As part of its crackdown on dirty money, the UK Government has published a second Economic Crime and Corporate Transparency Bill. The 250 page Bill covers a wide range of proposed reforms. This post focusses on the proposed changes to anti-money laundering (AML) practices, regulators’ powers and industry information-sharing that will directly impact firms in the financial sector.

No need to seek DAML in two new pay-away situations

Currently a firm in the regulated sector¹ faces an onerous burden when exiting a customer relationship where the account is suspected to contain criminal property. The firm has to seek a ‘defence against money laundering’ (DAML) from the UK National Crime Agency (NCA) before paying the property away. This requires a firm to wait for up to seven days after seeking a DAML (and sometimes longer) without tipping off its client before it can action a payment. It is also currently difficult for a firm to make payments from a customer’s account which contains mixed clean funds and suspected criminal property without first obtaining a DAML.

The Bill contains proposals to reduce this burden. It proposes that, even if a firm has knowledge or suspicion of criminal property, it will be able to:

• transfer money or other property owing or belonging to a customer for the purposes of exiting that customer relationship, provided the value is not over GBP1000 and required customer due diligence has been done. This figure may seem low, and it will be interesting to see whether the threshold in the Bill is revised, but it would nonetheless simplify a large number of retail account closures.
• pay money or other property from a customer’s account if the amount left in the customer’s account equals or exceeds the amount to which the knowledge or suspicion relates. For example², where a customer’s account contains GBP2000 from a legitimate salary and a further GBP3000 from what the bank suspects to be a fraudulent loan application, the bank can allow the customer access to up to GBP2000 without seeking a DAML, as long as it keeps at least GBP3000 in the account.

In both situations, the firm will still have to report its suspicions of money laundering to the NCA, but will not be required to obtain a DAML to avoid committing a money laundering offence.

More information sharing between regulated firms

Despite some information sharing provisions introduced by the Criminal Finances Act 2017, firms are currently constrained in their ability quickly to share customer information about economic crime concerns between themselves. This can make it difficult to: (i) determine whether a transaction is suspicious without information from the counterpart; (ii) identify criminal activity across firms; and (iii) share information about account closures, which leads to customers easily opening new accounts with other unwitting firms.

The Bill proposes that a firm (A) in the regulated sector will be able to share customer information with another firm (B) in the regulated sector where:

• B has asked for customer information from A; or
• A has decided to take safeguarding action (for example, exiting a customer relationship, or refusing or restricting access to a product or service) as a result of economic crime concerns.

A disclosure by A to B in these circumstances will not be a breach of confidence, provided the disclosure will or may assist B with a ‘relevant action’. This is broadly defined and includes, for the purposes of preventing, detecting or investigating economic crime: (1) customer due diligence / identity verification; and (2) deciding whether to take safeguarding action.

The Bill also envisages ‘indirect sharing’, whereby certain firms in the regulated sector (banks, electronic money institutions, payment institutions, cryptoasset exchange providers and custodian wallet providers) that have taken safeguarding action due to economic crime concerns, can share customer information with a third party intermediary, for onwards transmission to other firms in the regulated sector if it will or may assist those firms in carrying out ‘relevant actions’. It is still information sharing, but this time via a third party intermediary. The Impact Assessment states that a pilot scheme is underway to test the viability of such a third party platform.

Both of these new mechanisms for information sharing would be voluntary, and would not replace the need to make disclosures to the NCA. Businesses will also still have to deal with data in a way that complies with data protection legislation. They will remain subject to any existing obligations set out in the Equalities Act 2010 and the FCA’s Principles for Businesses when deciding whether to restrict a customer’s access to a product or exclude a customer in light of information they have received.

More NCA Information Orders and SFO pre-investigation requests

The Bill gives the NCA and SFO two enhanced tools to obtain information from firms:

• An easier route for the NCA to obtain information: The NCA’s power to use ‘Information Orders’ (IOs) was originally introduced by the Criminal Finances Act 2017, allowing it to issue information orders to a firm, but only once the firm had submitted a SAR. However, firms may face an increase in IOs, as the Bill gives the NCA the power to make an IO before a SAR has been submitted.
• An extension of the SFO’s pre-investigation powers to all types of cases: The SFO currently has certain pre-investigation powers in very limited circumstances in cases involving international bribery and corruption. The Bill proposes extending these powers to all types of cases, albeit that the UK Government has referred mainly to fraud in its explanatory notes to the Bill.The SFO can use pre-investigation powers to determine whether to start an investigation, and it can require a firm to answer questions, furnish information, or produce documents. As a result, firms may: (i) receive an increased number of SFO pre-investigation requests; and (ii) see that proceeds of crime are restrained or frozen at an earlier stage of an SFO investigation.

Other proposed reforms

Other proposals in the Bill include:

• powers for law enforcement agencies to quickly and easily seize cryptoassets.
• reforms of Companies House, including enhanced powers to query and request information, new identity verification measures, and enhanced data sharing with law enforcement and other stakeholders.
• tightened transparency requirements for limited partnerships.

When can we expect the Bill to become an Act?

The Economic Crime (Transparency and Enforcement) Act 2022 was expedited by the UK Government in response to Russia’s invasion of Ukraine, and therefore took only two weeks from first reading to royal assent. This Bill is less likely to be expedited, but it will next be considered by the House of Commons on 13 October 2022.

The need for old and new financial gatekeepers to keep up to date with AML rules was one of ten key challenges identified for in-house investigations lawyers in the 2022 Allen & Overy White Collar Crime and Investigations Review.

1. As defined in the Proceeds of Crime Act 2002 – includes banks, deposit taking bodies, electronic money institutions and payment institutions, cryptoasset exchanges and custodian wallet providers.

2. Example as summarised from the Explanatory Notes to the Economic Crime Bill.