Economic Crime Bill speeds through Parliament

The Bill was rushed through the House of Commons in a single day – Monday 7 March – in response to renewed parliamentary and public pressure in the wake of Russia’s invasion of Ukraine. It began its passage through the Lords with a second reading debate on Wednesday 9 March.

The CIOT provided comments to parliamentarians in a briefing and issued a press release, both making the same point, that a lack of clarity around the purpose of the legislation could leave many people disappointed that the register will not achieve what they expect it to. Specifically, we said that if the purpose is, as suggested in some government statements, revealing the real identities of foreigners who own UK property, we do not believe that the Bill will achieve this. This is because the legislation as currently drafted does not require the disclosure of the ultimate beneficial owner of the property, but rather the disclosure of the beneficial owner of the overseas entity which in turn owns the property. This is a significant distinction.

These concerns were raised by Conservative and opposition MPs during the debate, and were also raised in the Lords later in the week. CIOT has also worked with peers on amendments tabled for Monday’s committee stage.

Monday 7 March - House of Commons Second Reading Debate

Home Secretary’s opening speech

Debate on the Bill began with a three hour second reading debate on Monday afternoon. The debate was opened by Home Secretary Priti Patel who made a wide-ranging speech encompassing the UK’s efforts to help refugees from Ukraine (on which she took much flak from other MPs in interventions) and the extent of the sanctions imposed on allies of Russia’s president.

Turning to where this Bill comes in the Home Secretary explained: “Putin is a gangster and his regime is underpinned by a mob of oligarchs and kleptocrats who have abused the financial system and the rule of law for too long. Putin’s cronies have hidden dirty money in the UK and across the west, and we do not want it here. Expediting this legislation, which I know the whole House supports, will mean that we can crack down on the people who abuse the UK’s open society.”

This Bill “will enable the greatest changes to the companies register since it was established nearly 200 years ago,” she claimed. “Companies House will be reformed and we will verify the identity of every company director and beneficial owner… No criminal or kleptocrat will be able to hide behind a UK shell company ever again—those infamous brass plates will go.” (Though she later clarified that ‘full Companies House reform’ would come only in a second bill – see below.)

The Home Secretary explained that the Bill “creates a register of overseas entities to crack down on foreign criminals who use the UK property market to launder money. A foreign company that wishes to own land in the UK will be required to identify its beneficial owners and to register them with Companies House. Once a company is registered, an overseas entity identity number will be provided, and that entity will be required to update its information annually.”

A second measure in the Bill reforms the UK’s Unexplained Wealth Order (UWO) regime. The Home Secretary explained that the government “will reform the costs rule so that agencies acting to protect the public will be protected from substantial legal costs when they have acted reasonably in their investigation. The maximum period that a property can be frozen while unexplained wealth orders are in place will be extended, allowing the full force of the law and proper investigation. Unexplained wealth orders will also be more effective against those who hold property in the UK through trusts.”

“This Bill also toughens up the enforcement of financial sanctions, making it easier for the Treasury to impose significant fines,” Patel continued. “Even where it has not imposed a fine, the Treasury will have the power to publicly name those who have breached financial sanctions. That will both sanction them and deter others, and we are expanding the information-sharing powers to help the Government shine a much brighter light on malign actors who abuse the financial system.”

The legislation will also remove some of the constraints on designations by description, so that the Government can designate groups of individuals (such as members of the Russian Duma) more quickly.

Telling MPs that the government have consulted and engaged widely on the measures in the Bill, the Home Secretary said the new property register “has been designed carefully, drawing on extensive discussions, to balance the need to clamp down on misuse while protecting the ease of doing business”. The government have “engaged widely with representatives of the accountancy, financial and legal sectors, and with others. Colleagues have raised the issue of enablers many times, and enablers are at the forefront of much of our work.”

Conservative MP Craig Mackinlay – a chartered tax adviser – intervened to ask the Home Secretary about ‘the vexed issue of trusts’. “If they are of a discretionary nature, there is no absolute beneficiary, by their very definition. They may be tucked away in a trust deed in some foreign jurisdiction of which we do not have details. I have looked through the legislation and can see no way in which we can penetrate some of those trusts. I do not even know whether we should, because of the nature of discretionary trusts, for which there will be a list of potential beneficiaries but no absolute beneficiary. The legislation will catch absolute beneficiaries, but I cannot see how discretionary trusts can be caught or, frankly, ever could be.”

The Home Secretary acknowledged that this was “an important and significant point. That is exactly the work in which the transparency tsar has been heavily involved, giving the government advice on that work across government departments. All this has to be looked at.”

Earlier in her speech the Home Secretary had told MPs that while this legislation is ‘concise and tight’ because the government want to move at pace, “there will be a second economic crime Bill, a follow-on Bill in the next parliamentary Session, with further measures. We simply cannot get all the measures in right now. We have focused on the ones that will have the greatest impact and enablement.”

The second Bill would, Patel said, include “reforms to prevent the abuse of limited partnerships; new powers to seize crypto-assets from criminals… and measures to give businesses more confidence to share information on suspected money laundering. It will be a very substantial piece of legislation. I assure the House that we are already drafting that legislation and it will be brought forward as soon as we are able to do so and we can get the time in the House.”

