Economic Crime and Corporate Transparency Bill

Public Bill Committee, 29 November 2022.

New Clause 69 - Prevention of continued trading for companies repeatedly declared insolvent

Gavin Newlands (Scottish National Party, Paisley and Renfrewshire North)

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

It is a pleasure to serve under your chairmanship, Mr Robertson, and it is fantastic to rise to do something more worthy in Committee than pour water for my hon. Friend the Member for Glasgow Central.

I accept completely that, as has been said many times, the Bill is excellent and we just need to tighten it up, and that it contains provisions, including on unique identifiers, that will help to block some of the more obvious means of carrying out the practice of phoenixing, which has been discussed both when we took oral evidence and throughout line-by-line scrutiny. However, it is my view, and that of many others, that we are missing a golden opportunity to fully address phoenixing with the Bill and to tighten up all parts of the regulations relating to Companies House.

The genesis behind new clauses 69 and 70 is a specific directorate and company the businesses of which have unfortunately harmed my constituents and many others across Scotland and throughout the UK. New clause 69 would stop those who burn through multiple limited companies leaving a train of destruction in their wake, with little or no recourse for the authorities. It would not prevent those who have no nefarious or ill intent but find that their company is unsuccessful, even on more than one occasion. It would not apply automatically to any individual who hits the three winding-ups limit; it would only allow the registrar to act if there were grounds to do so.

Around 10 years, a company called HELMS—Home Energy and Lifestyle Management Systems—controlled and operated by a man named Robert Skillen, went door to door in my constituency offering solar panels and home insulation as part of the now-scrapped UK Government green deal scheme. You will be pleased to know, Mr Robertson, that I do not intend to go over the whole story; suffice it to say that hundreds of my constituents and thousands of people across Scotland are still paying the price to the tune of thousands of pounds each.

Skillen was able to wind up HELMS, move on to his latest venture with millions in his back pocket and face no consequences for his personal actions. He is an individual—there will be thousands like him—with a long track record of extracting maximum value from his scams via limited companies and then setting up shop for a new crack at it, having defrauded thousands of people. He even had the cheek to set up a company to assist those who had been defrauded by his previous company to receive compensation from which he would receive a cut. That type of individual is currently beyond the reach of the law; hopefully, provisions such as the new clause would assist with that.

Mr Skillen was fined £200,000 by the Information Commissioner’s Office and £10,500 by the Department of Energy and Climate Change, as it was at the time, but the fact is that of that £200,000 he paid only £10,000 before winding the company up. That led the ICO to lobby the Government to enable it to fine individuals such as Robert Skillen up to £500,000.

In respect of cases such as those of Mr Skillen and many others who make sharp practice look easy and do so without any care or remorse, the new clause would act as a deterrent to the manipulation of company registration for personal gain and enrichment and prevent those who have used multiple company identities for malfeasance or sinister purposes from continuing that pattern of behaviour ad nauseum. I stress that the point of the new clause is not to prevent those who have had genuinely unsuccessful businesses from starting afresh. The registrar should be able to separate those cases from those of people with evil intent.

Companies House already has the power to disqualify directors and the new clause would simply allow it to consider slightly wider grounds on which such a disqualification could rest. It would help to put an end to the cases that every Committee member will have encountered in their constituencies of companies taking payment for goods and services, shutting up shop with the cash pocketed and then popping up again under a different name but carrying out exactly the same work. The purpose of the new clause is to tease out from the Minister the Government’s approach to phoenixing. With that, I rest.

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

It is a pleasure to serve under your chairship, Mr Robertson, and to follow the hon. Member for Paisley and Renfrewshire North, who made a very important speech. New clause 69 would introduce new provisions to prevent the continued trading of companies repeatedly declared insolvent and the practice of phoenixing, which the hon. Member outlined. It states:

“A company may not be registered under the Companies Act 2006 if, in the opinion of the registrar of companies, it is substantially similar to a company which has been subject to winding up procedures under the Insolvency Act 1986 on more than three occasions in the preceding ten years.”

A company may be “substantially similar” to previous companies in terms of its name, registered office, proposed officers and so on. This would mean that there is more scrutiny, and questions are raised about whether a company should be able to continue trading.

It is very important, for the reasons we have outlined in Committee, to seek to protect the public and other businesses from unscrupulous operators effectively carrying on their business activity and going through the same cycle of building up debts, which leads to consumer issues, and simply disappearing and starting again. We must deal with that behaviour, which is a route through which economic crime takes place, and that is why we support the new clause. We will listen closely to the Minister’s response on how the Government propose to tackle the issue of phoenixing.

I note the similarity between the intentions of this new clause and new clauses 28 and 46, tabled by my hon. Friend the Member for Aberavon and I, which we have discussed. In different ways, all those new clauses would tighten up glaring loopholes around strike-off, insolvency and phoenixing that enable those who are participating in economic crime to avoid scrutiny. We welcome the new clause, and we look forward to the Minister’s response.

Kevin Hollinrake (Conservative, Thirsk and Malton)

It is a pleasure to serve with you in the Chair, Mr Robertson. I appreciate the spirit of the amendment, and I also appreciate the hon. Member for Paisley and Renfrewshire North describing this as an excellent Bill—a very constructive point—but one that needs tightening up; I understand his points and applaud the efforts made by him and other Opposition Members to do so.

I am fully aware of the devastating consequences that such issues have on businesses, suppliers, supply chains and our constituents. I have a case of a gentleman called Scott Robinson who repeatedly closed his investment business down. It was called TBO Investments at one point and then became Mount Sterling Wealth. He effectively took his clients with him, and people lost huge amounts of money. They had provided money for him to invest based on supposedly low-risk investments, but he was actually gambling that money in very high-risk investments, and he did that time and again. I really sympathise with the spirit of the amendment, and I am keen to look at not just phoenixing but other types of situation where people deliberately take risks like that that have devastating consequences for consumers and businesses in our constituencies.

Gavin Newlands (Scottish National Party, Paisley and Renfrewshire North)

The Minister says he will look at this and is sympathetic to the issue. For clarity, does that mean a later stage beyond the Bill or at a later stage of the Bill?

Kevin Hollinrake (Conservative, Thirsk and Malton)

In my view, it needs further work rather than just plonking the new clause in the Bill. There is a wider issue here and I am pleased to see that he seems to acknowledge that. Certainly, a piece of work is needed to look at this in detail. There are some measures in place already—just the pre-pack arrangements subject to Committee scrutiny. I will come on to that in a second.

There are existing provisions in the Bill that provide safeguards against the fraudulent phoenixing behaviour that the new clause targets. Section 216 of the Insolvency Act 1986 makes provision for restriction and prohibition on the re-use of a company name when new companies are formed, which is an intrinsic feature of phoenixing and one that the hon. Gentleman addresses in his new clause. That provision will be complemented by the new powers contained in the Bill. For instance, the registrar may choose to exercise the power to compel the production of information to help her determine whether an application to incorporate a company complies with the proper delivery requirements. They will include that those named as prospective directors can lawfully act as such, which would not be the case if they were barred under the 1986 Act from acting as a director of a company using a prohibited name, and the registrar would be empowered to reject the incorporation application. Furthermore, the registrar will have greater power to direct companies to change their names if they deliberately mislead in their purpose. Such powers provide the registrar with a powerful tool when considering new company registrations.

The registrar will be able to examine and interrogate information already held and share data with law enforcement partners and other authorities. That will allow other key characteristics such as verified identities, the registered office, proposed officers and business activities to be critically assessed with intelligence received to spot patterns of phoenixing.

If adopted, the new clause would be largely duplicative of provisions already in place or those introduced by the Bill. It would also erode the registrar’s discretion in the application of their powers as envisaged. There will be some instances when companies are captured by the new clause and are not culpable, but are merely victims of a legitimate business failure trying to start their enterprise. For instance, the new clause mentions companies that have

“been subject to winding up procedures”.

