The government announced in March their intention to introduce an economic crime levy on AML regulated businesses (including law firms) to contribute to the fight against economic crime. Rick Kent, our AML & Economic Crime Policy manager, takes a look at the plans.
The government intended to begin a consultation on it in May but, following calls from the Law Society to delay due to COVID-19, they pushed back the start of the consultation to July. The consultation now closes on 13 October 2020.
The levy—to commence from financial year 2022/23 onwards—is intended to help the reforms outlined in the Economic Crime Plan 2019-2022 (ECP) which will look to raise approximately £100m a year. Published in July last year the ECP is a product of collaboration between the private and public sectors through the Economic Crime Strategic Board (ESCB) and sets the agenda for economic crime reform for the short-to-medium term with seven strategic themes and 52 specific actions.
Although pitched as a cross-sector private sector initiative, the banking sector and UK Finance were key to driving the development of the ECP, and it was published with their logo accompanying it. The ECP’s focus is broader than anti-money laundering and complements the government’s revised Serious and Organised Crime Strategy announced in November 2018.
The new government reaffirmed their commitment to the delivery of the plan at the beginning of the year. However, for a variety of reasons progress has been slow in taking forward many of the actions (apart from the work on sustainable resourcing) and the last ESCB meeting (which was due to take place at the end of March but was cancelled due to COVID-19) was going to be used to reflect on progress to date and agree priorities going forward.
The Law Society, through the Legal Sector Affinity Group (LSAG) is involved in taking forward several action points. In particular:
- undertaking collective threat assessments
- reviewing barriers to information sharing including between private sector actors
- promoting digital identity verification services
- reviewing AML effectiveness, and
- developing a sustainable resourcing model
One of the work streams coming out of the ECP was to develop a sustainable resourcing model for the various economic crime initiatives that the government is seeking to take forward. The work has been advanced jointly by HM Treasury and the Home Office.
Addressing the funding gap
A funding gap of approx. £150 million a year has been identified for the various initiatives that require sustainable resourcing including the Suspicious Activity Reports (SARs) transformation programme and an uplift in NCA capability. Of this funding gap, the government are looking at raising £50 million a year from both recovered assets and frozen bank accounts, in addition to other funding from the forthcoming spending review. This would leave an additional £100 million a year that needs to be funded.
With the government contending that the costs of further action to tackle money laundering should ‘not be borne solely by the general taxpayer’, this means that under the proposals some 90,000 businesses, including law firms, would potentially be liable for the levy.
Stipulating that exposure to money laundering risk should ‘if possible’ be used to determine the amount, at the core of the government proposals is nevertheless that the levy could be calculated according to revenue, with an exemption for small businesses.
Through 36 questions around key areas of collecting the levy, levy calculation and spend, and—disturbingly—an ask-around funding for fraud, the consultation is seeking views on:
- What the levy will pay for?
- How the government can ensure transparency over levy spending?
- How levy liability will be calculated, and which businesses should be paying?
- How the levy will be collected and enforced?
Whilst the legal profession has a strong interest in a successful, effective and proportionate AML regime, The Law Society is nevertheless sceptical about the proposed levy. There are concerns that it goes beyond what is justified on a risk-based approach and proportionality, and that it will place further unjustified burden on a sector already under strain.
The Law Society is robustly engaging in the consultation process to ensure the profession’s views are well represented. The consultation can be accessed here.