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Economic Crime (Transparency And Enforcement) Act 2022

Contents

Legal background

Registration of Overseas Entities

  1. The information aspects of the register mirror as far as possible the regime currently in place for UK entities subject to the PSC regime, though there are differences in enforcement of the regime given that some of the PSC enforcement mechanisms cannot be applied to overseas entities (other than the imposition of criminal offences). 
  2. The PSC regime originated in the Small Business, Enterprise and Employment Act 2015 (SBEE). In summary, all UK registered companies (with some specified exceptions) are obliged to keep a register of "people with significant control" over that company, and to disclose that information to the public register held at Companies House. Unlike the PSC regime, however, overseas entities will not be required to keep their own registers; instead they will be required to deliver the information directly to the Registrar with their application for an overseas entity ID. 
  3. The PSC regime was intended to capture individuals who exercise ‘significant influence and control’ over a company – over and above the control you would expect a typical director or shareholder to exercise (although occupying those roles does not preclude an individual from being a PSC). A number of conditions are specified to determine whether or not an individual is a PSC – these conditions were based on the definition of ‘beneficial ownership’, a concept which forms part of the Money Laundering Regulations 2007, and which is used within EU legislation, including the Anti-Money Laundering Directives. 
  4. These conditions capture individuals who own a significant share in the company’s share capital, those who have the right to exercise significant control through voting rights, which may or may not be directly related to the size of their shareholding, and those who control the company through other means, including by control of the management. 
  5. UK-registered companies are required to take reasonable steps to find out if they have a registrable person or registrable legal entity, and if so to identify them. This includes via the means of sending notices to anyone a company might reasonably think is a registrable person, or to anyone who the company thinks might know the identity of a registrable person. These requirements are mirrored in this Act. 
  6. A protection regime is in place for individuals that may be placed at risk as a result of being identified on the public register; this regime will also be in place for overseas entities. 
  7. Company law requires UK-registered companies to annually check and confirm that the information held on the register remains accurate. A similar requirement will be imposed also on overseas entities via this Act. 
  8. As mentioned above, the overseas entities register will be held by the Registrar of Companies and will be, for the most part, accessible to the public. Many of the powers and functions of the Registrar contained in the Companies Act 2006 in relation to the register kept for UK-registered companies have to be replicated in the Act. The information that an overseas entity must provide in order to register, and detail as to who is a beneficial owner of an overseas entity, is closely modelled on the PSC regime for UK-registered companies (and contained in Schedules 1 and 2 to the Act respectively). 
  9. In order to deliver the policy aims, an enforcement mechanism had to be devised through (i) primarily, novel land registration requirements in England and Wales, Scotland and Northern Ireland (taking into account differences in land registration laws), (ii), civil financial penalties which can be enforced against land owned by a non-compliant overseas entity, and (iii) criminal sanctions. As noted above, this Act amends the Land Registration Act 2002, the Land Registration Act etc. (Scotland) Act 2012 and the Land Registration Act (Northern Ireland) 1970. 
  10. Certain Act provisions will apply to current registered proprietors of land in England and Wales and in Scotland as at the commencement date. Paragraph 3 of Schedule 3 to the Act inserts a new Schedule 4A into the LRA 2002. Paragraph 3(1) of Schedule 4A requires HMLR to enter a restriction on the title register of a "qualifying estate" in England and Wales where satisfied that the registered proprietor is an overseas entity, and that entity became registered as proprietor on or after 1 January 1999. 
  11. The practical effect of the restriction is that where an overseas entity makes a relevant disposition (e.g. sale, lease or charge) at a time when it is not a registered overseas entity, is not exempt and no exceptions apply, those dispositions cannot be completed by registration. In relation to overseas entities that are registered proprietors before the commencement date (and registered on or after 1 January 1999) the restriction will, however, not come into effect until six months after the commencement date. There are equivalent transitional provisions in relation to existing overseas entity proprietors of land in Scotland who became proprietors on or after 8 December 2014. As there is no equivalent of a "restriction" (or an "inhibition" in the case of Northern Ireland) in land registration law for Scotland, there will be no entry on the title registers of land owned by overseas entities in Scotland but the same six-month transitional period will apply to them. In Northern Ireland, the Act provisions will apply only to new registrations that occur after the commencement date. 

Unexplained Wealth Orders 

  1. In 2002, Parliament enacted the Proceeds of Crime Act 2002 ("POCA"), which contains provisions to allow the investigation and recovery of any property obtained through unlawful conduct, or which is intended to be used for unlawful conduct. For a recovery order to be obtained under Part 5 of POCA (civil recovery), there must be sufficient evidence to indicate, through a judicial process, that on the balance of probabilities the property is related to unlawful activity. 
  2. Part 8 of POCA (investigation) includes various powers for law enforcement authorities to investigate assets, including production orders; search and seizure warrants; disclosure orders; customer information orders; and account monitoring orders. 
  3. The Criminal Finances Act 2017 inserted sections 362A to 362I into Chapter 2 of Part 8 of POCA which make provision for the High Court to make an Unexplained Wealth Order ("UWO") in England, Wales and Northern Ireland. It also inserted sections 396A to 396U in Chapter 3 of that Part, providing for the Court of Session to make a UWO in Scotland. 

Sanctions Enforcement

  1. UK sanctions are underpinned by regulations made under the Sanctions Act. These regulations outline the obligations and prohibitions of specific sanctions regimes and contain the criminal offences for breaching them. Section 16 of the Sanctions Act makes provision for the sharing of information and the retention of records. 
  2. The power to impose monetary penalties for breaches of financial sanctions is contained in section 146 of the Policing and Crime Act. Monetary penalties for breaches of financial sanctions can be up to 50% of the value of the breach or £1 million, whichever is greater. To impose a penalty, the person suspected of breaching financial sanctions must have "known, or had reasonable cause to suspect" they were in breach of the obligations or prohibitions imposed by financial sanctions legislation. Section 149 of the Policing and Crime Act contains a duty to publicise information about these penalties. 
  3. Once a relevant party has been notified that OFSI intends to issue a monetary penalty, they have a statutory right, as set out in section 147 of the Policing and Crime Act, to request a review of their case by the Minister. The Minister may uphold the decision to impose the penalty and its amount, substitute a different amount, or cancel the decision to impose the penalty altogether. Section 147 of the Policing and Crime Act currently specifies that such monetary penalty reviews must be conducted "personally" by the Minister. 
  4. This Act makes amendments to both the Policing and Crime Act 2017 and the Sanctions and Anti-Money Laundering Act 2018. 

Sanctions Measures

  1. The Sanctions Act provides the legal framework for the UK to impose, update and lift sanctions both autonomously and in compliance with UN obligations. The Sanctions Act provides powers for Ministers to create sanctions regulations through statutory instruments. Through these regulations, specific provisions can be applied to designated persons.
  2. Designated persons can be individuals or entities. A person may be designated by the UK acting autonomously or in order to implement a designation made by the UN.
  3. The power to make sanctions regulations is found in Section 1 of the Sanctions Act. Sections 11 and 12 specify provision which must be included in regulations which confer a power to designate. The Sanctions Act also contains reporting and review processes, including a process for designated persons to challenge their designation.

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