Lord Vaux of Harrowden:

Moved by Lord Vaux of Harrowden

Leave out from “House” to end and insert “do agree with the Commons in their Amendment 23A, and do propose Amendment 23D to Lords Amendment 23 in place of the words left out by Amendment 23A—

23D: Line 83, at end insert—“113C Required information about members: nominees If a member holds 5% or more of the share capital or voting rights of the company, the required information about a member includes a statement by the individual, or where the member is a body corporate, or a firm that is a legal person under the law by which it is governed, by an officer of that body corporate or firm, as to whether or not they are holding the shares on behalf of, or subject to the direction of, another person or persons, and if they are— (a) where any such person is an individual, and the shares held on that person’s behalf or subject to their direction amount to 3% or more of the share capital or voting rights of the company, the information required by section 113A in relation to that individual; (b) where any such person is a body corporate or firm that is a legal person under the law by which it is governed, and the shares held on that person’s behalf or subject to their direction amount to 3% or more of the share capital or voting rights of the company, the information required by section 113B in relation to that body corporate or firm; or(c) a statement that the member is not holding shares on behalf of, or subject to the direction of, such person that amount to 3% or more of the share capital or voting rights of the company.””

My Lords, I hope that Motion A1 is clear. Before I start, I remind the House of my interest as a non-practising chartered accountant.

On Report, your Lordships agreed Amendment 23, which included a requirement that shareholders should have to state whether they are holding shares on someone else’s behalf and, if so, on whose behalf they are holding them. This requirement was rejected, as we have heard, by the other place. Motion A1 aims to reverse that, while trying to take on board some of the matters raised in debate in the other place. If I may, given that the debate we had in this House was now some months ago, I will briefly remind the House of the issue that that amendment was trying to resolve.

One of the easiest ways to hide the true identity of an owner of a company is to use a nominee—somebody whose name will appear on the register of members but who is in fact acting under the instruction of and for the benefit of the actual beneficial owner. A substantial industry has grown up to provide these nominee services. There are of course legitimate reasons for using a nominee, such as an asset manager holding and managing a range of shareholdings, but it is quite revealing to do a Google search of nominee shareholding services.

A near-endless list of such services appears, and these services are usually sold very clearly as being primarily about creating anonymity for the true shareholder. Let me quote from one of them:

“The beneficial owner may choose to appoint a Nominee Shareholder because they do not want to register the shares in their own name. A Nominee Shareholder is a great way to keep shareholder information away from public records”.

Another one states:

“In the United Kingdom, the purpose of using nominees is confidentiality. Because of the confidentiality requirements, owners are reluctant to associate themselves with beneficial ownership, and the practice of nominating shareholders will hide their association”.

Most nominee service providers market their services in the same vein. A few of them refer to the PSC—persons with significant control—rules or to anti-money laundering in the marketing literature, but they are very much in the minority. As I said, there are legitimate reasons for holding shares through a nominee, but not wanting to register the shares in their own name and keeping shareholder information away from public records are not legitimate reasons. In fact, that is precisely what this Bill is trying to stop.

The amendment originally passed by this House was intended to strengthen the Bill to prevent the misuse of nominees to hide the true ownership. I continue to believe that this is a very real issue and, as a result, I have tabled Motion Al, which tries to reintroduce the original amendment, but changed to reflect some of the reasons for rejecting it made in the other place—in particular, the question of undue burden that the Minister referred to a moment ago.

However, since I tabled my Motion A1, I am very pleased to say that the Government has tabled Amendment 23C within their Motion A. It shows that they now recognise that there is a genuine issue here and, in particular, that the enabling industry needs to be incentivised to clean up its act. I especially welcome the fact that proposed new subsection (2)(b) will specifically allow the Government to impose obligations directly on those who act as nominees. The real flaw in the current rules is that those enablers face no real risk at all when acting as they do. I hope that this specific mention in the Government’s Amendment 23C will cause the nominee industry to take note and clean up its act, in the knowledge that if it does not, it will face regulation.

