Economic Crime and Corporate Transparency Bill
Public Bill Committee, 25 October 2022.
Laurence Robertson (Conservative, Tewkesbury)
Good morning, everyone. We are sitting in public and our proceedings are being broadcast. I have a couple of preliminary announcements. Hansard colleagues will be grateful if Members could email their speaking notes to hansardnotes@parliament.uk and I remind everyone—including myself—to turn mobile phones to silent.
We will first consider the programme motion on the amendment paper, and then a motion to enable the reporting of written evidence for publication and the motion to allow us to deliberate in private—which will take only a minute or so—before the oral evidence session. I hope to take those motions formally.
Laurence Robertson (Conservative, Tewkesbury)
The Committee will proceed to line-by-line consideration of the Bill on Tuesday 1 November at 9.25 am.
Laurence Robertson (Conservative, Tewkesbury)
Copies of written evidence that the Committee receives will be made available in the Committee Room and will be circulated to Members by email.
Examination of Witnesses
Laurence Robertson (Conservative, Tewkesbury)
We are now sitting in public. Good morning to our first witnesses. I am going to crack on straightaway, because the timetabling is tight this morning, but you are very welcome. Thank you for coming. I remind everyone we are now being broadcast. Do any Members need to make a declaration of interest? No. Witnesses, will you briefly introduce yourselves, please?
Laurence Robertson (Conservative, Tewkesbury)
Thank you. You are welcome. Given the time constraints, I will ask Members for short, snappy questions, so short, snappy answers will be very much appreciated. I start with the Opposition spokesman.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
I will put one brief question to each of the witnesses, as I know colleagues have other questions.Q
First, thank you for giving evidence. Nick, I am conscious of your perspective for the whole of the financial services sector and I want to ask a question specifically about data and information sharing: is enough happening in the Bill to deal with what has been described to me as the chilling factor of sharing information? What might come back in the consequences of promoting sharing?
Ms Manku, you gave evidence in which you described the “unintended consequences” of requiring limited partnerships to have a registered office. I am not sure that we would necessarily agree with that, so I am interested in your argument.
Laurence Robertson (Conservative, Tewkesbury)
Would you like to follow up, Seema?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Quite a lot of people want to ask questions, so I will make further remarks later.
Laurence Robertson (Conservative, Tewkesbury)
Dame Margaret?
Margaret Hodge (Labour, Barking)
Gurpreet, your written evidence is very negative. At one point, it statesQ :
“We do not think these proposed changes support the Bill’s central aim of reducing the use of limited partnerships for money-laundering, since criminal users of limited partnerships will simply ignore them.”
That suggests to me that we are not going far enough. We are aiming to catch the people who are guilty of economic crime. Attached to that, somehow I cannot see any investor wanting anything other than to know that they are putting their money into a kosher investment. Even if you are just a pension fund putting your money into a scheme, it does not seem a bad idea to check that the person behind it is legitimate and not a drug or people smuggler.
Alison Thewliss (Scottish National Party, Glasgow Central)
I have some questions for UK Finance about verification at Companies House. What would it take to have confidence in that verification system? You said in written evidence that Companies House should avoid over-reliance on UK-registered trust and company service providers. Can you tell us a bit more about that and what you would like to see put in placeQ ?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Thanks for that, it is really useful. Anti-money laundering responsibility has pushed over on to some of these trust or company service providers, which could be quite a loophole in terms of what you are saying about checks and verification. Would it be useful for Companies House to have that responsibility itself for things registered directly with it?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q That is useful. Incorporation fees are ridiculously low at £12. The Treasury Committee recommended £100. Do you have a view on that?
Jackie Doyle-Price (Conservative, Thurrock)
Q I want to come back to the question that Dame Margaret Hodge asked you, Gurpreet. I hear your point that some of the obligations may deter private equity investment, but through the legislation, we are making the positive statement that we are determined to improve standards of regulation, with a view to tackling crime, and are saying that this country will be safe place in which to invest. To what extent will the Bill be a deterrent? Do you have any evidence or have you made any calcuations on that? If so, which other centres do you expect will benefit from our introducing this system of regulation?
Jackie Doyle-Price (Conservative, Thurrock)
Q That is very helpful, but can I turn the question on its head? To what extent do you think these changes could make this country more attractive, given that we are making a very clear statement about the standards that we expect in these vehicles?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Nick, can I check two things that you said, which I think reveal some significant flaws in the Bill? First, I think you said that the verification regime proposed for Companies House is weaker than that for the regulated anti-money laundering sector. Is that the case?Q
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Right, so we have a risk of a two-tier verification regime: one operated by Companies House and one gold-standard regime operated by the regulated AML sector.
The second thing I think you said is that the verification regime proposed in the Bill runs a risk of failing to establish those in actual economic control of a company. Is that true?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q So you would say to Members of Parliament who are worried about bad people transferring control of an economic asset to proxies that, at the moment, we do not have enough safeguards in the Bill.
