The author of this article argues that regardless of how the geopolitical landscape changes in the coming months, one thing is certain: foreign owners of UK property are under the world’s microscope.
Unsurprisingly in view of Russia’s invasion of Ukraine in late February, governments have slapped sanctions on Russian oligarchs and others tied to the Putin regime; there have been other actions including removing Russia from the international banking network, SWIFT. These and other measures mean that private client advisors, wealth managers and others who serve high net worth and ultra-HNW clients have to be on their toes. As one lawyer told this news service recently, some private client lawyers in London have large numbers of Russian clients; banks will also be busy working out which clients they must let go and whether any can be kept on board.
To discuss the recent set of UK legislation on financial crime is Ben Ticehurst, director, government investigations and white collar practice, at law firm Squire Patton Boggs, in London. The editors are pleased to share these views and invite replies. The usual editorial disclaimers apply. Email firstname.lastname@example.org
The UK government has breathed new life into the Economic Crime (Transparency and Enforcement) Bill in light of the recent Russia-Ukraine conflict. While some have criticised that the legislation as a bit too late, particularly given that the bill has been sitting on the shelf for the better part of five years, legislation to crack down on dirty money in the UK has been introduced into UK law as of 15 March 2022.
The new legislation is intended to help the National Crime Agency (NCA) prevent foreign owners from laundering their money through UK properties and penalise corrupt oligarchs with Unexplained Wealth Orders (UWO). Under the Economic Crime (Transparency and Enforcement) Act foreign owners of UK property will be required, within the next six months, to reveal their real identities to the Land Registry, making it extraordinarily difficult for criminals to hide behind secretive chains of shell companies. The UK government is hopeful that these measures will set a new, global standard for transparency and minimise the ability to shroud ill begotten money in real property. Entities and foundations who do not declare their ‘beneficial owner(s)’ by 15 September 2022 will face restrictions when selling their property, and those who fail to comply with the new rules could face up to five years in a UK prison.
Business Secretary Kwasi Kwarteng stated:
"The new register will shine a light on who owns what in the UK so we can flush out the oligarchs, criminals and kleptocrats who think they can use UK property to hide their illicitly obtained wealth."
Under the reforms being added to UWOs, those who hold property in the UK in a trust will be brought within the scope and the definition of an asset’s ‘holder’ has also been expanded to minimise the use of opaque shell companies and foundations that conceal true ownership. The reforms also remove perceived barriers for law enforcement to leverage UWOs by increasing the allotted time for review of material provided in response to a UWO. Further, the reforms protect law enforcement agencies from incurring substantial legal costs if they bring a case that is ultimately unsuccessful. The most recent of the four UWO cases (Baker) ended in June 2020 with a defeat for the NCA and legal expenses in the region of £1.5 million. No UWOs have been issued since. The new reforms may very well mitigate the risk of such large, adverse costs orders hitting law enforcement if a UWO application is unsuccessful.
The UK will also intensify sanctions enforcement with more wide-ranging ‘strict civil liability tests’ for monetary penalties, letting go of the previous standards requiring firms to have knowledge or ‘reasonable cause to suspect’ sanctions are being breached. This change will make it easier for the Office for Financial Sanctions Implementation (OFSI) to impose significant fines on bad actors. In addition, OFSI will be able to publicly name organisations that have breached financial sanctions but have not received a fine. Breaching UK sanctions is a criminal offence that carries a maximum sentence of seven years’ imprisonment or a fine (the greater of £1 million or 50 per cent of the estimated value of the funds or resources) or both.
The Register of Overseas Entities will apply retrospectively to property bought by foreign owners up to 20 years ago in England and Wales, and since December 2014 in Scotland. It will be held by Companies House, with support from the UK’s Land Registries. In order to make all this effective there are plans to upgrade Companies House, which is likely to mean:
• anyone setting up, running, owning or
controlling a company in the UK will need to verify their
identity with Companies House
• Companies House will be given the power to challenge the information that appears dubious, and will be empowered to inform security agencies of potential wrongdoing
• company agents from overseas will no longer be able to create companies in the UK on behalf of foreign criminals or secretive oligarchs
• the quality of information provided by companies to Companies House will be improved, so that the thousands of small companies who rely on it to make business decisions can have a better understanding of whom they are doing business
• filing processes for small businesses will be streamlined and digitalised
• company directors will be able to protect personal information published by Companies House more effectively, reducing the personal risk of fraud or other harm
The reform of Companies House will create part of further legislation to be introduced in the coming months via a further Economic Crime Bill, which is set to clamp down on illicit finance and improve corporate transparency.
This will also include:
• new powers for Companies House to seize crypto assets and bring them within the scope of civil forfeiture powers – with the aim of tackling the threat from ransomware and the use of crypto assets in money laundering
• strengthened anti-money laundering powers for Companies House to give businesses more confidence to share information on suspected money laundering and other economic crimes
• reforms for Companies House to bear down on the use of limited partnerships as vehicles for facilitating international money laundering (including illicit finance) and illegal arms movements.
Separately, a new ‘Kleptocracy’ cell based in the National Crime Agency, has been set up to investigate sanctions evasion.
In the short term, this new Act and the apparent motivation by the UK government to tackle dirty money will inevitably see an increase of enforcement actions arising out of the recent Russian sanctions and assets freezes. Whether UK law enforcement agencies will be given enough resources to tackle these complex and labour-intensive investigations in the longer term remains to be seen.
Regardless of how the geopolitical landscape changes in the coming months, one thing is certain: foreign owners of UK property are under the world’s microscope. Only time will tell as to the efficacy of these new regulatory powers and protections behind the UK government and whether foreign owners will provide the transparency UK authorities now desire.