United Kingdom: UK government targets money laundering with a new economic crime bill

Significant proposals tabled to reform Companies House and improve transparency of ownership

In brief

Last week, the government sought to reinforce its commitment to curbing money laundering in the UK by introducing the Economic Crime and Corporate Transparency Bill. The draft bill represents a substantial overhaul to Companies House, which, if implemented, will affect how all companies, partnerships and limited partnerships are established. It is the second piece of legislation targeting economic crime following the Economic Crime (Transparency and Enforcement) Act 2022 (ECA), which was introduced in March this year.

• Key facts from the ECA.
• A summary of the new bill’s main clauses.
• Steps you can take to prepare for the changes.

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Contents

1. The ECA
2. The Economic Crime and Corporate Transparency Bill
3. Key provisions
4. What’s next and what can you do?

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The ECA

The ECA was enacted on 15 March 2022 to address the use of corporate structures in the UK to commit economic crimes. In particular, the legislation aims to deter international criminals from using companies and property investments in the UK as a vehicle for money laundering. It primarily focuses on two areas of economic crime prevention:

1. The creation of a Register of Overseas Entities that requires any overseas entity to identify and register their beneficial owners (generally an individual holding more than 25% of the shares/voting rights).
2. Unexplained Wealth Orders (UWO):
   • Creating an alternative test for granting a UWO, i.e., “there are reasonable grounds for suspecting that the property has been obtained through unlawful conduct”.
   • Limiting the liability of enforcement authorities to pay costs in legal proceedings relating to UWOs.

The Economic Crime and Corporate Transparency Bill

The proposed legislation intends to complement the ECA. The bill represents the most substantial reforms to Companies House since its inception by granting the registrar wide-reaching investigative and enforcement powers. The reforms aim to make Companies House a more effective overseer of companies and registered entities.

Key provisions

• An identity-verification process, which would also apply retroactively, for all company directors, secretaries, people with significant control and anyone delivering information to the registrar.
• Increased control over information listed on the register, including the ability to reject or remove information.
• Enhanced powers to verify data with public and private third parties, and to co-operate and share information with law enforcement bodies if suspicious filings or behaviour is detected.
• New exemptions from principal money-laundering offences that reduce reporting requirements for businesses conducting transactions on behalf of customers.
• The ability to recover and seize suspected criminal cryptoassets.
• Improved oversight of limited partnerships with a verification process. Partnerships will also need to maintain a UK connection and failing either requirement can result in de-registration. 
• New pre-investigation powers for the Serious Fraud Office, meaning their investigative powers can be utilised before a formal investigation is opened in relation to any potential criminal offence that would fall within their remit, not limited to bribery and corruption.
• New information sharing measures enabling businesses (in certain circumstances) to directly share information with other businesses to tackle economic crime.

What’s next and what can you do?

Companies House is a significant gatekeeper for new and existing companies, and it has arguably been a missing piece in law enforcement’s bid to grapple with economic crime. The proposed legislation could transform Companies House from an information depository into an agency capable of monitoring and identifying economic crime at a much earlier stage. Critics have expressed disappointment that the bill does not seek to amend the law in respect of corporate criminal liability, by introducing a “failure to prevent” offence for fraud and money laundering, but the bill does reinforce the government’s commitment to eradicate money laundering and protect the UK economy. 

Now is a good time to take stock and reflect on how any measures under the ECA and the proposed bill might affect your business and how best to safeguard UK-based investments. Early considerations might include:

• Conducting an audit to review all information filed at Companies House and ensuring registers are accurate.
• Ensuring partnerships and limited partnerships are properly registered within or in connection to the UK.
• Reviewing or amending due diligence processes to comply with proposed obligations to identify and verify relevant parties (of UK and overseas entities) and manage their information.
• Establishing internal processes to identify and manage how your company might share third-party information to combat economic crime, which is also compliant with data protection obligations.
• Considering any time or resource constraints required to implement any new and proposed obligations.

Related content: United Kingdom: Economic Crime (Transparency and Enforcement) Act 2022 – Real estate implications for overseas entities