In that situation, they may be companies that have not necessarily gone into liquidation. There might be other legitimate reasons that those procedures have taken place, which may not be reflective of something that might be considered phoenixing. So, the registrar must be allowed to apply their powers according to the facts and information available. As I have said, I am keen to look at that, including the pre-pack rules, to see where we can tighten up on the matter to make sure those instances are minimised. For all those reasons, I hope the hon. Member will withdraw his new clause.

Gavin Newlands (Scottish National Party, Paisley and Renfrewshire North)

I thank the Minister for his response. The new clause was very much a probing amendment and the Minister points out one weakness. It is a small new clause for dealing with quite a big problem and I may look to table a much more rounded amendment on Report. With that, I beg to ask leave to withdraw the motion.

New Clause 70 - Bar on directors in breach of duties receiving public funds

Gavin Newlands (Scottish National Party, Paisley and Renfrewshire North)

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

It is like London buses—I am back. I do not propose to take as long to speak to new clause 70, which proposes to turn off the tap of public funding to those who have failed to discharge their duties under the Companies Act or who have failed to discharge their duties to their company’s staff. I mentioned Mr Skillen previously, and his local constituency got in touch with me to tell me that he is back in business and that his company had been in receipt of public funds. The aforementioned Mr Skillen is currently a director of four limited companies, each one coming after the winding up of HELMS. Those companies are interlinked via control and ownership structures. Through that, Government loan funding was applied for and granted just before Mr Skillen became a director and owner of a large chunk of the new enterprise.

My new clause is very simple and would prevent those who fail to discharge their duties from receiving public money or support for any company for which they are listed as a director. Mr Skillen’s modus operandi was to misuse and mis-sell under the Government’s green deal scheme, but he popped up a few years later at a company benefiting from taxpayer funding and is involved in the energy business as well. It is simply not good enough that policy interventions intended to promote a wider economic strategy, be it local or national, are manipulated and used by spivs who are able to hide behind company registration and face no barriers to their actions from the registrar, short of the nuclear option of being barred from acting as a director.

We have seen a number of cases over recent years of multinational companies, such as P&O Ferries and, not quite to the same extent, British Airways, breaching their duties as employers and breaching employment law. Indeed, the chief executive of the former happily admitted breaking the law while appearing before the Transport Committee’s joint session with the Business, Energy and Industrial Strategy Committee. Such blatant and open law breaking cannot be rewarded with taxpayer support, and the new clause would ensure that those breaching laws that are meant to protect workers cannot then dip into the same workers’ pockets for financial support. It would not impact on workers, because any funding, such as for a furlough scheme, would not be affected by the new clause.

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

This is a useful new clause, in the spirit of some of the new clauses that we have tabled on what should and should not be available to directors who are in breach of their duties, disqualified and so on. The new clause, tabled by our colleagues from the SNP, would introduce new provisions that bar directors who are in breach of their duties from receiving public funds. Under the new clause, a company with a director or directors who are in breach of the general duties outlined in the Companies Act 2006, or who have been found to have committed statutory breaches of employment law, should not receive Government-provided funds or financial support unless it is solely and specifically for the purpose of directly benefiting the company’s employees.

This is an important debate, and I would be interested in the Minister’s response. When taxpayers find out that their money goes towards effectively supporting or enriching directors who are in breach of the Companies Act, there will be a real question about what the Government can do to further disincentivise and not reward those who are in breach of employment law or other areas of legislation. We support the sentiments behind the new clause and the arguments being made, and I look forward to the Minister’s response.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I thank the hon. Member for Paisley and Renfrewshire North for his new clause; again, I support the motivation behind it. Clearly, there are restrictions already. Where a director has failed to observe a specific duty under the Companies Act 2006, they will potentially find themselves liable to criminal sanction and disqualification. I accept the fact that we have not focused too much on that area in the past, but that is exactly why we are legislating in the Bill to make the registrar far more proactive in her work. Where an employer has committed a breach of employment law, the relevant statute will generally provide appropriate remedies either by way of a right of action for the worker—normally in an employment tribunal or the courts—or by way of state enforcement, or sometimes both.

The new clause seeks to isolate only two triggers for denying access to financial support. Although they may have merit as triggers, who is to say that there are no other matters of conduct on the part of either a company or its directors that might lead one to question the wisdom of awarding it taxpayers’ money? Obviously, that should be determined within the scheme rules. The hon. Gentleman pointed to a case in which a director was interlinked with four other companies. There are already restrictions on Government loans—covid loans, for example—which must be taken into account where there are interlinked schemes, and he is probably aware of that.

The hon. Gentleman said that companies would still be able to access the furlough scheme to protect workers, because subsection (2) stipulates that may receive such funds where those

“funds or support are provided solely and specifically for the direct benefit of the company’s employees.”

It is more than possible to argue that the furlough scheme did not just benefit the employees. Normally, in that situation, companies would have made huge numbers redundancies, which can be quite expensive for companies themselves. The new clause does not carve out the furlough scheme, so it could put workers’ jobs at threat.

The hon. Gentleman has raised a very good point, but the new clause is probably not the right way to tackle it, and I hope he will withdraw it.

Gavin Newlands (Scottish National Party, Paisley and Renfrewshire North)

I appreciate the Minister’s response. To pick up on a couple of his points, he said that there are already remedies available, but as we have seen there are far too few for employees who suffer at the hands of a nasty business owner. We have all seen such cases on the news or from our own case loads.

The Minister mentioned the regulations governing covid loans. Clearly, that is a very specific example, and he makes a fair point, but that is not the case for all public moneys. However, this is a probing provision and would require further work before I sought to test the Committee or the Chamber with a vote. I therefore beg to ask leave to withdraw the motion.

New Clause 71 - Suspicious Activity Reporting: risk rating

Margaret Hodge (Labour, Barking)

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

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

It is a pleasure to speak briefly in support of the new clause tabled by my right hon. Friend the Member for Barking. It would amend the Proceeds of Crime Act 2002 such that any disclosure made as part of the suspicious activity reporting regime must include a risk rating. My right hon. Friend outlined very effectively the reasons why the new clause is important. Much of the evidence in our meetings at the outset of the Bill, which set out the context and stakeholder views, it was clear that the SARs regime was failing. The databases of referrals were going unreviewed and unlooked at, because the resources were not there. There was no effective means that we could see of prioritising SARs fed into the NCA.

SARs is an essential tool in our defence against money laundering, but if the system is not working, something needs to happen. Having an extra step in the process to help with prioritisation, look at risks and deal with those identified as higher risk would help, as my right hon. Friend outlined, to bring in quality, at a time when we know that quantity is the new battle. She said that the current estimate is three quarters of a million referrals, which is extraordinary. Given the scale and types of economic crime, the number of referrals is likely to get worse, not better. That is a good thing if we are starting to highlight and refer more cases as we start to clean up our systems. However, we then need to deliver on that; otherwise, the downside is that we will reduce confidence among those doing the referrals that anything will actually happen.

Nigel Kirby of Lloyds Bank said in his evidence to the Committee:

“I think the SARs regime and the Proceeds of Crime Act 2002 itself actually need—well, not necessarily to be turned upside down, but to be looked at as a whole.”––[Official Report, Economic Crime and Corporate Transparency Public Bill Committee, 25 October 2022; c. 19, Q26.]

I think we have some agreement that the system itself is important, essential and necessary but that it needs wholesale reform to make it more efficient and effective and to ensure that it does what we ask of it.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I thank the right hon. Member for Barking for the new clause. I will slightly gloss over one element and focus on something she mentioned several times—I always listen carefully to what she says—about the comparison between the FBI and the NCA. I take the comparison, but the NCA is not a direct comparator for the FBI. After all, the FBI includes the equivalent to MI5. It also includes counter-terrorism police and a lot of what we call regional organised crime units. It includes a lot of other areas of policing that simply do not come under the NCA’s budget, so the comparison of budgets is not apples and oranges; it is more like apples and cider—the bulk of one and the punch of the other are not quite the same. I hope the right hon. Lady will forgive me for saying that that is not entirely a fair comparison.

