Last week the new Economic Crime (Transparency and Enforcement) Act became law. This reform Bill has been in the offing for a number of years, but progress has been slow.
It was accepted that other legislation (see Brexit and Covid) was just more important. Until Russia invaded Ukraine, that is. This catapulted the legislation from its shelf gathering dust to first reading (1 March), through the House of Commons, past go, straight through the Lords (without amendments) to Royal Assent all in 15 days.
The Act is an important step in addressing the source of wealth, particularly from those overseas where there has been potential tax evasion, money laundering or other criminality relating to the funds.
The government had already recognised the issues with cash invested and potentially concealed by foreign nationals. In 2017 they talked a good game about clamping down on "dirty money" flooding into the UK via overseas cash (see our Global Transparency booklet). They introduced the Criminal Finance Act with new tools designed to allow for investigation and enforcement against individuals with substantial property and other (particularly offshore) assets where the source of funds was called into question. But, the impact of the Unexplained Wealth Order (UWO) – once considered the legislation's most powerful new tool - has been underwhelming. In 2020 the National Crime Agency lost an attempt to impose UWO's over three London properties and were hit with a £1.5 million legal bill – hefty enough to have a significantly chilling effect on their appetite to pursue anything but the most watertight future cases.
Makes three key changes to existing legislation:
Any entity which is governed by the law of a country or territory outside the UK (including the Channel Islands), and which purchases property in the UK is required to be entered into a new register. The register also has a retrospective effect. It applies to overseas entities which have purchased properties in England and Wales in the last 20 years (in Scotland in the period since December 2014). Those overseas entities will need to apply for registration of their beneficial ownership within six months of the legislation coming into force. There are concerns over the transitional period. Too short with new legislation often spells disaster. Too long, and the properties might be sold and profits disposed of. The Act has attempted to combat this by requiring registration of any properties sold from 28 February 2022.
The bill expands the scope of UWO's to include properties held by trust or another complex ownership structure. It increases the time available to the law enforcement agency to review any material provided in response to a UWO, allowing the extension of a freezing order during that time (referred to as a "determination period" – a maximum of 186 days from "cooperation"). It also shifts the risk factor on costs rules, if the enforcement agency is unsuccessful, they will not be responsible for a respondent's costs so long as they behaved "reasonably and honestly".
Under current law, imposing a monetary penalty was a two-limb test – the person had breached the sanctions AND they knew, or had "reasonable cause to suspect" that sanctions were being breached. The second limb of this test will no longer be required. The legal test therefore becomes one of strict liability, removing any room for ambiguity or legal argument over reason or suspicion – a substantial shift in favour of a prosecutor.
Parliament's reaction to the invasion of Ukraine has caused the unprecedented expedition of this legislation, with high hopes from commentators and journalists that this will fuel enforcement agencies to take immediate action over "dirty money", and, in particular against Russian oligarchs. While there is obvious support for this approach, as always, the lawyers have some concerns about its implementation. Three come to mind:
We note the Government has committed to a further Bill – no doubt to iron out some of the practical problems which inevitably arise when legislation is rushed through at such speed (see also Covid, Brexit). Only time will tell if this legislation truly gives prosecutors what they need to tackle "dirty money" or whether in reality, it is as useful as monopoly money.