Business and Trade Committee
Oral evidence: Implementation of Economic Crime and Corporate Transparency Act 2023, HC 522
Tuesday 6 February 2024
Ordered by the House of Commons to be published on 6 February 2024.
Members present: Liam Byrne (Chair); Jonathan Gullis; Antony Higginbotham; Ian Lavery; Anthony Mangnall; Julie Marson; Mark Pawsey.
Questions 1 – 94
Witnesses
I: Kevin Hollinrake MP, Minister for Enterprise Markets and Small Business, Department for Business and Trade; Eoin Parker, Director of Business Frameworks, Department for Business and Trade; Martin Swain, Director of Intelligence and Law Enforcement Engagement, Companies House; Sarah Whitehead, Director of Strategy, Policy and External Communications, Companies House.
Examination of witnesses
Witnesses: Kevin Hollinrake MP, Eoin Parker, Sarah Whitehead and Martin Swain.
Chair: Welcome to this morning’s session of the Business and Trade Select Committee, during which we are looking at the implementation of the Economic Crime and Corporate Transparency Act. Minister, thank you so much for making time for us today. That is much appreciated. You have with you some officials from Companies House. Do you want to just say a word of introduction, everyone, just so that we all know who is here?
Martin Swain: Good morning. I am Martin Swain, director of intelligence and enforcement at Companies House.
Sarah Whitehead: I am Sarah Whitehead, director of strategy, policy and external communications at Companies House.
Kevin Hollinrake: I am Kevin Hollinrake, Minister for Enterprise, Markets and Small Business.
Eoin Parker: I am Eoin Parker, director for company law and governance at the Department for Business and Trade.
Q1 Chair: Minister, you have worked on this agenda for a long time and earned the respect of people across the House in the work that you have done and the way that you steered the Bill through. Nonetheless, this is an ongoing fight against economic crime, and there are still some difficult questions to answer. Our goal here is to get some evidence on the table, from which the Committee will then write to you with some thoughts ahead of the implementation of the Companies House reform agenda in the next financial year, which is now fast approaching.
I do, however, need to start with the story that was broken by the Financial Times yesterday, in which you will have seen news that Iran’s Petrochemical Commercial Company, along with its UK subsidiary, have been freely trading in the City of London. Both of these organisations are sanctioned by the Americans. Why are they not sanctioned by us?
Kevin Hollinrake: I am sure that our Office of Financial Sanctions Implementation will be looking at that very carefully. It is wrong for us to speculate on individual cases. We cannot ascertain the validity of those reports. It is a newspaper report, not an outcome of an investigation. Investigations should take place, be it through the OFSI or, indeed, through the FCA, which has measures in place to make sure that these organisations are doing the right thing in terms of sanctions as well as in terms of propriety around money laundering.
Q2 Chair: Both of these organisations have been accused of raising hundreds of millions of dollars for Iran’s revolutionary guards and working with Russian intelligence to fund proxy militias. That sounds like a pretty good reason to sanction them, doesn’t it?
Kevin Hollinrake: I would not disagree on the face of that argument, but that requires a process to take place. The UK has taken further measures in recent months. In December of last year, we implemented the Iran sanctions regime, which has meant that individuals have been sanctioned as a result, so we are taking action. These kinds of cases will come to light and should be properly investigated as a result.
Q3 Chair: They have been sanctioned by the Americans for some time. Has your Department provided advice to OFSI or, indeed, the FCDO, which is in charge of sanctions policy, about this organisation?
Kevin Hollinrake: We do not look after sanctions. That is the responsibility of the OFSI, which is under the Treasury. It is not something that has come across my desk at any time in terms of that particular case. As information comes to light, it should be investigated and appropriate sanctions put in place.
Q4 Chair: Do you feed into cross-Government machinery about the importance of sanctioning particular organisations?
Kevin Hollinrake: My appetite to tackle economic crime is undiminished from our days as Back Benchers, Chair. Of course I was disturbed by these reports. I would point out that they are reports at this point in time, but I am sure, as I said, that the Office of Financial Sanctions Implementation and the FCA will look at these very carefully. Ultimately, there are sanctions for organisations that do not do the right thing. It is very worrying that the financial organisations mentioned seem to have participated in this, but it is wrong for us to speculate until a proper process has been followed.
Q5 Chair: Will you raise this issue with the FCDO and OFSI?
Kevin Hollinrake: Of course.
Q6 Chair: The PCC and its subsidiary, Pisco, is owned by Mr Fahimi. When I checked the Companies House register this morning, that company is still active and, presumably, still trading. Why is that?
Martin Swain: On the basis of what the Minister has said, we will investigate these companies further. The report came out very recently. If there are anomalies with the information on our register, we will take action.
Kevin Hollinrake: It is fair to say that you, I and many other people spent a lot of time pressing for these kinds of reforms and are pleased that they are coming into play now. On 4 March, Companies House will have a great deal more powers that it can take against organisations of various kinds, such as companies that are inappropriately registered or incorporated. All of these powers are coming into play—and not before time, you might say—and will give our colleagues at Companies House more capacity and capability to tackle these kinds of issues.
Q7 Chair: On 26 February last year, there was an announcement about the joint kleptocracy taskforce. The press release said, “We commit to launching this coming week a transatlantic task force that will ensure the effective implementation of our financial sanctions by identifying and freezing the assets of sanctioned individuals and companies that exist within our jurisdictions”. The Americans have sanctioned this organisation, but we have not. Can you assure us that the joint kleptocracy taskforce is looking over Iranian proxies as well as simply Russian bad money?
