The Economic Crime (Transparency and Enforcement) Act 2022 (the ‘Act’) was both long coming and quickly passed, finally gaining Royal Assent on 15 March 2022. The intention of the Act was to crack down on illicit finance and expand the UK Government’s ability to monitor and disrupt those individuals engaged in money laundering or sanction evasion related activities. The Act encapsulates many years of detailed negotiations but was ultimately ushered through the UK Parliament in an expedited fashion in response to the invasion of Ukraine and to tackle the flow of sanctioned Russian funds that may be within the UK.
In addition, the Act includes detailed efforts to set up a new Register of Overseas Entities and their beneficial owners and make stronger provisions with regards to unexplained wealth orders. The Act will be further bolstered by complementary legislation in the coming months, so stakeholders in this sector should keep a keen eye on developments.
Unexplained Wealth Orders
Unexplained Wealth Orders were introduced in order to allow authorities to target politically exposed individuals or individuals with links to serious crime that have assets disproportionate to their known income. The Act will provide further motivation to the authorities to make use of these orders in the future to disrupt money laundering activity in light of the following proposed statutory developments:
- authorities that pursue unexplained wealth orders, if unsuccessful, are only obliged to pay the respondent’s costs if they acted unreasonably, dishonestly or improperly;
- the orders can be issued to a respondent’s director, officer or trustee which will enable authorities to target overseas entities in a much more efficient manner; and
- the timeframe in which authorities may review material provided in response to an unexplained wealth order is extended.
The Act makes it much easier for UK authorities to impose a fine on individuals that have breached sanctions. Previously, UK authorities had to prove that the individual in question had: (i) engaged in a course of conduct that breached relevant sanction(s); and (ii) had ‘reasonable cause to suspect’ that their course of conduct was breaching relevant sanction(s). The Act disposes of this second limb entirely and effectively makes the breach of sanctions a strict liability offence.
Additionally, the Act gives OFSI (the UK governmental authority in charge of investigating sanctions’ breaches) additional powers including that of imposing penalties without having a government minister reviewing the penalty and to publicly ‘name and shame’ persons and entities who breached financial sanctions but are yet to be penalised.
The Act has also simplifies the process to enact new sanctions and to add new names into the asset-freeze list if other jurisdictions, such as the United States, have added them to their sanctions lists.
Nowhere to hide
The new Register of Overseas Entities will publicly record all foreign ownership of UK property. The Act requires foreign entities that have purchased any property in the UK since 1 January 1999 to register themselves with Companies House and, upon a proportionate search being undertaken to unearth the relevant information, identify (with verifiable evidence) those individuals who have a beneficial interest in them to Companies House. An individual will be deemed a beneficial owner if they own more than 25% of an entity’s shares or voting rights. Entities only have six months to register themselves.
The Register of Overseas Entities will be publicly searchable and allow for more transparency over those entities having significant interest within the UK property market. This mirrors the requirement imposed in 2016 on domestically incorporated entities, who have had to disclose this information in their ‘Persons with Significant Control’ register.
Any foreign entities (and their executive officers) who ignore this requirement and allow their beneficial owners to cling to their anonymity will face a fine up to £2,500/day or up to 5 years’ imprisonment. In addition, their ability to dispose of any property within the UK will be severely hampered (if not restricted entirely).
In a targeted effort to intensify enforcement activity, the UK Government has announced the creation of a “Kleptocracy Cell” within the National Crime Agency to specifically focus on those individuals evading sanctions by concealing or dealing in Russian assets within the UK.
Ultimately, it remains to be seen to what extent the provisions of the Act will revitalise enforcement activity with regards to money laundering and sanction breaches. Given the global geopolitical focus on these types of issues currently, crack downs are likely to remain a key political goal that enforcement agencies will be keen to deliver on. We expect to see much more activity in this area and will provide an update again as we continue to review the response to the Act within the UK.