A Look at the UK's New Economic Crime (Transparency and Enforcement) Bill
The Economic Crime (Transparency and Enforcement) Bill received royal assent early on 15 March 2022 and will now become law. The legislation was introduced in the House of Commons on 1 March 2022 and the remaining Commons stages followed on 7 March. While the bill had previously been delayed, and there were speculations that it was going to be dropped, it was quickly tabled and fast-tracked through the primary legislative stages after Russia’s invasion of Ukraine.
The bill was specifically pushed through the Commons in hopes of targeting Russian oligarchs and politicians that illegally possess overseas property, and will facilitate sanctions against those laundering money through the United Kingdom's property market. The legislation is intended to make it more difficult for overseas investors to hide wealth in the UK including criminals and those who intend to stow illicitly acquired funds through property purchases. The bill will also be used to target individuals who have already been sanctioned by Western nations. Downing Street has announced its intention to utilise the new law to seize mansions owned by sanctioned Russian oligarchs and instead house Ukrainian refugees within the properties. Moreover, the UK can now target the properties of individuals who have already been sanctioned by Canada, the United States,and the European Union.
The bill contains 55 clauses and is separated into three primary measures. The first part, which includes clauses 1 to 39, requires the establishment of a public register that is annually updated and records all beneficial owners of overseas entities that purchase or possess land in the UK. Failure to register would be considered a criminal offence and beneficial owners would need to transfer land in accordance with the regulations of the registration protocol.
The second section, containing clauses 40 to 47, bolsters the Unexplained Wealth Order (UWO) regime by granting further powers such as providing enforcement authorities greater access to information and reduced legal liabilities when conducting proceedings related to UWOs. UWOs are employed by law enforcement agencies to investigate whether an individual has acquired an asset through legal methods. Otherwise, the agency can then impose criminal measures or civil recovery. While UWOs have not been widely used to date, the bill’s new measures will likely increase their effectiveness by further defining the scope of who they can be used against and in which cases.
The final part, which consists of clauses 48 to 51, alters prior UK legislation relating to sanctions. The clauses increase information-sharing resources relating to sanctions and allows the OFSI (the Office of Financial Sanctions Implementation) to publish further notices related to breaches of sanctions law.
The bill will extend across the UK with provisional differences across jurisdictions. Moreover, the legislation will correspond to an extensive number of beneficial owners. An estimated £170 billion worth of property in the UK is held by overseas investors, each of which will now have to record their properties on the public register. Since 2016, only companies that are registered in the UK were required to provide owner information to the Companies House. The Companies House is the executive agency that acts as the registrar of companies within the UK and provides public access to its collection of financial records. The Economic Crime Bill will now not only require overseas owners to record future acquisitions of UK property but will also compile data regarding property acquired in Scotland since December 2014 and in England and Wales following 1 January 1999.
Since the start of the Ukraine invasion, the UK has been criticised for imposing sanctions against a limited number of Russian oligarchs. However, the new bill will allow the UK to further sanction individuals without breaching international sanctions law. The legislation has even introduced an added “strict civil liability” test that applies to financial penalties. The new regulation makes businesses susceptible to fines and civil liability for illegal transactions regardless of whether they had reasonable cause to suspect that their actions may be in violation of existing sanctions. The penalties are capped at £1 million or 50 per cent of the economic resources handled, based on which of the costs is greater. The OFSI will also be able to publicly list any companies that have infringed upon financial sanctions, regardless of whether the organisations were fined.
While some MPs have expressed concern over loopholes in the legislation that may allow foreign investors to evade transparency requirements, the bill has received extensive support across opposition parties. The UK has announced its intention to utilise the new legislation to increase sanctions and provide further support for the situation in Ukraine. Moreover, the bill is a significant step towards redefining the UK’s economic crime landscape. The upcoming weeks will determine the efficacy of the new measures and their long-term role in the UK’s efforts to tackle international money laundering and financial crime.