Tuesday 8 March 2022

Conflict in Ukraine (6) - Economic Crime Bill

Update 16 March - the Bill discussed in this post became the Economic Crime (Transparency and Enforcement) Act 2022 (legislation.gov.uk) having received Royal Assent on 15 March.

On Monday 7 March 2022, the lengthy, complex and important Economic Crime (Transparency and Enforcement) Bill  was banged through the House of Commons. The Bill is part of the government's response to Russian military action in Ukraine. 

The Bill contains 55 clauses divided into 4 Parts - Part 1 (Registration of Overseas Entities), Part 2 (Unexplained Wealth Orders), Part 3 (Sanctions), Part 4 (General). There are also 5 detailed Schedules. 

As the Institute for Government points out in an excellent overview, the Bill has been a long time coming and does not go far enough - Economic Crime (Transparency and Enforcement) Bill  | The Institute for Government

Prior to late February 2022, the government seemed to be in no great hurry to bring the legislation forward. The appearance was

that of a can being kicked down the road. The result of the sudden rush to legislate is that the Bill is receiving far less parliamentary scrutiny than is required by the difficulties of the issues the Bill seeks to address.

Even when the Bill finally gets to the statute book, there are enforcement problems arising from the under-resourcing of practically every agency involved - e.g. National Crime Agency, Companies House etc.

The proceedings in the House of Commons on Monday 7 March may be read at Hansard - Second Reading and Further stages.  The exasperation of some MPs with the Bill was clear and several problems were highlighted. 

Here are just two extracts from the debates .....

Alison Thewliss MP (SNP, Glasgow) said -

"We in the SNP welcome this Bill—how could we not?—but we would argue that it is long overdue and does not go nearly far enough. The UK Government’s inaction and prevarication have given the oligarchs a head start to shift their assets, to lawyer up, to step down from companies and boards and to saunter unimpeded to their getaway yachts and go to places that will still have them. Co-ordinated and quick global action, including in the overseas territories, could have made this more difficult, as would action on crypto-assets. The recent Treasury Committee report highlighted the growing role of crypto-assets in economic crime.

We support Labour’s calls to cut the registration of overseas entities to four weeks. We all agree that 18 months was ludicrous, but six months still gives people far too long to shift their ill-gotten gains. I would be grateful if Ministers confirmed what they are doing to monitor asset flight, and if they could provide an estimate of how much money has already left. Our amendments 18 to 23 would lower the threshold for beneficial ownership from 25% to 10%. Evidence already points to the threshold being gamed and to people appointing family members and those they can easily control, and the Government need to be aware of that and do more to prevent it."

See the 2018 report - Crypto-assets - Treasury Committee - House of Commons (parliament.uk)

Sir Robert Neill MP (Conservative, Bromley and Chislehurst ) drew attention to what he described as "rather technical and boring" legal details of the Bill. Of course, it is in such legal details (often referred to as "loopholes") where the devils often lurk. 

One of the details raised by Sir Robert was -

".... the definition of registrable beneficial owner, largely in schedule 2? The concern that I have, and I am fortified by the briefing I have received from the Law Society of England and Wales—it mirrors the briefing that I suspect the hon. Member for Glasgow Central (Alison Thewliss) had from the Law Society of Scotland—is that there is a gap here, as the impact assessment of the Bill sets out. What has been done here is to take the existing domestic registry of persons of significant control and seek to build on that, which is fair enough, but it does not go far enough.

The problem that we have is this. There is a common misconception that analysing who the person of significant control of an entity is, is the same as analysing who the beneficial owner is. They are not the same and the objective we need to get to is: who is the economic beneficiary? ....."

The President of the Law Society has said - Economic Crime Bill looks to improve transparency and uncover criminal acts | The Law Society

“We do, however, believe the bill can be stronger. We’ve identified several possible unforeseen challenges in the draft legislation, which could lead to bad actors exploiting potential loopholes in land, property and company ownership.

“The Law Society is keen to offer its expertise to help strengthen the bill and remove any potential loopholes that might be exploited by unscrupulous actors.”

Enough has perhaps been said above to show the inadequacy of this belated legislation. The government can say that it has acted albeit late but those determined to find ways around this Bill will probably have little difficulty - The oligarch’s guide to getting round the UK’s economic crime bill | Oliver Bullough | The Guardian

Further material:

Previous post 6 March - Law and Lawyers: Conflict in Ukraine (5) - Economic crime (Transparency and Enforcement) Bill (obiterj.blogspot.com)

Hansard for Monday 7 March - Second Reading and Further stages.

Economic Crime (Transparency and Enforcement) Bill 2022: overarching documents - GOV.UK (www.gov.uk)

Office of Financial Sanctions Implementation - GOV.UK (www.gov.uk)

Economic Crime (Transparency and Enforcement) Bill  | The Institute for Government

Closing the UK’s economic crime enforcement gap: Proposals for boosting resources for UK law enforcement to fight economic crime. - Spotlight on Corruption (spotlightcorruption.org)

Don’t Expect Sanctions to Fix the UK’s Systemic Illicit Finance Problems | Royal United Services Institute (rusi.org)

Economic Crime Bill looks to improve transparency and uncover criminal acts | The Law Society

An Act of Economic Warfare? What to expect from the Economic Crime Act | Scottish Legal News

8 March 2022

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