Government brings forward Economic Crime Bill: Unexplained Wealth Orders, sanctions, and other developments

In response to the conflict in Ukraine, on 1 March 2022 the government brought forward the Economic Crime (Transparency and Enforcement) Bill, designed – amongst other things – to trace and target the "dirty money" of suspected criminals. The bill contains provisions relating to a beneficial ownership register for overseas entities holding UK real estate, the strengthening of Unexplained Wealth Orders (UWOs), and further powers of the Treasury in relation to sanctions.

UWOs

Introduced by the Criminal Finances Act 2017, UWOs give law enforcement agencies the opportunity to confiscate criminal assets without having to prove that the property was obtained through criminal activity. UWOs then require would-be owners to explain their interest in the property and how they obtained that interest, with failure to provide that information being likely to result in the asset being confiscated.

However, only nine UWOs have been obtained to date – with no orders having been made in the last two years. The provisions contained in the bill should therefore go some way to increasing the use and effectiveness of UWOs.

The scope of the UWO rules will be extended to those who hold property in the UK in trusts. In addition to this, the requirements for pursuing UWOs will be amended to allow for pursuit where, provided the existing conditions are met, there are reasonable grounds for suspecting that the property has been obtained through unlawful conduct. The bill also includes a limitation on costs orders in relation to UWOs: costs will not be payable by an enforcement authority unless the authority acted unreasonably in pursuing the UWO or it acted dishonestly or improperly in carrying out the UWO. Finally, enforcement authorities will be given more time – up to 186 days – to review material provided in response to a UWO.

Sanctions

Part 3 of the bill contains a more wide-ranging liability test for monetary penalties. In its current form, the bill would remove the requirement for firms to have knowledge or a "reasonable cause to expect" that sanctions are being breached. This change will significantly lower the threshold for the imposition of fines by the Office for Financial Sanctions Implementation (OFSI). In addition to this, OFSI will be permitted to publicly identify organisations that have breached sanctions but not been fined.

Linked to this new legislation, the UK's National Crime Agency has announce the formation of a new "Kleptocracy" unit to assist in the investigation of sanctions breaches.

Beneficial ownership register

The lack of transparency of overseas ownership of UK property has been a known issue for some time. The bill will implement a beneficial ownership register intended to identify the beneficial owners of overseas entities that hold UK property. 

The new register will level the playing field with UK-based companies who already have to report on beneficial ownership to Companies House. For more detail on this, see our Insight.

Other measures

In conjunction with the Economic Crime (Transparency and Enforcement) Bill, the government also published a white paper entitled "Corporate transparency and register reform". The white paper, which was informed by various consultations concerning Companies House, aims to increase filing requirements for anyone setting up, running, owning, or controlling a company in the UK. These reforms are expected to be included in a further bill, which is likely to be introduced in the next few months.

For more details on this, see our Insight.

Osborne Clarke comment

All businesses which attract overseas investment through corporate entities will need to consider amending their systems to reflect the requirements of the bill. Upgrades to processes may be necessary to ensure that they comply with these new provisions.

If you would like to discuss any of these issues further, please do not hesitate to contact the authors or your usual Osborne Clarke contact.