Economic Crime and Corporate Transparency Bill

Public Bill Committee, 22 November 2022.

Clause 141 - Cryptoassets: confiscation orders

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss that schedule 6 be the Sixth schedule to the Bill.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

It is a great privilege, as always, to be with you this morning, Mr Paisley, and to enjoy the possibility of conversing about the Proceeds of Crime Act 2002.

The clause introduces schedule 6 to the Bill, which amends the criminal confiscation powers contained in parts 2, 3 and 4 of the Proceeds of Crime Act 2002—known as POCA, not to me, but to some presumably—to make it easier for law enforcement agencies to seize, detain and recover cryptoassets in more circumstances than at present. Schedule 6 will amend the provisions in each of the three existing confiscation regimes that extend to England and Wales, Scotland, and Northern Ireland so that the measures apply in all parts of the United Kingdom. That is reflected in the three parts of schedule 6.

Key definitions in schedule 6, such as those of “cryptoasset” and “cryptoasset exchange provider”, are consistent with those used elsewhere in the Proceeds of Crime Act. The schedule includes powers to update those defined terms to ensure that the measures in the Bill can keep pace with the constantly evolving criminal use of cryptoassets, the rapidly changing nature of crypto technology as well as stay aligned with other legislation dealing with similar threats.

Stephen Kinnock (Labour, Aberavon)

It is a great pleasure to serve under your chairship today, Mr Paisley. I take the opportunity to welcome the Minister to his place; I do not think that I have done so formally, although I might well have done informally. It is good to see him in his place.

I want to make some general comments about cryptocurrencies and about the clause and schedule 6. Broadly speaking, they have some positive aspects, but we also have some questions for the Minister, and I am sure that he will explain the position with his customary lucidity once I have sat down.

Cryptocurrencies and other digital assets are not new, but how they should be regulated is still very much an open question in the UK and internationally. The Government’s decision to expand the legal framework for asset recovery under the Proceeds of Crime Act is a positive development. For that to work, however, we need to be clear about what the legislation intends to achieve.

It is fair to say that the Government have sent mixed messages about their approach to regulating cryptoassets. On the one hand, they have acknowledged the need to tackle the use of cryptoassets for criminal purposes, hence the decision to extend the money laundering regulations to cryptoasset businesses, which has been under the supervision of the Financial Conduct Authority since January 2020. In the factsheet published alongside the Bill, the Government set out their view:

“Cryptoassets are now increasingly being used by criminals to move and launder the profits of various crimes including drugs, fraud, and money laundering. There is also an increased risk that cryptoassets are being exploited to raise and move funds for terrorist activities.”

On the other hand, earlier this year, the then Chancellor of the Exchequer, who is now the Prime Minister, said that it was his

“ambition to make the UK a global hub for cryptoasset technology”.

The then Economic Secretary to the Treasury echoed that, saying in a speech at the Innovate Finance global summit in April:

“If there is one message I want you to leave here today with, it is that the UK is open for business—open for crypto-businesses”;

and

“Because we want this country to be a global hub—the very best place in the world to start and scale crypto-companies.”

It concerns me that the Government do not seem to have made up their mind whether as a country we should value crypto firms and want to entice them to the UK, or whether we should recognise the ease with, and scale at which, criminal activity within crypto markets is allowed to happen and therefore should prioritise tightening regulation and enforcement by cracking down on the widespread use of such assets to defraud individuals and undermine our national security. Perhaps the Minister will shed some light on that strategic dilemma or ambiguity and on how the Government plan to reconcile those two apparently competing aims.

I do not want to pre-empt what the Minister will say, but I imagine that he will claim that it is possible to do both.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Indeed.

Stephen Kinnock (Labour, Aberavon)

But is it not simply the case that we are not putting enough resources into the enforcement of laws and the policing of such markets? That is fundamental to achieving the regulatory aim of that side of the equation.

Crypto-expert Aidan Larkin recently told me how the US Government’s money laundering and asset recovery section brings in around $800 million a year in crypto-recovery alone, while the UK brings in close to nothing, because the UK Government fail to employ the handful of experts required simply to study the blockchains via things such as bitcoin analytics and to follow the illicit finance—“to follow the money”, as the saying goes. I cannot pretend to be an expert on the technical aspects of that, but it feels like a missed opportunity to go after illegal activity. We have surely reached a point in time when that could be self-funding, if we did it properly.

I am simply not convinced that the system for regulating cryptoassets is working as well as intended. Indeed, it is pretty telling that in response to written questions 86505 and 86504, which I tabled last week, the Minister admitted that none of the 200-plus crypto businesses operating without commission had been subject to any criminal or civil penalties.

As I mentioned, since January 2020 there has been a requirement for new businesses carrying on cryptoasset activity in the UK to register with the FCA. The requirement was extended to existing businesses the following year. The implementation of the register, however, has been beset by problems, not least of which is the fact that a very large number of the firms required to register have not done so. The FCA seems to have been unable to do much about that.

Alison Thewliss (Scottish National Party, Glasgow Central)

I agree very much with what has been said from the Labour Front Bench. I ask the Minister about the interaction between this Bill and all the other Bills that are considering crypto at the moment, including the Online Safety Bill, which addresses some aspects of people being exposed online to financial crime. The Treasury Committee report on economic crime pushed quite strongly on having an aspect on economic crime in the Online Safety Bill, because it is important that people are not scammed online. To me and to many others, crypto seems very much a place where people do get scammed and lose all their money.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

If I may, I will just give a quick explanation of what crypto is because there seems to be some misunderstanding. Crypto is both a technology and a financial instrument. The financial instrument element is only part of it. Allowing for crypto technology is basically allowing for mathematics. Passing laws against crypto is like passing laws against mathematics—we can try, but it is not going to work.

What the now Prime Minister was talking about was encouraging the mathematics, the algorithms and the technology to develop in this country to create the kind of industry and the kind of infrastructure that would allow the technological use of algorithms for the transfer, sometimes of wealth, sometimes of knowledge, sometimes of contractual obligations. That is what blockchain fundamentally is.

On top of the blockchain, there are various forms of currency. There are bitcoins, which are proof of work, and then there is ethereum, which is proof of stake. These are different kinds of technologies and different ways in which cryptoassets use the blockchains and the technology that has underwritten them.

Having regulation for the currency is not the same as having regulation for the underlying mathematics. We would not say that we have regulation for the economist in the same way that we have regulation for the bank—they are different things. The Government are doing the right thing. We recognise that there is technology, and supporting it; we recognise that there are financial instruments, and are looking to work with others to make sure that those financial instruments are regulated in a sensible way. Now, that is difficult: I will be honest. It is difficult because the technology and its use are changing remarkably. The hon. Member for Aberavon spoke about FTX. As he may know, other companies such as Celsius and Gemini have stopped trading in various different ways, as well. It is not just about one instrument. It is certainly arguable that FTX got into difficulties for reasons other than lack of regulation.

The hon. Member’s point about advertising is extremely valid. There is a real challenge. That is different—it does not quite relate to this element of the Bill. We are seeing increasing amounts of financial advertising online in different ways. I do not know how many members of the Committee have Instagram accounts, but the number of Instagram messages I get advertising foreign exchange trading is frankly bizarre.

Liam Byrne (Labour, Birmingham, Hodge Hill)

No one else gets those!

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I do not want to know what they advertise to the right hon. Gentleman. They don’t do it by pigeon.

The reality is that there are different ways in which people are trying to hack and attack, to steal from individuals in our country and around the world. That is why the work we are doing on the Joint Fraud Taskforce, which met yesterday, and on many other aspects of regulation, such as the Online Safety Bill, which the hon. Member for Glasgow Central quite rightly spoke about, is so important. The FCA has moved forward on many of those areas, in a sensible way, to balance the need of the technology to advance with the protection of society. It is certainly true that many people have lost a lot in recent weeks and months. I do not think anybody was under any great illusion, though, that cryptocurrencies were not a high-risk item, to put it politely. Anything worth about $1 10 years ago and $60,000 a few years later is probably not a stable currency. It may be many things, but it is probably not stable. It is now worth about $10,000 or so—

Kevin Hollinrake (Conservative, Thirsk and Malton)

Thirteen.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

So, $13,000. That certainly speaks to the level of volatility. It has been up and down like a yo-yo in between times, so it is not exactly as though anybody would have been recommended it as an investment vehicle. I understand the hon. Lady’s points about online safety and fraud, and she is completely correct, but that is being addressed in different aspects of Government policy. What the Bill does is make sure that those assets that are held in cryptocurrency can be seized, as other assets can. It is certainly true that they are held in different ways, as the gentleman who is going through the waste dump in Wales is discovering. That means that seizing the assets needs a certain ambiguity in the legislation in order to keep it updated for the future. The Government have made a sensible series of suggestions to balance that need for advancing the technology and protecting consumers.

Stephen Kinnock (Labour, Aberavon)

The Minister is being very generous. On that point about seizing the assets, will the Minister comment on the feedback that Aidan Larkin, an expert in this area, gave me, which is that in the United States money laundering and asset recovery measures bring in about $800 million per year? He says that we do not employ enough people doing block chain analytics. We are missing a big opportunity to generate revenue for the Exchequer.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am delighted that the hon. Gentleman will now be supporting this element of the Bill, because that is exactly what it is for.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for sitting down even before I had intervened.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I thought I had finished.

Stephen Kinnock (Labour, Aberavon)

It seems that this is an issue around resourcing and having the people in place—the handful of experts that we need to study the blockchains. Will the Minister assure the Committee that that resourcing will be provided?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I can assure the hon. Gentleman that the National Crime Agency, working alongside partners in places such as GCHQ, has enormous amounts of technology to look at cryptoassets in various different ways. The Bill—which I am delighted to hear the hon. Gentleman supports so enthusiastically—will indeed give the powers that he looks for.