Kevin Hollinrake: There may have been work that should have been done in this particular instance, and an investigation needs to take place, but we have designated over 400 Iranian individuals and entities, including in relation to Iran’s regional destabilisation activity. On 29 January 2024, in co-ordination with the US, we sanctioned seven individuals and one entity involved in Iranian threats to kill on UK soil. Action is taking place. That is not to say that we always get every case right. I am sure that the different organisations that are here to look after this will look at these cases and investigate them.
Q8 Chair: This is not an unknown organisation, because it is sanctioned by our allies. Has it just slipped through the net?
Kevin Hollinrake: That does happen. We sanction some people that our allies do not, and our allies sometimes sanction people that we do not. Different jurisdictions have different approaches. That is not to say that we should not sanction this organisation, and that would be a matter for the relevant authorities and individuals.
Q9 Chair: Mr Swain, has this company come up on your radar before?
Martin Swain: Not until this weekend, no.
Q10 Chair: You are the director of intelligence at Companies House.
Martin Swain: Yes.
Q11 Chair: But this organisation has not come up on your radar before.
Martin Swain: In terms of its filings with us, there would be nothing to demonstrate to me that there is anything of concern. When we get intelligence, we will act upon it and work with other agencies as we need to. Having had this information in the last few days, I will be taking that back and we will be looking at it very closely.
Q12 Chair: One of the issues that has been flagged in this particular instance is that Mr Fahimi, who is listed as a director, was, effectively, a nominee. Minister, you tabled an amendment to the Economic Crime and Corporate Transparency Bill when it was going through the House that allows the Secretary of State to make regulations to impose obligations directly on those who act as nominees. Do cases like this inspire you to crack on and issue those regulations?
Kevin Hollinrake: Yes, of course, and there is much work to do. The 4th of March is another step on the journey. There are about 50 SIs that we have to lay in order to fully implement the requirements of this legislation, which takes time. Nominees are a key part of it and we want to make sure that those devices are not used for nefarious purposes.
Q13 Chair: You have said before that there was “an industry of nominee service providers prone to acting unlawfully”. Does that inspire you to bring those SIs forward pretty quickly?
Kevin Hollinrake: It does. It inspired us to bring forward this legislation in the first place.
Q14 Chair: When are we going to see the SIs that close this loophole?
Kevin Hollinrake: It will take around 18 months.
Chair: It will take 18 months.
Kevin Hollinrake: I do not know the sequence of the particular SI that you are talking about, but this takes time. Fifty SIs are not something that you can do overnight. Those statutory instruments and pieces of legislation have to be drafted to make sure that they are fit for purpose. They will be open to debate and scrutiny by Members of this House. We do not operate a dictatorship where we can implement these things overnight through our parliamentary processes.
Q15 Chair: If you have nominees who are, basically, able to hide Iranian money laundering in the City of London, 18 months feels like a long time to wait.
Kevin Hollinrake: I would, of course, like to do it as quickly as possible, but what we are addressing here are the first reforms of their kind in 170 years. There were many decades previously where we could have taken this kind of action. We are doing it now. It cannot come soon enough for you or me, for other members of this Committee, or for my colleagues within the Department or in Companies House. We want to do this. We are champing at the bit to do this. There is no doubt that it takes time to get it right, but we want to do this as quickly as possible.
Q16 Chair: What about limited partnerships? That is the other loophole. We had a big debate about this when this was going through the House. There is evidence that was uncovered by the BBC and Finance Uncovered in November, which said that we have limited partnerships listed as the beneficial owner of assets. Therefore, they do appear to be acting as assets. When the Bill was going through the House, you said that the person of significant control regime could not be brought into force to cover limited partnerships. Is that something that must now be revisited if we are not to leave loopholes for countries like Iran to run money laundering operations down the road in the City of London?
Kevin Hollinrake: I do not think that there is any evidence of limited partnerships being used for that. A limited partnership regime will require identity verification for general partners. We are taking action for the first time in making sure that we have greater visibility of limited partnerships, which is quite right, but I do not think that they are connected to the Iran situation.
Q17 Chair: One in five of the limited partnerships that were set up and uncovered by the BBC investigation had nominee partners that were linked to Alpha Consulting, which is a Russian-owned corporate service provider based in the Seychelles. That does not sound like an organisation that we should be particularly relaxed about.
Kevin Hollinrake: We are not relaxed about anything in terms of economic crime, but it is important that the interventions that we make are effective, and we think that the implementation of this Act will be effective. We take an iterative approach to this and, if there are changes that we need to make, we will make them.
Q18 Chair: On 15 November last year, you said that you would give further consideration to this matter. What has your further consideration concluded?
Kevin Hollinrake: There are no new initiatives that we have taken so far. Eoin might want to come in.
Eoin Parker: If you are asking specifically about the PSC regime for limited partnerships, the challenge there is that, in England, Wales and Northern Ireland, limited partnerships are not legally separate from their partners, so they do not have their own legal personality. That makes it hard to proceed specifically with the extension of a PSC framework in that particular case.
Nevertheless, the reforms, as we have planned them, entail an overhaul of the limited partnership regime and a strengthening of our ability to understand who is at play here. The identity verification scheme will roll out for limited partnerships. As the Minister says, this is a huge programme of implementation across the entire Act.
Q19 Chair: Would you accept that the PSC regime could apply to limited partnerships?
Eoin Parker: Specifically in England, Wales and Northern Ireland, as I understand it, the fact that partnerships are not legally separate from their partners and that you cannot have an independent legal personality makes it problematic to extend the PSC regime in quite the same way as has been done for Scottish limited partnerships.
