Economic Crime Bill – Government strengthen trusts disclosure requirements in Lords

These covered disclosure requirements in relation to trusts, a revised threshold for the offence of providing false statements and removal of an exemption on the grounds of the UK’s economic wellbeing. There will also now be an obligation on overseas entities that disposed of land before the register is fully in effect to disclose information.

Somewhat confusingly all amendments while the government proposed a large number of amendments at committee stage none of these was moved at that stage, all being brought back to be passed at report stage. That accounts for most of the discussion on the Bill taking place at committee stage even if the amendments being discussed were not passed until report stage!

House of Lords Committee Stage

Part One - Registration of overseas entities

Information about trusts and beneficial owners of property

Clauses 1-3 of the Bill were agreed without debate before peers turned to one of the longer debates of the committee stage, discussing a number of amendments aimed at plugging gaps in the disclosure requirements for owners of overseas entities holding UK property.

Business Minister Lord Callanan explained consideration was beginning with a group of government amendments to collect more information about trusts and overseas trust-like arrangements. As highlighted by many peers at second reading, “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.”

Noting that this is a complicated technical area, the minister said that the government’s amendments “set out that where a trustee of a trust [or similar] 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.”

The entity must then disclose this information to the registrar, said the minister. This information will be unavailable for inspection on the public register, but it may be disclosed to HMRC, law enforcement agencies and other specified persons. He stressed that while the abuse of trusts has been well documented, trusts can be established for legitimate and highly personal reasons, such as protecting assets for children or vulnerable adults.

He listed 26 amendments which were being introduced to achieve these purposes.

In the same mini-debate Lib Dem peer Lord Clement-Jones moved amendment 17, which had been drafted by CIOT in response to a request to produce an amendment to remedy a problem the Institute had identified in its briefing for parliamentarians on the Bill – namely that while the legislation in the Bill requires disclosure of beneficial owners of overseas entities holding UK property, it does not necessarily require the disclosure of beneficial owners of the property themselves. The amendment was also sponsored by another Lib Dem, Lord Fox, and by Conservative peer Lord Agnew of Oulton.

Clement-Jones set out a scenario where an owner of UK property who wished to remain anonymous might have that property held by the general nominee company of a law firm. The nominee company would be the legal owner of the property but would only be holding the property as the nominee of its beneficial owner, who could remain anonymous.

The Lib Dem spokesperson reminded the House that the minister, Baroness Williams of Trafford, had said at second reading debate 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.” He said this was not what the current wording of the Bill required.

“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,” he said.

Labour peer Lord Eatwell supported the theme of what Lord Clement-Jones had 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.”

Crossbencher Lord Vaux of Harrowden welcomed the government’s clauses on trusts. But he warned that, in addition to the points made by 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.”

Vaux suggested that, in addition to what the government was already doing, one way of trying to see through such discretionary trusts would be 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?”

The crossbench peer suggested that we should not be allowing overseas entities to register unless they are fully transparent. “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.”

Lord Agnew, until recently a Treasury minister, also spoke in support of amendment 17, as well as a further amendment of his own. “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.”

Lord Coaker, Labour home affairs spokesperson, said he hoped the minister could offer a full response to the points made by Lords Clement-Jones and Agnew, “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.”

Coaker also expressed concern over the stipulation in the government amendments that the required information about trusts will be unavailable for inspection on the public register. “I accept that there will be many valid reasons for excluding certain trusts from the public register… However, if we had proper time to debate this, an amendment surely could have been brought 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.”

Conservative peer Lord Cormack encouraged the minister “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”.

Responding to the debate for the government, Lord Callanan conceded “that we may not have got every last dot and comma absolutely accurate and right.” The UK is, “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”.

The minister said that the ‘vast majority’ of overseas entities holding property in the UK “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.”

On amendment 17, the minister said he could see the good intent behind the amendment, but he argued that as tabled, it would be ineffective, as it does not fit within the ‘legislative scheme’ of the Bill.

