What is the Bill trying to do? 

The government has recognized for several years that the lack of transparency about property ownership in the UK has made it easy for corrupt individuals to launder money through the UK. But promised reforms have been repeatedly delayed.  

The war in Ukraine has hugely increased the urgency of these measures in order to tackle illicit flows of Russian money through the UK and to strengthen the UK’s ability to enforce sanctions against individuals. [1So the government has decided to expedite some of the planned reforms, bringing forward this first bill ahead of a second economic crime bill planned for later this year. 

There are three main aspects to the bill. [2]

  • The first is to increase transparency of who owns property in Britain. The aim is to make it harder for foreign criminals to launder money through UK property markets by preventing them from hiding their identities behind shell companies. 
  • The second aspect is the strengthening of authorities’ powers to confiscate unlawfully obtained wealth. The aim is to expand the scope of existing legislation and tackle some of the barriers that have in practice discouraged law enforcement agencies from pursuing cases. 
  • The third is to make it easier to prosecute people for breaching sanctions. 

What is the timetable for passing the bill? 

The bill had its first reading on Tuesday 1 March 2022. The remaining Commons stages for passing the bill are scheduled for Monday 7 March. It is very unusual for a bill to be rushed through so quickly.  

Why has it taken so long to be introduced to parliament? 

Concerns about the lack of transparency about property ownership in the UK and the way that this contributed to economic crime has been recognized by the government for several years, [3] with parliament’s intelligence and security committee highlighting the UK’s openness to Russian investment, which offers “ideal mechanisms by which illicit finance could be recycled through what has been referred to as the London ‘laundromat’”.  

A register of overseas entities was first proposed in a draft bill in 2018. [4An initial consultation was launched in 2019, [5followed by three follow-up consultations that closed in February 2021. [6But the government did not publish its response to these consultations – or table any legislation to tackle economic crime – until 28 February 2022, after Russia had invaded Ukraine. [7As recently as mid-January, the government rejected the idea of bringing an economic crime bill forward in the next parliamentary session. [8] 

John Penrose, the government’s anti-corruption champion, said the bill has “been one of those unglamorous bits of economic and crime-fighting plumbing…There’s always been something that has been more urgent, including Brexit and the pandemic. But everyone gets the fact that this is important and right in principle.” [9]

But external experts have been more critical of the government’s failure to clamp down on money laundering. Tom Keatinge, director of the Centre for Financial Crime and Security Studies at the defence think tank the Royal United Services Institute (RUSI), said on 28 February: 

“The past week has dramatically revealed the significant role the UK plays in global money laundering and the vulnerabilities this dirty money creates for the UK. That it has taken a crisis such as the invasion of Ukraine to bring these issues – the product of decades of complicit neglect – to the government’s attention is a disgrace…Much-needed legislation has been consigned to the graveyard of ‘when parliamentary time allows’.” [10]

What exactly will it do? 

Register of overseas entities 

The bill establishes a new register of foreign owners of UK property, which will be held by Companies House. The register will cover all property bought in England and Wales since 1 January 1999, in Scotland since 8 December 2014, and in Northern Ireland from the date that this bill comes into force. These dates were chosen because they are the earliest dates on which the land registrars in each country started to collect information about ownership by overseas entities for every registration. [11]

Anonymous foreign owners of property in the UK will be required to reveal their true identities, bringing the rules for foreign property owners in line with those for property owned by UK companies. [12] Property owning overseas entities will be required to reveal who their ‘beneficial owners’ are and this information will have to be verified by Companies House. A beneficial owner is defined as someone who owns more than 25 per cent of the shares or voting rights, the right to appoint or remove directors or otherwise exert significant control over the company. 

Overseas entities will be given 18 months from the date the act comes into force to register their beneficial owners. Failure to do so – or providing false information – will be punishable by a fine or up to two years in prison.  

Entities must update their records every year and will be fined up to £500 per day that they are in contravention. 

Entities that fail to reveal their beneficial owner will be prevented from selling the property. If an entity did sell a property under these circumstances, it would be liable to a fine and/or up to five years in prison for the company’s officers. 

Unexplained wealth orders 

The bill also strengthens the UK’s existing regime of unexplained wealth orders. UWOs are used against politically exposed people or those suspected of being connected to serious crime and whose assets seem disproportionate to their income, allowing law enforcement agencies to demand an explanation for how assets worth more than £50,000 were paid for. A UWO is not a power to recover assets. But any response from a UWO can be used in subsequent civil recovery proceedings. 

The bill expands the scope of UWOs by ensuring that property held via complex ownership structures or trusts can be included.  

UWOs have been in operation since January 2018 but only nine have so far been granted, in relation to four separate cases. [13The new reforms seek to remove some of the barriers that have stood in the way of more extensive use of UWOs. First, the bill increases the time available to law enforcement agencies to review any material provided in response to a UWO, from X days to X days. Second, the bill seeks to protect law enforcement agencies from risking substantial legal costs in the event of an unsuccessful application for a UWO by reforming cost rules. Under the new rules, law enforcement agencies would not be required to meet respondents costs as long as the law enforcement agencies can demonstrate they behaved reasonably and honestly. 

Enforcement of sanctions 

The bill also introduces new measures to make it easier to sanction people for breaching sanctions. Until now, in order to impose a monetary penalty, authorities have had to demonstrate not only that the person has breached the sanctions but also that they knew – or had a ‘reasonable cause to suspect’ – that sanctions were being breached. This latter condition is to be removed.  

This is intended to make it easier for the Office for Financial Sanctions Implementation (OFSI) to impose significant fines. The office will also be able to name publicly organisations that have breached financial sanctions, even if they have not received a fine. 

