On 14 March 2022, the Economic Crime (Transparency and Enforcement) Act 2022 (“the Act”) was passed into law. The Act is part of a long term effort by the government to better monitor the operation of “overseas entities” who hold property in the UK but has recently been accelerated into law by the war in Ukraine.
It can be broken down into three parts:
- The creation of a register for overseas entities,
- New provisions regarding Unexplained Wealth Orders,
- Sweeping changes to the operation of sanctions in financial crimes.
The most significant change made by the new Act is a reform to the operation of sanctions against entities which breach the financial crimes regulations. The Act changes the test for when the Office of Financial Sanctions Implementation (OFSI) can impose penalties for financial sanctions breaches. It is crucial that entities of all sizes get to grips with the new tests as the Act makes it easier to be in breach and increases the penalties of doing so. OFSI’s monetary penalty powers are wide ranging and will be engaged as long as there is some (even a fairly limited) connection to the UK.
The focus of the Act is on streamlining processes that create monetary penalties against those in breach of financial sanctions. creating an urgent procedure which effectively confers upon the Government the ability to mirror sanctions designations of close allies even without evidence of breach. This should help to ensure a more co-ordinated approach to sanctions/designations among the UK, USA, EU and other allies and has already been utilised against hundreds of Russian individuals and entities.
Significantly, for those not likely to face sanctions regarding the war in Ukraine, the Act amends s146 of the Policing and Crime Act 2017. Generally this section creates a power to fine a person where they have breached the financial sanction legislation and knew or had reason to suspect that they were in breach. The new Act removes the requirement that a person in breach knew, or had reasonable cause to suspect, that they were in breach of a sanctions prohibition or obligation. In other words, OFSI will now be able to impose penalties even where the person in breach had no idea they were breaching financial sanctions legislation. OFSI will still need to prove on the balance of probabilities that there was a breach, however this new liability has potentially far-reaching consequences for every business and its officers, not just for Russian oligarchs and money launderers.
Further, the Act gives OFSI the power to publish the details of entities or persons who breach sanctions (committed after 15 June 2022), including the value of the transaction in breach and the monetary penalty. OFSI may choose to publish a breach even where no monetary penalty has been issued. This could do significant reputational damage particularly to businesses who rely on consumer trust for sales.
Additionally, the Act raises the maximum penalty OFSI can impose to £1 million, or 50% of the estimated value of the breach, whichever is higher. The £20.47 million fine issued to Standard Chartered Bank in 2020 illustrates the possible size of penalties.
Other parts of the legislation may also have significant ramifications for some entities. The creation of a register of overseas entities, including information about their beneficial owners and additional registration requirements if they own land will be onerous for some. For the purposes of the Act an overseas entity is an legal entity governed by the law of a country or territory outside of the UK meaning that it will also have a wide impact on foreign entities operating domestically. There are criminal and financial penalties imposed for failing to diligently investigate and register entities appropriately so those with concerns about the requirements should ensure they comply promptly.
The Home Secretary has promised that a second “follow-on” bill “with further measures” is being drafted to “prevent the abuse of limited partnerships” and give the Government “new powers to seize crypto assets from criminals” and we may see this following soon.
For further information on this topic or on any other legal area, please contact John Szepietowski or Kay Stewart at Audley Chaucer Solicitors on 01372 303444 or email admin@audleychaucer.com or visit our Linkedin page.
Gregory Horne
September 2022
