The UK strengthens its response to money laundering and corruption with the Economic Crime (Transparency and Enforcement) Act 2022

After passing through Parliament in double-quick time, the Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”) received Royal Assent on 15 March 2022, only two weeks after the draft bill was first tabled.

The Act brings into effect a number of measures aimed at countering the use of the UK’s real estate and financial systems to launder the proceeds of crime and beefs up existing sanctions regulation and enforcement. While the Act’s introduction has been hastened by the Russian invasion of Ukraine, it is part of the government’s continued push to increase transparency in financial dealings and tackle corruption, and some of its provisions have been under consideration for some years.

The Act brings about developments in three distinct policy areas.

The creation of a new register of overseas owners of UK property (not yet in force)

• The new register, which will be operated by Companies House, will require overseas entities which own (having acquired since 1 January 1999 in England and Wales and since December 2014 in Scotland) or wish to buy, sell, let (for more than 7 years) or grant security over UK property, to apply to be included on the register with the details of their “registrable beneficial owners".
• Information supplied to the register will be required to be verified and criminal sanctions, in the form of fines of up to £2,500 a day, will be imposed on any company that fails to comply, along with its officers, who may also receive prison sentences of up to five years. There will also be restrictions (backdated to 28 February 2022) on making dispositions by/to entities who are not properly registered. 
• Our Real Estate team has been monitoring this aspect of the Act. Please speak to your usual contact for further information.  

Provisions to strengthen the system of unexplained wealth orders (“UWOs”) (not yet in force)

• These orders (introduced into the Proceeds of Crime Act 2002 by the Criminal Finances Act 2017) enable enforcement authorities such as the National Crime Agency, HM Revenue and Customs, the Director of Public Prosecutions and the Serious Fraud Office ultimately to seize funds and assets held by politically exposed persons, those reasonably suspected of being involved in serious crime or of being connected with someone who is or has been so involved.
• The grounds for obtaining a UWO are extended under the Act to include that a court is satisfied that there are reasonable grounds for suspecting that the property in question has been obtained through unlawful conduct. Previously the only ground was that the person’s known lawfully-obtained income would be insufficient to obtain such property. 
• Where the holder of the property is a corporate entity, the Act provides that a UWO may also be sought against the “responsible officers” of that entity, such as directors, partners and those acting as such.
• The Act extends the period for which properties may be frozen pursuant to a UWO while enforcement authorities investigate the alleged sources of wealth and other time periods for relevant proceedings. 
• The Act also provides that no costs will be payable by an enforcement authority to a company or responsible officer in respect of an unsuccessful UWO unless the application was made unreasonably, dishonestly or improperly. It has been suggested that the fear of incurring substantial costs while seeking an UWO has contributed to the apparent lack of use of UWOs by UK prosecutors.
• The government will have to publish annual reports listing the number of UWOs obtained from the court as well as the number of applications for such orders made by enforcement authorities. 

Sanctions penalties and enforcement

Supporting OFSI enforcement (not yet in force)

• The Act strengthens the Office for Financial Sanctions Implementation’s (“OFSI”) powers under s.146 of the Policing and Crime Act 2017 to impose monetary penalties for breaching financial sanctions, by removing the obligation for a person to have known, suspected or believed any matter when determining whether they have breached financial sanctions legislation. Under previous rules, companies were only liable if they had knowledge or a “reasonable cause to suspect” that sanctions were being breached.
• This amendment effectively enables OFSI to impose strict civil liability for sanctions breaches. Penalties can be up to the greater of 50% of the estimated value of funds or economic resources, and £1m. The Home Secretary has indicated that revised Treasury guidance on penalties will be finalised before the provision is brought into force. 
• OFSI is now required to publish reports on the monetary penalties it has issued and, additionally, where penalties have not been imposed but OFSI is satisfied, on the balance of probabilities, that breaches have occurred. This has been touted as a “power to publicly name those who have breached financial sanctions".

Simplifying sanctions designations (in force from Royal Assent)

•  The Act introduces a new procedure into the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”) by which the Home Secretary can designate a named person or description of persons on an expedited basis. Under the new “urgent procedure”, the only criteria necessary for designation are that the person has already been sanctioned by the US, EU, Australia, Canada or any other country specified by regulation, and that it is the public interest to make a designation under the urgent procedure. Designations made in this way last for 56 days but can be extended for a further 56 days, when the criteria for designation under the standard procedure will also need to be met.

• Following Royal Assent, the government immediately announced the designation of more than 370 more Russian and Belarussian sanctions, including 51 Russian oligarchs and their family members. The majority of these were made under the urgent procedure. 
• The amount of damages payable following a court review of any designation decision will be restricted (for proceedings on or after 4 March 2022) by regulation and in any event, will only be awarded where the court is satisfied that the decision was made in bad faith; a finding of negligence by the authority will not long be sufficient.
• Other amendments reduce obligations on the government to review certain designations and regulations under SAMLA.

Future developments

The government has stated  that the Act will be followed by a second economic crime bill, to be introduced as early as possible in the next session of Parliament. This will include major reform of Companies House, reforms to prevent the abuse of limited partnerships, new powers to make it easier to seize crypto assets from criminals and measures to provide businesses with more confidence to share information on suspected money laundering, and is likely to be a “substantial piece of legislation”. We will report on developments as and when they occur.