That said, the NCA does an enormous amount of good work and uses SARs in many different ways. I have the figure here: the UKFIU received and processed nearly 600,000 SARs in 2019-20. That has increased significantly every year. The action taken has resulted in about £192 million being denied to criminals in 2019-20, up 46% on the previous year. So this is something that we are already using heavily.

Margaret Hodge (Labour, Barking)

We all think that SARs is a helpful regime. I wonder whether the Minister has been given the information by the NCA. It got more than half a million SARs, but how much of that data did it use to get the millions that it got in? That is a heck of a lot of data, which should yield a huge amount of valuable information.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

First, not every SAR leads to an actionable offence. Many of them are simply, and quite rightly, reports. They are reports because there are suspicions, but suspicion does not necessarily mean guilt. Many times these are companies that are taking on clients or that have clients who are suspicious, and they want to be sure they are doing the right thing so, responsibly, they report in. We should not confuse the absolute number of reports with a level of criminality. That would not be fair on the British population, those doing the reporting or the NCA, which is looking into these things.

Alison Thewliss (Scottish National Party, Glasgow Central)

I did not mean to stop the Minister in mid-flow. He says that the number does not necessarily correlate to criminality. Is he concerned to hear that trust and company service providers have provided only 31 SARs, according to Graeme Biggar when he gave evidence to the Treasury Committee? A total of 31 seems impossibly low for the number of trust and company service providers, compared with what comes in from others.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The hon. Lady makes a fair point, but as she knows well that is not the point of the new clause, which is about the supervision of SARs and the ways in which they are checked and verified. That said, I have listened carefully to her and will have a look at that, because I do appreciate the point she makes. That said, I think these codes already enable the NCA to triage effectively, although if she has better ideas I am happy to listen and look at them further. However, I am to be convinced, because I think the Bill already addresses the areas she indicates. I get the point she is trying to make, but I am not sure that her suggestions would lead to a significant improvement on what is already there.

Margaret Hodge (Labour, Barking)

I am trying to untangle what the Minister said. If he is open to further discussions, I do not think that there is a rating regime. All we are saying is that there should be a rating regime so that the most urgent cases come at the top. My understanding is that that does not exist. There may be some form of triaging that I am not aware of. We just want to introduce a rating regime. If he is willing to engage in discussions before Report, I am happy not to put the matter to the vote. I beg to ask leave to withdraw the motion.

New Clause 72 - Office for Professional Body Anti-Money Laundering Supervision: powers and duties

New Clause 73 - Offence of failure to prevent fraud, false accounting or money laundering

Margaret Hodge (Labour, Barking)

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

Margaret Hodge (Labour, Barking)

I will speak for a little longer on new clause 73, but hopefully we will get through the others more quickly. It is probably one of the most important new clauses that we have tabled. It sits with new clause 79, which we will come to a little later. If we can make progress on this issue, we will be putting some better meat on the bones of what is still quite timid legislation.

We all want to do all we can to prevent economic crime from occurring in the first place. Prevention and early intervention is obviously the best, cheapest and most effective way of tackling the problem of dirty money. We want to stop it happening in the first place. We also all know that much economic crime takes place because lawyers, company service providers, accountants, bankers or estate agents either enable or collude with bad actors, helping them or turning a blind eye to the things that they do, thus enabling money to be laundered, crime to be committed, and our systems to be used to commit financial crimes.

There is currently too little in our laws and regulations that will stop the enablers—accountants and all the others—supporting and enabling economic crime. Companies and individuals are not held to account for what they do. The new clause aims to put a halt to that. We need to reform our outdated corporate liability laws so that not only companies but senior managers can be prosecuted if they fail to prevent fraud, false accounting and money laundering. It is not because we want to have endless prosecutions, or to fill prisons with these enablers, but because the threat of criminal prosecution will act as the best and most vital deterrent in preventing professionals from helping criminals to launder and manage their dirty money.

As we have said time and again in Committee, most professionals act with integrity. Those professionals with integrity have absolutely nothing to fear from the new clause. Indeed, the majority, who act responsibly, should welcome the change, because it will help us to clean up their profession, get rid of the bad apples and restore our reputation as a trusted jurisdiction. The Minister knows very well—I am trying to find the right Minister—

Kevin Hollinrake (Conservative, Thirsk and Malton)

I know as well.

Margaret Hodge (Labour, Barking)

Both Ministers know that reform has been promised, and delayed, for a long time. The 2015 Conservative manifesto committed to making it illegal for companies to fail to put in place measures to prevent economic crime. The 2017 Ministry of Justice consultation on corporate liability reform sat for three and a half years. Inexplicably, it found that there was not enough evidence to pursue reform. I can only imagine that the Ministry was strongly lobbied. It said there was not enough evidence despite the fact that 76%, or three out of four respondents, said that the identification doctrine, which we will come to, inhibits the holding of companies to account for economic crime, and that two out of three respondents thought that corporate liability reform would result in improved corporate conduct. Despite all that, the Ministry chose not to pursue reform.

We then got the Law Commission’s review in 2022. It found that the current situation was “highly unsatisfactory” and that, on the status quo on corporate liability, “the identification doctrine”—for fraud and money laundering, the way in which we determine whether the people involved represent the “directing mind and will” of the company and can therefore be held responsible—

“is an obstacle to holding large companies criminally responsible for offences committed in their interests by their employees.”

The commission said that the status quo is “unfair” and that if the law remains unchanged it

“will continue to enable large companies to be acquitted for conduct which would see small businesses convicted.”

It also stated that that

“could diminish confidence in the criminal law”

and, finally, that the status quo incentivises poor corporate governance and

“rewards companies whose boards do not pay close attention.”

Given all that, I cannot think of a stronger indictment of the status quo.

There are endless examples of where our failure to modernise our criminal liability law has led to failure in the courts. The Barclays bank action is probably the most infamous, or famous, of them all. In 2008, during the financial crisis, Barclays wanted to avoid nationalisation and entered into a deal with Qatar, from which it received more than £11 billion and a loan of £3 billion. The bank, however, also set up what was called an advisory service agreement—in a sense, as I can say under parliamentary privilege, it was a bribe—and, under it, £322 million was given to those who facilitated the deal between Qatar and Barclays bank.

The Serious Fraud Office tried to prosecute the bank and its chief operating officer with charges of conspiracy to commit fraud and charges involving “disguised commissions”—in my interpretation, bribes. The court threw out all the charges, saying that the alleged criminal dishonesty of senior officers “could not be attributed” to Barclays. So the chief executive could not be held responsible for what the bank did, because the chief executive was not the bank, but reported to the bank. It was a crazy judgment. The court also dismissed cases against other individuals, as they could not be defined as the “directing mind and will” of Barclays.

There was, then, a Barclays fiasco, but there were other examples, such as the LIBOR rate-rigging scandal. No criminal prosecutions were brought, although the individuals prosecuted gave evidence that their managers knew what they were doing, so the company itself was liable. If the Minister for Security will allow this comparison, the US brought criminal enforcement action against 12 of the banks in the LIBOR scandal—British banks—and extracted $3.4 billion in criminal fines. Other examples include HBOS—to which the Under-Secretary often refers—Serco and the tagging contract, London Capital & Finance, and so on and so forth.

In 2022, four parliamentary Committees called for the reform of corporate criminal liability legislation. In February 2022, the Treasury Committee urged the Government to

“act quickly in bringing forward any legislation flowing from the Law Commission’s review. In the meantime, corporate criminals will continue to be able to escape prosecution for economic crimes.”

I probably do not have to quote this one, as the Minister might remember it, but the Foreign Affairs Committee called for

“reform of outdated and ineffective corporate criminal liability laws which mean that it is difficult to hold large companies to account for economic crimes.”

