The Economic Crime (Transparency and Enforcement) Act received Royal Assent on 15 March and introduces several new measures designed to tackle financial crime in the UK. The legislation was fast-tracked as a result of the Ukraine conflict and demonstrates a commitment to cracking down on economic crime in the UK.
There are three key provisions in the Act which will have a great impact on how financial crime laws are enforced in the UK, and the sanctions those involved in economic crime activities may face. In this article, we look at how and why the Act was introduced, the key provisions of the Act and the impact the Act may have on the UK’s financial crime regime.
The Economic Crime (Transparency and Enforcement) Act - a renewed focus on economic crime?
The House of Commons passed the Economic Crime (Transparency and Enforcement) Bill with extraordinary speed. All stages of debate and scrutiny, including all three readings of the bill, took place in a single day. The Act addresses some of the key issues in the anti-economic crime space, including the infrequent use of Unexplained Wealth Orders and the need for a quick response to the Ukraine conflict. The haste with which the Act was passed demonstrates the importance of anti-economic crime measures in the eyes of the UK government and how quickly gaps in the regime can be addressed when there is sufficient political incentive to do so.
The UK government has set out that there will be a second Bill introduced in May 2022 and it is anticipated that further measures similar to those contained in the first Bill will be introduced.
The Impact of the Economic Crime (Transparency and Enforcement) Act Explained
Register of overseas owners
The Act seeks to ensure that all anonymous foreign owners of property in the UK register their identities. The purpose of this provision is to prevent those committing economic crimes from hiding their UK property ownership behind shell companies. The provision applies to any foreign individual holding more than 25% of the shares or voting rights in a company, as well as to overseas companies.
These rules apply retrospectively to any property purchased up to 20 years ago in England and Wales, and after 2014 in Scotland. Property owners must comply with the legislation within six months, or face a daily fine of £2,500 or up to five years in prison for the most serious infringements.
How does it work and will it be effective?
Foreign companies must provide their company registration details, contact details and addresses to Companies House in order to purchase property in the UK. Individuals must provide their name, address, date of birth and nationality. While it is the role of Companies House to check this information, there is a reliance on those providing the information to do so honestly and accurately. Companies House may be unable to scrutinise the accuracy of such information in some circumstances, such as where a company is registered in the British Virgin Islands.
One of the key problems with the legislation is that if a company is purposefully laundering money, the threat of committing a criminal offence under the new Act is no more of a concern than facing criminal sanctions for money laundering should they provide honest and accurate information. The reliance on good faith may mean that this provision is toothless in many circumstances.
In addition, having the requirements apply retroactively may cause difficulties. The government has provided Companies House with £20 million in this financial year, and £63 million to deliver the new register. Even so, Companies House is unlikely to have the resources to ensure that every overseas company that has purchased property in the UK over the last 20 years has complied with their obligations under the new Act. Retroactive compliance will involve examining the last 20 years worth of entries in the Land Register, then contacting any companies which they believe have not complied. If a company has failed to provide information, or has provided false information, this could prove to be a very challenging, if not impossible, task.
Unexplained Wealth Orders
The Act also seeks to bring those who own UK property through shell companies and trusts within the scope of Unexplained Wealth Orders (UWOs). Agencies investigating such cases will be given more time to prepare, and the costs of bringing UWO cases will be capped. Enforcement agencies will also be protected from paying the legal costs of bringing an unsuccessful UWO case unless they acted unreasonably in pursuing the case.
Will the Act strengthen the effectiveness of UWO’s?
Enforcement agencies face many difficulties in bringing UWOs which the new Act seeks to rectify. However, one of the biggest problems for these agencies is that they have significant obligations to investigate individuals and companies comprehensively and to only pursue UWOs in cases where it is appropriate.
The new Act does not alter these obligations and as such they may still prevent enforcement agencies from taking action. The National Crime Agency was heavily criticised for making many investigative errors and coming to incorrect conclusions in the Baker case, which highlights the high standard of evidence required to seek a UWO. While the Act strives to remove some of the barriers for agencies in bringing UWO cases, the requirements on the investigative process and evidence remain the same.
Strengthening of civil financial sanctions
Perhaps the least discussed in the media, but the provision with the potential to have the biggest impact, is the strengthening of civil financial sanctions. Companies and individuals that fail to comply with a financial sanctions obligation or breach a financial sanctions prohibition will now face civil penalties. Such penalties will be imposed on a strict liability basis by the Office of Financial Sanctions Implementation (OFSI).
Even where OFSI does not impose a financial penalty, the body will have the power to publicly identify individuals and companies that it suspects to have failed to comply with a financial sanctions obligation or to have breached a financial sanctions prohibition - on the balance of probabilities. This is a much lower standard, which means the body may only need to believe that it is ‘more likely than not’ that the individual or company has done so.
The potential impact of strict liability
Why is this significant? OFSI has in the past had difficulty enforcing the rules for breach of sanctions - issuing only six fines in six years. However, the Act makes it much easier. Amending the rules to allow OFSI to Act on a strict liability basis means that there is no longer an obligation to prove that the person or company knew, or had reason to believe that they had failed to comply with an obligation or were in breach of a prohibition. The breach of the sanctions rules will now be evidence enough to establish civil liability.
The lower legal threshold when coupled with the potential of significant reputational damage when identified by OFSI as potentially infringing the sanctions regime, may be enough to concern potential perpetrators and enforce compliance with the rules.
Contact our Fraud and Financial Crime Defence Lawyers in Central London Today
If you are concerned about changes to the economic crime regime in the UK, Lewis Nedas Law can provide expert advice and assistance. We are a highly regarded City law firm and ranked in Legal 500 and Chambers for our fraud defence service. We routinely assist clients with economic crime investigations brought by the FCA, the police and the NCA. We can also provide proactive advice before any investigation takes place.
To discuss your needs, please call us today on 020 7387 2032 or complete our online enquiry form.