Clause 142 - Cryptoassets: civil recovery

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I beg to move amendment 121, in clause 142, page 125, line 18, at end insert—

“(2) It also contains related amendments.”.

This amendment provides for Schedule 7 (cryptoassets: civil recovery) to contain related amendments.

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss Government amendments 51 to 64, 156, 157, 65 to 67 and 158 to 161.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

This is a series of small wording and technical amendments that make no substantial changes to schedule 7, but simply ensure clarity and maintain consistency in the Bill’s drafting.

Stephen Kinnock (Labour, Aberavon)

The use of enhanced powers to seize and detain digital assets, as set out in schedule 6, will be subject to a court order. Clause 142 and schedule 7 and the related Government amendments extend civil recovery powers, which may be used in the absence of a criminal conviction, to a range of organisations including the National Crime Agency, His Majesty’s Revenue and Customs and the Serious Fraud Office, in addition to police forces. It would be helpful if the Minister could explain how the Government will ensure that these enforcement powers will be used effectively in a way that avoids duplication of effort and ensures that there is a clear division of responsibilities of the different agencies. As I have said before, numerous additional powers are provided for in the Bill that require further clarification.

Ian Paisley Jnr (DUP, North Antrim)

Order. I encourage you to speak to amendment 121. We will come to the other amendments in the next group.

Stephen Kinnock (Labour, Aberavon)

I apologise—I thought we were already on that.

Ian Paisley Jnr (DUP, North Antrim)

I do not want to stop you in case you have something material to put on the record on amendment 121.

Stephen Kinnock (Labour, Aberavon)

I have no substantial comment on the Government amendments. I should have made that clear. As the Minister says, these are technical amendments that do not have a huge amount of consequence.

I return to the issue of powers provided for in the Bill that require further clarification. I would be particularly grateful if the Minister could explain how the provisions enabling a digital asset to be converted into its equivalent value in cash might be used in practice.

In my view, there are other important issues in this area, which the Bill fails to address. I would be grateful if the Minister could set out what plans, if any, the Government have to update the asset confiscation powers we have been discussing and to extend the scope of the money laundering regulations to reflect technological developments such as non-fungible tokens and the use of digital works of art as a means of disguising illicit financial transactions.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I was rather under the impression that we had not voted on the amendment.

Ian Paisley Jnr (DUP, North Antrim)

We are not voting yet—we will be coming to a vote in a moment. It is for you to now conclude the debate.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

It feels a bit sentence first, verdict afterwards, but all right.

Ian Paisley Jnr (DUP, North Antrim)

We have been doing it for thousands of years. Don’t worry—you will get used to it.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

What clause 142 and schedule 7 does—

Ian Paisley Jnr (DUP, North Antrim)

Order. We are on amendment 121.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I have nothing further to add on that.

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss the following:

That schedule 7 be the Seventh schedule to the Bill.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

It is unusual to have the Opposition argument before the ministerial one—

Stephen Kinnock (Labour, Aberavon)

I apologise for jumping the gun, but I thought we had already debated the group.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am delighted to have had the position set out so clearly.

Perhaps it would be helpful if I answered some of the hon. Gentleman’s questions. The reality is that this part of the Bill is to allow law enforcement agencies to search for physical items linked to cryptoassets. As I said in answer to an earlier point, many of the assets are held in different ways. Therefore, seizing physical assets in order to link to cryptoassets is often necessary.

To use the proposed powers, officers will need reasonable grounds to suspect that the cryptoassets have been obtained through unlawful conduct or are intended for use in unlawful conduct. The powers to search for and detain assets are supplemented by powers to ultimately forfeit the cryptoassets where a magistrates court, or a sheriff court in Scotland, can be satisfied that they have been obtained through, or are intended for use in, unlawful conduct. The powers to seize or freeze and ultimately recover cryptoassets may be used irrespective of whether the asset holder has been convicted of a criminal offence. They are, therefore, an important tool for disrupting criminal activity.

Government new clause 23 and new schedule 1—which we have just heard the Opposition debate—mirror in counter-terrorist legislation the civil recovery powers in schedule 7 to the Bill by introducing new provisions into the Anti-terrorism, Crime and Security Act 2001 and the Terrorism Act 2000. That addresses a gap in existing counter-terrorism legislation and ensures that the UK’s world-leading counter-terrorism framework keeps pace with modern technology.

The creation of cryptoasset-specific civil forfeiture powers in both the Proceeds of Crime Act and counter-terrorism legislation will, importantly, mitigate the risk posed by those who cannot be prosecuted under the criminal system, but who use their proceeds stored as cryptoassets to perpetrate further criminality. Key definitions in the measures inserted by schedule 7 and new schedule 1 are in line with existing legislation and with schedule 6 to the Bill. Similarly, they include powers to update the defined terms and adapt the process for forfeiture of frozen cryptoassets, if needed. With that, I believe I have answered the Opposition’s questions before they were even asked.

Stephen Kinnock (Labour, Aberavon)

The Opposition are concerned about enforcement. As the Minister and I have agreed throughout the debate, and as his ministerial colleague has frequently said, legislation without implementation is not worth the paper it is written on. There is little point in us passing a law that cannot or will not be enforced effectively. I am, and the Opposition are, genuinely concerned about the real risk in the proposals, partly because so much detail has yet to be made clear, but mostly because of the huge gap between what we expect of law enforcement and what resources the Government are prepared to put in.

As I said about the FCA, even the most basic requirement for cryptoasset firms to register is starting to appear unworkable. Will the Minister explain, if we cannot even get such businesses to register, how on earth will we ever be able to identify which ones are breaking the law, much less impose any penalties? I look forward to his clarification.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am pleased that the hon. Gentleman is so supportive of the work of the NCA, because it, GCHQ and others have been working extremely hard on identifying the movement of cryptoassets around not just the UK, but wider areas and jurisdictions. That is enormously important for the element of seizure to which he is referring.

It is also important that the conversion powers that the hon. Gentleman spoke about are understood for what they are. A few moments ago, the hon. Member for Glasgow Central asked about market volatility. That is true at any point, including at moments of seizure. Therefore, in order to avoid market volatility at moments of seizure—particularly when assets have been taken, converted to crypto in order to be moved abroad and then seized—having control of those assets means that one needs to put them into cash in order to have a recoverable asset, so this provision is extremely sensible.

The new powers are modelled on existing powers that many law enforcement agencies use to disrupt criminal and terrorist networks. They exercise proportionality and investigatory powers that are absolutely necessary, and no more.

Schedule 7 - Cryptoassets: civil recovery

Clause 143 - Money laundering: exiting and paying away exemptions

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss clause 144 stand part.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

In a most unusual role, I shall start this time. Clauses 143 and 144 expand the types of case in which businesses can deal with clients’ property without first having to submit a defence against money laundering suspicious activity report—a so-called DAML. The changes will reduce nugatory regulatory burdens on businesses and help focus private sector and law enforcement resources on proactive, high-value activity, while removing disproportionate delays to businesses and customers.

A DAML effectively freezes a transaction until the UK Financial Intelligence Unit in the National Crime Agency—the UKFIU—decides to provide consent for the transaction to go ahead. Alternatively, the UKFIU could refuse it and pursue further investigation. If the UKFIU does not respond within seven working days, the business can assume that they have consent and proceed with the transaction. That means businesses regularly waiting seven working days before being able to proceed with a transaction. Businesses cannot inform customers that the delay is due to a DAML, as doing so may amount to a criminal offence.

The volume of DAMLs submitted by businesses to the UKFIU rose by 80% to 62,341 in the last year that data was available, which is creating a disproportionate burden on staff in the regulated sector, as well as in the NCA and wider law enforcement. The clauses will ensure that we are taking action to handle those rising volumes and that the DAML reporting system is used proportionally.

The exemption created by clause 143 will apply when a business in the anti-money laundering regulated sector ends a relationship with a customer and pays away any money or property suspected to be the proceeds of criminal conduct. The clause enables the business to pay back money or property under the value of £1,000 without first submitting a defence against money laundering suspicious activity report to the UKFIU and without committing a money laundering offence.

DAMLs below £1,000 are of limited value to law enforcement. That is because £1,000 is the minimum amount for law enforcement to pursue an account freezing order under the civil recovery provisions, and because of the need to prioritise higher volume cases. As a result, DAMLs below £1,000 are rarely refused consent by the UKFIU, but they place a burden on reporters to submit.

The exemption created by clause 144 will apply when a person carrying out business in the anti-money laundering regulated sector suspects that only part of their customer’s property is the proceeds of criminal conduct. The clause enables the business to allow the customer access to their property without the business committing one of the principal money laundering offences or first submitting a defence against money laundering suspicious activity report. This is provided that the conditions of the exemption are met, including the condition that, as a minimum, the value of the suspected criminal property in the account is withheld when allowing a customer access to their funds.

Ian Paisley Jnr (DUP, North Antrim)

Thank you, Minister. It is not unusual to start when your name is on the clause.

Stephen Kinnock (Labour, Aberavon)

According to the Government’s impact assessment, the purpose of clauses 143 and 144, which expand the scope of exemptions from money laundering offences, is to reduce the number of ineffective defence against money laundering reports submitted to the NCA’s financial intelligence unit. It is worth bearing in mind that the purpose of the reporting system is to enable regulated firms to notify the FIU when they are asked by a client to make a financial transaction that may amount to a money laundering offence. The FIU has seven days to review the report, and if it turns out that there is a connection to money laundering, it can ensure that appropriate enforcement action is taken.

The reports can, and often do, serve as a valuable means of identifying criminal activity. The Government’s wish to reduce the number of DAML reports is understandable, but we must not throw the baby out with the bathwater. It is important for the Minister to explain to the Committee how those measures are sufficiently targeted that they reduce the number of unnecessary or unhelpful reports without causing a similar reduction in reports that might help to identify serious crime.

