PARLIAMENTARY DEBATE
Economic Crime and Corporate Transparency Bill (Seventeenth sitting) - 24 November 2022 (Commons/Public Bill Committees)

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.

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.

I will speak to new clauses 26 and 28 first, because I think there may be a duplication of things that exist already. Much of the information suggested by new clause 26, such as Companies House expenditure and the numbers of companies incorporated and struck off, is already published in the Companies House annual report. Companies House already reports publicly on its activities and its regular statistical releases on gov.uk. On new clause 28, through dissolution a company is brought to a point at which it ceases to exist and ceases to appear on the register. A company can seek its own voluntary strike-off, or it can be struck of compulsorily by the registrar. In principle, that process takes place when there is reason to believe that the company is no longer in operation or carrying on business. In both cases, statutory processes ensue whereby the public generally are informed that the dissolution is in train by publications in the Gazette. There are opportunities for third parties to intervene and object to a company being dissolved.

Concerns have been expressed that unscrupulous companies choose to give the impression that they are defunct in order to precipitate their dissolution and evade creditors. That concern is ultimately misplaced, as any assets left in a company following its dissolution will not be held by the company any more, and will be passed to the Crown, bona vacantia—as ownerless property. It is also important to note the effects of the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which amended the Company Directors Disqualification Act 1986 by introducing a mechanism for disqualifying directors of dissolved companies.

It is also worth noting that the 1986 Act includes provision not only for disqualifying directors but for ordering disqualified directors to pay compensation. That provision is in section 15A of the Act and, as amended by the 2021 Act, covers directors of both insolvent companies and dissolved companies. If a director is disqualified and the conduct for which they were disqualified caused loss to the creditors of an insolvent or dissolved company, the director can be ordered to pay compensation either for the benefit of specified creditors or by way of a contribution to the assets of the company.

The Bill introduces a new circumstance under which the registrar might seek to strike off a company that persistently fails to provide an appropriate registered office address. I assure Members that the registrar will initiate dissolution in those particular circumstances only after having assessed the risks of doing so. The normal notification procedures, by way of the Gazette and Companies House webpages, will apply.

As noted, Companies House already makes data on company dissolutions regularly available. I question what benefit the reporting proposed by the new clause would add, as it is not clear to me that the information it covers would necessarily be available to the Secretary of State. However, I acknowledge the concern about the manner in which compulsory strike-off operates. I have asked my officials to advise me on the extent to which the Bill’s new information-sharing provisions might improve safeguards and transparency in this area. I am of course happy to engage further with Members on this topic in due course.

Most of the comments related to new clause 63. I absolutely agree that there needs to be a mechanism by which progress made on the implementation of the provisions in the Bill is reported to Parliament. There should be regular reporting on the registrar’s use of the new powers. I also accept that it is important to give Parliament an early opportunity to scrutinise how quickly Companies House implements the reforms.

I believe, however, that the new clause requires further consideration. As drafted, it has the potential to place unintended obligations on the registrar. For example, it will require the registrar to report on the imposition of financial penalties before the commencement date of the regulations. It also requires the registrar to indefinitely report on the implementation of the legislation, even if it is completed in the near future.

With the agreement of the Committee, I would like to ask my officials to consider the new clause further. I hope Members are reassured that we will give it consideration. If the new clause is withdrawn, we will have further discussions about what we might put in its place.

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.

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.

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.

It visited my business!

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.

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.

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?

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.