Economic Crime

A Bill is progressing through Parliament to set up a register of overseas entities and their beneficial owners and require overseas entities who own land to register in certain circumstances. It also makes provisions about unexplained wealth orders and sanctions.

The Economic Crime (Transparency and Enforcement) Bill has three main objectives:

1. To prevent and combat the use of land in the UK for money laundering purposes.
2. To reform the Unexplained Wealth Order regime to enable law enforcement to investigate the origin of property and recover the proceeds of crime.
3. To amend financial sanctions legislation, including the monetary penalty legal test and information-sharing powers to help deter and prevent breaches of financial sanctions.

Combatting the use of land for money laundering

The Bill would create a register of the overseas entities that own land in the UK (the beneficial owners). The register would be held by Companies House and would be made public.

The policy follows concerns about the lack of transparency around the ultimate owners of land in the UK when it is registered to an overseas entity or company. Currently, the information is limited to the name of the company or entity and the territory of incorporation. The real ‘owner’ or controller of the entity, and therefore the land, is not known.

Campaigners and law enforcement have expressed these concerns that criminal organisations use these overseas entities to hide and launder the proceeds of crime. Law enforcement agencies report being hindered by the lack of transparency when investigating organised crime, bribery and corruption.

Most UK entities have been required to provide information about their ultimate controllers and owners since 2016. The Bill would bring overseas entities in line with those in the UK, and it is hoped it would act as a deterrent to those who seek to hide and launder the proceeds of crime in land. The intention is to mirror the current system as far as possible, although some of the enforcement mechanisms could not be applied overseas.

Unexplained wealth orders

As London is an attractive destination for overseas investors, it means the UK is exposed to money laundering risks from Politically Exposed Persons (PEPs). In a recent risk assessment by the Home Office and HM Treasury, property in the UK is attractive to both foreign and domestic criminals seeking to conceal funds, disguise ownership and realise the proceeds of criminal activities.

An Unexplained Wealth Order (UWO) requires a PEP or a person reasonably suspected of involvement in serious crime to explain the origin of assets that appear to be disproportionate to their known lawfully obtained income.

The Bill puts forward the reform said to be needed to strengthen and reinforce the UWO regime to make sure the powers can be used to maximum effect. The amendments have four primary objectives and are intended to both extend and clarify the scope of the powers, including:

1. Counter the inability or unwillingness of kleptocratic foreign states to provide reliable support to enforcement authorities investigations.
2. Enable enforcement authorities to meet the evidential standard at the investigation’s outset. This would allow the powers to be used in the broadest range of suitable powers to the maximum effect.
3. Allow a fuller investigation by extending the maximum time a court can allow property to be frozen in relation to a UWO.
4. A barrier to the use of UWOs would be removed to allow legal costs to be limited for enforcement authorities to be limited unless they used the powers unreasonably, improperly or dishonestly.

UWOs can already be made; the Proceeds of Crime Act 2002 allows the investigation and recovery of any property obtained through unlawful conduct, or is intended to be used for unlawful conduct. For a recovery order to be made, there must be sufficient evidence to indicate that on the balance of probabilities, the property is related to unlawful activity.

Sanctions

Sanctions are restrictive measures designed to be temporary. They can be used to coerce a change in behaviour, constrain behaviour, or communicate a clear political message.

Currently, there are over 2,000 individuals, entities and ships subjected to UK sanctions; there are also country-specific sanction regimes. The Office of Financial Sanctions Implementation (OFSI) is the authority responsible for implementing financial sanctions. OFSI’s powers are contained in different places, and specific financial sanctions regimes are contained in regulations made under the Sanctions and Anti-Money Laundering Act 2018. These regulations contain the obligations and prohibitions specific to each sanctions regime.

The amendments are aimed at strengthening enforcement by providing for:

1. A more robust legal test to support compliance and help OFSI to impose monetary penalties for breaches of financial sanctions.
2. Greater flexibility for the Treasury in managing the review process for monetary penalties.
3. Enhanced intelligence and information sharing powers to give OFSI better tools to do enforcement through greater access to information from other agencies.
4. A statutory power to publicly censure for financial sanctions non-compliance, even where a decision is made not to impose a monetary penalty for the breach.

Bill’s passage

Any Bill starts in the House of Commons, where there are two readings before a committee and report stage, ending with a third reading. The same stages are then repeated in the House of Lords. The final stages are then the consideration of amendments before Royal Assent. This Bill is currently awaiting its second reading in the House of Commons. However, the Government intends to ask Parliament to expedite the progress of the Bill through Parliament. Any such request has to be justified, and the Government has put forward the following justification:

1. An urgent response is needed due to the Russian invasion of Ukraine.
2. The majority of the Bill relates to the Register of Overseas Entities which has previously been scrutinised by a Joint Ad-Hoc Committee.
3. There has been extensive public engagement on the Register with several rounds of consultation. A targeted engagement exercise was also conducted on the reforms to the UWO regime.
4. Existing legislation is not sufficient to deal with the issues in the Bill.
5. The legislation will be subject to standard post-legislative scrutiny.
6. The reforms are intended to be permanent changes to legislation, and a sunset clause is not appropriate.

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