Clauses 143 and 144 provide exemptions from money laundering offences for certain transactions involving property worth less than £1,000, and in cases where some but not all of a client’s assets may involve criminal funds. I would be grateful if the Minister would explain the Government’s reasoning in setting the relevant thresholds at the specific levels provided for in those clauses.

I want to touch on a couple of broader points. The Government are right that the SARs process is in need of considerable reform. There are many steps the Government could take to improve the quality of reporting in addition to the measures set out in those clauses. For instance, the Solicitors Regulation Authority published a report last month in which it noted that, in two thirds of the reports it reviewed, the firms making the report did not include the glossary codes that enable the NCA to triage reports effectively and ensure an appropriate enforcement response. Additionally, the SRA found that as many as a quarter of the DAML reports it reviewed failed even to describe the criminal conduct that was suspected. Those findings are clear evidence that many law firms do not have an adequate level of understanding of the laws they are expected to help enforce. The same may well be true in other regulated sectors.

Will the Minister set out what steps the Government are taking to ensure that regulated firms have a better understanding of their obligations under the law, and how official guidance might be improved to help firms to submit better quality reports? I point out that significant improvements could be made to the speed and efficiency of the SARs process by making use of new and emerging technologies. If the FIU could use more cutting-edge software applications and algorithms to help identify the most serious crimes, it would go a long way towards addressing the problems that the Government seek to tackle. Perhaps the Minister might comment on the Government’s work in that area.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am delighted to respond to that. The rising volume of DAMLs being submitted has already had an impact on effectiveness. That is welcome, in that businesses are taking their responsibilities extremely seriously, and the UKFIU is responding appropriately when it receives them. Although, as the hon. Member quite rightly says, technology can help, the reality is that there is still an awful lot of work to be done. That is why these provisions are so reasonable.

The provisions are reasonable because property or criminal funds worth less than £1,000 are already exempt from asset seizures in different circumstances. It makes absolute sense to have a restriction on that in the Bill and apply the same threshold to allow the UKFIU to target, as much as possible, those serious money laundering accusations and investigations appropriately—and, indeed, to arrest more criminals.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for that response. Would he care to comment on the feedback from the Solicitors Regulation Authority, which points particularly at the fact that many of the firms doing the reports were not including key information such as glossary codes and sometimes did not even describe the criminal conduct that they suspected? Is there something more that could be done so that the information at source was in a better state? Does he think that the feedback from the SRA could be a good basis on which to achieve that?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am sure that having data at source in as clean and fluent a fashion as possible, so that it is complete and allows investigation, is absolutely essential. I am sure that solicitors will feel the responsibility to do that. I am grateful to the hon. Gentleman for raising that point.

Clause 145 - Information orders: money laundering

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss clause 146 stand part.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Clause 145 amends the existing information order power in the Proceeds of Crime Act 2002 to bolster the UKFIU intelligence-gathering powers. Clause 146 addresses a gap in counter-terrorism legislation by mirroring those in the Terrorism Act 2000. The clauses will align the UKFIU more closely with the international standards of the Financial Action Task Force, known as FATF—including to me, actually—and enable greater collaboration with international financial intelligence units. That aids public safety in the UK and overseas, and furthers the UK’s efforts to combat illicit financial flows entering the UK economy.

FATF is the international body devoted to developing and promoting policies to combat money laundering and terrorist financing. As a member, the UK agrees to promote FATF’s anti-money laundering standards, which are expressed in the form of recommendations. FATF, the global money laundering and terrorist financing watchdog, evaluated the UK in 2018 and rated it only “partially compliant”. That rating was affected by the UKFIU’s limited ability to conduct operational strategic analysis in cases where a business has not already submitted a suspicious activity report.

Clause 145 amends the existing information order power by removing the requirement for a preceding suspicious activity report, or SAR, before an application can be made to a magistrates or sheriff court. Clause 146 mirrors that for counter-terrorism legislation. The information order will compel business in the anti-money laundering regulated and terrorist financing regulated sectors to provide information about a customer or client. That information will enable the UKFIU to conduct its operational strategic analysis functions by proactively gathering financial intelligence rather than relying on the reporting sector to have submitted information already. Further, the clauses will enable the UKFIU to better assist international counterparts to gather information, for example, relating to sanctions evasion and maximising the effort to prevent terrorist finances from entering the UK’s economy.

The information sought under an information order is designed for intelligence purposes only. To ensure the power is used appropriately, a code of practice must be made by the Secretary of State. The person making the application must have had regard to the code of practice when applying to the court for an information order. The measure has been developed collaboratively with the UKFIU.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for including the provisions in the Bill, which should make it easier for the NCA to access the information that it needs to gather intelligence and conduct analysis of the range of threats that we face from money laundering and terrorist financing. The provisions in the clauses should also help to ensure that the UK is able to provide more effective assistance to law enforcement bodies in other countries in response to requests for information.

Given that so much economic crime is inherently an issue that cuts across international borders, it is absolutely right for the Government to do all that they can to enforce the law within our own borders and to help Governments in our partner countries overseas to do the same.

Clause 147 - Enhanced due diligence: designation of high-risk countries

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The clause amends the Sanctions and Anti-Money Laundering Act 2018 to allow the Treasury to directly publish and amend the UK’s high-risk third countries list on gov.uk.

Under the 2017 money laundering regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries. High-risk third countries are those identified by the Financial Action Task Force as having poor controls and significant shortcomings in their anti-money laundering and counter-terrorist financing regimes.

Currently, a statutory instrument needs to be laid several times a year to update the UK’s list each time the FATF’s own list is amended. The clause will allow for more rapid updates to the list, helping the UK to be even more responsive to evolving money laundering threats by ensuring that risks are communicated and mitigated by the regulated sector as soon as possible. By removing the need to introduce legislation for each update, the change will also ease pressures on ministerial and parliamentary time, thereby responding to Parliament’s call to streamline the process—very much like this Committee.

Stephen Kinnock (Labour, Aberavon)

Clause 147 raises a number of concerns for us, which I hope the Minister will be able to address. It aims to change the procedure for updating the Treasury’s list of countries designated as high risk due to serious deficiencies in their anti-money laundering and counter-terrorist financing systems, which was established by the Sanctions and Anti-Money Laundering Act 2018. The clause will enable the Treasury to update the list directly, without the need for regulations, in effect removing the opportunity for Parliament to scrutinise any changes to the list.

During the passage of the 2018 Act, there was cross-party consensus on the need for any UK list of designated high-risk countries to reflect international standards, primarily by mirroring the lists maintained by the Financial Action Task Force. The problem with clause 147 is that it appears to enable the Treasury to make any future updates to the UK list, even in ways that diverge from the FATF lists, without any opportunity for Parliament to scrutinise or debate the proposals. Given the zeal for deregulation that we have often seen from the current Government, it takes no great stretch of the imagination to foresee a situation in which the Treasury determines that the FATF lists are unduly stringent and that certain countries and territories should be removed from the UK’s list of high-risk countries, even in cases where issues identified by the FATF remain unresolved.

Looking at the relevant impact assessment, it seems that the intention is to enable Ministers to update the list “more swiftly” when needed, thus making the UK’s list more “responsive” to emerging developments than is possible under the current system. But even if the aim is reasonable, the methods are questionable. For one thing, the 2018 Act stipulates that regulations updating the list of high-risk countries are subject to the affirmative procedure, under which Parliament is given the opportunity to retrospectively review changes that have already been made by the time the regulations are published. Together with the fact that updates are generally needed no more frequently than once every three months, this does not seem to place an undue burden on Ministers.

The changes made by clause 147 do not seem proportionate to any identifiable problem with the current system. The Opposition therefore strongly encourage the Minister and his colleagues to revisit the clause, on the basis that a convincing case for the need to remove Parliament’s oversight of this process has not been made.

Margaret Hodge (Labour, Barking)

I concur entirely with the remarks by my hon. Friend the Member for Aberavon, but I want to ask a couple of questions.

First, the Minister will know that we are considering how we can move from freezing the assets of people who are sanctioned to seizing them. One of the ways in which that could be facilitated, from the advice I have received from various non-governmental organisations and lawyers, is to have a sort of kleptocrats list. I wonder if he would take that idea away and, in considering the request for greater parliamentary oversight, look at whether we could designate particular jurisdictions as kleptocracies. All the advice I get indicates that that would make it easier to do the seizing as well as freezing. Of course, in relation to Ukraine, that would mean that some of the £18 billion that has been seized from Russia could be recommissioned and used to help us rebuild Ukraine.

Secondly, it is quite odd that Kazakhstan, for example, will not be on a list of high-risk countries, given everything we know about how that country is run by an elite. I am using figures from memory, but I think 150 people own over 50% of the country’s wealth. That is money that has been robbed from the citizens of Kazakhstan. In those circumstances, I do not understand why that is not a high-risk country and how our relationship with that jurisdiction remains friendly. Going back to what my hon. Friend the Member for Aberavon said, therefore, I feel there needs to be parliamentary oversight of how we classify countries as high-risk countries—and, in my view, as kleptocracies. I do not understand how that is done by the Foreign Office at present.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The idea of a kleptocrats list is an interesting one. It is not one I have heard before. If the right hon. Lady will forgive me, I will look into it and respond to her in writing; I have not thought about the matter, so I will have to give it some thought.

The list of high-risk third countries is based on the FATF list, which, as the hon. Member for Aberavon knows, has provided the basis for all the statutory instruments that have passed with no objection or issue. This measure will not save much ministerial time, if any at all, but it will save parliamentary time. Given how hard-pressed Parliament is to debate so many issues, I think it is a reasonable provision. Given the alignment between the UK regime and the international FATF standards, that seems to be a pretty standard change.

