should be a cap on the number of directorships someone can hold. The SNP tabled an amendment to achieve this with Alison Thewliss suggesting the cut off could be at 20 or 30. However the minister thought a cap would be wrong: “We believe that it is ours not to reason why. We believe in freedom and that people should be allowed to live their lives as they choose. We do not seek to put restrictions on people for no good reason.” Nevertheless he thought that a large number of directorships might serve as a red flag to the registrar that there was a risk worth investigating.

Returning to the issue of identity verification in relation to company data Margaret Hodge accused the legal sector of engaging in ‘low levels of enforcement’ for money-laundering purposes. They “are three times more likely to engage in what they call “quiet chats”— informal actions, we would say—with those breaching the rules than in issuing fines and public censures”, she told the committee. “Some of the professional bodies are failing to impose any meaningful fines,” she added. “The Council for Licensed Conveyancers imposed zero fines, despite finding that 62% of the firms it supervises—nearly two out of three— were non-compliant in 2019-20. The Law Society of Northern Ireland imposed just one fine of £1,750 during the same period, despite finding 228 cases of non-compliance.”

The supervision of trust and company service providers (TCSPs) is ‘essentially non-existent’, continued Hodge. “It is an HMRC function, and it hardly carries out that function.” She observed that the former chief executive of HMRC, Sir Jon Thompson, had questioned whether its anti-money laundering duties were a bolt-on rather than a core part of its business. “It is absolutely vital that we get supervision and regulation right”, she added. “I know that the Government accept that point, and I know that is why they have set up a review. We have a crazy system in the UK, with 25 different anti-money laundering regulators, many of which are the trade bodies of the professions involved. There are a lot of problems with that system.” These included that, “if one gets kicked out of the accountancy bodies, one can carry on practising, establishing companies and calling oneself a financial adviser.”

Replying for the Government, Kevin Hollinrake agreed that parts of the regime ‘are not operating as they should’. “I can assure the right hon. Member for Barking [Margaret Hodge] and the Committee that I will urge my counterparts at the Treasury to bring forward their consultation as quickly as officials can ready it. I also point to the powers in the Bill that will enable the registrar to keep an audit trail of the activity of agents to support the work of supervisors both immediately and following any changes from the Treasury’s review. I hope my explanation has provided reassurance.”

Part 2 – Partnerships (clauses 99-134 in the original Bill, debated 15-17 November)

This part of the Bill aims to tackle the abuse of limited partnerships (including Scottish limited partnerships), by strengthening transparency requirements and enabling them to be deregistered.

The Commons Library summarises committee stage debate on this part of the Bill as follows:

The committee agreed (without division) four new clauses proposed by the Government. One of these would specify how individuals might be exempted from meeting new requirements for identity verification on the grounds of national security. The other three would make further provisions relating to dissolving and winding up limited partnerships.

The committee also agreed numerous government amendments – many of them technical or consequential to other changes – without division. The Opposition proposed several amendments and new clauses. They were all withdrawn or not called.

Much of the discussion on this part of the Bill was around transparency. Margaret Hodge (Lab) argued for new clauses that would ensure “that partners or members could no longer hide behind offshore corporate partners and members without a named individual being on the line for—held to account for—any wrongdoing.” Labour spokesperson Seema Malhotra supported this. Minister Kevin Hollinrake replied that looking for one person behind a corporate entity “is exactly what we are achieving through the regulations, making sure that there is an actual person—a registered officer, a managing officer—who sits behind any corporate entity. That person will be verified, with a UK address.”

Alison Thewliss (SNP) cautioned the minister that “when the rules around Scottish limited partnerships were tightened, people just moved to the next structure, and the next structure was limited partnerships in Ireland. Ireland has seen a huge surge in people abusing its corporate structures, which are similar to ours for historical reasons, but nobody warned the Irish that this was coming.”

Clause 118 (of the original Bill) gives the Secretary of State the power to make regulations that require the general partners of UK-registered limited partnerships to provide accounting information to HMRC”. The minister explained the need for this as follows: “Limited partnerships are tax transparent, meaning that the individuals that are part of the limited partnership pay tax, rather than the limited partnership itself. In many cases, the partners of a limited partnership will pay tax in the UK, either because they are individuals who pay income tax or because they are corporate entities that pay corporation tax. Where the partners are UK corporate entities, they will also provide accounting information to the registrar. However, there are some limited partnerships whose partners do not pay tax in the UK or which are not legally required to provide accounting information to the UK Government.” The clause would close this gap, he explained. “General partners who do not comply with that requirement will commit an offence and be liable to a fine or imprisonment.”

