By Ellen Wright, Barrister, Trinity Chambers
Introduction
On 1st March 2022, the Government brought forward the tabling of the Economic Crime (Transparency and Enforcement) Bill in light of Russia’s invasion of Ukraine. Just two weeks later, the Bill received Royal Assent and became known as the Economic Crime (Transparency and Enforcement) Act 2022 (‘the Act’).
The Act focusses on three key proposals with the view to tackling economic crime and removing the veil behind which illicitly obtained wealth is hidden namely, the creation of a new register listing overseas owners of UK property, the strengthening of the system of Unexplained Wealth Orders (UWO’s), and the strengthening and simplification of sanctions and enforcement options.
The creation of a new register of overseas owners
Part 1 of the Act sets out provisions for the creation of a new register which will require foreign entities that own or wish to buy/sell or let UK property to reveal their identities by naming their ‘beneficial owner’ (beneficial owners will be identified using similar criteria to that outlined in the current PSI regime regarding people with significant control). Companies House will hold responsibility for the construction and operation of this register (there will be a 6-month transition period under the Act) which will cover all property bought in England and Wales since 1st January 1999. Each entry onto the register will require verification with fines of up to £2500 or imprisonment of up to five years for those who break the rules and there will be restrictions on the sale of properties where insufficient information is available on who the ‘beneficial owner’ is. In addition, those making entries will be required to update their entry onto the register every 12 months. The implementation of the register will prevent anonymous foreign owners from hiding behind chains of shell companies and foundations and may go some way in preventing the purchasing of land and property in the UK with illegitimate money.
Strengthening the system of UWO’s
UWO’s are no longer a new concept having been available since January 2018 with the introduction of the Criminal Finances Act 2017. These orders allow law enforcement organisations (such as HMRC, the National Crime Agency and Serious Fraud Office) to apply to the High Court for an order compelling an individual to explain the origins of their wealth and any interests they hold in properties in circumstances where there are reasonable grounds for believing that a person’s lawful income alone would be insufficient to obtain a property. Where a UWO is granted, an interim freezing order can be sought in order to prevent the dissipation of the asset before the completion of an investigation into the source of the funds. However, the introduction of these UWO’s has been far from successful thus far with only a handful of orders having been granted to date and to mixed results at that.
The Act makes four key changes to the procurement and implementation of UWO’s. Firstly, the Act creates a new alternative test for the granting of a UWO. In addition to reasonable grounds for believing a person’s income is insufficient for their ownership of property; the Act allows for the granting of a UWO in circumstances where there are reasonable grounds for suspecting that a property has been obtained through unlawful conduct.
The Act also extends the category of people who can be made the subject of an UWO to include ‘responsible officers’. What this will mean in practice is that the definition of the holder of an asset is expanded so where property is owned via a trust or other ownership structure, such as a corporate entity, the directors or partners of such entities can be required to provide information as to the origin of funds even if they do not own the property at the centre of the application for the UWO.
Thirdly, the Act provides law enforcement agencies with the option of applying for assets at the centre of an investigation to remain frozen for an additional 126 days with the view to allowing further time for such agencies to review material that has been provided by the subject of a UWO in response to the making of the Order.
The final change the Act brings in as far as UWO’s are concerned is the protection of the position of enforcement agencies as far as costs are concerned. The Act outlines that no costs will be payable if they bring a reasonable application for an UWO which is ultimately unsuccessful. This change may go some way in removing the fear of substantial costs that has potentially been holding law enforcement agencies back and thus the Act could lead to more applications for UWO’s in circumstances where they are appropriate.
Sanctions and enforcement
Far from an afterthought, sanctions and enforcement form an integral part of the new Act. The Act seeks to strengthen the current structure for the imposition of monetary penalties in circumstances where financial penalties have been breached as overseen by the Office of Financial Sanctions Implementation (OFSI). The Act essentially broadens the circumstances in which the sanctions can be applied by removing the requirement that a person must have known, suspected or believed that they breached sanctions law in order to receive a financial penalty.
The Act also allows the OFSI to publish public notices naming individuals believed to have breached sanctions, even where no financial penalty has been enforced, provided they are satisfied on the balance of probabilities that the individual is indeed in breach of sanctions. Alongside this allowance, the Act places an obligation on the OFSI to publish reports on the monetary penalties that it has issued. Hand in hand, it is hoped that these changes will create an increased level of transparency.
During its passage through Parliament, amendments were made to the Act, one of which allows for a new procedure into the Sanctions and Anti-Money Laundering Act 2018 which increases information sharing powers and reduces the time frame within which the Home Secretary can designate a named person. The only requirement for the naming of a designated person within the UK, by the Home Secretary, will be that they have already been sanctioned by a country within the regulations and it is in the public interest for the Home Secretary to do so. This change will apply not only to the making of new sanctions but also sanctions which are already in place. It may well be that together, these legislative changes could deter as well as punish individuals with illegitimate funds.
Companies House, Crypto and Kleptocracy
Looking to the future, the Government published a detailed white paper on the 28th February 2022 outlining further measures that they would be seeking in order to tackle illegitimate wealth in the UK. One proposal out forward in the paper is the reform of Companies House via a further Economic Crime Bill that will aim to clamp down on illicit finances by improving corporate transparency and provide new powers for the seizure of crypto assets in order to bring them within the scope of civil forfeiture powers. In addition to the further proposals outlined by the white papers, the National Crime Agency has set up a new ‘Kleptocracy’ cell with the view to investigate those attempting to evade the severe economic sanctions announced against Russia.
Conclusion
In tandem, it is hoped that the various provisions contained with the Act will shine a light on illicitly obtained wealth in the darkest corners of the UK’s economy creating an environment of transparency in which there is nowhere for such funds to be hidden. The Government outlined in a press release on 15th March 2022 that the Act would “mean the government can move more quickly to impose sanctions against oligarchs already designated by our allies, as well as intensifying our sanctions enforcement”. Only time will tell how successful the Act will be in achieving these objectives.
Ellen Wright, Barrister, Trinity Chambers