One year on, the UK's effort to tackle dirty money has a mixed scorecard
This article was originally published in Insurance Day, March 2023.
The Economic Crime Act was fast-tracked through UK Parliament last year in response to the Russia-Ukraine conflict.
The intent of the Economic Crime (Transparency and Enforcement) Act 2022 is clear, but more needs to be done to encourage enforcement.
The UK’s Economic Crime (Transparency and Enforcement) Act 2022 (ECA) received Royal Assent a year ago with the background of the Russia-Ukraine conflict catapulting it into the UK at unprecedented speed.
The Act has been of great interest to the insurance sector. The aim of the ECA was to thwart the flow of so-called “dirty money” into the UK by taking aim at overseas individuals seeking to launder money in the UK and/or greatly restricting their ability to transact with the UK’s financial system.
The ECA can be dissected along three lines: establishing a register of overseas entities; strengthening the unexplained wealth order (UWO) regime; and introducing a fast-track process for imposing sanctions.
So, how has the ECA fared in the last year?
Register of overseas entities
The response to the register has, unfortunately, been lacklustre. Research reveals as of 7 February 2023 (the deadline for the relevant declaration being 31 January 2023), almost half of those companies caught by this part of the ECA have failed to declare their ownership.
More than 18,000 offshore companies, which between them hold almost 52,000 properties in England and Wales, have either ignored the law altogether or submitted information that makes it impossible for the public to find out their owners.
Many may argue the speed at which the legislation came in would have caught many off guard, thereby limiting their ability to access relevant legal advice.
The flip side to this argument is many, if not all, of those who would be caught by the ECA should have felt the winds of change years before the introduction of the legislation. There have been many voices drawing attention to the murky world in which these organisations operate and emphasising the need for change.
For now, it remains to be seen whether those who have not responded to the deadline or provided poor responses will be subject to court proceedings. The ECA says if the relevant information is not provided, an offence will not only be committed by the relevant entity but also by every officer of that entity.
The position with the ECA’s strengthening of the UWO regime is far more straightforward.
Since the Aliyev/Baker case, which resulted in the National Crime Agency’s (NCA) fingers being burned because of the approach it had taken not only in the investigation but also during the proceedings that followed, there have been no further UWOs.
Only the NCA has been at the forefront on this issue, with the Serious Fraud Office (SFO) continuing to monitor matters but so far not designating any as being ripe for such an application.
The appetite is simply not there for the SFO and with far bigger issues to address (not least who will take over the mantle from the incumbent director, who is due to leave her post this year), it is unlikely this will be a matter at the top of the incoming director’s to-do list.
Although the ECA’s introduction of proposals, including a cap on costs that can be recovered when a UWO application is unsuccessful, are designed to breathe new life into UWOs, they are yet to be tested, principally because of the lack of desire to wade further into the UWO pond.
Finally, the ECA sought to enhance the UK’s sanctions regime by streamlining what many saw as a clunky and cumbersome process. The key component in this desire to make changes was to stop the flow of money/assistance to the Putin-backed regime in Russia.
The ECA now allows (as we have seen with the recent raft of sanctions) the UK to designate individuals/entities far quicker, particularly where other jurisdictions (for example, the US) have sanctioned the same individuals. The ability to impose civil financial penalties has also made that much easier. Intent or knowledge of a breach is no longer a factor, with strict liability now being the test for any misdemeanour.
Looking at the ECA one year on from its enactment and whether it has made the UK a hostile environment for dirty money, the reviews are mixed. The intent is clearly there, but the participation is a step or two behind. The stick (that is, the threat of enforcement) that is needed to ensure full compliance has to be used if the ECA is to be as successful as its authors intended when it was rushed through parliament at speed.
The government cannot legislate the wrongs out of the country if there is no will or desire to enforce the spirit and/or the letter of the law. Unless that is overcome by properly funding and resourcing prosecuting agencies, it will blight the legacy of the ECA in years to come.