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The hon. Member for Newcastle-under-Lyme claimed that the new clause was too widely drawn. That is a serious accusation against it. However, I believe that it is narrowly drawn. It would provide that the Secretary of State had to find a specific set of facts to do with violence and intimidation before being allowed to close the register. If the Secretary of State failed to do that properly, there would be a possibility of judicial
review. That is not the full system of independent review that the right hon. and learned Member for Sleaford and North Hykeham (Mr. Hogg) mentioned; nevertheless it is an important safeguard.
Let me outline what makes the new clause much narrower than the proposal that was made in Committee and therefore acceptable. First, it would provide for the Secretary of State to prescribe circumstances in which, despite the closure of the register, information could be given out. That is an important difference between the proposal that was made in Committee and the new clause. As I said earlier, it deals with the problem of investigative authorities, perhaps even investigative journalists, being locked out of proper investigations.
Secondly, the new clause includes an important element of our original proposal. The closure of the register should not prevent people from getting legitimate, lawful information to shareholders. The purpose is to prevent the violent intimidation of shareholders, not stop information getting to them. We proposed that a company that wished to invoke the new procedure should undertake, at a reasonable fee, to direct to its shareholders any information sent to it for them. The new clause maintains the right balance. Often, there are legitimate campaigns, even in industrial relations, and it is important that people get information to shareholders, perhaps over directors’ heads. An important point about openness and transparency was made in Committee. The new clause preserves at least the essence of the proposal that was made in Committee.
Paul Farrelly: Will the hon. Gentleman direct me to where the new clause would safeguard openness and transparency in circumstances in which the company constituted the block and had thus taken advantage of the measure to keep members secret? Secondly, will he direct me to provisions in new clauses 16 and 17 for a right of appeal against the Secretary of State’s decision?
David Howarth: On the hon. Gentleman’s second point, there is no right of appeal but there is always a right of judicial review. To answer his first point, I would draw his attention to subsections (7), (8) and (9), which provide for a system to be set up by which a company has to pass on information subject to the charging of a reasonable fee, and which determine that failure to do so is a crime.
It is ironic that some of us have been worried about the extent to which the Bill uses criminal penalties. It is perhaps a legitimate criticism of the Bill that it seems to go first to the criminal law, rather than using it as a last resort. Having listened to the views of the hon. Member for Newcastle-under-Lyme and others, however, I believe that it would be justified, if there were a serious risk that the provision would not be complied with, to back that right with a criminal penalty. The hon. Gentleman is right to think that there might be a connection between closing a register and not wanting information to be passed on.
The proposal in new clause 16 is worth while, but it will not be used very often. Indeed, it will be used only in the most extreme circumstances. The main safeguard against its being used too widely is the Secretary of State. The hon. Gentleman says that it puts too much
pressure on the Secretary of State, but I disagree. I think that this is just the kind of decision that Secretaries of State are employed to make, and I am sure that if they did not do it very well, their decisions would be subject to judicial review and perhaps also to the scrutiny of the House.
The Solicitor-General: I am trying to follow the hon. Gentleman’s argument with care, but I am still not sure why he takes the view that the decision should be made not by the courts—as set out in clause 117—but by the Secretary of State, with the safeguard of having the courts in the background. What is the point of this? I cannot follow the nub of his argument as to why the Secretary of State should make this decision, rather than the court.
David Howarth: That is an interesting point. The question that I would ask in return is: if new clause 16 proposed that the court should make the decision, would the Solicitor-General accept the system as one that he would wish to adopt? Is it that important?
Mr. Hogg: Perhaps the difference is that, under clause 117, the test is that of proper purpose, whereas under new clause 16, the question is one of risk. The two do not necessarily overlap.
David Howarth: That is absolutely correct. They are different concepts in terms of what has to be found, although either the Secretary of State or a judge could find in either instance. It is a close judgment between whether the Secretary of State or a court should do this. I have a preference for the Secretary of State, because the kind of circumstances that are likely to arise are so varied that the Secretary of State would be in a better position to judge all the different circumstances. He would also be in a slightly better position to gather all the evidence. If, however, one were to take the view that a court would be in a better position to gather the evidence and to take advice, one could establish the same system using a court. The question would then be: would the Government and the hon. Member for Newcastle-under-Lyme accept the new clause on those terms?
Paul Farrelly: The question does not really apply, because the new clause does not say that. These are the new clauses that we shall be asked to vote on later. I find it odd that the proponents of smaller government on the Conservative Benches, and the Liberal Democrats, who are proponents of more devolved government, should believe that this is the kind of decision that should be taken by the Secretary of State, day in, day out, rather than by a court, where the case could be put in far more detail.
David Howarth:
These decisions would not be taken day in, day out. One of the important aspects of the proposal is that it would be used only rarely and sparingly. There are also policy matters behind the proposal, as has been revealed in the debate. As I have said, it is a close judgment as to whether a court or the Secretary of State should make these decisions, but on the whole, I believe that the Secretary of State is in a better position to make them, subject to judicial review.