In October 2022, the Justice Committee recommended that

“A failure to prevent fraud offence should be introduced to hold companies to account for fraud occurring on their systems and encourage better corporate behaviours.”

In November 2022, the House of Lords Fraud Act 2006 and Digital Fraud Committee found that the reform

“of corporate criminal liability will be essential in order to maximise the impact of the Fraud Act and other legal tools going forward”,

and in order to

“hold corporates across all sectors to account and to inspire behaviour change.”

Finally, let me quote the Under-Secretary. On Second Reading of the Bill, he said:

“I have said many times that the No. 1 measure we need is an extension of the failure to prevent provisions on bribery and tax evasion, which have been so effective. People say that we talk a lot and never get anything done”—

hear, hear!—

“but the bribery provisions have been massive in holding corrupt companies to account. The Serious Fraud Office has deferred prosecution agreements for Rolls-Royce for Airbus, with almost £1 billion in fines going to the Treasury. The SFO also prosecuted the GPT Special Project Management Ltd case. The SFO does not get many successful convictions but GPT Special Project Management Ltd pleaded guilty in Southwark Crown court in 2020, and paid £28 million in financial forfeitures as a result, on the back of the Bribery Act 2010.”—[Official Report, 13 October 2022; Vol. 720, c. 308-309.]

On another occasion, the Under-Secretary said:

“Criminal fraud at Lloyds HBOS was proven in 2017, and the cover-up associated with that is an utter disgrace. We are yet to see the Dobbs review, which later this year should identify the scale of the cover-up by Lloyds of what went on at HBOS. We have also seen the problems with Royal Bank of Scotland’s Global Restructuring Group”—[Official Report, 7 July 2022; Vol. 717, c. 1043.]

I could go on; does he want to hear all of his speech?

Kevin Hollinrake (Conservative, Thirsk and Malton)

No, I remember it very well.

Margaret Hodge (Labour, Barking)

Anyway, I thought it was a speech in favour of the intent of this new clause.

Failure to prevent offences have proved effective elsewhere, as the Minister himself has said. We use them to tackle bribery and tax evasion, and the Minister always raises the best example when he refers to what used to go on in the construction industry. In my youth, people would regularly have terrible accidents on construction sites, some of which were fatal. It was only when a duty was introduced for those who ran construction companies to ensure the health and safety of their workers in the workplace, meaning it would be a criminal offence if they failed to do so, that miraculously, overnight, deaths on building sites came almost to a 100% halt. We have lots of examples of where a failure to prevent does not end up with people being locked up but does change behaviour. That is what we are trying to do.

I have lots of examples of areas where the Bribery Act 2010 has been successful and this is not one. This is the last legislative opportunity we will have in this Parliament to put into effect something that Members across the House think is important. There is so much evidence from so many bodies emphasising the importance of this bit of legislation. I cannot see any argument for delay. Before they reached their great, really important roles on the Front Bench, both Ministers argued passionately, frequently and loudly for this reform. I hope they will accept the new clauses, together with new clause 79, on the identification principle. With the inclusion of those three new clauses, we can hold our heads up high and say that we have done good work in Parliament.

Stephen Kinnock (Labour, Aberavon)

It is a pleasure to serve under your chairship, Mr Robertson. I pay tribute to my right hon. Friend the Member for Barking. The passion and eloquence with which she spoke was exemplary in terms of reminding us about what is at the heart of the Bill and one of the top priorities that we want to achieve. I do not want to say much more; how can I follow that?

New clause 73 would introduce a new offence of failing to prevent fraud, false accounting or money laundering, and new clause 74 would extend that offence, so I shall take them together. In effect, the new clauses would extend current failure to prevent offences beyond bribery and tax evasion to other economic crimes, money laundering and fraud. The offences would be applicable both to companies themselves and to senior managers or directors.

The Labour Front Bench team welcomes the new clauses tabled by my right hon. Friend the Member for Barking as vital to help to drive cultural change and corporate governance standards for the prevention of economic crime in the UK. They would also standardise criminal rules for holding companies to account across different economic crimes.

The call for this change is supported by a number of stakeholders, including Spotlight on Corruption, which made the following argument in written evidence to the Committee:

“Most urgently, a new failure to prevent fraud offence would help address the UK’s serious fraud epidemic. Fraud accounts for 40% of all recorded crime, but fraud prosecutions have fallen from 42,000 in 2011, to 13,500 in 2021 in the last decade, a 67% decrease. According to the Crown Prosecution Service (CPS): ‘an extension of the “failure to prevent” model to fraud, false accounting and money laundering would be unlikely to require companies to do more than what they would already be expected to do under the current law (which relies on the identification doctrine) but it would enable prosecutors to hold them to account more effectively where they fail to do so’. The heads of the Serious Fraud Office (SFO) and the CPS have both recently called for new failure to prevent offences.”

I refer the Minister, in addition to the stakeholders that support the call for change, to his own words on Second Reading. I will not replay his greatest hits—that my right hon. Friend the Member for Barking has already done so—but he has stated clearly that he sees this offence as “the No. 1 measure” that we need. The Opposition fervently hope that both Ministers will agree with their former selves that this is the No. 1 measure we need in the prevention and detection of economic crime. We urge the Conservative Front-Bench team to accept the new clause as a necessary and urgent provision to tackle economic crime that would have support across the board.

Alison Thewliss (Scottish National Party, Glasgow Central)

I, too, rise to support the new clauses, which are incredibly important.

“Of all the measures we have talked about today, this would have the biggest effect in terms of cutting down on economic crime, because lots of our financial organisations are complicit when it suits their interests to be so.”—[Official Report, 13 October 2022; Vol. 720, c. 309.]

If the Under-Secretary recognises those words, it is because they are his own from just a few weeks ago, on 13 October 2022. What a long time it has been; here we are today at the end of November.

It is important that we use the new clauses as an opportunity. As the right hon. Member for Barking said, this is an opportunity to make this change now and get it right. It cannot be said that the Ministers present do not agree with the measures. The Under-Secretary argued for a failure to prevent economic crime offence not just on 13 October 2022 but on 7 July 2022 and 1, 22 and 28 February 2022, on 2 December 2021, on 9 November 2021, on 22 September 2021, on 18 May 2021, on 9 November 2020, on 25 February 2020, on 19 July 2019, on 23 April 2019, on 18 December 2018 and on 9 October 2018. Why have we got to the point today where he is arguing against something that he has argued for so consistently and repeatedly in this House?

Kevin Hollinrake (Conservative, Thirsk and Malton)

Will the hon. Lady give way?

Alison Thewliss (Scottish National Party, Glasgow Central)

I will if the Minister can give me an explanation as to why he is not going to back the new clause.

Kevin Hollinrake (Conservative, Thirsk and Malton)

When have I argued against it?

Alison Thewliss (Scottish National Party, Glasgow Central)

I suspect that if it goes to a vote, he will vote against the new clause, so he does not even need to argue against it. If it goes to a vote, he and his colleagues will vote against something that he has consistently and repeatedly supported in this House. He knows in his heart of hearts that this is the right thing to do. I am very interested to know whether, if the Government will not support the new clause—whether it goes to a vote or not—they will introduce something similar on Report. Both Ministers know that this is the right thing to do. The opportunity is here in the Bill. If the opportunity is there and the will is not, that leaves huge questions for the credibility of the entire Bill.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I am delighted to speak on the new clause. As the right hon. Member for Barking correctly identifies, it touches on many areas that my hon. Friend the Under-Secretary and I have spoken about on numerous occasions, and we are not alone in having done so. Section 172(1)(b) and (d) of the Companies Act 2006 speaks about the interests of employees and of the community being the responsibility of directors as well, so having an emphasis on directors’ responsibility in corporate legislation is not new. My hon. Friend the Under-Secretary has also spoken about it in building safety legislation, which the right hon. Lady cited.