Part 3 – Register of Overseas Entities (clauses 135-140 in the original Bill, debated 17 November)

This part of the Bill amends the Register of Overseas Entities introduced by the Economic Crime (Transparency and Enforcement) Act 2022 to maintain consistency with changes to the Companies Act 2006.

The Commons Library summarises committee stage changes to Part 3 as follows:

No amendments were tabled to Part 3 during committee stage, but 10 new government clauses were added. The new clauses are largely intended to make the Register of Overseas Entities more accurate and reflect changes being made in Part 1. They were all added without divisions.

These clauses were dealt with relatively briefly and uncontroversially by the committee. The minister updated the House on the Register of Overseas Entities, which came into force on 1 August 2022. He said that, as of 17 November, there were 3,893 registrations, that eight people are working full time on the register and 20 are trained to handle registrations. There is no current backlog at HMRC in this regard.

Part 4 – Cryptoassets (clauses 141-142 in the original Bill, debated 22 November)

This part of the Bill creates powers to quickly and more easily seize and recover cryptoassets, which are the principal medium used for ransomware. The creation of a civil forfeiture power will mitigate the risk posed by those who cannot be criminally prosecuted but use their funds to further their criminality, or for use for terrorist purposes.

The Commons Library summarise committee stage debate on Part 4 as follows:

The Government tabled technical amendments to the civil recovery provisions intended to ensure consistency in the drafting. They were agreed without division.

The Government also tabled a new clause and schedule which would amend the Anti-Terrorism, Crime and Security Act 2001 and the Terrorism Act 2000 to provide for civil recovery powers equivalent to those contained in the Bill. These were also agreed without division.

Debate on this part of the Bill was brief. Labour spokesperson Stephen Kinnock accused the Government of having sent ‘mixed messages’ about their approach to regulating cryptoassets, acknowledging the need to tackle the use of cryptoassets for criminal purposes, while the Prime Minister says it is his “ambition to make the UK a global hub for cryptoasset technology”.

The security minister, Tom Tugendhat, explained that what the Bill does is make sure that assets that are held in cryptocurrency can be seized, as other assets can.

Part 5 – Miscellaneous (clauses 143-157 in the original Bill, debated 22 November)

This part of the Bill:

  • Creates new exemptions from the principal money laundering offences to reduce unnecessary reporting by businesses carrying out transactions on behalf of their customers and gives new powers for law enforcement to obtain information to tackle money laundering and terrorist financing.
  • Removes the need for a Statutory Instrument to be laid in order to update the UK’s high risk third country list.
  • Enables businesses in certain sectors to share information more effectively to prevent and detect economic crime.
  • Removes the statutory fining limit to allow the Solicitors Regulation Authority to set its own limits on financial penalties imposed for economic crime disciplinary matters.
  • Adds a regulatory objective to the Legal Services Act 2007 to affirm the duties of regulators and the regulated communities to uphold the economic crime agenda.
  • Allows the SFO to use its powers under section 2 of the Criminal Justice Act 1987 at the ‘pre-investigation’ stage in any SFO case.

The Commons Library summarise committee stage as follows:

The Government tabled amendments to Part 5 which were agreed without division, including:

  • extending the protection for businesses sharing information on customers to all civil liability
  • removing the existing statutory limit on financial penalties that can be imposed by the Scottish Solicitors’ Discipline Tribunal in relation to economic crime offences.

Debating clause 148 (as was), the minister, Tom Tugendhat, explained that government amendments 142, 152 and 155 extend the scope of the indirect information-sharing provisions in the Bill to cover large and very large accountancy and legal businesses. “The benefit of bringing those businesses within the scope of the provision is that those firms have experience of dealing with high-risk clients. Criminals are known to exploit the information gaps that currently exist between businesses in these sectors, and encouraging further information sharing creates greater opportunities to prevent economic crime.” Clauses 148 and 149 do not disapply any liabilities arising under data protection legislation.