The proposal is far more narrowly drawn than the one that we discussed in Committee, and it meets a specific need. The provision in the Bill is good, but it is not quite enough. I urge the House to support the new clause.
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Mr. Austin Mitchell: We are making heavy weather of a straightforward issue, although it was fascinating and quite a spectacle to see the Lib Dem spokesman, the hon. Member for Cambridge (David Howarth), struggling to maintain a foot in both camps, in his usual fashion and in his lawyerly way. However, the issue is clear cut and we should not accept new clauses 16 and 17 because they conflict with something quite basic, which is access to information, openness and full accountability.
I, of course, have every sympathy with the shareholders of Huntingdon Life Sciences who were threatened, but to introduce such a complicated arrangement would mean invoking a sledgehammer to crack a few nuts, because those people were being persecuted by lunatics—there is no other word for them. There is no way to protect everybody who might be threatened by such lunacy and no reason in relation to such a threat to invoke secrecy of the kind that would be invoked by new clauses 16 and 17. An important principle of openness would be breached just to avert a few much exaggerated—although I am sure painful for the shareholders—incidents. We should oppose these proposals, and in doing so I commend my amendments Nos. 758 and 683, which run in the direction of openness and against the spirit of the new clauses.
Mr. Llwyd: The hon. Gentleman has expressed sincere concern about those affected in relation to Huntingdon, and there are other examples as well, but he should not simply describe the people who are perpetrating such acts as lunatics. They are plausible and intelligent, they make up a network and they are an increasing danger. The next people to be eyed up will be those such as me, who enjoy fishing at the weekend. This is a growth area. I know that he is taking the point seriously, as I would expect of him, but there was a real risk in relation to Huntingdon, and the Cambridge example as well. I foresee many others in the coming months and years.
Mr. Mitchell: The principle the hon. Gentleman’s invokes is that we should not publish any information about anything or anybody. In relation to his fishing activities, I picture him in his waders in the rivers of north Wales, which is a touching spectacle—but that that must be kept from the public eye, and that his name and address should not be published because he goes fishing, would be to go to extreme and silly lengths to avert something that is haphazard and low in incidence. The people we are discussing should be dealt with by the law for threatening behaviour, rather than by us closing down all access to information that they might use.
The same principles that are being used to invoke this closure of information could be used to close the electoral roll, which might be used by people to enable them to send out bumf, go out knocking on doors,
check people’s credit or even check their existence. Because the electoral roll could be used in that fashion, should we not publish it? We cannot negate a fundamental principle of shareholder democracy to avert the action of a few people, which is wrong and which can be prosecuted through other means.
The fundamental principle is that the list of shareholders should be published. That is what gives this corporate body that we have introduced an identity. For instance, my amendment No. 758 would stop the use of nominee names. Shareholders in Huntingdon Life Sciences could have used nominee names if they did not want their names to be known, but I would stop that practice entirely, because if people use nominee names, what is the use of a register?
The principle of a joint stock company is that there has to be a register, so we know who is investing, what the company is about and who supports it. If we remove that principle, we attack the fundamentals of the joint stock company and the principles on which such companies were granted their corporate identity in the 19th century. Anonymity will always be abused.
Under new clause 16, a company could designate itself as conducting undesirable activities. It could say, “We have something to hide. Let’s keep our registers secret so that no one knows who is investing in us.” That principle would apply not only to Huntingdon Life Sciences, but to the arms trade or the tobacco industry. It could be very wide ranging, and any company in an industry that is subject to public criticism could designate itself as doing something shady, so that it has to hide its operations. If we had legalised brothels, as in New Zealand, the companies running those brothels, which might indeed be indulging in nefarious activities, would want to hide in the same way.
We are obviating any principle of shareholder democracy. If shareholders want to mobilise and organise themselves, and want to try to gain some countervailing power to the power of the directors, they must be able to find out who the other shareholders are. That is a big job when the company is a multinational or a bank with thousands, or possibly millions, of shareholders. It is an enormous job for shareholders to organise themselves against directors, given the weight and strength that directors have as a result of all their proxy votes, which they accumulate and use, ad lib, to crush the emergence of any shareholder opinion. That is an impossible job unless the names of the shareholders are published.
If we want to encourage investigative journalism—there is not enough investigative journalism in this country; things are handled far better in America—journalists must be able to investigate who the shareholders of the company are, so that they know what the company is about and what it is doing.
Paul Farrelly:
May I give my hon. Friend an example? I once investigated a publicly quoted company that was suspected of involvement in laundering money from one of the former Soviet republics in Asia. The investigation proceeded through an examination of the company’s shareholder register, and the shareholder register of
companies that were in turn its shareholders, and links to some rather unsavoury characters were found. If I were running such a company, and the new clauses were added to the Bill tonight, the first thing that I would do is apply under the scheme. I would say, “My company operates in a former Soviet republic where violence and torture go on all the time. There is a serious risk of my shareholders being targeted if you do not keep their identities secret.”
