My Lords, Clause 78 and Schedule 3, which it introduces, will fulfil the UK’s 2013 G8—now G7—commitment to implement a central register of the people who have significant control over UK companies. I am grateful to all those who have spoken on this vital reform. I concur with everything that my noble friend Lord Flight said about the amazing growth of small businesses in this country and the ease of company formation compared with elsewhere. I think that everyone in the Committee shares his wish to try to keep things that way.
Perhaps I may start by outlining what this reform seeks to achieve. The register of people with significant control will ensure that we know who ultimately owns and controls our companies. This will help us to tackle the criminal misuse of UK companies, and that includes shell companies. Perhaps I may also quote the Prime Minister:
“For too long a small minority have hidden their business dealings behind a complicated web of shell companies, and this cloak of secrecy has fuelled all manners of questionable practice and downright illegality”.
Therefore, my noble friend Lord Leigh rightly called this change one which has a noble purpose.
The Metropolitan Police force and other enforcers have highlighted this problem, providing numerous examples to us of fraud, corruption and tax evasion facilitated, I am afraid, by UK companies. The register will also ensure that we meet international standards that aim to prevent terrorist financing and money laundering. It will allow us to implement the soon-to-be-adopted EU fourth money laundering directive.
My noble friend Lord Flight asked whether non-UK shell companies would be caught. The Bill does not apply to non-UK companies, but UK companies owned by non-UK companies will be required to disclose PSCs.
I know some noble Lords will be keen to understand why the register has to be made public. There are a number of reasons for this. Allowing public access is
entirely consistent with the way that other company data—such as that on shareholders and company directors—is made available. Public access also helps ensure the accuracy of the data not only because people can flag up inaccuracies and omissions but because the public nature of the data should in itself encourage people to ensure they file correct information first time round. Finally, a lack of corporate transparency does not just affect the UK and UK citizens. As the noble Lord, Lord Watson of Invergowrie, said at Second Reading, the cost to developing countries of companies’ illegal behaviour is “quite staggering”. A public register will support citizens in these countries easily and quickly to access information that will help them hold their own companies and Governments to account.
My noble friend Lord Flight expressed a concern that these new rules were coming in and small companies would not know about them. I understand that point. We are, therefore, setting up a working group to develop guidance on the PSC register. We will ensure—and I can promise this—that a representative of small business sits on that group. One of the group’s tasks will be to work out how best to communicate these reforms before they are implemented in 2016.
The noble Lord, Lord Mitchell, asked why there was not a clear definition of PSC. I think PSC is clearly defined in Schedule 1A and this will be supported by statutory guidance on the meaning of “significant influence or control” and wider guidance on the meaning of PSC more generally, which the working group will help us to develop.
I turn briefly to the amendments—which actually pull in both directions because of the way in which the grouping has been done. Amendment 36A would exempt small companies from maintaining a PSC register or filing the information at Companies House. Clearly, we must minimise burdens on business, and small business in particular, wherever we can. However, I have looked into this and it is not possible to exempt small businesses in this case. It has been widely identified, including by UK law enforcement agencies, that small companies, including shell companies and micro-companies, are frequently used for criminal purposes, as my noble friend Lord Phillips of Sudbury explained.
As the noble Lord, Lord Watson, helpfully pointed out, the burden of applying the rules in any individual case will not be great. It is the cumulative effect of the compliance costs of lots of different companies that leads to a big figure, but the amount of extra information that individual companies will have to supply is, in most cases, very small and we will see the benefits in terms, we hope, of reduced crime and wrongdoing generally. Exempting small companies or micro-companies would significantly risk undermining our intention to tackle the misuse of UK companies and would be contrary to our intention to ensure enhanced transparency, as set out in our G7 commitments.
My noble friend Lord Flight will doubtless also be aware that small companies will be in the scope of the fourth money laundering directive, once that is adopted. Even if we were to find a way of exempting them now, or wished to do so, we would need to re-include them when that directive was transposed.
My noble friend Lord Leigh asked about spouses. I can confirm that a spouse could be a PSC, so if one or more individuals meets the specified condition they will be a PSC whether or not they are married to another shareholder.
I turn now to Amendments 37ZA and 37B. As I have said, we are committed to reducing duplicative reporting and burdens on business. That is why companies listed on UK markets already subject to stringent disclosure and transparency requirements are not required to maintain a PSC register. We have also taken a power that would allow us to exempt other types of company, provided they are bound by similar requirements. For example, we might want to exempt UK companies listed on EU-regulated markets. The same principle applies in relation to those specified circumstances where a company may be listed on a PSC register in place of an individual—that company must also be subject to adequate disclosure and transparency requirements. In deciding to exempt a company, the Secretary of State must have regard to these disclosure requirements. Failure to take them into account would expose him to the risk of judicial review and run counter to our commitment to ensure transparency. The amendments tabled by the noble Lord, Lord Mitchell, are therefore unnecessary to ensure that the powers are used as we would wish.
Amendment 37C would prevent the Secretary of State from exempting a legal entity from needing to be noted in the PSC register except in exceptional circumstances. I confirm that this provision would only be used in exceptional circumstances. However, that fact is implicit in the current drafting of Section 790J(3).
Amendments 48 and 49 would extend provisions in Schedule 3 dealing with limited partnerships to foreign limited partnerships. I cannot add a lot to the very clear explanation given by my noble friend Lord Leigh. I agree that the PSC register should only contain information on individuals who exercise significant control over our companies. I am keen to ensure that we do not inhibit or hinder investment into UK companies or the good partnerships that have been developed. We could extend the limited partnership provision in a way that does not damage the efficacy of the register or, as my noble friend Lord Leigh said, open up risks, for example, in relation to loss of tax. I am therefore grateful to my noble friends Lord Leigh and Lord Flight for tabling these amendments and intend to consider their proposals further before Report.
Finally, on Amendments 47B and 50A and the PSC register, the noble Lord, Lord Mitchell, was right to probe us in this area. Having listened to the arguments, I see merit in requiring the statutory guidance on “significant influence or control” to be subject to the negative resolution procedure. I similarly see the benefit of requiring increased parliamentary scrutiny over regulations setting out exceptions to the ban on corporate directors. I therefore intend to consider both amendments and return to them on Report. In relation to the other amendments, I hope my explanations have provided reassurance and that noble Lords will feel content not to move them.