Economic Crime and Corporate Transparency Bill

Public Bill Committee, 24 November 2022.

New Clause 22 - Registration of qualifying Scottish partnerships

New Clause 23 - Cryptoassets: terrorism

New Clause 30 - Duty to notify registrar of dissolution

New Clause 31 - Winding up limited partnerships on grounds of public interest

New Clause 32 - Winding up dissolved limited partnerships

New Clause 34 - Requirements to change name: removal of old name from public inspection

New Clause 47 - Scottish Solicitors’ Discipline Tribunal: powers to fine in cases relating to economic crime

New Clause 24 - Disclosure of information relating to bank accounts held by subscribers to a memorandum of association

Alison Thewliss (Scottish National Party, Glasgow Central)

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

The new clause is designed to ensure disclosure of information relating to bank accounts held by subscribers to a memorandum of association. Like many of the amendments that the Opposition have proposed, it is aimed at tightening up loopholes, making things just that wee bit more transparent, and flagging up any issues to Companies House. The issue of bank accounts and people carrying on business at a particular address in the UK has been discussed previously. Adding a bank account to that, so that one can go, “This is a bank account. This bank account is held in the UK,” and one can find that account quite easily as a result, seems to be a sensible way to close down yet another loophole in the Bill. It will continue the jurisdiction of the issuing bank of each account, which goes to some of the other points made about Companies House registration being used and abused as a means of setting up bank accounts in other jurisdictions. People were abusing the veneer of respectability afforded to them by a company registration in the UK to then set up bank accounts in other countries, which affects those other countries through the perpetration of fraud or dubious activities in those countries by those using that Companies House veneer of respectability.

The new clause would provide a bit more transparency by giving the company registrar more information, which would be useful in terms of those red flags and making it clear where companies are actually based and carrying on their business. If, for example, a company’s bank account is held in Mauritius and it claims to carry out its business in the UK, Companies House could query that and ask, “If you are really carrying on your business in the UK, why is your bank account held in Mauritius?” That would be a red flag for the registrar and would be an extra small but significant hoop that a company would have to jump through to make the situation clearer and to give Companies House a bit more reassurance that the business that is registering is indeed legitimate. It adds a helpful grip within the system, and helps Companies House to identify any red flags. I urge the Minister to consider whether this is a measure that would help Companies House in its work.

Stephen Kinnock (Labour, Aberavon)

It is a pleasure to serve under your chairship, Sir Christopher. New clause 24, tabled by SNP Members, would add to the transparency of the companies register and enhance the ability of law enforcement to identify suspect registrations. It would do so by requiring the subscribers or initial shareholders of a company to provide information on the location of any bank account held either by the individual shareholders or in the name of the company itself.

The new clause reflects an acknowledgement of the realities that have been exposed by many of the recent leaks and investigative reporting by the media of the widespread criminal use of bank accounts registered in jurisdictions known for exercising minimal oversight over financial activity and for lax controls on money laundering offences. Given that the entire point of the Bill is to clamp down on the ability of criminals to exploit gaps in laws and regulatory approaches to economic crime across different countries, the Opposition sincerely hope that the Government welcome proposals that are intended to provide law enforcement with as much information as possible to facilitate the detection of economic crime. Requiring Companies House to record information on the location of relevant individuals’ bank accounts seems like an eminently reasonable measure that could make a valuable contribution to the fight against economic crime.

Kevin Hollinrake (Conservative, Thirsk and Malton)

It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the hon. Member for Glasgow Central for the new clause, which raises an interesting point. I have concerns about the privacy issues involved in putting this information in the public domain, and I wonder whether she has considered that. We are potentially talking about personal bank accounts rather than company bank accounts.

A similar proposal to require the disclosure of bank account information relating to companies was included in the 2019 corporate transparency and register reform consultation, as the hon. Member mentioned. Respondents did not on balance support the proposal and the Government subsequently agreed that the proposal did not offer sufficient benefits to justify the additional burden being imposed on companies. There is also concern that there would be practical difficulties with implementation, such as the inability to confirm information provided, or to identify where it is missing, which would reduce the effectiveness of the proposal.

There are some other measures we can use. The European Union’s fifth anti-money laundering directive required the UK to build a centralised automated mechanism, a bank account portal, designed to help law enforcement and AML supervisors to access information on the identity of holders and beneficial owners of bank accounts and safe deposit boxes. Following the UK’s exit from the EU and the agreement of the trade and co-operation agreement in January 2021, the Government reviewed the case for building the portal. At that point, law enforcement did not believe there was a strong rationale for an alternative, centralised mechanism in order to support its work and the Government concluded that we should not build a bank account portal. UK money laundering regulations have been amended to remove redundant obligations.

I would be grateful if the hon. Member withdrew her amendment, but I would like to explore the issue further, certainly as it relates to company bank accounts, so we will perhaps return to it at a later stage.

Alison Thewliss (Scottish National Party, Glasgow Central)

I thank the Minister for his consideration of this proposal. I would be interested to know what has changed since the previous consideration was arrived at that such provisions were not necessary. He suggests he will weigh that up and perhaps bring forward some amendments on Report, I beg to ask leave to withdraw the amendment.

New Clause 26 - Reporting requirement (objectives)

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

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

Christopher Chope (Conservative, Christchurch)

With this it will be convenient to discuss the following:

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

It is a pleasure to serve under your chairship today, Sir Christopher, and to speak to new clauses 26, 28 and 63, which stand in my name and that of my hon. Friend the Member for Aberavon. They draw together conversations we have had in Committee about the importance of transparency and feedback on the powers and measures in the Bill and would provide Parliament with a means of interrogating their effectiveness.

New clause 26 would introduce a reporting requirement in relation to the objectives in the Bill. The Secretary of State would be required to report on the effectiveness of the powers available to the registrar to achieve her objectives as set out in clause 1. To coin a phrase for which the Minister may want to take credit, what is the point of legislation without good implementation? I think we are all agreed on that point. It is therefore important to ask: how is Parliament going to know? How are we going to spot any issues? How will we know that either further measures need to be developed or new powers need to be brought in? The new clause would provide a way for us to have that transparency and feedback.

We have done our best to draft the new clause in such a way that the Minister will be able to simply accept it or come back to us with what he thinks needs amending. Importantly, it would require the Secretary of State to

“publish an annual report assessing whether the powers available to the Secretary of State and the registrar are sufficient to enable”

Companies House to achieve its objectives. Each report would make a recommendation as to whether further legislation should be introduced in response to the report and provide a breakdown of the registrar’s annual expenditure, alongside data on the number of companies that have been struck off by the registrar, the number and amount of fines the registrar has issued and the number of criminal convictions resulting from the application of the registrar’s powers as set out in the Bill. It would also provide data on the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors, which is extremely important.

We need to know what has emerged from the system in order to be able to interrogate how well referrals have been taken forward and how quickly and effectively that was done. Without that information, it will be much harder to interrogate what is happening on the other side and the effectiveness of law enforcement, which has been raised during our deliberations as a real weak point in our system that needs toughening up, strengthening and supporting with the resources required. New clause 26 is important to enable adequate parliamentary scrutiny and have the ongoing debate in Parliament about the effectiveness of the measures we are passing.

New clause 63 would introduce a similar reporting requirement in relation to the registrar’s general activity in the Bill. We have laid out some of the measures, including financial penalties imposed, the number of cases of unlawful activity or suspected unlawful activity identified by the registrar, and

“the use of exemption powers for the Secretary of State introduced by this Act”.

The report does not necessarily need to specify details of what has been exempted, but it is important that Parliament has an understanding of the use of those powers, the number of times they are used, and so on. We suggest that this second report is published within six months of the Bill receiving Royal Assent.

Turning to new clause 28, the registrar’s new powers include the ability to change the address of a company’s registered office where the registrar is satisfied that the company is not authorised to use the address. The Government say the registrar will have the power to change a company’s address to Companies House’s own address and then to strike the company off the register. Currently when fraudulent companies are struck off the register, there is little due diligence done, and I know the Minister has expressed concern about this matter. It does not result in significant repercussions for the directors of a company, and a huge number of companies—nearly 400,000 a year—are struck off because they have failed even to file accounts. Directors are not investigated for misconduct or held accountable, and we know these issues have been raised by R3 and others.

Martin Swain, the executive director of Companies House, said that Companies House is “aware” that

“Companies take advantage of the strike-off route to discharge themselves of debts and… for other purposes.”

He acknowledged that the new power proposed by the Bill, which would allow the registrar to strike off a company for having an invalid address, may have

“an adverse impact on the system”

and give

“companies a route to use it for criminal activity or to fold without paying their debts.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 40-1, Q76.]

Chris Taggart told the Committee,

“Where a company has got assets… there is a downside to it being struck off”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 27 October 2022; c. 101, Q192.]

Graham Barrow referred in evidence to a fraudulent director being able to register new companies after others had been struck off. We therefore tabled new clause 28, which would require the Secretary of State to publish a report a year after the Act is passed and subsequently every three years on whether appropriate mechanisms exist to

“prosecute directors of companies struck off the Companies House register”

and

“recoup money on behalf of creditors”.

It would require the Secretary of State to report on

“how much money has been returned to creditors as a result of the Act’s provision for the registrar to strike a company’s name off the register”.

The principal purpose of the new clause is to ascertain whether any assets from companies struck off the register are being recouped on behalf of the creditors, so that the directors of those companies are properly penalised and held accountable for their actions, and creditors are not left wrongly out of pocket. I would be grateful for the Minister’s response on these issues. Importantly, new clause 28 requires that the report makes recommendations as to whether further legislation is needed to reform the automatic strike-off process, so that an alternative process could instead be adopted and Parliament could act swiftly in relation to recommendations.

Alison Thewliss (Scottish National Party, Glasgow Central)

I rise to support the new clauses in the name of the official Opposition, because Parliament will need to keep a close eye on how a lot of things in this Bill are being implemented and whether they are effective at tackling economic crime. We had a lot of debate in previous sessions about powers versus duties in the Bill and said, “If they are powers, that is one thing but if they are duties, that is quite another.” If these powers are being exercised, we need to be certain of that and keep a close eye on this Bill. These useful new clauses would allow Parliament to keep a close eye on these things, because they would require the Secretary of State to publish these annual reports to give more granular and specific detail on whether the measures brought forward in the Bill are being used and are effective.

Margaret Hodge (Labour, Barking)

It is a pleasure to serve under your chairship, Sir Christopher. I rise to make the simple point that the new clause is not a technical amendment; it is about an issue of principle. It is about transparency and accountability. It is not a provision that improves things at the margin; it is about making the legislation fit for purpose. Without it, the legislation will not be fit for purpose.

Throughout my history of learning about dirty money and money laundering, it has been absolutely clear to me that we have a range of tools already in legislation. As we do not have any accountability to Parliament as to how and whether those tools are employed, we do not know how effective we are in the battle against dirty money. Let me give three examples. There is now a new bit of legislation on unexplained wealth orders; it is the first time that I have known Ministers to agree to an annual report to Parliament. They agreed to it when we did the emergency legislation. I have been arguing for that for years, so I was pleased to see it, but until that moment we did not know, and we have not seen the report yet.

A better example is golden visas. We are still waiting for the report on golden visas, how they were abused, misused and used during that period, and who was let into the country on one. Another example is the amount of money that has been frozen from people who have been sanctioned by this Government. We do not have a clue how much that is. The Government put out a figure the other day for how much Russian state money had been frozen—£18 billion—but we do not have a clue how much money we have managed to get off some of the characters we know are sitting on billions.

If there is going to be effective legislation, we need clear transparency and proper accountability. That is something that the Opposition feel incredibly strongly about. We will be pressing the new clause to a Division, because it is a sensible, pragmatic and practical provision that should be in the Bill.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I thank the hon. Members for Feltham and Heston and for Aberavon for tabling their new clause. I also thank the right hon. Member for Barking and the hon. Member for Glasgow Central for their contributions. I agree with much of what they said. As they know, I fully agree that Parliament should be regularly updated on the implementation and impact of this legislation. What gets measured gets done, and it is vital that we know what is being done with this legislation.

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

I thank the Minister for his comments about the new clauses. I appreciate his response on new clause 63 and very much look forward to hearing from his officials about the proposed reports, but will he tell us when we will hear from them? None of us wants the measure to be lost in the course of proceedings, and we do not want it to be left to the Lords, so I would be grateful if he can tell us when he expects us to hear a response. Assuming that it will be positive, I am happy not to press new clause 63 to a vote.

On new clause 26, the Minister did not respond with the detail that I was expecting. I understand that some data is already published. We can have an argument about whether it is there, but it is easy for there to be a summary. If Parliament is looking at one document, it will want that data. It will want to review the later data in the context of the more procedural data that Companies House already publishes. I cannot see that it is onerous to publish a summary of data that already exists.

