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Economic Crime Bill: what is it and how will it rattle dirty money in the UK?

Napier
March 16, 2022

The war in Ukraine has pulled back the curtains on the UK’s shame: dirty Russian money that’s awash amongst some £1.5 billion of British property. The bill has taken some time to pass, and was even at one point shelved which garnered much criticism.

The Russian invasion put enough pressure on the previously reluctant UK government to finally push ahead with the implementation of the Economic Crime (Transparency and Enforcement) Bill.

With the Bill expected to enter UK law later this month, in this blog we explain what the Economic Crime Bill is and what it means for dirty money and sanctions compliance in the UK.

What does the Economic Crime Bill set out to do?

The Economic Crime Bill aims to stop oligarchs and those involved in financial crime from exploiting a legal loophole to create a “veneer of legitimacy” by using agents to create companies or buy properties for them in the UK.

But the Bill’s not just about property, it also sets out to strengthen the UK’s Unexplained Wealth Order regime and perhaps most significantly, the civil financial sanctions regime.

The bill that nearly got shelved

Until now, concern around the UK’s - specifically London’s - global role in washing and hiding illicit gains has not been addressed with legislation. Just a few weeks ago, before the invasion of Ukraine began, it was announced that after years of stalling, the Economic Crime bill was to be delayed indefinitely.

The decision to shelve the bill came despite the promise of a Register of Overseas Entities dating back to 2016, and plans for an Economic Crime Bill being referenced in the Queen’s speech to Parliament in October 2019.

In January 2022 the high-profile resignation of Treasury minister, Lord Agnew, in protest of the government’s approach to Covid-19 loan fraud, additionally saw Agnew call out the government’s decision to ditch the Economic Crime Bill as “foolish” in his resignation letter.

Spotlight on Corruption, an expert campaign group on dirty money, claimed the decision to shelve the Bill “undermines every international commitment the government has made over the past year to fight economic crime”.

Russia’s attack on Ukraine in late February changed everything, as property and other assets in the UK that are owned by Russians accused of corruption or with links to the Kremlin are now associated with the suffering of the Ukrainian people.

A new pledge to open the Russian doll

At last, and in an indirect acknowledgement of the suspected dirty money hidden in UK property, Boris Johnson pledged in February to “open up the Russian doll of property ownership, of company ownership, in London and see who’s behind everything”.

The corresponding sudden U-turn in the ditching of the Economic Crime Bill means we are finally seeing progress in the UK’s crackdown on dirty money.  

So what exactly will the Economic Crime Bill do?

Putting forward three key proposals, the Economic Crime Bill will:

1. Create a register of overseas ownership of UK land and property

With a 6-month deadline to comply with the disclosure rules, the register will apply to property bought up to 20 years ago in England and Wales, and from December 2014 in Scotland.

Foreign property owners and ultimate beneficiaries will have to declare and verify their identity with Companies House. A registerable beneficial owner may be an individual, a legal entity, or a government or public authority who holds more than 25% of the shares or voting rights in a company.

Failure to comply will result in a daily fine of £2,500, or a prison sentence of up to five years.

According to NGO Transparency International, more than 85,000 properties in the UK are owned anonymously by entities registered abroad.

2. Expand the scope of Unexplained Wealth Orders (UWOs)

These came into effect in January 2018 to help tackle suspected criminal money being invested in property. Since then, just one investigation has so far led to property being surrendered.

The amendments in the Bill means that individuals who own property in the UK through trusts and shell companies are brought into the scope of UWO rules. Enforcement agencies will also now have more time to prepare cases and be given greater financial protection.

3. Strengthen the civil financial sanctions regime

With Western countries leveraging an economic war on Russia through global sanctions, the Bill’s strengthening of the civil sanctions regime is highly significant for not only Ukraine but companies and individuals that the Office of Financial Sanctions Implementation (OFSI) suspects to have breached a financial sanctions prohibition or failed to comply with a financial sanctions obligation.

The Bill means companies and individuals will now be subject to civil monetary penalties on a strict liability basis; the fact that the sanctions rules were breached will be sufficient to establish civil liability. Even when no monetary penalty is imposed, OFSI will be able to periodically publicly identify companies and individuals it suspects of breaching sanctions.

When will the Economic Crime Bill come into effect?

After going to the House of Lords, the Economic Crime Bill is expected to become law in late March.

Will the Economic Crime Bill work?

The Bill is expected to reduce the attractiveness of the UK as a destination for laundering money but, as with any law, effective implementation and tough enforcement measures will be needed for it to be effective.

On evaluating the register of overseas owners, Dr Susan Hawley of Spotlight on Corruption, highlighted that “there's a risk that the ultimate beneficial owner may still be listed as another company.” It may also be too difficult to prosecute lawyers or company agents who fail to reveal beneficiaries - because a court would have to be sure they had acted knowingly or recklessly.

What’s more, the task of creating the register should not be underestimated, particularly the process of completing retrospective applications for the last 20 years. Some estimate that this is likely to take years, and there is concern that the £83 million funding allocation to Companies House is not enough.

As for the sanctions regime changes, this has much more potential to not only increase sanctions compliance but achieve its objective of punishing those in breach. The removal of the previous requirement to establish that a person or company knew, or had reasonable cause to suspect, they were in breach of a prohibition or failed to comply with an obligation is very significant.

Lloyd Firth and Lindsey Cullen of international law firm, WilmerHale, explained that “the new lower legal threshold for establishing liability, along with the potential reputational damage of being identified by OFSI as being suspected of breaching the sanctions regime, even where no financial penalty is imposed, are both likely to really focus the minds of relevant companies.”

The need to stay up-to-date on current legislature and sanctions lists, and for a robust sanctions screening solution has never been so pressing.

You can get the latest information and news on the Economic Crime Bill here.

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Photo by Iza Gawrych on Unsplash