Today (Tuesday, 15 March 2022), the UK parliament passed the Economic Crime (Transparency and Enforcement) Act (the Act). Royal assent was granted as parliament sat into the early hours of the morning to ensure the fast-tracked measures became law.
- The legislation, which has been repeatedly delayed since its inception six years ago, has received renewed focus since the Russian invasion of Ukraine and was expedited through both Houses of Parliament.
- Following debate, the final version of the legislation includes tougher measures than set out in the draft Bill.
- The UK government is now expected to announce further sanctions against Russia.
- Ministers have committed to the rapid implementation of the new measures and will provide a progress update within six weeks.
The Act introduces new measures which cover:
- the creation of a register of overseas ownership in UK land and property, which requires the registration of the ultimate beneficial owners;
- reforms to the unexplained wealth orders (UWOs) regime, which will make it easier for enforcement authorities to issue UWOs to individuals or legal persons who are suspected of having criminal links; and
- lowering the liability threshold for the imposition of civil monetary penalties for breaching financial sanctions to strict liability, as well as introducing the power to ‘name and shame’ companies that have breached sanctions, regardless of whether or not they have been fined.
See our recent client alert on the rapidly developing sanction regimes with respect to Russia.
Register of Overseas Entities
In an attempt to increase transparency over property ownership within the UK, the Act introduces a requirement for overseas owners of UK property to register their identities with Companies House, the UK’s registrar of companies.
Identification will act as a deterrent to those seeking to launder the proceeds of crime in land in the UK. Business Secretary Kwasi Kwarteng said “Our new Register of Overseas Entities, the first of its kind in the world, will have an immediate dissuasive effect on oligarchs attempting to hide their ill-gotten gains, ensuring that the UK is a place for legitimate business only.”
Overseas entities will be required to take reasonable steps to identify any ‘registrable beneficial owners’ in relation to the entity, i.e., individuals who have significant control over the entity, for example by holding 25 per cent or more of the voting rights or having the right to appoint or remove a majority of directors.
The register will apply to all property purchases made within the last 20 years in England and Wales (and since December 2014 in Scotland). Entities that refuse to reveal their beneficial owner will face tough restrictions on selling the property and those that break the rules could face a fine of up to £2,500 per day or up to five years in prison. All parties proposed an amendment to increase the daily default fine from £500.
The draft legislation had allowed owners 18 months to register their properties; however, following debate, the government reduced the grace period to six months. Critics, including the Labour party, had pressed for a further reduction to 28 days, but the government pushed back on a further reduction, citing fears that a short transition period risked opening the new register up to legal challenge. Instead, a new disclosure requirement has been introduced which compels any overseas entity selling UK property between 28 February 2022 and the full implementation of the register to provide information about its beneficial ownership. The opposition parties also called to remove the ability of the secretary of state to exempt an individual from the requirement to register their overseas entities on the grounds of the economic wellbeing of the United Kingdom, closing what the Liberal Democrats described as a major ‘oligarch loophole’. The government conceded to this amendment, which ultimately expedited the passage of the legislation through parliament.