Stephen Kinnock (Labour, Aberavon)
A couple of quick questions from me. First, on resourcing, the Bill puts a number of additional tasks, requirements and responsibilities on Companies House. How would you estimate the gap between where Companies House is now and where it would need to be if it were to properly implement and execute the Bill? Secondly, we have seen that a number of other jurisdictions—the Netherlands and Singapore in particular—have moved further and faster than the UK on data sharing. Do you think the Bill will bring us up to the gold standard for data sharing?Q
Stephen Kinnock (Labour, Aberavon)
To both of you, if you do not mind. It would be good to hear from both of you on both questions.
Stephen Kinnock (Labour, Aberavon)
On data sharing.
Laurence Robertson (Conservative, Tewkesbury)
Perhaps two quick final questions. Alison, you wanted to come back.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Thank you, Chair. You talked about the impact on SLPs from the changes in legislation. Have you looked at the issue of Irish limited partnerships? Bellingcat has found that over a thousand ILPs were created between the early 1900s and 2014, but 2,400 were set up from 2015 onwards. Are those who are looking to exploit the system just chasing round for the structures that they need?
Margaret Hodge (Labour, Barking)
Q It is interesting that in this sitting, we have got rather contradictory evidence. On the one hand, you, Nick, are saying that we are not getting enough information on the basics, such as identity checks, and that we need information about more people; on the other, Gurpreet, you are saying that there is too much data, and it will damage business formation and prosperity. I wanted to give you the opportunity to think again, particularly you, Gurpreet. Have you got any figures? In your evidence, you say that you have to set up a tertiary body somehow. Is that just your guess? I think Alison Thewliss will agree that all our evidence is that the structures we are dicussing are among the most abused, and have facilitated more money laundering and economic crime than almost anything else. If we do not sort this out, it will just add to our problem, rather than enabling us to do what the Minister wants.
Laurence Robertson (Conservative, Tewkesbury)
May I ask for a brief answer?
Laurence Robertson (Conservative, Tewkesbury)
Q Nick, would you like to come in very briefly?
Laurence Robertson (Conservative, Tewkesbury)
I call Seema for what is probably the last question.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q I want to come back to where I started and to pick up on the evidence given about regulated and unregulated sectors. Obviously, there are issues in banks and the financial sector, but we have not talked much about cryptocurrency or other areas such as gambling, where there may be flows of illicit finance—cash and so on. Do you think that more needs to be done about unregulated sectors? Does the perimeter need to be extended? What relationships are there between economic crime in the financial sector and that in other sectors?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q If this legislation is to be as effective as it needs to be, will there need to be dependencies on other legislation?
Laurence Robertson (Conservative, Tewkesbury)
We have less than one minute. Ms Manku, do you want to make a few final comments?
Laurence Robertson (Conservative, Tewkesbury)
That was good timing. I thank the witnesses for coming to see us and for their answers.
Examination of Witness
Laurence Robertson (Conservative, Tewkesbury)
Thank you for joining us, Mr Kirby. We have until 10.35 am. Would you briefly introduce yourself, please?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q It is good to have you here, Mr Kirby. Could you give us a little flavour of the kinds of trends and patterns of economic crime that you are seeing? How are criminals behaving? Are you seeing new trends domestically and internationally?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q A fifth bank domestically or internationally?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q That is extremely helpful. To follow up, will the measures in the Bill go far enough to enable the critical data sharing and the ability to inform other banks of what you think is important? In doing that and in going as far as you feel is needed, are appropriate safeguards in place for some things that may be legitimate finance and able to be explained by visitors or customers?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Sorry, what is the omission?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q That is really interesting. I want to pick up a little on what you said earlier about receiving banks and where fraud has been against some of your customers. The Treasury Committee, in our report into economic crime, discussed fraud on online platforms, and the level of it. I understand from speaking to some of your colleagues in the past that that has been increasing. If someone tries to buy something on Facebook but is defrauded, the bank of that person will refund them. There is no obligation on the platform to take any action, and the receiving bank of the person who has done the fraud will take no action either. Could more be done in the Bill to break those types of transactions, with fraud being perpetrated on online platforms? What is the wider impact on the banking system?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Would a wider “failure to prevent economic crime” obligation be useful in that regard?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Finally, do you have any comments on the changes being made to the suspicious activity report regime in the Bill?
Jackie Doyle-Price (Conservative, Thurrock)
Q I want to come back to the issue of GDPR, if I may. The whole ethos sitting behind the GDPR legislation is to defend the subject that the information is about. As you just highlighted, that feels really incompatible with having information sharing for the purposes of combating crime. I just want a better feel from you of how much of a barrier that will be. Is it a barrier or is it tying our hands behind our back to use the issues in the Bill? How much more do we have to challenge the ethos behind GDPR for us to build a system that is fit for purpose?
Jackie Doyle-Price (Conservative, Thurrock)
Q That is very helpful. It feels to me that we have got to a position with GDPR where the practical implementation has gone beyond that safeguarding, actually, but we could tackle this by, perhaps, a much fuller statement and guidance about how we expect people to respect the protections but also the obligations that exist in terms of tackling crime.
