After Clause 180 - Failure to prevent fraud

Economic Crime and Corporate Transparency Bill – in the House of Commons at 12:52 pm on 25 October 2023.

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Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade) 12:52, 25 October 2023

I beg to move,

That this House
insists on its amendment 151A and disagrees with the Lords in their amendments 151E and 151F.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

I am pleased to bring this important Bill back to the House this afternoon, for what I sincerely hope is the last time, given that this will be the third time we have debated and voted on similar issues. I urge Opposition Front-Bench Members and those in the other place not to risk the safe passage of this hugely significant, near-400 page Bill by continuing to press these amendments.

The Government have appreciated the input of right hon. and hon. Members from both sides of the House—including the right hon. Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), my right hon. and learned Friend Sir Robert Buckland and my hon. Friend Sir Robert Neill—to help change the Bill for the better. We are discussing failure to prevent, together with the identification of doctoring. The Government are taking world-leading measures—I think this is the first time that a major economy such as ours has implemented them—which we should be proud we are implementing through the Bill. Of course, if the elected Chamber expresses its strong will on these remaining issues for the third time, I very much hope that the other place will agree that now is the time for it to accept that position. I think we would all rather have what we have done than see all this good work being in vain by letting the legislation fall.

Let me discuss the two issues in turn. I will keep my remarks brief as the arguments remain the same as on the preceding two times we have discussed them. I will first address Lords amendments 151E and 151F on the “failure to prevent” threshold. I will also address amendment (a), tabled last night by the right hon. Member for Barking, on a Government review of the threshold. While my noble Friend Lord Garnier’s amendment has moved closer yet again to the Government’s position by exempting micro-entities and small organisations from the offence, I am afraid that the Government will not support the lowering of the threshold at this time. Let me repeat the reasons why. It is already an offence to perpetrate fraud. The objective of the new offence is to ensure that there is accountability where fraud occurs in large organisations. There is simply no need to apply any such offence to smaller organisations.

Every time such an offence is introduced, business owners end up distracted from running their businesses by taking time to reassess their compliance risks, which often involves taking professional advice. We assess that the revised threshold proposed by Lord Garnier would cost medium-sized enterprises £300 million in one-off costs and nearly £40 million in annual recurring costs. We should be making it easier for businesses to operate in the UK and only imposing additional regulatory burdens when absolutely necessary. The Government completely reject the notion of using such an offence simply to raise awareness among business owners of the seriousness of the problem of fraud. There would be other, more proportionate ways to do that if necessary.

In response to the amendment tabled by the right hon. Member for Barking, the Government have already future-proofed the Bill by including a delegated power to allow the Government to raise, lower or remove the threshold altogether. Of course, as with all legislation, the Government will keep the threshold under review. I make a personal commitment to do that and to make changes if evidence suggests that they are required. I do not think that a Government review is necessary for that to take place, so I ask the right hon. Member not to move her amendment. We must bear in mind that a review does not guarantee change anyway. What guarantees change is having the right people at the Dispatch Box making changes, whether those are people from her party or my party, and both parties are equally exercised by these concerns. I urge all right hon. and hon. Members to support the Government motion to disagree with the Lords amendments to ensure that we take a proportionate approach and do not impose unnecessary measures on legitimate businesses that would curb our economic growth.

I turn to Lords amendment 161D, tabled by Lord Faulks, on cost protection in civil recovery cases. The Government remain of the view that such an amendment would be a significant departure from a fundamental principle of justice—that the loser pays—and therefore not something that should be rushed into without careful consideration. Furthermore, as I set out when we last debated this issue, we have seen no clear evidence that the amendment would increase the number of cases taken on by law enforcement. However, that is not to say that such an amendment is necessarily a bad idea. That is why we previously added to the Bill a statutory commitment to review the payment of costs in civil recovery cases in England and Wales by enforcement authorities, to publish a report on the findings and to lay that before Parliament within 12 months.

With regard to civil costs reform in England and Wales, the Government would normally look to consult appropriate consultees, including the senior judiciary, the Law Society and the Bar Council. Enacting the reform now without a full review would not allow judges and relevant organisations, or indeed their counterparts in Northern Ireland and Scotland, to comment on how it would be read and applied in practice. We therefore feel it would be irresponsible for us to rush into making such a significant change at the end of a Bill’s passage without full consideration by Government and further scrutiny by Parliament. I very much hope that all right hon. and hon. Members will agree that that is the responsible approach to take and therefore support the Government’s position.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

The Minister said clearly that there has been consultation with Scotland and Northern Ireland. Will he indicate who those discussions have taken place with? Was it banks, or the Departments looking after matters in the absence of a functioning Northern Ireland Assembly? I am keen to know who does the work to ensure that there is accountability for everyone.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

That is a good point. There are clearly different legal jurisdictions in Northern Ireland and Scotland, with of course the Court of Session in Scotland. From a legal perspective, the counsel in those jurisdictions are the people who discuss this. In wider issues such as failure to prevent, banks and many other stakeholders have people who will consult during the process. I am happy to keep up the conversation with the hon. Gentleman.