While I would have preferred to have taken action now and introduced something in the Bill, the fact that the Government recognise the issue and are proposing a regulating power to deal with it is most welcome. I very much welcome the commitments made by the Minister a moment ago. I thank him and, given that and what he has just said, I will not press Motion A1. I thank him and his officials for their continuing very constructive engagement, which has been the case throughout the Bill. I look forward to seeing the proposed regulations before too long—he will know that I will not be dropping the issue until we see the regulations.

I shall also comment very briefly on Motion C, which moves an amendment passed in this House that aimed to fix an anomaly in the register of overseas entities, which is that it has to be updated only annually. First, I point out the reason given by the Commons:

“Because it would alter the financial arrangements made by the Commons, and the Commons do not offer any further Reason”.

That, frankly, is totally inadequate and nonsensical in this case. It has to be updated only annually. Other registers, such as the register of persons with significant control, have to be updated within 14 days of any change being identified. This anomaly means that the register of overseas entities can be up to a year out of date at any time. That introduces the risk that an innocent part might unknowingly find themselves entering into a transaction with a sanctioned person, for example.

Unfortunately, because of the way the register works in conjunction with the registration of property, this all becomes extremely complex. I thank the Law Society for its helpful and constructive engagement in many meetings over the Recess to try to find a solution to this. While we did find a possible way through, it was so convoluted as to be impractical—so I am not going to oppose the removal of this amendment, even if the issue it was trying to solve remains real.

The register of overseas entities is still in its early stage. While it has been successful up to a point, as I am sure we are going to hear from the noble Lord, Lord Agnew, there are still many properties the ownership of which is, at best, unclear. I am very pleased to hear the commitment the Minister made in his speech just now that they will keep this anomaly of annual updating under review. In the meantime, I caution any person who is buying or selling property from or to an overseas entity, or who is entering into a lease over a property with an overseas entity, to require it to be a condition of the transaction that the entity’s entry in the register is updated immediately prior to the transaction completing. Only by doing that can the innocent party know who they are actually transacting with. With that, I beg to move.

My Lords, I shall speak in favour of my Motion D. I am grateful to my noble friend the Minister for his ongoing dialogue with me as we grind to the end of this Bill: he has been patient and courteous, as ever. My problem is that the Government continue to say one thing and then do something different. Just to remind noble Lords, the reason I pressed my original Amendment was that a gaping hole had opened up in this newly created register of overseas interests. It is barely a year old and we have more than 50,000 properties owned by an entity whose beneficial owners are withheld from public view. That is approaching one-third of all entries. It is rapidly becoming the default advice from cute law firms to their overseas clients to use a trust structure that is opaque.

In rejecting my original Commons amendment, the Government claimed refuge behind the principle of financial privilege. This is bizarre, if not worse, but in a spirit of collaboration I will not use the word that I had planned to use. The costs to Companies House of publishing trust information are estimated on the back of an illusory envelope at between £600,000 and £2.8 million—a figure supported by absolutely no methodology—but under the Bill, Companies House funding is going to rise exponentially. The current filing fee of £13 will rise to anywhere between £60 and £90 if the guidance we have been given is followed. Taking the bottom-end number, £60 means an increase of £47 a year times 4 million companies, or £188 million a year, against this odd figure of £600,000 to £2.8 million. Even if the higher filing fees deterred some company creation or dissolution for non-viable entities, the additional cost, frankly, is a rounding error. Indeed, if the Government were to approach this logically and calculated that as a transparency cost, it would be around about 70p per registered company per year, or about 1.25%.

I give this example only because I continually worry that I get very clear assurances from the Minister but the actions taken by the Government are rather different. I accept through gritted teeth that we cannot debate that amendment as I was blocked from tabling it. This leaves us with a much watered-down proposal to try to hold the Government to account to get on with the consultation they say they need to ensure that there are no legal challenges. The Government have accepted that they need to start straightaway, in this calendar year, but they do not yet accept the principle of my proposed new subsection (2) that the consultation includes the principle of public access to protected data on a bulk basis.