Margaret Hodge (Labour, Barking)
Q That has been really helpful on the information. I think that a slight amendment to what we are doing would help the GDPR issue.
I want to take you back—I could not quite hear what you said to Alison—to the SARs regime, if I may. It may not be your area of expertise, but it is a very important instrument for informing the enforcement agencies of where there may be a problem. The system is clearly broken—hundreds of thousands of SARs are landing on the desks of enforcement agencies. And we had the idea that they could be put into categories—risk categorised. I wonder whether you are able to comment on that at all, because if currently there is just a tick box—you send off your SARs and you have done it—too often the banks then carry on doing business with a suspicious person. Is there room in the Bill for doing something more on that regime, to ensure that the enforcement agencies are more effective in rooting out economic crime?
Margaret Hodge (Labour, Barking)
Q So you think SARs are okay.
Margaret Hodge (Labour, Barking)
Q Okay, I hear that. I have one final thing to ask. Looking at your background, I see that you have spent a lot of time in the public enforcement realm. From that experience, and looking at the Bill today, do you think that there are any glaring gaps that we ought to be reflecting on?
Margaret Hodge (Labour, Barking)
Q So crypto is a bad thing, is it? It goes very quick. There is no friction.
Stephen Kinnock (Labour, Aberavon)
Q Thank you, Mr Kirby. You have used terms such as “world-leading” and spoken quite positively about what is happening in the UK. I have to say, as an interested observer, it does not look like that to me. London has generally become known as the laundromat for dirty money, particularly from Russian oligarchs and others. Money laundering prosecutions have dropped by 35% over the past five years in the UK. In March 2022, the budget of the NCA’s international corruption unit was cut by 13.5% to £4.3 million, leaving corruption investigators massively outgunned by the oligarchs.
I have two questions. First, I am trying to understand why you have this sense of optimism, because it looks like a pretty dire situation to me. Our enforcement agencies have been starved of the resources and capabilities they need. Secondly, you have had a long career in the NCA and in enforcement; I am sure you are still in touch with some of your former colleagues. If you had to define the resources they need, what extra would they need to be able to turn this situation around? It would be great to hear from you on that.
Stephen Kinnock (Labour, Aberavon)
Point taken.
Stephen Kinnock (Labour, Aberavon)
Q Very diplomatically put. Would you agree that the Bill will not be worth the paper it is written on if the enforcement agencies are not properly resourced to do the job?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Just to crystallise this, in your first answer, you described quite a simple layering exercise of money moving through five different banks, and you said that was a difficult problem to stop. Does this Bill help us stop that problem that you just described?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q The second problem that is often described by banks to me is that they have to spread their compliance resource very thinly across a large customer base, rather than focusing it on a smaller group where they suspect there is more harm at work. Is that a scenario you recognise, and does this Bill help you focus compliance resource on the potential high-harm customers who we should be worried about?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q But this Bill does not help you in that squaring of the circle.
Laurence Robertson (Conservative, Tewkesbury)
We have literally one minute.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q I have a question about automatic strike-off procedures for companies that may have bank accounts with you and where that company may have been involved in economic crime and then is automatically struck off. Do you have concerns about that process and whether there should be reform?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
It is more about Companies House automatic strike-off—but they might be your customers.
Laurence Robertson (Conservative, Tewkesbury)
Order. I am terribly sorry; we do have to leave it there. I must cut it off on the dot. Mr Kirby, thank you very much for joining us.
Examination of Witnesses
Laurence Robertson (Conservative, Tewkesbury)
We will kick off. You are very welcome, witnesses. Thank you for joining us. Would you be so kind as to briefly introduce yourselves and your positions?
Laurence Robertson (Conservative, Tewkesbury)
Thank you. We will go straight into questioning.
Stephen Kinnock (Labour, Aberavon)
Q Thank you very much. First of all, I have a question for you, Mr Gould. The national fraud policing strategy states that the police’s response to fraud is delivered by local forces, but capability across those forces varies widely. It mentions the regional organised crime units being very limited in their capacity. Do you think that that situation has improved since 2019, when the report was published, and could you say a bit about what extra resources the ROCUs need?
Stephen Kinnock (Labour, Aberavon)
Q Thank you. I have a question on cryptoassets. Do you think, broadly speaking, that the enforcement agencies have the expertise that they need to deal with the economic crime dimensions of the cryptoassets issue?
Stephen Kinnock (Labour, Aberavon)
Q Thank you. Ms Trozze, I know that you are a specialist on crypto, so would you like to add anything to that?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Leading on from that question, we are putting a lot of provisions in the legislation. Is the legislation sufficient to keep pace with those technological changes?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Are the measures in the Bill sufficient to protect consumers from being victims of economic crime via crypto?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Briefly, how do you feel the measures in the Bill relate to the other measures around regulation in the Financial Services and Markets Bill? I am conscious that the two Bills are going at the same time.
Alison Thewliss (Scottish National Party, Glasgow Central)
That is okay. No problem.