Photo of Jim Shannon Jim Shannon Shadow DUP Spokesperson (Human Rights), Shadow DUP Spokesperson (Health)

The reason I asked the question is quite specific, although it might not necessarily relate to the issue directly. The Minister refers to banks. A number of local organisations and community groups back home, which are registered and constituted as community institutions, have had their bank accounts closed. Banks have closed their accounts down because they say they are non-profitable. Is it right that banks should be able to do that? I know the Minister understands the matter—

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

The hon. Gentleman raises a very important issue relating to the concerns about de-banking that we have across the economy. The Economic Secretary to the Treasury, my hon. Friend Andrew Griffith is looking at it, as is the Treasury. In future, it is our intention to ensure that when banks close accounts they give a valid reason why, rather than closing them summarily. He is absolutely right to raise the point and I am very happy to engage with him on it, because it affects businesses as well as community groups.

To conclude, I encourage everyone to agree with the Government’s position on these two areas. It is vital that we achieve Royal Assent without delay, so we can proceed to implement the important reforms in the Bill as quickly as possible.

Photo of Rushanara Ali Rushanara Ali Shadow Minister (Investment and Small Business)

It is an honour to speak on the Bill again. I was hoping that we could conclude the proceedings on the Bill as soon as possible and it is disappointing that the Government are yet to make further compromises. The Bill is welcome in principle, but it should not have taken the war on Ukraine to prompt the Government into action. I am grateful to my right hon. Friends the Members for Barking (Dame Margaret Hodge) and for Birmingham, Hodge Hill (Liam Byrne), and to Members across the House for working together to improve the Bill.

Economic crime poses a threat to our country’s national security, our institutions, our economy, and causes serious harm to our citizens and wider society. Conservative estimates place the cost of economic crime at £290 million a year, according to the National Crime Agency, and the failure to stop criminals benefiting from the proceeds of their crime can fund further criminality. That can include offences such as funding organised crime groups, terrorist activity, drug dealing and people trafficking—this is a very serious issue.

Economic crime, as the Minister knows, has many victims. For too long, the Government have turned a blind eye to corrupt and dirty money, allowing Russian illicit finance to flood into Britain. That lets Putin’s cronies stash ill-gotten gains and even recycle the proceeds of crime into luxury properties. That is well documented and has been highlighted by many Members across the House, as well as in Select Committees. According to analysis by Transparency International, properties to the tune of £6.7 billion have been bought through suspicious wealth. Of those, almost a quarter in value were

“bought by Russians accused of corruption or links to the Kremlin.”

Most are held via secretive offshore companies. That drives up property prices for ordinary people in our country. More than two-thirds of English and Welsh properties held by foreign shell companies do not report their true owners. Research by the London School of Economics and Warwick University shows that the Register of Overseas Entities is not fully effective. For 71% of such properties, essential information about their beneficial owners remains missing or publicly inaccessible, despite the register. That means we still cannot know whether sanctioned individuals, money launderers or other corrupt individuals are benefiting from those properties.

We must not sustain economic growth off the back of dirty money. The Government have already delayed the Bill and these actions for too long. In that time, money has been lost, economic crime has become ingrained and the UK economy has once again lost out. Given that the nature and necessity of the Bill has already been discussed at length, I will focus on addressing the two amendments.

During the passage of the Bill, helpful alterations have been made to ensure that it is robust. The Lords amendments before us today seek to address two omissions. We are very disappointed that the Government are not willing to compromise and not willing to heed the wise and expert input of the Lords. That is deeply disappointing, because a great deal could be achieved if the Minister and his Government took note, including from hon. and learned Members on their own side.

Photo of Rushanara Ali Rushanara Ali Shadow Minister (Investment and Small Business)

If the Minister is brief, rather than talking the Bill out like he did last time, I will give way.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

I will be very brief. On the question of compromise, the hon. Lady will have noticed that there was no “failure to prevent” offence when the legislation was first tabled, nor was there an identification doctrine. There has been significant compromise on the Government side. Our preference, clearly, is to move forward in that spirit of compromise. We have achieved a great deal with the Bill, which has moved from under 300 pages to 400 pages. I do not think it is right to say that the Government have not compromised.

Photo of Rushanara Ali Rushanara Ali Shadow Minister (Investment and Small Business)

When the Minister was a Back Bencher, he was a powerful advocate on the very issues we are discussing today. It is a shame he has been muzzled, but I appreciate that he is in a difficult position. I hope we can have some comprise, but clearly he has not managed to persuade senior members of his Government. I ask the Government to once again carefully consider these amendments, so that we can best tackle the problem of fraud and economic crime.

The Minister highlighted all the problems with the amendments, but I want to talk about their strengths. The noble Lord Garnier’s amendment on “failure to prevent” fraud, which exempts small and micro-enterprises, highlights that the criminal law should be uniform and apply to all in a similar way. This is not just a small insignificant amendment, but a change that would significantly alter law enforcement. For context, fraud is the most common crime in the UK, accounting for 41% of all crimes. Introducing a “failure to prevent” offence would help to deter companies from engaging in or facilitating fraud. To fully change corporate behaviour, we must ensure that the offence applies to all companies, regardless of size.

As has been stated on many occasions, since the “failure to prevent” bribery covers all companies, there is no reason why this measure should not also cover businesses of all sizes. It simply creates more discrepancies and confusion for businesses. The size of a business should not determine who is exempt. The Government have touted this exemption as a protection for small businesses against unnecessary red tape, but in reality this carve out deprives small and medium-size enterprises of the defence of having put in place reasonable anti-fraud procedures. Smaller companies will instead be covered only by the fraud offence itself, when large companies would be caught by the lighter “failure to prevent” fraud offence. The introduction of a new “failure to prevent” offence should apply to all, and the corresponding defence of putting in place reasonable defence procedures should be available to all. In effect, through this carve out, the Government are creating an uneven playing field that is biased against smaller companies. The Bill currently leaves large gaps for economic crime to not only persist but flourish, which I know is not the intention of the Minister. The amendment would have gone a long way to addressing those issues. I ask him once again to carefully consider the amendment, rather than reject it.

