Following Russia’s invasion of Ukraine, the UK joined the international community in condemning Vladimir Putin’s regime and in issuing an unprecedented package of severe economic sanctions. While its international actions have been swift and significant, the UK government has also announced that it will be taking major steps with domestic legislation to detect and prevent members of Russia’s elite – so-called ‘oligarchs’ – from misusing the economic system.
To that end, Prime Minister Boris Johnson has brought forward plans for the UK’s new Economic Crime Bill, in order to enable financial institutions and authorities to target Russian oligarch finances held in UK banks. Prime Minister Johnson said that the bill would ensure that President Putin and his supporters would have “nowhere to hide” their illegal money.
What is the Economic Crime Bill?
The Economic Crime (Transparency and Enforcement) Bill is a long-awaited legislative measure intended to target the anonymity of money launderers that exploit the UK’s financial system. Britain’s legal and financial community has urged the government to implement the Economic Crime Bill for years. First drafted in 2018, the bill was delayed as new priorities emerged: the invasion of Ukraine changed those priorities, prompting the UK government to fast-track the legislation, along with additional financial measures to follow in coming months.
The Economic Crime Bill was introduced into the UK’s Parliament on 1 March 2022. The new version of the bill contains the following legislative measures:
Overseas Entities Register
The Economic Crime Bill introduces a UK register of overseas entities that own property in the UK. The register will include information on the beneficial owners of those entities. UK companies are already required to provide beneficial ownership information to a register of People with Significant Control (PSC) and the new rules are intended to create parity for foreign entities.
The register will be retroactively applicable, extending to properties bought by foreign persons up to 20 years ago in England and Wales, and to properties bought since December 2014 in Scotland. Noncompliance with the regulations may result in fines of up to £500 per day, and prison sentences of up to 5 years.
Unexplained Wealth Orders
Unexplained Wealth Orders (UWO) require their targets to explain the source of their assets, including their properties, to the authorities. Where that explanation is unsatisfactory or inadequate, the authorities may assume the asset was obtained unlawfully, and confiscate it from its owner.
UWOs were introduced in the UK in January 2018 with the goal of addressing foreign criminals laundering money through property ownership. However, UWOs have proved difficult to enforce: only 9 UWOs have been issued since their introduction, with the most recent case ending in defeat for the UK’s National Crime Agency (NCA) at a cost of £1.5 million to the taxpayer. No UWOs have been issued since 2020.
The Economic Crime Bill has been designed to make UWOs easier to issue and enforce. Under the new rules, law enforcement authorities:
- Will have a longer period of time in which to review materials presented in response to a UWO.
- Will incur lower legal costs if an UWO prosecution is ultimately unsuccessful.
- Will be able to issue UWOs to the directors, officers, and trustees of a target asset, making it easier to address property ownership hidden behind foreign corporate structures.
The Economic Crime Bill also reforms the UK’s sanctions enforcement rules by introducing strict liability for noncompliance. Under the current system, the Office for Financial Sanctions Implementation (OFSI) can only prosecute sanctions breaches if it has ‘reasonable cause to suspect’ that the person involved knew they were breaking the rules. New measures in the Economic Crime Bill will introduce a ‘strict civil liability test’, enabling OFSI to impose financial penalties for sanctions breaches regardless of any awareness of wrongdoing.
The introduction of strict liability will make it easier for OFSI to impose fines, and punish sanctions noncompliance. The new rules will also allow OFSI to publicly release the names of organisations that breach sanctions but that do not receive a fine.
Economic Crime Bill: Compliance
Given the current escalation in sanctions activity against Russia and against Russian oligarchs and politicians, it is vital that firms stay ahead of their regulatory responsibilities. In practice, this means implementing an effective risk management process that enables fast, efficient client name matching.
Ripjar’s risk screening solution integrates next generation name-matching software to ensure you maximise true positive hits on global sanctions and watchlists, and minimise false positives, across a range of language systems and character sets. Powered by machine learning technology, our solution includes advanced adverse media monitoring tools capable of analysing a spectrum of news sources across 21 languages in order to ensure you are informed as soon as your client’s risk profile changes.
Give yourself the best opportunity to understand and mitigate risks early: speak to Ripjar about how our screening technology can deliver significant commercial advantages.