Jackie Doyle-Price (Conservative, Thurrock)
Q When we talk about things like cryptoassets, it is difficult for lay people like me—I am sure I am not alone—to envisage what exactly we are talking about. I recognise some of the operational sensitivities under which you are working, but would it be possible for you to give us an illustration of how cryptoassets have been used to disguise this activity?
Jackie Doyle-Price (Conservative, Thurrock)
Q It is really the complexity that is the barrier, is it not? The actual use of cryptoassets of itself brings an additional complexity, so it is clearly an ideal tool for those who are up to no good.
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Is cyber-crime and cryptocurrency-based crime growing quickly?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q What is the criminal structure in this market? Is it teenage hackers in their bedroom or sophisticated organised crime groups?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q You just said that some of those organised crime groups have connections to hostile states—presumably such as North Korea, Iran and Russia.
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q So is there now a blurring of a national security threat and economic crime?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q And are we investing enough in tackling that kind of crime?
Liam Byrne (Labour, Birmingham, Hodge Hill)
That was not the question. Are we investing enough?
Margaret Hodge (Labour, Barking)
Q Lots of us are trying to get our brains around this. I had a session yesterday with a whole load of people in the crypto industry who tried to convince me that there is actually better transparency because it is open—you can go in and see it—and there ought to be a way in which, with the right algorithms, you could follow the money more easily than in other ways. Is that true? Were they conning me, or is that vaguely true?
Margaret Hodge (Labour, Barking)
Q We welcome the Minister’s attempts to start bringing this into a regulatory framework. However, looking at the other aspects of money laundering and economic crime, the so-called enablers are often the bad guys. In this world, those who establish a new form for crypto are presumably the ones who, if they are not properly regulated and supervised, could create a system for facilitating economic crime, fraud and money laundering. I do not think that we have proposals in here, really, for the supervision and regulation, have we? Are those badly missing?
Margaret Hodge (Labour, Barking)
Q This is really Liam’s question, but, because it is digital, the answer must be global, must it not?
Margaret Hodge (Labour, Barking)
Q And that is really hard.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q I want to follow up on what you were saying about how you can follow the flows, but you do not always know who is sending and who is receiving. I want to understand a bit more about crypto accounts. I understand that you do not need an account in order to make a transaction, but if you do have an account you can see who is making transactions. Is there more that can—or needs to—be done to say that everybody must have an account? Is that practical and how could it happen? Secondly, what is the current level of identification and verification checks when setting up a crypto account, and what level should there be?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q What more could be done about that?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q What are the consequences for them if they do that?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Do you know if there are cases where it has used those powers?
Jane Hunt (Conservative, Loughborough)
Mr Gould, to follow on from that important point, I understand that the Bill removes the need for powers of arrest before you can do search and seizure. Can you explain the impact of that? Will it be useful for reducing the number of victims once you have spotted an issue happening?Q
Stephen Kinnock (Labour, Aberavon)
Q Thank you for giving me another go. I have two quick questions. If you had a blank sheet of paper and you were able to amend the Bill in the cryptoassets space, what would be your No. 1 amendment to improve it? Secondly, Mr Gould, do you also look at counter-terrorism within your brief?
Stephen Kinnock (Labour, Aberavon)
Q Okay. I was going to ask something about counter-terrorism, but I will not if that is not your area. So my only question is to both of you: if you had an opportunity to amend the Bill, what would you do?
Stephen Kinnock (Labour, Aberavon)
Q Apart from turning cryptoassets into cash in the way that you have described.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q As a brief follow-up, do you have any information on how much that cost is likely to be? That would be very useful to us. I appreciate you might not have that figure in front of you now, but it would be useful to have that detail.
Laurence Robertson (Conservative, Tewkesbury)
Okay, we have come to the end of this session. Thank you very much for joining us.
Examination of Witness
Laurence Robertson (Conservative, Tewkesbury)
Q Mr Hall, thank you very much for joining us. Would you like to briefly introduce yourself, please?
Laurence Robertson (Conservative, Tewkesbury)
Thank you for joining us. We will go straight into questions.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q I will be brief in asking this question, and then I have to leave. Do you think the NCA has sufficient resources to make use of the new recovery powers in the Bill, and do those powers go far enough?
Margaret Hodge (Labour, Barking)
Q Can you give that again?
Laurence Robertson (Conservative, Tewkesbury)
Q Have we a page number?
Laurence Robertson (Conservative, Tewkesbury)
Q It might be on a different document. I think we might have to move on then.
Laurence Robertson (Conservative, Tewkesbury)
Thank you. I will bring the Minister in next, which may be helpful.
Jackie Doyle-Price (Conservative, Thurrock)
Q Thank you. Forgive me, but you are speaking very legally, which is obviously why you have been invited here. We want to try to make this live, and you obviously bring considerable counter-terrorism expertise. Can you give us some examples of how the Bill will enable law enforcement to go after and combat terrorism?
Jackie Doyle-Price (Conservative, Thurrock)
Yes, not only is that a brilliant explanation that brings this to life, but it is a great plot for a film.
