Tackling economic crime and sanctions evasion

08 March 2022. Published by Lucy Kerr, Senior Associate

The draft Economic Crime Bill is now on its way to the House of Lords, having received cross-party approval in the House of Commons.

The draft Economic Crime (Transparency and Enforcement) Bill has been in the works for several years but its previously slow progress through Parliament has picked up at lightning speed as a result of the Russian invasion of Ukraine. 

The newly revived Bill was introduced to Parliament on 1 March 2022 and has three core components:

1. Create an overseas entities register 

This register will be overseen by Companies House and will require all overseas entities that own UK property to provide certain information, including the identity of the ultimate beneficial owner of the property. This will be of crucial assistance to the UK Government in enforcing sanctions against individuals holding UK property behind webs of offshore companies. The time limit for providing the ownership information is likely to shorten to 6 months from the original proposal of 18 months after the Act comes into force, increasing the pressure for transparency. However, there remains a question of who at Companies House will be reviewing this information and what action they will be able to take with the limited resources available.

2. Expand the Unexplained Wealth Order (UWO) regime

The Bill will give relevant authorities new grounds for seeking both UWOs and related interim freezing injunctions, which will help to avoid the targets of UWOs selling assets before the UWO bites. Authorities' liability for costs in seeking UWOs will also be limited going forwards. Only a handful of UWOs have been granted in the UK to date, but we expect this combination of new measures to increase the number of UWOs sought in the UK, with a focus on Russian oligarchs in the current climate.

3. Expand the UK sanctions regime

The bill looks to introduce significant changes to the sanctions regime to make it easier for the government to impose sanctions on companies and individuals, especially those already sanctioned by the EU or US. It also creates a civil "strict liability" offence for those found to be acting in breach of sanctions by removing the need for a party to have known or had reasonable grounds to suspect they were acting in breach. This is a significant departure that creates an offence akin to the "failure to prevent" offences under the Bribery Act 2010 for failing to prevent bribery and the Criminal Finances Act 2017 for failing to prevent the facilitation of tax evasion.

There is broad cross-party approval of the Bill, albeit there is also pressure from some quarters for the measures to go even further (such as a shorter period of 28 days for registering overseas entities with Companies House). 

Overall, we expect a key focus of discussions to be resourcing for authorities to enforce the Bill's new measures. There is a concern that the Bill's bark will be worse than its bite if authorities such as Companies House, the NCA and OFSI do not have the financing and resources to enforce these new powers. The Treasury Committee addressed the likely need for further resourcing for entities such as the NCA, which is said to have had "real term" cuts over the past 5 years, despite requesting an increased budget. It remains to be seen whether this support will be provided. 

For more information, or to discuss any of these takeaways further, please do not hesitate to contact us or visit our corporate crime page to find out how the team can help.

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