There are many different examples of our recognition that the interests of the whole of society and of the whole United Kingdom are better protected when directors understand that they are there not simply to advance shareholder value, but to further the interests of the whole community of their employees and wider society in actions and responsibilities they undertake. Although I see all of the responsibility laid out and I take very seriously the point the right hon. Lady made, we still need to do a little bit of work on how this can be made to work. There are arguments, some of which hold water, about whether the 2017 money laundering regulations include elements that already cover some of these areas, and there are arguments about whether the Law Commission will want to look at different bits of this. I can assure the right hon. Lady that I will look at this extremely seriously, because she is absolutely right that the Bill offers an opportunity to introduce different reforms. I will look to make sure that any opportunity is fulfilled as quickly as possible.

Margaret Hodge (Labour, Barking)

I am grateful for that. The hon. Gentleman referred to the Companies Act 2006—I cannot remember which section. In the days when Tony Blair changed our jobs every year, I was lumbered with taking through the biggest Act in Parliament. We deliberately put that section in, in the face of massive opposition. At the time there was a front page story in the FT that said, “How dare you talk about any interest but shareholder interest?” But the provision has stood the test of time, I am pleased to say, and I am glad to hear him cite it.

I do not want to embarrass Ministers today by putting the issue to a vote. I know that they feel strongly about this, but so do we—really strongly. The Bill will not pass any litmus test of its potency if the new clause is not included. I know there will be resistance because the professions that would be subject to the new potential criminal liability are very strong in lobbying. They are probably strongly lobbying the Department for Business, Energy and Industrial Strategy, as well as the Treasury and other Government Departments. I say to Ministers that they have to resist that lobbying with every bone in their bodies, because this is not an attack on any profession. There ought to be a new offence that cleans up the profession, and we will pursue this issue right through every phase and stage of the Bill’s passage.

I want to say one final thing to the Minister. Of course we need to make the new clause work, but for goodness’ sake, we have the same offence in the Bribery Act and the tax evasion legislation, and it works perfectly well.

Kevin Hollinrake (Conservative, Thirsk and Malton)

The right hon. Lady makes a very important point about vested interests. We have previously discussed the influence of people who may not be keen on these kinds of clauses. I would say to anybody in the financial services sector who is making these claims that there are potentially huge benefits from preventing fraud across the board, because 70% of online fraud, which costs banks a lot of money, comes from platforms, and this kind of legislation could make the platforms responsible for removing content. So the sector could see benefits as well as potential new obligations.

Margaret Hodge (Labour, Barking)

I am grateful to the Minister for reinforcing my argument. I would add simply that the same is true of the online harms Bill. If we had director liability there, I think we would see a lot of the online harms disappearing, but that is for next week.

On how the new clause would work, we can mirror processes that take place in other bits of legislation. To say that it is already covered is a nonsense, because we would not have had the failure of the Barclays case and all the other cases that I cited to the Minister had we already put in place legislation that was appropriate for ensuring that companies and their directors are held to account. I will not put the matter to a vote, but this is a hugely important issue. I look forward to our debating it further at other stages during the course of the Bill. I wish Ministers well in their attempts to get it past the Government, but if they do not, Parliament will do so. I beg to ask leave to withdraw the motion.

New Clause 75 - The Economic Crime Committee of Parliament

Margaret Hodge (Labour, Barking)

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

I have been promoting accountability for years now. In the work that I did with the Minister as we thought about how we could tackle economic crime and turn round the tanker, we always said there were four ways in which we had to respond. One was through having not more regulation, but smart regulation. The second was through tough enforcement. The third was through broad transparency—the ruling of the European Court of Justice last week is an absolute nightmare that could create real difficulties for us in the economic crime space. The fourth was accountability, and with the new clause we are suggesting a way for us to have that accountability.

There is interest in this subject across the House. The hon. Member for Hitchin and Harpenden (Bim Afolami) has written a paper on these issues. Can we find a mechanism for holding the regulatory bodies properly accountable to Parliament for what they do?

Stephen Kinnock (Labour, Aberavon)

I am happy to support new clause 75, tabled by my right hon. Friend the Member for Barking, which would require the Secretary of State by regulation to establish a body to be known as the economic crime committee of Parliament.

The new clause is driven by and based on the fundamental principles of transparency and accountability. Our call for those two principles to be adhered to is important because it recognises that the structures for reviewing progress, and scrutinising and reviewing economic crime, are simply not good enough. There is too much siloed thinking. This aspect of scrutiny does not sit neatly within BEIS, the Treasury, the Home Office, or the Ministries of Defence and of Justice; it really spans the waterfront, yet those Departments are all vital parts of what should be a systemic approach to tackling economic crime.

The proposed committee would consist of nine Members drawn from the House of Commons and the House of Lords, with each member of the ECC appointed by their respective House of Parliament. The ECC would have the power to meet confidentially; it could examine or otherwise oversee any regulatory enforcement or supervision agencies involved in work related to, but not limited to, tax avoidance and evasion by corporations, illicit finance, money laundering, fraud, kleptocracy, corruption, and whistleblower protection.

We welcome the new clause as it would introduce a vital mechanism for transparency and accountability within the Bill. If the Minister does not agree with it, we hope that he will acknowledge that the existing mechanisms are unfit for the kind of joined-up, systemic, expert-driven scrutiny that is needed to keep pace with and keep ahead of economic crime. Throughout this Committee’s proceedings, my colleagues and I have tabled amendments and new clauses designed to increase the scrutiny and transparency of the measures that the Bill will introduce, so as to ensure that when they are implemented, they are as effective as possible. If the Minister is not able to support the new clause, Parliament and the country more broadly would need him to come up with something better.

Alison Thewliss (Scottish National Party, Glasgow Central)

I wholeheartedly agree with the new clause. When the Treasury Committee looked at this issue, what struck me was that economic crime was nobody’s priority. Our report said:

“Economic crime seems not to be a priority for law enforcement. The number of agencies responsible for fighting economic crime and fraud is bewildering.”

If it is bewildering in that sense, it is bewildering to Parliament, too. This is a BEIS and Home Office Bill, yet it has huge Treasury implications and huge security implications, and that gets to the heart of why this new clause is so important. There needs to be a body in Parliament that holds all these agencies to account in one place. If BEIS does a little bit, and the Home Office does a little bit, and security does a little bit, and the Treasury does a little bit, there will not be the cohesive scrutiny of all those agencies that is needed. Committees could well be palmed off with different responses by different agencies, with nobody consistently holding them to account.

The work of the Treasury Committee is very wide ranging. We have two meetings a week, and that is not enough to cover all the issues we need to cover. Setting up a bespoke Committee that could build up expertise on this issue would allow for that accountability. It could meet in private if it needed to, although it would ideally meet in public. The point is that it would keep an eye on all the things that we have agreed to in the Bill, and we would be holding all these agencies and Ministers to account in a consistent way. The reports of the ECC would also, we hope, be taken seriously, and its recommendations implemented.

It is not really enough that the Treasury Committee or another Committee looks at economic crime every once in a while and sees how things are going. The Treasury Committee has done that previously, looking back at previous reports and asking, “How are things going now?” but there is not that week in, week out consistent scrutiny of what is happening. Without scrutiny and consistency, it is difficult to see how the Government will get this right. We are legislating here, but legislation cannot be put on a shelf and left; it has to be living legislation that is scrutinised on a regular basis. A committee of sort proposed in the new clause really would give Parliament a lot of power to ensure that these measures are implemented correctly and that the agencies responsible for economic crime, which affects all of our constituents, continue to be held to account.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

The right hon. Member for Barking will not be surprised to hear that I am a huge fan of parliamentary scrutiny, not just of Government but of various issues that others have sometimes felt are not in the immediate remit of the scrutinising Committee. As she will be aware, I received some criticism when the Foreign Affairs Committee, which I was fortunate to chair, focused so clearly on economic crime in 2017-18—in fact, it was some of the first work that we did—because of the national security threat that it poses to the United Kingdom. Its importance in foreign policy is very clear.