Opposition frontbench speeches

The Shadow Home Secretary, Yvette Cooper, welcomed the Bill. She said it was shameful “that corrupt elites from all over the world can launder their money and their reputations through our capital city”. She attacked the ‘industry of enablers’ that has grown up in the UK “to facilitate those corrupt elites, to help them hide their money, evade tax or launder proceeds of crime”.

Turning to beneficial ownership, Cooper said that “UK property has been used to launder illicit wealth for too long. We welcome measures to reveal for the first time who the ultimate foreign owners of UK property are. We welcome, too, the Government’s recognition that the initial, draft Bill did not go far enough; they have accepted our amendments on stronger fines and proper identity checks, and that is welcome. Giving people 18 months to dispose of all their assets, as the draft Bill suggested, so they can hide them in some other regime was clearly ludicrous… But even six months gives people a very long time, and is not justified by the scale of the problem we face.”

SNP spokesperson Alison Thewliss said her party were “delighted to see this well-overdue Bill”. On the register of overseas entities, she sat on the Joint Committee with the Lords on the draft Registration of Overseas Entities Bill. She said she could not understand why it had taken so long to bring forward this legislation.

Thewliss noted that the Scottish Government is already introducing a register of persons holding a controlled interest in land in Scotland, which will come into effect on 1 April this year. She asked what would be the interaction between this register of property in Scotland, which includes overseas entities, and the provisions in this Bill. “It has been remarked by a number of organisations that the Scottish register will actually have transparency at its heart and has better transparency than what Ministers are proposing with their register. I would ask that they go to that higher level, rather than ask Scotland to level down on what we are putting on the register of persons holding a controlled interest in land.”

Thewliss questioned whether the government would enforce the rules they are putting in place. Scottish Limited Partnerships “have been obliged to have a person of significant control for several years now… Sure enough, the numbers of SLPs on the Companies House register decreased, and the number of people who were not registering as persons of significant control also decreased, but according to the most recent figures 203 companies are still SLPs with no person of significant control registered. That is just not right, and that is not being pursued either. Of all the thousands of SLPs that have existed and that still exist, only one has been issued with a fine for not having a person of significant control, and that fine was £210. That is absolutely pathetic, and it highlights that this Government are not even bothering to enforce the rules they have.”

The Liberal Democrats’ foreign affairs spokesperson, Layla Moran, spoke for her party. She said that when she had asked organisations such as Transparency International and the Royal United Services Institute why other countries — America, for instance — had managed to include far more companies and individuals on their sanctions lists, she was told, “They have fewer laws, but they enforce the hell out of them.” “Can we please be a country that enforces the hell out of this and any further legislation that we might want to introduce?” she asked ministers.

Moran also stressed the importance of clamping down on ‘enablers’. “It is not just the lawyers who are involved; it is the PR firms, the accountants, the banks, and all the others who knew what they were doing. It should not be ‘a case of acting “recklessly”—there are some get-out clauses in this Bill that we need to be careful about—because those people knew or decided to turn a blind eye, and that can no longer be good enough. I appreciate that this cannot be covered in today’s Bill, but when will it be covered?”

Backbench speeches

Former Conservative minister David Davis said the Bill would “do great harm to the Russian economy and to our adversaries in Russia, but it will also do some harm to us — or at least, the retaliation will — and it will particularly hit the least well-off. We will see greater price inflation, less growth, less trade and therefore fewer jobs. We must recognise that when we undertake what we are doing here.” He concluded: “This is not an economic crime Bill, but an economic warfare Bill, and it is a war that liberal democracies cannot afford to lose.”

Another Conservative, Sir Robert Neill, said the Bill was ‘necessary’ but noted that we are fighting “not just for democracy and decency, but for the rule of law”. He noted that some aspects of the Bill involve, “for example, the removal of a proportionality test in the seizing of assets”. This was proportionate for the “acolytes, fellow travellers and hangers-on of the Putin regime that is murdering people” but might not be the case as a permanent, global provision. He hoped this would be revisited in a future Bill. “There are legitimate business grounds for why assets may be held in various forms of entities that will be caught by the Bill,” he explained. “We do not want to destroy our ability to do that in this country, but at the same time, we want to prevent abuse.” He also warned the minister that “those who have significant control are not necessarily the same as those who have beneficial ownership” and that this left “a loophole that needs to be tightened up”.

Dame Margaret Hodge, the Labour MP who chairs the All Party Parliamentary Group (APPG) for Anti-Corruption and Responsible Tax, thanked the government for listening to representations and amending the Bill to make “very welcome changes, such as tougher penalties and greater accountability, with an annual report to Parliament”. She asked the minister to look at amendment 3 (tabled by Hodge and other members of the APPG) which, she said, “would address the loophole that I think [Sir Robert Neill] mentioned; I think it is a drafting mistake, but it looks as if individuals could escape the transparency that the Bill intends by using nominee directors and corporate trust providers. We have received legal advice, a copy of which I have shared with the security minister; I wonder whether the minister answering this debate has looked at it and whether he will respond on the drafting issue.”

Nigel Mills, a Conservative MP and co-chair of the Anti-Corruption APPG, disagreed with the suggestion that a transparent register of overseas entities was about economic warfare. To the contrary, “it is a perfectly normal and necessary measure to ensure that we have a clean economy free of dirty, criminal and corrupt money,” said Mills. “It is not intended to be an attack on investors who are perfectly normal and acting properly. It will catch Americans, Australians, Canadians and Europeans; anyone who has property in this country owned by a company will be caught. They are still welcome to come here. We want them to come here, invest here and create jobs.” But, he stressed, we do not want ‘dirty, corrupt money’.

