In context: Economic Crime Act 2022

The UK Government’s Economic Crime Bill, which creates new powers for dealing with oligarchs, was enacted last month after being fast-tracked through parliament in response to Russia’s invasion of Ukraine.

The government said the new law will make it easier to “tackle corrupt elites” and crack down on “Putin’s cronies”, but not everyone is convinced it will be enough to achieve that.

What has the legislation been designed to do?

The purpose of the act is to crack down on the wealthy Russians who have used the UK as a place in which to clean their ‘dirty money’. The provisions for achieving this are threefold: by setting up a register of overseas entities and their beneficial owners; by making provision about unexplained wealth orders; and by making provision about sanctions.

The foreign ownership register requires overseas entities that own or want to own property in the UK to identify their beneficial owner and to register them with Companies House. The information supplied will be verified and must be updated on an annual basis. 

That section of the act is designed to stamp out money laundering, which can be hidden through the use of complex offshore business structures as they allow the ultimate beneficiary to remain either anonymous or obscured.

Unexplained wealth orders, which were first created in 2017, give the courts powers to force people to explain the sources of their wealth. They have been seen as largely ineffective up to now because prosecuting authorities such as the National Crime Agency are exposed to significant financial risks if the orders are challenged.

The act addresses this by stating that, if a case fails, the authority would only have to pay the other side’s legal fees if it had acted unreasonably or dishonestly.

It also gives the National Crime Agency more time to prepare cases and allows investigators to target people who manage properties within complicated offshore arrangements, even if they are not the ultimate beneficiary.

In terms of sanctions, the act has introduced a “strict civil liability” test for fines, meaning that businesses will face liability even if they have no knowledge or reasonable cause to suspect that a transaction they were involved in involved dirty money. It is designed to make it easier for fines to be imposed.

How effective is it likely to be?

Given the speed at which it was introduced, it is to be expected that there may be some gaps in the legislation.

The Law Society of England and Wales has pointed out that, while the act “now gives investigators a greater ability to shine a light on who the beneficial owner of a UK property is”, further improvements are needed.

Ongoing reforms of Companies House, for example, need to be completed. There are currently no mandatory identity checks on directors listed on the official company register, yet false data is given some degree of credibility simply by being included on the list. It is not clear when the reforms, which were announced in 2020, will complete.

It is also clear that wealthy individuals can take advantage of other legal routes to get round the new legislation. Last week the oligarch Alisher Usmanov, who is thought to be worth around £15bn, claimed that he avoided sanctions by putting his UK properties into a trust controlled by his family.

Usmanov, a former shareholder in Arsenal Football Club, has been linked to at least six properties in the UK including a London home valued at many millions of pounds and a mansion in Surrey.

Though Usmanov had been placed on the sanctions list, transferring his properties into an irrevocable trust — which, as its name suggests, cannot be altered once created — means he no longer owns them and so the assets cannot be frozen as a consequence of being linked to him.

What are people saying about it?

Both MPs and MSPs gave their support to the bill, easing its passage through parliament.
Though Labour MP Chris Bryant said the legislation “should have been in place before this whole saga, not after”, Prime Minister Boris Johnson said the act would “strengthen now the package that we have, strengthen the measures we have against potential ill-gotten Russian money”.

Scottish Justice Secretary Keith Brown said the Scottish Government “fully supports the application of sanctions against Russia” due to the invasion of Ukraine and will “continue to do all we can to support the UK Government in this regard”.

Donald Cameron of the Scottish Conservatives said he agreed to the bill being enacted because “we believe there is a clear urgency to put the measures contained within the Economic Crime Bill into effect”.

However, defence and security think tank the Royal United Services Institute said the act should be seen as “a starting point, not an end”, warning that “without bolder systemic reforms it will have little impact on the UK’s dirty money problem”.