Following a wait of almost five years and expedited due to the UK sanctions announced against Russia, on March 1, 2022, the Economic Crime (Transparency and Enforcement) Bill (the Economic Crime Bill) was laid before the UK Parliament.
The provisions of the Economic Crime Bill will need to be debated in Parliament but, if passed into law, will amongst other things:
- enhance existing powers in relation to unexplained wealth orders (UWOs);
- increase the transparency over ownership of companies and property in the UK by introducing a Register of Overseas Entities (ROE) to require foreign owners of UK property to reveal their full identities;
- impose a strict civil liability test for monetary penalties, meaning the UK Office for Financial Sanctions Implementation (OFSI) would no longer be required to evidence that organizations had knowledge or a “reasonable cause to suspect” sanctions are being breached before being liable for fines; and
- give new powers to OFSI to publicly identify organizations that breach financial sanctions irrespective of whether or not they are the subject of a penalty.
Unexplained Wealth Orders
As detailed in our previous blog post, UWOs were first introduced in the UK under the Criminal Finances Act 2017. The legislation requires an individual respondent to explain the legitimacy of the source of funds used to acquire his or her interest in relevant property, both in the UK and abroad. Certain UK authorities can obtain UWOs against Politically Exposed Persons (PEPs) and individuals involved in serious crime outside the EEA and individuals who are, or are connected to those, involved in serious crime. To obtain a UWO from the English High Court, the interested authority need only satisfy a reasonably low threshold. It must show that:
- there are “reasonable grounds” to suspect that the respondent’s known lawfully obtained income would be insufficient to allow the respondent to obtain the relevant property; and
- that the respondent is, or is connected to, an individual who is involved in serious crime or a PEP outside the EEA.
If a respondent fails to evidence that his or her funds are clean, the interested authority may begin civil proceedings to freeze or seize the property.
The Economic Crime Bill proposes an expansion to the scope of UWOs including that an officer of a respondent company (including a person outside the UK) can be required to explain the legitimacy of the source of funds used to acquire relevant property. It is also proposed that the definition of an asset holder be expanded to include those who hold property in the UK in a trust.
In an effort to address the shortcomings of the current UWO process, the Economic Crime Bill also proposes that the period for which an interim freezing order has effect is increased, and that the costs that enforcement authorities would pay of unsuccessfully seeking an UWO are limited.
Register of Overseas Entities
The Economic Crime Bill includes proposals for a public register of the beneficial owners of overseas entities that own land in the UK, which would be maintained by Companies House. Companies House would also be tasked to enhance their due diligence checks in relation to those involved in setting up, running, owning or controlling a company in the UK, and would be given greater powers to challenge information and require more information. If introduced, such a public register would apply to future acquisitions of UK land as well as any overseas owner that owns land (a) in England and Wales which was acquired since January 1, 1999 and (b) in Scotland which was acquired since 2014.
If passed, the introduction of a ROE will be a significant change to the current law. At present, UK registered companies are required to provide information to Companies House about their ultimate owners and controllers by way of a register of “Persons with Significant Control.” Entities registered overseas do not have the same requirement,
The Economic Crime Bill further makes proposals as to the consequences of failing to comply with the rules, including restrictions on the ability to dispose of the relevant property. Breach of the rules could also amount to a criminal offence punishable by up to five years in prison.
Financial Sanctions Legislation
The Economic Crime Bill includes a number of provisions aimed at strengthening the enforcement of financial sanctions.
Under the current law, an individual or business is not liable for a breach of financial sanctions law if they did not know or have “reasonable cause to suspect” that their activity was in breach of sanctions laws. The Economic Crime Bill proposes the removal of this requirement with the effect that OFSI could issue a fine on a strict liability basis where it is satisfied, on the balance of probabilities, that a person has breached financial sanctions legislation.
The Economic Crime Bill also contains proposals for removing the mandatory review of a civil penalty imposed by OFSI, where requested by the person on whom the penalty has been imposed, and giving OFSI the power to publish reports where a monetary penalty has not been imposed but where it is satisfied, on the balance of probabilities that the individual or entity has breached financial sanctions legislation.