Drawing on points made by the CIOT in our briefing for MPs, Mills explained that the Bill “requires the registration of the beneficial owner of the company that owns the property, not the actual property itself. That may sound like a distinction without a difference, but I suspect that ways can be found, through nominees and careful shareholdings, where those two things can be distinguished. So we need to watch carefully as we bring these provisions in to ensure that they are hitting the people we think they should hit and getting the disclosures we want. If we are not getting them, we need to come back quickly and tighten the rules, changing the provisions and tweaking them.”

“At bleeding last! It is here,” was the reaction of former Conservative minister (and current ‘anti-corruption tsar’) John Penrose to the Bill. He endorsed the point made earlier by Craig Mackinlay about trusts. “This legislation does something on the use of trusts when it comes to unexplained wealth orders, but it does not do the same thing for the disclosing of the settlers, the trustees and the potential beneficiaries of trusts for everything else. Those vehicles could easily be misused, and we do not want to come back in a couple of years saying, “If only we had thought to plug that loophole at the same time.” I hope that my hon. Friend the Minister will be able to deal with that omission and promise us some progress on that very soon.”

Labour MP Peter Dowd said the promised register “is crucial to demonstrating how UK property is still used to stash illicit wealth. Transparency International has identified that £1.5 billion-worth of property in the UK has been bought by Russians accused of corruption.” He said six months is “plenty of time for people to dispose of assets through their army of lawyers — we have called for 28 days.” He endorsed a suggestion from Tax Justice UK and others that money-laundering regulations be amended to strengthen due diligence on property transactions in the interim. “This is one way of limiting the obvious get-out offered by a six-month compliance timeframe,” he argued.

Conservative MP Saqib Bhatti said Companies House must have in place a regime to police the register. He asked the minister to provide further detail on the resources that will be allocated to ensure the effective functioning and policing of the register.

Andy Slaughter (Labour) also stressed regulation and enforcement, and argued for legislation on SLAPP (Strategic Lawsuits Against Public Participation, which are intended to silence critics by burdening them with the cost of a legal defense until they abandon their criticism or opposition) and on protecting whistleblowers. “Oligarchs are entitled to lawyers, but they are not entitled to misuse the law in this country… These are draconian and dramatic steps that our courts are not used to taking. To make sure that they are watertight, but also fair to all parties, the measures require careful drafting; they must not be done at the last minute on the back of an envelope.”

Bim Afolami (Conservative) said he thought the register of overseas entities would not disincentivise honest investors into the British market. He pushed back against MPs who were arguing for setting up the register within 28 days. “All of us want this to happen as soon as possible, but I fear that many in the House underestimate the challenge of turning Companies House… from effectively an administrative office into something like a quasi-regulator. That is hard. It will take time.”

Afolami also raised two ‘technical points’. “The first is whether, in focusing on the holding and transferring of qualifying interest in land as a trigger point for this Bill, the Bill captures sales of property-owning companies—share sales, not asset sales… Secondly, does the Bill cater for nominee arrangements that could allow the purpose of the overseas register to be easily evaded?” He asked the minister to respond to these.

Peter Gibson (Conservative) said he was pleased that the government have tabled an amendment to ensure that those who do not comply will face real penalties, with fines and imprisonment. “However, I urge Ministers to ensure that all these measures apply not just to businesses but to discretionary funds where the beneficiary is not known—a point ably made by my [Craig Mackinlay]. We must ensure that there is nowhere to hide.”

Alyn Smith (SNP) said the Bill does not deal with Companies House reform, though he acknowledged a White Paper as ‘a welcome step forward’. “The Bill does not deal properly with Crown dependencies and overseas territories. We believe there is a real risk of displacement—that as the rules change here, there will be movement into trusts in overseas territories—so this needs to be done as a comprehensive package. The Bill also does not deal with corporate liability reform, which is important, and nor does it do much for the UK’s anti-money-laundering regime, so we would like to see further action. Today’s Bill is a start, and we will engage with it positively to make it better, but we want to see an awful lot more.”

Matt Hancock (Conservative) criticised the House of Lords for amending the Sanctions and Anti-Money Laundering Act 2018, leaving it ‘riddled with holes’. He also picked up on a reference by the shadow Home Secretary to the challenges around cryptocurrency, saying that actually, “by its nature and the nature of the technology, there is potential for more transparency in some of these new financial assets, so long as the legal framework is correct. Indeed, cryptocurrency exchanges can find out and follow the flow of the money more easily than can be done with traditional forms of finance, because of the nature of the technology”.

Nickie Aiken (Conservative), MP for the Cities of London and Westminster, supported the government’s objective to “cut the financial and professional arteries to the Kremlin”. She backed the new register of overseas entities and suggested the government might consider “strengthening our compulsory purchase order laws to allow local authorities to sell long-term empty properties that do not comply with the proposed new register. Indeed, I am sure that council leaders in Surrey and central London would not argue if they were allowed to sell one or two £10 million-plus properties and invest the proceeds in building more affordable homes. Equally, we must ensure that buyers, conveyancing solicitors and estate agents play their part when involved in the sales of prime properties on the register.”