Jackie Doyle-Price (Conservative, Thurrock)
Q Exactly, and this is what we are talking about. Do you think that what we have in the Bill will stand the test of time, given that ultimately this kind of criminal activity is always trying to get one step ahead of the law? Can we be confident that what we are enacting here will be future-proof?
Jackie Doyle-Price (Conservative, Thurrock)
We will have a look at that. Thank you.
Laurence Robertson (Conservative, Tewkesbury)
I think the number of the page you are looking for is in the amendment document on page 47 and it is new schedule 1. I think that is what you were referring to, Mr Hall. I am going to move on anyway.
Alison Thewliss (Scottish National Party, Glasgow Central)
This is obviously a fast moving area and a lot of expertise is required. Do the enforcement authorities have sufficient expertise to keep pace with this? We heard from a witness earlier that their experts are being snapped up by industry because they are able to offer more money. Does that make it difficult to then enforce the provisions in the Bill?Q
Alison Thewliss (Scottish National Party, Glasgow Central)
Thank you. I will leave it at that.
Margaret Hodge (Labour, Barking)
Q I want to follow on from that, because I am taking it a bit wider than crypto in two areas. After the 7/7 horror, we put our all into counter-terrorism and we now have a strategy that is well resourced, and can respond to and has responded effectively to terrorism threats down the years. When I look at this, I feel that Ukraine ought to be our 7/7 moment in relation to dirty money. I wonder whether we are ambitious or comprehensive enough. I take the point about resources; there is no point doing anything if you do not have the resources. However, are we doing enough here to give you the confidence that we can really start turning around this big tanker?
Margaret Hodge (Labour, Barking)
Ukraine gives one a sort of focus on the worst aspects of dirty money, but are we really being as comprehensive as you were when you did the counter-terrorism stuff there?
Margaret Hodge (Labour, Barking)
Q I will ask you just one more question, which is a little bit off piste. The Bill puts new duties on lawyers to ensure that they can be fined if they engage in work that facilitates crime, or they fail to prevent crime. I gather the Bar Council is a bit iffy about this; I wondered whether they thought it was interfering with access to justice. Where do you stand on that? Lawyers certainly come up constantly as facilitators, giving opinions that underwrite either unlawful behaviour in the tax field or illegal behaviour elsewhere. I do not know if you can help us on that—it is a bit off piste.
Stephen Kinnock (Labour, Aberavon)
Q This is the same question that I asked our previous witnesses: if you had the opportunity to amend the Bill, what would you do? You have flagged up one area in which you are worried the Bill goes too far, so obviously we need to look at that, but my question is more about how you would make it go further to achieve the outcomes we are looking for in terms of the role that crypto plays, particularly in financing terrorism.
Stephen Kinnock (Labour, Aberavon)
Q I am not sure if you were in for the previous session, but our witnesses talked about the need to be able to transfer crypto into physical assets or cash. What are your thoughts on that and do you have a sense of what the cost would be? Obviously, the disincentive for doing that is how much it could cost the Government for being on the hook. If it is transferred it into cash, and if there has been a rise in the value of the cryptoasset, the Government are potentially on the hook if that person is found not guilty. Do you agree that that “on the hook” argument exists? If so, it becomes a numbers game, because the cost of storing the cryptoasset is high. What is the net benefit to the Government of either transferring it to a physical asset or continuing to fund the cost of keeping it as crypto?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q I want to ask about Scottish limited partnerships, particularly given their involvement in sanctions busting and various other things. Do you share my concern that they can exist in the Companies House register in a sort of zombie form and can be reanimated? Is there more that the Bill could do about that? If the use of SLPs is being tightened up, if you were looking to abuse corporate structures where would you go next?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q We have just heard some very powerful evidence about the relationship between organised crime groups operating in this sphere of crime, and state threats. Have you any other observations about the relationship between economic crime and national security threats as we face them today? Is that a serious problem that we need to be worried about?
Laurence Robertson (Conservative, Tewkesbury)
That brings us very nicely to the end.
Examination of Witnesses
Christopher Chope (Conservative, Christchurch)
Our first witnesses, the fifth panel, are Martin Swain from Companies House and Adrian Searle from the National Economic Crime Centre.
Thomas Tugendhat (Conservative, Tonbridge and Malling)
May I just declare an interest, very briefly?
Christopher Chope (Conservative, Christchurch)
Absolutely. We will all listen with bated breath to the Minister’s declaration of interest.
Thomas Tugendhat (Conservative, Tonbridge and Malling)
I simply refer to my wider declaration in the Register of Members’ Financial Interests.
Christopher Chope (Conservative, Christchurch)
Thank you. Mr Swain, would you introduce yourself briefly for the record?
Christopher Chope (Conservative, Christchurch)
You will have to speak up, because the acoustics in this room are very poor.
Christopher Chope (Conservative, Christchurch)
Thank you. Mr Searle?
Christopher Chope (Conservative, Christchurch)
No, I do not think so; we do not have time for that. I call Seema Malhotra to ask the first question.