On the question of debating other areas, there is often cause to debate other countries’ inclusion or exclusion from such lists, and the Treasury, the Foreign Office and other Departments and organisations often have views. I am not sure this is the Bill in which to do that; this Bill is simply about correcting a slight bump in the road and speeding up the process.

Ian Paisley Jnr (DUP, North Antrim)

I call Neil Kinnock—I beg your pardon, Stephen. People used to do that to me and they always got it wrong.

Stephen Kinnock (Labour, Aberavon)

Don’t worry, Mr Paisley—we could probably exchange notes on that at great length.

I thank the Minister for those points. I recall his time as chair of the Foreign Affairs Committee, when he pushed relentlessly and convincingly for parliamentary scrutiny of a whole range of key issues and decisions. Given that parliamentary scrutiny was built into the 2018 Act, it seems difficult to justify its deliberate removal from the process by this Bill. It seems like it would be good to have those guard rails in place to avoid the risk of somebody in the Treasury deciding at some point that big decisions should be made without any parliamentary scrutiny at all. Does he not agree that this is a real missed opportunity?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

No, I do not. I always found that when I wanted to get parliamentary scrutiny as Chair of a Committee, I managed to find ways to do that—often through debates, in which the hon. Gentleman was a wonderful speaker—and to change Government policy by using not only Parliament, but the media and other forms of pressure. There is a difference between seeking to change Government policy on various aspects of areas that should really be considered as wider policy, and seeking to implement these changes, which are, let us be honest, rather technical and not issues of major parliamentary debate.

Clause 148 - Direct disclosures of information: no breach of obligation of confidence

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I beg to move amendment 122, in clause 148, page 136, leave out lines 22 and 23 and insert—

“(1) The protections set out in subsection (1A) apply in relation to a disclosure made by a person (‘A’) to another person (‘B’) if—”.

This amendment and Amendments 125 and 135 provide that disclosures mentioned in clause 148(1) do not give rise to any civil liability, on the part of the person making the disclosure, to the person to whom the information disclosed relates. There is an exception for liabilities under the data protection legislation.

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss the following:

Government amendments 123 to 135.

Clause stand part.

Government amendments 136 to 142.

Amendment 167, in clause 149, page 138, line 8, at end insert—

“(vi) a firm or individual carrying on statutory audit work or local audit work,

(vii) an individual appointed to act as an insolvency practitioner,

(viii) a firm or sole practitioner providing to other persons accountancy services, or providing material aid, or assistance or advice, in connection with the tax affairs of other persons, or

(ix) an auditor, external accountant or insolvency practitioner as defined in Section 11 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.”

This amendment includes accountants in various roles in the indirect information sharing provisions set out in clause 149, allowing them to pass on information regarding suspicious activity.

Government amendments 143 to 152.

Clauses 149 to 152 stand part.

Government amendments 153 to 155.

Clause 153 stand part.

That schedule 8 be the Eighth schedule to the Bill.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Large amounts of financial data flow through the United Kingdom every hour. The majority relate to entirely legitimate and proper activity; however, a small proportion involve criminal activity. As hon. Members heard from several witnesses to the Committee, the sharing of information regarding criminal activity between businesses is currently constrained by duties of confidentiality. These clauses and the associated Government amendments address that constraint.

Clause 148 enables direct disclosure of information between two businesses in the anti-money laundering regulated sector for the purposes of preventing, investigating and detecting economic crime, without a breach of their obligation of confidence to their customers.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Hear, hear.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am glad to have support from further down the Treasury Bench.

To request information, a business must have reason to believe that the other business holds information that will, or may, assist in carrying out its relevant actions. Relevant actions include deciding whether further customer due diligence is needed, restricting access to products, or terminating a business relationship with the customer as a result of the additional information obtained.

Amendments 122 to 135 amend clause 148 to expand the provisions to offer protection from civil liability owed by the person sharing information to the person to whom the disclosure relates. As the Committee heard when UK Finance gave evidence, the banking sector maintains that without greater protection, information is unlikely to be shared, as doing so creates limited benefit in comparison with the risk of potential protracted and expensive litigation from customers. Greater use of the provisions will make it harder for criminals to exploit UK businesses. We have listened to the sector and tabled these amendments.

Clause 149 enables indirect information sharing by certain businesses via a third-party intermediary, on a similar basis to elements of clause 148. A business may share information about a current or former customer whom they have already decided to take action against due to an economic crime risk—or who would have been subject to that decision were they still a customer—either by terminating a business relationship or by refusing or restricting access to a product or service. The business must be satisfied that sharing the customer’s information will assist other businesses in carrying out their relevant actions. As with clause 148, the Government have tabled amendments 136 to 141 and 143 to 151 to disapply civil liability for a person who discloses such information.

Government amendments 142, 152 and 155 extend the scope of the indirect information-sharing provisions to cover large and very large accountancy and legal businesses. The benefit of bringing those businesses within the scope of the provision is that those firms have experience of dealing with high-risk clients. Criminals are known to exploit the information gaps that currently exist between businesses in these sectors, and encouraging further information sharing creates greater opportunities to prevent economic crime.

Clauses 148 and 149 do not disapply any liabilities arising under data protection legislation. The hon. Member for Feltham and Heston tabled amendment 167, which would expand clause 148 to include the accountancy sector. I hope that she is reassured that the Government amendments that I have just described achieve that objective.

Government amendments 153 and 154 make express provision for aiding, abetting, counselling and procuring in the definition of economic crime. Schedule 8 sets out the offences that are included in the definition of economic crime for the purposes of direct and indirect disclosures of information, the Law Society’s fining powers, and the objectives of regulators of legal services. The schedule is divided into common-law and statutory offences. No new offences are created by the Bill; the schedule has been included because there is no existing relevant definition of economic crime. The schedule is essential to provide clarity and certainty about the meaning of economic crime, in order for individuals, regulators and businesses to use the disclosure of information provisions effectively and to properly apply the new measures relating to legal services.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

It is a pleasure to serve under your chairship, Mr Paisley, and to speak to this rather large group. I thank the Minister for his comments, which I find reassuring. I will deliver my own remarks for the record, but his comments, particularly on our amendment 167, were helpful.

This important group of clauses and amendments relates to supporting disclosures to prevent, detect or investigate economic crime. The Minister is absolutely right about the concerns—raised by UK Finance specifically—that the clauses go a considerable way to addressing.

Clause 148 concerns direct disclosure of information and, as the Minister outlined, disapplies the duty of confidentiality owed by a business where the business making the disclosure knows the identity of the recipient and certain conditions—broadly outlined in subsection (1)—are met. The explanatory notes contain the example of a bank that identifies a transaction that it believes is irregular and wants further information from another party—perhaps more information on the identity of the payer or more clarity on the source of the funds. We understand why such information might be wanted and the importance of being able to get such clarity. In effect, clause 148, along with clause 149, about which I will say a few words separately, removes the civil liability for an institution in sharing that information with another entity for the purposes of detecting and preventing economic crime.

Given the concerns about the difficulties with information sharing, and the resistance that there has been to sharing information because of lack of clarity about the law or about where liability lies under data protection rules, these measures are welcome. They have perhaps taken longer to be introduced than we would have liked, but they are certainly welcome, and we hope that they will increase the detection of economic crime and reduce moves by those involved in it to seek to use our institutions to launder and hide money.

Although I welcome the removal of barriers to information sharing, I wonder whether the clauses give regulated sectors or actors so-called safe harbour as comprehensively as they might. Helena Wood of the Royal United Services Institute said in her evidence to the Committee:

“Although the provisions in the Bill will go some way towards increasing private-to-private information sharing and, in particular, the risk appetite in the banking sector, they really do not keep pace with the global standard. What we would like in the next economic crime plan”—

I think we are all hoping to see that soon; shortly is the word used in this Committee—

“is something much more ambitious. In many ways, I would say that while it is welcome, the Bill is a slight missed opportunity with regard to information sharing, given that it really does not push forward to this big data analytics model that others are moving towards.” ––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 90, Q170.]

As a result, while we welcome and support the clause, there are questions about whether the Government may pursue more advanced models and rules around those models and data analytics.

Let me come back to a couple of questions, clarifications and concerns. The clauses do not highlight whether there is any time expectation for a person to respond to an information request. What if an innocent person were caught by the provisions? As well as the time taken, there may be some complexity in finding out information. Different financial institutions may have invested less in robust procedures; the information may not always be easily to hand. Is there any expectation of how quickly person A has to respond to the request by person B?

A reasonable scenario might arise involving somebody who is not guilty of economic crime. There might be a question of source of funds. It could be someone seeking a mortgage for the first time—it could be anything—and there may be a timeline to which they are subject. Sometimes, we have to test legislation on what would happen if an innocent was caught up in it. That could happen to anybody—I shall highlight an example from my constituency. It would be helpful to understand the speed of response required, particularly if there is an innocent involved and a reason for a more speedy transaction by person B with their customer.

Clause 149(2)(c) notes that

“due to concerns about the risk of economic crime, A has decided to—

(i) terminate a business relationship with the customer,

(ii) refuse the customer a product or service, or

(iii) restrict the customer’s access to elements of a product or service”.

We can fully understand that situation, particularly if there is a pronounced concern of risk, where there might be some threshold of evidence—a considerable amount of evidence—that there is economic crime taking place.

I raise the point about safeguards and redress where an innocent is caught by the provisions is because in the last few months I have had a constituent whose bank was concerned about some of the payments made into his account over a period of time. He had a very clear explanation for the payments. When I talked to him and explained why those transactions were picked up and how he had to explain them, the situation was clearer to him.