Margaret Hodge (Labour, Barking)

In the Minister’s response to my hon. Friend, he said that there was duplication of subsections (1) and (3). All the other things that were listed in subsections (4), (5), (6), (7), (8) and (9) are issues on which we want an annual report to Parliament because that shows us whether the legislation is working. If there is duplication, it is not the end of the world. There is a lot of duplication in our legislation—I am sure, Sir Christopher, that you are an expert on that—but that is not a sufficient argument to put the whole new clause out of the Committee’s consideration.

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

My right hon. Friend is absolutely right; indeed, that is precisely where my concerns lay. The Minister simply talked about the relatively small part of the reporting requirement. If there were an argument as to whether to include it or not, my argument would continue to be that that is relevant to have in the context of the full reporting requirement that we are arguing for. There is not anywhere else in the legislation—unless the Minister can direct me to it—that will provide Parliament with such a report.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Just to abbreviate the debate, much of the information in new clause 26 is already reported by Companies House in its annual report. I think it is being said that the key measures are the additional ones in new clause 63, which relate to what the Bill’s provisions will give effect to. I am happy to return to the Committee before Report to say where we feel the new clause needs to be addressed. If we do not do it at that point, the hon. Lady is welcome to table an amendment on Report.

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

I thank the Minister. To clarify, he referred to coming back on new clause 63; my question is in relation to new clause 26 and whether and how the later subsections are all going to be covered by the Companies House annual report. It would be helpful if he responded to that, because currently I am not clear that they are all covered.

In new clause 26, we are asking for an assessment of whether

“the powers available to the Secretary of State and the registrar are sufficient to enable the registrar to achieve its objectives”

and about

“making recommendations as to whether further legislation should be brought forward in response to the report.”

Yes, there may be details elsewhere, but they could be summarised for the ease of use of the report. The new clause requires

“a breakdown of the registrar’s annual expenditure”

and

“data on the number of companies struck off”.

That information may well also be elsewhere. Will the Minister confirm whether

“the number of cases referred by the registrar to law enforcement bodies and anti-money laundering supervisors”

and so on is all going to published elsewhere?

Margaret Hodge (Labour, Barking)

May I also draw the Minister’s attention to new clause 26(6), which is important? It asks for an annual report of the total number of companies incorporated to the registrar and

“the number of company incorporations by Authorised Company Service Providers”.

The purpose of that particular bit of information relates to our concern about the integrity and honesty of company service providers. I do not believe that is covered in the Companies House report. I accept that there may be some duplication—we got that wrong—but there are issues of huge importance in terms of accountability and the integrity of the data that we would lose if new clause 26 were simply ignored.

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

I thank my right hon. Friend for explicitly emphasising the importance of subsection (6). She is absolutely right. The Minister will be mindful of the importance of transparency in respect of the issues relating to incorporations by authorised company service providers. Will he confirm that all the subsections in new clause 26 will be explicitly covered elsewhere? If not, we will want to pursue the matter of how that information is going to be published by Companies House and the Secretary of State.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Nobody is ignoring the comments that have been made. Nobody is keener than I am to make sure that there is proper scrutiny of what Companies House does with the powers. We should absolutely ensure that.

On the requirement for the Secretary of State to report on the use of the powers, any Secretary of State appointed by any Government, be they Labour or Conservative, will of course always review the powers needed and whether there is a need to legislate further. It is not right to dictate in legislation that the Secretary of State should do this, that or the other and I would not expect any Opposition to require that.

Companies House already reports on the number of companies incorporated and struck off—that is already in the annual report. It is an interesting point about corporate service providers; the right hon. Member for Barking has concerns in that regard, and I do too. I suggest that I should look at the matter further with officials and come back to the hon. Member for Feltham and Heston well in advance of Report—outside the tabling time—and if we are not going to do anything, she can table a similar new clause. If we are going to do something, that might address her concerns or she might need to go further. Those options are open to her and I hope she will give us time to try to address these matters to the House’s satisfaction.

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

I thank the Minister for his comments. He has said he will review the issues addressed in new clauses 26 and 63 with his officials. There may well be areas in which, on further reflection, he agrees with us that more could be done.

On the Minister’s comment about the Secretary of State being able to introduce legislation at any time, the point that was missed was that we know the speed with which we have to respond to economic crime. If we think back to 2016, we can see that we did not act fast enough—we have not acted fast enough in the past six years—so there is strong merit in having a mechanism that speeds up any requirements for future legislation through a report that can be reviewed and followed up on.

If the Minister is committing to review the matter and come back to us, we accept that. We would like to be involved in the discussions, perhaps after he has had an initial discussion with his officials. If there is a way to move forward with consensus, perhaps prior to Report, that could be a positive way forward. I therefore beg to ask leave to withdraw the motion.

New Clause 29 - Report into the merits of a fund for tackling economic crime

New Clause 35 - Person convicted under National Minimum Wage Act not to be appointed as director

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

On a point of order, Sir Christopher, is it procedurally correct for my right hon. Friends the Members for Birmingham, Hodge Hill and for Barking to speak before I make my comments?

Christopher Chope (Conservative, Christchurch)

People can speak in whichever order they wish. If the right hon. Lady and the right hon. Gentleman rise before you do, I will call them first. Let’s suck it and see.

New Clause 44 - HMRC anti-money laundering function

Margaret Hodge (Labour, Barking)

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

Christopher Chope (Conservative, Christchurch)

With this it will be convenient to discuss new clause 72—Office for Professional Body Anti-Money Laundering Supervision: powers and duties—

“(1) The Secretary of State must by regulations set out a further power and duty for the Office for Professional Body Anti-Money Laundering Supervision.

(2) The power referred to in subsection (1) is the power to impose unlimited financial penalties on Professional Body Supervisors that fail to—

(a) adopt an effective risk-based approach to anti-money laundering supervision;

(b) impose proportionate and dissuasive sanctions for non-compliance with anti-money laundering requirements; and

(c) fail to separate their advocacy and regulatory functions.

(3) The duty referred to in subsection (1) is the duty to publish the details of any sanctions imposed on Professional Body Supervisors, and its reviews of Professional Body Supervisors with data disaggregated by body rather than by sector

Margaret Hodge (Labour, Barking)

I will speak to new clause 72 first and come back to new clause 44. The Minister and the Government will know that time and again we have said we are concerned about the way in which professionals are checked, supervised and regulated in the financial services sector and that the current system is not fit for purpose. I think we all recognise that it is the professionals who play a key role in enabling the fraudsters and money launderers to successfully commit economic crimes. It is they who either facilitate, collude in or enable the wrongdoing.

I accept, as everybody in the room does, that most professionals are straightforward, honest people who want to do a good job, but the focus of our work is to ensure we have in place a smart regulatory framework that captures the wrongdoers. This is not a small issue. The £290 billion lost in fraud and money laundering is a massive sum, comprising 14.5% of GDP. It needs to be taken really seriously. We have experienced during the course of consideration of this Bill a rejection of what I consider to be pretty sensible, pragmatic amendments. This is yet another. I hope the Minister does not think that just because it has been moved by the Opposition it is not worthy of proper consideration.

I would also like to speak from the point of view of the professionals. I spend a lot of my time talking to accountants and lawyers who are active in this area. Everybody wants the bad apples knocked out. It is in the interests of the professionals themselves to ensure there is proper trust and confidence in the integrity of those who work in the industry. The Office for Professional Body Anti-Money Laundering Supervision—OPBAS—is responsible for supervising the professional body supervisors. This is complete gobbledygook, but I hope Members understand what I mean. It is the top organisation, which has the responsibility for ensuring that all the supervisory bodies do the job properly and that they properly implement the anti-money laundering regulations.

The regulations require all the professionals working in this area to have systems and practices in place to identify suspected corrupt wealth, to know their customers properly and have good record keeping and so on. They are very obvious systems that anybody who wants to work honestly would have in place. OPBAS supervises 25 organisations. Of them, 22 are in the legal and accounting profession and one is His Majesty’s Revenue and Customs, which relates to new clause 44.

HMRC supervises trusts and company service providers about which we have had a long debate. They include estate agents, letting agencies, high-value dealers, on-market dealers, accountancy professionals who do not belong to any professional body, and finally the Gambling Commission. The Financial Conduct Authority supervises the rest. HMRC in particular does not do a proper job. It does not see it as part of its function to do the supervision.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Can I just say something from my own business experience? We had two very thorough inquiries from HMRC, which spent days in our office looking at our money laundering procedures. I am pleased to say that we passed the test, but HMRC really does take its job seriously.

Margaret Hodge (Labour, Barking)

I do not know whether I have the quote here from the previous HMRC permanent secretary—I will dig it up and send it to the Minister—but he actually said, in evidence to the Treasury Committee I think, that he did not quite understand why it was part of his job to do the supervision. I am not quoting him accurately, but the purport of what he said was that they see it as marginal and a sort of add-on—I think he used the word “add-on”—to their main function, which is to get the money in.

The position and reputation that professionals enjoy through membership of professional bodies is really important. Therefore, the professional bodies themselves should be taking steps to minimise and attack suspicious activity where it takes place, and they should be calling it out. It is in everybody’s interest to get the bad apples.

Let me give some evidence of the current failings as we see them. The 2021 review of OPBAS—the body responsible for all the professional bodies—found that 81%, or eight out of 10, were not supervising their members effectively. This review was done only on the legal and accountancy professions. Half the supervisors did not ensure that their members were taking timely action to improve their money laundering procedures where they were found wanting. A third of the supervisors did not have effective separation between the advocacy role and the supervision role, which I think is an important aspect. For a proper review, one would separate bodies undertaking supervision and bodies undertaking advocacy to ensure there is no conflict of interest.

Some 60% of the firms visited by the Solicitors Regulation Authority in 2021 were failing to comply fully with their duties to have adequate AML controls in place. OPBAS found that nine supervisory bodies of MLR are engaging in what it calls “low levels of enforcement”. The way in which those bodies respond when they find something going on is to have a quiet chat rather than issue fines and publicly censure lawyers for breaching the MLR rules. The highest ever AML fine for a law firm by the SRA was £232,500, and it was for Mishcon. If that fine had been levied by the FCA under similar powers, it would have been £5.4 million.

The Council for Licensed Conveyancers, another group of professionals who are active in this area, imposed zero fines, despite finding that two out of three of the firms it is responsible for supervising were non-compliant with AML regulations in 2019-20. To use another example, the Law Society of Northern Ireland imposed just one fine—of £1,750—in the year 2019-2020, despite it finding 228 cases of non-compliance. That is a considerable body of evidence, if I may say so, that shows that the current system is broken and not fit for purpose.

The Chartered Institute of Taxation, a group I work with a lot, found that a third of the firms visited were non-compliant, but only four firms were disciplined for failure to provide renewal forms by the required deadline and fined for failure to submit appropriate criminality check certificates or to deal with the action points that had been raised with them in the review by CIOT of their AML procedures. In three of the four disciplinary cases by CIOT, a financial penalty was imposed, and only in the fourth was the member suspended.

I know that the Government are looking at the supervisory framework but, as is the way with Governments, that could take forever. We want to implement these reforms swiftly, so we must have some assurance and confidence, particularly because of the outsourcing of the checks on individual companies, that the professionals will seek out the miscreants in their profession. We cannot wait for the review, to put it bluntly. With these measures, we have taken the least of all the options the Government have put forward and proposed it for legislation. If the Government, on reflection, want to come back with a tougher regime, that is fine, but at least we would have the minimum in place as we enact the legislation and the reform of Companies House. Our new clause says, “Action now. Toughen up the powers and duties of OPBAS—introduce greater transparency into the system, and comeback if that is needed.” We are suggesting new powers and duties for OPBAS. The power is

“to impose…financial penalties on Professional Body Supervisors that fail to…adopt an effective risk-based approach to anti-money laundering supervision…impose proportionate and dissuasive sanctions for non-compliance…and…separate their advocacy and regulatory functions.”

This is minimal, sensible and desperately needed now if we are to go ahead, with the speed that we all want, with the implementation of the legislation.

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

I do not propose to spend much time speaking in support of the new clauses. The arguments made by my right hon. Friend the Member for Barking have broadly said it all. She highlighted the high levels of non-compliance, the very low levels of fines and disciplinary measures, and the frustration of the sectors in terms of tools to really root out the rogue players who need action taken against them. The new clauses would be very effective and are much needed, for the reasons outlined—in trying to get action now, toughening up powers and providing greater transparency. For the reasons that I have outlined, I totally agree that the Bill is the right place for these measures. We should not have to wait and wait and wait for what is likely to come and will almost certainly draw the same conclusions.

New clause 44 would have the effect of amending the Commissioners for Revenue and Customs Act 2005 such that the commissioners would be responsible for anti-money laundering supervision, and it states:

“The Commissioners shall treat the function in subsection (1) as a priority”.

New clause 72 would introduce provisions requiring the Secretary of State, by regulations, to set out a further power and duty for the Office for Professional Body Anti-Money Laundering Supervision. This is defined as

“the power to impose unlimited financial penalties on Professional Body Supervisors that fail”—

that fail—

“to…adopt an effective risk-based approach to anti-money laundering supervision…impose proportionate and dissuasive sanctions for non-compliance with anti-money laundering requirements …and …separate their advocacy and regulatory functions.”