Q20 Chair: Can I just draw your attention to the advice of Elspeth Berry, who is an associate professor at Nottingham Law School? She says on this argument, “I think it’s complete nonsense. All firms are controlled by someone. It doesn’t matter whether they have separate legal personality or not. We all know it exists—in the sense that it’s a collection of people acting together in a business—and that can be controlled by those people or others.”
The question that we need to put as a Committee is, given that you said last November that you will give it further consideration, could we encourage you to think hard about applying the person with significant control regime to limited partnerships in advice that you put back to the Committee?
Kevin Hollinrake: Yes, of course.
Q21 Chair: I am very grateful. The final point that I wanted to touch on is the Office of Trade Sanctions Implementation, which was established at the Department last year. Could you tell us how many people are working in that team now?
Kevin Hollinrake: I do not have that number. We have between 100 and 200 at the OFSI.
Eoin Parker: I do not have a number here, but we can get it for you.
Q22 Chair: The Office of Trade Sanctions Implementation is in your Department, but we do not know how many people work there.
Kevin Hollinrake: We do not know at this point in time, but I can certainly let you know.
Q23 Chair: On 11 December last year, your colleague said that the establishment of this would “send a clear message to those breaking the rules that there is nowhere to hide.” It turns out that the Iranians were hiding in plain sight down the road. Do you think that they got the message?
Kevin Hollinrake: As you know, the people who are determined to evade sanctions are going to use all kinds of devices. What we are trying to do with this legislation is make it much more difficult for those organisations to use particular devices. That is what this is all about, and these are the first reforms of this nature that we have seen for an awfully long time. We provided £50 million in funding for the Office of Trade Sanctions Implementation, which is a good starting point, and this will deal with things like the oil price cap. There are measures that we are taking. These things take time, but I am very happy to report back to you on progress.
Q24 Chair: Our concern would be that we are not necessarily sanctioning the right people. We have not yet fixed the gap in identifying bad people behind these companies, and we do not know how many people at the Office of Trade Sanctions Implementation are involved in enforcing the problems. When we are sending the RAF 3,000 miles to hit Iranian-backed militias in the Red Sea, it would appear that Iranian-backed intelligence services are happily doing business in the City of London down the road. We cannot be happy with that situation, so we look forward to your advice on those points.
Kevin Hollinrake: We are not happy at all. That is why we are taking action on a number of different fronts, not just legislation but also the crucial part of the implementation.
Q25 Anthony Mangnall: Mr Swain, in response to your comments to the Chair after his question around the Financial Times report on the situation with Iran and the City of London, how is Companies House being a proactive gatekeeper if you are just responding to intelligence that is provided?
Martin Swain: The big shift for us is that, with the new powers that are coming on 4 March, we can take proactive action, whereas, in the past, we have not been able to.
Q26 Anthony Mangnall: In relation to this case, and the case that the Chair has raised, how would things be different after 4 March for you as an organisation?
Martin Swain: They are different now, in the sense that, if we have information that has come through a press report, we will look into those companies and, where we have any data or information that can support any of our partner agencies to look further into those companies, we will provide it. As we move forward, we have greater powers to analyse our own data, including private data that we hold on companies, which is not in the public domain—we will not put that in the public domain. We are able to see links between companies far more easily using that data, and we will proactively share that information.
At the moment, we are very limited in the way that we can share information proactively with other partners. We share with, for example, the National Crime Agency and other law enforcement agencies, but we have to rely on their gateways to do it. The Act changes our powers significantly and, effectively, gives us authority to share information with any public authority where it meets our functions.
Q27 Anthony Mangnall: So we are likely to see a sizeable change. Can I bring you in, Minister? Perhaps you might want to say a bit about the scale and impact of economic crime on people, businesses and national security in general, but also about the priorities within your Department on this. Again, there seems to be some concern around whether DBT has written a proper strategy on how you are going to be able to use the resources that you have and what role DBT will play with other Departments.
Kevin Hollinrake: It is hugely important. This is one of the worst forms of criminality facilitated through economic crime—the funding of terrorists, kleptocrats and people traffickers—so we absolutely want to deal with it. We are taking action on a number of fronts, in terms of legislation and implementation. In terms of strategy, I am not sure that that is a fair challenge. The economic crime plan is something that we work on across Government, which is hugely important.
Q28 Anthony Mangnall: Forgive me for interrupting, but are you not slightly concerned that, in the economic crime research strategy, there is no significant mention of DBT or its predecessor Department in relation to economic crime in other national crime-facing strategies?
Kevin Hollinrake: I have not read that particular part of that particular report, but we are very engaged in fighting economic crime, hence the legislation, hence the implementation and hence our participation in the economic crime plan, which has a significant cross-Government set of initiatives to deal with economic crime. So I do not think that that is right at all.
We spent an awful lot of time trying to make sure that this legislation is in the right place. It is 400 pages of legislation, with 200 clauses. It deals with reform of Companies House and something that a number of us pushed for from the Back Benches—and, indeed, the Front Benches—including things such as corporate criminal liability and the identification doctrine. These are pretty unheralded steps that we are taking to fight economic crime, and we are very keen to get on with them.
Q29 Anthony Mangnall: Can I push you on that cross-Government co-operation between Departments? The strategy that I just mentioned is the Home Office’s strategy. Are they not co-ordinating with you or are you not co-ordinating with them? It seems like an extraordinary oversight for them to have produced a report in which your Department is not mentioned. In terms of the FCDO, sanctions and HMT, what can we expect with the new powers that Companies House will have in terms of their reporting to you, and then the recommendations—or reductions, in certain instances—of sanctions in the future? What role will your Department take?