This person lives and works in my constituency, who had not done anything wrong. The transactions had a very clear explanation, but it was a very stressful situation, because the bank froze his assets completely, including the bank account from which he was paying the household bills, the mortgage, and that he was using to take cash out to buy food. His credit cards were also stopped. What does someone do in that situation? He was phoning the bank and not getting a clear answer, his bills were due to go out and he would default on them, and he had no idea what would happen next. It was incredibly stressful. The bank knew that I had been approached; it can sometimes help when a constituent approaches an MP knowing that they are prepared to support them to intervene, if the situation is not resolved and quickly moved forward through the customer complaints or concerns procedure. I had a letter ready to go and the bank knew that. It came back and said that it accepted the explanation and had gone through, in the process of a week to 10 days, to seek to check what my constituent had said. Without some protections from a Member of Parliament and the ability to raise or question concerns, what do people do?

I do not have the evidence for this, but I have concerns about how people from ethnic minorities or less conventional backgrounds and their word are treated, where those transactions are from people who are from other ethnic minorities. People do not always have a relationship with banking institutions, and this is a diversity question as well. That situation got resolved, but what if it had not been? What if that person had then been in an incredibly difficult position of having their mortgage put at risk, and all the other questions, without a speedy resolution? These questions are important and serious. We must test legislation against the different scenarios—and what the expectations might be of financial institutions rightly and importantly sharing this information—but we must look at necessary safeguards for consumers, who may have an important need to question, redress or explanation, and where a procedure is needed to make clear the expectations and the timeline in which it should happen. I would grateful if the Minister can confirm if the Government have considered this, and whether there are some checks and balances for an innocent who may get caught up in this.

There can sometimes be concerns about the risk of economic crime where the customer is refused a product or service. I had a situation with an insurance policy where, due to some of the extra checks that there may be for Members of Parliament, the underwriter changed and their policy was different. I was suddenly seen as high risk, as a Member of Parliament, and due to my job the policy was terminated. I had to go and find another provider. It struck me as extremely odd when I found out that that had happened. I had been a customer for a long time, but the underwriter and policy had changed without clear explanation. I subsequently found out the reason from someone who generously told me when I phoned up; they did not know any great detail, but they said, “It says it is due to their occupation.” Suddenly we realise how vulnerable someone can be, when they have no means of redress against decisions that can sometimes be made without explanation—the wording of the clause says

“due to concerns about risks of economic crime”—

without strengthening, to some extent, where there might be a threshold to do what we want the legislation to do without others being caught without some form of redress or ability to ask questions. I would be grateful if the Minister could address that in his response.

I will turn to the question of reactive versus proactive information sharing where there are genuine concerns, and being able to evidence those concerns about money laundering. Will the Minister clarify the “request” conditions and the “warning” conditions in clause 148(3) and (4) and the way to interpret them, as I was not fully clear about that? Clause 148(3) is fairly self-explanatory and says the response is reactive when, for example, person B approaches person A when they think there is information it would be helpful to share. Clause 148(4) says:

“The warning condition is that A, due to concerns about risks of economic crime, has decided to take safeguarding action (or would have decided to take such action but for the customer having ceased to be a customer of A).”

Can the Minister clarify the extent to which subsections (4) and (5) imply proactive information sharing? I was not clear how to interpret the use of those subsections in relation to “the warning condition.”

I will not go into detail, but we support amendments 112, 115, 123, 124, 126 to 128, 130, 132 and 135 to clause 148. We are also discussing amendments 129, 131, 133 and 134.

We support Government amendments 136 and 152 to clause 149, which we support, and I will speak to amendment 167. Clause 149 focuses on the “indirect disclosure of information” where there is no breach of obligations of confidence and we welcome its introduction. I have raised concerns in relation to subsection (2) and the way some of the definitions around risk of economic crime can be helpfully used and interpreted.

In relation to amendment 167, the Minister alluded to including accountants in various roles in the indirect information sharing provisions set out in clause 149, allowing them to pass on information regarding suspicious activity. The Institute of Chartered Accountants in England and Wales has called for this provision and spoken about the importance of enabling accountants to share information with each other, in order to ensure people committing economic crimes are not able to continually do so by simply changing their accountant and restarting the process. On indirect information sharing provisions, amendment 167 includes

“a firm or individual carrying on statutory audit work or local audit work, an individual appointed to act as an insolvency practitioner, a firm or sole practitioner providing to other persons accountancy services, or providing material aid, or assistance or advice, in connection with the tax affairs of other persons, or an auditor, external accountant or insolvency practitioner as defined in Section 11 of The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.”

I am grateful to the Government for tabling amendments 137, 138, 140 to 142, 144 and 147. They extend clause 149 disclosures to apply in relation to persons with a large or very large UK revenue who carry out legal or accountancy services in the regulated sector. The amendments have the same principle as amendment 167, and the Minister has broadly said that he thinks they cover the same area, but I would be grateful if he specified whether the Government amendments would apply more detail about whom we are specifying in relation to information-sharing provisions, in order to provide assurances that the Government amendments will include all the various roles set out in amendment 167. If any are not covered, it is important to clarify that and for us to have a further debate about that.

I will make a few minor comments about the remaining clauses in this group. Clause 150 sets out the meaning of “privileged disclosure”, which is also referred to in clauses 149(2)(g) and 148. It is helpful to define “privileged disclosure” as the

“disclosure of information made by a professional legal adviser or relevant professional adviser…where the information disclosed came to the adviser in privileged circumstances.”

The Minister spoke to this, but I would be grateful if he clarified whether clause 150 would cater for all instances where information should be shared for the purposes of preventing or detecting economic crime.

Clause 151 defines the term “relevant actions”, as set out in the early information-sharing provisions. Clause 152 defines the term “business relationship”, which is referred to in clauses 148 and 149. I would welcome an assurance from the Minister that relevant stakeholders are included in the indirect information-sharing provisions, as set out in clause 149. It would be helpful to know whether there is any consultation on defining the term.

Clause 153 defines other terms used in clauses 148 and 149 regarding information sharing, including a definition of “economic crime”, which refers to acts that constitute offences, as listed in schedule 8. I would be grateful for the Minister’s response to the few points that I have made about this group of clauses and amendments.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am sorry to hear that the hon. Lady was considered a risk to public safety, a danger or a threat to the nation in any way. She is none of those things; she is a highly valued Member of this House and a friend to many of us. I can only imagine the unwisdom of whoever it was who decided to terminate a relationship with her. I hope that the decision is being reviewed and that the person is now enjoying a holiday on the Falkland Islands.

It is worth pointing out that the comparisons that this has with other jurisdictions should be looked at carefully. Not every jurisdiction has the same application of the ECHR, GDPR or various other constraints on sharing information and protecting privacy that the UK has. In the Netherlands, the transaction monitoring scheme has so far involved only the sharing of business data, so there are various different ways in which these applications are not exactly applicable. It is worth pointing out that, under the provisions, an individual’s right to a basic bank account, as established by the Payment Accounts Regulations 2015, is unaffected.

That means that affected individuals will be able to continue to access basic accounts, providing their account is not being used or has not been used for criminal activity, or that maintaining the account would breach any other legal obligations under the money laundering regulations. Moreover, the clause stipulates that before information is shared about a customer, the sharer must have taken action against the customer, or would have if they were still a customer. As a result, no one will have information shared unless the bank has already decided to take action against them or would have decided to do so.

We do not foresee a significant increase in the number of new individuals being denied access to services. Certainly, the hon. Lady’s comments about her constituent should be viewed in that context. However, if there are individual cases that she feels that I—or, indeed, my hon. Friend the Member for Thirsk and Malton—can help with, I would be very happy to look at them, as I am sure my hon. Friend would be as well.

The forms of redress that the hon. Lady raises are important. That is where going through the Information Commissioner’s Office or the Financial Ombudsman Service, depending on the nature of the complaint, is important. She raised many other questions, and although I will not be able to get to them right now, I will be happy to write to her on some of those individual items.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. If he is happy to write to me, I would be grateful for that. Can I clarify whether that will also cover some of the questions I raised about the expected timing of sharing information and the procedures for those who may have been caught up inadvertently? Procedurally, we need to understand how they can be dealt with. Rather than Ministers having to deal with individual cases, we want a mechanism that will make the system work fairly.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The hon. Member is making a perfectly reasonable point. I agree, and I will write to her about those timings so they are clearly on the record and we understand what is being asked and what the expected timeframes are.

It is also worth saying that the warning condition is more active because a business has already taken or would have taken a decision where a person is a customer. That is different from the request condition, where it is sharing in response to a specific request. The two are not quite identical, but I hope that answers the hon. Lady’s questions. I will write to her shortly.

Clause 149 - Indirect disclosure of information: no breach of obligation of confidence

Clause 153 - Other defined terms in sections 148 to 151

Clause 154 - Law Society: powers to fine in cases relating to economic crime

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss the following:

Clause 155 stand part.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

His Majesty’s Government’s national risk assessment for 2020 assessed the legal services sector as being at high risk of exposure to money laundering. The crisis in Ukraine has highlighted that the sector is exposed to further-reaching risks, such as sanctions breaches. The Bill therefore contains measures that strengthen the legal sector’s response to economic crime.

Clause 154 removes the statutory limit on the Solicitors Regulation Authority’s financial penalty powers for disciplinary matters related to economic crime, as delegated by the Law Society. Currently, the SRA can direct a solicitor or traditional law firm to pay a penalty up to £25,000. The limit is set out in primary legislation and can be amended only by an order made by the Lord Chancellor. This measure will remove the need for the Lord Chancellor to make an order, thereby ensuring greater flexibility to, if required, amend penalty limits for disciplinary matters relating to economic crime.