He argued: “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.”

On Lord Clement-Jones’s suggestion that nominees will be used to hide true beneficial owners of property, the minister said that “there are regulation-making powers within the Bill allowing for amendments to prevent such abuse, if that is needed.”

The minister then turned to Lord Agnew’s amendments seeking 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. Again he appreciated the intent of the amendments, but he argued 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 made.

UUP peer Lord Empey asked the minister “if he and his colleagues in his department will keep a rolling review of this going… 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”.

Lord Clement-Jones asked if the minister would 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?”

The minister, Lord Callanan, said he was “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.” He continued: “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.”

Information about beneficial owners

Amendments in this group also related to the disclosure obligations on owners of overseas entities holding UK property.

Lord Agnew proposed an amendment “to give more levers to government and enforcement agencies to force out information when we are worried that the information is not clear.”

Labour peer Lord Sikka proposed a number of amendments. Two asked the beneficial owners and various other parties to provide their former names. Three sought to require the beneficial owners, or their managing agents, to provide a list of any criminal convictions and sanctions against them.

Three others took issue with the government’s provision of the definition of registrable beneficial interest. He argued that defining this as 25% of the shares or voting rights – or somebody having significant influence or control – made it too easy to get round. “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.”

Sikka suggested 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.”

Lord Vaux said that, as the Bill was 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.” His amendment would require any changes in registered information to be reported within 14 days.

Lord Eatwell offered observations based on his 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.”

Lord Clement-Jones spoke to amendment 53, in his name. He said the Bill needed 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.”

Lib Dem business spokesperson Lord Fox also spoke to amendment 53. He warned that: “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.”

Lord Coaker, for Labour, emphasised his dissatisfaction that the fast-tracking of the Bill left little time for sensible, improving amendments. “If [the government] 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.”

Responding to the debate, the minister, Lord Callanan, said that there are 30,000 overseas entities registered in the UK owning approximately 95,000 properties. On amendments from Lords Agnew and Sikka to enable more information to be obtained from registering entities he said that while he understood the motivation for the amendments, “a rigorous amount of information is already required for application… 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.”

In response Lord Sikka cited 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?”

Lord Callanan replied that the government was ‘well aware’ that the existing UK companies register is a ‘dumb register’. “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.” He said this would be ‘a massive change to the operation of Companies House’.

However the minister was more amenable on three other amendments proposed by Sikka, saying “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.” Three government 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.”

On Sikka’s point about capturing any person who holds any shares in the overseas entity in scope, the minister said the 25% threshold was “in line with global norms with regards to beneficial ownership” and also follows the UK’s person with significant control regime. “Removing the threshold altogether would have the effect of essentially creating a register of shareholders rather than a register of beneficial ownership, which… is not appropriate for the purposes of the Bill”. For entirely legitimate entities, there could be hundreds or thousands of shareholders, he suggested.

On amendments to require overseas entities to update the register not just annually but when there has been a change in beneficial ownership, the minister said this “would be difficult to enforce without active investigation [and] would also create great uncertainty for third parties transacting with the overseas entities.” On balance, he said, “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.”

The minister said the government had tabled four amendments 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. “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.”

He added that the government have also amended the threshold for what, under their 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.”

The minister also responded to Lord Clement-Jones’s 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. He argued that existing provisions in the legislation regarding offences for the provision of false information, with the lowered threshold needed for prosecution, dealt with this. Lord Clement-Jones disagreed.

Clauses 4 to 8 were agreed, as were schedules 1-2. A number of amendments (including amendment 17) were withdrawn or not moved.

Transition period for the register etc.

Peers then moved on to a group of clauses and amendments where the major issue under discussion was the length of the transition period for the Bill

Lord Callanan, the minister, spoke to 17 government amendments relating to land registration in Scotland, in his words ‘tidying up some of the drafting in the Bill’.

