Economic Crime (Transparency and Enforcement) Bill – the key provisions

In previous updates, we have explained the UK sanctions regime as it relates to Russia and have produced a quick guide to the UK sanctions regime.

In this update, we explain the current status and key provisions of the Economic Crime (Transparency and Enforcement) Bill. The stated focus of the Bill is to "set up a register of overseas entities and their beneficial owners and require overseas entities who own land to register in certain circumstances".

Current status of the Bill

The progress of the Bill has been accelerated by virtue of the ongoing conflict in Ukraine and the drive to ensure that assets held by sanctioned individuals / organisations can be controlled.

The Bill was debated in the House of Commons on 7 March 2022 and has since passed the House of Commons stage. As at the time of this update on 11 March 2022, it is at the Committee stage of the House of Lords. It is anticipated that the legislation will come into force next week.

What are the key provisions in the Bill?

1. Once enacted, the Bill will create a register of overseas entities to be held at Companies House. The beneficial owner of foreign owned property in the UK would require to be registered. The beneficial owner is in essence a person or organisation that ultimately owns or controls a company. The Bill as currently drafted provides that a qualifying beneficial owner includes those holding more than 25 per cent of the shares or voting rights. Those who do not meet that threshold but who nonetheless exercise significant control over the entity (or have the right to do so) are also caught, as are those with the right to remove (or appoint) a majority of the board of directors.
2. The requirement to register will apply to any entity that is governed by the law of a country or territory outside the UK (which, for the purposes of the Bill, includes the Channel Islands).
3. The Bill would have retrospective effect - any entity that is caught and that has purchased properties in England and Wales since 1 January 1999 (or in Scotland in the period since December 2014) will require to apply for registration of their beneficial ownership within six months of the legislation coming into force.
4. The register will be available to the public free of charge and must be updated annually.
5. The Bill would grant Companies House powers to challenge information it does not consider to be accurate and to report concerns to the relevant enforcement agencies, for instance the National Crime Agency.
6. Providing false information or failing to provide information would be a criminal offence with punishments of up to five years' imprisonment. Properties can also be seized.
7. Outside of the register, the Bill would also update the existing sanctions regime by introducing a 'strict liability' approach to breaches. The effect would be to remove the current requirement to demonstrate than an individual knew, or had reasonable cause to suspect, that they were in breach.

Additional tools to address economic crime concerns

The register would be another tool available to the UK authorities to address concerns around the status, and source of funds, of ultimate beneficial owners with a view to identifying whether they are, for instance, subject to the UK sanctions regime.

The other tools currently available include:

1. Unexpected Wealth Orders – a requirement to confirm the sources of unexplained wealth. There is no requirement for the subject of such an order to have been convicted of a criminal offence or to have been found liable in civil proceedings. A failure to provide an adequate explanation, or provide unsatisfactory evidence, can result in civil recovery proceedings under the Proceeds of Crime Act 2002.
2. Asset Freezing Orders – the freezing of bank accounts, shares in companies, tangible property including land and intangible property including intellectual property rights.

Further legislation?

The passage of the Bill sends a clear message that the UK government is focussed on addressing economic crime. We can expect further draft legislation – during the debate of the Bill in the House of Commons, the UK Home Secretary referenced further economic crime legislation including in relation to powers to confiscate sanctioned assets. That was in a response to a comment from Alison Thewliss MP that it was important to focus on confiscating and seizing assets, not merely investigating them.

Another point raised during the debate was the importance of sufficient funding for enforcement agencies to address economic crime concerns. The UK Home Secretary confirmed that the levels of funding were under consideration.