New clause 47 gives the Scottish Solicitors’ Discipline Tribunal parity with England and Wales in respect of the fining powers available to it for economic crime-related solicitor misconduct. Currently, the SSDT may impose a maximum fine of £10,000. In comparison, the equivalent tribunal in England and Wales—the Solicitors Disciplinary Tribunal—has the power to impose an unlimited financial penalty. This change will provide the SSDT with fining powers that act as a proportionate deterrent against breaches of the rules and legislation related to economic crime, including offences linked to money laundering, terrorist financing and sanctions. The exercise of this power will be subject to the oversight of the Court of Session to ensure that the SSDT acts in an effective and proportionate way. The changes sought in clause 154 and new clause 47 are needed to ensure that the SRA and the SSDT have the enforcement tools required in the context of economic crime compliance.

Clause 155 enshrines in legislation the duty of legal services regulators to promote the prevention and detection of economic crime. Our legal sector is internationally renowned for its high standards of excellence and professional conduct. The vast majority of the sector is compliant with its economic crime duties. However, it is crucial that regulators have the right tools to effectively promote and monitor compliance. The clause puts it beyond doubt that it is the duty of legal services regulators to take appropriate action to ensure that their regulated communities comply with economic crime rules. It will give frontline regulators a clear basis for any supervision or enforcement action they may carry out to uphold the economic crime regime.

Stephen Kinnock (Labour, Aberavon)

Clause 154 would lift the current statutory cap on the penalties that may be imposed by the Solicitors Regulation Authority, as delegated by the Law Society, for breaches of the law on economic crime. I am sure that Members on both sides will welcome the change if, as the Government argue in their impact assessment, it increases the deterrent effect of the financial penalties that may be levied for disciplinary matters. Although the Government provide limited evidence to support that claim, it is at least a reasonably logical conclusion.

However, the proposals raise a number of questions, principally around the degree to which clauses 154 and 155 reflect the input received from the sector in response to consultation earlier this year. Specifically, a number of serious concerns were expressed by the Solicitors Disciplinary Tribunal when the SRA consulted on planned increases to its powers to impose fines.

The tribunal argued that the SRA’s powers should be limited to imposing relatively low penalties for minor technical or administrative errors. It argued that increasing the maximum level of fines that the SRA could impose would erode transparency by preventing cases of serious misconduct from coming before a public hearing, which could also remove the scope for a detailed, publicly accessible explanation of any penalties, as is generally provided by the tribunal’s decisions under the current system. In summarising its concern, the tribunal argued that the diminution in the transparency of decision making and detailed reason would be in neither the public’s nor the profession’s interest.

It should be noted that those objections were raised, not in response to the proposed changes set out in this Bill, but in the context of the increase in the maximum level of financial penalties that the SRA may impose from £2,000 to £25,000, which came into effect in July. That change in itself begs a number of questions. In particular, can the Minister explain how many and what proportion of the fines imposed by the SRA since July have been at the £25,000 maximum? Could it not be argued that the Government have not provided enough time for the effectiveness of recent changes to be adequately assessed?

Can the Minister also set out the Government’s reasoning in lifting the cap on the SRA’s fining powers, with specific regard to the objections raised by the Solicitors Disciplinary Tribunal, and other stakeholders, around the transparency of the process?

Clause 155 would amend the Legal Services Act 2007 to set an additional objective for regulators in the legal sector to prevent economic crime. Given the objections that have been raised in the sector relating to clause 154, I would be grateful if the Minister provided further details of any consultation between his Department and providers of legal services, as well as the Legal Services Board, on this proposal.

Finally, it would be helpful if the Minister explained the rationale for the decision to set out, in this Bill, an explicit objective to prevent economic crime for providers of legal services, but not for other sectors covered by the money laundering regulations. The impact assessment sheds limited light on the Government’s thinking in this area, so any additional detail that the Minister could provide today would be welcome.

Alison Thewliss (Scottish National Party, Glasgow Central)

My understanding is that the Law Society of Scotland has no particular objections to the amendments.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The hon. Member is asking about various of the different fining elements. Clearly, the fines discussion is a matter for the individual cases, and would be determined on a case-by-case basis, but I think that removing the cap, which, in modern terms, is actually relatively low—certainly, when compared with financial abuses and other forms of regulation—is entirely reasonable.

The Solicitors Regulation Authority does not, in any way, have any power to strike off a suspended solicitor, so the SDT remains an extremely important part of the disciplinary process. There are various different aspects at play here, but the proposals make good sense and are reasonable. I will happily write to the hon. Member on the issue he raised separately and come back to him about it later.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for that clarification, and I am grateful for his offer to write with further details. On the point about using the Bill to prevent economic crime with respect to providers of legal services, but not for any other sector covered by the money laundering regulation, would he care to shed more light on the rationale for that decision?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The other sectors are already covered by the money laundering regulation. That element is focusing on legal services because that was a lacuna in the law.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for that clarification. There is a broader scope to economic crime, not just a specific focus on money laundering, and that covers a wider range of aspects of economic crime, although there is an explicit objective in the Bill that it is limited to providers of legal services. I wonder why that broader scope will not be applied beyond the money laundering concerns.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The changes are being made and the new clause is important for exactly the reasons the hon. Gentleman has highlighted. The new clause will remove an obstacle with respect to the SRA exercising its judgment and punishing appropriately those who might be committing any number of different crimes, which I hope they will not be doing. The measure will give us a provision to enable us to deal with that. The reality is that much of the money laundering regulation has already been covered, along with different aspects of financial services. The proposals specifically address legal services and particular aspects. They are an important addition, and I am happy to support them.

Clause 158 - Power to make consequential provision

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I would have been pleased to speak to any of those clauses.

Ian Paisley Jnr (DUP, North Antrim)

The Minister did not indicate that he wanted to do so.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Let us go with clause 158, Mr Paisley.

Ian Paisley Jnr (DUP, North Antrim)

To be clear, we are debating clause 158 stand part.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Indeed, and I am delighted to be called to speak to it.

The clause provides the Secretary of State with the power to make consequential amendments that arise from the Bill. The power is necessary to ensure that other provisions on the statute book properly reflect and refer to the provisions in the Bill once it is enacted and to ensure that there are no legislative inconsistencies. If regulations are made under the clause that do not amend primary legislation, they will be subject to the negative resolution procedure. If regulations are made under the clause that amend primary legislation, they will be subject to the affirmative resolution procedure. This, I hope, will provide the appropriate parliamentary scrutiny.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comments. May I clarify the process, Mr Paisley? In previous sittings, during each clause stand part debate the Minister has been called followed by the Opposition spokesperson. Perhaps that has had some variation, but it would be helpful to understand whether we need to do anything differently.

Ian Paisley Jnr (DUP, North Antrim)

No, nothing at all; it is just that the Minister did not indicate that he wished to speak. Members can speak at that point. Those clauses have been dealt with.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I think that there was a slight misunderstanding, but we will move on.

Clause 158 confers on the Secretary of State a regulation-making power to make consequential amendments that arise from the Bill. I want to raise a general point: the Minister did speak to this, but perhaps he could say a little more about examples of where the Secretary of State might need to use the power. Perhaps it is written somewhere, but I am not fully clear whether any changes that come through secondary legislation to the Act itself—I think that is a Henry VIII power in this clause—would be taken through the affirmative procedure.

It has been a general theme of debate though our proceedings that we need to make sure that there is sufficient provision for the transparency, scrutiny and accountability of changes, as well as for accountability of the Secretary of State’s use of powers for the reporting that there should be on how well the provisions are working. The power to make consequential amendments comes at the end of the Bill in clause 158, but it is a Henry VIII power that means that amendments to primary legislation can be made. That is different from the power to make regulations under secondary legislation, which we have been debating.

The Government have said that the power is needed to ensure that other provisions on the statute book properly reflect and refer to provisions in the Bill once it is enacted. I want to be clear about what the scope of the use of this power would be, how it is intended and how it would be reported on. Would an affirmative or negative procedure be used to make any changes under this clause?

Margaret Hodge (Labour, Barking)

We have raised a number of amendments to the Bill during the course of consideration in Committee, many of which I consider to be technical and things that would improve the processes. All those amendments so far have been rejected. I wonder whether, rather than bringing us back at a later stage as the clause proposes, the Minister would undertake, together with his ministerial colleague, to look again at some of those amendments, which are really just practical, pragmatic amendments, with a view to bringing them back. Would he bring them back on Report?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I will answer the second question first, if I may. I am absolutely certain that my hon. Friend the Member for Thirsk and Malton and I will look with great interest at the suggestions that the right hon. Lady has made. As she knows, we share many similar ambitions. We will have a look at those suggestions with officials. Certainly, there are some that we think could improve the Bill—I do not think there is any great debate about that—and I will make sure that we keep her informed. Her contribution and help, not just today and on the Bill, have been enormous, and I pay enormous tribute to the work that she has done over many years in fighting money laundering and different forms of economic crime.

On this specific power, the hon. Member for Feltham and Heston raises a very important point, which is that the clause does give large consequential provision to the Government to change aspects of the Bill. I understand the concerns that she raises. The nature of the Bill, however, is that it has quite a consequential impact on other elements of legislation, as she herself has highlighted. Therefore there are knock-on elements that will no doubt require minor redrafting and changes at various different points as the Bill goes into law. I am afraid that is slightly the nature of these operations, as she understands extremely well. That is what this power is for.

It is worth saying that any significant or substantial changes that really do change the intent of the Bill should be brought back in primary legislation, because this is clearly a provision in order to enable the Bill to operate, not to change the intent that this House gives it.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

I thank the Minister for his comment, which puts that clarification on the record for successive generations of those who will sit in his seat—perhaps he will be promoted to higher office. It is important that that comment is on record, because we have to create legislation for not just today but tomorrow.

