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The Economic Crime Act and its objectives
The government’s Economic Crime (Transparency and Enforcement) Act is intended to strengthen UK enforcement authorities’ powers in three key areas:
- To compel overseas based owners of land and property in the UK to register their ownership;
- To broaden the scope of “Unexplained Wealth Orders” to target company officers as well as individuals;
- To make it easier to prosecute for the breach of sanctions.
Whilst the Economic Crime Act is being vaunted in some quarters as a powerful response to the Russian invasion of Ukraine, the reality is that the Act has been “in production” since 2016. In light of the rapid progress made in the past few weeks, one might reasonably wonder whether far more could have been done several years ago to address the extraordinary levels of crime and corruption that are only now coming to the attention of much of the British public.
The “sanctions” element of the Act is largely designed to make it easier to impose penalties on those who breach sanctions by removing the requirement to show that they “knew, suspected or believed” that the person they were dealing with was sanctioned, essentially placing the responsibility firmly on a business or professional to identify their customer as a sanctioned individual or company. Many organisations with fairly sophisticated Anti-Money Laundering processes will potentially have a blind spot around sanctions, not knowing where to look for information, or even who to report it to, should they identify an issue. The Office of Financial Sanctions Implementation (OFSI) publish a Consolidated List of sanctioned entities online and it is the appropriate reporting authority should you identify a match.
The registration of land ownership is part of the ongoing international work aimed at unpicking the complex corporate structures frequently used by sophisticated criminals and corrupt officials to disguise their assets. The requirement to identify the “beneficial owners” of assets, down to the actual individual(s) who sit behind the corporate veil, was last addressed by the EU’s 5th Money Laundering Directive, the last significant EU regulation passed into UK law post-Brexit in January 2020. With a highly developed Offshore Financial Industry skilled in structuring company finances and often working from jurisdictions where strongly worded legislation is not typically supported by tough prosecution action, even legislators and law enforcers in countries with a genuine motivation to crack down on financial crime often face an impossible uphill task keeping pace with the professional enablers of crime and corruption.
The third plank of the Economic Crime Act relates to Unexplained Wealth Orders (UWOs). The UWO was introduced in the 2017 Criminal Finances Act and allows law enforcement agencies to take civil action to remove the proceeds of crime and corruption from those with assets which they could not have earned legitimately and are unable to explain adequately. The first and highly publicised UWO was against Zamira Hajiyeva, the wife of Jahangir Hajiyev, previously the head of the Azerbaijan national bank. Mrs Hajiyeva famously spent £16 million in Harrods over the course of a couple of years and some £22 million on property in and around London. In essence, the case against her was that she was living off the proceeds of her husband’s embezzlement and corruption; crimes for which he had already been imprisoned in Azerbaijan. However, suggestions that the ultimate success of the action against her heralded in a new age of intolerance of corruption were perhaps premature. A second, far larger application in relation to £80 million held by the Aliyev family, whose patriarch was the ex-President of Kazakhstan, failed in Court when the Judge determined that the application was founded on “unreliable assumptions” and that the National Crime Agency had “missed obvious lines of enquiry” which might have supported an innocent explanation for the assets held by the Aliyevs.
Perhaps the failings of the NCA in this case were attributable to a lack of practice. Since their introduction, only four UWOs have passed through the Courts, despite the fact that the qualifying criteria is only £50,000 of money or property – the assets one might think of a moderately successful local villain. The failure, or perhaps reluctance, of UK law enforcement authorities to use the provisions more widely since their inception raises questions about both the levels of resources currently committed to financial crime, and the policies around how those limited resources are put to use.
Fundamentally, the new Act may be viewed as between one of two extremes: at one end, a critically-timed piece of legislation providing much-needed improvements to our ability to cut off the worst criminals and human rights abusers from their filthy lucre; at the other end, as a piece of useful window dressing, designed to give the impression that the UK means business on financial crime, but in reality hampering compliant businesses with more responsibility and lacking the political impetus to really have a serious impact on those it purports to target.
Just weeks into one of the most serious international crises since the Second World War, and with far more riding on the success of the legislation than chic Mayfair properties and Harrods shopping sprees, the jury is still out on the Economic Crime Act.
The author, Laurence Howland, is Director Risk and Compliance at Buckles Solicitors LLP.