We want stronger action taken against economic crime, not least because we know the scale at which it comes through the cracks, with the damage that it does to our economy. It seems to me that tightening up the roles and the performance of professional body supervisors and HMRC in some way is an opportunity that we should not miss.

The proposed clause would also insert a duty

“to publish the details of any sanctions imposed on Professional Body Supervisors, and…reviews of Professional Body Supervisors with data disaggregated by body rather than by sector.”

The sum of the two new clauses is to ensure the urgent improvement of the UK’s anti-money laundering sector. Throughout our witness sessions and Committee debates, we have heard about the lack of effectiveness of our AML system. I think that is a view also supported by the Minister. The changes are a much-needed strengthening and safeguarding against potentially rogue corporate service providers, the third parties who act on behalf of companies and can carry out the identity verification of directors.

New clause 44 has the urgent and needed effect of ensuring that the HMRC commissioner prioritises the operation of AML supervision. New clause 72 expands the powers of OPBAS and introduces provisions for much harder sanctions against professional body supervisors.

In the Treasury’s June review of the UK’s AML supervisory regime, the Government recognised that that regime needed much improvement. Consultation after consultation is not going to cut it. We have an opportunity now to do something specific, proportionate and important to improve the Bill’s outcomes.

Alison Thewliss (Scottish National Party, Glasgow Central)

I support the new clauses. The anti-money laundering supervisory duties are incredibly important, as they are part of firmly closing the door on economic crime. It is important that we use this opportunity to strengthen the powers in the Bill. Frankly, if we do not do it now, when will we get round to it again?

New clause 44 asks HMRC to prioritise its AML supervisory function. That seems sensible. I would note that some additional resources will be needed; the Treasury Committee’s economic crime report points to the fact that some 30,000 businesses fall into this bracket.

I note the ongoing review of OPBAS. I do not want the Minister to get ahead of the review, but it might be useful to get a perspective on the direction of travel. At the most extreme end of that review—the Committee heard evidence on this point recently—the Government could propose that OPBAS loses its AML supervisory function. It would be interesting to hear the Minister’s perspective on where he thinks the review will end up. It is quite awkward that the review does not tie in with the Bill’s timetable: the review is ongoing, we are legislating here and we do not quite know where it will end up.

I wonder whether the Minister could clarify a point that the FCA’s chief executive, Nikhil Rathi, could not clarify when he came to the Committee. The most recent report about the performance of OPBAS is dated September 2021. It feels to me that we are overdue a report on the effectiveness of OPBAS. Is the delay a result of the ongoing review or is there some other reason for it? The September 2021 report stated that:

“The vast majority (just over 80%) of PBSs had not implemented an effective risk-based approach. Only a third of PBSs were effective in developing and recording in writing adequate risk profiles for their sector”.

The report also raised various other points about the effectiveness of OPBAS. It has been operating for several years now, but we still do not feel that it is doing what it should to supervise and ensure that the anti-money laundering responsibilities of those it supervises are carried out. If the Minister does not have information on the status of that report today, I would be perfectly content for him to write to me.

Maybe OPBAS has upped its game incredibly since the last report came out—we just do not know. That also hinders our approach to the Bill, because we do not know whether these functions are being adequately carried out. While the FCA chief executive was able to say that there has been improvement, he was not able to say what that improvement looks like. Have 100% of PBSs now implemented an “effective risk-based approach” or is it 50%, or somewhere in between? We just do not know.

It is important that we use all the opportunities we have in the Bill to up the resources for the FCA, OPBAS and HMRC to carry out their functions. As I say, anti-money laundering supervision is the key to ensuring we close the door on money laundering. Those bodies are meant to stop it, and if we do not tighten the legislation and provide the resource there is very little point having the Bill.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I thank the right hon. Member for Birmingham, Hodge Hill and for Barking for their amendments, and I welcome the effort and energy they put into the oversight mechanisms that are so important in ensuring that the Bill is effective. That is the nice bit. They know what is coming next.

I do agree enormously on the importance of supervision, which has been emphasised, but I am afraid I cannot support new clause 44. Despite what the right hon. Member for Barking says, HMRC already has an anti-money laundering supervisory function and it does take its responsibilities extremely seriously. It supervises nine sectors and is the default supervisor for trust and company service providers where they are not already subject to supervision by the FCA or one of the 22 professional bodies.

Margaret Hodge (Labour, Barking)

I wish I had brought some of my previous notes with me. What evidence does the Minister have of that, apart from HMRC telling us that?

Kevin Hollinrake (Conservative, Thirsk and Malton)

It visited my business!

Margaret Hodge (Labour, Barking)

I am amazed that it did. Is there evidence of the number of visits or assessments carried out? I can remember a quote from the previous permanent secretary, who said, “It is not our core business.”

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The core business of HMRC is raising money and ensuring that that money is clean. That is absolutely essential. Until HMRC works out whether or not the money is clean, it is hard to raise money. I would be hard pressed to describe my hon. Friend the Under-Secretary as a dodgy individual, but if he is going through these AML checks I think it is a good indication that HMRC is taking such matters very seriously. As I say, the checks are already being done and the responsibilities are held by branches of the Government, including HMRC and other professional bodies.

The amendments are therefore a duplication. The reality is that HMRC carried out 3,500 formal compliance inspections with businesses last year and issued over £2.5 million of penalties in 2021-22. That demonstrates that the business checks are not symbolic. They are not minor. They are extremely serious. HMRC takes them very seriously. I think the Government is entirely in agreement with the right hon. Lady that these checks need to happen, but the scale and type of reform to improve effectiveness and solve these problems is not yet clear. The Treasury will no doubt have many views when its formal consultation on the possible options opens. The consultation will ensure that the risks and implications of each option are fully understood before the Government commit to any particular model. The right hon. Lady knows very well that we need to get this right, not just to be quick.

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

Margaret Hodge (Labour, Barking)

I heard the Minister’s words with gloom. Initially, the Government put out a consultation with four options, and to speed it up, we decided to go with the weakest of the options—the one to which there would be the least objections. What I think I just heard him say, which is so gloomy, is that the Government will now publish a further consultation. All this stuff in the Bill will come into being and we will have absolutely no assurance that proper checking, regulation and supervision will be carried out on company service providers.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

As I say, this is really a matter for the Treasury, and it has committed to publishing a consultation before the decision is made. It would be wrong of me to preclude the ongoing policy analysis and public consultation by making—

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

May I clarify whether the Minister has had any discussions with Treasury colleagues about the matter and raised his concerns? Have they acknowledged the need to act much faster?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I have had many conversations with Treasury colleagues in recent weeks and months on various aspects of the challenges that economic crime poses to the UK. Many of us are committed—in fact, the Treasury is very committed—to ensuring that economic crime is reduced in this country. The support that the Treasury has given in various different ways has resulted in many things, including a very successful operation conducted this morning by the Metropolitan police that resulted in the arrest of many people connected to economic crime. That may sound tangential on the grounds that it is about fraud, but the reality is that all of it is connected. We see a very strong overlap between money laundering, fraud and various other different forms of economic crime. The Treasury, unsurprisingly, is extremely committed to making sure that economic crime in this country reduces. The Home Office and the Department for Business, Energy and Industrial Strategy are absolutely committed to making sure that we considerably reduce the level of fraud in this country.

What is important now is to ensure that we make OPBAS as effective as possible, and that we look for some of the reforms that we have started to highlight, because that means that the changes required by the amendment will be unnecessary. I hope that we can focus on that aim.

I have just been given a statistic that records that in October 2022, HMRC named 68 estate agents that had breached anti-money laundering regulations, and fined them a collective total of £519,000. We can see that the supervision of estate agents is not just conducted by my hon. Friend the Under-Secretary but by many others around the country and is taken extremely seriously.

Margaret Hodge (Labour, Barking)

I hear what the Minister says, but I think we will just be setting up another duff register unless we get the regulation of those company service providers toughened up at the same time as we introduce the Bill. I want to press new clause 72 to a vote.

Christopher Chope (Conservative, Christchurch)

You will not be able to do that now, and in the meantime, you must seek the leave of the Committee to withdraw new clause 44.

Margaret Hodge (Labour, Barking)

Thank you very much, Sir Christopher. I beg to ask leave to withdraw the motion.

New Clause 50 - Requirement for UK-resident director

Stephen Kinnock (Labour, Aberavon)

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

New clause 49 sought to ensure that the provisions of the Small Business, Enterprise and Employment Act 2015, which require company directors to be natural persons, would be brought into force. The Opposition welcomed the Minister’s commitment to introducing the necessary regulations to enact that measure in the near future, and we are very pleased to have that on the record. At the same time, however, the Opposition remain convinced that there is much more that the Government could and should be doing to reduce the risks of money laundering and economic crime within the company registration requirements. The new clauses we are about to discuss provide a number of different means by which the law could be further strengthened against the risk of such abuses.

New clause 50 would make it a requirement that every company registering in the UK has at least one director who is ordinarily resident here. I have already spoken in Committee about the risks that often come with a system that allows companies to register in places to which they have a tenuous connection in terms of actually doing business there. Although there may be certain limited circumstances in which it might be legitimate for a company with no UK-based directors to register with Companies House, I am struggling to see what they might be. On the other hand, I can think of plenty of reasons why the fact that a company has no UK-based directors might be considered a red flag for money laundering risks, calling for additional scrutiny from the registrar.

In due course, the Committee will consider a separate new clause, tabled by my right hon. Friend the Member for Barking, that would create new criminal offences involving a failure to prevent fraud, false accounting and money laundering. Without getting into too much detail on the specifics of the proposals, the relevant point for the purposes of new clause 50 is that similar offences already exist in UK law. The Bribery Act 2010 was the groundbreaking law in that respect. The precedent that it set for holding company directors liable for a failure to prevent certain criminal offences within their organisations was built on by the Criminal Finances Act 2017, which established a similar offence related to tax evasion.

Important as those developments in the law undoubtedly were, it is not hard to see the difficulties involved in enforcing those laws against individuals who spend little if any time in the UK. Successful prosecutions may depend on the co-operation of other Governments, whose laws on corporate criminal liability may not be as robust as our own. They may also be subject to lengthy and expensive extradition proceedings. New clause 50 would provide a simple safeguard in those cases. Ensuring that at least one company director ordinarily resides in the UK and is therefore subject to UK law could make it much easier for offences involving corporate criminal liability to be enforced. At the very least, it should serve as an effective deterrent, for instance by making third parties who act as company directors for a fee think very carefully about what kind of clients they are prepared to act on behalf of.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I thank the hon. Member for his amendment. As he set out, new clause 50 would require all companies to have at least one person who ordinarily resides in the UK among their directors. The proposal has been considered and rejected before. I am aware that some other jurisdictions have similar provisions, but the UK has chosen not to enact that type of measure for two reasons. First, it goes against the long-standing principle that any legitimate global citizen can do business freely in the UK. If we mandate a UK resident director, we are effectively asking an overseas investor looking to set up a business here to have a UK business partner. That sounds to me very much like something that the Chinese state might do. We do not consider that it is right for our open economy.

Secondly, we are not persuaded that there are enforcement or accountability benefits that will lower levels of corporate abuse or economic crime. The reforms in the Bill, such as identity verification, intelligence sharing and greater information querying, will help to deliver much-increased transparency and accountability. That will help us to discover rogues faster, share their details more quickly, hold them to account and, where necessary, close down their businesses, or indeed ask questions of them before we even allow them to incorporate here.

It is my expectation, as the hon. Member for Aberavon has set out, that Companies House will work with the NCA and others to put in place the systems to raise red flags so that when we see applications to incorporate companies from individuals from certain jurisdictions, more questions will be asked. If the registrar is not persuaded by the responses, she may simply say no. The addition of a UK resident director will not provide additional value and I very much hope that the hon. Gentleman will withdraw his new clause.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for his remarks. We are talking about how to make it as easy as possible for those red flags to be clear. If we were to do exception reporting, there may, of course, be a clear explanation in certain circumstances for why there is not a single UK-based company director and perfectly legitimate reasons for that. We think that it would be better to do the exception reporting on that basis, so that we are casting the net and identifying red flag areas because of the nature of the company directors and where the risk would appear to be.

I take it from the Minister’s remarks that there is not a great deal of room for negotiation on that point. However, we are trying to put forward a sensible and pragmatic solution. Can the Minister say any more about how to look through the telescope in terms of exception reporting? We argue that exception reporting could be conducted on the basis of explaining why there is not a single UK-based company director while maintaining the blanket provision that there should always be such an individual in order to minimise risk.

Kevin Hollinrake (Conservative, Thirsk and Malton)

That is exactly how we expect the process to operate. If there are red flags of concern—an exception report, as the hon. Gentleman calls it—the registrar can ask further questions and may deny that company the right to establish itself in the UK. I think those checks and balances are in place, and of course, as hon. Members have said, it is very important that those opportunities are used by the registrar. I am very keen to ensure that we have the opportunity to scrutinise the use of those powers.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for those points. I see that we will agree to disagree on this. I beg to ask leave to withdraw the motion.

