Economic Crime Bill published to further bolster the UK AML regulatory framework

On 28 February the UK Government published the Economic Crime (Transparency and Enforcement) Bill (“the Bill”). The Bill has three separate elements, which will strengthen the UK’s regulatory framework:

• It introduces the long-awaited register of beneficial ownership of property as well as imposing transparency and reporting requirements on overseas entities;
• Strengthens the unexplained wealth orders (“UWOs”) regime.  These were originally introduced as part of the Criminal Finances Act 2017 and in effect require the target to reveal the sources of their (unexplained) wealth; and
• Strengthens the enforcement regime for breaches of Sanctions.

The Bill will now go through Parliamentary debate and will be presented for royal assent by the Queen, at which stage it will be part of UK national law. We expect this process will be completed within the coming months.

Key legislative changes included in the Bill

The Bill is intended to bolster the UK response to the economic crime threat. Some of these have been mooted for a considerable period of time and their introduction is welcomed. The changes of the UWO regime is in response to gaps in the regime identified in recent cases.

The changes to the sanctions provisions relate principally to enforcement powers and also removes the requirement to know, suspect or believe that there has been a breach of the sanctions regime in determining whether a penalty can be levied. These will not be discussed further in this article. Instead, we will focus on the new provisions relating to beneficial ownership and UWOs which indicate significant new obligations for UK and overseas entities.  

Part 1 - Beneficial ownership

Part 1 of the Bill seeks to increase the transparency of foreign corporate structures with UK activities, providing greater clarity around who ultimately owns and controls them and thus the flow of funds into them. In particular, the Bill mandates the following:

• Companies House must maintain a list of all registered overseas entities;
• Overseas entities wishing to register in the UK must submit an application in English and include within this:
  • A statement with respect to the ability of the firm to identify its beneficial owner(s); and
  • Provide all relevant information. Information about the entity itself must always be provided.  If applicable information must be provided about each registrable beneficial owner or managing officer; and
• The name and contact details of an individual who should be contacted about the application (if needed) by the registrar at Companies House.

Once an application is deemed complete, the registrar at Companies House must assign the overseas company an overseas entity ID – this should be communicated to the overseas entity and logged on the register.

There is an annual declaration obligation requiring the following:

• A formal statement that there have been no changes to beneficial ownership/control since registration or the last annual update; or
• Information pursuant to any updates which have been made to the overseas entity’s beneficial ownership/control structure (including the dates on which these changes were made).

However, in addition to companies with operations in the UK an overseas entity which owns certain land in the UK will (within 6 months of the entity being or applying to be the owner of the land) be required to apply to be on the overseas entity register.  

Non-compliance with these new provisions will result in both the overseas entity and every officer of the entity who is in default committing a criminal offence - an offence committed by the firm automatically extends to its officers. The penalties for breaches are either a one-off or continued daily fine for the entity and a fine and/or imprisonment of up to 2 years for individuals.

Part 2 - unexplained wealth orders (“UWOs”)

Part 2 of the Bill relates to UWOs, and firstly expands the remit of law enforcement to be able to pursue source of wealth information and justification through a “responsible officer” (of an entity) in instances where the subject of the UWO is an entity. The Bill lists multiple roles within an organisation which can be considered a “responsible officer”, including Directors, Board (or equivalent) members, general managers, company secretaries and partners (if the entity is a partnership). This amendment means that the a “responsible officer”, as well as the entity itself, is responsible for providing information to authorities with respect to the UWO.

The Bill also extends the periods permitted for determination of proceedings at the High Court by an additional 31 days, as well as additional extensions in circumstances where an interim freezing order has been made.

What does this mean for overseas entities seeking to enter the UK market?

Part 1 - beneficial ownership

For non-UK firms wishing to undertake business in the UK, the Economic Crime (Transparency and Enforcement) Bill presents a number of considerations. For example:

• Firms will need to take reasonable steps to identify any registrable¹ beneficial owners (and/or managing officers) in relation to the entity, and share this information with Companies House in their application; and
• Should an overseas entity attempt to conceal its beneficial ownership/control structure or provide incorrect information, this could lead to civil penalties being brought against the entity as well as those individuals who are complicit.

In addition, overseas firms which have no operating footprint in the UK but own land in the UK will also be in scope, thereby increasing the number of firms which will need to be compliant.  

Finally, overseas entities are required (per clause 16(1) of the Bill) to require verification of beneficial ownership/control information prior to an application being made to the UK Companies House. This may cause challenges, especially in jurisdictions with weaker anti-money laundering (“AML”) frameworks than those in place in the UK. 

Part 2 - UWOs

Through the introduction of the “responsible officer” role, this brings a level of personal responsibility and accountability with respect to UWOs levied against entities. It also makes it easier for authorities to engage with entities with complex structures, such as trusts, where individuals may have an interest (but not a beneficial interest/control). Therefore, affected roles will likely need to maintain greater oversight and rigour over their entity’s financial and commercial interests.  

The timeframe extensions also mean that UWO proceedings may take longer. In particular, the extensions relating to when an interim freezing order in made could place a hold on trading/operating activity for a significantly longer period should a UWO be levied against a firm.

 

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