Dan Stowers, Partner and Lauren Bowkett, Principal Associate in the Regulation, Business Crime and Compliance Division explore the powers enacted under the new Economic Crime Act 2022 and what this means for those involved.

The Economic Crime (Transparency and Enforcement) Act 2022 (ECA 2002), is it dead in the water or an effective tool to tackle stolen money? Dan Stowers, Partner and Lauren Bowkett, a Principal Associate in the Regulation, Business Crime and Compliance Division explore the powers enacted under the new legislation and what this means for those involved.

The Act

The ECA 2022 came into force on 15 March 2022 and can be broken down into three key areas.

• The creation of a register of overseas entities, which includes information about the beneficial owners of property or land with punishment for those withholding details.
• An overhaul of the Unexplained Wealth Order (UWO) regime.
• Amendments to the sanctions process to make it easier for authorities to prosecute anyone who is the target of sanctions and strengthening the enforcement of sanction related offences.

The Register of Overseas Entities

Starting with the register. Part 1 of the Act establishes a public Register of Overseas Entities that own UK land and property to be administered at Companies House and supported by the Land Registry.

Under the Proceeds of Crime Act 2002 (‘POCA’) the authorities can seize property belonging to the Head of an Organised Crime Group because it has been easily identifiable, and may have been purchased with their criminal wealth. Finding out who owns property when it is registered overseas though can be tricky for prosecuting authorities. Particularly when it is hidden by a complex web of shell companies.

The new register attempts to tackle that and applies to any property purchased in the last 20 years. If the person registering the property fails to identify the beneficial owner, the property will be frozen, similar to a Restraint Order and the owner will not be able to sell, lease or a raise a mortgage on that property.

The legislation is allowing a transitional period of six months for individuals to get their property registered. This therefore means that the new legislation doesn’t actually deal with current property and land and gives foreign nationals the opportunity to get their property on the market and money out of the UK before the legislation even kicks in. However, the Government hopes that it means people will be less likely to hide money in the UK in the future.

It also places a lot of emphasis on individuals tasked to register land and property to make sure that they have accurately identified their clients (which they should be doing anyway) on top of their normal due diligence and money laundering procedures. Any solicitor who is found to have broken the rules can face up to 5 years in prison. However, if a lawyer was involved in hiding the true identity of a beneficiary it would be very difficult to evidence that the lawyer acted knowingly in doing so, which is to the standard required under the Act.

Dan says “The new legislation is important as it updates many of the key measures already in place to try and deter foreign nationals from hiding criminal assets in the UK. However even on the surface, it is clear that there are weaknesses in the new legislation, and it will be interesting to see how these play out over the coming months. A breach of the rules will carry with it a financial penalty, but at the moment there is no clear guidance on how that will be determined. Another interesting feature is that if someone has already faced criminal liability, they cannot face a financial one”.

Unexplained Wealth Orders

The second key area is in relation to Unexplained Wealth Orders. To date there have only been four UWO’s administered, three of which have been successful. The Act amends POCA 2002 to create a new category of people who can receive a UWO and these are described as ‘responsible officers’. What that means is that authorities will be able to investigate people who manage properties within complicated off-shore arrangements, widening the pool of potential suspects and include Directors, managers and partners of a partnership in and outside of the UK.

When authorities are investigating, they put in place an interim freezing order to stop the assets being dissipated. Before the expiry of an interim freezing order, under the new legislation authorities will be given more time to prepare a case for Court, an additional 126 days to review and act on material provided in response by a person to a UWO. The Government have said that the extension will strike a balance between the rights of the individuals and the time needed for law enforcement to have sufficient time to investigate the case.

What this does mean is that the new measures widens the pool of individuals which could face UWO’s. However, the Serious Fraud Office (SFO) and the National Crime Agency (NCA) are grotesquely underfunded and lack money and manpower to successfully implement this new legislation as they would like to. However, what the bill does do is protect the authorities from legal costs providing that they have acted reasonably and properly.

Lauren says “The UWO regime was welcomed at the time of introduction but hasn’t packed the punch expected. Widening the net will do nothing in terms of having more successful UWO’s. The Government haven’t dealt with the issues within the Prosecuting Authorities at ground level. Funding is their ultimate issue. Until that is resolved adding more tools to the toolbox fixes nothing”.

Sanctions Reforms

The last measure may be seen by some as a knee jerk reaction to Putin’s invasion of Ukraine. Businesses will face responsibility even when they have no knowledge of reasonable cause to suspect which a transaction that they have become involved with is a breach of the sanctions.

Large fines can be imposed which are limited to £1 million or 50 per cent of the economic resources dealt with. Whichever is the largest. The Office for Financial Sanctions (OFSI) will still have overall responsibility for breaches of financial sanctions which can result in either fines or a custodial sentence. It is expected that the measures will result in more and larger amounts of fines for sanctions breaches.

Lauren says “It would be safe to say that the new Act has been fast-tracked through Parliament. Introduced on 1 March 2022 and receiving Royal Assent on 15 March 2022 it has already come under scrutiny. In fact, the Home Secretary, Priti Patel has already hinted that there will be a second Economic Crime Bill, which will inevitably try and plug the loopholes found in the first, some of which we have outlined above”.