Frontbench wind-up speeches

Shadow Business Secretary Jonathan Reynolds welcomed the ‘clear consensus’ on registers of beneficial ownership in relation to property in the UK. “This debate has shown that the principal difference of view between ourselves and the Government, which we will obviously discuss in Committee, is what length of time is reasonable to give people to register the beneficial ownership of the near 100,000 properties that will be affected.”

He concluded that: “Too many parts of this country have been compromised by their proximity to the extreme wealth and influence the oligarchs can wield. The perception that the UK has been willing to turn a blind eye to this has been of considerable detriment to our reputation and legitimacy. If this Bill marks the moment when that starts to change, it will be very welcome indeed.”

For the government, business minister Paul Scully replied to the debate. He repeated the claim – which the CIOT has challenged – that the new register of overseas enties “will require anonymous foreign owners to reveal their real identity to ensure criminals cannot hold property behind secretive chains of shell companies.” However, he stressed that “the majority of property held by overseas entities will be owned by entirely law-abiding businesses and people. We are talking about 95,000 properties in England and Wales owned by 30,000 or so overseas entities. Only a tiny fraction of them are likely to be held by criminal or corrupt interests.”

The minister noted that there will also be “law-abiding British companies that have adopted such structures and that type of ownership for legitimate commercial reasons, including real estate investment trusts, which are public companies, whose core business is to manage and own properties that generate income, and in particular pension schemes holding land and properties. Others will be British nationals who have adopted the arrangements for legitimate reasons of privacy… They may wish to apply to Companies House for their personal details to be protected from public view on the new register, but the threshold for exemption from the public register will be high, so it is right for individuals to have time to seek advice on their options and how to make a case to the registrar.”

The minister said he could see merit in requiring all who are selling property to submit a declaration of their details at the point of the transfer of land title during that transition period. “That would mean we would give anyone selling a zero-day transition period; that goes further than the 28 days… They would have to register ownership if selling, and in that way we would either get their ownership details, or if they did not sell, we would get it at the end of the transition period in a way that still protects legitimate owners. We will give this further consideration ahead of finalising the Bill in the Lords next week, because it is not right for British businesses to bear the brunt of Her Majesty’s Government’s pursuit of the Russian cronies.”

The Bill passed its second reading without a vote.

Read the full Hansard of the second reading debate here.

Monday 7 March - House of Commons Committee Stage Debate

64 amendments and 41 new clauses were tabled for the Bill’s committee stage, which took place on the floor of the House of Commons immediately after the second reading debate, and they were all grouped together in a single group for debate. You can read them here apart from amendments 63-64 and new clause 41 which were manuscript amendments and can be read here.

Frontbench opening speeches

Business minister Paul Scully opened committee proceedings and set out the intention behind the government’s amendments. He told MPs that new clauses 32 to 40 will amend the Sanctions and Anti-Money Laundering Act 2018 to streamline the current legislation so that the government can respond “even more swiftly and effectively to sanction oligarchs, individuals and businesses associated with Putin’s regime and others like them in the future”.

The minister said that, having listened to representations from members across the House, the government would increase the ceiling of criminal penalties for non-compliance on the register of overseas entities from £500 a day to up to £2,500. “We are increasing the limit to allow for stronger enforcement mechanisms, but, by making it “up to” that amount, we are also making sure that we do not criminalise people who do not have their house in order but who are using these entities for perfectly legitimate reasons.”

The minister told MPs that the government are reducing the transition period for existing overseas entities to register their beneficial owners from 18 months to six months. “We want to ensure that there is no place for corrupt elites and kleptocrats to hide, but there are many legitimate individuals and businesses that are likely to be holding property through overseas entities for understandable reasons, such as personal security… It is important to remember that once the register is in place, new transactions will be caught on day one.”

He thanked the Scottish Government for their engagement on part 3 of schedule 4, which contains provisions within the legislative competence of the Scottish Parliament.

Amendments 24 to 25 would require the identity of any sanctioned registered beneficial owners of the entity, or a statement that there are no such persons, to be included in an application for registration. Amendment 26 would remove the requirement that a false statement to the registrar needs to be proven to have been given knowingly or recklessly for that statement to constitute an offence. On these the minister asked those proposing the amendments not to push them to a vote, saying he would happily work with them “to see what more we can do in the other place [ie the House of Lords]”.

For Labour, shadow business minister Seema Malhotra focused her remarks on Labour’s amendments. Emphasising the integrity and quality of the data on the register of overseas entities she said amendments 5 and 6 to clause 7 would require that entries on the register be updated within 14 days of any trigger event, namely the change or removal of a beneficial owner. “UK companies have clear obligations to notify Companies House in the days after an ownership change, so why do overseas entities have a year to do the same?” she asked.

Labour’s amendments 7 and 8 to clause 8 relate to the £500 fine that the Bill would impose on entities that fail to update the register. “The idea that such a fine would deter those who fail to comply is frankly ridiculous, so we support government amendments 45 and 46, which directly replace ours and will raise the fine to at least £2,500 a day,” said Malhotra. She also backed the government’s amendment 49, which signalled that a verification process needs to be established before the register is operational, in line with amendments tabled earlier by Labour.

Labour’s amendments 15 to 17 would shorten the transitional period further. “The Government have seen some sense and have reduced the transitional period from 18 months to six months, but we are not being unreasonable in saying that it should be 28 days, argued Malhotra.

Under Labour’s amendments 9, 13 and 14, all foreign-bought properties would fall within the Bill’s scope, regardless of when they were purchased. (Currently the Bill applies not to all properties owned by overseas entities, but only to those bought after 1999 in England and Wales and after 2014 in Scotland.)

