My Lords, I declare my interests as in the register. My various amendments in this group are all part of the same process and seek to change the proposed arrangements so that, although there would still be a register and companies would still need to know their shareholders, there would be no requirement to send details to Companies House. If the company in question did not wish to give access to the register, access would be by way of an application to the court, which would then be limited to security, taxation and law enforcement reasons—implicitly by those three categories of bodies. The Bill thus amended would comply with the G8 commitment, which I was pleased that the noble Lord, Lord Mitchell, read out. It specifically did not commit to a public register but committed to making the information on share ownership able to be accessed by security, taxation and law enforcement authorities.
As I argued at Second Reading, the Bill’s proposals for a public register as they stand are, in my view, flawed on several counts. I think we all agree on the need to address the issue of anonymously owned companies having connections with terrorist groups or evading tax—I might add that the same goes for charities, where the record of involvement is under some question. My amendment addresses this by allowing security, tax and criminal law enforcement bodies access. Indeed, the provisions in my amendments could be adapted to simply obliging companies to provide the information on controlling interests to those three bodies.
My point is that there is really no need for public access, which is potentially open to abuse. The Bill as it stands overturns 200 years of the right to privacy under UK company law without really debating it. Transparency of ownership relates to whether a company is public or private under British law. As has been pointed out, publicly listed companies have to make an announcement that goes right down to a 3% shareholder, but for a private, family business, privacy has generally been accepted.
The categories of privacy that are protected are contemplated in the BIS October 2014 consultation, and the Government have since responded further to that. Those categories relate to people who are at risk of intimidation or violence, but there are many other areas in which protection of ownership should be justly considered. The measures, as they are likely to evolve, would be expensive to operate and, at the end of the day, decisions about where people need protection are relatively subjective. The Government’s recent advice on secondary legislation suggested that they would confine protection to situations risking violence or intimidation. I suggest that that would be far too narrow to be just. There are a number of situations where families would be open to press vendetta, for example, should they be thus exposed.
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I believe that there are five key issues at stake in this territory: the first, self-evidently, is fighting crime; the second is the right to privacy; the third is the cost of
regulation and the never ending increase in regulation, notwithstanding the Government’s commitment to the contrary; the fourth is encouraging investment in the UK; and the fifth is the legal problems posed—and, indeed, the expenditure required—by the Bill’s provisions.
On fighting crime, I suggest that the Bill is virtually ineffective; in practice, it is really window-dressing for the NGO lobby. As I have already said, the guilty can use non-UK companies or not bother to register, as there is no verification process. Indeed, an important related issue is that, without a verification process, the arrangements do not meet the required FATF standards. Ironically, although the FATF does not call for public registers, it does require that there should be appropriate third-party verification of the information. I spoke a few minutes ago on the issue of casually overriding privacy. The key point there is that companies themselves need to know who their shareholders are.
On the regulatory costs, a major issue of concern has been rightly raised by small business. The cost estimates seem to be all over the place—I have seen estimates of as much as £2 billion or potentially even more—which is related to the issue of the very large number of small companies, about which I have already spoken. Can the Minister say whether any assessment has been made of the number of companies that will be affected? I have seen a figure of some 5 million, which is why the aggregate costs of this legislation are likely to be larger than the Government have estimated.
On the impact on British investment, it is extremely unlikely that any other jurisdictions will adopt public registers; indeed, that is what other jurisdictions have so far intimated. If they do anything, they are clearly going to move towards granting access to the three authorities that would justly need it. The major investors in this country—from China, from south-east Asia and from the oil states—feel very strongly about the privacy of their investments and would have absolutely no intention of their ownership of businesses operating in this country being made available to every Tom, Dick and Harry through a private register. As a result, I think that we will see the rather silly business of investors from those parts of the world investing in this country through non-UK companies. Again, that would potentially lose the sale of legal services in this country and could potentially lose tax. The key point is that because the arrangements do not apply to non-UK companies, the provisions of the Bill are essentially avoidable.
There are also potential practical legal nightmares, because the Bill’s provisions apply not just to those who have 25% ownership but to those with “control”. The definition of “control” is legally problematic. If the legislation goes ahead, lots of court cases will come up on whether someone actually has or does not have control. Even with 25% ownership, in some cases control may be exercisable by another party—for example, when an individual delegates the management of their investments to a fund manger.
Significant causes of concern have been raised by the financial services industry in these areas, specifically by the Association of Pension Lawyers, the BBA and the British Private Equity & Venture Capital Association. The BIS impact assessment contains no justification
for the measures in the Bill. It makes it clear that there are few or no data or academic studies on quantifying a reduction in crime as a result of a public PSC register. Indeed, the assessment failed to consider anything other than the two options of doing nothing or the provisions of the Bill.
To conclude—the 14 amendments to which I referred essentially cover the territory—the proposals are ineffective and avoidable as they stand because they apply only to UK companies. They will not work and are likely to be a source of confusion about who or what is a shareholder with significant control. No verification enables the guilty, especially non-residents, to avoid or evade participation. The protection arrangements as formulated are too narrow but, as would be required in justice, would be quite complicated and expensive to administer. I regret that I see what is in the Bill as essentially window-dressing to please the NGO lobby and as a diversion from the real mechanism for beating crime, which lies with the money-laundering regulations.
We all believe it is right that companies should know their shareholders but not that competitors, spammers or journalists should all have access to precisely who owns what. The BIS impact assessment does not support the Government’s contention that this reform will be good for business and the UK business environment. That impact assessment actually states:
“There is a risk that we have not accurately accounted for this potential impact on overseas investment in the UK and UK competitiveness … particularly since the UK will likely be a ‘first mover’”.
I am deeply disappointed that a Conservative-led coalition Government should have put forward such ineffective and often wasteful legislation. The objective is clearly to please a particular lobby and to give the impression that the Government are doing something bold and imaginative here. I regret not just that many members of the public from the NGO lobby have been given that wrong impression but that it seems that many Members of your Lordships’ House have as well. If this legislation goes ahead, it will be avoided very easily and will not meet its objectives. It will just be another regulatory burden on the innocent.