The Treasury Committee has done an awful lot of extremely good work on this issue; over the years, it has done some excellent reports on economic crime. The Public Accounts Committee, the Justice Committee and others have also focused on economic crime at various points. However, while I completely understand the right hon. Lady’s argument, I cannot support the new clause, because it is simply not up to a Secretary of State to set up a Committee of the House. As she knows very well, that is a decision for the House; it would therefore not be appropriate to have that provision in the Bill.

I would add that there are various other elements that already scrutinise quite a lot of the agencies referred to. There is the Economic Crime Strategic Board, co-chaired by the Chancellor and the Home Secretary—I know it is within Government, but it is still a challenging body because it supervises the agencies of Government. Various other levels of scrutiny appear at different points, which help to oversee the function of the agencies and different elements that the Government are trying to deliver—that the ministerial element of the Government is trying to get the bureaucratic element of the Government to deliver. It is really important that we keep those intentions.

How the House decides to scrutinise the ministerial and bureaucratic elements of the Government is up to the House. The right hon. Lady can see that I am a strong supporter of parliamentary scrutiny, and there are ways that it can be done without a Committee. Some have argued—but not on this in particular—that we now have so many Members on so many Committees that a quorum is sometimes difficult; whether it would be in this or not, I cannot possibly comment. While I understand her point, I will not support this for the reasons that I have identified, but I sympathise entirely with her intent.

Margaret Hodge (Labour, Barking)

I am sure that, in that spirit, the Minister also accepts that scrutiny by the Executive is different to scrutiny by the legislature.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

Of course.

Margaret Hodge (Labour, Barking)

What we are seeking is scrutiny by the legislature. I take what he said, and will reflect on it. There is cross-party support for this concept; whether we have got it quite right is open to debate, and we will have to find another means of getting it debated in the House. On that basis, I beg to ask leave to withdraw the motion.

New Clause 76 - Whistleblowing: economic crime

Margaret Hodge (Labour, Barking)

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

This new clause relates to another issue on which there is cross-party support: reform of whistleblowing. It has been put together for me, although it is in my name, by the hon. Member for Cheadle (Mary Robinson), who leads the all-party parliamentary group for whistleblowing. I must put it on the record that she has been a fantastic campaigner in this area and an outspoken champion for the countless courageous individuals who have dared to speak out. As she rightly says, for most of those individuals whistleblowing has shattered their lives, with many losing their health and livelihood. What we are talking about here is really important.

Our new clause would introduce an office for whistleblowers, which would protect the whistleblowers and ensure that their disclosures are investigated and information provided is passed to the relevant authorities. In clause 4, we set out ways in which whistleblowers would provide that service. I think that the hon. Member for Thirsk and Malton is the Minister replying to this debate; I know that he is passionate about this topic, because he has said so on lots of occasions—most recently on Second Reading on 13 October, when he said:

“We do not protect or compensate whistleblowers, and that is wrong. Those people do the right thing and come forward but—not to put too fine a point on it —we hang them out to dry.”—[Official Report, 13 October 2022; Vol. 720, c. 309.]

He went on to say:

“It is pointless having lots of law enforcement people charging around not knowing where to look. Whistleblowers tell us where to look. Some 43% of all financial crimes are identified through whistleblowers, yet it is something we do not talk about. We do not just need more regulators; we need somebody to point us in the right direction. Regulators will always be watchdogs, never bloodhounds. We need the bloodhounds in the organisations who are willing to speak up if things are going wrong.”—[Official Report, 7 March 2022; Vol. 710, c. 121.]

Hear, hear to that, but let us have some action arising out of those passionate words.

Whistleblowing plays an absolutely key role in addressing economic crime, whether it is for money laundering or other crimes. Think of the Panama papers 2016—we would never have had them—or the Paradise papers, the Russian and Troika laundromats, the Azerbaijan laundromat, the FinCEN files and the Pandora papers. Let us look at just one of those—the Panama papers—which were 11.5 million legal documents held by the Panamanian law firm Mossack Fonseca. It basically made its money by creating offshore companies and bank accounts to launder and hide the money. The story was given to a German paper, then 370 journalists got involved in investigating the data, working in 80 countries.

Just think what came out of that. Twelve current and former world leaders were named in those papers. There was a $2 billion trail to Putin through his close friend Sergei Roldugin, known as Putin’s wallet. The money went all over the world, including into an upmarket ski resort in Leningrad owned by a company funded by this dirty money and where Putin gave his daughter a sumptuous wedding. The Icelandic Prime Minister resigned off the back of the papers. The Pakistani Prime Minister was removed from office due to allegations of corruption and fraud.

Through the leak, some £1.2 billion of tax revenue was restored to 23 national Governments. In the UK, there was an extraordinary list of the rich and powerful, from Kevin Keegan to Nick Faldo, Lewis Hamilton, Tiger Woods, Gary Lineker, Madonna, Keira Knightley, Simon Cowell, Nicole Kidman, the Barclay brothers, Stuart Gulliver of HBSC, and political figures like Arron Banks, Michael Ashcroft and the right hon. Member for North East Somerset (Mr Rees-Mogg). They were all named and exposed.

Going back to my Public Accounts Committee days, the work we did all came from whistleblowers in the area of economic crime. I referred earlier to the Goldman Sachs sweetheart deal. That emerged from a whistleblower—a lawyer working in His Majesty’s Revenue and Customs. We had a very frustrating session. We knew something was going on, and we interviewed the head of tax at HMRC, but he would tell us absolutely nothing. I then got a bundle of papers from a lawyer who was working there, and in that bundle was a sheet of paper that had on it two things. It said that a meeting was held by the head of law, and he had said that the head of tax had shaken hands on the deal, which the head of tax had denied at the Treasury Committee. He also said that the deal was unconscionable.

We called back the head of tax and head of law and interrogated them. They still said nothing. Then my hon. Friend the Member for Norwich South (Clive Lewis) said to me, “Put the guy on oath. He might tell you something.” That had never happened in a Select Committee. I turned to the clerk, who told me that I could put him on oath, and said, “Go and find a Bible.” It took them 20 minutes to find a Bible. But the point is that all that from a whistleblower led to the trail that I think has certainly ended up with me being on this Committee considering the Bill today.

What is so terrible about that story is that the then head of tax left public service, and I asked the person who became the permanent secretary in HMRC every time she appeared before the Committee, “Are you looking after that whistleblower? Is he okay?” She always gave me assurances that he was, but actually they raided his computer and telephone. His marriage broke up, and in the end life became so intolerable that he had to leave public office. It is one of the things I feel great shame about really—that I was not able even in that position to protect him, even though it was his revelations that enabled us to start discovering what was going on.

Whistleblowing helps everywhere. It is a vital way of revealing wrongdoing in all sorts of sectors. It was a child sex abuse whistleblower who helped reveal the child sexual exploitation in Rotherham. The NHS is full of workers who blew the whistle on things such as the lack of personal protective equipment. The Public Accounts Committee saw another example, relating to Serco, where a GP contract was done in Cornwall but they were lying about their performance. A whistleblower came to us, but Serco’s response was simply to rifle through everybody’s lockers to try to find out who the whistleblowers were. Serco was not interested at all in the fact that the information it provided was inaccurate, or in trying to improve the quality of the service.

Interestingly, whistleblowers in America are treated very differently, particularly on the issue of compensation. To give one example, in the JPMorgan case, there was a $45 million settlement after two whistleblower employees at a Georgia mortgage broker alleged that the bank had scammed a programme that was intended to make it easier for veterans to qualify for loans, and had submitted fraudulent claims to the Government. The whistleblowers were awarded $11 million. Facing the same charges, Wells Fargo later settled for $108 million. A whistleblower revealed massive robo-signing at the four banks that were the country’s largest mortgage providers. The companies had allegedly relied on a company called Docx to forge signatures on thousands of mortgage documents. The suit was settled for $95 million, and the whistleblowers received $18 million for helping to expose the fraud.

