What accountants should know about the new Economic Crime Act

The new Economic Crime (Transparency and Enforcement) Act creates a new property register to tackle illicit wealth.

What changes does the legislation bring about?

The new Act should mean the UK can move more quickly to impose sanctions against oligarchs already designated by our allies. It includes reforms to Unexplained Wealth Orders (UWOs), but the key aspect of the new legislation is the introduction of a new Register of Overseas Entities, requiring those behind foreign companies which own UK property to reveal their identities.

This legislation had been promised by Government for several years, “when Parliamentary time allows” but the Ukrainian conflict concentrated the Government’s mind. It was passed within an extraordinarily short period of time. Instead of months for initiation, debate and scrutiny, all three Parliamentary readings were squeezed into a single day.

What does the Register of Overseas Entities mean?

Entities who refuse to reveal their ‘beneficial owner’ will face restrictions on selling the property and anyone caught breaking the rules can be fined up to £2,500 per day or face up to 5 years in prison.

Companies House have already started work to implement the register as quickly as possible, working closely with the UK’s 3 land registries. It’s important to note that any foreign company selling properties between 28 February 2022 and the full implementation of the register will also be required to submit their details at the point of sale.

Last week Treasury Minister John Glen MP wrote to all accountancy professional bodies urging them to ensure its regulated members are aware of the risk of criminals seeking to evade the requirements of the new Register and we urge accountants to ensure they take note and report any suspicious activity.

Will the Register of Overseas Entities be effective?

AAT believes that the legislation is a step in the right direction and will improve the situation. However, loopholes mean it is not nearly as effective as it could have been.

Whilst the legislation was implemented rapidly, it’s an issue that has been discussed in great detail in recent years so could hardly be considered new or territory that Government was not well versed in tackling. As such, this new Act represents a missed opportunity to take more meaningful action.

For example, instead of requiring the disclosure of the ultimate beneficial owner of the property it simply requires the disclosure of the beneficial owner of the overseas entity that, in turn, owns the property. This will not always be the same and therefore creates an opportunity for some individuals to escape registration. So, the much highlighted problem of multi-layered and opaque corporate structures will largely continue and further legislation is going to be essential to combat this.

There are other areas where changes do not appear to have gone far enough. For instance, the deadline for overseas companies holding UK property has been reduced from 18 months to 6 months. 18 months was clearly too long but is 6 months really necessary? A 30 day requirement, or 60 at most, would appear perfectly reasonable for legitimate organisations whilst acting as a stronger deterrent for those seeking to hide their wealth.

Wider issues

The legislation also does nothing to stop oligarchs or other criminals from hiding wealth in any of the UK’s overseas territories. Whilst the tax havens of Jersey, Guernsey and the Isle of Man have finally agreed to set up a public register of company owners, this will not take effect until the end 2023 at the earliest, providing a further 18 months for those hiding wealth to squirrel their wealth away to other havens.

The Government has said the Economic Crime Act is just one part of a wider package of legislative proposals to tackle illicit finance which will be introduced in Parliament in the coming months, including reforming Companies House and introducing new powers to seize crypto assets more easily. Let’s hope that this renewed focus on tackling illicit finance will also see the Economic Crime Bill revisited and strengthened.

Phil Hall is AAT's Head of Public Affairs and Public Policy.