Mindful that several peers had tabled amendments to shorten the transition period for the register, the minister put forward several government amendments that he hoped would “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”. These included amendment 86 and seven consequential amendments, which sought to require overseas entities who have disposed of certain land between 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. He said this was an anti-avoidance measure.

Lord Sikka (Labour) said the problem with amendment 86 was 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… the Government are inviting these kinds of cat-and-mouse games.” He proposed amendments to remedy this.

Sikka also proposed amendments to remove what he described as “the amnesty from disclosures to those who acquired property in Scotland before 8 December 2014 and before 1 January 1999 in England and Wales.” He listed a number of large Scottish estates where the true ownership is unknown because they are legally owned by anonymous offshore companies.

Labour shadow home affairs minister Lord Coaker praised his colleague’s amendments as ‘common sense’. He also spoke to Labour frontbench amendments which sought to accelerate the implementation of the register of overseas entities, requiring initial registration within 28 days of commencement - seeking to avoid a situation where individuals or entities ‘simply circumvent the law’.

Labour also tabled amendment 92 seeking to freeze assets on an interim basis ‘where there is good reason for doing so’. “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,” Coaker suggested.

Lib Dem Treasury spokesperson Baroness Kramer was another signatory to amendment 92. She spoke of her “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.”

Green Party peer Baroness Jones of Moulsecoomb said the six-month implementation period makes ‘absolutely no sense’. “We are trying to rush this through… but we are still giving people six months to do this.” There is no reason for the Government not to support one of these two pairs of amendments that shorten the implementation period, she concluded.

However crossbench peer Lord Pannick though amendment 92 was 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, he concluded. The real impediment to speedy action here was, he thought, administrative resources.

Lib Dem business spokesperson Lord Fox had co-signed Labour’s amendments seeking to shorten the transition period for the Bill. He also proposed his own amendment seeking to bring commencement forward to the First Reading of the Bill in the Commons.

Replying to the debate for the Government, Lord Callanan said there was no benefit to be gained from removing the registration dates stated in the Bill (extending the scope of the register). “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.”

On the attempts to shorten the transition period, the minister reminded peers that the Government have already reduced the transition period from the initially proposed 18 months to six months and that the Government had tabled amendments “to further ensure that there is no gap in coverage of overseas entities selling their property now.” This will be more effective than any further reduction in the transition period for two reasons, he said. “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… [and second] the majority of properties held via overseas entities will be owned by entirely law-abiding businesses and people… [where in some cases] complex chains of ownership may make it difficult to identify the beneficial owners if the timeframe given is too short.”

On Lord Fox’s attempt to bring forward commencement, the minister did 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.”

Responding to an intervention from Fox the minister said he could not give a precise date for when the legislation would take effect, just that it would be as quickly as possible. He said there were a number of steps needed first, including publishing and implementing a number of statutory instruments, and Companies House putting systems in place.

He also rejected amendments proposed by Lord Agnew amendments seeking 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, arguing this would have “a disproportionate impact on legitimate owners and would also be difficult to justify in relation to interference with property rights”.

On amendment 92, which sought to prevent asset flight, the minister said he hoped the measures already added to the Bill in the Commons would go a significant way towards dealing with the kinds of situations envisaged. He shared Lord Pannick’s analysis that “we need to tread carefully on such matters”.

Clauses 9 to 13 were passed. A number of amendments were withdrawn or not moved.

Whistleblowers

Lib Dem Baroness Kramer propsed amendments to require the Secretary of State to establish a whistleblower office within the office of the registrar. “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,” she argued.

Baroness Smith of Basildon, for Labour, said Kramer’s speech had been powerful and she hoped something like this would be in the second economic crime bill. Baroness Bennett of Manor Castle (Green), Lord Agnew (Conservative) and Lord Cromwell (crossbencher) also all backed Kramer’s proposal.

For the Government, Baroness Bloomfield said 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.” Additionally the Government would review the whistleblowing framework “once we have had sufficient time to build the necessary evidence of the impact of the most recent reforms.”