Mr. Mitchell: I am grateful to my hon. Friend, who was of course in the investigative journalism trade—and a very good trade it is, too. I was in the electronic media, so we did not do any investigation. We just shouted at people, which was perhaps a mistake; perhaps we conducted ourselves at too low a level.
The principle is absolutely clear. We cannot accept either of the new clauses, because under new clause 17 the onus on companies is replaced by an onus on shareholders to say, “I am investing in something murky, please do not disclose my name.” That does not apply only to people who want to hide from possible persecution. The ability to remain anonymous, which would be checked by my amendment No. 758, is also used by tax evaders, money launderers and criminals. Will they, too, on the same principle, have the ability to hide? Or will they put all their money in Huntingdon Life Sciences and then hide themselves?
Paul Farrelly: My hon. Friend talks of criminals and fraudsters. The hon. Member for Cambridge (David Howarth) says that applications made under the new clauses would be scarce, but he tends to underestimate the ingenuity of fraudsters. If I were a fraudster, given this provision and certain precedents that may be set by decisions taken by the Secretary of State, I would wish to put my company in the position where I could claim that my shareholders were subject to the risk of violence and intimidation. For instance, I might have two people in an office putting drops in a rabbit’s eyes, or I might set up a small subsidiary in a violent place. I could therefore close my shareholder register and prevent legitimate investigation of the various connections that my company has, if they are unsavoury.
Mr. Mitchell: I am grateful to my hon. Friend for making that point.
David Howarth: If what the hon. Member for Newcastle-under-Lyme (Paul Farrelly) says is true, companies, by applying for this protection, would be fingering themselves as potential fraudsters, so the risks to them would be quite great. Therefore, they would not do it.
Mr. Mitchell:
I am glad to see that the Liberal faith in human virtue and the virtue of companies lives on. Lots of organisations have something to hide, and lots choose to hide it. I do not want to provide any more opportunities for them to do so. New clauses 16 and 17 provide massive, unnecessary machinery to deal badly with something that, I am afraid, must just be accepted and can be dealt with in other fashions, and for which we should not breach the principle of full openness or full sunshine. My amendment No. 758 sustains the fundamental principles on which the new corporate identity was given to joint stock companies. If
somebody is to be responsible, the legal personality created for the convenience of business must be rooted in identifiable shareholders whose names are known and whose interests can be investigated.
Amendment No. 683 is an effort to control the big trade in companies bought off the shelf. The technique is widely used by money launderers. Money laundering would be extremely difficult were it not for accountancy firms having the ability to set up shell companies in that way. I wrote an article about a money laundering racket by AGIP some years ago, in which Grant Thornton established shell companies in Jersey to launder money from that interest. It goes on all the time. Enron used it spectacularly on an enormous scale. If we are to deal with that issue, we need to know who the beneficial owners are, who is setting up the company and who is answerable. Currently, there is no requirement for third party agents such as accountancy firms who submit company formation papers to Companies House to collect and verify the ownership information for the company. Therefore, owners can conceal their identities and carry on their nefarious business. The principle of full openness, for which I am speaking, should therefore be extended to cover such shell companies. We should maintain that principle, not infringe it.
Mr. Hogg: I shall confine myself to new clauses 16 and 17, and largely to new clause 16. I acknowledge that my hon. Friend the Member for Huntingdon (Mr. Djanogly) has a serious point and is right to put forward the new clause. In its present form, it is not satisfactory and needs adjustment, but I understand and agree with the general motive that lies behind it. The Government are right that clause 117 goes some way to address the problem, and they are to be congratulated on having put it into the Bill. There are at least three problems with clause 117, however, which cause me to think that an additional provision, along the lines of that put forward by my hon. Friend, is necessary.
4.30 pm
The first problem with clause 117 is the proving of motive. Motive is often difficult to prove. In this instance, it is likely to be particularly difficult to prove and the courts may therefore be unable to determine what it is. A second, and quite different, problem is that even when it is possible to have an idea of the motive, it may not be so easy to show that it is not a proper motive. That takes me to my third point: what is a proper motive, or an improper motive? I can understand why the Government have not sought to define “proper purpose”, but the phrase is pretty opaque, and an opaque phrase is not likely to be a terribly valuable safeguard.
Clause 117 is directed primarily at motive, while new clause 16 is directed primarily at consequence. They are not the same. A person may have a perfectly proper motive for finding out addresses, but if those addresses fell into the hands of a third party who was not so properly motivated, that might well constitute a serious risk. There is not the necessary overlap between clause 117, which is directed at motive, and new clause 16, which is directed at consequence—as, indeed, is new clause 17.
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