Shadow minister Seema Malhotra had tabled amendment 167, a provision with similar effect to government amendments 142, 152 and 155. She explained that ICAEW had called for this provision and spoken about the importance of enabling accountants to share information with each other, in order to ensure people committing economic crimes are not able to continually do so by simply changing their accountant and restarting the process. She welcomed the Government’s amendments in this area though asked for clarity that they would be as broad in effect as her amendment.

Opposition new clauses (24-29 November)

New clauses are considered after the existing clauses have been voted on (though may be debated earlier, as appropriate).

Companies and company directors

Alison Thewliss (SNP) proposed a new clause (NC24) designed to ensure disclosure of information relating to bank accounts held by subscribers to a memorandum of association. She said it was aimed at tightening up loopholes, making things ‘just that wee bit more transparent’, and flagging up any issues to Companies House. The minister offered to explore the issue further and Thewliss withdrew her proposal.

Labour front bencher Seema Malhotra proposed a new clause (NC26) that would have introduced a reporting requirement in relation to the objectives in the Bill. The Secretary of State would have been required to report on the effectiveness of the powers available to the registrar to achieve her objectives as set out in clause 1 of the Bill.

A Labour front bench proposal was rejected, that any individual convicted of an offence for a serious breach of the National Minimum Wage Act 1998 should be disqualified from serving as a company director.

Another Labour new clause (NC54) sought to prevent any company from registering in the UK for the purposes of acquiring land if the company in question was originally incorporated in a jurisdiction designated, either by UK or international authorities, as a high-risk jurisdiction for money laundering and terrorist financing at the time of the company’s incorporation. “If a company was initially formed under laws designated by the Treasury, under international guidelines, as seriously deficient in their approach to money laundering risks, that company should not be allowed to own land or property in the UK,” said Kinnock. The minister replied that the new clause was well-intentioned but would not have the intended effect. “Putting a blanket restriction on bona fide companies and bona fide individuals buying from [high risk] jurisdictions is disproportionate and wrong,” he opined, adding that such jurisdictions included Israel, Turkey and the Czech Republic. The new clause was pushed to a vote but defeated 6-9.

Gavin Newlands (SNP) proposed a new clause (NC69) seeking to prevent companies from repeatedly becoming insolvent and then continuing to carry on the same business activities through a new company (‘phoenixing’). It stated that a company “may not be registered under the Companies Act 2006 if, in the opinion of the registrar of companies, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding ten years.”  For Labour, Seema Malhotra welcome the proposal, which she said was similar to new clauses which Labour had tabled. But the minister, while sympathetic to those who have been victims of phoenixing, said the issue needed further work rather than “just plonking the new clause in the Bill”. It was not pressed to a vote.

Another Newlands new clause (NC70) sought to prevent directors who fail to comply with their duties as a company director or with employment law provisions from being able to access funds in instances where these funds are for the benefit of the company, though not where these are for the benefit of the company’s employees (such as with the furlough scheme). Again the minister thought Newlands had raised a good point, but he thought the framing of the clause would not exclude support such as furlough and it should be withdrawn. Newlands acknowledged it was a probing amendment and did not press it to a vote.

Anti-money laundering supervision

Margaret Hodge (Labour) proposed two new clauses aimed at strengthening anti-money laundering supervision. New clause 72 would have given the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) the power to impose unlimited financial penalties on Professional Body Supervisors that fail to (a) adopt an effective risk-based approach to anti-money laundering supervision; (b) impose proportionate and dissuasive sanctions for non-compliance with anti-money laundering requirements; and (c) fail to separate their advocacy and regulatory functions. It would also have required OPBAS to publish the details of any sanctions imposed on Professional Body Supervisors, and its reviews of Professional Body Supervisors with data disaggregated by body rather than by sector.

Proposing NC72 Hodge said she accepted “that most professionals are straightforward, honest people who want to do a good job, but the focus of our work is to ensure we have in place a smart regulatory framework that captures the wrongdoers.” She said the 2021 review of OPBAS found that 81% were not supervising their members effectively: half the supervisors did not ensure that their members were taking timely action to improve their money laundering procedures where they were found wanting; a third of the supervisors did not have effective separation between the advocacy role and the supervision role. She made specific reference to CIOT, alongside the Solicitors Regulation Authority and the Council for Licensed Conveyancers, as examples of supervisors who had found large numbers of supervised firms to be non-compliant with AML regulations.

