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PRIMER: UK's Economic Crime Bill

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IFLR explores the UK’s new approach to financial crime, as well as the March Economic Crime Act and the upcoming Economic Crime Plan

The Economic Crime Bill is set to bring fundamental changes to the UK’s registry of companies. In addition to these reforms, the bill will address seizure of cryptoassets, information sharing, and the role of lawyers in preventing money laundering. It’s expected to come into law in the first half of 2023.

The bill fits within a wider financial crime package which began with the March Economic Crime (Transparency and Enforcement) Act and will continue into 2023 with the new Economic Crime Plan. Expected in Q1 2023, that plan will look at how to use the legislation and tools already in place to improve action on economic crime over the next three years.

“The proposed bill is the second gripping instalment of the government’s economic crime strategy,” said Neil Williams, deputy head of complex crime at Reeds Solicitors. “It seeks to strengthen and clarify the aims of the first act, and should in theory bolster the AML capabilities of the private and public sector.”

Published in March, the first act was focussed on the registration of overseas entities (property in the UK owned by companies or firms overseas). This and similar proposals enabled the UK to take a faster approach to sanctions on Russian-owned assets in the UK and align its approach with that of the EU.

The bill can be viewed in two parts. One is the wide-ranging reforms to Companies House, which are expected to make it a better tool for tackling money laundering and fraud. The other includes a mix of laws, such as new rules on crypto, information sharing, and requirements for lawyers around money laundering.

Companies House

The main part of the bill, focussing on Companies House, intends to turn the service from a registry into an enforcement tool. The main difference for market participants is that firms will have to provide identity documents when setting up a company, and they will see enforcement action if they fail to do so.

“For proper companies, the delivery of additional identification documents and a bit more data to Companies House is not likely to be a huge administrative task,” said Ruby Hamid, partner at Ashurst. “Very often, other types of due diligence observations will capture that sort of work anyway.”

There may be other concerns for companies with less common registration structures.

“Those who are registered overseas, or who deal in registration of companies, will need to take heed of the enhanced capabilities of Companies House, whose role moves from a more passive to an aggressive custodian of the register of companies,” said Williams. “Care will need to be taken of information provided to ensure accuracy, as the powers to decline and to investigate are being bolstered significantly.”

The main concerns with the bill pertain to how well-resourced Companies House will be to carry out such a vastly increased role.

“The challenge will be trying to move Companies House from effectively a public library to being an enforcement authority,” said Hamid.

The organisation currently acts as a passive registry of information which sends notices to firms with overdue and processes payments when setting up new companies, she added. “To move from that to an active corporate gatekeeper seems to me to be a very laudable aim, but it won't work unless there are some serious resources.”

Information Sharing

Another new measure in the bill would encourage sharing of information between different organisations to combat financial crime.

“Previously, if a bank exited a customer relationship because they think that customer is laundering money or engaged in some kind of illegal activity, if they passed that information on to another bank, there was always a risk of the bank being sued for breach of confidentiality,” said Kathryn Westmore, senior research fellow at Royal United States Institute (RUSI). “This bill removes that risk, and the aim is to create a more permissive environment for banks to share information about their customers.”

However, there are some concerns around on privacy issues and tension with regulations such as the General Data Protection Regulation (GDPR).

“There will be concerns over the capabilities to share information between regulated companies, even where fraud is suspected, as this may well conflict with GDPR requirements,” said Williams. “Therefore, clarification on these points will be needed. A full review of internal policies will be needed when the final version of the bill is enacted to ensure that tensions between any conflicting requirements are identified and mitigated.”

See also: FCA ready to tackle crypto once remit widens

Crypto concerns

Another new measure includes giving law enforcement powers to more quickly seize cryptocurrency in the same way they can cash and similar assets. Currently, police can confiscate or freeze under the civil recovery powers.

“The additional powers that law enforcement agencies will be given will mean they can move much more quickly where crypto assets are concerned and that means that they can identify them and seize them quickly,” said Hamid. “At the moment, the steps to seize assets are very slow so once the lengthy confiscation application goes through, the assets have disappeared, or they've been converted into fiat or other cryptocurrencies.”

However, some market participants in the crypto space have concerns with this.

“This approach seems questionable,” said Konstantinos Adamos, senior legal counsel at Revolut. “Seizure is a temporary mechanism intended to prevent dissipation of assets, while the conversion of crypto into fiat changes the nature of the underlying asset that was originally seized. Therefore, I would expect that such a measure must only be exercised after a final confiscation order or civil forfeiture. If the courts are given discretion to exercise this power pending the final outcome, then appropriate safeguards must be put in place to ensure that the power is only exercisable in exceptional circumstances.”

See also: Increased M&A due diligence the silver lining of the FTX collapse

Another contentious area of the bill targets people in professions often seen as enabling financial crime. It proposes adding obligations for lawyers to detect and prevent economic crime.

“Some elements of the legal sector are up in arms around some of the amendments around supervision or anti-money-laundering, which give lawyers a statutory duty to prevent and detect economic crime or they could face unlimited fines,” said Westmore. “That has not gone down well with many in the legal community, but the government have made no indication of changing it.”

As the Economic Crime Bill works through the legislative process, many market participants will turn their attention to the government’s 2022-2025 Economic Crime Plan. The preceding plan, which covered 2019 to 2022, had 50 action points for tackling economic crime. Sources expect this plan will be of similar length.

“The plan will be the government’s three-year flagship strategy for countering economic crime,” said Westmore. “It will include a lot of the more practical, hands-on ways to counter financial crime and will focus much more on outcomes and how to ensure what’s in place is effective.”

See also: Opinion: the metaverse needs to police financial crime