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or, if such proceedings relate only to intellectual property rights, in any jurisdiction.
annulment in pursuance of a resolution of either
and after prior public consultation on the terms of a draft statutory instrument.
Margaret Hodge: The amendment will permit disclosure to be made for civil proceedings overseas. In Committee, I agreed to consider a useful proposal made by the Opposition to allow disclosure for overseas proceedings by intellectual property rights holders. I agreed to consider this, as I recognised that brand owners and those with an interest in intellectual property rights would have a particular interest in enforcing their rights overseas. However, the disclosure provisions in clause 1245 have been drawn up on the basis that business and consumers are treated equally. Therefore, I asked my officials to discuss further with a range of stakeholders whether we should amend the clause to enable disclosure for overseas civil proceedings with respect to business and consumers and not just limit it to IP rights holders.
In general, the feedback from our consultation with stakeholders was positive in supporting disclosure provisions for overseas civil proceedings for business and consumers, and we agree with that view. Consumers are increasingly likely to purchase goods and services from overseas, so it makes sense to allow them the information that they need if they choose to seek cross-border redress. I recognise that businesses have some concerns about widening the gateway, but I
simply point out that, as with the existing gateway for overseas disclosure, we have excluded from what may be disclosed sensitive information provided in connection with competition inquiries.
Mr. Djanogly: Moving on to the disclosure of information under the Enterprise Act 2002, I shall speak specifically to amendments Nos. 436, 437 and 438. The amendments come from the CBI and are put forward on a probing basis. The proposed new section 241A in clause 1245 provides wide powers to amend part 9 of the 2002 Act in respect of all kinds of legal proceedings. That is because, in Committee, the Government wanted to include consumer rights within the gateway. The CBI opposed that, but there was general agreement that part 9 should extend to information concerning intellectual property rights and proceedings to counter the ever-increasing problems of counterfeiting and piracy.
The CBI also told us that it strongly opposes any further reform that would weaken the part 9 safeguards and seriously undermine business confidence in the arrangements provided for in the Enterprise Act 2002. The consumer and competition enforcement regime rests on the fact that a wide range of information is provided to public authorities by business on the basis that it will not be disclosed. In general, the gateways work well and there is no justification, the CBI says, for making any wider changes than those needed in respect of infringements of intellectual property rights where genuine problems have been identified.
Proposed new section 241A(1)(b) requires amendment so that it refers to intellectual property proceedings in any jurisdictionnot limited to the UK. It is often the case that counterfeits found on the UK market have been imported. For brand owners to take effective action to reduce the trade in counterfeiting and piracy, they need to be able to pursue everyone in the supply chain, including the manufacturer. That may involve criminal, administrative or civil action, depending on applicable local laws. It is also essential to be able to use such information to feed the worldwide intelligence-gathering exercise that is required. However, exclusion of the limitation to the UK is needed only in respect of information relation to IPR proceedings where there are specific international problems and obstacles to pursuing counterfeiters resulting from the fact that information gained in this country cannot be disclosed overseas. That is not the case in other areas, and the CBI strongly opposes any lifting of the limitation on overseas disclosures in other circumstances.
As the Minister said, she took our comments into account in Committee and undertook to discuss the issue with stakeholders over the summer. She has just told us that that is what happened. We therefore take note of Government amendment No. 740. If an amendment is to be made, however, we point out that some organisations, such as the CBI, wish to limit the provision to intellectual property rights, as suggested in amendment No. 436.
We firmly believe that the secondary legislation proposed in clause 1245 should be subject to full prior public consultation and to an affirmative resolution in both Housesrather than the negative resolution currently proposedto ensure full debate and parliamentary scrutiny. Will the Minister tell us the level and type of consultation that she intends to undertake on these provisions?
David Howarth: Briefly, we take the same view as we did on the previous group of amendments. In principle, we favour the Government view on extending the permissionit is only a permission, not a dutyto disclose information in civil proceedings abroad in favour of consumers, rather than just litigants in intellectual property disputes. That strikes us as right in principle. The hon. Member for Huntingdon (Mr. Djanogly) has a point about the importance of proper consultation on the detail of any regulations, but we accept that the result of such consultation will be very similar to the consultation undertaken over the summer on these very provisions. We take the Governments rather than the Conservatives view on that.