Hodge also proposed new clause 44 which would have required HMRC to prioritise its AML supervisory function.

Labour spokesperson Seema Malhotra backed both new clauses, saying that tightening up the roles and the performance of professional body supervisors and HMRC “is an opportunity that we should not miss”. For the SNP Alison Thewliss agreed, saying anti-money laundering supervision “is the key to ensuring we close the door on money laundering. Those bodies are meant to stop it, and if we do not tighten the legislation and provide the resource there is very little point having the Bill.”

The minister, Tom Tugendhat, made sympathetic noises but said the Government could not support either new clause. In the case of new clause 44, “HMRC already has an anti-money laundering supervisory function and it does take its responsibilities extremely seriously.” Hodge asked what evidence he had of that, apart from HMRC saying so. “It visited my business!” interjected Kevin Hollinrake. Tugendhat said that HMRC carried out 3,500 formal compliance inspections with businesses last year and issued over £2.5 million of penalties in 2021-22.

On new clause 72, Tugendhat welcomed the desire to strengthen the UK’s anti-money laundering regime, saying he shares the support for the work OPBAS does. “However, it is not yet the right time for the proposed changes, and I cannot support the suggested amendment. In June of this year, the Treasury published a review of the UK’s anti-money laundering regime, which considered the performance of the supervisory regime, including the work of OPBAS. It concluded that although there have been significant improvements in recent years, further reform is necessary to ensure effective supervision across the regulated sector. The review set out four options for reform, ranging from strengthening OPBAS to structural reform to establish a new statutory supervisor. Further policy work to develop these options is already under way, and the Treasury has committed to publishing a consultation before a decision on the direction for reform is made. It would be wrong to preclude the ongoing policy analysis and public consultation by making the changes proposed by the amendment.”

Hodge replied: “I hear what the Minister says, but I think we will just be setting up another duff register unless we get the regulation of those company service providers toughened up at the same time as we introduce the Bill. I want to press new clause 72 to a vote.” The new clause was defeated 6-8.

Labour MP Liam Byrne put forward new clause 66 which proposed that: “Where an independent legal professional is not a member of any of the professional bodies listed in Schedule 1 of the MLRs 2017 but undertakes regulated business within the scope of Regulation 12 of the MLRs, the Solicitors Regulation Authority will be the default supervisory body for that independent legal professional.” He said there was “a hole in the supervisory regime that the Minister will want to fix. We tabled the new clause to uncover what his strategy might be.” Labour spokesperson Seema Malhotra backed him, saying there was “effectively a loophole that can enable rogue actors to act as legal professionals without the supervision or membership of a professional body, thereby avoiding scrutiny of their actions, which could facilitate economic crime and money laundering”.

For the Government, Security Minister Tom Tugendhat acknowledged that the Government’s review of the UK’s AML regime, published in June, had identified concerns in the legal sector that a small number of professionals may be unsupervised. “The examples are limited to some specific and small subsectors, such as specialist wills and estate planners and one or two unregistered barristers,” he said. The review had concluded that further reform of the supervisory regime was necessary and set out options, including giving the SRA, or other legal sector supervisors, a greater role. However, “in the absence of broader AML reforms and appropriate resourcing, it would be difficult for the SRA to supervise those who are not currently members of its own regulated community, as the new clause would require… [Therefore] it would not be appropriate to accept it at this moment.” Byrne withdrew the new clause but indicated it might be brought forward again, perhaps in the Lords.

Registers of beneficial ownership

Labour spokesperson Stephen Kinnock proposed a new clause (NC51) to broaden the scope of registration requirements for overseas entities to include the beneficial owners of any UK-based assets owned by an overseas company, as well as the beneficial owners of the company itself. He said this was designed to address a loophole in the Economic Crime (Transparency and Enforcement) Act 2022, whereby a foreign company that owns property or land in the UK is required to declare the beneficial ownership of the company, but not necessarily the ultimate beneficial owner of any property owned by that company.

