Economic Crime (Transparency and Enforcement) Act 2022

The Economic Crime (Transparency and Enforcement) Act 2022 was introduced in the House of Commons on 1 March 2022. The Government fast-tracked the Bill as part of the Government’s urgent response to the Russian invasion of Ukraine. All remaining Commons stages took place on 7 March.

The Bill (as amended in the Commons) was then introduced in the House of Lords on 8 March. Second reading was on 9 March and remaining Lords stages took place on 14 March.

Commons consideration of Lords amendments took place immediately after Lords Third reading. Royal Assent was announced shortly after midnight on 14 March (the early morning of 15 March).

Background documents are available on the Bill’s page on the Parliament website and on the Government Fact Sheets for Parts 1 and 2 of the Bill.

What does the Act do?

The Act has 70 sections and five Schedules, divided into three main measures:

Part 1: Register of Overseas Entities

Part 1 of the Act (sections 1 to 44, and Schedules 1 to 5) establishes a public register of beneficial owners of non-UK entities that own or buy land in the UK, operated by the Companies House registrar. Beneficial owners are those who ultimately own or control an asset.

Any overseas entity wishing to own UK land needs to identify their beneficial owners and register them. Not all beneficial owners must register. A beneficial owner generally only needs to be registered if: they hold more than 25% of the shares or voting rights in an entity; can appoint a majority of its directors; or have some other significant influence or control over it (including through a trust or partnership structure). This is in line with the threshold for becoming a registrable beneficial owner under the existing people with significant control (PSC) regime for companies.

The register needs to be updated annually. Failure to register (or submitting false information) is a criminal offence and also prevents the entity from being able to buy or sell (or mortgage) UK property in future. A transfer of land by the overseas entity in breach of the registration requirement is a criminal offence committed by the entity and every responsible officer of it, punishable by a fine or up to five years’ imprisonment.

The requirement to register applies retrospectively to land bought on or after 1 January 1999 in England and Wales, and 8 December 2014 in Scotland. The Act, when first introduced as a Bill, gave overseas entities an 18-month transitional period to dispose (sell off) their land or register. In Northern Ireland the requirement to register only applies prospectively so there is no need for a transitional period.

Amendments to Part 1 during its passage through Parliament

11 amendments were made to Part 1 in the Commons (at Committee stage). These mainly:

• increased the maximum daily fine for committing certain criminal offences from £500 to £2500;
• required verification measures to be in place before the register can accept applications for registration; and
• reduced the transitional period from 18 to 6 months.

64 amendments were made to Part 1 in the Lords (at Report stage). These mainly:

• sought to ensure the requirement to register covered trusts that beneficially own or control overseas entities;
• required disclosure of whether the registrable owner is sanctioned in the UK;
• ensured that date of birth and residential address information is protected after people cease to be registrable beneficial owners;
• revised the threshold for the criminal offence of making false statements to the registrar under current section 32, so that statements didn’t need to be submitted knowingly or recklessly. Instead, the statement need only be misleading, false or deceptive without a reasonable excuse;
• required consultation with the devolved administrations before legislating further on devolved land law matters relating to the Act;
• required overseas entities that disposed of land between 28 February 2022 and the end of the transitional period to outline the details of that entity’s beneficial ownership at the time of the transfer;
• removed the ability of the Secretary of State to exempt an individual from the requirements to register their overseas entities on the grounds of the economic wellbeing of the UK;
• required “restrictions” to be registered at the Land Registry in England and Wales for land owned by overseas entities as soon as reasonably practicable, and in any event before the end of the transitional period; and
• inserted a new clause (current section 40) permitting HMRC to disclose information to allow the registrar and the Secretary of State to take action in connection with criminal offences under Part 1 of the Act.

Part 2: Unexplained Wealth Orders

Part 2 of the Bill (sections 45 to 53) seeks to strengthen the Unexplained Wealth Order (UWO) regime. It made four main changes:

• created a new category of people who can receive a UWO called “responsible officers” (such as directors) of an entity that owns property. This is to allow law enforcement to get information more easily from officers of legal entities thought to have control over property, even if they do not own it;
• created a new alternative test for granting a UWO. Previously, the court needed to be satisfied that there are reasonable grounds for suspecting that the known sources of someone’s lawful income would be insufficient to obtain the property. The Act added an alternative to this: that “there are reasonable grounds for suspecting that the property has been obtained through unlawful conduct”;
• when applying to the court for a UWO, the relevant enforcement authority might apply at the same time for an interim freezing order which would prohibit the person receiving the UWO from selling it. The Act allowed for the court to grant an additional 126 days to enforcement authorities to review (and take action on) material provided in response to a UWO, before the interim freezing order expires; and
• limited the liability of enforcement authorities to pay costs in legal proceedings relating to UWOs (or interim freezing orders).