Margaret Hodge: This is the second group of amendments on which I have to tell the Conservative Opposition that they are increasingly sounding as though they are standing up for business rather than standing up to it on behalf of consumers. We have proceeded as we have because the provisions are not just about how businesses can get information, but about how consumers can secure the information that they will need to seek redress. The breadth of our consultation over the summer with all stakeholderswe talked to business organisations, consumer representatives and enforcersled us to believe that while business had its own perspective, a more balanced view should include consumers among those who have the right to information for redress. I wish that the hon. Member for Huntingdon (Mr. Djanogly) would withdraw his amendment on that.
Mr. Djanogly: I wish that the Minister had listened to what I said. I clearly stated that the amendments were proposed on a probing basis and I explained that they were based on representations that we had received from the CBI. I believe that the CBI has as much right to be heard on this matter as anyone else. If others had provided comments, I would have ensured that they were discussed as well. I think that the Minister should accept my comments in that light.
Margaret Hodge: I hear that, but I have to tell the hon. Gentleman that it provides an interesting comment on the trust that people generally have in the Conservative party when only business interests make representations to it and other interests do not. I ask him again to reflect on whether he is standing up for business or standing up to it.
Amendment No. 438 deals with giving stakeholders the opportunity to comment on the detail in respect of secondary legislation. I give a commitment today that we intend to speak to all interested parties
representative of business, consumers and enforcersbefore we draft the order. Following that, we will have a normal, short public consultation. As with the relevant amendment in the previous group, it is unnecessary to build a requirement for public consultation directly into the Bill.
Amendment No. 437 was discussed in Committee, in the other place and again in the House, but I have not changed my view. Negative resolution is consistent with the other order-making powers in part 9 of the Enterprise Act 2002 that may be used to provide for wider disclosure of information. There is no good reason to distinguish between those powers and this power. I therefore urge hon. Members to support Government amendment No. 740 and resist amendments Nos. 436, 437 and 438.
(2A) The auditors report must be accompanied by a statement stating the regulatory action, if any, taken against the firm or any member of the audit team during the preceding five years, together with the outcomes..
Justine Greening: In speaking to amendments Nos. 439 and 440, I return to the subject of the auditor offence proposed in the Bill. At this point, I declare an interest: I am a chartered accountant, as I pointed out yesterday, and I spent my formative years as an accountant auditing a wide variety of companies, many in Britain and some in other European countries.
a report under section 509...to include any matter that is misleading, false or deceptive in a material particular.
In Britain, about 700,000 audits are carried out annually. To my knowledge, they are carried out professionally, and largely show no indication of behaviour by auditors that would need to be tackled by
the proposed new criminal auditor offence. As my hon. Friend the Member for Huntingdon (Mr. Djanogly) noted yesterday, we have debated the proposals not only in the House, but at a breakfast briefing in the City last week. At that event, I challenged the Minister for Industry and the Regions to tell us how many auditors she believed would be prosecuted under the new offence. I hesitate to put words in her mouth but, from memory, she suggested that there would be only one or two auditors whose behaviour would have to be dealt with via the offence. That sounds like taking a sledgehammer to crack a nut, especially given the existing law on negligence and fraud.
Mr. Austin Mitchell (Great Grimsby) (Lab): Can the hon. Lady tell us from her experience as a chartered accountant whether any malfeasance by an auditor, whether reckless or not, ever comes to light unless the company goes belly-up and flops? Was there reckless behaviour in Andersens audit of Enron in the United States?
Justine Greening: Generally, shareholders and the company would have redress if they felt that an audit had not led to an accurate audit opinion. The Enron case was in the US jurisdiction rather than in the UK, so it is probably not appropriate for me to comment on it in the UK Parliament.
