The significance of the Economic Crime (Transparency and Enforcement) Act

By Pyari Chopra


https://www.europeansanctions.com/2022/05/redress-ukacc-publish-anti-corruption-sanctions-report/


Adapted from: https://commonslibrary.parliament.uk/research-briefings/cbp-9486/


On the 15th of March, the Economic Crime (Enforcement and Transparency) Bill received Royal Assent and was passed into law, becoming the new Economic Crime (Transparency and Enforcement) Act 2022.


Parliament has described the main goals of the act as: [1]

  1. Setting up a register of overseas entities and their beneficial owners;

  2. Requiring overseas entities who own land to register in certain circumstances;

  3. Making provisions about unexplained wealth orders; and

  4. Making provisions about sanctions.


Register of Overseas Entities:


Sections 1–44 and Schedules 1–5 of the new Act establishes a Register of Overseas Entities—a public register of beneficial owners of non-UK entities that own or buy land in the UK. It should be noted that the only beneficial owners that need to be registered either (1) hold more than 25% of the shares or voting rights in an entity, (2) can appoint a majority of its directors, or (3) have some other significant influence or control over. [2]


These requirements can be altered by the Secretary of State under the circumstances expounded by Schedule 2 of the 2022 Act. [3]


The new register will have to be updated annually. Failure to register or submission of false information will be considered a criminal offence and will prevent the entity from being able to sell or mortgage property in the UK in the future. [4] Additionally, a transfer of land by the overseas entity in breach of the registration requirement is also a criminal offence. [5]


It should be noted that the requirement to register applies retrospectively to land bought on or after 1 January 1999 in England and Wales, and 8 December 2014 in Scotland, and an 18-month transitional period is given to overseas entities to either dispose of their land or to register. In Northern Ireland, the requirement to register only applies prospectively. [6]


UWOs:


An unexplained wealth order (UWO) is an investigatory order placed on a respondent whose assets appear disproportionate to their income to explain the origins of their wealth. [7] Prior to the Act being passed, the UWO scheme was introduced by Criminal Finances Act 2017. Sections 45-53 of the 2022 Act alter this regime by:

  1. Creating a new category of ‘responsible officers’ of the entity that owns the property who can now receive a UWO, which will make it easier for law enforcement officers to obtain information from officers of legal entities thought to have control over the property even if they do not own it; [8]

  2. Adding a new ground to the test for granting UWOs. Prior to this, a UWO would be granted if the court was satisfied there were reasonable grounds for suspecting that the known sources of someone’s lawful income would be insufficient to obtain the property. The 2022 act allows a UWO to be granted if there are reasonable grounds for suspecting that the property has been obtained through unlawful conduct; [9]

  3. Allowing an enforcement authority to apply for an interim freezing order while applying to the court for a UWO, which prevents a person receiving the UWO from selling the relevant property; [10] and

  4. Limiting the liability of enforcement authorities to pay costs in legal proceedings relating to UWOs. [11]


Sanctions:


In general, the 2022 Act:

  1. Removes the requirement that people must have known or suspected they breached sanctions law to receive a monetary penalty for such breaches; [12]

  2. Removes the requirement that a minister must personally review penalties for breaches of sanctions law; [13]

  3. Allows the Treasury to publish notices on cases where it thinks a person has breached sanctions law but it has not imposed monetary penalties; [14] and

  4. Expands information-sharing powers relating to sanctions. [15]


Criticisms of the new Act:


As stated by Home Secretary Priti Patel, the new Act is meant to tackle ‘corrupt elites’ and ‘dirty money’, [16] more specifically to root out Putin’s oligarchs. However, Oliver Bullough from The Guardian expresses skepticism as to the effectiveness of the new Act. [17] As Bullough points out, Oligarchs can easily avoid being forced to register by splitting their shares with trusted friends or relatives to avoid reaching the 25% ownership level to be considered a beneficial owner. Alternatively. they could even use a professional corporate trust provider to act as a nominee and be named in place of them on ownership documents. Furthermore, while the Act does make the declaration of false information an offence, Bullough argues that there are no checks on the information, especially if such information is provided by a shell company. Finally, enforcement of the new measures is likely to pose a problem, given the lack of resources afforded to the National Crime Agency and the Serious Fraud Office to fund investigations and go after financial criminals. Bullough concludes by observing that the ease of circumventing the provisions of the Bill seriously undermine its ability to send a signal that the UK is ‘not a home for corruption’, as Patel had declared.





References

[1] Parliament.uk, ‘Economic Crime (Transparency and Enforcement) Act 2022’ <https://bills.parliament.uk/bills/3120#:~:text=Government%20Bill&text=A%20Bill%20to%20Set%20up,to%20make%20provision%20about%20sanctions> (Parliamentary Bills, 16 Apr 2022)

[2] Parliament.uk, ‘Economic Crime (Transparency and Enforcement) Act 2022’ <https://commonslibrary.parliament.uk/research-briefings/cbp-9486/> (Research Briefings, 16 Apr 2022)

[3] Ibid.

[4] Ibid.

[5] Ibid.

[6] Ibid.

[7] Gov.uk, ‘Fact sheet: unexplained wealth order reforms (web accessible)’ <https://www.gov.uk/government/publications/economic-crime-transparency-and-enforcement-bill-2022-overarching-documents/factsheet-unexplained-wealth-order-reforms-web-accessible#:~:text=An%20unexplained%20wealth%20order%20(UWO,the%20origins%20of%20their%20wealth> (Policy Paper, 16 Apr 2022)

[8] Parliament.uk, ‘Economic Crime (Transparency and Enforcement) Act 2022’ <https://commonslibrary.parliament.uk/research-briefings/cbp-9486/> (Research Briefings, 16 Apr 2022)

[9] Ibid.

[10] Ibid.

[11] Ibid.

[12] Ibid.

[13] Ibid.

[14] Ibid.

[15] Ibid.

[16] Gov.uk, ‘New measures to tackle corrupt elites and dirty money become law’ <https://www.gov.uk/government/news/new-measures-to-tackle-corrupt-elites-and-dirty-money-become-law> (News story, 16 Apr 2022)

[17] Oliver Bullough, ‘The oligarch’s guide to getting round the UK’s economic crime bill’ The Guardian (Europe, 9 March 2022)