The UK’s new economic crime bill – the Economic Crime (Transparency and Enforcement) Act  or ECA – was recently rushed through because of the Russian invasion of Ukraine but what is the economic crime bill and what has it been passed to do?

What is the new economic crime bill?

In very broad terms, the ECA has been passed to make life more difficult for anyone trying to hide wealth in the UK, particularly if they are from overseas and they are attempting to hide their wealth in property.

Under the Act, a register of overseas entities will be set up.  This will list the ultimate – or ‘beneficial’ – owners of any UK property or land bought by overseas individuals or companies.  According the Bill the ‘Registrable Beneficial Owner’ would be an individual who indirectly or directly:

• Holds over 25 percent of shares or voting rights of the entity
• Holds the right to appoint or remove a majority of the directors of an entity
• Has the right to exercise, or exercises, “significant influence or control” over an entity

The register will be updated annually and legally obliges a company to confirm who really owns the asset and if that information isn’t forthcoming, the company will be charged with a criminal offence which could lead to a sentence of up to five years in jail.

At this stage it’s difficult to gauge how effective the economic crime bill will be. 

Although the Act is now in force, owners have a 6 month ‘grace period’ to register.  This gives them more than enough time to sell or transfer any property or land which could put them under scrutiny.

The quality of the records kept on UK companies – particularly the shell companies often used to hold high value properties – has also been called into question.  This could further delay the collection of the records that would be needed to effectively enforce the collection of information for the register.

However, the bill’s powers are not limited to property ownership.  It will also help the government tackle unexplained wealth orders and force those suspected of acquiring their wealth through illegal means to explain where their wealth came from.

There are also provisions in the bill that will make it easier for ministers to sanction individuals, particularly by removing the need for those being targeted to know or suspect they have breached sanctions law.

The bill has come in in tandem with plans to tighten the registration rules at Companies House.  Labour has insisted these include more stringent identity checks for directors, but this is not likely to to happen.  The government has however pledged to push ahead with  separate proposals on how to collate and maintain company records.

How has the Economic Crime (Transparency and Enforcement) Act  been received?

Although the Bill has largely been supported by all parties in Parliament, many MPs are unhappy about what they perceive as loopholes that could allow foreign property owners to delay or circumvent meeting the transparency requirements.

Some MPs have even requested exemptions from disclosure should be scrapped if they are not in the best interests of the UK economy. 

Many MPs have also said the deadlines for revealing the identity of owners should be shortened and owners should have to reveal their identity if they are selling or transferring an asset during the six-month grace period.  These suggestions will be considered before the legislation reaches the Lords.

How will the ECA affect cryptocurrency?

Although this Bill doesn’t directly tackle the question the sale of cryptocurrency, it is widely expected the UK will introduce another set of legislation later in the year to give authorities the power to seize digital assets and address cryptocurrency related fraud and money laundering.

As cryptocurrency remains unregulated the UK courts are having to address more and more cryptocurrency related cases, most specifically those involving cryptocurrency fraud using existing common law which is less than ideal.

With cryptocurrency and other digital assets like NFTs growing in popularity, it is more important than ever that specific legislation is introduced to meet the unique demands of cryptocurrency so that crypto can be owned and traded safely and fraudsters can be dealt with effectively.

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