New Clause 51 - Registration requirements: UK-based assets held by overseas entity

Stephen Kinnock (Labour, Aberavon)

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

The purpose of the new clause is to close what appears to be a loophole in the current requirements on the registration of overseas entities that own property in the UK. The case for the new clause is simple. Under the current rules, as set out primarily in the Economic Crime (Transparency and Enforcement) Act 2022, a foreign company that owns property or land in the UK is required to declare the beneficial ownership of the company itself. It is, however, unclear whether it would also be required to disclose the ultimate beneficial owner of any property owned by that company.

In recent years, we have seen ample evidence of how easy it can be—

Kevin Hollinrake (Conservative, Thirsk and Malton)

I am trying to understand the new clause. How could someone be the beneficial owner of a company and someone else own the assets? If the beneficial owners own the company, how can a different beneficial owner own the assets?

Stephen Kinnock (Labour, Aberavon)

According to our interpretation, schedule 2 of the 2022 Act is unclear about whether a company would be required to disclose the ultimate beneficial owner of any property owned by that company. Our worry is that there is a loophole in the law that talks about the beneficial owner but does not give us the tools to obtain disclosure of who is the ultimate beneficial owner of the property.

In recent years, we have seen ample evidence of how easy it can be for money launderers and the enablers of economic crime to exploit any grey area, perceived or actual, in the laws that apply to them. Therefore it is essential that the law is absolutely crystal clear on that point. It is about tightening up the law as it stands.

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

To make a significant difference in terms of transparency, the register must require all companies to disclose the ultimate beneficial owner of any UK property under their control. It must publish that information. I would be grateful to hear the Minister’s thoughts on whether the legislation currently provides an adequate degree of clarity. If he agrees that the requirements could be made clearer, I hope that we can trust that the necessary changes will be incorporated in the Bill, or set out in regulation.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Again, I thank the hon. Gentleman for tabling the new clause. I understand what he is seeking to do, and I support him in that endeavour. I believe that the intent behind the new clause is the concern that assets other than land can be used for illicit purposes, but I am not sure that the new clause, as drafted, serves to address that.

As the hon. Gentleman knows, overseas entities are required to register beneficial owners with Companies House. Those registered as the beneficial owners of the overseas entity are the same persons as the beneficial owners that the new clause seeks to make registerable. Any assets held by the overseas entity are ultimately owned by those already required to register with Companies House.

Say an overseas entity owns a case of whisky, so we know who is the beneficial owner of that case. Who then owns the bottles of whisky in the case? It is the same owner as the one who owns the case. There is no separate owner—they either own the case of whisky, or they do not. I honestly do not think that the new clause would achieve what the hon. Gentleman wants it to achieve. If we think about yachts and other property, if we know the beneficial owner of the company, we also know the owner of the assets inside it. I hope that the hon. Gentleman will withdraw the motion.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for that clarification. What rang alarm bells with us were the comments of the Financial Action Task Force, which drew the distinction between the ownership of a company and the ultimate beneficial ownership of any assets held by that company. The Minister has made his position clear, and, again, we just agree to disagree. I beg to ask leave to withdraw the motion.

(Afternoon)

Christopher Chope (Conservative, Christchurch)

Order. Let me just tell Members about the dilapidations in this room. The thermometer does not work, so we are not able to confirm our own instincts that it is quite cold. I suggested the window be shut, and I am told that it will not shut properly. If Members are very cold during the course of the afternoon, we may have to suspend the sitting for five or 10 minutes so we can go out and get some collective exercise together.

New Clause 52 - Beneficial owners: shares and voting rights held by immediate family

Stephen Kinnock (Labour, Aberavon)

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

Conservative Members will have gathered by now that the common theme of many of the new clauses tabled by the Opposition on the register of overseas entities is really closing loopholes. We may not, even will the best will in the world, be able to foresee at this stage exactly where any loopholes may arise, but we can at least act now to close the most obvious and predictable ones. In that spirit, new clause 52 seeks to address one of the most widely documented and understood means by which criminals attempt to conceal the true owners of property in places such as the UK.

As the Financial Action Task Force guidance on transparency and beneficial ownership explains:

“Criminals often use informal nominee arrangements whereby friends, family members or associates purport to be the beneficial owners of corporate vehicles. This can be particularly challenging given the informal and private nature of such arrangements. This issue can be addressed by placing obligations on the nominee to disclose to the company registry the identity of the person on behalf of whom they are acting and imposing sanctions for false declarations.”

Going back as far as the Small Business, Enterprise and Employment Act 2015 as well as in more recent legislation, the Government have made significant strides toward eliminating legal loopholes used to conceal economic crime—for instance by abolishing bearer shares and providing for a requirement for company directors to be natural persons, which the Minister assures us will be brought into effect shortly.

Although I commend the Government for having taken those steps, it is clear that we need to go further. Given how high the Government have set the threshold at which ownership of a company’s shares must be declared—at 25%—the need to tackle risks of concealing ownership by spreading shares among several different people becomes all the more urgent. Splitting ownership between family members would appear to be the easiest and most obvious way to do this. If the threshold for declaring ownership is set at 25% of a company’s shares or voting rights, it takes little imagination to come up with a solution: simply break up the shares so that on paper, if not in reality, five members of the same family appear to own no more than 20% of the company each. As a result, none of them have to disclose their connections with the company under our current laws.

Although it should be acknowledged that similar issues involving the use of nominee directors, for example, raise some complicated legal questions, the use of family members to conceal the beneficial ownership of a foreign company is surely an issue that can be easily dealt with. New clause 52 provides a simple solution that I hope the Government will accept in the constructive spirit in which it is proposed.

Kevin Hollinrake (Conservative, Thirsk and Malton)

Although I welcome the spirit of the new clause and the hon. Member’s wish to close a loophole, I do not think there is one. Let me set out why. It is his position that persons might deliberately reduce their shareholding below the 25% threshold, or hold shares via multiple family members, in an effort to avoid scrutiny. The 25% threshold follows the UK’s people with significant control regime, which similarly requires beneficial ownership information for UK-registered companies.

When the PSC regime was in development, significant analysis, including consultation, considered the question of thresholds. The threshold of more than 25% reflects the level of control a person needs in voting rights, under UK company law, to be able to block special resolutions of a company. It was considered that 25% represented the optimum opportunity to understand who is in a position to exert significant influence and control over a company. Collecting information on legal ownership below that threshold would be much more akin to what would be done to have the effect of creating a register of shareholders, rather than beneficial ownership.

In any case, reducing shareholdings will not allow an individual legally to evade scrutiny if they continue to exert significant influence or control. The Economic Crime (Transparency and Enforcement) Act 2022 already addresses that; anyone who has a right to exercise, or actually exercises, significant influence or control over an overseas entity is still required to be registered under condition 4 of schedule 2, which states that,

“X has the right to exercise, or actually exercises, significant influence or control over Y”.

Condition 3 states that,

“X holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of Y.”

There are other conditions within the definition, other than the 25%.

Information submitted about beneficial owners must be verified by a UK-supervised “relevant person”, such as a lawyer or accountant. Where shares are held through multiple members of the same family, relevant persons are likely to notice that when verifying an overseas entity’s application. Where a nominee holds shares for another person, the ECTE Act requires the other person to be recorded as the beneficial owner, not the nominee. That is exactly what the hon. Member for Aberavon set out. It is an offence to deliver false or misleading information to Companies House, and anyone who delivered, or caused to be delivered, such information would be at risk of prosecution—including, potentially, the lawyer or accountant.

From April 2023, UK anti-money laundering supervised relevant persons will be required to report material discrepancies to Companies House in the information contained on the register of overseas entities. That would include where a person has not been recorded as a registrable beneficial owner when a relevant person believes they should have been. The Government do not intend to lower the threshold at this time, but the Bill includes a power to amend the beneficial ownership threshold, which will be subject to the affirmative resolution procedure. I hope that these reassurances will persuade the hon. Gentleman to withdraw the new clause.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for his response. I think the spirit of the new clauses is about prevention being better than cure. The Opposition feel that, if we look at the spectrum from deeply opaque business practices to fully transparent ones, when family members are involved we are almost by definition at the more opaque end of the spectrum. By definition, family members will be in a position to communicate with one another, things will not be on the record and the whole thing can be easily cooked up in the way that I outlined. For example, if five family members were given 20% each, they would come in under the 25% threshold.

Does the Minister agree that where family members are concerned things are more likely to be at the more opaque end of the spectrum and therefore the Bill should reflect that and have the lower threshold, as set out in the new clause?

Kevin Hollinrake (Conservative, Thirsk and Malton)

I go back to what I said earlier; I think there are all kinds of ways in which somebody could try to subvert the regulations. That is the reality and that is why we are putting the onus not only on the people concerned with the entity but on the people who represent the entity. That is the lawyer, or the accountant, and they should ask all the questions that the hon. Member set out. They should notice a family connection and potentially the person behind those individuals.

However, as I said before, someone could potentially have 0% ownership of an entity and still exert significant control. That is the point. What we are saying is that even if they have 0%, the rules still catch them if they are the person who is exerting control in a way that influences directors or shareholders, or indeed if they can appoint or dismiss directors. All those things are covered under the current provisions.

Stephen Kinnock (Labour, Aberavon)

As I have said, we are very much about prevention being better than cure and a smart as possible approach to risk management. However, I take the Minister’s comments on board and I have no further comments to make. I beg to ask leave to withdraw the motion.

New Clause 53 - Beneficial owners in overseas territories

Stephen Kinnock (Labour, Aberavon)

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

New clause 53 would amend the wording of provisions in the Sanctions and Anti-Money Laundering Act 2018 to require the introduction of open registers of beneficial ownership in each of the UK’s overseas territories.

Some of the Committee’s Members are veterans of the struggle to incorporate the requirement into the 2018 Act and will no doubt recall that it was only thanks to the persistent effort of certain Back Benchers against the determined resistance of Ministers that the necessary amendment was ultimately made. It would be remiss of me not to pay particular tribute to the efforts on this issue of my right hon. Friend the Member for Barking. The Minister also deserves recognition for his advocacy on the need for transparency to be extended to the overseas territories, albeit in his previous incarnation as a Back-Bench Member of this House.

Liam Byrne (Labour, Birmingham, Hodge Hill)

What has changed?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Nothing.

Stephen Kinnock (Labour, Aberavon)

My right hon. Friend asks a very good question, while chuntering from a sedentary position. I trust that the Minister’s views have not changed with his recent promotion.

The fundamental principle behind new clause 53 is simply that there should be no double standards in the legal requirements for transparency of beneficial ownership across different parts of the UK, including in the overseas territories. To put it bluntly, we have simply witnessed too many scandals involving money being laundered through territories for whose administration the UK is ultimately responsible to accept the idea that we must simply leave them to their own devices.

I will not name names here, but I think—

Margaret Hodge (Labour, Barking)

I would.

Stephen Kinnock (Labour, Aberavon)

My right hon. Friend may well wish to do so.

I think that any member of this Committee will understand what I mean when I refer to certain “usual suspects” in cases involving financial dealings that, even with the most charitable interpretation, can only be described as being questionable at best.

The language that was ultimately added to the Sanctions and Anti-Money Laundering Act 2018 reflected a recognition from Members of all parties and in both Houses that the same standards requiring open, publicly accessible registers of beneficial ownership should apply to both the UK and its overseas territories. It also reflected the widespread consensus that if we wanted to ensure that the overseas territories played by the same standards, we should be prepared to use sticks as well as carrots.

The result of that consensus was the provision in section 51 of the 2018 Act that any overseas territory that had not established a beneficial ownership registry in line with the standards of our own by the end of 2020 should be subject to direct legislation by an Order in Council. As I have already mentioned, the Government practically had to be dragged kicking and screaming to the point where they accepted that provision in the first place. However, as subsequent events have demonstrated, the real problem is that Ministers have interpreted section 51 of the Act so creatively that in effect they have completely undermined if not the letter then certainly the spirit of the law.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I am certainly not arguing against the spirit of the new clause. I add my thanks to the right hon. Member for Barking and, indeed, my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell), who took great action on this matter way before I became interested in the whole subject—although it is true to say that I took an active interest from the Back Benches on ensuring that we address this issue.

I do not accept the hon. Gentleman’s characterisation of our approach as being hands off. I do not consider 250 pages of legislation as being hands off at all. There is much we want to do and agree on, and I have to agree with what I said previously. The hon. Member for Aberavon may regard me as poacher turned gamekeeper, but I do not see that at all. I still want to ensure these measures are in place. In fact, we should go further than his new clause, and I will explain that in a second.

When amendments were tabled to the Bill that became the 2018 Act several years ago, we were clearly in a very different place. All inhabited overseas territories have now committed to introducing publicly accessible registers of company beneficial ownership, and the UK Government expect them to be in place by the end of 2023, so there is a deadline on which the order could be placed. As well as overseas territories, we have committed to asking the Crown dependencies to also do that, and that does not feature in the hon. Gentleman’s new clause, so it is important that this goes further than he set out.

