My Lords, I start by congratulating the noble Baroness, Lady Harding, on a sparkling maiden speech. We look forward to hearing many more. I had not originally planned to speak in this debate but was tempted by Christian Aid and its briefing on the Bill’s transparency provisions. I am grateful for its briefing and the follow-up information.
Before I address that subject, perhaps I can revert briefly to the contribution made by the noble Lord, Lord Stoneham, at the start of our deliberations. He waxed lyrical about easyJet. He was right to do so, but he might have mentioned that it has flourished in part by its partnership with London Luton Airport, an innovative public/private partnership developed by a Labour council.
As noble friends have already made clear, we think the Bill has generally been a missed opportunity and to be deficient in a number of key respects. However, we should be supportive of the thrust of these transparency provisions, although, as the right reverend Prelate the Bishop of Peterborough said, we wish to probe whether they go far enough. I am bound to say that I do not share some of the concerns expressed by the noble Lord, Lord Flight. The problem under consideration has been clearly set out in the impact assessment: the lack of corporate transparency over who owns and controls companies is facilitating illicit activity and undermining good corporate behaviour, eroding trust and damaging the business environment.
The scale of the problems and illicit money flows involved are truly staggering. In 2013 the EU considered the scale of criminal proceeds associated with money laundering and terrorist financing to amount to 3.6% of GDP—around $2.1 trillion. This includes billions of dollars lost to Africa. The human misery and lost economic opportunities resulting from all this beggar belief. Reducing the potential for these flows through the misuse of company structures will not solve the problem but offers one means of helping to counter it, particularly if there is international co-operation, a point on which I agree with the noble Lord, Lord Flight. The Government are right to pursue this.
This lack of transparency also facilitates tax avoidance and evasion. This continues to be one of the scourges of our time. We know that a global response is the only way effectively to tackle the challenges it presents. In this regard we acknowledge and support efforts considered by the G20 in September this year to complete progress on the base erosion and profit shifting project, to provide support for developing countries in preserving and growing their revenue base, and to progress the automatic exchange of tax information on a reciprocal basis. Some of the EU initiatives to rebuild trust in the international tax system have yet to bear fruit: the common consolidated corporate tax base is stuck in ECOFIN, but work goes on. We may hear more tomorrow about further measures on the domestic scene, but the EU is negotiating the anti-money-laundering directive at the moment. Can the Minister say what efforts are being made to include public registers in the final outcome?
Corporate transparency was, as we have heard, a particular focus of the G8 meeting held in June 2013 under the UK’s presidency. In determining to act, the G8 agreed that the lack of knowledge about who ultimately controls, owns and profits from companies assists not only those who evade tax but those who seek to launder the proceeds of crime. Each of the countries has published its action plan. In the UK’s case, we have the resultant legislation before us, which introduces the obligation to implement a central register and for this to be made public. Such arrangements will only be most effective if other countries follow suit. Perhaps the Minister might say a word about progress across the EU, and other G7 and G20 countries.
The Minister will also be aware that in 2013 the UK’s overseas territories with financial services centres committed to conducting consultations on creating registers of beneficial owners of companies and on whether to make them public. This commitment was matched by the Crown dependencies. The BVI, the Cayman Islands, Montserrat, Gibraltar, Anguilla, the Turks and Caicos Islands, Jersey and the Isle of Man have each held consultations, but none, according to the briefing that we have received, has published the submissions received, responded or set out a policy position. Bermuda seemed to have abandoned its commitment to consultation, and Guernsey has yet to hold a consultation. It is suggested that these territories account for some one-third of the world’s shell companies, which might explain their reluctance to proceed but the importance of encouraging them to do so.
At the end of April this year, the Prime Minister wrote to the overseas territories stating:
“I have welcomed your … commitments to work with the UK to promote the application of high international, including EU and OECD, standards and your action plan on beneficial ownership setting out the concrete steps you will take to strengthen your laws on financial transparency ... I believe that beneficial ownership and public access to a central register is key to improving the transparency of company ownership and vital to meeting the urgent challenges of illicit finance and tax evasion”.
We very much agree, but can the Minister say what continued engagement there has been with these territories and what, if any, progress is in sight in ensuring that the overseas territories and Crown dependencies meet their commitments? Unless they do so, the very legislation that we are considering in this Bill will be substantially undermined.
As for some of the detail, we note that the existing definition of “beneficial ownership” used in the anti-money-laundering provisions is to be adopted, setting a 25% test as the threshold. Some of the responses to the consultation expressed concern that this was too high a threshold and that it would be capable of manipulation so that a few could collude to obfuscate ownership of a company. The justification for the 25% is that it will be familiar from the money-laundering rules and is, anyway, the shareholding level at which a minority can block resolutions. We see the merit in that approach but want to test it further in Committee.
We also wish to examine how it might all work where there are tiers of overseas companies in a structure where those overseas territories have not signed up to any form of register. We support the concept that there is a responsibility on the beneficial owners, as well as on the companies themselves, to identify beneficial ownership arrangements, and that companies to be brought within the scheme properly include at least companies limited by guarantee, as well as limited liability partnerships. Keeping the register current, as the right reverend Prelate said, will also be an important task.
We note that there was some opposition to exempting companies required to comply with the disclosure and transparency rules, and we will need to understand the extent to which such rules effectively cover what the register will require. The Government are wise to keep under review the definitions of control, given the proven ingenuity of companies and their advisers to construct arrangements to circumvent the intent of legislation. We note that the Government say that they cannot extend these requirements to overseas companies because of EU company law directives, but can the Minister say whether this applies to overseas companies which operate in the UK as well as to those that do not?
The prohibition of corporate directors, which we support, is qualified to be subject to exceptions which will be introduced by regulations under the negative procedure. Such regulations can make different provisions for different parts of the UK. Again, this is something that we will need to probe in Committee to understand its extent.
The prohibition on the creation of new bearer shares and arrangements to eliminate existing bearer shares should receive our support. They are currently an instrument which makes it all too easy to disguise ownership.
These provisions are a small part of the Bill but, nevertheless, a very important part. They will help in the fight against crime, money laundering and tax evasion. We should recognise that they will not solve these problems and will be faced with huge efforts to negate and ameliorate their effect. It behoves us to scrutinise them as rigorously as we can to send them on their way as watertight as possible.