The Minister well knows the facts that I will give him now. In 2018, 40% of whistleblowers reported going on sick leave—that is the pressure in the workplace. Only 4% of whistleblowers who bring claims under the current legal structure succeed. Of the 1,041 whistleblower reports submitted to the FCA in 2021-22, only three have resulted in any significant action. The Minister must agree that enough is enough. We in this country cannot go on failing to treat whistleblowers with the respect, support and advice that they deserve. Our new clause starts the process of reform. It does not do everything—for example, it does not do financial compensation—but it is a start.

Finally, please do not just say, “We are looking at this.” Do not tell us you will come back. This is a once-in-a-lifetime opportunity.

Kevin Hollinrake (Conservative, Thirsk and Malton)

The right hon. Lady makes an interesting point about how compensation works in the USA. She will be aware that Protect, the most high-profile whistleblower organisation in the UK, is against a compensation scheme similar to that in the USA. There is good reason for that: very few whistleblowers in the USA actually get compensation, which is one of the flaws in the scheme. Does she agree that we must think carefully about how we introduce whistleblower reform? It needs to be well thought through, rather than simply rushed.

Margaret Hodge (Labour, Barking)

I agree that we have to think carefully, but setting up an office for whistleblowing, which is what our new clause would do, could be the start. We might get some proper expertise in there, so as to think through some of the more complex issues.

Minister, grasp the opportunity and agree with our proposal. It would set up a new office—a central place for any would-be whistleblower to come for advice. It would support regulation in organisations. It would be a central place for setting standards, monitoring, evaluating and reporting. It would ensure that those who inflict or suffer detriment will be properly held to account or properly compensated. An office for whistleblowers would drive up standards across both the private and public sectors, increase transparency and restore public confidence. Whistleblower discrimination is a global problem, and the new office would set a global standard here in the UK.

Stephen Kinnock (Labour, Aberavon)

I will be brief because my right hon. Friend the Member for Barking has, again, made the case so eloquently. We support new clause 76. The basic fact is that by their very nature, money laundering and economic crime are very often linked to serious organised crime gangs and hostile states. We are dealing with some pretty frightening people. Without adequate protection, the stakes for an informed insider blowing the whistle are simply too high.

New clause 76 would take those vital first steps to provide more adequate protection for whistleblowers and enable the greater detection of fraud and economic crime by establishing a body specifically set up to both protect whistleblowers and investigate their reports. We feel strongly that the Government must bring forward steps to protect and enable whistleblowers. New clause 76 provides an excellent and strong platform to make that happen.

Alison Thewliss (Scottish National Party, Glasgow Central)

We also support this important new clause. In a recent speech, the Minister said that 43% of all economic crime was identified by whistleblowers, which illustrates why the new clause belongs in the Bill. We all know from whistleblowers’ stories that doing the right thing comes often at a significant cost personally, professionally and financially. It is important that we do anything we can to support those whistleblowers and to make sure they feel comfortable to go ahead and do what they do to ensure that we are all protected. I look forward to hearing the Minister supporting the new clause, because he has supported it umpteen times in the past.

Kevin Hollinrake (Conservative, Thirsk and Malton)

I think this is the last occasion I have to address the Committee, so I thank all Members for their contributions. We have had very constructive debates throughout the days that we have looked at the Bill. I thank the officials for all their work in these areas.

Not for the first time, I am very sympathetic to the new clause and to the previous one on failure to prevent. Nothing I have seen or heard since I started as a Minister only a few weeks ago has changed my mind on the things I have said in the House and other places about the need for whistleblower reform and failure to prevent reform. There is no conspiracy behind the scenes here. There is a difference between arguing against the principle of something and arguing against the provisions of something. That is where we probably differ a little.

As the hon. Member for Glasgow Central said, I have said before that 43% is the stat for the discovery of financial crime. In my experience, it is much higher than that—about 100%. Everything I have dealt with has been brought to the attention of authorities through whistleblowers, not least Ian Foxley, my constituent who was very important to the case on GPT Special Project Management Ltd that the right hon. Member for Barking referenced. He was the bloodhound in that case. We need those bloodhounds.

Since taking over as Minister with whistleblowing in my portfolio, I have asked officials to prioritise this review and to get it moving properly, and that is what we have committed to do. There are differences in where we go with it: do we do something to address the cases like Ian Foxley’s and the others the right hon. Lady references? Sally Masterton addressed those cases. Do we do something longer term and more complex? It is either low-hanging fruit or something more radical.

My hon. Friend the Member for Cheadle has done fantastic work in this area. I am keen to engage with her and my hon. Friend the Member for Weston-super-Mare (John Penrose) to make as much progress as we can as quickly as we can. Ian Foxley’s case is interesting because he was prevented from getting compensation. He was very successful in getting that case highlighted and the authorities successfully prosecuted it, but he was denied compensation because the PIDA rules on what it describes as an employee did not cover his particular category. That is a relatively easy issue to fix and something I want to look at.

The other part of the current legislation is around prescribed persons. There are 80 prescribed persons at the moment: people to whom others can make a protected disclosure. We are extending that this week when I introduce a statutory instrument on extending the number of prescribed persons to whom whistleblowers can go to seek assistance. Indeed, some of those prescribed persons are in this room. Members of Parliament are prescribed persons, as are some Ministers, but so too are our agencies. That is probably my biggest concern.

I took the case of Sally Masterton, who was key to highlighting the HBOS Reading scandal, which I have referred to many times in Parliament, to the Financial Conduct Authority. When I asked Andrew Bailey, who was then the chief executive of the FCA, whether he had followed his own whistleblowing procedures in relation to Sally Masterton, who was terribly mistreated by Lloyds Banking Group, he refused to answer the question because I was not a relevant person, under the relevant legislation. That is quite astounding, when it was Parliament that legislated to introduce the whistleblowing protections in the first place.

There are things that we need to do quickly that would address many of the problems, but we have done much. We have improved the guidance on what a prescribed person needs to do. We have a requirement on people to make public annual reports on what they have done in terms of whistleblowers, but I am keen to hold regulators’ feet to the fire in this area. I ask the right hon. Member for Barking not to pre-empt the review that I am urgently undertaking, because she knows how serious I am. I would like to bring forward effective reform very quickly, and to effect change more quickly. I fear that the new clause would delay the reform, when we can make progress by other means.

Margaret Hodge (Labour, Barking)

I hear what the Minister says. I simply say to him that finding legislative time will be a battle, so I hope that he has some mechanism to get the reform through.

Kevin Hollinrake (Conservative, Thirsk and Malton)

There are things that we can do without primary legislation that could move much more quickly.

Margaret Hodge (Labour, Barking)

I hear that. This matter will be debated by others on Report. I beg to ask leave to withdraw the motion.

New Clause 79 - Identification doctrine

Margaret Hodge (Labour, Barking)

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

This goes with the failure to prevent, so I will not speak to the new clause. It literally just sorts out the legalese to ensure that we can get at companies and their directors.

Margaret Hodge (Labour, Barking)

Yes, because I want it on the record. I am just conscious that Members want to get on, and that the argument is the same.

Stephen Kinnock (Labour, Aberavon)

We fully welcome the new clause, which we think is very important to ensure that all perpetrators of economic crime are caught and dealt with.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I merely point out that, while the new clause addresses many of the points that the right hon. Member for Barking has raised before, it also raises many of the same challenges. For that reason, I will object to it.

Margaret Hodge (Labour, Barking)

I will not at this point press the new clause to a vote, so I beg to ask leave to withdraw the motion.