Margaret Hodge (Labour, Barking)

The Minister is correct in what he says, but could he deny the rumour I have heard, which is that they are trying to get around ensuring public accountability by charging anybody who wishes to look at the register by entry? If a charge is levied for entry to everything that appears on the register, that would diminish the intended public accountability.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I am not aware of that. Clearly, it is important that the overseas territories and Crown dependencies respect the will of Parliament and the spirit of the will of Parliament, so we would be very concerned if that is the case.

Margaret Hodge (Labour, Barking)

I have raised this issue with the right hon. Member for Sutton Coldfield, who now sits in the Foreign Office, but I do not think it is entirely within his portfolio. Will the Minister agree to pursue the issue? If that is the way they have tried to avoid or play down the intent of Parliament, it is a very serious matter.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I do not think we should operate on the basis of rumours, but I hope that the overseas territories and Crown dependencies will be following this debate with interest. We want them to follow both the spirit and the letter of the legislation that is implemented. The information should be publicly available—that is the clear intention.

This is a major commitment that will put the overseas territories and Crown dependencies ahead of most jurisdictions, and it will be a vital element of promoting greater transparency around the control and ownership of companies. I have sought assurances that it is not a hollow commitment. The FCDO is providing support to the overseas territories through Open Ownership, a respected and expert NGO, to ensure that each territory can progress its publicly accessible registers, and significant progress has been made. For example, Gibraltar’s register is already live, so it will be interesting to hear about the right hon. Lady’s experiences of that.

Margaret Hodge (Labour, Barking)

The Minister has jogged my memory. It was actually from the implementation of the Gibraltar register that I heard that, although it is live, there is a charge for accessing information.

Kevin Hollinrake (Conservative, Thirsk and Malton)

That may be something that the right hon. Lady will investigate. I am happy to make the commitment that we will do so as well.

The Cayman Islands has completed a consultation on the approach to its register, and the technical work to hit the target date is under way. The BVI recently passed primary legislation to enable the framework for regulations to be made for its register in preparation for the end of 2023. Smaller overseas territories are also working with the FCDO to update their systems to allow public access to this important information. Notably, in Anguilla the FCDO financed a completely new register, which is designed to allow public access.

The effect of new clause 53 would be to move the timeline forward by only six months for the overseas territories. All the territories are now willingly implementing publicly accessible registers and putting significant effort into the policy, despite the fact that most jurisdictions around the world are not doing so. To move forward an agreed timeline would not show good faith in our partnership with the territories. I can commit to keep the House regularly up to date on progress with the territories, and the UK Government will continue to work collaboratively, and as equal partners, with the overseas territories on their commitment.

Stephen Kinnock (Labour, Aberavon)

I fear that it is a bit naive and complacent to think that this is going to be done by consensus. Five years have gone by since the 2018 Act was introduced and it is extraordinary that we may have to wait another 12 months, as the Minister says. Frankly, I remain sceptical that, without a stick as well as a carrot in this conversation, anything will ever happen. I would welcome any feedback that the Minister has on that point. I do not really have a specific question for him, but I am struggling to understand why we can possibly think it is acceptable that here we are, five years later, with a chasm in our ability to implement and go after the things that we want to go after. Does he really think it is justifiable to wait another 12 months, rather than just accepting the new clause?

Kevin Hollinrake (Conservative, Thirsk and Malton)

As Ronald Reagan used to say about the Russians: trust, but verify. It is important that we trust our partners but also that we see what they are doing to put these measures into effect. I quoted a number of examples where that has been done. All these overseas territories are putting the measures in place. It is right to work on a basis of good faith. We have the stick the hon. Gentleman requires, if necessary. Beyond the end of 2023, we can then use the Order in Council procedure, as he suggests. I will ensure that we keep watch over the situation very carefully, as I have committed to do. The hon. Gentleman can rest assured that it is our understanding that these measures will be in place. I urge him to withdraw the new clause on that basis.

Stephen Kinnock (Labour, Aberavon)

Unfortunately, we remain unconvinced by the Minister’s answers on these points and we wish to push the new clause to a vote.

New Clause 54 - Entities from high-risk jurisdictions: prohibition on ownership of UK land

Stephen Kinnock (Labour, Aberavon)

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

Given the extensive discussions we have had on issues involving money laundering risks, including risks in relation to certain designated high-risk jurisdictions overseas, there is a fundamental question that we are not sure we have got to the bottom of. That question, which is addressed in part by new clause 54, is why we should allow a company incorporated overseas in a jurisdiction that operates on the basis of lax money laundering controls to do business in the UK at all, much less to own property or land here.

As we have already discussed, the primary purpose of the Treasury’s list of designated high-risk countries is to mirror the list of jurisdictions identified by the Financial Action Task Force as posing serious threats of money laundering and terrorist financing on account of weaknesses in their laws, inadequate law enforcement or some combination of the two.

New clause 54 seeks to incorporate into the Bill what we on the Opposition Benches believe to be a matter of basic common sense: if a company was initially formed under laws designated by the Treasury, under international guidelines, as seriously deficient in their approach to money laundering risks, that company should not be allowed to own land or property in the UK. It is a straightforward solution to a very serious problem. It would go a long way towards driving tainted money out of the UK property market. I hope that, on this basis, the Government will support new clause 54.

Kevin Hollinrake (Conservative, Thirsk and Malton)

New clause 54 seeks to prevent the acquisition of land in the UK by companies registered in jurisdictions that are listed as high risk by the Financial Action Task Force or so designated by the Secretary of State under the UK’s money laundering regulations. The Financial Action Task Force lists jurisdictions identified as having strategic deficiencies in their anti-money laundering and counter terrorist financing regimes that could pose an increased illicit finance risk.

The new clause is well intentioned and hon. Members are to be commended for their determination to rid the UK of dirty money. However, we do not believe that the new clause will have the intended effect. Jurisdictions that appear on the taskforce’s list of jurisdictions under increased monitoring, which include some key UK partners and Commonwealth members, have committed to swiftly resolve the identified deficiencies within agreed timeframes. The list is updated three times a year, and under the UK’s AML regulations, obliged businesses are already required to take enhanced due diligence measures for customers and transactions linked with individuals or companies established in high-risk jurisdictions.

Liam Byrne (Labour, Birmingham, Hodge Hill)

No one could accuse the Minister of being an innocent abroad in a world that is not innocent, but I have to ask him whether he seriously believes the content of the paragraphs that he has just read out. I have no doubt that there are countries around the world that have said that they are going to increase their AML supervision, but we now have a situation in this country where we have some very bad people, such as Usmanov and others, who own property portfolios of up to £50 million. We have allowed them to do that, and now we cannot take those portfolios off them, so could the Minister at least tell us how he is going to seriously get a grip on bad people from bad countries being allowed to buy assets here in the UK?

Kevin Hollinrake (Conservative, Thirsk and Malton)

We have applied sanctions on a targeted basis to some of those actors—[Interruption.] The right hon. Gentleman raises his eyebrows. Is he not aware of the sanctions we have applied to certain individuals from high-risk jurisdictions?

Liam Byrne (Labour, Birmingham, Hodge Hill)

As the Minister knows, I am one of the Members who pushed for the Government to toughen up their sanctions after they left so many people off the sanctions list the first time around. Going forward, how is he going to stop bad people from bad countries who have no intention of improving their AML regulation buying mansions in London?

Kevin Hollinrake (Conservative, Thirsk and Malton)

It is entirely wrong to tar everybody from one country with the same brush. Clearly there are some deficiencies, but is the right hon. Gentleman honestly saying that every person from a jurisdiction that has deficiencies in its AML regime is a bad person? I think that is what he said, and I think it is entirely inappropriate.

Liam Byrne (Labour, Birmingham, Hodge Hill)

I am grateful for the chance to put the question where it belongs, which is back on the Minister. The question was very simple: how is he going to ensure that bad people who happen to live in bad countries are prohibited from buying assets here in London? How is he going to do that? Tell us!

Kevin Hollinrake (Conservative, Thirsk and Malton)

Through the provisions in this 250-page piece of legislation; through the provisions in the legislation that was passed earlier this year, which both of us campaigned for; and through other things, such as the sanctions regime—through all those different things. It is our view that we should look at the people, not necessarily the jurisdiction. Of course, we work internationally to improve jurisdictions around the world, but it is wrong to suddenly say that countries, potentially including Commonwealth countries, are bad countries, which I think is what the right hon. Gentleman said.

Liam Byrne (Labour, Birmingham, Hodge Hill)

We may as well pursue this to its death—I am grateful to the Minister for being so generous in giving way. Let us take the example of Usmanov. He has only recently been sanctioned, but when we read the indictment, we see that it is very clear that he has been an associate, colleague and enabler of President Putin for an awfully long time. The sanctions came ex post facto, after he had been allowed to acquire assets. How do we create a more preventive regime to stop this kind of nuisance on our shores?

Kevin Hollinrake (Conservative, Thirsk and Malton)

The right hon. Gentleman is saying that no Russian should ever be able to buy property in the UK—

Liam Byrne (Labour, Birmingham, Hodge Hill)

I didn’t say that, did I?

Kevin Hollinrake (Conservative, Thirsk and Malton)

That is exactly what he is saying. Russia is a high-risk jurisdiction; is he saying that no Russian can buy property in the UK?

Liam Byrne (Labour, Birmingham, Hodge Hill)

I am grateful for the chance to clarify. The Minister is engaged in the old debating tactic of putting the question back on me, but the question is on him: how is he going to stop individuals like Usmanov buying property in London in the future? What safeguards does he think he has in place? When a sanction has not yet been put in place, how is he going to stop people about whom we have serious concerns acquiring that kind of asset?

Kevin Hollinrake (Conservative, Thirsk and Malton)

If the right hon. Gentleman is saying that people are guilty until proven innocent, that is entirely the wrong way to look at this issue. Of course, those decisions have to be information-led; many of the provisions in the Bill are about information sharing and being information-led, looking at the red flags, identifying the people who we potentially need to be concerned about, and preventing those people’s actions on that basis.

Liam Byrne (Labour, Birmingham, Hodge Hill)

Will the Minister give way?

Kevin Hollinrake (Conservative, Thirsk and Malton)

I think I have given way enough on this point.

Liam Byrne (Labour, Birmingham, Hodge Hill)

It is my last one.

Kevin Hollinrake (Conservative, Thirsk and Malton)

One last time, then.

Liam Byrne (Labour, Birmingham, Hodge Hill)

The Minister is being characteristically generous with his time. Is he therefore reassuring the Committee that if the provisions in the Bill had been in place, Usmanov would have been prohibited from buying a mansion three years ago—yes or no?

Kevin Hollinrake (Conservative, Thirsk and Malton)

He may not have been, because he was not on the sanctions list at that point, and he was not on a sanctions list anywhere else in the world, as far as I am aware. He may have been—I do not actually know that information—but Usmanov would have been treated like anybody else under our system. It is interesting how quickly the Opposition sometimes will jettison some of the fundamentals of our society, one of which being that a person is innocent until proven guilty. We need the evidence before we can sanction somebody. We will adhere to that principle—certainly I will as long as I am in Parliament.

This new clause would prevent the registration of titles by legitimate companies in any of the jurisdictions on the lists. That would have a detrimental impact on those companies wishing to invest in the UK, as not every company incorporated in those jurisdictions is a bad actor. Although the new clause would prevent registration of title by an overseas entity, it is not possible to prevent a transaction from taking place and money changing hands. Unintended consequences would be likely.

Any overseas entity applying to the Land Registry to register title must now be registered with Companies House and have an ID number. That provides a safeguard against bad actors, more transparency about the overseas entity, and information for law enforcement should it later transpire that the overseas entity is involved in criminal activity. Therefore, I politely ask for this new clause to be withdrawn.

Stephen Kinnock (Labour, Aberavon)

We are really just going back to the point about prevention being better than cure. Of course, what is really important here is that it is our sovereign Government, our Treasury, doing the designations. It is our Treasury and other expertise in our British Government saying, “That jurisdiction over there is high risk. It has lax control on money laundering. It has no sense, really, of what is going on. It’s a kind of wild west in its business environment.” That should raise many red flags and set many alarm bells ringing. The constructive spirit of this proposal is to say, “Look, we know where there are red flags. We should be acting on those red flags in a preventive way,” rather than, as my right hon. Friend the Member for Birmingham, Hodge Hill said, an ex post facto way, because once the damage is done, it is a lot more costly and a lot more insidious, because we have not dealt with the issue at source and then we are left to clear up the mess and pick up the pieces. That is the spirit in which the proposal is made. I invite the Minister to express any reflections that he has on what is actually a kind of philosophical point about the Bill. Is prevention better than cure—yes or no?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Yes, undoubtedly, but I think that putting a blanket restriction on bona fide companies and bona fide individuals buying from those jurisdictions is disproportionate and wrong. I absolutely agree with the hon. Gentleman in terms of the spirit of the new clause and of his point about red flags. That is exactly the way the system works. Yes, certainly, the registrar should definitely look at the jurisdiction from which the person is purchasing a property, for example. That may well be the red flag that the hon. Gentleman refers to. To me, that is a more appropriate way of dealing with this matter than simply a blanket ban on purchase.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for those points. We remain unconvinced by the position and would like to push this new clause to a Division.