Kevin Hollinrake: There are different streams of work that you mentioned there. Do I work closely with the Home Office? Of course I do. The Security Minister and I took this Bill through together. We work very closely. Corporate criminal liability was something that we worked on together. We have a joint interest in making sure that this is fit for purpose.
Things like sanctions are a different part of Government, in the Treasury, but we take a keen interest in things like sanctions to make sure that they are effective and broad-based and that they tackle the kind of detriment that we are talking about here. We are also reading the papers, of course. There is no lack of effort or effectiveness in making sure that this is a proper cross-Government strategy.
Q30 Chair: Who is the Minister with overall responsibility in Government for tackling economic crime?
Kevin Hollinrake: There will be a number of people, including Security Minister Tugendhat and Minister Bim Afolami within the Treasury.
Q31 Chair: It is not listed in Bim Afolami’s responsibilities.
Kevin Hollinrake: If economic crime is not, I would be surprised about that.
Eoin Parker: Baroness Vere has the responsibility at junior ministerial level. The Home Secretary and the Chancellor chair the Economic Crime Strategic Board and take a lead across the piece. In the end, though, as the Minister says, there are multiple Departments and agencies involved in that cross-Whitehall governance and in leading the strategy.
Q32 Chair: There is the NCA, the FCO, HMRC, the OFTSI, OFSI, FCDO, the NECC and Companies House. Have we missed anyone?
Kevin Hollinrake: It is enough to be going on with, I think, Chair.
Q33 Chair: It is quite a complicated landscape.
Kevin Hollinrake: It is a very complex issue, isn’t it? There are a number of moving parts and different opportunities that people will use to try to commit criminal acts in terms of financial benefits or things that will affect our economy.
Q34 Chair: There is no one Minister in overall charge of co-ordination.
Kevin Hollinrake: It is the Chancellor, if you want to look at it like that.
Q35 Anthony Mangnall: It would be helpful, for the purposes of the Chair, to have a diagram, if you might, of the relationship between all the organisations he has just mentioned and the relevant Ministers. I understand the point that you are making about complexity.
As a final question from me, Minister, you are, presumably, in charge of setting the targets and metrics of Companies House.
Kevin Hollinrake: Yes.
Q36 Anthony Mangnall: You will be reviewing how they perform, not only with the measures and the legislation that we have passed. What have you set? What are you expecting? How often will you be reviewing Companies House? I know that they are sitting next to you, but we can make it awkward if we like.
Kevin Hollinrake: We are looking at all measures that we are bringing forward in terms of what Companies House will do, and interventions such as companies whose addresses are queried. All the things that we are responsible for within the Companies House legislation are things that we want to report on. What gets measured gets done, as you know, Anthony.
Q37 Anthony Mangnall: How often will you be reviewing this? We all know that legislation can contain loopholes. We all know that it might not be as comprehensive as we like. Will you be instigating a regular review period to make sure that, if there are loopholes, we can bring forward secondary legislation if necessary to close those loopholes as quickly as possible, just in case there are oversights that we have not necessarily seen?
Kevin Hollinrake: I meet with Companies House on a regular basis, and conversations around the metrics will happen at all of those meetings. Companies House reports annually to Parliament, and you would expect those metrics to be in the reports that it presents to Parliament as well.
Q38 Antony Higginbotham: Ms Whitehead, last July Companies House published its business plan, which set out a period of reform as you take on the extra powers contained in this Act. How significant a set of reforms is that for Companies House? What is the step change?
Sarah Whitehead: It is absolutely huge for us, and certainly something that we have been seeking for a really long time. As the Minister has mentioned, this is the most significant change to company law that we have seen for over 100 years. It means a significant amount of change within the organisation, which is also why we are working with DBT colleagues very closely, not just on the timetable for getting all of the SIs through but on making sure that, as we implement the reforms, we are doing that in a phased way that means that we are delivering the objectives that we would like to see.
There has been significant recruitment under way to help us to deliver those, as well as large amounts of system reform. All of that will continue over the coming years. It is not just this year’s business plan; when our new business plan for 2024-25 is published, you will see a continuation of that.
Q39 Antony Higginbotham: In terms of recruitment, I think I am right in saying 241 new posts in operations and intelligence were in that business plan as a public target. How far have you gone in hitting that target?
Sarah Whitehead: That is the target that we had for this year, so there is more recruitment to come. So far, we have recruited 216 of those 241 posts. The target was up to 241, so we are feeling pretty confident that we are on track as much as we can be. That includes the first two cohorts of operational colleagues, who will be using the powers from day one on 4 March, as well as significant recruitment in Martin’s areas, in the intelligence functions.
Q40 Antony Higginbotham: Could you break down the 216 between the operations team that are going to be doing enforcement and the intelligence team?
Sarah Whitehead: About 120 of those are the operational teams.
Martin Swain: We are up to about 60. There are probably other posts that we have recruited, because the intelligence function, for example, cannot function unless we have good data scientists and data people. There is a broad mix of people who we need to bring in. There is a clear focus on those two areas, because they are the teams that will deploy the powers from 4 March, when we start. In my teams, that is around creating our capability to support law enforcement more effectively.
Q41 Antony Higginbotham: It is fair to say that, in future business plans, you expect to go above 241, although I know that you said “up to”. Can you give us an indication of where you might be in the business plan that you released this year?
Sarah Whitehead: Over the period of the implementation, we are looking at about another 320 to recruit.
Q42 Antony Higginbotham: Does that include the 241?
