Closing the loopholes on economic crime

Last month, the Select Committee concluded their enquiry into Economic Crime that has been ongoing for the last 2 years and the Economic Crime Report (the Report) was finally published.  A main recommendation of the Report was for an Economic Crime (Transparency and Enforcement) Bill (the Bill) to be put forward by the Government to assist in the fight against fraud and all forms of economic crime. 

The Report identified three main topics of focus: i) Companies House reform; ii) reform of corporate criminal liability laws; and iii) registration of beneficial ownership of UK property.

Companies House reforms will focus on the combined problem of minimal verification on the identity of the beneficial owners of companies registered in the UK and low incorporation fees providing the ideal conditions to be taken advantage of by anonymous shell companies involved in suspicious transactions linked to criminal activity. Proposals as to the way such lack could be addressed and improved focus on matters such as: the introduction of compulsory identity verification for all company directors and those with significant control, as well as those filing information on behalf of a company; and also giving the registrar of companies stronger powers to query, seek evidence for, amend or remove information and share it with law enforcement partners.

The Report also recommends that the Government act swiftly in the introduction of legislation emanating from the corporate criminal liability review being carried out by the Law Commission, likely due in the spring.  One such area will be addressing the matter of making it significantly more straightforward to hold accountable both companies and their senior management for crimes committed for their benefit.

From a real estate perspective, it was back in 2018 that the Registration of Overseas Entities Bill was drafted with the aim of increasing the transparency of beneficial property ownership in the UK.  For years, real estate transactions have been widely seen as a classic medium for money laundering and it has long been thought that a great deal more could and should be done to contribute to calling a halt to such activity.

Latest update:

On 1 March, in response to the conflict in Ukraine and with the spotlight firmly on Russian money in the UK, the government brought forward the Bill, the aim being to make it significantly more difficult for people to hide their wealth in the UK, especially from overseas, including criminals and those simply wanting to conceal illicitly acquired money, particularly through property purchases.  In terms of the key elements of the Bill:

Register of overseas UK land ownership

The introduction of a new register of overseas entities will accordingly result in a list of the true identities of the ultimate owners of property or land in the UK bought by overseas individuals or companies.  Failure to comply will result in restrictions being placed on selling those properties and those who are found to have broken the rules will face up to five years in prison. The legislation will apply retrospectively to property bought by overseas owners up to 20 years ago.

Sanctions

The Bill makes it easier for the sanctioning of individuals as it introduces a ‘strict civil liability’ test for monetary penalties, meaning that liability will fall even where the entity concerned has no knowledge or reasonable cause to suspect that a transaction to which they are party is in breach of sanctions.  Consequently it will be significantly easier in practice for fines to be imposed and with those fines being a civil liability.  The Office for Financial Sanctions Implementation will still be able to prosecute businesses for breaches of financial sanctions where it can show there is knowledge or reasonable cause to suspect, whilst also permitting the Office to publicly name organisations that have breached financial sanctions, even in situations where no fine was actually imposed.  It is this risk of potential reputational damage, together with the financial penalties that the government is counting on for ensuring compliance.

Unexplained wealth orders

Such orders are to be significantly tightened, meaning that explanations will have to be given by the individuals concerned as to how they gained their money.  The hope being, of course, that it will catch out those who are suspected of gaining money through illicit or criminal means.

More powers for investigators

Investigators will be permitted to target people who manage properties within complicated offshore arrangements, even when they are not the actual beneficiary.  The National Crime Agency will also be given more legal time to prepare cases for court and importantly, also be protected against the huge related legal costs, providing it acts reasonably and properly.

The Bill has been fast tracked and on 7 March, it was passed by MPs. It is now with the House of Lords and is expected to become law later this month.

Taken overall, it can only be seen as a beneficial, if long overdue step, in improving the transparency of property ownership in the UK and in the creation of a new register of overseas entities.  Of course there remains the risk that an ultimate beneficial owner is still listed as another company and if this is the case then the problem of multi-layered and opaque property ownership structures remains unsolved. It has already been recognised by the Home Secretary that a second bill will be required because the current Bill does not go far enough and loopholes will need to be closed. However, for the time being, at least these significant steps are being swiftly taken to crackdown as far as possible.

For more information on the above please contact Naomi Heathcote or your usual Charles Russell Speechlys contact.