Twenty Seventh Report
Economic Crime and Corporate Transparency Bill
1.This Bill came to the House of Lords on 27 January 2023. It makes provision about economic crime, corporate transparency, companies, limited partnerships, other kinds of corporate entity and the registration of overseas entities. The Home Office and the (then) Department for Business, Energy and Industrial Strategy furnished us with a delegated powers memorandum (“the Memorandum”).
2.We draw attention to two provisions in the Bill.
Clause 65
3.Clause 65 inserts a new clause 1098G into the Companies Act 2006, giving a wide margin of appreciation to the Secretary of State in conferring powers on the registrar of companies to suspend authorised corporate service providers (ACSPs). In turn, the registrar is allowed to exercise a discretion in suspending ACSPs.
4.The Bill says nothing about the grounds for suspension. The Memorandum gives one example where suspension might be appropriate - where an ACSP is under investigation, perhaps by the registrar or by a money laundering supervisor. A discretion is said to be necessary because the registrar will be best placed to assess an ACSP’s suitability for ongoing authorisation.
5.The Memorandum offers two reasons for the regulation-making power in clause 65.1
(a)“The ACSP framework is newly introduced by this Bill and so the power to provide for a system of suspension of authorisation is necessary in order to enable processes to be adapted as learnings are taken from experience once the framework is operational.”
This sounds as if the Government wish the regulation-making power to fill any gaps that emerge. Even so, it would be helpful if the Bill said something about the reasons for suspension rather than leaving the matter entirely to regulations.
(b)“The power has been drafted in such a way so as to ensure that it has a focused scope. Section 1098G(2) clearly lays out what can be covered under the regulations, namely; the procedure for suspension, the period suspension is to last and the revocation of a suspension.”
Clause 1098G(2) only says that the regulations may cover the procedure for suspension, its length and revocation. The Bill says nothing about why a person may be suspended.
6.In our view, the inserted clause 1098G of the Companies Act 2006 should state the reasons why an ACSP may be suspended, rather than leaving the matter entirely to regulations.
Clause 174(2) & (3)
7.Schedule 3ZA to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 sets out the UK’s “high-risk third countries” list, triggering enhanced due diligence. Schedule 2 to, and section 55 of, the Sanctions and Anti-Money Laundering Act 2018 require the list to be updated by regulations under the “made affirmative” procedure
8.Clause 174(3) of the Bill removes the requirement that the list be updated by secondary legislation, instead allowing the list to be updated administratively by the Treasury.
9.The Memorandum offers several reasons for this change.
(a)First, it will be quicker to update the list administratively than legislatively.
(b)Second, because the updates are based on a robust methodology used by the Financial Action Task Force (FATF), additional parliamentary scrutiny such as is provided by the affirmative procedure is not “essential”.
(c)Third, Parliament has asked the Government to consider a more streamlined process for changing the list of high-risk third countries given the pressures on parliamentary time.
10.We are not convinced by these arguments.
(a)The current requirement for the “made affirmative” procedure means that a statutory instrument changing the list of high-risk third countries can come into force immediately, without the need for prior parliamentary debates. Accordingly it is difficult to see how the SI-making process is liable to cause significant delay. Historically, statutory instruments made in exercise of this power substitute one Schedule with another containing a revised list of high-risk third countries. They cannot take long to draft (they are normally two or three pages) and follow a standard template. The reason for the “made affirmative” procedure given by the Government during the passage of the Sanctions and Anti-Money Laundering Act 2018 was precisely so that decisions of the FATF could be implemented quickly.
(b)Second, the FATF’s methodology may well be thorough. But there is nothing to prevent the Treasury from making amendments to the list of high-risk countries for other reasons. And there is no guarantee that the Treasury will always act consistently with the FATF. Accordingly, even if it were thought appropriate to rely on the FATF process without requiring additional parliamentary scrutiny, such scrutiny should at the very least be required where the power is used for purposes other than to implement FATF decisions.
(c)The usual way in which Parliament expresses its collective will is by primary legislation. We wonder therefore how Parliament has asked for the streamlining of the process, given that the 2018 Act provided for a streamlined and speedy legislative mechanism for updating the list of high-risk third countries. In any event, it is difficult to see why the “made affirmative” procedure no longer offers a robust mechanism for speedily implementing FATF decisions when it clearly did in 2018.
11.Clause 174(2) and (3) removes the requirement that a change in the list of high-risk third countries (in relation to enhanced due diligence under the money laundering regulations) be made by statutory instrument. Instead, the Treasury will be able to make the changes administratively, even though changes to the list might be controversial - depending on any particular addition to, or removal from, the list. In our view, the substitution of an administrative procedure for an existing legislative procedure is inappropriate and should be removed from the Bill.
1 Paras 107 and 108.