Malhotra said changes to Companies House’s regulation are ‘long overdue’. Labour’s new clause 7 would require that the Secretary of State lay draft legislation on Companies House reform within 28 days of this Act coming into force. She also spoke to Labour amendments relating to unexplained wealth orders and adequate funding for enforcement and investigative agencies. She backed the government’s amendments 59 to 62 and new clauses 32 and 40 which would “remove the barriers that stop the UK keeping pace with allies on Russian sanctions.”

For the SNP, Alison Thewliss spoke to her party’s amendment 41, new clauses 4 and 21 to 23, and amendments 18 to 23 and 40. Amendments 18 to 23 would lower the threshold for beneficial ownership from 25% to 10%. “Evidence already points to the threshold being gamed and to people appointing family members and those they can easily control, and the government need to be aware of that and do more to prevent it.”

Thewliss said that the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) was supposed “to tighten up on the facilitators and enablers, but while some, including the banks, flooded the system with suspicious activity reports, others appear to have taken very little responsibility for their actions.”

Thewliss said that the register proposed in the Bill “is not as transparent as the Scottish register, which will come into force on 1 April. Transparency International and the Chartered Institute of Taxation have said that the UK government could learn from Scotland on this.” She noted that the legislation as drafted does not require the disclosure of the ultimate beneficial owner of the property, but rather the disclosure of the beneficial owner of the overseas entity that in turn owns the property. By contrast, “Scotland’s register notes, per piece of land, who the beneficial owner of the land is. For example, it notes which companies have land registered to them, and who has significant control of those companies. I am sure that I could draw a diagram that would explain this better than my description, but my understanding is that if a holding company has five or six different pieces of land for three oligarchs, the Scottish register would show which oligarch each piece of land belonged to, but that the register as laid out in this Bill would not. I ask the UK Government to consider taking a lesson from Scotland, to speak to Registers of Scotland and to review changes such as this, so that we can properly understand who owns what.”

She continued, noting that the Chartered Institute of Taxation had said that “if the government’s aim is a public register of ownership of land it does not achieve this”.

The SNP’s new clause 4 “would make Companies House an anti-money laundering supervisor, as it is strange that Companies House is not,” said Thewliss. We would have pressed new clause 4 to a vote, had it not been so similar in intention to the official Opposition’s new clause 7, she added.

SNP amendment 41 would ensure that reasons are given for any company claiming to have no beneficial owner or person with significant control. “At the moment, companies do not have to account for that,” said Thewliss. 

Layla Moran, for the Lib Dems, spoke to new clause 5 and amendment 4 in her name. “New clause 5 asks the government to release the names of those who in the last year have been lobbying the government against these measures. That is important because it helps on the SLAPPs amendments, which I wholly support. These people need to now be named and shamed. It is not enough to name the oligarchs; we need to name the PR companies and the lawyers — those who seek to water down or create loopholes in this legislation.”

Amendment 4 is very small, said Moran. “It just deletes a line in clause 18. It relates to the bit of the Bill that talks about exemptions. There are three ways in which an individual can become exempt if the Secretary of State wants them to be. Two of them are reasonable. They are “in the interests of national security” and “for the purposes of preventing or detecting serious crime.” … However, the third, in clause 18(1)(b), says that the government can exempt an individual if satisfied that it is necessary to do so “in the interests of the economic wellbeing of the United Kingdom”. These are high net worth individuals. Many of them own companies that potentially employ thousands of people in this country. I do not understand why the government want to give themselves that headache.”

Backbench speeches

Former Conservative leader Sir Iain Duncan Smith spoke to amendments 24 to 27, and new clause 10, of which he was a signatory. New clause 10 “would mean that within 10 days of the report there would have to be a debate. That is important as it opens this up to a proper debate and proper scrutiny,” he said. On the amendments, he said they aimed to “strike out that little lacuna that results from the words “knowingly or recklessly”. That would make this about the responsibility of the person concerned and that would be it—there would be no let-outs, no issues and no quibbling. This is the key.”

In interventions Anthony Mangnall (Conservative), Dame Margaret Hodge (Labour) and Robert Jenrick (Conservative) all drew attention to the position of nominees. Hodge noted positively that the minister had agreed to look at her amendment 3, which sought to address this. Jenrick summed up: “Before the Bill passes into law, we need to understand whether a nominee can be the name at the end of the trail. If that is the case, I am afraid that this register will be largely pointless. If I wanted to conceal the ownership of a property, I would simply set up a shell company in the British Virgin Islands through a nominee, in which case, I am sorry to say, all our efforts today would be for naught.”

David Davis (Conservative) spoke to cross-party new clause 29. “It is a very simple clause with a simple purpose: to make sure that the sanctions we intend against the oligarchs in Putin’s regime are actually effective.” He worried that in the months it takes to get people to the legal point at which they are sanctioned we would see Russians “scrambling to sell off their houses, dispose of their businesses and offload their football clubs… Multimillion-pound car collections will be loaded into jets; anchors will be weighed on superyachts; priceless artworks will be squirrelled away”. His new clause will help to prevent all that. “It will allow the Government to publish a hitlist—forgive the tabloid term—or a list of individuals who are being considered for sanctions... Once a person’s name appears on the list, their ability to sell, liquidate or transfer out of our jurisdiction their assets—cars, homes, businesses, jets, investments, cash and so on—will be frozen.”