Clause 159 - Regulations

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I beg to move amendment 43, in clause 159, page 144, line 21, at end insert—

“(ba) regulations under section (registration of qualifying Scottish partnerships), unless they are regulations under that section that only make provision that corresponds or is similar to provision made or capable of being made by a statutory instrument that is itself subject to annulment in pursuance of a resolution of either House of Parliament;”.

This provides for regulations under NC22 to be subject to the affirmative procedure unless they only make provision corresponding or similar to provision make by a statutory instrument that is itself subject to the negative procedure.

Ian Paisley Jnr (DUP, North Antrim)

With this it will be convenient to discuss Government new clause 22—Registration of qualifying Scottish partnerships.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Clause 159 provides that regulations made under the Bill are to be made by statutory instrument. The clause also sets outs the parliamentary procedure for how regulations under the Bill should be made, including situations in which legislation must be subject to the affirmative resolution procedure or the negative resolution procedure. The clause is a standard provision to enable regulations to give the intended effect to the measures in the Bill. It is necessary to ensure appropriate parliamentary scrutiny of such regulations.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

Clause 159 provides that regulations under the Bill are to be made by statutory instrument. To a large extent, we have had clarification that any subsequent changes will be made through the affirmative procedure in Parliament, enabling greater scrutiny and transparency over the Bill’s implementation. I am not sure if there is a list anywhere of all the regulation-making powers that have been specified in the Bill. I feel like there is probably a summary somewhere of all of those powers, and whether any are subject to the negative procedure. I think that would be a helpful review for the Committee to have.

New clause 22 allows regulations to be made about the registration of certain Scottish partnerships, and to apply law related to companies or limited partnerships. It will allow the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 to be amended or replaced in relation to those partnerships. We welcome the inclusion of amendment 43 alongside the new clause, which provides for regulations under new clause 22 to be subject to the affirmative procedure, unless they make provisions corresponding to provisions made by statutory instruments that are subject to the negative procedure. In light of my previous comments, I think it is healthy for us to clarify and have a clear summary of which are affirmative and which are negative, and the safeguards around them. That would ensure the transparency of regulation making subsequent to the passing of the Bill.

Kevin Hollinrake (Conservative, Thirsk and Malton)

It is a pleasure to speak with you in the Chair, Mr Paisley. I will speak briefly to amendment 43 and new clause 22, which are minor technical changes necessary due to the European Communities Act 1972 having been repealed. They give the Secretary of State the power to apply company or limited partnership law by regulations to Scottish qualifying partnerships, as well as to impose new requirements of Scottish qualifying partnerships not included in company or limited partnership law, such as identity verification. It allows the Government to retain the measures introduced by the Scottish Partnerships (Register of People with Significant Control) Regulations 2017 in relation to SQPs and to amend them in the future. Provisions about the registration of Scottish qualifying partnerships exist in the 2017 regulations, made using powers under now repealed section 2(2) of the European Communities Act 1972.

That has two consequences. First, there is no existing power to amend the regulations, other than by an Act of Parliament. Secondly, if not replaced under section 1 of the proposed retained EU law Bill, the 2017 regulations will be revoked at the end of 2023. This power will allow us to keep the existing requirements on Scottish qualifying partnerships and to add new ones. Without the amendment and new clause, it will not be possible to extend key measures introduced via the Bill, such as identity verification, to Scottish qualifying partnerships, thereby creating a dangerous loophole. I hope that my explanation has provided further clarity.

It is clear that regulations made under the Bill may make consequential, supplementary, incidental, transitional or saving provisions and regulations under specified clauses must be subject to the affirmative resolution procedure. I am sure we can write to the hon. Lady to set out exactly what those situations are.

Alison Thewliss (Scottish National Party, Glasgow Central)

I am glad to see any loopholes getting closed, even if the amendment is sneaking in at the end of the Bill. It is good to see it. As I have said at many points in Committee, enforcement needs to be laid down on all these things, because at the moment all things to do with Scottish partnerships are not being enforced. People are not being fined for not complying with the regulations. I hope that it will result in some tightening up and some fines being issued—and, if required, in some people being jailed for not complying with the regulations as set out.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

My hon. Friend the Under-Secretary has spoken to a lot of the issues, so I will just list clauses covered by the affirmative resolutions briefly—the others will be negative. That will include regulations under clauses 33, 35, 140(1), 141 and schedule 6, on powers to amend certain definitions relating to cryptoassets, clause 142 and schedule 7, on powers to amend certain definitions relating to cryptoassets and then clauses 143, 148, 149, 153 and 158. I am happy to write to the hon. Lady so that she has those details.

Clause 160 - Extent

Julie Elliott (Labour, Sunderland Central)

With this it will be convenient to consider clauses 161 and 162 stand part.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

It is nice to see you this afternoon, Ms Elliott. I look forward to proceeding in order for some parts of this afternoon sitting.

Clause 160 details the Bill’s territorial extent. In preparing the Bill, both Ministers and officials have engaged extensively with their counterparts in the devolved Administrations to ensure that we tackle economic crime and strengthen corporate transparency across all of the United Kingdom. The measures in the Bill extend to England and Wales, Scotland, and Northern Ireland. Some of its provisions have a lesser extent, where they amend existing legislation that extends only to one or two different parts of the UK. In the opinion of the UK Government, the Bill makes some provision for areas within the devolved competence of Wales, Scotland and Northern Ireland. However, the Bill respects the devolution settlements and, where relevant, legislative consent motions are being sought from the devolved Administrations.

Clause 161 sets out procedural detail for the commencement of the Bill’s provisions. It stipulates the various dates when, and conditions under which, the various sections and subsections will come into force. The Secretary of State can make regulations that set the date for certain provisions to come into force. Different days may be appointed for different purposes. The Secretary of State can also make transitional or savings provisions for regulations made under certain clauses, as set out in the Bill. Any regulations made under the clause are to be made by statutory instrument.

Clause 162 establishes that the title of the Bill once it becomes an Act will be the Economic Crime and Corporate Transparency Act. The short title is a standard clause in any Bill.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

It is a pleasure to serve under your chairship, Ms Elliott.

I have a few limited remarks to make as we approach the end of clause-by-clause consideration and before we move on to new clauses. As the Minister said, clause 160 extends the Bill to England and Wales, Scotland, and Northern Ireland. I was grateful for his comments about liaison with the Scottish Parliament and the Welsh Senedd. There are obviously current challenges in respect of the Northern Ireland Executive. I would be grateful for some clarity about how the engagement with the devolved Administrations is going, because it has been a theme, certainly during the earlier debates. It is important that we can have confidence that all the issues that are being raised in our deliberations are coming into the Bill.

Clause 161 sets out when the Bill’s provisions will come into force. I am sure the Minister will want to give assurances that that will be no later than is absolutely necessary, bearing in mind the urgency of the measures. Clause 162 establishes the short title and we welcome it.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Different devolved Administrations have been contacted in different ways. Some of them have been written to, and I have sought conversations with some, although that has not always been achieved because of other people’s diaries as well as my own. The conversation is ongoing and, although I hope the Bill will be passed soon, it will have to continue because many things are going to change over the coming years.

New Clause 1 - Change of addresses of officers of overseas companies by registrar

Kevin Hollinrake (Conservative, Thirsk and Malton)

I beg to move, That the clause be read a Second time.

Julie Elliott (Labour, Sunderland Central)

With this it will be convenient to discuss the following:

Kevin Hollinrake (Conservative, Thirsk and Malton)

It is always a pleasure to serve with you in the Chair, Ms Elliott. Government new clauses 1 to 4 will introduce delegated powers allowing for the application of the Companies House reform measures elsewhere in the Bill to overseas companies registered in the UK. In this context, an overseas company is one that is incorporated overseas but that has a physical establishment or branch in the UK. Under long-standing provisions in the Companies Act 2006, that presence brings with it certain obligations to register information with Companies House.

New clauses 1 to 3 allow for the making of regulations requiring overseas companies that have established a physical presence in the UK to provide an appropriate address for the overseas company, their directors or other officers, to the same standard required of domestic companies incorporated here in the UK. The aim is the same—to ensure that addresses and email addresses on the companies register are accurate and that documents sent to them will reach the companies concerned or their officers.

New clause 4 allows the application, through regulations, of identity verification requirements to directors of overseas companies operating in the UK. Through that, the Government seek to ensure that companies governed by the laws of other jurisdictions that operate in the UK are subject to identity verification requirements that are introduced by the Bill and will apply to UK companies. Regulations under the power will include requiring the delivery of statements or other information to the registrar. They will also include exemptions from identity verification on national security grounds.

The application of identity verification obligations through secondary legislation will allow the Government to adapt ID verification requirements at speed. Overseas companies who operate within the UK are only within limited control of UK law. UK legislation affecting them therefore needs to adapt more quickly to their changing circumstances than primary legislation would allow for.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

It is a pleasure to speak to the new clauses. The Minister has outlined the rationale for them, which is to bring some of the rules around overseas companies more in line with some other changes being made in the Bill. We welcome that, but I have a few questions.

New clause 1 outlines that where an overseas company is required to provide a service address or principal office address for a director or secretary, regulations can be made conferring power on the registrar to change the address if it does not meet the statutory requirements or is inaccurate. Who might determine whether the address is inaccurate? Is the expectation that the registrar finds that out or is that just about if something happens to be found out by chance? Is there any more information on how the power might be used to determine that an address is inaccurate?

New clause 2 confers a regulation-making power to require overseas companies to register information. The new clause makes it clear that the regulations can provide for the information to be withheld from public inspection and can confer a discretion on the registrar. We have had similar debates in Committee already. We will keep coming back to the question of the use of powers and the reporting on the use of those powers, particularly where information may be withheld. Would this be an example of a new power on the withholding of information from public inspection where the number of times it is used ought to be reported on? That would not need to give away details about whom the power had applied to, but it would help give an overall view of how the powers in the Bill were being used.

