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UK Economic Crime Bill Tackling UBO Concerns Accelerated by Ukraine Crisis

07/03/2022

A raft of new measures to tackle dirty money and improve the UK government is expediting transparency related to company and property ownership following Russia's invasion of Ukraine.

The Economic Crime (Transparency and Enforcement) Bill — a key and long-awaited piece of legislation — will pave the way for a "register of overseas entities" identifying foreign owners of UK property, the Home Office said.

One of its key aims is to crack down on money laundering, which the National Crime Agency (NCA) estimates costs the UK £100bn a year.

An accompanying white paper on corporate transparency and register reform sets out a comprehensive package of reforms to the Companies House register.

In a speech to the House of Commons, Business Secretary Kwasi Kwarteng said:

  • "Oligarchs and kleptocrats from Russia and elsewhere have used the veneer of legitimacy provided by UK-registered companies and partnerships.
  • They have also used the high-end property to help launder proceeds of corruption
  • In light of Russia's outrageous actions in recent days, it is necessary that we put these criminals on notice and send a message that the UK will not tolerate their corruption here."

Gaps in the UK's beneficial ownership infrastructure have been highlighted again in recent data leaks, including the 2021 Pandora Papers, which revealed high net worth owners of UK properties that were bought using offshore firms.

The Times reports that the number of properties in England and Wales owned by individuals overseas has trebled since 2010.

The Director of Policy at Transparency International UK told the Treasury Committee in 2021:

  • "Our research has identified about £5bn worth of suspicious wealth that is stashed away in UK real estate.
  • There are currently more than 95,000 properties in England and Wales owned by overseas companies.
  • Of those, 85,000 are owned by companies registered in countries where the names of company owners are not published."

Economic Crime (Transparency and Enforcement) Bill

Key changes to transparency around property ownership include:

  1. Creating a publicly available register of overseas entities to identify foreign owners of UK property
  2. Selling restrictions imposed on those who do not comply – people found breaking the disclosure rules could face up to five years in prison
  3. Require anonymous foreign owners to reveal their real identity to ensure that criminals can't hold property behind secretive chains of shell companies
  4. The proposed register will apply retrospectively to property bought by people based overseas up to 20 years ago in England and Wales, and since December 2014 in Scotland
  5. New powers relating to Unexplained Wealth Orders (UWOs) (introduced in 2018) to help stem huge amounts of dirty money brought into the UK. These include
    • Bringing properties held by trusts into the scope and clarifying who falls within its scope
    • Removing critical barriers to the use of UWOs by law enforcement, allowing agencies further time to consider an individual's response to a UWO and capping the cost of unsuccessful applications to the High Court
  6. Proposed creation of a 'Kleptocracy cell' within the National Crime Agency (NCA) to investigate sanctions evasion
  7. Definition of an asset holder expanded to stop individuals hiding behind shell companies and foundations

The government aims to pass the bill into law before May.

White Paper on Corporate Transparency and Register Reform

The government has also published a white paper on the reform of Companies House (the UK's registrar of companies), as part of a further Economic Crime Bill expected in the coming months.

Current shortcomings with Companies House mean that while using it as a good source of information, firms should ensure they conduct additional research, particularly around verification.

The paper covers how Companies House reforms will contribute to priorities in national security, anti-corruption, fraud and enterprise. Details include:

  1. Anyone setting up, running, owning or controlling a company in the UK will need to verify their identity with Companies House, who will be able to challenge dubious information, request further evidence and inform the security agencies
  2. Companies House will have more extensive legal gateways for data sharing with law enforcement, other government bodies and the private sector
  3. A new requirement will force those setting up, managing and controlling companies to have a verified identity with Companies House or have registered and verified their identity via an AML supervised third-party agent to make anonymous filings harder
  4. Company agents from overseas will no longer be able to create companies in the UK on behalf of foreign criminals or secretive oligarchs.

Meanwhile, further legislation is expected to tackle illicit finance and improve corporate transparency.

This will include new powers to seize crypto assets and bring them within the scope of civil forfeiture powers; strengthened AML powers to give businesses more confidence to share information on suspected ML and other economic crime; and reforms to the use of Limited Partnerships to prevent them being used as vehicles for facilitating international ML and illegal arms movements.

These new measures, and the speed of their introduction, highlights a wider – and increasing  – intersection between geopolitics and anti-money laundering policy. With political imperatives driving reforms, firms should be prepared for new measures to be announced at short notice and be mindful of the need to stay agile.

Uncover the latest on Russian sanctions in our rolling coverage blog.

SOURCE

Originally published March 4, 2022, updated March 4, 2022

https://complyadvantage.com/insights/uk-economic-crime-bill-tackling-ubo-concerns-accelerated-by-ukraine-crisis/

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