Dame Margaret Hodge spoke principally to new clause 2, on the funding of enforcement agencies. “In new clause 2, we ask that within 28 days of the Act being passed, the Government publish a report on the funding of enforcement agencies for the purpose of unexplained wealth orders. I would have loved the new clause to go further, but we have kept it within the terms of the Bill.”

Kevin Hollinrake (Conservative) spoke mostly about amendment 64. The amendment would simply require beneficial ownership to be registered with Companies House, which links into the Land Registry’s requirement to ensure that something is properly registered with Companies House before it allows a transfer or a sale to happen. “Without the Land Registry doing that, of course, people cannot sell or transfer a piece of land or property.” Another Conservative, Kieran Mullan, spoke in support of the same amendment.

Stella Creasy (Labour) said her amendments try to learn from tax legislation. Amendments 29, 30, 34 and 31 “are about what we might do instead of having the omission of “carelessly or recklessly”. However, I support the new clause tabled to remove those three words. The amendments recognise what all of us recognise in our day jobs: the difference between tax avoidance and tax evasion; between people acting deliberately and people acting carelessly. Our constituents understand all too well… that if they have acted carelessly they still face penalties under the law just as if they have acted recklessly. But right now this Bill does not apply the same test to the oligarchs that we are trying to challenge.”

Creasy explained that amendment 31 refers to the market value of the properties at stake and the market value of the properties that are not registered. “Subsequent amendments recognise the difference between carelessness and recklessness so that if somebody has accidently not registered a company, the penalty they might face would be lower than if they had deliberately not done it.”

Chris Bryant (Labour) said he had tabled ‘four simple amendments’. “Amendments 24 and 25 say that when someone registers or updates the register of beneficial ownership, they simply have to say whether any of the individuals that they are referring to are sanctioned individuals. That is important because it means that the people who are doing the registering have to check whether they are sanctioned individuals.” Amendment 26 removes three words — “knowingly or recklessly”. “In the Government’s version, it is an offence knowingly or recklessly to provide false information. Why on earth would we set such a high bar? … The Minister says he is going to take it to the Lords and he is going to redraft it. What is he going to redraft after taking those three words out?” Amendment 27 is important because “it is daft to have a rule that it is an offence to provide false information if nobody can check whether it is false information.”

Sir Robert Neill (Conservative) was concerned about “two important areas of potential loophole”. The first, which had been flagged up to him by the Law Society, was around the definition of registrable beneficial owner. “The PSC regime seeks to establish ownership certainly, but only ownership in the context of leading to the control of the relevant entity. It does not seek to establish who the ultimate economic beneficiary of that entity is. So we could have a situation where the register disclosed the ownership of, let us say, a corporate group, but it would not then disclose who in fact are the people behind the corporate group. It might disclose individual named nominees, but it would not then disclose the people on whose behalf the nominees hold the property.”

Neill argued that we must also be “very clear in setting out which overseas trusts are going to be caught by the legislation. Are they under the regulations or under the Bill? If we extend the definition across, we might well cover that. It is also suggested — I think there is merit in this — that guidance should be issued to honest practitioners in this field setting out which entities are in scope of the scheme and which are out of scope. That has happened in other forms of tax legislation and will be a sensible idea to take away.”

Liam Byrne (Labour) also backed removing the words “knowingly or recklessly” from the Bill. Additionally he spoke to two amendments in his name — amendments 37 and 38, which relate to strategic lawsuits against public participation (SLAPPs). He asked the minister to confirm what the Foreign Secretary and the Justice Secretary said in the media on Friday. The Justice Secretary told “BBC Breakfast” that SLAPPs were an “abuse of our system and I’m going to be putting forward proposals to deal with that and to prevent that”. The Foreign Secretary later told The Guardian that she had asked government lawyers to “find literally any way” to crack down on SLAPPs. “I would like this minister’s confirmation that that is indeed going to happen,” said Byrne.

David Linden (SNP) spoke to amendment 63 in his name. “My amendment seeks to close off a loophole: we could apply significant financial penalties to an individual, yet said individual, even if they lived overseas, would still be able to vote and, more concerningly, donate significant sums to UK political parties and influence our elections.”

Hywel Williams (Plaid Cymru) offered his party’s support for amendments 42 to 44, tabled by Margaret Hodge, to toughen penalties for non-compliance with the register, and also offered support for her new clauses 2 and 3. “We will also be supporting new clause 3, as well as amendment 41, tabled by my SNP colleagues, in order to curb the ability of shell companies and other indirect ownership instruments, as well as their paid London enablers, to obfuscate ownership structures for their clients. Those measures, along with new clauses 4 and 9, will tighten the massive loophole that prevents us from having a properly resourced, properly empowered and properly directed Companies House.”

Dame Angela Eagle (Labour) supported all the amendments that are intended to close loopholes in the Bill, “narrowing the gap between the government’s rhetoric and the reality of what it is possible for them to do, strengthening the legislation, and ensuring that we have transparency so that we know who owns what, so that people can indeed be sanctioned, and so that their progress across our financial system can be followed in a meaningful way to make sanctions a reality.”

Minister’s closing speech

Paul Scully, the minister, responded to some of the amendments in his wind-up speech.

On SLAPPs he said the Deputy Prime Minister made a call for evidence on Friday, “and it is definitely not just a listening exercise.”