Sarah Whitehead: No. Those are additional.
Q43 Antony Higginbotham: If I go back to pre this business plan, your headcount was about 1,000. Am I right?
Sarah Whitehead: It was 1,161.
Q44 Antony Higginbotham: So you are talking about a 50% increase in headcount compared to the period.
Sarah Whitehead: Yes.
Q45 Antony Higginbotham: When will the scrutiny process for authorised corporate service providers roll out? Do you have a timeline?
Sarah Whitehead: We will be introducing registration for authorised corporate service providers. We are looking at towards the end of this year to introduce that process. One of the requirements to become an authorised corporate service provider is to be anti-money laundering-supervised, so we are working very closely with the supervisors around developing that.
Q46 Antony Higginbotham: Does that mean that there might be a slight delay? Is it the FCA that is then progressing people through the AML regulations?
Sarah Whitehead: People will be regulated by various supervisors.
Q47 Antony Higginbotham: Are you helping steer people through that process to make sure that they go through as speedily as possible, so that you can get them?
Sarah Whitehead: We are working really closely with people. Quite a lot of the people who are currently not authorised corporate service providers but regular corporate service providers are already regulated for anti-money laundering purposes. For some people, it will be an additional step, but many of them are already supervised.
Martin Swain: We will support agents to understand what the requirements are. Ultimately, it is the responsibility of the agent to register with a supervisor and be supervised. Part of what the measure is about is to make sure that agents filing with us are supervised for AML purposes. That is part of the measure that is in the Act.
Q48 Antony Higginbotham: We were talking earlier about the timeline for the roughly 50 SIs that we have to get through. How does that correlate with your recruitment plans? If, for example, the House decided that it wanted to move more quickly because of the risks that we see, would you be ready more quickly, or are you working to a sequencing that you know already?
Sarah Whitehead: We are working incredibly closely with the Department, and our timetable for implementation is matched alongside the SI timetable that the Department is working to. It is quite intensive to recruit and train large numbers of people, so, inevitably, we have built the timeline to enable us to do that. If decisions are made that we need to speed things up, we will, of course, have to re-prioritise.
Q49 Antony Higginbotham: VAT fraud is on the rise, if we are to believe the media reports out there. To what extent are you going to be able to work with HMRC to tackle that proactively?
Martin Swain: We already have a really good working relationship with HMRC. We have worked together on a number of issues over the past few years and on some very successful operations that uncovered quite significant fraud. We have an agreement with HMRC at senior level, at board level, to work more closely together on a number of issues.
In Companies House, we are just about to finish our first strategic intelligence assessment around where we see companies being used for various economic crimes. We will be sharing that with HMRC to cross-match where it understands where fraud is being committed, so that we can work jointly together. Essentially, if we can identify between us the types of companies that are being set up and perpetrating the fraud, we can either stop them at source or, if we know that they get on to the register, we can take action immediately to query their existence and remove them if necessary.
Q50 Antony Higginbotham: A big part of the intelligence team’s work going forward is going to be working with HMRC to bring those together.
Martin Swain: I work really closely with the director of intelligence at HMRC and we have a number of key areas of joint work that we are taking forward.
Kevin Hollinrake: You raise a very important point. A lot of this happens around online marketplaces, so this Government stepped in and, quite rightly, required Amazon, for example, to remit VAT on behalf of some of its third-party sellers. Some of the companies then tried to subvert that by setting up companies in the UK. You may have read recently that Amazon further tightened up on that and caught some bona fide companies alongside some of the companies that they might be seeking to target, which we are concerned about. We have to make sure that the platforms take a proportionate approach to making sure that they deal with the bad actors rather than the good ones. That is something where we have stepped in quite recently, and we have written to Amazon to urge it to do that, because there has been some detriment.
Q51 Chair: The supervisory regime is acknowledged as failing, which is why it is under review at the moment. What kind of risk assessment have you made about the inadequacy of the supervisory regime that is going to cover these ACSPs?
Martin Swain: It is work that we have to do with the supervisors, and we are engaged with them now.
Q52 Chair: Just remind us how many there are.
Martin Swain: I do not know what the figure is.
Q53 Chair: I think that it is over 20.
Kevin Hollinrake: It is 22.
Martin Swain: I believe that there are 26. We are working with all of them, as well as OPBAS, the overall supervisory body. It is a really good point that we need to understand where there are risks in the system. We have some intelligence around the activities of certain agents, where, if we deemed it to be suspicious, we would talk to the supervisory bodies. If they have intelligence that there is suspicion, the registrar has powers to suspend.
Q54 Chair: The BBC has uncovered evidence that a lot of these CSPs are encouraging people to set up limited partnerships on the basis that there is a veil of secrecy over who is involved. Is that something that you are worried about?
Martin Swain: We need to be worried about where there is any vulnerability to the register being abused.
Q55 Chair: The weak supervisory regime is a vulnerability.
Martin Swain: I would have to acknowledge that, if there are weaknesses in the system, it has to be a vulnerability. If we are registering agents that are not acting in the way that they should under the AML system, that is clearly a vulnerability.
Q56 Chair: When is this review going to conclude?
Kevin Hollinrake: It is with HMT. We are keen to see the outcome of that consultation and the response to it, and to decide how the future supervisory regime will be approached and whether it is to sit with OPBAS or ends up as being a single AML supervisor for the ones currently covered by OPBAS. We will wait to see the recommendations from the Treasury.
Q57 Chair: Your colleagues in the Treasury have not told you when they are going to conclude.
Kevin Hollinrake: No. It is expected soon.
Q58 Chair: Is that in the spring or the summer?