Does it go far enough? 

Several concerns have been raised about the detail of the bill, some of which MPs are seeking to address through amendments. 

18-month grace period for registering beneficial ownership 

The draft bill suggests that overseas entities should be given 18 months to register details of their beneficial ownership. This has been strongly criticised by transparency campaigners and by the opposition Labour party, who have pointed out that this runs the risk of huge capital flight before the authorities can identify the owners of assets.[14]

Members of the Labour front bench have tabled an amendment to the bill to cut this to 28 days.[15]

Low level of fines  

There has also been criticism that the size of fines proposed will do little to deter the extremely wealthy people that are the target of this legislation. 

Labour MPs have tabled an amendment to include fines that would escalate the longer an entity was in breach of the regulations. 

Ability to claim a company has no beneficial owner 

The bill risks leaving open the possibility that companies that hold UK property could continue to hide the true owner by claiming that they have no beneficial owner. This is already a common problem with the UK’s register of UK-owned companies.  

Scottish National Party MPs have tabled two amendments to try to tackle this. The first extends the definition of beneficial ownership to cover those holding at least 10% of shares, rather than 25%. The second requires the registrar of companies to seek further information about any companies that claim to have no beneficial owners. 

Loopholes remain 

There are concerns that the legislation will allow individuals to hide their ownership of companies through nominee agreements with professional services firms. Such agreements could allow the true owners to claim that the company was instead controlled by a nominated law firm or property management company, meaning that firm would be named on the register rather than the true owner. [16]

Transparency International has also raised concern about the 1,892 property titles that were last purchased by overseas companies before January 1999 and so would be exempt from having to declare their owners. They have called for all overseas companies that own UK property to be required to declare their beneficial ownership information.  

Are there any other problems? 

Companies House still needs overhauling  

The effectiveness of the new register of overseas entities relies on Companies House having the ability to verify the information provided and hold companies to account for providing false information. But there have long been concerns about the quality of information held by Companies House. Critics have noted that without strengthening the organisation – expanding its powers of inquiry and resources to investigate and remove false information, and requiring mandatory identity checks on those incorporating companies, on company directors and on those who ultimately control companies – the new register could have little impact.  

The government has been promising to strengthen the organisation for a long time. A consultation was launched in May 2019, promising robust new rules. [17] But nothing has been done since to implement them. The government has now published a white paper on its plans to upgrade Companies House, which they intend to legislate for in a second economic crime bill later this year. [18]

Transparency International said, “We strongly recommend that the Government bring forward promised legislation at the earliest opportunity to empower Companies House with the powers to introduce verification checks and to query, investigate and remove false information.” 

The Labour front bench have tabled an amendment to the bill which would require the information submitted to the register to be verified before the entity is formally added to the register. [19]

Lack of resource for enforcement 

Experts have also raised concerns that the provisions in the new bill will make little difference unless authorities are provided with additional resource to enforce them, noting that the UK already has strong tools to target illicit funds but law enforcement agencies have struggled to make full use of them because of resourcing issues. 

Susan Hawley, executive director of Spotlight on Corruption, a transparency campaign group, told the Financial Times that “Without addressing the serious issues that law enforcement face from shrinking budgets, decrepit IT systems, to continually losing staff to the private sector, the new legislation won’t make any difference at all.” [20]

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  1. https://www.politico.eu/article/united-kingdom-money-laundering-corruption-pressure-john-penrose/  
  2. https://www.gov.uk/government/news/government-takes-landmark-steps-to-further-clamp-down-on-dirty-money?utm_medium=email&utm_cam…
  3.  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/816215/2019-22_Economic_Crime_Pl…
  4. https://www.lawgazette.co.uk/news/economic-crime-bill-to-surface-after-four-year-wait/5111667.article 
  5. https://www.gov.uk/government/consultations/corporate-transparency-and-register-reform 
  6.  https://www.gov.uk/government/consultations/corporate-transparency-and-register-reform-improving-the-quality-and-value-of-financ…
  7. https://www.gov.uk/government/publications/corporate-transparency-and-register-reform  
  8. https://www.ft.com/content/e7973f2e-32c2-4cab-9b12-13add89f8891 
  9. https://www.politico.eu/article/united-kingdom-money-laundering-corruption-pressure-john-penrose/ 
  10. https://www.rusi.org/explore-our-research/publications/commentary/dont-expect-sanctions-fix-uks-systemic-illicit-finance-problems 
  11. https://publications.parliament.uk/pa/jt201719/jtselect/jtovsent/358/35809.htm#footnote-041 
  12.  https://www.gov.uk/government/publications/economic-crime-transparency-and-enforcement-bill-2022-overarching-documents/factsheet…
  13. https://researchbriefings.files.parliament.uk/documents/CBP-9098/CBP-9098.pdf; https://www.gov.uk/government/publications/econo…
  14. https://www.transparency.org.uk/economic-crime-bill-analysis-property-register-overseas-entities  
  15. https://publications.parliament.uk/pa/bills/cbill/58-02/0262/amend/economic_rm_cwh_0304.pdf 
  16. https://www.ft.com/content/7522fe69-f8a7-480c-bd4c-af5f7a266165 
  17.  https://www.ft.com/content/6fd92a72-e457-4d32-a5a5-c44ec2b76e20 
  18.  https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1058537/corporate-transparency-w…
  19. See page 5 of https://publications.parliament.uk/pa/bills/cbill/58-02/0262/amend/economic_rm_cwh_0303.pdf 
  20. https://www.ft.com/content/7522fe69-f8a7-480c-bd4c-af5f7a266165 
Update date: 
Friday, March 4, 2022

Original source – The Institute for Government

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