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
I have two questions. The first is for Mr Swain. Thank you both for coming to give evidence today. The Treasury has allocated £63 million so far for the Q76transformation of Companies House functions, but beyond that there is no clarity on the sustainable funding model for Companies House, with the extra work and demands that will be coming its way. With the increased responsibility that is going to be placed on Companies House, what do you think needs to be done? Is the £12 incorporation fee still an adequate amount for what Companies House will be doing?
My second question is to both of you. Do you believe the Bill should go further and reform the strike-off procedure for companies? There is a recognised issue where companies are building up debts, not filing a return and then being struck off as one of the routes through which money laundering may be taking place, with limited room for manoeuvre after that. Would there be any benefits to reforming that process? Is there any consideration, for example, of companies being placed in a compulsory liquidation procedure? I would be interested in your thoughts on that.
Christopher Chope (Conservative, Christchurch)
Mr Searle?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
It was about how to tackle economic crime and whether the reform of the strike-off process is important to that.
Jackie Doyle-Price (Conservative, Thurrock)
Q What we have here are the twin objectives of making it easier to do business and to tackle economic crime. I am really interested to hear from both of you whether we have the balance right in the Bill as it stands.
Jackie Doyle-Price (Conservative, Thurrock)
Q That feels like a slight change in culture within Companies House, which has been very much a function for business. We probably need to communicate to the business community that part of their obligation to make the world a safer place is that they need to accept their changed relationship with Companies House.
Jackie Doyle-Price (Conservative, Thurrock)
I agree. Thank you.
Alison Thewliss (Scottish National Party, Glasgow Central)
How exactly will the verification scheme that you propose work?Q
Alison Thewliss (Scottish National Party, Glasgow Central)
Q To who?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Okay. How are you weighing up the balance of those two?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q We heard from UK Finance earlier that currently the proposals are below industry standard.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Okay. Will there be verification of the links with shareholders and owners as well, and the control that they have?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Why?
James Daly (Conservative, Bury North)
The first two words ofQ the Bill’s title are “Economic Crime”. I think you said, Mr Swain, that you are a passive registry organisation, so how does the Bill help you to turn from a passive registry into somebody who can work with law enforcement to tackle economic crime?
James Daly (Conservative, Bury North)
Q I am assuming, Mr Searle, that as somebody in your position, you want to see the transformation of this organisation from a passive organisation to a partner that will work with law enforcement to do what we require.
Margaret Hodge (Labour, Barking)
Martin Swain, I think that many of us on both sides of the Committee think not that it has to be more regulation, but that it has to be smarter regulation. If there are businesses operating that are pursuing economic crimes, that does not help business creation or the wealth of the economy. I am a bit concerned that you think the new regulatory measures are more burdensome. Are they not just smarter? Q [Interruption.]
Christopher Chope (Conservative, Christchurch)
Order. You will have 15 minutes in which to prepare your answer.
Christopher Chope (Conservative, Christchurch)
We now resume the evidence session. Mr Swain is going to answer the question that was put to him by Dame Margaret Hodge.
Margaret Hodge (Labour, Barking)
Q I agree. May I just ask you about the authorised corporate service providers who are going to do a lot of this work for you? We have concerns, because although they are theoretically regulated by HMRC, there is pretty much zero supervision and very little regulation. How do we know that we are not just opening a loophole that will enable people to use companies simply as a way of laundering money and committing other economic crime, such as fraud and so on?
Margaret Hodge (Labour, Barking)
Q With you or with HMRC?
Margaret Hodge (Labour, Barking)
Q But the AML supervision still remains with HMRC.
Margaret Hodge (Labour, Barking)
But it does nothing.
Margaret Hodge (Labour, Barking)
That is very helpful, thank you. I have a quick question for Adrian.
Margaret Hodge (Labour, Barking)
Q They have to go after them, but that is for another day.
Adrian, with your wider remit, there has been a huge decrease in the number of cases that have been taken by the SFO and indeed by all the agencies. One reason is the fear of costs landing on those agencies—for example, the NCA—if they lose the case. Can you give us a view? Do you think we should have a cost cap, in the way we have with unexplained wealth orders? Do you think we should have the American system whereby no costs at all are given to the litigant or the person accused of wrongdoing at the end? What is your view of that?
Margaret Hodge (Labour, Barking)
Q I think there is a difference between civil and criminal. The UWO is a civil offence, so it is easier. Some lawyers will say that if you end up convicted of a crime, you ought to have the right to a full defence, with the cost paid for.
Margaret Hodge (Labour, Barking)
Q Are you also talking to the Treasury about keeping some of the fines that you manage to secure in the cases that you take?
Margaret Hodge (Labour, Barking)
Q Does that go through all the agencies—the NCA, the SFO and HMRC? If they have a successful litigation, can they keep 50% of the fine they secure?
Margaret Hodge (Labour, Barking)
It would be really helpful to have that.
Christopher Chope (Conservative, Christchurch)
We have to move on.
Liam Byrne (Labour, Birmingham, Hodge Hill)
Martin, has your budget been agreed for 2023-24Q ?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q What advice have you given to colleagues about what your budget should be in order to fully operationalise the measures in the Bill to a gold standard?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q And how much is that?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q An extra 100 people. So you think you need at least an extra 100 people in order to operationalise the measures in the Bill.