He explained: “In its official guidance and examples of best practice on beneficial ownership, the Financial Action Task Force draws a distinction between the ownership of a company on the one hand and the ultimate beneficial ownership of any assets held by that company on the other. The guidance makes it clear that they are not necessarily the same thing. One of the most salient differences is that although a company can be the legal owner of a property, the ultimate beneficial owner of that property will always be a natural person, or, in layman’s terms, a human being. It is not clear whether the current legal framework for the register of overseas entities is sufficiently clear on that point.”

The minister, Kevin Hollinrake, said he believed intent behind the new clause was the concern that assets other than land can be used for illicit purposes, but he was not sure that the new clause, as drafted, served to address that. Kinnock referred him back to the Financial Action Task Force’s comments, but withdrew the motion on this occasion.

Kinnock also proposed new clause 52, which sought to close a loophole in the current rules on registration of overseas entities, so that a threshold lower than 25% ownership or control is applied where a company’s shares or voting rights are held by multiple members of the same family. “Given how high the Government have set the threshold at which ownership of a company’s shares must be declared… the need to tackle risks of concealing ownership by spreading shares among several different people becomes all the more urgent,” he said. “Splitting ownership between family members would appear to be the easiest and most obvious way to do this. If the threshold for declaring ownership is set at 25% of a company’s shares or voting rights, it takes little imagination to come up with a solution: simply break up the shares so that on paper, if not in reality, five members of the same family appear to own no more than 20% of the company each. As a result, none of them have to disclose their connections with the company under our current laws”.

The minister replied that collecting information on legal ownership below the 25% threshold “would be much more akin to what would be done to have the effect of creating a register of shareholders, rather than beneficial ownership.” He noted that anyone who has a right to exercise, or actually exercises, significant influence or control over an overseas entity is still required to be registered, even if they fail to meet the 25% ownership threshold.

Labour’s new clause 55 would have required registered overseas entities to provide updates on any changes in beneficial ownership every six months, instead of annually as is currently required. It was not pressed to a vote.

Labour, led by Stephen Kinnock, also proposed a new clause (NC53) to amend the Sanctions and Anti-Money Laundering Act 2018 to ensure that an Order in Council requiring open registers of beneficial ownership in the British Overseas Territories comes into force no later than 30 June 2023. The minister replied that the new clause would simply move the timeline forward by only six months for the overseas territories. “All the territories are now willingly implementing publicly accessible registers and putting significant effort into the policy, despite the fact that most jurisdictions around the world are not doing so. To move forward an agreed timeline would not show good faith in our partnership with the territories.” The new clause was pressed to a vote but defeated 6-9.

Partnerships and trusts

Margaret Hodge’s new clause 56, which would have required the Government to set up a registration of persons of significant control in relation to limited partnerships, was voted down 6-9.

Another Hodge proposal (new clause 59), that would have required the publication of trust creation dates and names of all trustees, beneficiaries, settlers, granters and interested persons (which are currently only accessible to enforcement agencies) was voted down by the same margin. The minister said that there are “some points in the amendment that we think are relevant, including potentially widening access to information in certain circumstances with certain authorities. We will consider that, but we cannot accept the totality of the amendment at this time.”

Cryptoassets

Labour’s new clauses 60 and 61 sought to strengthen cryptoasset regulation. The minister was sympathetic but felt the FCA was already maintaining a robust regime.

Suspicious activity reports

Margaret Hodge (Labour) proposed new clause 71 in an effort to reform the suspicious activity reports (SARs) regime. “The new clause would introduce a new risk rating system, which would transform the efficacy and efficiency of the current regime,” said Hodge. At present, the sheer volume of SARs and the limited resources available mean that the information is not analysed and often simply not used, she continued, citing comments by the Director General of the National Economic Crime Centre to this effect. With only 118 people dealing with SARs for the enforcement authorities she estimated that the UK has a ratio of 4,250 a year for each of them to look at, three times the equivalent of the similar Australian regime. While this clause would not itself change that, it would at least ensure that the focus was on the most significant SARs.

Seema Malhotra, Labour’s spokesperson, backed the proposal. The minister, Tom Tugendhat, said existing codes enabled the NCA to triage effectively, but he was happy to listen and look further at other ideas that committee members might have. As things stood, however, he did not think what was in the new clause would be a significant improvement on what is already in place.