On nominees, he said: “If nominees are directed by someone else—say, the beneficial owner—the person doing the directing is caught by condition 4 in paragraph 6 of schedule 2 and is therefore a registerable beneficial owner.” Robert Neill and Margaret Hodge had both made important points, and he is keen “to work with them in the coming days to make sure we do not leave any gaps. We have a common interest in doing so.”

He repeated that he sees merit in requiring all those selling property to submit a declaration of their details at the point of transfer of land title during the transition period. “In effect that means we will be giving sellers a zero-day transition period.” However this is difficult to draft. He invited Kevin Hollinrake to sit down with him to give this further consideration ahead of finalising the Bill in the Lords.

On Labour’s new clause 7, which would require the government to lay draft legislation on Companies House reform within 28 days of this Act coming into force, the minister said it would serve little purpose to introduce new legislation at the end of this parliamentary session as it would actively harm the quality of the measures we are introducing in the broader economic crime Bill early in the third Session.

Amendments 24 and 25 seek to add to the list of statements an overseas entity must provide to the registrar when applying for registration or when complying with the updated duty. The minister said he saw the merit of the proposals made by Chris Bryant, and the government will look further at the proposals ahead of debate in the Lords.

Amendment 26 may just remove three words, the minister said, but “it is our opinion that removing those three words may have unintended consequences. It is not quite as easy as simply taking out those three words.” He would like to work with Chris Bryant to make sure that, “if there are any unintended consequences, we can have something that gets the drafting absolutely correct. I therefore ask him not to press the amendment”.

On new clause 29, the minister commended David Davis for his ‘innovative suggestion’. “We strongly support measures to ensure that sanctions are effective. The government amendments [in this area] will ensure that we can go further and faster to make new sanctions designations. It is hoped that our amendments will go a significant way towards dealing with the kinds of situation that my right hon. Friend may have in mind.”

The minister thought Margaret Hodge’s amendment 3 “would not have the effect that we believe is sought, but I can see the potential merit in such an amendment and assure the House that we will look further at the intent behind the proposal to see whether there is a workable alternative.” He thanked Hodge for her new clause 2, which seeks to place an obligation on the Secretary of State to provide additional reporting on the funding of enforcement agencies.

New clause 4, tabled by the SNP, would make the registrar of companies the AML supervisor of overseas entities. “We believe that is unnecessary as the Bill already requires the verification of registerable beneficial owners and the managing officers of overseas entities, said Scully. “We expect that that will be done by a UK anti-money laundering supervised professional so believe that such supervision is already in place.”

Finally, on amendment 4, the Bill currently enables the Secretary of State to exempt a person from the requirement to register in three circumstances. “The circumstances outlined in the Bill have been carefully considered to provide clarity and flexibility for unforeseeable but legitimate scenarios. Given that the register’s key objectives are to improve transparency and combat money laundering, the exemptions will be used carefully for evidenced and legitimate reasons.”

Voting

The House then moved to votes.

Government amendments 45 to 62, and new clauses 31-39 and 41, were passed without division

All clauses and schedules of the Bill (as amended) were agreed to without any division.

There were divisions on the following three new clauses -

New Clause 2 (Dame Margaret Hodge) - Ayes: 229, Noes: 303

New Clause 7 (Labour) - Ayes: 225, Noes: 306

New Clause 29 (David Davis) - Ayes: 234, Noes: 300

Other amendments and new clauses were not moved.

The Bill was granted a third reading without a debate or a division.

Read the full Hansard of the committee stage debate here.

Wednesday 9 March - House of Lords second reading debate

In the second reading debate for the Bill in the House of Lords, peers united against the conflict in Ukraine, and welcomed the government’s realisation that more needed to be done to tackle illicit money in the UK economy. On the specific issue of the government’s proposed register of overseas entities, there was cross-party (and crossbench) unity on the need for the government to bring forward tougher measures to flush out the true owners of British property, with hope that enforcement will be strengthened with a second economic crime Bill presented to parliament later this year.

Opening frontbench speakers

Leading the debate on behalf of the government, Home Office Minister Baroness Williams of Trafford welcomed the cross-party support for the Bill and reminded Peers that in light of Russian action in Ukraine, the aims of the Bill were to make it easier to “identify, investigate and sanction the illicit wealth of those who wish to abuse our open economy”.

She told the Lords that the proposed register of overseas entities would “provide more information to help law enforcement identify those using UK property” for money laundering purposes. Baroness Williams said that the register would extend “the same beneficial ownership requirements…as already apply to domestic companies”. Information provided will need to be verified, evidenced and updated annually, with criminal penalties for non-compliance. These rules will apply retrospectively to 1999 in England and Wales, and 2014 in Scotland.

Williams explained that the register had been “the subject of extensive consultation and pre-legislative scrutiny” and that work continued to ensure it was fit for purpose. A transition period will be put in place as an “essential protection” for those legitimately holding properties though overseas entities and measures will be put in place to identify those seeking to evade their responsibilities prior to its introduction.

Baroness Williams also confirmed that a further economic crime Bill will be published in the next session of parliament. Among its objectives will be major reforms to Companies House, action against the abuse of limited partnerships and actions targeted at crypto assets and money laundering.

