On 1 March 2022, the UK Government introduced into Parliament the Economic Crime (Transparency and Enforcement) Bill (the "Bill"). The draft legislation contains a number of measures designed to increase transparency and give law enforcement enhanced powers to combat money laundering and sanctions breaches. 

A draft Economic Crime Bill was prepared in 2018, and elements of the Bill have been discussed for several years – in particular, the register of overseas entities owning UK property, which was first announced by then-Prime Minister David Cameron in March 2016. The Bill's progression into law had slowed as the Government prioritised other areas of reform, resulting in uncertainty as to what the Bill would include and criticism that the Government was not doing enough to combat financial crime. 

However, as a result of the events in Ukraine, the Government has fast-tracked the Bill and has announced that additional measures – including a broader Economic Crime Bill – will be introduced in the coming months.

The Economic Crime (Transparency and Enforcement) Bill

The Bill covers the following key areas:

Register of Overseas Entities

The Bill will introduce a new register of overseas entities, which will include information about overseas entities that own UK property and their beneficial owners. The Government intends the register to "level the playing field" with UK incorporated companies, which have been required to provide such information for inclusion in a register of Persons with Significant Control ("PSCs") since 2016.

The new register will apply retrospectively to property bought up to 20 years ago in England and Wales and since December 2014 in Scotland. An overseas entity that owns such property will be required to register with Companies House (the UK registrar for companies), take reasonable steps to identify its beneficial owners and provide verified information about them to Companies House. Some information on the register – including the identities of overseas entities and beneficial owners – will be open for public inspection. 

Entities that do not register will face sanctions, including restrictions on registering or disposing title that would prevent the property being sold, and criminal sanctions for the entity and its officers, with daily fines of up to £500 and prison sentences of up to five years.

Unexplained Wealth Order Reforms

The Bill also contains a number of provisions that are intended to strengthen unexplained wealth orders ("UWOs"). UWOs were introduced in 2018 as a tool for law enforcement authorities to tackle money laundering. 

A UWO is a court order that requires the respondent to provide details of their interest in the specified property and explain how they obtained it (including, in particular, how it was paid for). If the respondent fails to comply, there is a presumption that the property was obtained through unlawful conduct, making it easier for authorities to seize. 

UWOs are targeted at people who hold public office (outside Europe) or who are suspected to be linked with serious crime, and were intended to form part of a crackdown on high-end economic crime. However, to date there have been only four cases involving UWOs, with mixed results. The most recent case (Baker) ended in June 2020 with a defeat for the National Crime Agency ("NCA") and a costs bill in the region of £1.5 million. No UWOs have since been issued.

The Bill aims to revitalise UWOs by making them easier to use and less financially risky for law enforcement authorities, which should encourage increased future use:

• Costs rules will be reformed to limit the costs to authorities that unsuccessfully seek to obtain a UWO, with the authority only being required to pay a respondent's costs where the authority has acted unreasonably, dishonestly or improperly. 
• UWOs will be issuable to a respondent's directors, officers or trustees, making it easier for authorities to investigate property held via trusts or offshore structures. 
• Authorities will be given more time to review material provided in a response to an UWO.

Sanctions Reforms

The Bill sets out reforms that are likely to intensify sanctions enforcement. Currently, the Office for Financial Sanctions Implementation ("OFSI"), the UK's sanctions enforcer, can only impose monetary penalties on a person who breaches financial sanctions if it is satisfied that they knew or had 'reasonable cause to suspect' that they were in breach. The Bill removes this requirement, enabling OFSI to impose monetary penalties on a 'strict liability' basis.

OFSI will also be able to publicly name companies that have breached sanctions, but have not been fined.

These measures are likely to result in more and larger fines for sanctions breaches, and are intended to support the recent wave of sanctions against Russian nationals and banks arising out of the ongoing situation in Ukraine. For further information, see our recent client alerts.

The Government has also announced that it intends to set up a dedicated NCA 'Kleptocracy' team to investigate evasion of the recent Russian sanctions, likely in response to the dramatic increase in OFSI's workload and criticism of the limited amount of sanctions enforcement to date.

Further Economic Crime Reforms to Come

At the same time as announcing the Bill, the Government published a White Paper setting out its plans for further Companies House reforms. As with the Bill, these have been under discussion for some time – with a Government consultation and response in 2019-20 – but have now been fast-tracked as part of the Government's response to events in Ukraine.

The White Paper's proposals include requiring directors and PSCs to verify their identity with Companies House, and allowing companies to have only one 'layer' of corporate directors, which must be UK-based. Overseas agents will be prevented from forming UK companies, unless they are subject to a UK-equivalent supervisory regime. Companies House will also be given powers to reject filings, query information that may be false or inaccurate, and share information with law enforcement authorities. 

These reforms will form part of a second Economic Crime Bill that is expected in the coming months, in an effort to further address illicit finance and improve corporate transparency. Other measures to be included in the second Bill include new powers to seize crypto assets, enhanced anti-money laundering powers to encourage businesses to share information on suspected economic crime, and measures to restrict the misuse of limited partnerships. 

This flurry of economic crime measures will allow for more aggressive enforcement, and the Government's announcements indicate that, in the short term, they are likely to see heavy use in support of the UK's response to the situation in Ukraine. However, while their introduction has been triggered by the events, they are not Russia-specific (in contrast to the UK's recent financial sanctions), but are intended to form part of a broader reshaping of the UK's economic crime landscape. It remains to be seen how successful that will be, how far the current levels of political will and enforcement appetite are sustained, and what impact these measures will have outside the current context.

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