New offence - failure to prevent

Hodge also proposed new clause 73, which sought to create a new offence of ‘failure to prevent fraud, false accounting or money laundering’. This would apply to a wide range of ‘relevant commercial organisations’, including accountants and tax advisers. “There is currently too little in our laws and regulations that will stop the enablers — accountants and all the others — supporting and enabling economic crime,” Hodge told the committee. “We need to reform our outdated corporate liability laws so that not only companies but senior managers can be prosecuted if they fail to prevent fraud, false accounting and money laundering.” She noted that one of the ministers present, Kevin Hollinrake, had himself argued for an extension of the failure to prevent provisions on bribery and tax evasion to areas such as these. He had called this ‘the number one measure we need’.

The Labour front bench welcomed Hodge’s proposal, with Stephen Kinnock praising her ‘passion and eloquence’. Alison Thewliss, for the SNP, also supported the new clause, which she called ‘incredibly important’. She observed that Hollinrake had argued for a failure to prevent economic crime offence on 15 occasions in Parliament, including as recently as the previous month.

The other minister, Tom Tugendhat, replied for the Government. He said that the Government already recognise directors’ responsibilities in law in various ways. While he takes Hodge’s point very seriously, “we still need to do a little bit of work on how this can be made to work. There are arguments, some of which hold water, about whether the 2017 money laundering regulations include elements that already cover some of these areas, and there are arguments about whether the Law Commission will want to look at different bits of this.” But he agreed that the Bill offers an opportunity to introduce different reforms, and he promised to make sure that any opportunity is fulfilled as quickly as possible.

Hodge did not press the new clause to a vote at this stage but looked forward to debating it further at other stages during the course of the Bill.

Unexplained wealth

Liam Byrne’s new clause 67 sought to cap legal costs where the Government try to bring unexplained wealth orders into effect, by enabling costs in civil recovery proceedings involving economic crime to be awarded against the enforcement authority “only where the respondent can show that the enforcement authority has acted unreasonably, dishonestly or improperly.” Again this got Labour frontbench backing, with Stephen Kinnock saying it would “push the Bill in the right direction”. For the Government, the Security Minister said Byrne had a valid point, but he was much more inclined towards the argument “that the agencies that take on such claims [should] have a war reserve to ensure that they can meet the costs without that affecting their ongoing work, rather than changing the law in a way that would affect civil liabilities in many different areas.” The proposal was defeated 6-8.

Another Hodge new clause (NC80) aimed to tackle the issue of suspicious wealth remaining frozen in bank accounts and serving no useful purpose. “We propose a new, more straightforward, pragmatic solution to deal with suspicious wealth, enabling our enforcement agencies to confiscate the moneys in the bank and repurpose them so that much of the wealth can be used to fund and strengthen our anti-money laundering enforcement capacity and perhaps be given back, in some cases, to the nations from which it has been stolen,” she said. Once again the Labour front bench backed Hodge. Once again the minister, while agreeing with Hodge’s intent, was not convinced that the new clauses would add significantly to existing legislation. “Last year, for example, a record £115 million of proceeds of crime were recovered under existing powers,” he said. The new clause was not pressed to a vote.

Whistleblowing and disclosure

Hodge also proposed the establishment of an Office of Whistleblowing (new clause 76), which would “protect the whistleblowers and ensure that their disclosures are investigated and information provided is passed to the relevant authorities.” As well as whistleblowing which had led to the Panama, Paradise and Pandora Papers she recalled information provided to the Public Accounts Committee by a whistleblower at HMRC, related to what she called ‘the Goldman Sachs sweetheart deal’. Despite assurances from HMRC, the whistleblower had, she said, had his life made ‘so intolerable’ that he had left HMRC. Labour and SNP front benchers once again backed Hodge’s proposal. Once again, the minister, Kevin Hollinrake, was ‘very sympathetic’ to the new clause. He spoke about what the Government is already doing to improve provision for whistleblowing and also about a review of this area which he has asked officials to prioritise. He asked Hodge not to pre-empt the review “because she knows how serious I am. I would like to bring forward effective reform very quickly, and to effect change more quickly. I fear that the new clause would delay the reform, when we can make progress by other means.” Hodge withdrew the new clause but indicated it was likely to be debated again at report stage.

