In the wake of Russia's invasion of Ukraine, the UK government has brought forward legislation that aims to crack down on foreign owners laundering dirty money through UK property and make it easier for law enforcement agencies to use Unexplained Wealth Orders (UWOs). UWOs enable law enforcement to confiscate criminal assets without ever having to prove that the property was obtained from criminal activity.
On 1 March 2022, Parliament introduced the Economic Crime (Transparency and Enforcement) Bill, which creates a new public register that aims to increase the transparency of the identities of foreign owners of UK property and cease the practice of individuals hiding behind shell companies. The bill also reforms the rules governing UWOs, which allow for the confiscation of assets, unless the individual can prove that the asset was not obtained from criminal activities. The proposed reforms expand the scope of foreign persons that can be targeted by law enforcement agencies and remove cost and time barriers to the enforcement of UWOs.
The key provisions of the Economic Crime (Transparency and Enforcement) Bill are:
- A ‘register of overseas entities' containing details of all beneficial owners of each entity will be created. Entities will be required to identify beneficial owners prior to applying for registration and will be subject to an ongoing duty to update the register with any changes.
- The UK Secretary of State will have the power to compel any overseas entity to apply for registration if that entity is registered as the owner of property within the UK. The entity will have six months to comply with such an order.
- Failing to make an application for registration when required, providing false information in an application, or failing to comply with the duty to update the register would be an offence by (i) the entity itself and (ii) every officer of the entity. Penalties for committing an offence under the bill include imprisonment and fines.
- The reach of and procedure for law enforcement agencies to seek
UWOs will be reformed by
(i) extending the scope of the UWO to cover individuals that hold property in the UK through trusts and (ii) expanding the definition of a holder of an asset to cover assets held through corporate shell companies.
- The bill introduced increased time limits for authorities to respond to information received from respondents facing potential UWOs and, more importantly, restricts the award of a cost order against a law enforcement agency to cases where the agency acted “unreasonably” in bringing the proceedings or acted “dishonestly or improperly” in the course of the proceedings. This is a significant step as the threat of a large adverse costs order has been thought to be a reason why there have only been a limited number of UWOs pursued by the authorities since their introduction in 2018.
Originally planned for the 2023–24 parliamentary session, the bill has been accelerated as a result of Russia's military action in Ukraine and the subsequent financial sanctions imposed by the UK government on Russian individuals and entities. The bill also comes at a time when the UK government is facing wide criticisms that London, in particular, has become a ‘haven' or ‘laundromat' for illicit financing. However, it is important to the note that the bill is not specifically targeted toward Russian-related individuals and the measures ultimately introduced will have a broader effect in the UK's fight against anti-corruption more generally.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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