Small Business, Enterprise and Employment Bill

Written evidence submitted by Ms R Gresham (SB 78)

I write in relation to Part 7 and Schedule 3 of the Small Business, Enterprise and Employment (SBEE) Bill.

(1) I submit that the provision of a compulsory register of people of significant control (PSC) over a company that is (i) publicly available, and (ii) has a protection regime that extends only to PSCs at serious risk of harm as provided for by Part 7 and Schedule 3 of the SBEE Bill violates Article 8 of the European Convention on Human RIghts (ECHR)

(2) The compulsory public disclosure of PSCs amounts to interference in a PSC's private life. Whilst shareholder information is public, the beneficial owner of a company can – at significant expense – currently use an offshore holding company to prevent public disclosure. The effect of the PSC register in its present form is to place into the public domain information regarding the wealth of certain people. The effect of this would be such that it may have a significantly detrimental effect on a person's private life, from concern regarding increased risk of fraud to disruptions in relationships with friends and distant family.

(3) In some cases such as my own, the net asset value (wealth) involved is not particularly great (low hundreds of thousands, not millions). However, public disclosure – i.e. disclosure to parties other than HMRC, the company bank, potential creditors, credit reference agencies, certain suppliers and customers, and certain other public authorities – would have a significantly detrimental effect on my private life.

(4) To clarify, my concern is not disclosure to public authorities such as HMRC for whom it is right and proper to fully disclose information as it pertains to the payment of tax, it is the indiscriminate public disclosure of information that affects my right to a private life under Article 8(1) of the ECHR.

(5) In paragraph 80 of the memorandum prepared by the Department for Business, Innovation and Skills (DfBIS) addressing issues arising under the ECHR in relation to the SBEE Bill (BIS/13/991), it is claimed that the compulsory public availability of the PSC register does not violate Article 8(1) since it is justifiable under Article 8(2) as being necessary for the economic well-being of the country.

(6) In the DfBIS document ‘Understanding the new requirements, recording control on the PSC register and protecting people at serious risk of harm’ (BIS/14/1145), Ms Jo Swinson, the Minister for Employment Relations and Consumer Affairs, states that the objectives of the PSC register are for the UK to be and be seen to be "an open and trusted place to invest and do business". More specific objectives are stated further down: "to deter and disrupt the misuse of companies, and identify and sanction those responsible when illegal activity does take place", where misuse of companies ranges from "money laundering to tax evasion, corruption to terrorist financing".

(7) I contend that identifying PSCs in companies, whilst necessary in and of itself to help achieve some of the above objectives (close the tax gap and deter money laundering as well as the use of proceeds to finance illegal activities), does not have to be publicly available to meet these objectives and, more broadly, public availability of a PSC's information is not a necessary tool for the economic well-being of the country and as such is not justifiable under Article 8(2) and thus is not compatible with Article 8 of the ECHR.

(8) I am not contending that public availability is a useful tool, but that it is not necessary. As such, I propose that protection from public disclosure should be extended to PSCs other than those that are at serious risk of harm as provided for by section 790ZF of Part 21A of the proposed amendment to the Companies Act 2006 (CA06) in paragraph 1, Schedule 3 of the SBEE Bill and further expanded upon in Chapter 3 of document BIS/14/1145. The following paragraphs provide a brief discussion as to the criteria a company and its PSCs should have to meet to be protected from public disclosure.

(9) A company and its PSCs should be given the option of electing to undergo a full compliance check in return for protection of their register of PSCs from public disclosure if they pass the compliance check.

(10) The cost of this compliance check should be borne without exemption by the company ensuring that extending the protection regime is cost-neutral to the state.

(11) A compliance check should be individually tailored to the complexity of a company's corporate structures and could include a tax audit, money laundering checks as to the sources of a company's share capital, checks as to the use of a company's proceeds, along with standard Know your customer (KYC) checks carried out by banks.

(12) A compliance check could be conducted annually in preparation for a company's filing of the proposed confirmation statement as provided for by section 80 of the SBEE Bill.

(13) A company would still be required to maintain a register of PSCs with the same information recorded but this would not necessarily be publicly available. It could be shared with relevant public authorities such as HMRC and credit reference agencies (CRAs) providing such disclosures are confidential.

I hope that consideration of the above is given and that the proposal to extend protection in a manner that is (i) cost-neutral, and (ii) does not jeopardise the objectives of the provisions of Part 7 and Schedule 3 of the SBEE Bill, is implemented.

November 2014

Prepared 13th November 2014