Under new clause 3, new regulations would require overseas companies to provide and maintain an appropriate address and email address. Would those new regulations be subject to the affirmative procedure, assuming that they would be in secondary legislation rather than in the Bill? It was not fully clear to me whether some of these matters were included in the Bill or whether they were regulations to enable the measures to come in later. Will the Minister clarify that?

Kevin Hollinrake (Conservative, Thirsk and Malton)

I am happy to, and I thank the hon. Lady for her points. As we have said during similar discussions, the registrar will have access to information; most of the queries that she will follow up will have come through information received during the course of her duties. It does not make sense for Companies House to physically validate all addresses, but nevertheless information may well come to light through the registrar’s work or the requirement for other bodies to share information with her if they feel that inaccurate information is on the register. That is how we anticipate that information will come forward.

I will not revisit the issue of national security other than to say that the power will be used sparingly and that we do not know what we do not know, so it is important that we have a provision that might be necessary in future.

Regulations under new clause 4 will correspond to regulations applying to UK companies made and debated by Parliament under the affirmative procedure. The extension to overseas companies would therefore not require additional scrutiny by Parliament and the regulations will be subject to the negative procedure.

New Clause 2 - Overseas companies: availability of material for public inspection etc

New Clause 3 - Registered addresses of an overseas company

New Clause 4 - Overseas companies: identity verification of directors

New Clause 5 - Rectification of register: service addresses

New Clause 6 - Rectification of register: principal office addresses

New Clause 7 - Power to require businesses to report discrepancies

New Clause 8 - Service of documents on people with significant control

New Clause 9 - National security exemption from identity verification

New Clause 10 - Power to amend disqualification legislation in relation to relevant entities: GB

Kevin Hollinrake (Conservative, Thirsk and Malton)

I beg to move, That the clause be read a Second time.

Julie Elliott (Labour, Sunderland Central)

With this it will be convenient to discuss Government new clause 11—Power to amend disqualification in relation to relevant entities: NI.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Through other provisions in this Bill, a disqualified individual is prevented from acting as a general partner of a limited partnership. However, that would only cover individuals who have been disqualified for their actions as directors in a company. We also need to be able to disqualify general partners for their actions within a limited partnership. Currently, that cannot be done because the Company Directors Disqualification Act 1986 applies only to directors of companies and other limited corporate entities such as building societies and NHS foundation trusts. We would like to ensure that general partners are subject to the same requirements as directors. New clauses 10 and 11 therefore provide powers to update the 1986 Act and the Company Directors Disqualification (Northern Ireland) Order 2002 to apply to limited partnerships, limited liability partnerships and Scottish partnerships.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

It is a pleasure to say a few words in support of new clauses 10 and 11. New clause 10 introduces new provisions allowing the Secretary of State to make regulations applying the Company Directors Disqualification Act to relevant entities. The new clause outlines that these relevant entities include limited partnerships and Scottish limited partnerships. New clause 11 has the same effect and applies the same principles to the context of Northern Ireland. We welcome the new clauses, especially given our calls in Committee to extend directors disqualification criteria to limited partnerships.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I have nothing further to add.

New Clause 11 - Power to amend disqualification legislation in relation to relevant entities: NI

New Clause 12 - Required information about overseas entities: address information

Kevin Hollinrake (Conservative, Thirsk and Malton)

I beg to move, That the clause be read a Second time.

Julie Elliott (Labour, Sunderland Central)

With this it will be convenient to discuss the following:

Kevin Hollinrake (Conservative, Thirsk and Malton)

All the new clauses relate to the register of overseas entities. New clause 12 will mean that the required information that must be provided about an overseas entity, a corporate registrable beneficial owner or a managing officer will always include its principal office, rather than there merely being an option to provide its registered or principal office. The new clause will improve the quality of the information provided and align with the information required about other types of legal entities.

New clause 14 will ensure that overseas entities that provide the details of a managing officer who is under the age of 16, or who is a legal entity, must also provide details of a person who is more than 16 years old. This is to ensure that there is a person who can be contacted about the overseas entity, in addition to the relevant person who verified the information. It is possible that in jurisdictions outside the UK, individuals younger than 16 may be allowed to act as company directors, secretaries or equivalents. Directors of UK companies are required to be at least 16 years of age, so the new clause provides consistency by requiring the contact details of someone who is at least 16 years of age.

New clause 21 will update the language about penalties for non-compliance in section 34 of the Economic Crime (Transparency and Enforcement) Act 2022 to reflect changes made by the Judicial Review and Courts Act 2022. It will ensure consistency with the wording used in other clauses in the Bill.

New clause 13 will require overseas entities to include the title number for relevant interests in land that they hold in their application for registration, both when providing an update and when applying to be removed from the register. Overseas entities that are already registered will be required to provide this information when they next provide an update or, if sooner, when they apply to be removed from the register. The collection of this information will improve the effectiveness of the register and will help law enforcement agencies with their investigations. The information will not be made publicly available because the Government do not consider that to be appropriate, given privacy concerns.

Let me turn new clause 15. In advance of the launch of the register, the Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 were made. Regulation 14 specified the circumstances in which a legal entity trustee is deemed to be

“subject to its own disclosure requirements”.

By virtue of a legal entity trustee being a registrable beneficial owner, the overseas entity must provide the required information about the trust and persons connected to it, such as beneficiaries, settlors and interested persons.

Margaret Hodge (Labour, Barking)

This is an issue for clarification, because it impacts on whether we move our new clause 59. Will the information that we are now going to get about trustees and beneficiaries be made public? Will it be open to the public in the same way as other information about beneficial owners is open to the public? I ask because that is what our new clause would achieve.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I will deal with that, if I can, as I go through. Essentially, trusts are often there to protect the identity of vulnerable persons, so I am not sure that the provision will do what the right hon. Member wants to do in her new clause, but we can probably discuss that when we discuss her new clause.

Margaret Hodge (Labour, Barking)

So it does not do it.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Without regulation 14, if the corporate trustee were not subject to its own disclosure requirements, the overseas entity would have to “look through” the legal entity trustee to find a registrable beneficial owner higher up the chain of ownership. But in the situations we are talking about it is information about the trust that is wanted, rather than information about the ownership or control of the legal entity trustee. Currently, regulation 14 therefore ensures that Companies House, His Majesty’s Revenue and Customs and law enforcement agencies receive the information about the trust and persons connected to it, which I think may be the point that the right hon. Member raises and which is much more useful to meet the aims of the register.

New clause 15 goes further by ensuring that a legal entity acting as a trustee is always a registrable beneficial owner whether or not it is “subject to its own disclosure requirements” and even if there is another registrable beneficial owner further down a chain of ownership. This maximises the transparency in respect of the involvement of a legal entity trust in a chain of ownership.

The provisions also provide a power to expand the description of persons who are registrable beneficial owners where the overseas entity is part of a chain of entities that includes a trustee. It is appropriate to have a power to expand the description, given that there may be complex arrangements that attempt to circumvent the requirements. The provisions revoke regulation 14 because it is no longer needed.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

It is a pleasure to make a few remarks on the new clauses which, certainly from the way the Minister has outlined them, are welcome, in that they require more information and transparency around overseas entities. We welcome all the new clauses in that regard. I do not propose to go through them—the Minister went through them in considerable detail—but I have a few comments.

On new clause 13—in fact, in relation to all the new clauses—we welcome the additional transparency. I make the point again that a particular reason for that is the large-scale abuse that we know has occurred and occurs through these rather opaque offshore corporate structures.

On new clause 14, it is welcome to have the threshold at 16 years old, but I want to clarify what that means. Can there technically be a managing officer who is under 16 but an individual who is over 16 and is a contact on their behalf? It would be helpful to know whether there could still technically be an officer who was 12, 13 or 14. It would be useful to have clarity on that.

On closing the potential loophole of beneficial owners avoiding scrutiny by acting as a trustee, it is important to have the information. I want to clarify whether it should be the same amount of information about those who have been avoiding scrutiny as trustees. Will that information be published so that third parties can search it and investigate for themselves?

Kevin Hollinrake (Conservative, Thirsk and Malton)

As I understand it, somebody under the age of 16 could be the managing officer, but we still require somebody over the age of 16 to be contactable. That is how we square that particular circle. It is not in our gift to legislate for how other jurisdictions describe directors of companies.

Forgive me, but I missed the hon. Lady’s second point. If she could restate it, I will try to address it.

Seema Malhotra (Labour/Co-operative, Feltham and Heston)

My second comment was about trustee information. New clause 15 expands the definition of “registrable beneficial owners” in part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 in relation to an entity one of whose beneficial owners is a trustee, such that the beneficial owner may be included. There is also a power to expand that definition further. It looks like it is closing a potential loophole that enables beneficial owners to avoid scrutiny through acting as a trustee. The question was about whether the new information about trustees will also be published, whether there will be full transparency and whether it will be searchable by any interested parties.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Okay. That was a similar point to the one made by the right hon. Member for Barking. No, we do not feel that is right. We do not believe that trust information should be made publicly available, given that trusts are often used to protect vulnerable people. I reassure the hon. Lady that that information will be shareable with HMRC, law enforcement and other persons with functions of a public nature once the relevant regulations have been made.

New Clause 13 - Registration of information about land

New Clause 14 - Registration of information about managing officers: age limits

New Clause 15 - Registrable beneficial owners: cases involving trusts

New Clause 16 - Material unavailable for public inspection: verification information

New Clause 17 - Material unavailable for public inspection

New Clause 18 - Protection of information

New Clause 19 - Resolving inconsistencies in the register

New Clause 20 - Administrative removal of material from register

New Clause 21 - Enforcement of requirement to register: updated language about penalties etc

Written evidence reported to the House