Kramer’s amendments were not pressed to a vote. Clauses 14 and 15 were passed.

Verification of data

Lord Eatwell (Labour) proposed an amendment to place a statutory responsibility on the Registrar to secure the verification of the relevant information in the register. “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.”

Baroness Kramer (Lib Dem) backed Eatwell’s amendment. “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… 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.”

A number of other peers also backed the proposal, including Labour spokesperson Lord Coaker, who noted the Government had moved a little on this matter in the Commons, passing an amendment requiring the Secretary of State to lay regulations outlining the verification process before the register goes live. But this did not go far enough, he said. He also asked when we would see these regulations.

Lord Callanan replied once again for the Government. He ‘agreed 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.” However he argued that the addition proposed by the amendment would be ‘nugatory’ to the ‘already robust’ verification process that would be set out in regulations.

“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,” the minister said. “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.”

The amendment was withdrawn. Clauses 16 and 17 were agreed.

Grounds for exemption

Lib Dem spokesperson Lord Fox moved amendment 43 which would remove 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.

He explained that subsection 1 of clause 18 gives the Secretary of State the power to write to a person to exempt them from the register if the Secretary of State is satisfied that one of three conditions is fulfilled. These are the interests of national security, the purposes of preventing or detecting serious crime and the interests of the economic wellbeing of the United Kingdom. The first two of these were acceptable, said Fox, but the third was not.

The minister, Lord Callanan, told the House that the Government were prepared to accept amendment 43, should it be re-tabled at report stage. Lord Coaker (a co-signatory of the amendment) and Lord Fox thanked him.

The amendment was withdrawn and a number of other amendments to this bit of the Bill were not moved. Clauses 18 to 31 were agreed.

Devolved administrations

Lord Callanan, for the Government, proposed amendments requiring the Secretary of State to consult the devolved administrations before making regulations on devolved land matters. These applied to the Scottish Government and Northern Ireland Executive.

A number of peers welcomed the amendments. Non-affiliated peer Lord Faulks, a member of the Constitution Committee, said it was “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.”

The government amendments (like all the others tabled for committee stage) were withdrawn or not moved, with the intention of being brought back at report stage. Clauses 32 to 39 were agreed.

Unexplained wealth orders

After lengthy debate on Part One of the Bill (the register), peers briefly dealt with the two remaining substantive parts, which cover unexplained wealth orders (Part Two) and Sanctions (Part Three).

On unexplained wealth orders (UWOs) Lord Clement-Jones (Lib Dem) proposed an amendment to 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 peer explained that limiting the liability of enforcement authorities to pay costs in UWO proceedings was 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 under-resourced law enforcement agencies.”

Home Office Minister Baroness Williams of Trafford said the Government were ‘as one’ with Clement-Jones that agencies must not be limited in their efforts to investigate wrongdoing and protect the public from harm. She said existing case law enables magistrates’ courts “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.” She thought the amendment was technically flawed but agreed to ‘to explore the cost landscape’ after this Bill.

The amendment was withdrawn. Clauses 40 to 48 were agreed.

Sanctions

Conservative peer and former business minister Baroness Neville-Rolfe noted that the Bill was “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.”

Neville-Rolfe proposed a probing amendment intended to seek confirmation that an impact assessment would be prepared before regulations are laid, and also providing for appropriate sunset clauses. “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… 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”.

Crossbencher Lord Cromwell proposed an amendment relating to the issue of ‘SLAPPs’, saying that 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.” “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.”

Former Treasury minister Lord Agnew (Conservative) spoke in support of his 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.” Lib Dem Lord Fox backed this.

Crossbencher Viscount Waverley said 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.” He thought Companies House fees should be raised to £100. “Current fees of just £12 for an incorporated company are too low, allowing considerable abuse of the system.”