New Clause 55 - Updating duty: frequency

Stephen Kinnock (Labour, Aberavon)

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

New clause 55 also provides a simple solution to what appears to be a flaw in the Bill’s current drafting, which could be exploited by criminals seeking to exploit any legal loopholes left open to them. Under the Economic Crime (Transparency and Enforcement) Act 2022, companies required to register their ownership of UK property are required to provide annual updates on any changes to their beneficial ownership. It is not hard to see how that could be used as a loophole to conceal the ownership of property by, for instance, an individual designated by UK sanctions. A company could, at least in theory, report to Companies House that its beneficial owner was the same as it had been the previous year, without disclosing the fact that another individual had been a beneficial owner at some point during the intervening 12 months.

New clause 55 is intended to probe the Government’s thinking in this area and, as with the previous new clause, to provide the Minister with an opportunity to set out in detail how the Government plan to ensure that the laws leave no foreseeable loopholes open for exploitation by criminals.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I might get into trouble with you, Sir Christopher, but on the previous new clause, countries on the high-risk jurisdiction list include Israel, Turkey and the Czech Republic. Is it honestly the Opposition’s intention to prevent individuals and companies from those jurisdictions from buying property in the UK? We should think again.

I thank the hon. Member for Aberavon for new clause 55. I wholeheartedly agree that keeping the information on the register up to date is critical. The annual update requirement is intended to provide certainty for third parties transacting with overseas entities. Property transactions often take many months to complete, and during that time a third party transacting with an overseas entity must have certainty that the entity remains compliant with the requirements of the register so that transactions are not disrupted. The key sanction for non-compliance with the register, which interferes with existing property rights, is to make it impossible for a buyer to register a title if purchasing from a non-compliant overseas entity. The onus is therefore on the buyer and their agents to ensure that they do not transact with a non-compliant entity.

In order to protect the buyer, likely to be an innocent third party, it follows that there must be absolute legal certainty about the compliance status of the overseas entity throughout the duration of the transaction. An annual update provides that certainty, giving enough time for transactions to be completed before the requirement for an update kicks in. If an update is not made on time, the overseas entity is regarded as non-compliant, and the restrictions on land transfers will bite.

The hon. Member talked about somebody switching ownership between the two reporting times. I cannot honestly see what the benefit to anybody of doing that would be, but he may wish to give me examples.

The ECTE Act includes a power to amend the update period by regulations. Should it become clear, once the register has bedded in, that the update period is too long or too short, that power can be exercised to change the update period. I therefore ask that the probing new clause be withdrawn.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for those clarifications. This was an opportunity to set out those assurances, which we are happy to accept. I beg to ask leave to withdraw the motion.

New Clause 56 - Limited partnerships: registration of persons of significant control

New Clause 59 - Publication of information about trustees

Margaret Hodge (Labour, Barking)

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

We touched on this issue last week. The new clause is what I consider to be another perfectly sensible, rational, pragmatic amendment that enhances transparency and accountability. It would ensure that the legislation worked effectively rather than ineffectively, as we think will be the case at the moment.

The new clause is designed to close a loophole in the Economic Crime (Transparency and Enforcement) Act 2022. As I understand it, the register of overseas entities will require trusts that currently own property in the UK to declare the name of a trust; its creation date; and the name of all the trustees, the beneficiaries, the settlers, the granters or the interested persons. However, on the actual register all that will appear is the name of the trust. There will be no details of who actually owns the trust and has the ownership control and benefits of the assets that exist within that trust.

I understand that the information would be available to enforcement, HMRC et al. I get that. The whole point of much of the legislation, however—and I know the Minister knows this is true—is to extend the accountability beyond the enforcement agencies, so that, for example, businesses, civil society, the press and we as Members of Parliament can all understand who is really behind the overseas entity that owns the property here in the UK. That is what our little new clause would enable.

My right hon. Friend the Member for Birmingham Hodge Hill has reminded us that when we try to sanction assets, particularly those of Russian oligarchs—the friends of Putin who sustain him in his wicked endeavours—those oligarchs hide their assets in trusts. We have seen that in recent times. The Economic Crime (Transparency and Enforcement) Act 2022 calls on trusts to tell Companies House the names but it does not require them to do so. Let us consider the Usmanov example to which my right hon. Friend referred.

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

It is a pleasure to serve under your chairship this afternoon, Sir Christopher, and to speak briefly in support of the speech of my right hon. Friend the Member for Barking. The new clause is short and, on that basis alone, the Minister might want to look closely at it for inclusion in the Bill. It is important and significant.

We almost thought we would not have this conversation when we debated the Government new clause 15 on Tuesday, until the Minister made it clear that information about trustees would not be published. That feels like a space that is a black hole for more to be hidden in. If we do not do this, the Minister will probably see a rise in the use of trusts to achieve less transparency.

For all the reasons my right hon. Friend the Member for Barking outlined, it is important that the information about trustees is available for public inspection. I will welcome the Minister’s comments. Perhaps he has thought further on the arguments since Tuesday. Here is further room for him to consider information on trustees, where it is held and its being published for public inspection. That would be in the public interest.

Kevin Hollinrake (Conservative, Thirsk and Malton)

The word “trust” in this context sends shivers down all our spines. I understand the rationale behind the new clause, but the right hon. Member for Barking is right in that I will state my position.

There is a key matter here. The right hon. Lady cited a couple of examples, one a trust and one a company, where she implied a disguised ownership of certain assets. The current requirements of legislation are that information about a registrable beneficial owner of a trust is displayed publicly. If someone is a beneficial owner, their name is revealed publicly. She might argue that that person could be lying, but they can lie about ownership of anything—“I don’t own any of this and do not exert control”—as we have discussed before.

The amendment makes all trust information available, even if that sits below the 25% or whatever ownership there might be of the trust or its benefit.

Margaret Hodge (Labour, Barking)

Usmanov is the better example, although I could have talked about Gutseriev or Fedotov, or about Azerbaijan—I had a debate in the House on the leading family of Azerbaijan. The reason all those things hang together is that the beneficial ownership is passed to a daughter or sister, or the shareholding is below 5%, and we are creating all these legal loopholes that enable the Usmanovs, Gutserievs, Fedotovs and all those people to hide their real control of an asset. That is really the point. That is what we are trying to get at—having it out in the open. What we have said constantly with our amendments is that if there are minor flaws with the way we have put them together, we are happy to listen, but I am absolutely certain that the principle behind them is correct.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I just do not think that is right. The right hon. Lady might not have meant this exactly, but even if ownership is reduced—this goes for a company more than a trust—to below 5%, the amendment would not even solve that issue, would it? The legislation requires the beneficial ownership to be registrable and for there to be openly available information. Of course the person who is entering that information could lie. A lawyer or accountant could lie. But now they are subject to a criminal sanction for doing that if it is proven. As has been mentioned, information around trusts is a concern. It should raise red flags with Companies House. That information can of course be shared.

The other thing I would say is that trusts are used for legitimate purposes, including to protect the privacy and safety of children, for example, and other vulnerable individuals. The ECTE Act allows the registrar to disclose protected trust information to HMRC, and regulations will soon be made to allow the registrar to disclose the information to other persons with functions of a public nature, such as tackling crime.

Margaret Hodge (Labour, Barking)

The Minister often says this, but there are two issues here. If the trust or any of these entities are for legitimate purposes, the people involved should have absolutely no fear of transparency. That is the fallacy in the argument. If nobody is doing anything wrong, they should not worry about the information being public. If there are really good reasons, as there occasionally may be, for keeping confidential the name of a particular individual in a particular trust, we can and we are putting in legislation that covers those exceptional circumstances, but using the exceptional circumstance to justify the general rule is simply not good enough.

Kevin Hollinrake (Conservative, Thirsk and Malton)

We may have to agree to disagree. The requirement to register somebody of beneficial ownership is quite clear. If there is a beneficial owner, that person will have to be publicly named. That is what we seek to achieve through this legislation, and that is what we think it does. There are some points in the amendment that we think are relevant, including potentially widening access to information in certain circumstances with certain authorities. We will consider that, but we cannot accept the totality of the amendment at this time.

New Clause 60 - Reporting requirement (enforcement capabilities)

Stephen Kinnock (Labour, Aberavon)

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

Christopher Chope (Conservative, Christchurch)

With this, it will be convenient to discuss:

Stephen Kinnock (Labour, Aberavon)

New clause 60 takes us back to some of the issues we touched on during Tuesday’s debate on part 4 of the Bill in relation to cryptoassets. Considering how many new regulations there are in this area, it is worth taking stock of how well the regulations already in place have been implemented to date and what more needs to be done to ensure that those responsible for enforcing the measures in the Bill have the powers, the expertise and the capacity they need.

As the primary regulator of cryptoasset businesses, the FCA is a case in point. Following changes to the anti-money laundering regulations, cryptoassets were brought under the FCA’s supervision at the beginning of 2020, but, as I mentioned in Tuesday’s debate, the FCA has reported that the overwhelming majority of crypto firms required to register have either failed to do so or withdrew their applications once it was clear that they would not meet the requirements. As a result, there appear to be well over 200 firms doing business in the UK without permission, outside any supervision under anti-money laundering regulations.

Therefore, it should be apparent to every member of the Committee that there is an urgent need to address the growing shortfall between expectations and resources in the context of cryptoasset regulation. However, rather than implementing the strategy required to match the Minister’s ambition, with the requisite staffing, funding and expertise, the Government risk making a bad situation worse.

Under the Bill, Ministers are bringing in new regulations at the very same time as civil service budgets and staff are struggling to deal with unprecedented strain. It is by no means clear that the Bill, particularly in its provisions on cryptoassets, will achieve anything more than to ask more of regulators and law enforcement agencies while providing them with less resource to do it. New clause 60 represents an attempt on the Opposition’s part to require a comprehensive and strategic approach to tackling risks of economic crime in the crypto sector. It is tabled very much in the spirit of seeking to ensure that legislation is properly implemented.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am sympathetic to the intent of new clause 60, but I cannot agree to it. It remains vital to maintain a robust supervisory regime for cryptoasset firms, but that is something the FCA already does.

The FCA’s approach to assessing firms in the initial stages through registration removes poor-quality firms and bad actors from the UK system, reducing the risk of domestic firms being used to launder the proceeds of illicit activity. That robust gateway has already prevented over 200 firms that were unable to manage anti-money laundering and counter-terrorist financing risks from being registered.

Cryptoasset firms approved to operate in the UK are subject to ongoing supervision by the FCA to make sure they continue to meet those standards. The regime also provides the FCA with a number of powers in relation to those who do not meet the UK’s standards. For example, the FCA can direct a firm to make disclosures, implement additional controls and oversights, and issue injunctions to prevent potentially illicit cryptoasset activity. Furthermore, the FCA is already subject to oversight by His Majesty’s Treasury, the lead Department for anti-money laundering regulations, and, as a statutory regulator, it is also directly accountable to Parliament.

I turn to new clause 61. Again, I am sympathetic but do not support it. As we have discussed, FATF sets international standards on anti-money laundering and counter-terrorist financing, including in relation to the regulation of cryptoasset businesses, or “virtual asset service providers”, as the taskforce calls them.

FATF and its regional bodies are responsible for assessing their members against international standards. That includes assessments of the Crown dependencies and overseas territories on their regulation of cryptoasset businesses. A UK review of the Crown dependencies and overseas territories would not add value to that. The Crown dependencies and overseas territories co-operate with the UK and are committed to meeting international standards on fighting financial crime and countering terrorist finance. I therefore ask the hon. Member for Aberavon to withdraw the proposed new clauses.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for that feedback. We want to ensure there is a mechanism to check and verify that the FCA is able and resourced to do what we want it to do. Our worry is that if we take a hands-off approach and leave it to its own devices without looking at whether it is achieving what we want it to achieve, in this fast-moving world, we could potentially lose control of the situation. I am sure that that would be a matter of regret to the Minister and the Committee.

New clause 61 is about ensuring that UK authorities can keep a close watch on developments in the overseas territories and take any necessary steps to ensure that we avoid the same kind of race to the bottom that has turned some of those territories into a magnet for a host of dodgy—and often outright criminal—financial transactions in recent decades. There are already reports of rapidly growing cottage industries springing up in places such as the Cayman Islands, aiming to facilitate the incorporation of cryptoasset businesses with, we can only assume, minimal regulatory oversight.

