Insights / 28-10-2022 / London

The UK Government has published its Economic Crime and Corporate Transparency Bill, hereafter referred to as 'the Bill'. Announced to Parliament on 22 September 2022, the Bill had its second reading in the House of Commons on 13 October 2022 and entered the Committee Stage on 25 October 2022. 

The Bill follows on from the Economic Crime (Transparency and Enforcement) Act, which received Royal Assent in March of this year and introduced, (among other things), the Register of Overseas Entities, strict liability for breaches of financial sanctions and enhancements to the Unexplained Wealth Order regime.

The critical importance of the financial sector to the UK’s economy means that money laundering, and particularly high-end money laundering - large amounts of illicit funds through enablers in the financial and professional services sectors - can threaten the UK’s national security and prosperity, while also undermining the integrity of the UK's financial system and international reputation.

The strategic objective of the Bill is to contribute to the Home Office’s priority outcome to reduce crime, and the wider Government's objective to increase UK prosperity and enhance security. It focuses on reforms to Companies House, the seizure of suspected criminal crypto-assets, the role of limited partnerships, and new intelligence-gathering powers.  A further sign of the UK’s priority to tackle  economic crime and its attempt at improving transparency of corporate entities.

We summarise the key provisions of the Bill below.

Companies House reforms

The Government has described the proposed reforms as 'historic'. The Bill will increase the powers of Companies House to make it a more effective gatekeeper, including new powers to check, remove, or decline information submitted to the register. The Bill will also introduce additional identity verification measures to make it clear who is setting up, managing and controlling corporate entities. 

The Bill also grants Companies House greater investigatory powers, including cross-checking and sharing data with other public and private sector bodies and law enforcement agencies.

To cover the cost of enforcement and investigative activities that promote the integrity of the register, the government is expanding the fee-raising powers of the Registrar of Companies. These fees will apply to all companies wishing to become or remain incorporated on the Companies House register.

Seizure of suspected criminal crypto-assets

As part of the Government’s ongoing efforts to turn the UK into a global centre for crypto investments, the Bill calls for more control of digital assets as criminal groups increasingly use these to launder the proceeds of criminal conduct.

At its core, the proposed legislative updates are designed to bring crypto-assets within the scope of civil forfeiture powers in Part 5 of the Proceeds of Crime Act 2002 (POCA).

The key proposals include:

• Removing the requirement for an arrest to take place before seizure powers can be exercised
• Amending search, seize and detention powers to clarify that officers have the authority to 'recreate' transfer assets and crypto-asset wallets into a law enforcement-controlled wallet
• Providing the Magistrates’ Court the power to authorize the sale of any crypto-assets in the same way as other types of seized property
• Enabling law enforcement agencies to take control of and recover crypto-assets discovered when executing a search warrant
• Providing for the destruction of crypto-assets in exceptional circumstances
• Enabling the courts to better enforce unpaid confiscation orders against a defendant’s crypto-assets.

The role of limited partnerships

The Bill has introduced reforms to bring legislation up-to-date while ensuring that limited partnerships (LPs) remain attractive to legitimate investors.

 The proposed updates include:

• Tightening registration requirements
• Requiring LPs to maintain a connection to the UK
• Increasing transparency requirements
• Enabling the Registrar of Companies to deregister LPs that are dissolved, no longer carrying on business, or where a court determines it is in the public interest to do so.

The new Bill also introduces strict penalties for the general partners of LPs who do not comply with the legislation. This could include significant fines, deregistration and, in some cases, prison sentences.

New intelligence gathering powers

Information sharing

At present, businesses cannot quickly share information between themselves when concerns arise in relation to economic crime. To combat this, the government proposes the addition of new clauses to POCA that will allow:

• Direct sharing between two businesses in the anti-money laundering regulated sector
• Indirect sharing through a third-party intermediary for businesses in the financial sector, including crypto-asset exchanges and custodian wallet providers.

Legal services

The government and prosecuting authorities have highlighted, for a number of years, their aim to crack down on 'enablers' of economic crime in the legal profession.

The Solicitors Regulation Authority (SRA) has the power to issue penalties in relation to disciplinary matters relating to economic crime offences. The maximum penalty the SRA can issue in this regard is £25,000. The Bill seeks to provide the SRA with the power to impose an unlimited fine in the case of a failure to prevent or detect economic crime. This would bring the SRA in line with other regulators, such as the Financial Conduct Authority, which have the power to issue unlimited financial penalties.

A new express obligation to promote the prevention and detection of economic crime is also proposed,with the aim to promote more effective enforcement action by regulators in economic crime cases.

The Serious Fraud Office (SFO)

The Bill proposes to expand the powers of the SFO. At present, Section 2A of the Criminal Justice Act 1987 only allows the SFO to compel entities to provide information during pre-investigation stages for suspected cases of international corruption and bribery. This expansion will enable the SFO to require a person to answer questions, furnish information, or produce documents at a pre-investigation stage of any of its cases, whether they relate to suspected fraud, bribery, or corruption, by giving it early access to information held by companies or individuals.

Comment

Whilst the aims and objectives of the Bill have been welcomed, there has been cross-party criticism as to whether the structure, extent and ability of the proposed measures will achieve these aims.

Ensuring all agencies tasked with tackling economic crime are properly resourced is a recurring theme and the Bill does not propose how these agencies will be adequately funded so that their investigation and enforcement powers are not curtailed.

It begs the question as to whether the Bill is as transformative as the Government professes it to be.

As the Bill is now at committee stage, there are a few more stages to go before the final wording is agreed. There are likely to be amendments that could introduce further significant reforms before it becomes enacted into law. We will continue to monitor the Bill's progress through Parliament.