Economic Crime (Transparency And Enforcement) Act 2022

Policy background

Registration of Overseas Entities

2. There has been widespread concern expressed about the lack of transparency around who ultimately owns land in the UK, where the land is registered to an overseas company or other entity. Currently, the information available about overseas owners of land (or registered leaseholders) is, at best, limited to the entity’s name and territory of incorporation. It is therefore not clear who really owns and controls the entity and, by extension, the land itself. 
3. Evidence from UK law enforcement and transparency campaigners shows that overseas entities are often used as a vehicle by criminal organisations and corrupt individuals to hide and launder the proceeds of bribery, corruption and organised crime. The UK’s property market is particularly attractive because of the UK’s stable and open political and business environment. Law enforcement investigations, including those targeting the proceeds of corruption, are often hampered by an inability to access information about the individuals who ultimately own or control overseas entities that have been used to conceal the proceeds of crime and corruption.    
4. In contrast, most UK entities have, since the implementation of the People with Significant Control (PSC) register in June 2016, been required to provide information about their ultimate owners and controllers to the Registrar of Companies ("Companies House"), where they are held on the publicly accessible companies register.  
5. In 2016, at the Anti-Corruption Summit held in London, a commitment was made to establish a public register of beneficial owners of non-UK entities that own or buy land in the UK. A call for evidence was issued in 2017 and in 2018, the Government published its Government response, followed by a draft Act. The draft Act was scrutinised by a joint Parliamentary committee in 2019.
6. The register has two primary objectives: 
   1. To prevent and combat the use of land in the UK by overseas entities as a means to launder money or invest illicit funds; 
   2. To increase transparency and public trust in overseas entities engaged in land ownership in the UK. 
7. The desired outcome of this Act is to deliver transparency about who ultimately owns and controls overseas entities that own land in the UK. It is intended to act as a deterrent to those who would seek to hide and launder the proceeds of bribery, corruption and organised crime in land in the UK. Wider benefits will include improving confidence and trust among the wider public and legitimate investors as to who they are doing business with in any land transaction. 
8. The Economic Crime (Transparency and Enforcement) Act 2022 will require any overseas entity that wishes to own UK land to take steps to identify their beneficial owner(s) and to register them. It also imposes a duty on overseas entities to update the information provided to the register annually. Failure to update the register is an offence, as is delivering (or causing to be delivered) misleading, false or deceptive information. 
9. In order to register title to land, an overseas entity will have to be registered with Companies House and comply with the updating duty. A failure to register, or to comply with the updating duty, will in most cases affect the ability of the entity to:
   1. acquire legal title to land, as the entity will be unable to register as proprietor or owner (as the case may be) of land in the UK with the three Land Registries of England and Wales, Scotland and Northern Ireland; and
   2. sell or lease the land, or create a charge over the land, as any buyer, tenant or a mortgagee (as the case may be) would be unable to register that disposition (sale, lease or charge) with the (relevant) land registry in any part of the UK.

Unexplained Wealth Orders

10. The UK has one of the world’s largest and most open economies, and London is one of the world’s most attractive destinations for overseas investors. These factors make the UK attractive for legitimate business, but also expose the UK to money laundering risks from Politically Exposed Persons (PEPs) (as defined in section 362B and 396B of the Proceeds of Crime Act 2002). As noted in the joint Home Office and HM Treasury National Risk Assessment of money laundering and terrorist financing 2020, property in the UK is attractive to both foreign and domestic criminals seeking to conceal large amounts of illicit funds, disguise their ownership, and realise the proceeds of their criminal activities. 
11. The UK is internationally recognised as having some of the strongest controls worldwide when it comes to tackling money laundering and bringing to justice those who seek to use or hide the proceeds of crime. To continue to deliver the Government’s economic crime agenda and target more kleptocrats and corrupt elites, enforcement agencies must be equipped with the appropriate powers to investigate.
12. An Unexplained Wealth Order (UWO) requires a person who is a PEP or reasonably suspected of involvement in, or of being connected to a person involved in, serious crime to explain the origin of assets (minimum combined value of £50,000) that appear to be disproportionate to their known lawfully obtained income.  
13. A UWO is not (by itself) a power to recover assets. However, any response from a UWO can be used in subsequent civil recovery proceedings.
14. Legislative reform is required to strengthen and reinforce the UWO regime to ensure the powers can be used to maximum effect, particularly to ensure property held via complex ownership structures and trusts is within the scope of the regime. The reforms are also intended to mitigate the significant operational risks to an enforcement authority. 
15. The desired outcome of these amendments is to strengthen the UWO regime to enable law enforcement to take more effective action against kleptocrats and serious and organised criminals who launder their funds in the UK. In turn, this will lead to greater prospects of the recovery of assets bought with the proceeds of serious and organised crime, particularly corruption. 
16. The UWO amendments have four primary objectives and are intended to both extend and clarify the scope of the powers by: 
    1. Countering the inability or unwillingness of kleptocratic foreign states to provide reliable support to enforcement authorities investigations.  
    2. Better enabling enforcement authorities to meet the evidential standard at the outset of the investigation, thereby allowing powers to be used to maximum effect in the broadest range of suitable cases.  
    3. Allowing a fuller investigation to take place by extending the maximum time a court can allow property to be frozen in relation to a UWO. 
    4. Removing a barrier to the use of UWOs, enabling legal costs to be limited for enforcement authorities unless they have used the powers unreasonably, improperly or dishonestly, increasing risk appetite and operational confidence.  