Kevin Hollinrake: Let us hope so. I am afraid that I do not have a firm date.
Q59 Anthony Mangnall: UK Finance made the same point that the Chair was building on there around ACSPs falling short of the minimum industry standards. Mr Swain, how are you going to guard against the risks that might be had for those who are falling beneath the standards? Do you have the resources that you need?
Martin Swain: We have resourced my team quite extensively from where we were. We had fewer than six to eight people, so we have expanded quite significantly already.
Q60 Chair: You had six to eight.
Martin Swain: Yes. This is not a function that Companies House has done in the past, because we have not had the powers to enable us to do it. We have grown the function. I would probably reserve judgment as to whether I have enough people, because, quite frankly, the scale of the problems could be bigger than we think.
Turning to the ACSP point, this is, again, a new area for Companies House. We are taking on a new function. It is not a supervisory function from an AML perspective, but there will be requirements upon those agents to operate, where we will act in a supervisory way to ensure that they do that. For example, where they are verifying the identity of their clients, they will be required to retain information around that verification, and we can ask to see that verification information at any point. If they did not have it, we would take action and, if they were not compliant, we would consider suspending their registration.
Q61 Anthony Mangnall: This may well become a manpower issue on the basis of how many people you have who are able to review this. How much is it going to cost to deliver the in-house verification system? How much is it going to cost to monitor the input of thousands of potential third-party authorised corporate service providers?
Martin Swain: I could not give you the costs off the top of my head, but we can provide that information later.
Q62 Anthony Mangnall: That would be very helpful. The only point that I will make before handing back to the Chair is that you want to be proactive and forward-looking rather than having to react, hence this point around your resources and starting from six to eight people versus where you may end up needing to be, which is perhaps going to be a lot bigger than you think.
Martin Swain: We are just under 60 people in the intel team now, which is a significant increase. We are resourced to start in earnest on 4 March with those people. Hopefully, people will see a different response from Companies House in terms of the way we are using our data and sharing it with partners, and supporting investigations. Hopefully, we will very quickly be able to demonstrate what this means.
Kevin Hollinrake: Companies House benefited from £63 million of initial funding to be able to put these measures in place.
Q63 Chair: Is that over several years or is that next year?
Eoin Parker: It is over the spending review period, so up to the end of next year.
Q64 Chair: How much is it next year?
Kevin Hollinrake: I will let you look at that. I would just like to make a broader point. There are 4 million companies registered with Companies House. Some 700,000 were registered last year. If you wanted enough manpower to check all of those on an individual basis, you would be talking about an awful lot of manpower, which is lots of taxpayers’ money, although we intend to raise the incorporation fee and, potentially, other fees to pay for these new activities.
Just to be clear on how the regime will work, there is a requirement for people to verify their identity, for example, and to be authorised as a corporate service provider to do that, but that comes alongside penalties if they do not do that right—for example, false filing penalties, including potentially custodial sentences. There is a requirement on those individuals and companies to make sure that they are doing it right. It is not about checking every single entry in Companies House, but making sure that people are properly authorised, and there are penalties if people try to play fast and loose with the system.
Q65 Chair: Do you have the number for next year?
Eoin Parker: I do. It is just worth saying that, broadly, that £63 million is about investing in the transformation of Companies House and the underlying software and systems development that sits underneath the register reform. We expect it to be something in the region of £25 million next year across resource and capital spending.
Q66 Ian Lavery: If we can turn to the potential abuse—or the actual abuse, if you look at the reports—of the corporate register, Companies House has been described as “a dysfunctional part” of a wider business environment. The abuse of the register has grown massively over the last two or three years. In addition, if the report is right, there were 800,000 new registrations in 2022-23. Mr Swain, can you explain to the Committee what steps you are taking to tackle identity theft and fraudulent abuse of the register?
Martin Swain: We would acknowledge that it is a huge problem. We have been waiting for these reforms for a while and are really enthusiastic and keen to implement them. We will deploy as much as we can to stopping corporations getting on to the register where we have knowledge of suspicious activity. It is really challenging, because the majority of our incorporations are automatic and go through a digital system. Unless you have suspicion markers that you build into the system, it is quite hard to stop, but we are aware of where the abuse is happening.
In my teams, we have a lot of work under way, in particular with other partners, looking at trends on the register. We will have a power to query information and to remove information that we believe is fraudulent, as well as to remove the companies far more quickly. At the moment, Sarah and I frequently have to write to people to explain the process. We understand that it is a difficult one for people to go through. There is an administrative process that is quite lengthy. That will change when the new powers come in. If we are aware that somebody’s address or name has been taken, we will be able to act immediately, remove that information from the register and, ultimately, strike the company off.
This involves working with partners far more. We already work with a lot of public sector partners, but I am really keen to work more closely with private sector partners such as banks and financial institutions as well, because, ultimately, when somebody’s identity is stolen, it is normally for a criminal purpose, which means that somebody somewhere is losing money.
Going back to the point that some people have made about being part of a systemwide response to this, Companies House has new powers, which is fantastic, but we are part of a wider system, so it is it is about growing our maturity in that.
Q67 Ian Lavery: Last year, Companies House reported that it was taking an average of 35 days to action disputed registered addresses. Many of them will be fraudulent. Are you targeting an improvement in your response to reports of identity theft?
Martin Swain: Part of the resources that we have recruited are specifically to target this type of activity, and so, as soon as the powers are available to us, we will be taking action to improve that performance. We would want that performance to be far lower. We want to be responding to people within days rather than weeks. We understand that this is really difficult for people who are put in this situation, so we will be doing everything that we can to improve that.