This sounds arcane, but it is crucial because currently HMRC is not providing the information when requested, and it can be requested only on a case-by-case basis. As I have shown, there are already more than 50,000 hidden owners where the public are being denied the information, so doing it individually is simply not practical. I have consistently said that those with a bona fide need for confidentiality should have it, but this would be a very small proportion of the 50,000.

On the terms of the consultation, there are a couple of elephant traps that the Government should be aware of. A few years ago, when the consultation was issued to tighten up the non-dom loopholes, the lawyers’ excuse for not tightening them up was that anyone who declared non-dom status should have a reasonable expectation that it should last in perpetuity. That sounds pretty sinister to me, but apparently that argument has already been rolled out to civil servants on the issue of more transparency with trusts. I warn the Minister to be alert because, as I understand it, civil servants have already expressed their compliance with this idea. I hope that we as politicians are still running the country, not the civil servants.

We have heard from my noble friend the Minister and he has given commitments, which I very much appreciate. However, I hope he understands why I am extremely nervous: what he says and what the Government do are not always totally aligned. I will take his words exactly as he says them, though, and I ask him to keep a very careful eye on this process over the next few months. I think he has learned enough about me to know that, for all my many weaknesses, one thing I am is dogged. We will keep a careful eye on this. On that basis, I will withdraw my amendment.

My Lords, I strongly support the Amendment from the noble Lord, Lord Agnew. I do this as a former chair of the Jersey Financial Services Commission. In Jersey we made a major effort to increase the transparency of trust information so that beneficial ownership could be accurately identified. One of the inhibitions for cleaning up, if you like, the register in Jersey was the behaviour of the Government in the United Kingdom, and their persistent obfuscation of the way in which trusts were to be treated.

The amendment from the noble Lord, Lord Agnew, contains exactly the process that needs to be dealt with in a consultation. I understand the assurances he may have received and that he may feel it appropriate to withdraw his amendment, but I hope he proves as dogged as we know him to be in pursuing this. I assure him of my continuing support.

My Lords, I also support what the noble Lord, Lord Agnew, has said and done. I am very sorry that the Government did not accept the Amendment in relation to trusts. It was entirely in keeping with the purpose of the Bill, and more specifically with the purpose of the introduction of the register of overseas entities.

Some of us have been advancing the cause of this register—some would say banging on about it—for some considerable time. I had the privilege of chairing the Joint Committee on a draft Bill. We recommended legislation as soon as possible. Unfortunately, it took the invasion of Ukraine for the Government to incorporate the necessary legislation into the last economic crime Bill.

During the taking of evidence by the committee in 2019, the need to avoid trusts being used to avoid the identification of the true owner of property was specifically brought to our attention. It then became part of our recommendations that the legislation, when it came before your Lordships’ House, should cater for this obvious loophole. The Government ignored the recommendation then and have now resisted the amendment passed by your Lordships’ House.

If there is concern about minors and keeping them ignorant about their status as beneficiaries, this could have been catered for by an appropriate provision. Instead, the Government, against whom the former Lord Chancellor voted in the other place on this issue, have resorted to “financial privilege” as a means of blocking the amendment.

Trust lawyers are going to be very busy, as foreign owners will set about frustrating the purpose of the register and the aspirations that we all share for this and related legislation. I hope the Government bear that in mind.

My Lords, I had the privilege of being a member of the noble Lord’s committee. I agreed with what he had to say then, and I agree with what he has just said now.

My Lords, in his opening dispatch the Minister praised those involved for the way in which the Bill has been modified and changed. The noble Lord, Lord Agnew, needs to take a lot of credit for how that modification has gone ahead, and the work that he has done and will have to continue to do in his role overseeing the Government’s response to this. I will not repeat anything that has already been said, other than to say that I agree.

The reason we are concerned about this issue is that the Government will rightfully say that they know who the names are in these trusts, but the issue we are talking about is the publication. It has been the role of civil society and journalists to uncover problems, and that has been very important in issues around this. If the Government can demonstrate that their commitment to enforcement, getting behind these trusts and exposing people who are using them to avoid issues is fully funded and fully backed by them, our relying on civil society—which we have had to do to date—would be less of an issue. That is why we support the quest by the noble Lord, Lord Agnew, on this, and will support him as he seeks to make sure that further steps are appropriate and that enforcement is at the heart of what we seek to achieve here.