I want to turn to the amendment from the noble Lord Faulks, on cost protections in civil recovery cases. The amendment gives more discretion to court judges to alter the allocation of legal costs to ensure that extortionate legal fees are not a hindrance to justice. The spirit of the amendment is that it will help to prevent criminals benefiting from the proceeds of crimes, here or around the world. When it comes to cases where enforcement agencies are trying to prosecute high-level, large-scale economic crime, cost orders remain a serious barrier. I know that first-hand from evidence we received when I served on the Treasury Committee, where we conducted two inquiries on these issues. Our enforcement agencies need strong backing if they are to take on fraud, money laundering and other types of economic crime on the largest scale. Right now, the Government should be on the side of our agencies, rather than tying their hands behind their backs. The amendment would ensure that criminals, cronies and kleptocrats are not given cover by leaving the back door open for them to spend their way out of justice. That cannot be right. It would ensure that the size of their bank accounts and assets does not give them a guaranteed get out of jail free card just because they can afford to meet any expenses required to support their case. The Minister knows that this is a problem; he has heard evidence of it. He knows that it is a serious issue that needs to be addressed.

It has been disappointing to observe the Government’s lack of willingness to protect our law enforcement. It seems reasonable that a court could have discretion on how to allocate costs, especially when we know of previous cases, one of which resulted in a family’s seeking costs amounting to a staggering £1.5 million. That represents 40% of the National Crime Agency’s annual budget between 2015 and 2018.

The Bill is almost over the line, and I acknowledge that there have been some improvements, but we could do a great deal more. We have welcomed the Bill and we welcome the Lords amendments, so we are disappointed that the Government continue to fail to support them. We would be in a much better place if there were a compromise. The “failure to prevent” offence is a case in point. For years we have been calling for a replication of the successes of the Bribery Act 2010. Sadly, our capital city has been nicknamed “Londongrad”, and is now considered to be a capital where money laundering and fraud are rife. That means that we must do more to tackle these issues, but the Bill provides only part of the solution. The present circumstances require much more radical action than the timidity that we have witnessed both today and in the last Session.

It is saddening that the Government have missed such an important opportunity. We will continue to hold their feet to the fire, but given the lack of compromise, it will be for the next Government—the next Labour Government, I hope—to pick up the pieces and toughen up our response in order to end the corrosive impact of dirty money in our country.

Several hon. Members:

rose—

Photo of Eleanor Laing Eleanor Laing Deputy Speaker and Chairman of Ways and Means, Chair, Standing Orders Committee (Commons), Chair, Standing Orders Committee (Commons), Chair, Parliamentary Works Estimates Commission, Chair, Parliamentary Works Estimates Commission

Order. Before I call the next speaker, let me point out—it may not be obvious—that we only have until 1.51 pm to complete this business. I therefore appeal for brevity. I am not going to impose a time limit, because given that everyone present is a distinguished and experienced Member, we should not need one.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

On a point of order, Madam Deputy Speaker. I just want to be clear about this. I assume that we can speak until 1.51 pm, and vote after that. Is that correct?

Photo of Bob Neill Bob Neill Chair, Justice Committee, Chair, Justice Committee

There has been a great deal of improvement in the Bill, and much of its content is welcome. I recognise that, and I also recognise what the Minister has said, but I am sorry to say that the dead hand of the Treasury has yet again got in the way of our getting the Bill into the best possible state. Let us be blunt about it. The Government, regrettably, have not moved, which is why I support the amendment tabled by Dame Margaret Hodge and my right hon. and learned Friend Sir Robert Buckland, which I have signed and which, I think, offers a sensible compromise. If it takes longer for the Treasury and other parts of the Government to be persuaded, well and good: let us have a proper review after 12 months. However, a serious issue has arisen, and I want to make two brief points about it.

Let me deal first with the point made in the other place by Lord Garnier about the inherent contradictions in a test of criminality based on the size of an organisation. I can see that there is a proportionality point to be made about very small enterprises, but there is good evidence—and anyone who practises in the field will know—that fraud and other illicit activity are often channelled through smaller companies, and the people in those companies are precisely the people over whom we do need to have a degree of control. Law enforcement is not, with respect, needless bureaucracy; it is fundamental to good business, and I think that that point is regrettably being missed.

Photo of Liam Byrne Liam Byrne Chair, Business and Trade Committee, Chair, Business and Trade Committee, Chair, Business and Trade Sub-Committee on National Security and Investment, Chair, Business and Trade Sub-Committee on National Security and Investment

It was a point underlined when we heard public evidence on the Bill. People explained to us how a number of different smaller companies might well be set up to become conduits for fraud.

Photo of Bob Neill Bob Neill Chair, Justice Committee, Chair, Justice Committee

That is a compelling point, and it accords with the evidence that the Justice Committee was given in relation to our inquiry into fraud in the justice system. The irony is that the Government’s current stance may well create a perverse incentive. That is certainly not what the Minister wants, and it is not what anyone in the House ought to want.

