Economic Crime and Corporate Transparency Bill

Joint written evidence submitted by Michael Barron, Director, Michael Barron Consulting Limited, and Tim Law, Director, Engaged Consulting Limited (ECCTB32)

Call for written evidence: Economic Crime and Corporate Transparency Bill

Executive Summary

1. The detailed comments below primarily focus in three weaknesses with the current proposals:

1.1. Verification is focused on the identity of the People with Significant Control (PSC) and does not address the equally important matter of verifying their level and nature of interest;

1.2. Removing the obligation on companies to maintain their own records of PSCs undermines the obligation on those companies to identify, monitor and report their PSC in the UK and beneficial owners in other jurisdictions where required; and

1.3. The expectations on the registrar to reject documents is unclear as it does not place any obligation of the registrar or specify the scope of information "available to the registrar".

Introduction

2. Michael Barron and Tim Law are independent consultants who specialise in designing and implementing beneficial ownership reporting systems. They have provided advice to HM Government on beneficial ownership and have delivered projects in Azerbaijan, China, Ethiopia, Ghana, Mongolia, Nigeria, Senegal, South Africa and Trinidad & Tobago. Some of this work was funded by HM Government.

3. The evidence provided below relates to clauses dealing with the Register of People with Significant Control (PSC) and in particular Clause 39, 50,61, 69, 76 and 90 as well as Schedule 2. We would be happy to discuss this evidence further with the Committee.

Detailed comments

Clauses 39, 61 and 69

4. " Requiring all directors, People with Significant Control (beneficial owners), and those delivering documents to have their identities verified "

4.1. The principle of verification of identities is absolutely right . Section 1110B anticipates that verification requirements will be determined by regulation. It is important that those verification regulations recognise the range of global locations of PSCs and the consequential variety of documents which might constitute evidence of identity.

4.2. However, it is just as important, and perhaps even more so, to verify the nature and extent of the interest of a beneficial owner. If the percentage interest or the way in which that interest is held is not verified, that information can be inaccurate or deliberately misleading. In that case having a verified identify of the stated beneficial owner is of little use, as that person may not in fact be the beneficial owner at all.

4.3. Verification of the nature and extent of the interest is essential, and should include capturing evidence of ownership and control at each level of a holding structure. This information is important for 2 key reasons:

4.3.1. It provides the evidence that the reported beneficial owner is indeed the holder of the reported direct or indirect ownership or control

4.3.2. It provides information on the intermediate holding structure which may also be reported on the registers of beneficial ownership of other countries. As registers start to become interconnected, the consistency of the data on company structures captured by different registers will be important in preventing criminals for creating confusion through the reporting of different information to different registers.

Clause 50 and Schedule 2

5. " Abolishing the requirement for companies to maintain their own registers of directors, directors’ residential addresses, secretaries and People with Significant Control, providing instead that such information is only held centrally "

5.1. Multinational enterprises (MNEs) are among the types of companies that have an obligation to identify PSCs, monitor any changes in PSCs and report those to Companies House . In practical terms it is highly unlikely that a company will be able to meet this obligation without keeping some records, and these records will form part of the evidence that reasonable steps have been taken to identify PSCs. Removing the requirement to hold those records could undermine the importance of compliance.

5.2. In addition, MNEs are increasingly likely to need to meet beneficial ownership reporting requirements in more than one jurisdiction. There is no single worldwide standard for beneficial ownership, meaning that the data MNEs need to submit will vary from jurisdiction to jurisdiction. Therefore, MNEs will need to maintain an overarching record of beneficial owners to meet their various reporting obligation around the world.

5.3. In order to facilitate effective compliance, companie s should continue to be required to maintain their own re cords of PSCs and the level and nature of their interest.

Clauses 76 and 90

6. " Giving the registrar greater powers to share information and reject documents with inaccuracies "

6.1. It is appropriate to give the registrar the power to reject documents for inconsistencies, but as drafted this only gives the registrar the right rather than the obligation. This is a purely reactive measure and may result in very low levels of document rejection , if there is no obligation.

6.2. If the intention is to actively tackle inconsistencies, t he premise should be that documents are rejected if there is an inconsistency, but that they may be accepted if a convincing explanation is provided.

6.3. The proposed section 1073A (1)(a) refers to information "available to the registrar". With increasing numbers of beneficial ownership registers being introduced around the world, the pool of potential information on PSCs is constantly increasing meaning the possible interpretations of "available" will grow.

November 2022