New Clause 80 - Forfeiture of recoverable property obtained through economic crime

Margaret Hodge (Labour, Barking)

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

Margaret Hodge (Labour, Barking)

I will speak to this very quickly, too. This is an interesting new clause, because its purpose is to tackle the issue of suspicious wealth remaining frozen in bank accounts and serving no useful purpose. We propose a new, more straightforward, pragmatic solution to deal with suspicious wealth, enabling our enforcement agencies to confiscate the moneys in the bank and repurpose them so that much of the wealth can be used to fund and strengthen our anti-money laundering enforcement capacity and perhaps be given back, in some cases, to the nations from which it has been stolen.

When a banker sees a suspicious transaction, he or she is required to ask for consent from the police to allow the transaction to go ahead. If the police officer refuses consent, the moneys can be frozen in the bank account. Under our new clause, the money would then remain frozen for six months, and the director of the Serious Fraud Office could apply to the courts to confiscate or seize the moneys. They will be granted that application unless the respondent proves to the court that the funds do not have a criminal origin. The onus is on the respondent to prove that he or she has obtained the assets legitimately. The SFO does not have to prove that the respondent committed a criminal activity; it is up to the respondent to prove that the funds are legitimately and honestly acquired and are not linked to acts of criminality. The new clause is modelled on unexplained wealth orders.

This would add an important new weapon to our arsenal in the fight against economic crime, as it provides for the non-conviction-based confiscation of frozen assets. Although they are not my favourite people, the people of Jersey have introduced a very similar law and recently managed to secure £1.7 million that was frozen in accounts there. That was money paid to Lieutenant General Jeremiah Useni, who had held office in the Abacha regime in Nigeria, and the allegation was that it was the proceeds of corruption. Although he tried to get his money back, he could not, and a lot of the £1.7 million went back to Nigeria.

The British Bankers’ Association thinks that we have up to £50 million held in frozen accounts, untouched. We need a little touch of boldness from the Minister. He should not just accept the message of “resist” that he gets from his officials. He should give good consideration to this sensible, practical, good idea of seizing money stolen by bad people and giving it back to the citizens who have been robbed, or repurposing it to strengthen the fight against economic crime.

Stephen Kinnock (Labour, Aberavon)

We welcome these new clauses, which would give effect to the Government’s stated intention to unlock the proceeds of crime held in bank accounts to fund law enforcement efforts to tackle economic crime. Their adoption would also optimise the potential of the defence against money laundering regime and streamline the process of UK law enforcement identifying tainted wealth and being able to seek its forfeiture.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I thank the right hon. Member for Barking. While I agree with the intent behind her new clauses, I argue that they narrow slightly the scope in which the state can already recover much of the proceeds of crime. While they attempt to simplify, the reality is that we are already recovering large sums. I am not saying that we could not do more—we certainly could—but I am not convinced that the new clauses would add significantly to existing legislation. Last year, for example, a record £115 million of proceeds of crime were recovered under existing powers.

Margaret Hodge (Labour, Barking)

That is not a brilliant argument, but I will pursue this issue on Report, as we are doing with other issues around seizing and freezing assets. I beg to ask leave to withdraw the motion.

New Clause 84 - Compensation for Victims of Economic Crime

Stephen Kinnock (Labour, Aberavon)

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

As this is the last time I will be on my feet, I thank the Committee; it has been an excellent set of debates, and I look forward to further constructive engagement with the Government on these matters.

The context of new clause 84 is the devastation caused by Putin’s barbaric and illegal war for the lives and livelihoods of Ukraine’s population. This demands a concerted cross-party and international effort, of which the UK should be at the forefront, as the staggering costs of reconstruction are sure to remain a key challenge long after the war itself has reached its inevitable end.

The new clause would require the Government to prepare and publish a wide-ranging strategy for efforts to ensure that the necessary financial compensation is made available to victims of economic crime, wherever they may be. This could and should be applied to victims of international crimes, of which the war in Ukraine is without doubt an example, but it could be applied more broadly as a means of providing a measure of justice to the victims of any other kleptocratic regimes around the world. The new clause would provide a mechanism for compensating victims of economic crime in the UK, including the thousands, or perhaps even millions, of British victims of online scams and other kinds of fraud. We therefore commend the new clause to the Committee, and I look forward to the Minister’s response.

Alison Thewliss (Scottish National Party, Glasgow Central)

If this is indeed the last opportunity I have to speak in the Committee, I thank the Ministers. I hope they have been listening closely to what we recommend and will bring back amendments on Report. I also thank my hon. Friend the Member for Paisley and Renfrewshire North for being so patient and helpful in supporting me throughout the passage of the Bill.

The new clause gets to the heart of the matter. Victims of economic crime often receive very little compensation but suffer greatly from the impact of the crime. It can be devastating for people, both financially and personally, and they are deeply affected by it for the rest of their lives, so anything that will go towards helping to compensate those victims seems like a sensible prospect.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

As this is probably the last time I will speak in the Committee, I thank you, Mr Robertson. I also thank the right hon. Member for Barking for her input into the Bill not just today, but over many years and as Chair of the Public Accounts Committee. The way in which she has championed tackling economic crime, drawn the House’s attention to it, and focused the country on the real threats that we have faced has been impressive to us all, and I am personally enormously grateful to her. She certainly helped my work enormously when I chaired the Foreign Affairs Committee, and she has now helped to focus my work as a Minister. I am very grateful that I have had the privilege of working with her.

Margaret Hodge (Labour, Barking)

I forgot to thank you, Mr Robertson, for chairing the Committee and for showing such an interest in what we are doing. I also thank the Ministers and Members of all parties who have spoken and participated. I look forward to working further to get even more into the Bill.

Thomas Tugendhat (Conservative, Tonbridge and Malling)

If anybody thinks that I was trying to soft-soap the right hon. Lady in order to shut her up in future sittings, they do not know her very well. It would have not worked, and I have not tried it. All I have done is to pay credit to somebody who has definitely earned it. I also thank my fellow Minister and the Whips, who have got us through at lightning speed.

On the new clause, the powers in part 4 already increase the focus on victims. The compensation principles of the Serious Fraud Office, CPS, the National Crime Agency and others have committed law enforcement bodies to ensuring that compensation for economic crime is considered in every relevant case, including where there are overseas victims, so I believe that the Bill already focuses on many of the aspects that we have discussed. That said, we are coming to Report. As always, I will be listening, but I have yet to be convinced about the new clause, because I believe that it has largely been covered.

Stephen Kinnock (Labour, Aberavon)

Has the Minister any thoughts on the international forums that have been set up—for example, the Russian Elites, Proxies, and Oligarchs Taskforce and the European Commission’s Freeze and Seize Taskforce. What contribution are the UK Government planning to make to those processes?

Thomas Tugendhat (Conservative, Tonbridge and Malling)

I can speak directly to that, because I have recently had a meeting about it with other Governments and other jurisdictions. So far, many people have come up with ways to freeze assets. That is not a particular challenge; the UK does so very actively. Seizing and forfeiting in totality is a different challenge, because it depends on ownership and on many aspects of common law jurisdiction that we would not want to understate. I assure the hon. Gentleman honestly that I have not given up on this, because compensation for the victims in Ukraine is the very least that we should expect, as he correctly identified. Ukraine’s inevitable victory, which is absolutely assured, leads us to start thinking about how we reconstruct that extraordinary country. It is clear that Russian state assets held abroad—some, sadly, are held in the UK—should go some way to contributing to that.

That said, how do we construct the legal arguments to ensure that that is possible? They need to be in keeping with British common law, for obvious reasons. We do not want a jurisdiction of forfeiture; we want a jurisdiction of law. There is more work to be done, therefore. We are working very closely with other common law jurisdictions, such as Australia, Canada and, indeed, the United States. There is an ongoing discussion, but it is not quite as straightforward as I would have hoped.

Stephen Kinnock (Labour, Aberavon)

I have no further comments, and I beg to ask leave to withdraw the motion.

New Schedule 1 - Cryptoassets: terrorism

‘Part 4BA

Part 4BB

Part 4BC

Part 4BD

Written evidence reported to the House