The point about cost caps is important as well, but I am particularly exercised about the “failure to prevent” offence. Everyone has argued for that, and we are nearly there. I hoped that the Government, being reasonable, would say, “Let us have a look at it; let us have a commitment in the Bill.” I accept that the Minister is an entirely honourable man, and I accept what he says, but I know from personal experience that Ministers do not stay forever. At the end of the day, we want an assurance that this provision will be written into the statute and there will be a review, because it is so important. I beg the Minister to reflect on that. Otherwise, those of us who want to be able to support the Government today will find ourselves in a position where we cannot do so, although there is so little between us. The ability to move just that little bit further would send a much better signal. As it is, the Lords passed these amendments last time with larger majorities than before, and they will be entitled to take note of that in the event that the Bill goes back to them again. I therefore hope that, even at the last minute, the Government will reflect.

Photo of Alison Thewliss Alison Thewliss Shadow SNP Spokesperson (Home Affairs) 1:15, 25 October 2023

I knew that when you referred to us all as distinguished and experienced Members you did not mean me, Madam Deputy Speaker.

This is the third time we have been back here, and I think it incumbent on the Government to listen to the Lords. They have made it clear that they feel strongly about their very reasonable amendments, which shows how important they are and how we should be getting this right. There is no question that, as the Minister suggested, we are going to let the Bill fall today. I think that if he were worried about that he would accept the Lords amendments this afternoon, rather than allowing the process to go on and on. We did not need to be here at the last minute; he could have accepted many of the amendments at a much earlier stage, because fundamentally he agrees with them. We know that, because he said it on many occasions before he took ministerial office. I think that a great deal can be done if the Minister will make that compromise this afternoon.

The notion that 99.5% of businesses can be exempted from the “failure to prevent” offence is absolutely mad. Small businesses are both part of and victims of economic crime. Some figures from UK Finance arrived in our inboxes earlier today. According to its findings, criminals stole £580 million through unauthorised and authorised fraud in just the first half of 2023. UK Finance says that that is a 2% decrease, but it is still a significant amount of money. Businesses as well as individuals are losing out, and the Government should be paying more attention to that.

The Minister described “failure to prevent” as a distraction for business. I wonder if he also thinks, for consistency’s sake, that the “failure to prevent bribery” offence in the Bribery Act 2010 and the “failure to prevent tax evasion” offence in the Criminal Finances Act 2017 are distractions for business. If he thinks that “failure to prevent” economic crime is a distraction for business, he must surely think that those other offences are also an unnecessary bit of bureaucracy that businesses have to carry out. It does not make any sense.

I fully support the level playing field for cost protections. We must give our enforcement agencies both the tools and money to do their job. No enforcement agency should be thinking, “We cannot afford to take on this case. We cannot afford to prosecute these economic criminals.” The Government should be supporting law enforcement, allowing this Lords amendment to go through, and ensuring that we make the best possible legislation. There is no excuse for the Government not to do these things. The Government agree with them, and we in the House agree with them on a cross-party basis. The Government should get on with it, and not return the Bill to the Lords.

Photo of Robert Buckland Robert Buckland Conservative, South Swindon

I will certainly remember your exhortation to brevity, Madam Deputy Speaker. As you know, that is something of a challenge for me at the best of times.

Photo of Robert Buckland Robert Buckland Conservative, South Swindon

I think my right hon. Friend may suffer from the same affliction, dare I say; but I will draw a veil of charity over that.

My hon. Friend—and my friend—the Minister has campaigned assiduously with us in the trenches on this issue for many years. I yield to none in my admiration for him, and I want to put on record how grateful I am that he is in this place, in that spot, doing the job that he is doing. We have come a long way. I well remember being on the Parliamentary Business and Legislation Committee giving authorisation for this Bill in the first place, and knowing then that it would require heavy amendment during its course.

It was inevitable that, in the light of the appalling incidents in Ukraine and the changed world situation, the Bill would develop and mature, and mature it has. The identification principle changes are truly radical and reflect a view long held by the Law Commission and others that we needed to update the Tesco v. Nattrass principle, which is now 50 years old. I salute the Minister and colleagues in the Lords for making sure that that has happened, but I must press him again about the basis upon which the Government make assertions, very much at the last minute, about the regulatory or administrative cost burdens on small and medium-sized businesses. I do not think that they are going to be as dramatically high as they assert. We have not had proper time to test the estimates, and I do not think that they stand up to scrutiny. They do not reflect the Government’s position on previous “failure to prevent” offences—namely, for tax evasion and bribery—and this begs a huge range of questions.

There is no doubt that my colleagues in the legal profession—I refer the House to my entry in the Register of Members’ Financial Interests on every occasion, and I do so now—will feast upon these threshold definitions. Worse than that, unscrupulous operators in the field will exploit these threshold definitions and find clever ways around the law. We know what that means. We will see shell companies and people of straw. We will see the same behaviour that we are rightly trying to eradicate because we want this country to be one of the best places in the world to invest.

This is chiefly an economic argument. Yes, there is a morality to it, but chiefly it is an economic argument. That is why, at the last minute as we come up to Prorogation, I remind my hon. Friend the Minister of the increased majorities in the other place for these amendments and in particular of the attempt we have made to compromise with the Government. At the last minute, I imposed myself upon the goodwill of the Clerks in order to get a further amendment in before the time limit. It was a manuscript amendment to increase the period of one year mentioned in the amendment to 18 months. It has not been selected for debate, but the important political point that we wish to make is that we are seeking at the last minute to come up with reasonable compromises.