I thank the Minister for his comments, but will he say a bit more about how we are ensuring and building robust approaches to regulating crypto-related risks in our overseas territories, as well as the Crown dependencies, in the light of those growing cottage industries, the increasing risk, and our responsibility for what is happening there? Does he feel that there is anything more that could or should be done?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The hon. Member raises some important points. I do not in any way wish to disabuse him of the view that there is a risk with this industry; crypto has posed challenges to many areas. It is worth pointing out that the FCA has a budget of £600 million and co-operates extremely closely with the overseas territories and their regulatory bodies. It provides not just an oversight function here, but an education function for many others, and it sets an example that many other jurisdictions seek to emulate.

I urge the hon. Member to look at the way in which the FCA actually works, and at the way in which the overseas territories and Crown dependencies already co-operate. That is not to say that there are not problems—there are often problems in such regulatory environments, which we need to address—but the correct thing to do is to work with the FCA, as it is already doing an excellent job, and ensure that it is properly resourced. As I said, £0.6 billion seems like quite a lot, and there are various ways in which we are supporting further improvements via co-operation.

Stephen Kinnock (Labour, Aberavon)

I thank the Minister for those points. We feel that it is a bit of a leap of faith but, on the basis of the assurances that he has given, I am happy to withdraw the clauses. I beg to ask leave to withdraw the motion.

New Clause 64 - Disclosure of information in the public interest likely to be relevant to the investigation of economic crime

Liam Byrne (Labour, Birmingham, Hodge Hill)

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

Christopher Chope (Conservative, Christchurch)

With this it will be convenient to discuss new clause 65—Economic crime: power to strike out statement of case for abuse of process—

“The court may strike out the whole or part of any statement of case which can be reasonably understood as having the purpose of concealing, or preventing disclosure or publication of, any information likely to be relevant to the investigation of an economic crime

Liam Byrne (Labour, Birmingham, Hodge Hill)

It is a pleasure to serve with you in the Chair, Sir Christopher. I thank the Minister for Security, along with the right hon. Member for Haltemprice and Howden (Mr Davis) and the hon. Member for Isle of Wight (Bob Seely), who have worked assiduously on this issue over the course of this year.

In many ways, we have debated this issue a lot during our consideration of the Bill. There is a shared belief across the Committee that sunlight is the best disinfectant and, because this is the Economic Crime and Corporate Transparency Bill, it is important that we empower everyone who brings transparency to the business of investigating economic crime, including journalists.

Yet I am afraid that, to many people, “global Britain” now means that our country is a global centre for lawfare. Our courts, which have been sanctuaries for justice for 1,000 years, have become arenas of silence where expensive lawyers—Schillings and others—are used systematically by bad people to try to rack up enormous costs for journalists, to such an extent that they are no longer able to bring important information and news into the public domain.

The issue is now so serious that, when the Foreign Policy Centre surveyed investigative journalists around the world, it found that three quarters of them had received legal threats designed to shut them up. The origin of those threats is, by and large, this country; in fact, this country was responsible for more legal threats than the United States and the European Union put together. We have become a global centre for lawfare against people who are being so courageous and brave in trying to bring crime to public attention.

We have so many of these strategic lawsuits against public participation, as they are called, that there is now a clear playbook. First, the company or oligarch will try to target an individual. They will always try to target the individual journalist rather than the organisation they work for because, frankly, they know that they can intimidate the individual far more than they can intimidate a corporate organisation. That is exactly what brave journalists such as Carole Cadwalladr and Catherine Belton had to face.

Secondly, the company or oligarch will then file the most ludicrously exaggerated claims. Look, for example, at the claims that Mr Mohamed Amersi has filed against a former Member of this House, Charlotte Leslie. It is the most ridiculous, conflated nonsense that he is trying to put through the court, but that is par for the course, because, of course, they are not interested in winning the case; all they are interested in doing is racking up as much cost as possible to damage the poorer party.

Thirdly, the claimant will go to enormous lengths to try to intimidate the individual. In “Kleptopia”, the journalist Tom Burgis, the author of that and other wonderful books, tells a story of how private investigators from Eurasian Natural Resources Corporation suddenly turned up at a meeting in an underground car park between him and a former director of the Serious Fraud Office. There is no way they could have known that meeting was taking place unless they were hacking and bugging his phone, but that is the kind of intimidation that these individuals think is acceptable.

Fourthly, these oligarchs will try to co-ordinate with others. Look at the way Roman Abramovich tried to intimidate Catherine Belton: he sidled up with all sorts of cronies and mates to try to bring a concerted action against her and her publisher, HarperCollins. Finally, they will try to file claims in multiple jurisdictions, such as Australia, in order to maximise the costs.

If anyone thinks that this is something of the past, there is one case in particular that shows that it is very much of the present. The Nazarbayevs are trying to take the Bureau of Investigative Journalism to court. That is a great example, frankly, of this whole playbook being thrown at journalists trying to expose economic crime.

Stephen Kinnock (Labour, Aberavon)

I will be brief. I fully support the comments made by my right hon. Friend the Member for Birmingham, Hodge Hill, and I fully support the new clause. I pay tribute to the other Members he mentioned who have played an important role in raising the profile and awareness of this very important issue. The Committee has an opportunity to reflect on the need for urgent action by the Government to crack down on abuses of our legal system by the wealthy and powerful individuals who seek to shut down dissenting voices whose investigations are inconvenient to them.

Surely, the Government have been aware for some time of the most flagrant cases of jurisdiction shopping by oligarchs and kleptocrats in British courts, but recognition of the problem has not been backed up by the necessary legislation. The Government have missed repeated opportunities to legislate against SLAPPs, and although consultations have been launched and expert advice and evidence has been reviewed, we still have not seen meaningful action to deal with these problems. It remains unclear when, or even if, new legislation will be forthcoming. I look forward to hearing what the Minister has to say on this important subject.

Alison Thewliss (Scottish National Party, Glasgow Central)

I very much to support everything that the right hon. Member for Birmingham, Hodge Hill said. In his evidence to the Committee, Thomas Mayne of Chatham House said:

“This is a perfect opportunity for some kind of anti-SLAPP legislation to be put in the Bill.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 80, Q166.]

If the new clause is not going to be accepted this afternoon, will the Minister explain exactly when we will pass this legislation? Not “in due course”, not “at some point”, not “when legislative time permits”—when precisely will we legislate on this issue, if not now?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

It is a huge pleasure to speak on this new clause. None of what I am going to say to begin with will particularly surprise the right hon. Member for Birmingham, Hodge Hill, because—

Liam Byrne (Labour, Birmingham, Hodge Hill)

Because he is going to accept it.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

He knows very well that I am not going to accept it. The way in which the new clause is set out cuts across many other aspects of law, and it would quite severely affect jurisprudence in this country. However, he is absolutely right to point out the issue, and it is worth taking a bit of time to explain how we intend to address it.

The right hon. Gentleman is correct that the Under-Secretary of State for Business, Energy and Industrial Strategy, my hon. Friend the Member for Thirsk and Malton, and I are extremely clear that this is an important aspect of legal reform that we need to see in the United Kingdom. It is important because it affects freedom of speech in this country, as the right hon. Gentleman rightly says, and because it has a certain negative influence on the legal environment in which, sadly, people have to operate. He rightly spoke about Catherine Belton, whose work in exposing many of the crimes of the Putin regime has been frankly exemplary and heroic.

It is important that we address this. The way to do that is not to treat it simply as an economic crime, which it is not. It is not just a crime that affects the economy of our country or the movement of dirty money. It is a crime that is about freedom of speech and the access to justice that many people in our county need. We should look at it more as an offence against a fundamental democratic value than as an economic crime. That is why the work is being done with the Ministry of Justice, for rather obvious reasons. We are ensuring that we have a piece of anti-SLAPPs legislation, as the right hon. Gentleman correctly calls it, that addresses the whole problem.

The UK is still leading the way on the issue at national level. We are not yet where we wish to be, but we are doing better than many others. It is worth remembering that many different groups are working on this. The Solicitors Regulation Authority is already doing a lot of work to review the 20 firms suspected of involvement in SLAPP activity. The SRA is shortly to issue its regulated professionals with another warning notice, which will provide guidance on conduct in such disputes. It has already outlined guidance on certain oppressive behaviours, and has expressly linked those to the growing focus on the use of SLAPPs in England and Wales.

As the right hon. Member for Birmingham, Hodge Hill knows, there are many different tactics—aggressive letters, labelling correspondence and seeking to run up bills, as he rightly identified—that challenge people’s access to justice. They are exactly what the SRA is looking at and will be communicating with the MOJ about.

Margaret Hodge (Labour, Barking)

First, will the Minister describe the action that, according to him, the Government are taking? I do not understand what action they are taking.

Secondly, the new clauses that my right hon. Friend the Member for Birmingham, Hodge Hill tabled were written by a group of lawyers who support the UK Anti-SLAPP Coalition. They are not like the new clauses that we put together—they have been given considerable consideration—so I do not quite see how they could be bad law. They have thought this through.

Thirdly, there is a real tendency—I say this with the greatest respect and affection for the Minister’s work—for Ministers to shift a bit a paper to the left or right and do nothing with it. It is the easiest thing to do. We have described this as a once-in-a-lifetime opportunity to change the world; I plead with the Minister to grasp it and accept the new clauses. Let us move forward, rather than shifting the paper aside.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am surprised to hear the right hon. Lady speak so negatively about her other amendments and new clauses. New clause 64 is not the only one that is well drafted; others have been as well. New clause 64 focuses, quite rightly, on getting anti-SLAPP provisions into the Bill, but it would extend the reach a bit further than we could take. I am happy to look further at the issue. I am happy to listen carefully to the opinions not only of the right hon. Lady, but of the people who advised the right hon. Member for Birmingham, Hodge Hill, on different approaches to the question. I am extremely happy to listen, but I am afraid we will not accept the new clause.

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

When the Minister talks about looking more closely at this new clause, does he mean in the proceedings on the Bill?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I will be looking closer at the new clause in the proceedings on the Bill, but whether it makes it through will not necessarily be my final decision, as she knows very well. I would be interested to hear the arguments of the people to whom the hon. Lady has spoken.

Liam Byrne (Labour, Birmingham, Hodge Hill)

I am grateful for the chance to intervene, because I sense that the Minister has almost reached the conclusion of his remarks without giving the Committee the date on which a more comprehensive proposal, which is what he argues for, will be presented to the House. We know that the Ministry of Justice has already conducted its consultation, and that the consultation responses have been analysed, but we have not had a hard date from either the Leader of the House or the Justice Secretary. If the Minister is in reassuring mode, he could perhaps furnish us with that date now.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am afraid I will have to ask the Ministry of Justice for that information, but I am happy to write to the right hon. Gentleman. With that, I rest.

Liam Byrne (Labour, Birmingham, Hodge Hill)

The truth is that people will be appalled by this debate. We gathered an enormous number of campaign groups and journalists together in the House on Tuesday evening, at a function that I had the privilege to co-sponsor with the right hon. Member for Haltemprice and Howden. The kinetic energy behind reform is significant. The law will change—we will get there—but the question is whether this Government want to be the authors of that change or continue to oppose it.

Every single day that the law does not change, bad people and bad lawyers will be racking up millions of pounds in legal costs in order to intimidate and stop publication by journalists who are hunting the truth. I am afraid that is not a good place for this Government to be in.

James Daly (Conservative, Bury North)

I refer the Committee to my entry the Register of Members’ Financial Interests. The question I have is not a challenge to what has been said. As a practising solicitor I agree with the points the right hon. Gentleman is making, but the new clause would impact upon some general points regarding the professional duties of solicitors to their clients. A solicitor accepts a brief and then has to act in the best interests of that client and do various other things. If that involves criminality, it is a different question altogether. The Law Society is very much behind these proposals; what further regulation or advice should there be for solicitors to ensure that they can act within legislation such as that proposed?

Christopher Chope (Conservative, Christchurch)

Order. The hon. Gentleman referred to his entry in the Register of Members’ Financial Interests but did not specify what it was or how it was relevant to his question.

James Daly (Conservative, Bury North)

I apologise; I said I was a practising solicitor part way through my intervention. I mentioned that because I was touching on the legal profession, how it interacts with legislation and professional duties, as also mentioned by my right hon. Friend the Minister for Security.

Liam Byrne (Labour, Birmingham, Hodge Hill)

The hon. Member is not just a practising solicitor, but clearly also a recovering solicitor. The SRA has been on the front foot in wanting to crack down on some of the bad behaviour. We had this debate in January on the Floor of the House; it was one of the best debates I have seen in 18 years in this place. What became clear was that, although there are some in the legal profession who do have to operate on that cab-rank rule—they have to step forward and plea in favour of people who are at the front of the queue—there are others who have choices about who they represent. The truth is that here in London there are groups of lawyers, such as Schillings—there are many others—who are making millions out of some very bad people. In fact, those people are so bad that they have subsequently been sanctioned, in this country and around the world.

Margaret Hodge (Labour, Barking)

Does my right hon. Friend agree that if the SRA were to fine those solicitors who engaged in that sort of false litigation—it is phony litigation—it would be a little cost on business given the millions they are making? Abramovich, for example, is worth, as far as we know, £12 billion. If he spends £50 million on a legal case, it is peanuts to him, and it is certainly peanuts to the solicitors who are subject to fines by the SRA.