With new clause 64 Labour MP Liam Byrne sought to protect those, including journalists, who disclose information likely to be relevant to the investigation of economic crime by strengthening the public interest defence. Labour spokesperson Stephen Kinnock was supportive as was Alison Thewliss for the SNP. However the minister, Tom Tugendhat, said the way in which the new clause was set out “cuts across many other aspects of law, and it would quite severely affect jurisprudence in this country.” Byrne withdrew the new clause but suggested he would bring it back at report stage.

Resourcing and scrutiny of economic crime

The committee debated a Hodge proposal that there should be a parliamentary Economic Crime Committee (ECC), containing both MPs and peers, with the power to meet confidentially, with a remit “to examine or otherwise oversee any regulatory, enforcement or supervision agencies involved in work related, but not limited to (a) tax avoidance and evasion by corporations; (b) illicit finance; (c) anti-money laundering supervision; (d) tackling fraud; (e) kleptocracy and corruption; and (f) whistleblower protection.”

Hodge noted that in the work she and Kevin Hollinrake had done to think about how to tackle economic crime, they had identified four ways in which to respond: smart regulation, tough enforcement, broad transparency and accountability. This new clause was furthering the last of these, she said. Recalling her time as chair of the Public Accounts Committee, she expressed frustration that, “[b]ecause of the confidentiality of taxpayers’ interests, Parliament has no way to get the information that it needs to assure itself that the tax authorities are treating all taxpayers equally. The proposal in the new clause mirrors the Intelligence and Security Committee, which meets under Privy Council terms, said Hodge. The new ECC would oversee all the regulatory bodies in financial services and economic crime. “It could call for papers relating to individual cases, which would remain confidential because the ECC would meet in private. The ECC could then produce reports on systemic changes that are necessary, arising from consideration of those individual cases.” She noted that a proposal along these lines had been put forward by Conservative MP Bim Afolami.

Shadow minister Stephen Kinnock supported the Hodge proposal. He argued there was too much siloed thinking in relation to economic crime. The new clause “would introduce a vital mechanism for transparency and accountability within the Bill,” he said. Alison Thewliss (SNP) ‘wholeheartedly agreed’ with the new clause. She said that when the Treasury Committee had looked at this issue, she had come to the view that economic crime was nobody’s priority. The committee had concluded that: “The number of agencies responsible for fighting economic crime and fraud is bewildering.” It is not really enough that the Treasury Committee or another committee looks at economic crime every once in a while and sees how things are going, she argued, saying that what is needed is “week in, week out consistent scrutiny”.

Tom Tugendhat, for the Government, referred positively to reports on economic crime not just from the Treasury Committee but also from other existing parliamentary committees, including the Foreign Affairs Committee during his own time as its chair. He said that while he could understand Hodge’s argument, he could not support the new clause because the decision on whether to set up a new parliamentary committee is a decision for Parliament, not ministers.

Hodge said that, given there is cross-party support for an ECC, she would seek to find another means of getting it debated in the House of Commons. She withdrew her new clause.

Hodge had earlier proposed a new clause (NC29) to require a report into the merits of a fund for tackling economic crime to be laid before Parliament. This was rejected in a vote.

The final action of committee stage was a Labour front bench new clause (NC84) which sought to require the Secretary of State to prepare and publish a strategy on the potential establishment of a fund to provide compensation to victims of economic crime. Stephen Kinnock said that as well as victims of economic crime within the UK this “could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regimes around the world.” The minister said the powers in Part 4 of the Bill already increase the focus on victims. He said he is listening, but had yet to be convinced about the new clause, because he believes that it has largely been covered.

The minister also thanked committee members, singling out Margaret Hodge for particular praise: “The way in which she has championed tackling economic crime, drawn the House’s attention to it, and focused the country on the real threats that we have faced has been impressive to us all, and I am personally enormously grateful to her. She certainly helped my work enormously when I chaired the Foreign Affairs Committee, and she has now helped to focus my work as a Minister. I am very grateful that I have had the privilege of working with her.”

Report stage preview

Report stage of the Bill will be taken over two days – Tuesday 24 and Wednesday 25 January. You can read our preview of report stage and all the amendments and new clauses tabled here.