Mr. Weir: Does not the hon. Lady accept that knowingly or recklessly is a fairly high level for an auditor to reach? We are not talking about mere carelessness or mistakes; an auditor would have to do something, or deliberately not disclose something, that was of material importance to people relying on the companys accounts, for investment or other purposes. The barrier is high, so does she accept that for a few cases it may be necessary?
Justine Greening: If the hon. Gentleman makes a contribution to the debate, perhaps he could mention any cases that were not prosecuted, but would have been if the new offence were in place. The proposed auditor offence actually lowers the bar for the prosecution of auditors. They can already be prosecuted under the existing negligence and fraud laws.
In addition, we have concerns about how the offence will work in practice, especially its impact on the broader audit process and, consequently, on business and the economy. The offence necessarily lowers the threshold for the prosecution of auditors and in doing so will have negative consequences for the whole of business and the audit profession.
David Howarth: Can we clarify the fact that no criminal offence of negligence is involved? There is civil liability for negligence in very limited circumstances. We are talking about what criminal offence should be added to a difficult aspect of civil liability.
I take the hon. Gentlemans comments on board, but the Government clearly want to broaden the ability to prosecute auditors. My
concern is that that will have negative consequences for business and audit that are disproportionate to the number of offences that will be prosecuted under the new provisions. That is important, first, because more audit opinions will be qualified. Auditors will require a significantly higher risk threshold to be passed before they can be comfortable in stating that accounts are true and fair. For some companiesin respect of going-concern issues, for examplethe provision could be a self-fulfilling prophecy if auditors are forced unduly to highlight such matters by qualifying an audit report when, in reality, they might have been perfectly happy with assurances from management about the going-concern nature of the company. In fact, we are putting at risk the fine judgments made by auditors, because instead of looking at the facts in front of them, they will constantly be looking over their shoulders at the offence.
Secondly, audits will take longer because more issues will need to be followed up, and in more detail. I note that later amendments propose that filing time limits for some companies should be shorter. The offence would put considerable strain on the potential for that. At present, when auditors come across a matter that seems to be unusual or anomalous, they have to make a judgment whether, and to what extent, they should follow it up.
David Howarth: The hon. Lady seems to be following the line of argument that she took in Committee, but at that stage the Minister reassured us that recklessly meant knowingly taking an unreasonable risk, and knowing about its unreasonableness. In those circumstances, I cannot see how the concerns that the hon. Lady raises are still valid.
Justine Greening: In Committee, we argued about the fine legalities of the meaning of the offence in relation to existing law. I am not going back down that track; I am trying to get more information from the Government about the cost of the offence to business and the audit profession.
I was talking about the decisions that auditors may need to take about following up an anomalous matter. If they believe that the matter is immaterial, they may take no further action and will continue with the remainder of the audit. However, there is no doubt that once the new offence is in place, such immaterial issues will be chased upjust in case. Audit companies will not take the risk of being accused of not following up something that may subsequently become a material issue. That will take more time, but it will also take more resources, so my final point about the effects on the audit process is that audits will be more costly because audit work will need to be broader to prove that all anomalies discoverednot just potential material anomaliesare followed up adequately.
Stephen Hesford (Wirral, West) (Lab): The hon. Ladys point about following up matters that would not previously have been pursued applies to the lower test of negligence, not to the higher test of knowingly or recklessly doing something criminal. Her point is aimed at a different civil liability.
Again, Members seem to misunderstand my argument. Even if the hon. Gentleman is right, is it therefore appropriate that we should take action that leads to incredibly increased
audit costs for businesseslarge, medium and smallwhen there is apparently nothing for auditors to worry about because, in his mind, there is only a small risk of their being prosecuted? In reality, the audit profession and business will find that they cannot accept even that small risk.
The Parliamentary Under-Secretary of State for Constitutional Affairs (Vera Baird): To prove that someone has behaved recklessly, it is necessary to show that the auditor was aware that an action or failure to act carried risks, that they personally knew that the risks were not reasonable ones to take, and that, despite knowing that, they went ahead. Why does the hon. Lady not want such people to be prosecuted?
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