I will give the Minister another idea. Bills normally come in with Royal Assent, which we imagine will happen either today or tomorrow with the Prorogation ceremony. Two months is the normal period for Bills to then come into force but he has the power to lay commencement orders to ensure that certain parts of this Bill do not come into force until a statutory instrument has been laid. He has that power, so why not use it in this case and accept the amendment tabled in the name of my right hon. Friend Dame Margaret Hodge? He can see that we are commanding all the ingenuity that we have to come up with reasonable compromises that will allow the Bill to pass in the best possible order. I make a last-minute plea to him to accept these exhortations and not to oppose the amendment in the name of my hon. Friend Sir Robert Neill and me. I can say no more to my hon. Friend the Minister, other than to thank him and ask him to go that extra yard.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

This is another leg in a long journey. I want to focus on the amendment that stands in my name, which is supported by Sir Robert Buckland and Sir Robert Neill.

May I place on the record my thanks to everybody across the House, some of whom are here today, for the way in which we have managed to work together as Members of Parliament and put our political affiliations behind us in trying to find a common-sense, pragmatic way to tackle a horrific problem and to improve the Bill that was laid before us almost a year ago? I also pay special tribute to Members of the House of Lords, who have again worked incredibly hard to improve the Bill in a practical way. In particular, I thank Lord Garnier, Lord Agnew, Lord Vaux and Lord Edward Faulks, all of whom have moved important amendments that have been supported by Members across the House, many of whom are members of the all-party parliamentary group on anti-corruption and responsible tax.

I draw to Members’ attention what happened to the amendment to the “failure to prevent” measures. When it was first considered by the House of Lords it was passed by a majority of three. When it was considered a second time, it was passed by a majority of 26. When it was considered a third time, last week, it was passed by a majority of 41. So the strength of feeling in the other place about the importance of the propositions in the Bill simply grew over time, as the argument was heard by more and more members of the House of Lords, and I bet that if it goes back again, it will get through again with an even greater majority. I say to the Minister that people are voting for this and it is not just a partisan issue; Cross-Benchers and members of the Conservative party are either voting or choosing to abstain. That is why we are securing those majorities in the House of Lords.

Our amendment is moved in the spirit of compromise. All we are saying in that amendment is that we would require the Secretary of State to carry out a review a year after Royal Assent, with a report to Parliament within 18 months of Royal Assent, where it would assess the impact of excluding so many businesses from having duties to prevent fraud. It would also look at the impact of that on the incidence of fraud and assess the potential merits of bringing more companies into scope.

I want to take Members back to when the Government promised to introduce a “failure to prevent” offence on the basis of new clauses introduced by the right hon. and learned Member for South Swindon and the hon. Member for Bromley and Chislehurst when we considered the Bill on Report. They were detailed new clauses to which we had given great thought. The Government agreed at that point to adopt our proposals on the basis that we would not seek to divide the House on the issue. We kept our side of the bargain but, sadly, the Government have failed to deliver on their commitment. So Lord Garnier tried valiantly three times to hold the Government to their word, and every time he put it to a vote he got a greater majority in favour of what he was proposing.

This measure was first championed when the Minister was a Back Bencher, as he is well aware. He was the individual on our all-party parliamentary group who argued the case for it with the greatest passion and commitment, so it is especially sad that the effectiveness of the new offence has been so undermined and weakened by the changes he has chosen to make or been forced to make by colleagues in his own Department or in the Treasury. He often argues that we were the first country to introduce a “failure to prevent” offence. I agree with that, but I would simply say to him we are also the jurisdiction of choice for dirty money, so surely we have a duty, more than any other jurisdiction, to lead on reforms and to clamp down on this evil matter.

The Government’s changes have substantially weakened the power of the new offence, and the Minister has to accept that. He has taken out the failure to prevent money laundering, and the offence now covers only fraud. He has excluded all medium-sized, small and micro-businesses. That means that his carveout has excluded 99.9% of all businesses. It has excluded two thirds of all the people employed in private enterprise. It has excluded half the turnover that flows through private enterprise. I say to the Minister that this is a missed opportunity by his Government that represents a failure to act firmly and decisively against the scourge of dirty money.

The Government’s own report, “National SME Fraud Segmentation”, found that medium-sized companies employing between 50 and 250 employees were significantly more likely to experience fraud than larger companies. The Metropolitan police and UK Finance have warned that SMEs are particularly vulnerable to fraud, and the procedures to prevent companies from committing fraud are exactly the same as the procedures to prevent companies from experiencing fraud. Why on earth and on what basis have the Government chosen to excuse them? I cannot understand the logic.

