The Economic Crime (Transparency and Enforcement) Act 2022

The UK continues to drive forward legislative change to increase transparency of ownership in the market and legislate in respect of financial crime and the ability of the government to confiscate the proceeds of crime.

The Economic Crime (Transparency and Enforcement) Act 2022 (ECA), which came into force on 15 March 2022 (subject to certain provisions not being operative at commencement), has three main features:

1. the creation of a register of overseas entities and their beneficial owners;
2. amendments to unexplained wealth orders (UWOs); and
3. amendments to and strengthening of sanctions legislation.

The amendments to the sanctions legislation which received little public fanfare compared to the register of overseas entities, in particular, are especially pertinent in the current global political environment, reflected by the significant financial sanctions in place in response to Russian aggression in Ukraine. These amendments are particularly relevant to international trading companies. 

Register of overseas entities

The ECA establishes a new register of overseas entities and requires legal entities governed by the law of a country/territory outside the UK to register their interest if they own land or wish to acquire or dispose of land in the UK in certain circumstances. These overseas entities are now required to provide information about their beneficial owners. If any person makes a false, misleading, or deceptive statement to the registrar, they commit a criminal offence liable, on summary conviction, to a fine; and if that person makes the false, misleading, or deceptive statement knowingly, they are liable, on conviction on indictment, to imprisonment for a term not exceeding two years and/or a fine.   

Unexplained wealth orders

An UWO is effectively a means of confiscating the proceeds of crime using civil powers rather than a criminal confiscation order. The concept was established by the Criminal Finances Act 2017. Where the target of an UWO is not an individual, the ECA extends the scope of these orders by introducing the concept of a “responsible officer”. The responsible officer is effectively any director, manager or other officer, member (in respect of a partnership) or any individual under whose directions the directors/board are accustomed to act. The ECA also restricts the circumstances in which a respondent can recover costs against the prosecuting authority to those where the authority acted unreasonably, dishonestly, or improperly.

Sanctions

Prior to the ECA, the Office of Financial Sanctions Implementation (OFSI) could only impose a civil fine on a person (individual or company) for breaches of financial sanctions legislation if it was satisfied, on the balance of probabilities, that:

1. The person had breached a prohibition, or failed to comply with an obligation, that was imposed by or under financial sanctions legislation; and
2. The person knew, or had reasonable cause to suspect, that they were in breach of the prohibition or had failed to comply with the obligation.

The ECA removes the second limb of the test so that a person’s knowledge or awareness of a breach or failure to comply becomes irrelevant.  In fact, the ECA states “whether a person has breached a prohibition, or failed to comply with an obligation, imposed by or under financial sanctions legislation, any requirement imposed by or under that legislation for the person to have known, suspected or believed any matter is to be ignored.” This means that OFSI will be able to impose fines even if the person is unaware that they have breached financial sanctions legislation, effectively making breaches of financial sanctions a strict liability offence. Further, the previous requirement for Ministerial review prior to the introduction of a fine has been removed.  However, OFSI will still have to demonstrate consent, connivance, or neglect in order to fine an officer of the company.

The ECA also gives OFSI the power to publicly name organisations that they believe, on the balance of probabilities, have breached financial sanctions even where it has decided not to impose a penalty (akin to a public rebuke in the context of financial regulation). In addition, the Act gives government departments and relevant bodies permission to share information proactively with HM Treasury to facilitate OFSI’s enforcement efforts.

The introduction of what is now effectively a strict liability offence for any breach of financial sanctions legislation (namely providing funds or economic resources to or for the benefit of a designated person, i.e., a person subject to financial sanctions) requires all international trading companies to conduct full and thorough due diligence on counterparties, end users and intermediaries. This can often be difficult in jurisdictions with opaque corporate registration and beneficial ownership information and raises challenging questions when it comes to assessing the extent of measures required to satisfy oneself of the legality of any prospective trade.