The UK is flush with Russian cash, with the nature in which this money was obtained being corrupt. Indeed, the National Crime Agency has estimated that at least £100 billion of laundered capital floods through the UK each year.
In April 2022, after being rushed through the Commons, the UK finally passed the Economic Crime (Transparency and Enforcement) Act 2022, a piece of legislation designed to tackle the UK’s dirty money problem. The bill, which struggled for years to get the support needed to pass into law, was moved up the government’s priority list due to the war in Ukraine.
Boris Johnson said the bill would put those backing Putin ” on notice ” by targeting Russian oligarchs and kleptocrats using the City of London as a conduit for illegal funds. Johnson added that there “will be nowhere to hide” ill-gotten gains.
But what will the bill actually do, and what does this mean for law firms in the UK? Primarily, the legislation aims to expose wealthy Russians to proper scrutiny. It does this by:
1. Forcing foreign owners of UK companies to declare and verify their identities in a beneficial ownership register
Of course, companies should already have been declaring beneficial ownership on the government’s Companies House register. But with limited statutory measures in place to check the accuracy of the information, it has not been difficult to get around this requirement.
2. Strengthening unexplained wealth orders (UWOs)
A UWO requires a Politically Exposed Person (PEP), someone suspected of being involved in a serious crime or someone connected to a person involved in a serious crime, to explain where their assets came from if they appear disproportionate to their lawfully obtained income. But UWOs are drastically underused (they have been used in just four cases, with just one resulting in the recovery of assets). The reforms remove the key barriers to using UWOs by giving law enforcement more time to review the material provided in response to an order and protecting them from incurring substantial legal costs following an adverse ruling.
3. Making it easier for UK authorities to sanction individuals already punished by allies
The bill gives the UK emergency powers to sanction people already sanctioned by allies – such as the US or EU – while making its case. This change responds to criticism that the UK has been too slow to penalise Putin sympathisers during the crisis.
Law firms play a crucial role in ensuring the bill is a success.
Of course, the need for anti-money laundering (AML) checks is not new. Law firms have already established responsibilities for establishing the source of funds and client identities. But under the new provisions, solicitors must declare who ultimately benefits from any property purchase in a public register held by Companies House. The requirements also apply to any property bought by overseas owners up to 20 years ago (England and Wales). If the solicitor cannot identify the beneficial owner, the owner will be unable to sell, lease or mortgage it. So the asset will effectively be frozen.
The government hopes the new requirements will make it impossible to hide illicit finance in the UK property market. And, now that the Economic Crime Bill has been introduced, any solicitor found guilty of breaking the rules could face up to five years in prison.
The Solicitors Regulations Authority (SRA), Council for Licensed Conveyancers (CLC) and the Financial Conduct Authority (FCA) have all issued guidance to help solicitors dealing with those already on the sanctions lists. The Law Society has welcomed the measures, and law firms must ensure robust AML checks or risk severe penalties. For many, that includes investing in new compliance tools. For example, Minerva’s government-grade liveness test and NFC chip reading help firms adhere to KYC, AML, and Safe Harbour requirements.
Will the bill be a success? Time will tell. The Law Society has already called for even stronger measures, and the legislation is not without its critics. Oliver Bullough, author of Butler to the World: How Britain Became the Servant of Tycoons, Tax Dodgers, Kleptocrats and Criminals, has set out several ways oligarchs could avoid the provisions of the bill (both legally and illegally). In addition, calls for a second economic crime bill to tackle loopholes are already being made. But it is undoubtedly a step in the right direction.