Baroness Chapman of Darlington (Labour) welcomed the introduction of the Bill but noted that the government’s position was far removed from the start of 2022, when she said ministers “did not want to treat this as a priority issue”. She described the proposal for a register as “much-needed” but said its success was dependent on tougher measures being considered as part of the subsequent Bill promised in the next session of parliament.

Baroness Kramer (Lib Dem) also welcomed the government’s commitment to bring forward further legislation and implied that efforts to address problems with Companies House, limited partnerships and cryptocurrencies were overdue. Kramer was concerned that the six-month transition period would offer an ‘escape-hatch’ for those seeking to evade the law, but conceded it was an improvement on the initial 18-month window proposed by the government. She suggested ministers should look at making penalties for non-compliance retrospective, “a technique used by HMRC, particularly against small taxpayers under the loan charge, and it seems ideal to be adapted to this particular set of circumstances.”

Kramer also questioned why ministers were being handed “sweeping powers” to exclude people from the provisions of the register in the interests of the UK’s economic wellbeing. She said this was an “incredibly broad” and “particularly inappropriate” criterion, given the depth of foreign involvement in the British economy.

And she called for action to “deal with the network of enablers: the legal firms, the accountants, the developers, the banks—in effect, those who have opened the gate to dirty money and used all their skills to keep it open”.

Backbench speakers

Crossbench Peer Lord Vaux of Harrowden described the register as a “good start” but warned that it may ultimately prove to be ineffectual. He said; “Innocent people will provide the required information—which is useful in itself—but those who are using offshore structures dishonestly to hide their identity will still be able to do so”.

Lord Vaux continued; “while the new rules will prevent a property being sold once the rules are in force until the entity is registered, this does not stop the sale of the company, or, indeed, of a company further up the chain. The Bill will therefore not prevent a criminal realising the value of the property.”

Lord Garnier (Conservative) also called for action to ensure that beneficial owners were properly disclosed. “If what the government want, as suggested in some government statements, is to reveal the real identities of foreigners who own UK property, we need to ensure that the Bill will achieve precisely that. The legislation, as currently drafted, does not require the disclosure of the ultimate beneficial owner of the property, but rather the disclosure of the beneficial owner of the overseas entity which in turn owns the property.”

Lord Clement-Jones (Lib Dem) lamented the toothlessness of the legislation because it would fail to comprehensively tackle the enablers of hidden wealth.

Lord Londesborough (Crossbench) agreed, adding he believed “individuals would still be able to hide their true identities through nominee agreements with professional service firms.”

Viscount Colville (Crossbench) welcomed the government’s efforts to create a register of overseas entities, but he too was concerned that the proposals, as introduced, would be limited in their effect given that “much of it (property) is held by companies registered in the Crown dependencies and overseas territories (CDOTs)”. He cited research from the campaign group Transparency International that 55 per cent of the £1.5 billion of London property held by Russians is registered in the CDOTs.

Viscount Waverley (Crossbench) quoted the Chartered Institute of Taxation’s pre-debate briefing, which expressed concern over the failure of the Bill to adequately reveal the full details of foreign ownership. He said: “If the government’s aim is, as suggested in some government statements, revealing the real identity of foreigners who own UK properties, the institute does not believe the Bill will achieve this. This is because the legislation, as currently drafted, does not require the disclosure of the ultimate beneficial owner of the property, but rather disclosure of the beneficial owner of the overseas entity which, in turn, owns the property.”

Closing frontbench speeches

Lord Fox, for the Lib Dems, said that the government should embrace the issue of enablers more firmly. “As we have heard, these are the lawyers, estate agents and accountants helping the kleptocrats… This Bill needs to explicitly target those professional services that knowingly create the comfort that has been enjoyed by Russian kleptocrats, and indeed by other thieves from around the world. They need to feel the heat. This is an issue that we will come back to on Monday, following up the excellent speech by my noble friend Lord Clement-Jones and the amendment that I know he has tabled.”

Lord Coaker summed up the debate for the opposition, telling Peers that “There must be no hiding place or safe haven” for those seeking to launder dirty money in the UK.

Summing up for the government, the Parliamentary Under-Secretary for the Department for Business, Energy and Industrial Strategy, Lord Callanan (Conservative) defended the six-month transition period as having a struck a proportionate balance given that “the majority of properties held via overseas entities will be owned by entirely law-abiding businesses and people”. And he also defended the “comprehensive” regimes in place to ensure that “so-called professional enablers” comply with the rules, citing strengthened money laundering regulations among a range of measures introduced to tackle illicit money

On the specific points made by Baroness Kramer and Lord Garnier in relation to the use of trusts and beneficial ownership, Callanan said that “if the assets are owned via an overseas legal entity, then this entity is within the scope of the draft Bill and will be required to register the trustees as beneficial owners with Companies House and state the reason that they are the beneficial owner—that is, because they are the trustees of that trust.”

He added that HMRC’s register of trusts provides information that can be shared with law enforcement to ensure compliance and the new register of overseas entities would help investigators to “get behind opaque companies” and explore property beneficiaries.

Responding to concerns from Baroness Kramer over the power granted to ministers to exclude economically important groups from the register, Lord Callanan acknowledged the concerns but outlined that steps had been taken during pre-legislative scrutiny of the proposals to make exemption criteria explicit in the Bill. Such exemptions, he said, would be “used very carefully, and only for evidenced and legitimate reasons”.

The Bill passed its second reading in the Lords and will move to its committee stage on Monday 14 March.

Read the full Hansard of the second reading debate here.