Economic Crime (Transparency and Enforcement) Act 2022
By James E Barbour CA, Director, Policy Leadership
21 March 2022
On 15 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 was enacted.
The legislation, which has been fast tracked in light of Russia’s invasion of Ukraine, has three main objectives:
- Prevent and combat the use of land in the UK for money laundering purposes by increasing the transparency of beneficial ownership information relating to overseas entities that own land in the UK. The Act therefore creates a register of the beneficial owners of such entities which will be held by Companies House and made public.
- Reform the UK’s Unexplained Wealth Order (UWO) regime to enable law enforcement to investigate the origin of property and recover the proceeds of crime. The measures in the Bill aim to strengthen the UK’s fight against serious economic crime; to clarify the scope of UWO powers; and to increase and reinforce operational confidence in relation to UWO powers.
- Amend financial sanctions legislation, including the monetary penalty legal test and information sharing powers to help deter and prevent breaches of financial sanctions.
Register of Overseas Entities
This new register will require those behind foreign entities (body corporates, partnerships or other entity which is a legal person under the law of the country in which it is governed) which own UK property to reveal their identities. Entities who refuse to reveal their ‘beneficial owner’ will face tough restrictions on selling the property and those who break the rules could face a fine of up to £2,500 per day or up to 5 years in prison. This will be a valuable tool for law enforcement agencies in investigating suspicious wealth.
The provisions in this Part of the Act cover matters such as:
- Details of the registration and removal process for overseas entities including details of the statements and information required and the updating process;
- Identifying and verifying registrable beneficial owners; and
- Exemptions e.g. the Secretary of State may grant these in the interests of national security or for the purposes of preventing or detecting serious crime.
Companies House will now begin work to implement the register as quickly as possible as part of the 6-month transition period under the Act, working closely with the UK’s three land registries. The register will cover all property bought in England and Wales since 1 January 1999, in Scotland since 8 December 2014, and in Northern Ireland from 15 March 2022. These are the earliest dates on which the land registers in each country started to collect information about ownership by overseas entities for every registration. Any foreign entity selling properties between 28 February (when the Bill was introduced to Parliament) and the full implementation of the register will also be required to submit their details at the point of sale.
Foreign entities will require to deliver a statement updating their entry in the register every 12 months.
Unexplained Wealth Orders
Reforms to Unexplained Wealth Orders (UWOs) will remove key barriers to their use, increasing time available to law enforcement to review material provided in response to a UWO and protecting them from incurring substantial legal costs if they act reasonably in a case that is ultimately unsuccessful.
Furthermore, UWOs will be more effective against those who hold property in the UK via trusts and other complex ownership structures. The government has also committed to publishing an annual report on their use assets bought with the proceeds of serious and organised crime, particularly
corruption.
Sanctions
The sanctions measures will strengthen enforcement by providing for:
- A more robust legal test that will support compliance and help the Office of Financial Sanctions Implementation (OFSI) to impose monetary penalties for breaches of financial sanctions.
- A statutory power to publicly censure for financial sanctions non-compliance even if a decision is made not to impose a monetary penalty for the breach.
A new streamlined process for designation of those being the subject of sanctions by the UK is also introduced (‘the urgent procedure’) which can be used where sanctions are already imposed against that person by the EU, the USA, Australia, Canada or other countries introduced by subsequent Regulations.
These measures introduced in the Act form part of a wider package of legislative proposals to tackle illicit finance which will be introduced in Parliament in the coming months, including reforming Companies House and introducing new powers to seize crypto assets more easily.