Q68 Ian Lavery: There are 5 million companies on the register, which is considerable, isn’t it? As I mentioned earlier, 800,000 new companies were registered in 2023. Do you have any idea of how many registrations might contain false information? How do you estimate those figures?
Martin Swain: That is the work that we have to do. Varying statistics are given. Some people think that it is as low as 5%. Graham, who is going to give evidence later, will say that it is significantly more and that it is probably one in five companies. Ultimately, we have to build our intelligence function to understand that. We are seeing a spike in incorporations. Again, there are some reports and theories that that is because new powers and laws are coming in, particularly around ID verification, and so people are registering companies now.
Going back to what I was saying, we are able to start seeing patterns. With the new powers, we will be able to take action far more quickly to remove information from the register. If we see a pattern of what we think are fraudulent incorporations in an area, we will be able to take action far more quickly. We will query that information and, if we do not get a response, we will treat that company as not being in existence. We will have a faster strike-off route available to us very soon, so we will be taking action far more quickly.
You are right to mention the scale, because it is 5 million companies. It is a huge register, so we will be taking action as quickly as we can, but it is a sizeable task.
Q69 Ian Lavery: If 800,000 are registered in 2024 and 800,000 in 2025, it is colossal. I am just wondering what your estimates are.
Martin Swain: It is probably worth the Committee noting that, while there are 800,000 incorporations, there are also a high number of dissolutions at the same time. The register does not grow by 800,000 a year, because you have to take the dissolutions off. That will be greater when we start taking far more proactive action to remove from the register companies that should not be there. I would not want the Committee thinking that we are growing at 800,000 a year, because that is not the case.
Q70 Ian Lavery: In 2023, 800,000 new entries were added. How many were taken off during the same period?
Martin Swain: I do not have that figure to hand, but I am happy to provide it to the Committee.
Q71 Ian Lavery: Would it be roughly the same?
Martin Swain: I would not want to give you a figure that is wrong, so I would rather get the right figure for you. I have a feeling in my head that it is 50%, but we will get the figure for you so that you have it.
Q72 Chair: You are planning to outsource the ID verification system. Is that right?
Martin Swain: We are talking to GDS about the One Login system. That is likely to be the route that we would use. ACSPs is another route, where, if somebody goes via an agent, they could do their verification via an ACSP.
Q73 Chair: How much is the ID verification system going to cost?
Martin Swain: I do not know what the cost is. We would have to get back to you on that.
Q74 Chair: Can you tell us what that is by follow-up?
Martin Swain: Yes.
Q75 Chair: When will that system be live?
Sarah Whitehead: We are looking at towards the first half of 2025.
Q76 Chair: It will be next year.
Sarah Whitehead: Yes.
Q77 Chair: So we will not have an ID verification system live until next year.
Sarah Whitehead: That is what we are working towards.
Q78 Chair: I see. How long will it take to clean up the existing data on the register?
Sarah Whitehead: From the point that we introduce the requirement to ID verify, which will apply to all new incorporations, we will be asking directors and PSCs etc to verify their identification as they file confirmation statements. So there is a 12-month transition period for everyone who is currently on the register.
Q79 Chair: How long will it take to verify everybody on the register?
Sarah Whitehead: It will be that during that 12-month transition period.
Chair: So the system will go live for new registrations in 2025, and then it will take until sometime in 2026 for everybody to have been verified. We have some holes in this net for some time.
Q80 Mark Pawsey: Before I ask some questions about the costs of running the Department, I want to go to the Minister, if I may. On the one hand, we want to make it easy for people to set up new businesses and to attract investment into the UK. On the other, we need a system that is robust. Where do you think we stand currently with regard to the cost of setting up a business in terms of the registration fee at Companies House? Where might the Department be in terms of recovering the costs of doing the verification checks that we have just heard about?
Kevin Hollinrake: We should never forget the point that you make, Mark, that the vast majority of businesses, whatever the stats are, are bona fide businesses. We do not want to put undue burdens on those businesses. In answer to that question, it is currently too free and easy. With the new legislation, we think that it will be in the right place.
It is still going to be relatively cheap—it currently costs £12—to incorporate a business in the UK. That figure is going to be around £50, so it is not going to be too expensive to do that. We expect the ability for somebody to verify their ID, for example through Companies House, to be free, so there will be no undue burdens. The total burden on businesses that we anticipate through this regime is just under £19 million. Nevertheless, the integrity of the register is really important, and that is what we will see coming down the line.
Q81 Mark Pawsey: That is a bit of a drop in the ocean. I understand that the operating income for 2022-23 was £88 million, so you are suggesting a relatively small proportion of fees.
Kevin Hollinrake: That is the business burden.
Q82 Mark Pawsey: You have just told us that £63 million of extra funds are going to have to come from the taxpayer. We are making a pretty substantial investment here. At a time when the European average for creating a company is €300, are we not pitching the price rather low at £50? It is a round of drinks in the pub, isn’t it?
Kevin Hollinrake: We do not think that it is right that a bona fide business should pay for tackling economic crime. There are other ways to do that. We have the economic crime levy, for example, which raises about £200 million in the spending review period, and the Government match that with another £200 million. It is about where we place the burdens. The increase in incorporation fees and confirmation statement fees, for example, will pay for the regime that Companies House has to put in place to make sure that this register is a proper gatekeeper and not simply a dumb register.
Q83 Mark Pawsey: If we are talking about a £50 registration fee, up from £12, when will that come in? I understand that the discussions started on this topic in July 2023. It is a figure that we are talking about. When will the new figure be made public and when will it be implemented?