For the Government, Foreign Office minister Lord Ahmad replied to the debate. He sought to reassure Baroness Neville-Rolfe 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.” He thought the inclusion of a sunset clause could 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 response to requests for an annual report on the operation of the Bill and its impacts, the minister said the entirety of the measures in the Bill will be subject to the usual post-legislative scrutiny process, and additional reporting requirements were unnecessary.

On Lord Cromwell’s amendment on ‘SLAPPs’ (Strategic litigation against public participation) the minister said the Government was already seized of the importance of this issue, which applies more widely than just to this Bill. The Justice Secretary announced on 4 March that the Government would launch an urgent call for evidence. We will explore and consult on a range of measures, said the minister.

On reporting on the funding of enforcement agencies, the minister said the agencies publish annual reports on their expenditure, which can be found online. “The combinations of this year’s spending review settlement and private sector contributions through the [economic crime] levy will provide economic crime funding totalling, as has been acknowledged, around £400 million over the spending review period.”

Clauses 49 to 61 were agreed. No amendments were moved.

This brought the committee stage to a conclusion.

House of Lords Report Stage

Following a five hour committee stage where no amendments were pressed to a vote, and a two hour break during which other business was considered, peers resumed debate on the Bill at 11pm at night for a 20 minute report stage at which 64 amendments were passed, all of which had been discussed at committee stage (see above).

Among the most significant were government amendments setting out that, where a trustee of a trust or equivalent arrangement is a registrable beneficial owner, the overseas entity must give them formal notice to provide their personal information and information about the trust. “This information will be disclosed to HMRC, law enforcement agencies and other specified persons with a public function for the purposes of taking action with any offences they commit,” said the minister.

Also passed were government amendments expanding the information requirements for registrable beneficial owners to include information about whether they are designated by virtue of the Sanctions and Anti-Money Laundering Act 2018. The amendments also provide a revised threshold for the offence of providing false statements. “These no longer have to have been submitted knowingly or recklessly. Rather, it will be an offence when the statement is merely misleading, false or deceptive and the person has no reasonable excuse for supplying such a misleading statement, with an additional aggravated offence carrying a higher penalty where it can be proved that a false statement was made knowingly,” the minister explained.

Lib Dem spokesperson Lord Fox moved his amendment to remove 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, and this was agreed with government support.

Other government amendments:

• require the Secretary of State to consult with Scottish and Northern Ireland Ministers before making regulations to amend parts of the Bill that legislate on devolved land law matters;
• make technical changes on land registration and transactions in Scotland;
• introduce obligations on overseas entities that disposed of land between 28 February 2022 and the end of the transitional period to outline the details of the beneficial ownership of the entity at the time of the transfer.

Third reading

Report stage concluded, peers held a brief third reading debate during which they thanked one another, Lords staff, government officials, opposition advisers and others for taking a constructive approach to the legislation.

There were no divisions in the Lords during the Bill’s passage.

The minister, Lord Callanan, concluded: “The Bill will target sources of illicit wealth and their permeation through our economy. We will cut off these funds. We will send a message that the United Kingdom will not stand idly by when this exploitation is taking place. We will show the Kremlin that the United Kingdom will not facilitate or accept any aspect of aggression against any democratic nation. We will do so united, cross party and working together to bring these matters to fruition.”

For Labour, Lord Coaker said the Bill “needs to be improved, but we should remind ourselves that the bit that needs improving is not the emergency part… On the sanctions part—the real emergency part of the Bill—we all remain united.”

For the Lib Dems, Lord Fox said we should remember “that it is not an anti-Russian Bill. It is an anti-oligarch Bill and an anti-kleptocrat Bill. Of course, some of those criminals come from Russia. We should also turn the fire of this legislation on kleptocrats from Belarus and other such places and, in due course, on criminals from all around the world.”

Commons Consideration of Lords Amendments

The Bill was returned to the Commons where, shortly after midnight, the 64 Lords amendments were agreed to without debate and the Bill was returned to the House of Lords.

Royal Assent was granted at 12.50am.

By George Crozier, CIOT External Relations Manager