Economic crime scene

The Economic Crime and Corporate Transparency Bill is intended to supplement the Economic Crime (Transparency and Enforcement) Act 2022 which introduced (among other things) increased sanction powers, a new Register of Overseas Entities and reforms to the unexplained wealth regime. 

The bill’s three stated objectives are to:

• prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy
• strengthen the UK’s broader response to economic crime, and
• support enterprise by enabling Companies House to deliver a better service for over 4 million UK companies, and improving the reliability of its data to inform business transactions and lending decisions across the economy.

This article will consider the elements of the bill which will have the most impact on those working in risk and compliance. 

New regulatory objective

The bill intends to amend section 1 of the Legal Services Act 2007 to insert a new regulatory objective for those providing legal services to promote the prevention and detection of economic crime. 

The government said that “the purpose of the measure is to put beyond doubt that it is the duty and within the remit of the frontline regulators to exercise the appropriate regulatory actions that are necessary to promote and maintain compliance with economic crime legislation and guidance”.

This amendment has attracted criticism from legal professionals as it expands the remit of lawyers’ duties in a way which does not attack economic crime. The Bar Council has publicly opposed the new regulatory objective, stating that “it is not the role of legal professionals to prevent or detect crime”. Mark Fenhalls KC, chair of the Bar Council, further commented that: “Tackling economic crime is essential but creating more regulation will do nothing to address the problem. The legal professions are already subject to targeted anti-money laundering legislation and a new regulatory objective may not be compatible with our role in representing clients. At worst it sends the wrong message to the general public about the role of lawyers.”

The Bar Council has called on the government to amend the bill as it goes through parliament, but given the current political landscape it seems likely that the new regulatory objective will remain when the bill receives royal assent.

Increased fining powers

In June 2022 the SRA’s fining powers substantially increased from £2,000 to £25,000. The bill now looks to go even further to completely remove the statutory fining limits, allowing the SRA to set its own limits on financial penalties for economic crime disciplinary matters. 

It is hoped that by removing the fining limits more cases will be dealt with by the SRA. This will result in removing the need for the time-consuming and resource-intensive process of referring matters to the Solicitors Disciplinary Tribunal (SDT).

This is obviously a significant and concerning amendment to the SRA’s powers as it suggests that those serious, complex matters, which currently benefit from the tribunal process, will instead be dealt with by the SRA. It feels premature to remove the legislative cap on the fining powers of the SRA as there has been no opportunity to review the full effects of June’s increase of fining powers. 

It is difficult to see how these amendments will improve the efficiency of dealing with breaches as the right to appeal SRA fines to the SDT will still exist and, therefore, there are likely to be increased appeals to the SDT. 

Additionally, it is not clear how unlimited fining powers for the SRA will help to meet any of the bill’s three stated objectives.   

New POCA exemptions 

One of the stated aims of the bill is to focus private sector and law enforcement resources on high-value activity, reducing the reporting burden on businesses. It seeks to achieve this by creating two new exemptions from the principal money laundering offences under the Proceeds of Crime Act 2002 (POCA). 

The first is a new exiting and paying away exemption. The bill proposes that a firm in the regulated sector that has knowledge or suspicion of criminal property would not commit an offence if it transferred money or property, up to a value of £1,000, for the purposes of exiting the customer relationship (subject to the required client due diligence being completed). 

The second exemption seeks to reduce the need for a DAML (defence against money laundering) in certain mixed-property transactions. The bill proposes that where a firm in the regulated sector knows or suspects that part, but not all, of the funds in a customer’s account(s) is criminal property, it will be permitted to transfer funds from that account as long as the value left in the account is equal to, or more than, the amount to which the knowledge or suspicion relates. This exemption also provides a practical benefit as it removes the need for the firm to identify and ring-fence the suspected criminal property. 

In both these situations firms would still be required to report their suspicions of money laundering to the National Crime Agency (NCA), but would not have to obtain a DAML. 

Sharing information

The bill also aims to give firms in the regulated sector more confidence to share information with each other in order to tackle money laundering and other economic crime. It seeks to do this by disapplying the civil liability for breach of confidentiality when the purpose of sharing the information is the prevention, detection and investigation of economic crime. 