Some of the most worrying actors that we know are engaged in either conniving or facilitating fraud are now out of scope. If we look just at law firms, we see that only 100 of the 10,400 law firms in Britain today are now likely to be in scope. Just yesterday I had a meeting with Lloyds bank, which described to me a terrible scam relating to house purchases whereby the purchaser has an endless round of emails with the solicitor about all the details of the purchase of a property, but then an email appears changing the bank details to which the purchaser should pay the deposit. As the solicitor does not have the systems in place to check on that, the purchaser pays into a fraudulent account and loses the deposit on the house, which is a massive amount of money. If the solicitor had had those procedures in place, that fraud might never have occurred. I repeat to the Minister that only 100 of the 10,400 law firms in Britain will now be in scope, if the Government’s will holds.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade) 1:30, 25 October 2023

The right hon. Lady is making very important points. However, the “failure to prevent” offence, as drafted, would not cover that situation, because it covers only situations where the benefit is to the corporation concerned or an officer within it. A situation in which a third party hijacked systems would not be covered, whatever the threshold.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

That is an interesting point. The simple response is that, obviously, the drafting of the “failure to prevent” offence needs further improvement to ensure that it covers that sort of instance.

There were similar arguments about the burden on SMEs when we introduced the Bribery Act 2010. In 2015, a survey of SMEs found that nine out of 10 had no concerns or problems with the Act, and 90% also said that it did not affect their ability to export. Although fears are expressed before legislation is introduced, once it is on the statute book people find that it actually helps them. Under the terms of the Bill, SMEs already have an appropriate defence, as the Minister well knows: that they should only take actions that are reasonable in all circumstances. That test of reasonableness would protect microbusinesses and SMEs from having to engage in overly bureaucratic procedures.

Although the argument is overwhelming, the Minister does not agree. We had hoped that the Government would support and accept our amendment. If they were to do so, we would not put all these amendments to the vote. This means that the next Government—a Labour Government, we all hope—will seize the opportunity that the Minister has missed and grasp the issue. Labour will become the anti-corruption champions, saving our country and our economy.

This Bill arrived in a sorry state and we have improved it—I accept that—with the identification doctrine, clauses on strategic lawsuits against public participation, the improvement of accountability with an annual report to Parliament, and the reluctant acceptance that there may be an increase in fees for Companies House. But there are still large gaps. Trusts have not been covered, as they should be, and authorised corporate services providers could end up with a future dud register. Cost caps, which other hon. Members have alluded to, are not in there, the whistleblower regime is not in place, and asset seizure still has to be tackled.

We hear whispers that there is a third economic crime Bill. I am pleased about that, but if we had achieved more with this Bill, we might not have needed another one. After all the work that all of us have done to achieve cross-party consensus, and given the values that we all share, I would hope that the Minister would be bold enough to accept our tiny little compromise and put this Bill to bed so that the proposed legislation could be passed by the time we prorogue.

Photo of Liam Byrne Liam Byrne Chair, Business and Trade Committee, Chair, Business and Trade Committee, Chair, Business and Trade Sub-Committee on National Security and Investment, Chair, Business and Trade Sub-Committee on National Security and Investment

I rise to speak in favour of the amendment tabled by my right hon. Friend Dame Margaret Hodge, which gives me an opportunity to thank her for her extraordinary leadership on this agenda. Our country is safer and stronger for the work that she has helped lead in this House over a long period.

Like other right hon. and hon. Members, I am grateful to the Minister for ensuring that, by and large, we have approached this Bill in the spirit of compromise. My right hon. Friend is absolutely right to say that, unfortunately, the Bill arrived in this place in a sorry state. Of course, the best way to examine that is to look at the fantastic manifesto of the all-party parliamentary group on anti-corruption and responsible tax, which, of course, the Minister used to co-chair. When I look at that manifesto, which we launched together in Westminster Abbey not too long ago, I see that this Bill covers a fair number of its proposals, but not all of them. That is why something of a mystery still hangs over the Chamber today, and that mystery is that we know that the Minister probably wanted to go much further in this Bill. He has been collegiate enough not to explain to us, either in public or in private, just how his hands were tied and why he has pulled his punches on so many of the policy proposals, including those that we are debating this afternoon.

I want to underline why the “failure to prevent” clauses are so important and why the responsibility for failing to prevent fraud and money laundering should apply to all companies, not just 9% of UK plc. We know, as my right hon. Friend said, that unfortunately this country is now one of the two global centres for money laundering and fraud. That is a badge of shame. There are think-tanks in places such as Washington that now write reports about what they call the UK kleptocracy problem. That is because we have left our financial services and Companies House too weak to police what is a growing problem.

To underline how fast the risk to our country is growing, I asked the House of Commons Library to look at the amount of foreign direct investment that was coming into our country. Foreign direct investment comes into Britain through companies that are set up at a moment’s notice, from UK offshore accounts, from dictatorships and from countries that are only partially free, and the reality is that that money has grown fivefold since 2010. A quarter of a trillion pounds of foreign direct investment has come into Britain from UK offshore accounts, dictatorships and countries that are only partially free. Overwhelmingly, I am sure, that money is clean and good, but we all know in this House that some of it is not. We have a responsibility in this place to make sure that our regime for policing corrupt money is as strong as it possibly can be. This Bill, although it makes progress, still leaves weaknesses in the argument.

The Minister has based his arguments more recently on whether we are creating undue, over-burdensome costs to business. Like him, I was in business previously—I was in the wrong place at the wrong time—and was elected to this place in 2004. I know what it is like to grow a business from two people around a table to a multi-million pound enterprise that employs lots people. I know about the responsibilities on company directors, but we grant special privileges to company directors in this country and we grant special privileges to companies. That regime was introduced in 1855. When Viscount Palmerston moved that legislation through the House, he said that the Limited Liability Act 1855 was important, because it would act for the common good of the country. Yet, if we have a regime that does not ensure that directors have responsibilities that match those privileges, frankly, that common good is undermined.

