Head of Banking & Lender Disputes | Dispute Resolution | Banking and Finance
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The prevalence of economic crime in the UK has come into sharp focus in recent months. Russia's invasion of Ukraine and the discovery of the extent of fraudulent Covid loans have acted as a wake-up call as to the prevalence of economic crime in the UK. This article explores some of the recent legislation, the proposals of parliamentary groups and, finally, the Government's further proposals.
The Economic Crime (Transparency and Enforcement) Act 2022 (the "Act") was fast tracked in response to the Russian invasion of Ukraine to try and combat the flow of illicit finance coming into the United Kingdom.
The Act introduces:
Part 1 of the Act sets up a register ("Register") of overseas entities and their beneficial owners and requires overseas entities who own land in the UK to register with Companies House in certain circumstances.
Registration requires the overseas entity to provide details of their beneficial owners or 'persons of significant control', reflecting the way that UK companies currently provide information by creating a public record accessible on the Companies House registry.
Although the Act was passed earlier this year, the Register was only introduced on 1 August 2022. Following its introduction there is a six-month transition period to allow overseas entities, which already own UK property, time to register. It is crucial for lenders to understand that failing to comply with these new rules could significantly impact future and in-flight property transactions.
Please see our previous article on the register of overseas entities which own UK property for further details.
Part 2 of the Act makes significant amendments to the Unexplained Wealth Order ("UWO") Provisions in Part VIII of the Proceeds of Crime Act 2002. The amendments are intended to "enable law enforcement to take more effective action against kleptocrats and serious and organised criminals" who launder money in the UK.
The key amendments are as follows:
Part 3 of the Act came into effect on the 15June 2022. This section of the Act streamlines the process by which sanctions regulations can be made pursuant to the Sanctions and Money Laundering Act 2018.
The most significant change is s54 of the Act which amends the Office of Financial Sanctions Implementation's ("OFSI") sanctioning powers by introducing a strict liability offence for sanctions breaches by removing the requirement for the OFSI to prove that a person had "knowledge, belief or reasonable cause" to suspect that their activity breached sanctions.
Whilst the Act evidently goes some way in introducing new measures to help combat economic crime, does the legislation go far enough? The All-Party Parliamentary Groups on Anti-Corruption and Responsible Tax and Fair Business Banking do not think so.
On 12 March 2022, the APPGs published their cross-party "Economic Crime Manifesto" calling upon the Government to act with "greater ambition" to ensure that the laws introduced to tackle economic crime in the UK match the "scale of the threat" to secure "long-term prosperity" for the UK.
They argue that the second proposed Economic Crime Bill does not go far enough to fix the UK's "dirty money crisis" and feel strongly that the Government needs to overhaul our anti-money laundering regulations, as well as introducing tougher and well-resourced law enforcement agencies, robust protections for press, Parliament and whistle-blowers so they can hold wrongdoers to account and ensure real transparency of ownership for companies, trusts and land.
To achieve these aims, the Manifesto sets out four key principles to aid reform: These are:
Whilst we wait and see what reform, if any, follows from publication of the Economic Crime Manifesto it is important to look ahead and see what is on the Government's agenda for the coming year and what laws could be passed by Parliament.
On 10 May 2022 the Queen's Speech announced proposed legislation which the Government plans to introduce over the coming parliamentary period. The two pieces of proposed legislation which are of most interest and relevance to the recent manifesto and the Act are the Financial Services and Markets Bill ("Financial Services Bill") and the Economic Crime and Corporate Transparency Bill ("Economic Crime Bill") (collectively referred to as the "Bills").
The objective of the Financial Services Bill is to strengthen the UK's financial services industry by ensuring that it continues to act in the interest of all people and communities.
The Financial Services Bill is said to have three main benefits that it will look to implement, these are:
The objective of the Economic Crime Bill is to further strengthen powers to tackle illicit finance, reduce economic crime and help businesses grow.
The Economic Crime Bill is said to have three main benefits that it will look to implement, these are:
Over the course of the year, we will learn whether either of the Bills are passed into law, and if so, what form they will take. Following the resignation of Boris Johnson, there will be a number of demands for the new Government's attention. Therefore, whether this important policy will receive the Parliamentary attention it requires will be closely followed.
Assuming both Bills are passed and become law there remains a key question about whether both Bills can work together. Following an initial read of the aims and objectives of the Economic Crime Bill, the aim is to prevent criminals from being able to benefit from their proceeds of crime and restrict their ability to successfully launder the money. Compare this with the Financial Services Bill which has the potentially conflicting aim of opening up the economy in the finance section and reducing red tape.
There is a real risk that the overall objectives for both Bills may counteract each other's aims.