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Okay. It is obviously a matter of great national shame that UK corporate structures have been used so extensively for money laundering—not just the Azerbaijani laundromat, but the Danske Bank money laundering scandal, which was about €200 billion, with about 40% of that laundered through UK corporate structures. When you are putting your business cases together to Ministers, do you explain to them the economic damage done by economic crime to the broader UK business environment?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q And the Department shares your excitement so much that it has failed to agree your budget for next year.
Liam Byrne (Labour, Birmingham, Hodge Hill)
Okay. Thanks, Chair.
Christopher Chope (Conservative, Christchurch)
A very quick one from Stephen.
Stephen Kinnock (Labour, Aberavon)
You talked about outsourcing identity verification, but is that not just a recipe for disaster? If we keep on outsourcing these things, rather than Companies House controlling the process, you are just going to open it up to more fraud and dodgy dealingQ ?
Christopher Chope (Conservative, Christchurch)
Thank you very much indeed to both of you for your evidence. It has been very helpful. We now move on to the next panel.
Christopher Chope (Conservative, Christchurch)
Good afternoon. We now have Commander Nik Adams from the City of London police, Simon Welch representing the National Police Chiefs’ Council, and Michelle Crotty from the Serious Fraud Office. May I ask each of you to introduce yourselves briefly, please?
Stephen Kinnock (Labour, Aberavon)
Q The national policing fraud strategy of 2019 said that, although the majority of the police response to fraud is delivered by local forces, capability and capacity varies widely across different areas. The strategy said that the regional organised crime units were “extremely limited” in their capacity. Has the situation improved since 2019, and if not could you say a word about what extra resources or powers might be required? I am not quite sure who is the best person to answer that.
Stephen Kinnock (Labour, Aberavon)
Q The challenge that we have is that money laundering prosecutions have dropped by 35% over the last five years in the UK, and the number of crimes being investigated—[Interruption.]
Margaret Hodge (Labour, Barking)
I will read out the two figures. The number of crimes under investigation has halved in the past three years, and convictions for fraud offences, according to national crime statistics, have decreased by 67% since 2011. What you are talking about is theoretical; it is not what is happening. At the same time, fraud is going up and up.
Stephen Kinnock (Labour, Aberavon)
Will you say a word about why that is? The system seems not to be working, so what do we need to do to fix it?
Jackie Doyle-Price (Conservative, Thurrock)
Q Clause 156 extends the pre-investigation powers of the Serious Fraud Office. What is the benefit of that? How will that improve the ability to track all economic crime?
Jackie Doyle-Price (Conservative, Thurrock)
Q So it enables you to be fleeter of foot—
Jackie Doyle-Price (Conservative, Thurrock)
And to address some of the questions we heard earlier—if you can act more quickly and establish whether a crime has been committed, that is clearly more efficient.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q The Home Office report, “National risk assessment of money laundering and terrorist financing 2020”, states:
“Company formation and related professional services are therefore a key enabler or gatekeeper of”
trade-based money laundering. Is there enough in the Bill to remove that risk?
Christopher Chope (Conservative, Christchurch)
Sorry, you are going to have to speak up. We all wish to hear the answer.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Michelle, you were nodding. Do you have anything to add to that?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Okay. Are the measures in the Bill enough to disincentivise the use of shell companies, limited partnerships or Scottish limited partnerships for criminal purposes?
Alison Thewliss (Scottish National Party, Glasgow Central)
Yes—by some margin.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Do you have a view about where you would like the level to be? The Treasury Committee suggests £100.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q There has been a growing trend of people setting up companies using someone else’s address and name. Presumably those will still exist on the register after this legislation comes into force. What would you like to see happen to clear out the fraudulent things that are already on the register?
James Daly (Conservative, Bury North)
Q What is your view of how clauses 1 to 98—part 1 of the Bill—regarding Companies House reform can assist law enforcement to tackle economic crime more effectively?
James Daly (Conservative, Bury North)
Ms Crotty?
Margaret Hodge (Labour, Barking)
Q Michelle Crotty, what would you feel about the introduction of an offence of failure to prevent economic crime?
Margaret Hodge (Labour, Barking)
Q Do the other two witnesses agree?
Margaret Hodge (Labour, Barking)
Q The other brake on pursuing the bad people is the fear of failure, and therefore the burden of costs on the public purse. Would you like to see the cost capping that has been introduced on unexplained wealth orders extended here, or do you have other ideas about how we can try to make that brake less solid?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q I want to come back to some comments made by DCI Welch, which were very instructive on the challenges—we have heard it in some of the data as well. I think you referred to criminals not putting assets in their own names, thereby making them harder to find and seize. Do you think that the Bill gives sufficient powers for tackling fraud, especially through the use of fraudulent names and addresses? If not, what else needs to be done to help you all do your work more effectively, but is missing from the Bill?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Is it all about resources, or is there more?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Do the other witnesses have anything to add? Is there anything specific that will assist in some of these challenges? How much are resources constraining what you are able to do?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Nik, I want to crystallise a couple of things. Is it your impression that economic crime is growing?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Simon, is it the position of the National Police Chiefs’ Council that more resources are needed to tackle economic crime? Do you have a gut feel for the order of magnitude of the increase needed?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Yes—but Simon, what is the National Police Chiefs’ Council perspective on that?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Understood. Nik, you also said that you were watching criminals move assets into proxies, basically, in order to safeguard them. We heard this morning that the Bill will not place a duty on Companies House to verify who has the economic control of a particular asset. That sounds like a problem to me. Do you agree?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Yes, so we may have to beef up the verification requirements for Companies House.
