The Economic Crime (Transparency and Enforcement) Bill became law on 15^th March 2022. It was expedited due to recent UK sanctions announced against Russia. The Act is intended to bolster the UK’s response to economic crime threats and is set out in three main parts.

Key features of the Act are:

Part 1: Register of Overseas Entities and their Beneficial Owners

• It requires overseas entities that own property in the UK to disclose details of their beneficial owners.
• Companies House will manage the Register.
• There is a duty to update the Register every 12 months; failure to do so will attract a daily default fine.
• The overseas entity must take “reasonable steps” to identify registrable beneficial owners and share this information with Companies House.
• ‘Registrable beneficial owners’ are those that hold 25% or more of the shares in the entity or of the voting rights in the entity, have the right to appoint or remove the majority of the entity’s board of directors, and have the right to exercise or actually exercise significant influence or control over the entity, or over a trust or other entity that meets these conditions.
• The Act requires the overseas entity to serve an information notice on any possible registrable beneficial owners. A criminal penalty is attached to a failure to comply with the notice, or the provision of false information.
• The deadline for registration is six months from Parts 1 and 2 of the Act coming into force. It applies retrospectively to property acquired (since 1^st January 1999 in England and Wales, and 8^th December 2014 in Scotland).
• Non-compliance will result in criminal liability, with managing officers facing criminal sanctions. Penalties for breaches include fines for the entity and imprisonment for individuals.
• Overseas entities that have not registered will face restrictions when trying to sell, lease, or deal with their property. This is to deter those who attempt to sell their property to avoid registration.

Part 2: Expanding the remit of the Unexplained Wealth Orders (UWO) regime

• An enforcement authority will get extra time to review material received in response to a UWO, before discharging interim freezing orders over relevant assets.
• UWOs are extended to assets ‘obtained through unlawful conduct’ and can be imposed on company directors, even if they do not personally own the assets.
• The Act creates a new category of persons who can receive a UWO, including ‘responsible officers’ of the entity that owns the property.
• The ‘responsible officer’ of an entity (that is the subject of a UWO) must provide information to authorities regarding the UWO. They can be directors, board members, general managers, company secretaries, and partners.
• The Act caps the costs awarded against an enforcement authority if a UWO is challenged successfully.

Part 3: Strengthening the UK sanctions regime

• The Act will make it easier for the government to impose sanctions on companies and individuals. The UK government can now make designations of sanctioned persons much more quickly, especially for those already sanctioned by other countries.
• The Office of Financial Sanctions Implementation (OFSI) has new powers to publicly identify organisations and individuals that breach financial sanctions, even if they are not the subject of a penalty. They can also ‘name and shame’ companies or individuals that they consider likely to have breached compliance of obligations or financial sanction prohibitions. This enhances the risk of damage to reputation.
• The Act makes it easier for OFSI to impose penalties for sanctions breaches on a strict liability basis, rather than having to demonstrate that an organisation had knowledge or reasonable grounds to suspect sanctions were being breached.
• Lack of compliance with sanctions legislation already constitutes a criminal offence subject to fines and imprisonment.

What next?

Governance and controls should be examined thoroughly to ensure that they align with the Act. In particular, the risk of incurring a financial penalty for a sanctions breach is now much higher. The Act is far from perfect, but it is a step in the right direction. There are clear gaps present, and it is questionable whether enforcement authorities will be given the resources to utilise new powers effectively. The six-month period for registration also leaves room for disposing or transferring illegitimate assets. We should expect another Economic Crime Bill to follow soon to deal with the lacunas in this Act.

First published in the Parametric Global Consulting newsletter.

Advice and support from ESA Risk

For advice and support on economic crime issues, please contact Lloydette Bai-Marrow, Serious Fraud and Economic Crime Consultant at lloydette.bai-marrow@esarisk.com, on +44 (0)843 515 8686 or via our contact form.