Amendments to Part 2 during its passage through Parliament

During Commons Committee stage a new clause was inserted requiring the Secretary of State to lay an annual report before Parliament on the number of applications made, and UWOs granted, in England and Wales (currently section 51).

No amendments were made to Part 2 in the Lords.

Part 3: Sanctions

Part 3 (clauses 54 to 66), when originally introduced, sought to amend existing legislation on UK sanctions to:

• remove the requirement that people must have known or suspected they breached sanctions law to receive a monetary penalty for such breaches;
• remove the requirement that a minister must review penalties for breaches of sanctions law personally;
• allow the Treasury (the Office of Financial Sanctions Implementation) to publish notices on cases where it thinks a person has breached sanctions law but it has not (for whatever reason) imposed monetary penalties; and
• expand information-sharing powers relating to sanctions.

Amendments to Part 3 during its passage through Parliament

Ten amendments (including nine new clauses) were made to Part 3 in the Commons (at Committee stage). These mainly created a new Chapter 2 in Part 3 which:

• deleted section 2 of the Sanctions and Anti-Money Laundering Act 2018, which set out additional requirements when making sanctions for purposes other than compliance with a UN or international obligation (for example, the requirement to lay a report before Parliament explaining why sanctions are a reasonable course of action);
• created a new “urgent procedure” for sanctioning people by name or description, which can be used when the Minister considers it to be in the public interest, and relaxed some of the requirements under the “standard procedure”. These new procedures and requirements are also made available for already-existing sanctions;
• removed the requirement:
  • that a Minister can only sanction a ship when they consider it appropriate to do so, having regard to the purpose of the sanctions;
  • to review certain sanctions every three years, and report on sanctions reviews to Parliament every year; and
  • to report to Parliament on (i) the creation of criminal offences in sanctions regulations; (ii) what sanctions regulations have been made and whether any of them had a human rights purpose; or (iii) amendments to sanctions regulations; and
• removed the ability of a court to award damages for claims relating to sanctions where the Government has acted negligently.

No amendments were made to Part 3 in the Lords.

Where does the Act apply?

The Act’s measures apply across the UK. Certain parts of the Bill make different provision for different jurisdictions (catering, for example, for differences in land law between England and Wales, Scotland and Northern Ireland in Part 1) but the overriding policy objectives are similar across the UK. An annex to the explanatory notes summarises the territorial extent and application of the provisions in the United Kingdom.

A legislative consent motion (LCM) wasn’t required from the Welsh Parliament. An LCM was obtained from the Scottish Parliament but not from the Northern Ireland Assembly (although the UK Government said it consulted with and had the support of the Northern Ireland Government).

Commentary

Initial commentary

Leader of the Opposition, Keir Starmer, noted at Prime Minister’s Questions on 2 March 2022 that Labour intended to support the measures. The Royal United Services Institute (RUSI) and campaign group Spotlight on Corruption welcomed the Bill when introduced, but said it was long overdue.

Mr Starmer and Transparency International UK (TI) originally criticised Part 1 of the Bill for its 18-month transitional periods which they argued allowed too much time for people unwilling to register to sell their properties. (As described above, this was shortened to six months in the Commons). TI also criticised what they view as gaps in the legislation.

The Financial Times noted criticisms of the Government for omitting reforms of Companies House from the Bill, as well as for not providing more resource to tackle economic crime in the UK.

Post-passage commentary

A Government press release on 15 March said the Act would “mean the government can move more quickly to impose sanctions against oligarchs already designated by our allies, as well as intensifying our sanctions enforcement”.

RUSI said the legislation was welcome but that “bolder systemic reforms” were needed to deal with the UK’s “dirty money problem”, including more enforcement, and reform of Companies House and the regulation of “enablers” like lawyers and accountants that service “wealthy Russian oligarchs and kleptocrats”. Director of Policy at TI Duncan Hames said he was “delighted to see these much-needed reforms” but warned that “This law will however only be as good as its enforcement.”

Second Economic Crime Bill

The Government has committed to introduce a further economic crime bill in the upcoming (2022-23) parliamentary session. Home Secretary Priti Patel said it would be a “very substantial piece of legislation” including reform of Companies House and limited partnerships, powers to seize crypto-assets from criminals, and information sharing on money laundering.

Minister Paul Scully confirmed it would be introduced “early” in the session. At Lords Second reading Business Minister Lord Callanan committed that the upcoming Economic Crime Bill would be subject to full scrutiny (rather than also being fast-tracked), and would run to “something like 150 pages”.