My Lords, I start by thanking the Minister for the broader tidying up of the amendments in this group and by reflecting on the time, over several months, that we have been discussing these important issues. We must keep our eye on the scale of the issues that we are dealing with; they are immense, and they cost this country billions of pounds. We have a great deal to do to repair the UK’s reputation in the world, and I hope that we involved in this debate will all have our eyes on that prize.

I am pleased to say that we have seen some positive changes achieved through the passage of this Bill and a genuine appetite for change, as we experienced with our conversation with Companies House. We are going through an immense cultural change in the management of these affairs. As we know, it is the biggest shake-up for 170 years. I also pay tribute to everyone in the Chamber, and those who are not here today, for their diligence in the work that they have done, and to my colleagues in the other place, Dame Margaret Hodge and Seema Malhotra in particular. Months and months of work have gone into getting us to this place.

I am very grateful for the explanation that the noble Lord, Lord Vaux, gave. There is real recognition that there will be an ongoing need to scrutinise. I think we all accept the commitments in good faith, but we need to make it clear to Ministers and their officials that the interest is very live and that there will be close scrutiny as these matters roll up. Compromise has been reached on this—I accept that that is the reason we will not be taking the Amendment to a vote—but we add our support to the ongoing scrutiny that will need to take place.

I also pay tribute to the noble Lord, Lord Agnew, for his persistence in this and his unique position having had experience in government, which has informed the approach he has taken and the concern that I think many would agree he has rightly raised. We are where we are—he has decided to accept the reassurances—but we also have an insight into those elephant traps that he referred to. I also reference the comments of my noble friend Lord Eatwell on the explicit need for vigilance.

With those comments, and thanking everyone for the spirit of compromise, I reassure everyone that we will look closely at this, and we very much hope that the measures being brought in today will be sufficient. We will look to those delegated powers that have been built in to make sure that, if change is necessary, it will indeed be made.

I thank noble Lords for their contributions, including the noble Baroness, Lady Blake, for her extremely helpful and supportive comments about the overall debate. In her summation, she was right that we have, through a great degree of good faith among us all, come up with a very strong series of actions that will genuinely change the economic landscape in this country for the better.

I have had the privilege of working with my noble friend Lord Agnew for a number of months as we have come to today’s conclusion on these measures. I reiterate my personal commitment, and the commitment of this Government, to delivering on the thrust of his ambitions. On a process that came to light only recently—the issue of bulk data and its accessibility—I can commit that Companies House will do a review of how it can assess bulk data for the trusts’ information on the register of overseas entities once a consultation period has finished and it is deemed appropriate.

Ultimately, we are committed to greater transparency, and I am very grateful to my noble friend and noble Lords across the House for their understanding of our approach to how we can best achieve this without either endangering vulnerable minors or individuals or opening ourselves up to legal challenge which could derail many of the main principles of this part the Bill to which my noble friend is rightly keen to contribute.

Finally, I express my gratitude to the noble Lord, Lord Vaux, who, from the very beginning, has been a tireless collaborator in creating—with his input across the board in this section of the Bill—a truly powerful piece of legislation. It was my own personal pleasure and pride to work with him as we have come to this conclusion, and I am very grateful to him for his understanding, again, of how we believe that we can achieve our shared ambitions in what we think will be the right way.

We have made some clear further commitments today—to which I would be delighted to be held to account by my noble friend Lord Agnew and all noble Lords in the House today—to make the Economic Crime and Corporate Transparency Bill the most effective legislation it can be. I therefore invite the House to agree the government Motions in this group.

My Lords, I thank the Minister for his generous comments. I also thank noble Lords who have been so generous with their support throughout the passage of the Bill on these matters, which has allowed us to get to the point of achieving at least this compromise. With that, I beg leave to withdraw Motion A1.

Motion A1 withdrawn.

Motion A agreed.