Kevin Hollinrake: We just made it public in terms of the £50, although that is not a figure that is set in legislation. We will legislate in regulation to set that number. That is where we anticipate it to be. I do not know if we have a precise date for the statutory instrument.
Eoin Parker: In order to lay the statutory instrument, we need to get full approval for the level of the fee. Under “Managing Public Money”, the level of the fee needs to match precisely the cost of the service. That is a conversation that we are having with Treasury, and we will be legislating as soon as we can. We just need to get to a final agreement.
Q84 Chair: But we do not know when it is coming.
Eoin Parker: We are aiming to do it as soon as we can. I cannot give you a date until we are fully clear on the capacity to do it.
Q85 Chair: There have been quite a lot of instances of “as soon as we can”. This is a really important line of questioning that Mr Pawsey has opened up. The extra money going in for strengthening Companies House is about £20 million next year.
Kevin Hollinrake: That is the budget.
Eoin Parker: That is the budget for investing in bits of the system development and capital development that underpin the register reform. As we increase the fees, that will also fund the majority of the delivery, which is bringing in new people to do the new roles that are envisaged under the powers.
Q86 Chair: If you have a £50 fee and 800,000 registrations, that is about £40 million of income. Is that money all staying within Companies House to strengthen its enforcement capabilities?
Eoin Parker: Yes. There are something like 40 fees that are set at different levels. The Minister has given you the headline incorporation fee. People pay for the annual confirmation statement, for instance. They pay for same-day delivery. There is a range of things that raise more money than that, although I do not have the precise total. That money is for funding all of the activities that are broadly there in maintaining the company framework and structure. That means everything that Companies House needs to do to deliver the reforms, but it will also fund some activity within the Insolvency Service.
Q87 Chair: You must have agreed the budget for Companies House for next year. The new financial year is a month and a half away.
Eoin Parker: Companies House colleagues may be better placed to comment on the precise budget for Companies House, but yes. Your question was whether the fee that we raise will go to funding the activity in this area of Companies House, and the answer is yes.
Q88 Chair: What I am concerned about is that the debate about enforcement was one of the biggest debates that we had during the passage of this Bill. We are a month and a half away from the beginning of the new financial year. We still do not know what the fee is and, therefore, what the total income of Companies House may be next year. That is a significant issue for those of us who are worried about whether it has the right enforcement capabilities. You cannot tell us when the fee is going to be presented to the House to agree, and that is a worry.
Kevin Hollinrake: The regime is brought in progressively. Your position on the Bill Committee was that we should set a figure on the face of the Bill, which we thought was wrong. We thought that we would go to Companies House and they would tell us what resources they need to implement this legislation. Then we would set the fee accordingly. There is still work going on in terms of making sure that those two elements match. It is not just the incorporation fee, to be clear. There are other fees that Companies House charges in terms of the confirmation statement and annual return. We need to look at all of those things in the round, but you have a rough idea of what the incorporation fee is going to be.
Q89 Chair: Can I just check with Companies House what the income was that you said you needed from the Department for Business and Trade to implement the Act next year? They will have asked you for the figure that you needed to do this. What was the figure that you told them?
Sarah Whitehead: In terms of how it worked, we put the bid in for the spending review money.
Q90 Chair: How much was that?
Sarah Whitehead: That was £63 million. A proportion of that, which Eoin has already mentioned, is what we will have to spend on the systems next year. That is about implementing the reforms. As Companies House, we do the modelling of what we think our headcount will be next year, what contractors we will need, how much the building will cost, how much we need for enforcement and how much we need for prosecuting lawyers. My finance colleagues will then do the modelling to develop the fee. Then we work very closely with the Department and with Treasury on getting agreement to that fee. It is not that we just gave a number and said, “We need x.” It was, “We have done the modelling. This is how much we predict that we will spend next year and how much we will need for our operations.” Through that, you calculate what the fee is, because the fee is on a cost-recovery basis.
Q91 Chair: You would have looked at the Bill and then the Act. You would have calculated how much you need to implement it, and you would have asked the Department for a number.
Sarah Whitehead: That is the spending review money.
Q92 Chair: Have you been given everything that you asked for?
Sarah Whitehead: We have, as far as I know, yes.
Kevin Hollinrake: Why would we not have given them everything that they asked for?
Q93 Chair: That sometimes happens in Government, in my experience.
Kevin Hollinrake: It might do when there is pressure on the public purse, which you have experience of, but the situation here is slightly different. This has been funded by the fees that are levied on companies for the normal transactions that relate to Companies House. I cannot imagine that we would spend all this time legislating, in what has been a pretty exhaustive period for me and you in this place, and then put all these measures in place, and not want to implement them when moneys have been raised from the business community that benefit from Companies House. The short answer is that we will absolutely give Companies House all that it needs to properly implement this legislation.
Q94 Mark Pawsey: There cannot be a single MP who has not had a constituent tell them about documents that have arrived on their doorstep for a business based there. Are you confident that this new regime will prevent that happening?
Kevin Hollinrake: I absolutely am. I know that Companies House gets a lot of flak, as do Ministers. The current way that there has to be a change to the address of a company is very bureaucratic. It is often a court-based process. This gives Companies House the power to simply rectify and amend that query. That will be available on 4 March.
Chair: That concludes this panel. Thank you very much indeed, both for the work you are doing and for providing such full evidence to us. Many of us will remain concerned about the speed of implementation and whether all the loopholes are covered off by the legislation that has been passed by this place, but we will provide our advice and thoughts back to you after the conclusion of this session. That concludes this panel.