The bill proposes that firms will be able to:

• directly share information with another firm in the regulated sector where the firm has decided to take safeguarding action (such as exiting a client relationship or refusing access to a product or service) or if the other firm requests information from it for the purpose of assisting it with a relevant action, and
• indirectly share information with a third-party intermediary for onward transmission to other firms in the regulated sector. 

Sharing information would be voluntary and would not remove the requirement to inform the NCA of suspicious activity. Firms would also still be bound by other existing obligations, such as data protection legislation or regulatory frameworks.

Reforms to Companies House

One of the most significant aspects of the bill is the reform to Companies House. It is currently easy to register a company in the UK with little scrutiny. In 2018, the NCA’s assessment of serious and organised crime stated that: “The ease with which UK companies can be opened, and the appearance of legitimacy they provide, means they are used extensively to launder money directly from criminal activity in the UK and from overseas.” This is still the position today. 

The bill aims to combat this by giving the Registrar of Companies House the power to become a more active gatekeeper over company creation, and the custodian of more reliable data. 

The proposed reforms include the following:

• introducing identity verification for all new and registered company directors, ‘people with significant control’ and those delivering documents to the Registrar
• new powers to check, remove or decline information submitted to, or already on, the register
• new criminal offences for delivering misleading, false or deceptive documents or material to the Registrar (previously criminal sanctions were only available if false information was provided knowingly or recklessly)
• improving the financial information on the register by requiring the delivery of additional or replacement documents where it appears that the information is inconsistent with other information contained in the register; and
• introducing better cross-checking of data with other public and private sector bodies, and giving Companies House the ability to proactively share information with law enforcement bodies where they have evidence of anomalous filings or suspicious behaviour. 

Companies House has said that it welcomes the measures outlined in the bill and “while the scale and scope of these changes should not be underestimated, the work already done through [its] wide-ranging and ongoing transformation programme puts us in a strong position to implement them as quickly and efficiently as possible”. Potentially an overly optimistic statement given the task at hand, it will be interesting to see how long it takes Companies House to implement the changes once the bill receives royal assent. 

In principle these reforms will be positively received by most, especially those who depend on the reliability of the information on Companies House. However, it will also affect legitimate UK companies, who will have to adhere to more stringent (and subsequently costly) listing and filing requirements. 

Intelligence gathering powers 

The bill seeks to extend the Serious Fraud Office’s (SFO) powers under section 2 of the Criminal Justice Act 1987. Currently the section 2 powers allow the SFO to compel a person to answer questions or produce documents in circumstances where the request relates to an active SFO investigation, or in the pre-investigation stages of suspected cases of international bribery and corruption.

The new bill will extend this power to allow the SFO to serve a person (individual or corporate entity) with a section 2 notice for information at the pre-investigation stage for any of case.

This proposal would open up individuals and institutions, such as banks and technology companies, to being compelled to respond to onerous and substantial request for information before the SFO has even formally opened an investigation. 

The SFO has praised this proposal as a “welcome step for the SFO in the challenging fight against fraud, bribery and corruption”. However, at a time when the government is asking the SFO to cut its budget by 40% it is difficult to see how the agency will be able to handle pre-investigation evidence gathering of this nature. 

The bill also seeks to give more power to the NCA (despite the government asking for budget cuts of 40% here as well). The NCA is currently only able to make use of Information Orders on firms (pursuant to the Criminal Finances Act 2017) once that firm has submitted a suspicious activity report (SAR). The bill allows the NCA to make use of an Information Order regardless of whether or not a SAR has been submitted.  

What next?

While the bill’s extensive amendments and reach give the illusion that the government is doubling down on economic crime, on one reading it appears to be passing the buck to individuals and organisations, such as lawyers and Companies House, whose role is not to prevent or detect crime. Further, those organisations that do have such a role, such as the NCA and SFO, have been stripped of resources, and therefore will likely be hindered in putting their new powers to use. 

It is expected that the bill will receive royal assent this spring.