As my right hon. Friend said, we already have a regime in this country that bestows some important responsibilities on directors, including the failure to prevent bribery and the failure to prevent tax evasion. Therefore, there are already important regulatory requirements on directors, which we as a House have judged to be essential to keep our economy clean. Asking those directors to take one more responsibility, which is to prevent fraud, is not a significant extra burden.

Photo of Margaret Hodge Margaret Hodge Labour, Barking

Does my right hon. Friend not agree that if we are to have a successful financial services sector, we will never get it on the back of dirty money? Therefore, it is ever more important that, in relation to both fraud and money laundering, we have a “failure to prevent” offence, which is not about banging up people in prison but about changing the behaviour of companies and those who work in them?

Photo of Liam Byrne Liam Byrne Chair, Business and Trade Committee, Chair, Business and Trade Committee, Chair, Business and Trade Sub-Committee on National Security and Investment, Chair, Business and Trade Sub-Committee on National Security and Investment

My right hon. Friend is absolutely right. This is a point of cross-party consensus. I know it is a point of cross-party consensus because it was the Minister who used to use precisely the same argument to argue for some of the changes that we see in the Bill.

We all know that our country does well, because, by and large, we have a reputation for clean trade around the world. When companies file and incorporate in this country, that is a credential that does them well around the world. That is a credential that we must do everything in this House to protect, which is why the amendment is so important. We cannot leave a weakness in our armour as crime and fraud multiplies.

The Minister said that the proposal would be a cost to British business that we could not withstand or sustain, but the truth is that, while it might be a cost to some British businesses, it would also be a saving to British business, to the British economy and to British taxpayers, because it is always cheaper and more effective to prevent fraud in the first place than to have to police it or to prosecute fraud after the event. When 64% of businesses—small businesses—in this country are victims of fraud, we can only imagine how widespread that cost of fraud has now become. That average is much higher than international averages and therefore there is an additional argument that we need to go that one step further to make sure that we are doing everything in our power to prevent fraud from arising in the first place.

All we ask in this amendment is for the Minister to face the facts. He should bring the facts together, put them in a report, assess them, analyse them and present some conclusions to the House. How can we have a situation where the Minister is essentially asking for the freedom to look away? That simply cannot be the basis of good policy. I am grateful to my new colleagues on the Business and Trade Committee who agreed yesterday that we will ask representatives of Companies House to come before us for hearings. Frankly, if the Minister is not prepared to put the facts around fraud in one place, I shall ask the Select Committee to do the job for him.

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

With the leave of the House, I wish to thank Members who have contributed to the debate. We have much in common, despite the fact that some small differences still remain. As I said earlier, the Government have come a long way since the original tabling of the legislation. The number of pages have increased by more than 100, so the contents of the Bill now stand at nearly 400, which shows the importance of the legislation that we are debating.

I did not agree with the shadow Minister when she said that the Government have not been willing to compromise—that is not the case at all. The “failure to prevent” offence, particularly the identification doctrine, are key, world-leading measures. In my opening remarks, I made the commitment—and I make it again—that will we keep this matter under review, and that includes, in particular, the threshold. Even if there were a requirement for review in statute, there is no requirement on the Government to make changes following that review, so it is important to maintain the goodwill that we have experienced during the passage of the Bill.

Photo of Margaret Hodge Margaret Hodge Labour, Barking 1:45, 25 October 2023

Perhaps the Minister can tell me what he means when he says that he will keep this matter under review. What precisely does that mean?

Photo of Kevin Hollinrake Kevin Hollinrake Parliamentary Under Secretary of State (Department for Business and Trade)

The way that we have legislated here, and the reason for doing so in that way, have always been informed by information that has come from third parties—from Spotlight on Corruption, Transparency International and others—that have been interested in the Bill. The right hon. Lady and I have worked together on this issue in the past in various all-party groups. Those are the kind of bodies that will inform progress as we implement this legislation, which again I say is world leading.

The shadow Minister talked about a level playing field and said that these measures move away from that. I could not disagree more. The key thing is that we do not have a level playing field now. In small companies, it is much easier to identify who is responsible for a fraud. That is why it is more difficult in large companies, which is why we are applying this to large companies. Fraud is fraud whatever the size of the company. This legislation does not allow smaller or medium-sized companies to facilitate fraud—if they are guilty of fraud, they are guilty of fraud and it is far easier to identify the people concerned.

Let me address the comments of my hon. Friend Sir Robert Neill and thank him for all the work that he has done on this legislation and on the Justice Committee. I ask him not to doubt my motives; I have not been influenced by the Treasury at all. I am influenced by wanting to do the right thing in terms of both tackling economic crime and making sure that we do not put undue burdens on businesses. I can assure him that, for as long as I am in this role, we will keep this under review and make sure that the threshold is fit for purpose.

My hon. Friend talks about good business, but it is good business to make sure that we do not put undue burdens on business. I can promise him that, from my experience—while I was chief executive of my company—we implemented the rules on bribery and tax evasion, which were significant in our business. These would be significant measures for businesses. I say to him and to my right hon. and learned Friend Sir Robert Buckland that they will have a real impact on businesses and significant costs of implementation. I do not think that they would be proportionate or needed within smaller enterprises, because of the ease of identifying the people responsible if fraud were facilitated in an organisation.