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q With your indulgence, Sir Christopher, I will ask a last question to Michelle Crotty. We have heard at the Foreign Affairs Committee that it is often difficult to get evidence from bad regimes even though kleptocrats may have made their fortunes in those countries and laundered that money through UK corporate structures. Given the unavailability of that evidence, do we need to think about onshoring offences that might help us freeze or seize assets for the committal of a crime here in the UK?
Christopher Chope (Conservative, Christchurch)
If there are no more questions, I thank the witnesses for their attendance and their contributions.
Christopher Chope (Conservative, Christchurch)
We now have evidence from Dr Susan Hawley from Spotlight on Corruption, John Cusack—via Zoom—from the Global Coalition to Fight Financial Crime, and Thom Townsend, representing the UK Anti-Corruption Coalition. Can I ask Dr Hawley and Thom Townsend to introduce themselves first?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Thank you all for coming to give evidence today. I want to start with a couple of questions. First, in your view, does the Bill provide adequate guarantees against companies that have opaque corporate ownership based in secrecy jurisdictions? Could and should the Bill be further improved to prevent companies’ continued use of offshore and opaque corporate ownerships?
Secondly, does the Bill provide enough mechanisms to help with transparency around the new responsibilities of Companies House, and should there be reporting—to Parliament, or certainly publicly available—on new powers? What would you want to see in order to have confidence that measures are having impact?
Christopher Chope (Conservative, Christchurch)
Who wants to go first?
Seema Malhotra (Labour/Co-operative, Feltham and Heston)
Q Could you give an example?
Jackie Doyle-Price (Conservative, Thurrock)
Q To follow up on that point, we have a principle in this country that the fees should match the operational costs. We are adding to what Companies House will be doing in that active management. That would make a case for an increase in the fee to meet the costs, would it not?
Jackie Doyle-Price (Conservative, Thurrock)
Q I guess it comes back to the discussion that we are having about the twin-track objectives that pull in opposite directions: to enable it to be part of the framework for tackling economic crime, but also to enable business. In your opening comment, you stated that we are a way away from the gold standard. I think we would all agree with that—that is why we have this Bill, frankly, and I certainly have ambitions for it—but I want to probe you on what you said about a national identity card system. Surely you are not suggesting that we cannot improve this kind of scrutiny without a national identity card system. There are other ways to establish that, and other ways of knowing your customer.
Jackie Doyle-Price (Conservative, Thurrock)
That is helpful.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q I have some questions about whether the Bill is sufficient to deter the abuse of shell companies, limited partnerships or Scottish limited partnerships.
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Do you share my concerns that previous Bills to tighten things up—for example, for Scottish limited partnerships—have not been met with enforcement action? Since the changes to the persons with significant control regime came into force, only one fine has been issued, to the value of £210. Would you like to see more enforcements and more follow-up of those who are not applying the current rules?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q May I ask about the issues with the register as it exists? There are lots of things on it that are inaccurate, deliberately false or involving the misuse of people’s personal information and addresses. How much do you feel that Companies House has to go back actively into the register to figure out what is wrong with it and to put it right?
Alison Thewliss (Scottish National Party, Glasgow Central)
Q Yes. Finally, can I ask you, John, whether there is any particular recommendation that you would like to make on the register of overseas entities section of the Bill?
Margaret Hodge (Labour, Barking)
Q Indeed, it can sometimes lead to terrorism as well as other crimes. May I ask one short question of you all, and then a longer one? We have talked about the importance of looking at persons with significant control. Do you think that we should reduce the threshold of having a 25% shareholding to 5%? Would that help?
Margaret Hodge (Labour, Barking)
Q Good. Thank you for that. I recognise that you have all made an incredibly important contribution to the debate, so thank you for that, and for the support that you have given us in developing our thinking. I sincerely mean that. I think we all see the Bill as a start, and we would like to add to it. The pragmatic reality is that we have to prioritise what we add in. For each of you, what are your three top priorities for what could be added to strengthen the effort against economic crime? It is a bit of a tough one. I have a list that is longer than three, but I would be interested in your top three.
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Susan, can I ask you to spell out what will happen if we do not align the verification procedures in the Bill with the obligations that currently bite on the AML sector?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q Thom, the registrar’s objectives are set out in clause 1. They are pretty woolly. How would you like to see them improved?
Liam Byrne (Labour, Birmingham, Hodge Hill)
Q It currently says “to minimise” the extent to which companies do bad things.