The government has announced amendments to the Economic Crimes (Transparency and Law Enforcement) Bill in a bid to “crack down on corrupt elites and increase pressure on Putin’s regime”. It comes as the Law Society announced its support for the bill on Monday, offering its help to make it as effective as possible.
The bill, designed to tackle Russian ‘dirty money’ laundered in the UK property market, will create a register on which all foreign owners of UK property will have to declare their true beneficial ownership and verify their identity with Companies House .
The Solicitors Regulations Authority (SRA), the Council for Licensed Conveyancers (CLC) and the Financial Conduct Authority (FCA) have all issued guidance for lawyers as they deal with Russian entities in light of sanctions current, with the SRA updating its guidelines as recently as Monday.
It is hoped that this bill will make it easier for lawyers to know who they are dealing with when carrying out anti-money laundering (AML) transactions and checks, helping them to comply with sanctions and their responsibilities, and to avoid associated risks.
Prime Minister Boris Johnson hopes the amendments will allow the government to act “faster and tougher” with its sanctions against people and companies linked to the Kremlin. The new arrangements are intended to allow the UK to “align more quickly with individual designations imposed by our allies such as the US, Canada and the EU via an urgent designation procedure”.
The “relevance” criterion for designations will also be removed, allowing the government to act more decisively.
Changes to shorten the time for foreign companies to register their beneficial owner from 18 to 6 months have also been introduced. The government hopes this will ‘help tackle money laundering through UK ownership’, adding that it will ‘give people who hold their property in overseas entities for legitimate reasons the necessary time to comply with the new requirements’ .
Criminal penalties for non-compliance have also been increased from £500 per day to £2,500 per day. Other penalties include prison terms of up to five years and heavier financial penalties.
Boris Johnson noted:
“Our message to Putin and his cronies has been clear from day one: invading Ukraine would have severe and crippling consequences. We have been true to our word, introducing the broadest and toughest sanctions package in our history, but we are not stopping there.
The changes we are making will allow us to go faster and harder against those closest to Putin, including the oligarchs, as we continue to press against unlawful and unprovoked Russian aggression.
An amendment committing the government to publish an annual report on the use of the Unexplained Wealth Ordinances (UWO) will also be tabled.
The bill received a positive response, and that continued on Monday as the Law Society offered its strong support, offering to ‘play its part in closing loopholes in the government’s new Economic Crimes Bill ” with the aim of improving transparency and uncovering potential. criminal activity.
President of the Bar, I. Stephanie Boyce noted:
“We welcome the introduction of the Economic Crimes Bill and support the government’s aim to improve transparency of land ownership in the UK and the creation of a new register for foreign entities.”
Boyce continued, suggesting that implementing the bill will be critical to its success:
“We support the bill’s goal of uncovering potential crime in a way that minimizes any unnecessary burden on legitimate business activity, although its success depends on how it is implemented.
For it to succeed, businesses must be helped to understand how the powers within it can be used. »
The president of the Bar also pointed out that the bill “can be made stronger”, offering the support of the Bar to make it as effective as possible:
“We believe, however, that the bill can be stronger. We have identified several possible unforeseen challenges in the bill, which could lead to malicious actors exploiting potential loopholes in land, real estate and business ownership.
The Law Society is keen to offer its expertise to help strengthen the bill and remove any potential loopholes that could be exploited by unscrupulous actors.
Beneficial interest registers are not an entirely new concept in the UK, which has or intends to have registers for three different types of assets: companies, property and land, and trusts. The corporate beneficial ownership register – the register of people with significant control – has been publicly available since 2016, although concerns have been raised about its accuracy. The Register of Trust Beneficiaries was introduced in 2017, but is not yet publicly available.
The government has long considered launching a public register of beneficial owners for UK properties – it has been running since 2016 and was included in the 2019 Queen’s Speech. The Economic Crimes Bill will not only help the government to fight against Russian “dirty money”, but will also ensure transparency and play an important role in the fight against corruption, tax evasion and money laundering on a larger scale.
The Financial Action Task Force (FATF), of which the UK is a member, has announced similar requirements for its member countries, formally amending its recommendation 24 after a two-year consultation process. This will require member countries to collect beneficial ownership information and make it public.
According to the FATF, its recent assessments of several jurisdictions show “a generally insufficient level of effectiveness in combating the misuse of legal persons for the purpose of money laundering and terrorist financing on a global scale”. They say the new rules will “significantly strengthen beneficial ownership transparency requirements globally, while retaining flexibility for individual countries to go further in fine-tuning individual regimes.”
Other measures included in their recommendation include obtaining information held by regulators, exchanges, regulated financial institutions and professionals. They also introduced stricter regulations and transparency requirements for bearer shares and nominee agreements.
The FATF decision was welcomed by Transparency International, which says the tougher standard “comes at a critical time” as the world reacts to Russia’s invasion of Ukraine. Along the same lines as the Law Society’s comments on the Economic Crimes Bill, Transparency however questioned the vagueness of the wording of the FATF amendments, calling on the working group to go further to guarantee accuracy.
Maíra Martini, AML expert at Transparency International, noted:
“The international community is realizing the urgent need to counter kleptocracy much more vigorously than ever. If countries had created beneficial ownership registers years ago – as many governments had promised to do – Russian kleptocrats would have had a much harder time getting their dirty money across borders.
Company ownership information will be key to tracking the assets of kleptocrats currently facing sanctions. Transparency International will continue to advocate to close the remaining gaps, but if countries can quickly implement the new normal, the world will have a much better chance of cracking down on dirty money from Russia and around the world.