I appreciate the kind words of my right hon. and learned Friend and the work that he has done. I remember lobbying him on this issue when he was the Secretary of State for Justice—and a fine job he did. We have got much further this time than we did at that time, which shows our collegiate way of working all the way through the Bill’s passage.

Alison Thewliss has also done fantastic work in this area, and I appreciate all her efforts. She says that we do not agree. We have a right to disagree where we disagree, and we honestly disagree about whether this proposal is required. We do not want to put unnecessary burdens on businesses.

I completely understand the strength of feeling of Dame Margaret Hodge on this matter. I, too, feel strongly about implementing the right measures to tackle economic crime while not putting undue burdens on businesses, so I say to her again, in the spirit of good will that we have operated under for many years, we will keep this under review. If the threshold needs to be changed, we can do that under secondary legislation.

I congratulate Liam Byrne on his election as Chair of the Business and Trade Committee. I know that he will do a fine job. He is right that, in that spirit of good will, we have achieved much in the manifesto that we launched just over the road. Again, I hope that he does not doubt my motives in what we are doing to tackle economic crime without putting undue burdens on business.

I urge everyone to support the measures that we have in place already, and I ask those in the other place to respect the clear will of this House.

Question put, That the amendment be made.

Division number 349 Economic Crime and Corporate Transparency Bill: Amendment (a) to motion to insist on Amendment 151A and disagree with Lords Amendments 151E and 151F

Aye: 207 MPs

No: 271 MPs

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

Abstained: 1 MP

Abstained: A-Z by last name

The House divided: Ayes 208, Noes 274.

Question accordingly negatived.

Photo of Roger Gale Roger Gale Deputy Speaker and Chairman of Ways and Means

Order. Before we proceed to the next Division, I must inform the House that it has been drawn to my attention that the election for the Defence Committee Chairman in the Aye Lobby was due to be open until 2 pm. That, of course, was interrupted by the Division, and I understand that one or two tardy Members have yet to vote.

Hon. Members::

Shame! Name them!

Photo of Roger Gale Roger Gale Deputy Speaker and Chairman of Ways and Means

I could, but I won’t. Following the end of all the Divisions, and time having been allowed for the necessary facilities to be reinstated, the ballot will be open again for the time lost: a further 11 minutes. You have been warned.

More than one hour having elapsed since the commencement of proceedings on the Lords message, the proceedings were interrupted (Programme Order, 4 September). The Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83G).

Main Question put.

Division number 350 Economic Crime and Corporate Transparency Bill: motion to insist on Amendment 151A and disagree with Lords Amendments 151E and 151F

Aye: 274 MPs

No: 207 MPs

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

The House divided: Ayes 280, Noes 207.

Question accordingly agreed to.

Resolved,

That this House insists on its Amendment 151A and disagrees with the Lords in their Amendments 151E and 151F.

Photo of Roger Gale Roger Gale Deputy Speaker and Chairman of Ways and Means

Order. There is no end to the variety and excitement that this House can offer. I am advised that the Order Paper, which we all know is gospel, says that the Defence Committee ballot should close not at 2 o’clock but at 2.30, so at least two Members—I know them both—will have another 41 minutes to vote after the next Division. Actually, it will be 45 minutes because, I am told, the facilities had to be cleared and will no doubt have to be reinstated. I suggest that Members who have not voted do so fairly quickly.

Motion made, and Question put,

That this House
insists on its amendment 161A and disagrees with Lords amendment 161D.—(Kevin Hollinrake.)

Division number 351 Economic Crime and Corporate Transparency Bill: motion to insist on Amendment 161A and disagree with Lords Amendment 161D

Aye: 275 MPs

No: 206 MPs

Aye: A-Z by last name

Tellers

No: A-Z by last name

Tellers

The House divided: Ayes 280, Noes 208.

Question accordingly agreed to.

Photo of Liam Fox Liam Fox Conservative, North Somerset

On a point of order, Mr Deputy Speaker. As you know, the House will later vote on the issue of Mr Bone and the Independent Expert Panel’s report. Of course, we do not have a chance to debate the issue, the content, or the pros and cons of that report: we merely vote on it.

It is in that context that I wish to raise with you a report on the BBC this morning, entitled “Peter Bone: Abuse by MP left me broken, former aide says”, which contains a very extensive, one-sided attack on the hon. Member for Wellingborough. This is not in any way to judge the rights and wrongs of this matter, but merely to put the principles of natural justice first. It is an anonymous briefing against a named Member of Parliament on a day on which, as the BBC accepted, MPs would be voting on this issue.

What I would like to know from you, Mr Deputy Speaker, is whether this is an undue attempt to influence Members of Parliament on the day of a vote that should be our business in this House, and indeed, whether it is an attempt to manipulate Members of Parliament. This does not just relate to this case, but to any case that we may have to consider in the future. I would like to ask you to ask Mr Speaker, who has always defended the rights of this House, whether he will take legal advice on whether this particular report today constitutes contempt for the House.

Photo of Roger Gale Roger Gale Deputy Speaker and Chairman of Ways and Means

The right hon. Gentleman will be aware that I am not in a position to answer the specific question that he raises, but I do know that the director general of the British Broadcasting Corporation will be in this building later today, and if Mr Speaker chooses to ask to see him, I imagine that he will make himself available. I also know that Mr Speaker takes this very seriously indeed, and that legal advice is being sought.