Sanctions Enforcement

17. Sanctions are an important foreign policy and national security tool. They are restrictive measures which are designed to be temporary and can be used to coerce a change in behaviour, to constrain behaviour, or to communicate a clear political message to other countries or persons. The UK currently implements over 35 sanctions regimes. These include country-specific sanctions regimes, including in relation to Russia, North Korea and Iran, as well as regimes targeting Da’esh, Al Qaida and other terrorist groups. Like all other UN states, the UK is obliged under international law to implement UN sanctions. There are currently over 2,000 individuals, entities and ships subject to sanctions implemented by the UK. 
18. The Office of Financial Sanctions Implementation (OFSI), part of HM Treasury, is the UK’s competent authority for financial sanctions and performs HM Treasury’s functions in respect of implementing financial sanctions, including issuing licences; imposing monetary penalties for breaches of these sanctions; issuing guidance and engaging with stakeholders.  
19. OFSI’s current powers are contained in different places. Specific financial sanctions regimes are contained in regulations made under the Sanctions and Anti-Money Laundering Act 2018 ("the Sanctions Act"). These regulations contain the obligations and prohibitions specific to each sanctions regime. OFSI’s ability to impose monetary penalties for breaches of these prohibitions is contained in the Policing and Crime Act 2017. 
20. The sanctions measures will strengthen enforcement by providing for:  
    1. A more robust legal test that will support compliance and help OFSI to impose monetary penalties for breaches of financial sanctions. 
    2. Greater flexibility in how the Treasury manages the review process for monetary penalties.  
    3. Enhanced intelligence and information sharing powers to give OFSI better tools to do enforcement through greater access to information from other agencies.  
    4. A statutory power to publicly censure for financial sanctions non-compliance even if a decision is made not to impose a monetary penalty for the breach. 

Sanctions Measures

21. The UK currently implements over 35 sanctions regimes via regulations made under the Sanctions Act. Individuals and entities may be designated under these regulations for the purposes of an asset freeze, a travel ban, or other measures.
22. Making designations is an administrative process. The amendments are intended to enable designations to be made more quickly and increase coordination with the UK’s allies. The amendments will remove the statutory test of ‘appropriateness’ in designating individuals and entities, which is intended to speed up the making of designations. The amendments will remove constraints around designation by description, which is intended to ensure the Government can designate groups of individuals more quickly, providing the Government with maximum flexibility. The amendments are also intended to ensure the UK can mirror the listings already adopted by allies, via an urgent designation procedure, enabling Ministers to swiftly designate individuals, entities and categories of persons designated by the UK’s international partners.
23. The amendments will only permit the payment of damages in connection with designations in cases of bad faith, removing the possibility of damages for negligence. The Act also provides a power to impose a cap on damages for actions under the Sanctions Act. These provisions in respect of damages will apply to any proceedings issued after 4 March, when the amendments were tabled, even if these proceedings relate to designations made previously.
24. The way in which sanctions designations and regulations are reviewed will be reformed. Obligations on reporting will be removed to allow Ministers and officials to focus efforts on targeting those who could harm the national interest.