Liam Byrne (Labour, Birmingham, Hodge Hill)

My right hon. Friend is absolutely right that the whole strategy behind a strategic legal action against the public participant is not to win: they just want to damage their opponent to such an extent that they cannot afford to tell the truth.

It has been a disappointing debate, and it will disappoint many of the people who are watching and following it. It is unfortunate timing, because the anti-SLAPP coalition is coming together for its second annual conference on Monday, when it will publish a draft and more comprehensive law. We have not had a date from the Minister as to when the Government may have listened and brought forward a more comprehensive argument. If the argument is that the measures I am moving today are too fragmented or nugatory, that is fine, but let us hear the date for when a more comprehensive solution will be proposed. The Secretary of State for Justice has said it will be forthcoming but has not provided the date. That was the point of the new clauses: we want to know the date.

I will not press my new clauses to a vote because I do not have the numbers in Committee, but I suspect I will on the Floor of the House. That is why they will come back on Report, in due course. I beg to ask leave to withdraw the motion.

New Clause 66 - Default supervisory authority for independent legal professionals

Liam Byrne (Labour, Birmingham, Hodge Hill)

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

In a way, new clause 66 builds on the debate we have just had, but it takes the proposed reform in a slightly different direction. The Minister is well aware that in earlier debates we touched on the problem that when lawyers engage in work that falls squarely within the scope of money laundering regulations, there is a risk that regulated activity can slip through the cracks in the supervision regime because of the lack of a default supervisor for the legal sector. When a lawyer is engaged in regulated activity but is not a member of a particular legal supervisory regime, high-risk work is in effect unsupervised. I do not think that is where the Committee wants things to be.

In particular, the problem can occur in relation to wills, estate planning and estate administration, but it potentially extends to quite a wide range of individual legal professionals. For example, unregistered solicitors who do not have a practising certificate are prohibited by law from acting as solicitors, but may still offer other regulated services without being subject to the SRA’s supervisory authority. As the Government’s recent review of the anti-money laundering regulatory and supervisory regime highlighted, the absence of a default supervisor for those lawyers leaves us with a significant supervisory gap. I think it is a hole in the supervisory regime that the Minister will want to fix. We tabled the new clause to uncover what his strategy might be.

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

It is a pleasure to speak briefly in support of new clause 66, tabled by my right hon. Friend the Member for Birmingham, Hodge Hill. He laid out clearly his reasons for doing so, and I think we all share his concern.

The new clause concerns the introduction of a default supervisory authority for independent legal professionals, and includes provisions such that when an independent legal professional is not a member of any of the professional bodies listed in schedule 1 to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, but undertakes regulated business within the scope of regulation 12 of them, the Solicitors Regulation Authority should be the default body for that independent legal professional.

As my right hon. Friend outlined, it is concerning that legal professionals who are not members of any professional legal bodies are still undertaking activities and taking cases. It is effectively a loophole that can enable rogue actors to act as legal professionals without the supervision or membership of a professional body, thereby avoiding scrutiny of their actions, which could facilitate economic crime and money laundering. Clearly, we need a solution. My right hon. Friend suggested that it is a problem that the Government need to fix; we would be keen to work with them on how that will happen. I think we all want to find a solution, and to do so before the Bill goes much further through the House.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I thank the right hon. Member for Birmingham, Hodge Hill for tabling the new clause and the hon. Member for Feltham and Heston for her comments on how it is designed to elucidate answers for procedure rather than to push for a change in the law. There is a lot that really does need further investigation, but the reality is that although we should all seek to prevent legal professionals from undertaking activity connected to money laundering, the new clause would not quite do that.

As the hon. Member for Feltham and Heston will know, there are currently nine UK professional body supervisors—known as PBSs—that supervise legal professionals for anti-money laundering purposes. Of course, the SRA is one of them. They cover different professions and the different jurisdictions: England and Wales, Scotland, and Northern Ireland. Supervisors already work closely with the Office for Professional Body Anti-Money Laundering Supervision—OPBAS—which we spoke about earlier, to ensure full compliance.

The vast majority of legal professionals are already carefully conducting strong anti-money laundering work. However, the Government’s review of the UK’s AML regime, published in June, identified concerns in the legal sector that a small number of professionals may be unsupervised. The examples are limited to some specific and small subsectors, such as specialist wills and estate planners and one or two unregistered barristers.

The review concluded that further reform of the supervisory regime is necessary to improve its effectiveness and proposed four options for reform, which could include giving the SRA, or other legal sector supervisors, a greater role. The review committed to taking forward a public consultation to develop the options further, which is necessary given the potential scale of the reform and the need to ensure that we fully understand the risks and impact of our final decision. I reassure Members that the Government are focused on ensuring that the reform addresses the problems identified in the review, including that of supervisory gaps.

The new clause would require the SRA to supervise independent legal professionals in Scotland and Northern Ireland who are not regulated by any of the professional bodies listed in the money laundering regulations. Additionally, each AML supervisor currently represents different legal professions with diverging practices and processes. In the absence of broader AML reforms and appropriate resourcing, it would be difficult for the SRA to supervise those who are not currently members of its own regulated community, as the new clause would require.

I share the desire of the right hon. Member for Birmingham, Hodge Hill to strengthen our supervision regime; however, given the ongoing reforms to AML supervision that would be interrupted by the new clause, and its likely impact on the SRA, it would not be appropriate to accept it at this moment. I therefore urge the right hon. Gentleman to withdraw the motion.

Liam Byrne (Labour, Birmingham, Hodge Hill)

The Minister made the case for the new clause rather well. I am grateful for his confession that significant numbers of businesses are in effect not covered by a default supervisor. If anything, he will have alarmed those listening from the other place who will, no doubt, want to pick up the new clause and build on it, especially given the Minister’s intention—sotto voce, I think—to try to move in the direction of reform.

The point I want to underline is that the challenge we are presenting is not about firms that are covered by a supervisory regime; our worry is about firms that are not covered. The Minister wisely began his remarks by talking about the nine different sets of legal sector supervisors. He may know that almost a quarter of legal firms visited by these nine supervisors were assessed as being non-compliant with AML rules, and 71% of the firms visited by the biggest legal sector supervisor—the SRA—have not put in place an independent audit function to gauge the effectiveness of their AML policies, controls and procedures. He may also know that 60% of the firms that were subject to a full on-site inspection by the SRA were not fully compliant with requirements to have in place adequate AML policies, controls and procedures. This is a significant problem.

I think the Minister is indicating that the Government are open to reform. It was not clear to me precisely which aspects of the new clause were being opposed, but we think that the place to really get this done in a thorough way may be the other place, safe in the knowledge that the Bill will come back to the Commons in a much healthier state. I beg to ask leave to withdraw the motion.

New Clause 67 - Civil asset recovery in cases of economic crime

Liam Byrne (Labour, Birmingham, Hodge Hill)

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

Christopher Chope (Conservative, Christchurch)

With this it will be convenient to discuss new clause 68—Criminal asset confiscation in cases of economic crime—

“The Secretary of State must by regulations make provision for the parties to bear their own costs in criminal confiscation proceedings following an unsuccessful prosecution of an economic crime.”

Liam Byrne (Labour, Birmingham, Hodge Hill)

The new clause would cap legal costs where the Government try to bring unexplained wealth orders into effect. That point was picked up by the Foreign Affairs Committee when it was ably chaired by the Minister for Security. It also featured heavily in the economic crime manifesto which the other Minister helped launch in Westminster Abbey not too long ago, in the heady days of summer, when he was among the leading campaigners for cleaning up economic crime—his apprenticeship for the Bill in many ways.

You will know, Sir Christopher, that we have a real problem in this country, in that we introduced a brilliant legal reform back in 2018—I cannot remember whether that was one, two or three Governments ago, but it was introduced by a Conservative Administration and supported by Members across the House. Indeed, when I was in Washington with the Minister earlier in the year, unexplained wealth orders were lauded by the Department of Justice, the Department of the Treasury and everyone else we met as a really serious bit of legal innovation that the rest of the world could learn from. It fell to us to explain that all four of the unexplained wealth orders that have been moved so far have failed. Of course, one reasons that they are failing is because the poor National Crime Agency—I mean poor financially—is having to go up against some of the richest people in the world, and is simply being outgunned and outspent in court.

Kevin Hollinrake (Conservative, Thirsk and Malton)

The right hon. Gentleman says that there is a much stricter cost-control regime in the United States. He is clearly not aware that there is no such regime in the United States, because no adverse costs are awarded. It is a completely different legal system.

Liam Byrne (Labour, Birmingham, Hodge Hill)

I meant, in summary, the economic effect. The impact is that agencies have much greater latitude to bring cases against bad people in American courts without fear of what it will do to their enforcement budget. That is exactly where we need our enforcement agencies to be. If we are going to strengthen their hand, to really effectively police the problem and to respect what the Government need to do, namely, to ensure that we maximise the effectiveness of our enforcement agencies within tight budgets, the measure should, I hope, be accepted by the Government. I am delighted to have had the opportunity to move the new clause.

Stephen Kinnock (Labour, Aberavon)

I wish briefly to concur with my right hon. Friend’s every word. He has made a powerful case about unexplained wealth orders. That was something of a false dawn for the reasons he set out. Similar to what we said about SLAPPs, we are concerned about the chilling effect—the vast disparity between the financial firepower of the people that the UWOs seek to go after and that of the NCA and, frankly, the British state.

My right hon. Friend’s new clause would absolutely push the Bill in the right direction. It provides a means for us to level the playing field. On the basis of that common-sense proposal, we can start to have serious conversations about how to crack down on some of the kleptocrats. I thank my right hon. Friend for his clause and the manner in which he has proposed it. I hope that the Minister will seek to champion it rather than oppose it.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am grateful for the intent behind new clause tabled by the right hon. Member for Birmingham, Hodge Hill. He has an absolutely valid point—we need to equalise the firepower between some of the organisations. We have a fundamental challenge, because we cannot assume that arising from the actions of a UWO, which is not a human rights action but to do with civil litigation, costs should fall on the losing party. We must look at how to balance the different elements.

My own inclination would be look more at how we fund our agencies to do this work. Some members may have heard that I once was in the Army. The way the armed forces does such things is by having two different forms of budget—the ongoing budget and the war reserve. I am much more inclined, and much more persuadable, towards the argument that we should be making sure that the agencies that take on such claims have a war reserve to ensure that they can meet the costs without that affecting their ongoing work, rather than changing the law in a way that would affect civil liabilities in many different areas.

Margaret Hodge (Labour, Barking)

To be honest, I do not think that would prevent the impact that the fear of incurring costs would have on how any of the agencies operate. Everyone in the House has great respect for Bill Browder, and I am sure that the Minister will have talked to him about the issue, and I know that the Under-Secretary has, too. Bill Browder is completely shocked and astounded by the fact that we allow any costs at all to be claimed by successful litigants when they challenge Government action.

I do not know whether either Minister had the chance to meet Judge Mark Wolf, who is over here campaigning for an international anti-corruption court. I do not know whether they have come across him. He was here last week and, when we talked about such litigation, he expressed absolute astonishment that defendants in any of these cases, have the right to any of their costs being met. In America, looking at those figures, great success comes from that hugely important lack of ability to claim costs.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

It is worth pointing out that the Americans do not use unexplained wealth orders, which, after all, are civil litigation, because they do not have them. Therefore, the question of costs does not apply in the same way.

Margaret Hodge (Labour, Barking)

I would not use the example of unexplained wealth orders. They have not worked in the way that we had all hoped and intended. On the failure to prevent bribery, if we think of the acts that the Serious Fraud Office has been engaged in—I think it is with Serco, where they face a couple of million pounds in claims and costs. It goes right across the panoply of tools that we have to fight economic crime.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

This new clause clearly focuses on the Proceeds of Crime Act 2002 and the different ways in which it would be affected. I will not accept it, for the reasons that I have given; I believe it expands far too far into other areas of civil litigation. I do, however, take the right hon. Lady’s point entirely. The ways in which our agencies can defend themselves has already been on my plate for many, many weeks.

Liam Byrne (Labour, Birmingham, Hodge Hill)

The Minister has had quite an education since becoming a Minister and joining the ranks of the Government, because, of course, it was in the Foreign Affairs Committee report on tackling illicit finance in which he authored a number of quite strong words about the need to reform and improve the regime for unexplained wealth orders, which are an important legal innovation. They are looked up to by enforcement agencies from around the world, and it is a national embarrassment that they are not working. It could well be, as the Minister argues, that the right answer is to create a war-fighting fund for our enforcement agencies, but that would have been possible if the Government had not opposed all the amendments that we suggested to create and restock the war chest that might be needed.

I appreciate that in this business a politician’s first instinct is to want to have their cake and to eat it, but unfortunately the Minister voted against putting us in that position at an earlier stage in the Bill. It is therefore important to send a clear signal to the other place that this is an important set of reforms for the Government to focus on and get right. I will therefore press the new clause to a vote.

Written evidence reported to the House