3 Things AML-KYC Professionals Need to Know About the UK Economic Crime Act of 2022

Erica Brackman, AML Product Marketing Manager
3 Things AML-KYC Professionals Need to Know About the UK Economic Crime Act of 2022

Understanding the impact of the UK Economic Crime (Transparency and Enforcement) Act of 2022 will help you keep your organization in compliance with the latest requirements. Players in the UK regulated sector are already assessing what this new legislation means and making changes to account for and comply with the new legislation. This blog will cover the basics of the new bill and the top three things AML-KYC professionals need to know about it.  

What is the Economic Crime Act of 2022?

The Economic Crime Act, also known as the Economic Crime (Transparency and Enforcement) Act of 2022, is a bill passed by the UK parliament. This act:

  • Requires foreign entities that own land to register their land in some circumstances.
  • Establishes a new public register of foreign entities and ultimate beneficial owners (UBOs) holding UK real estate.
  • Expands the scope of unexplained wealth orders – unexplained wealth orders are court orders requiring individuals to reveal all sources of any unexplained wealth.
  • Extends the UK Office of Financial Sanctions Implementation’s (OFSI) current sanctions enforcement powers.

When did the Economic Crime Act pass?

The bill was first introduced in the UK House of Commons on 1 March 2022. The bill passed through both UK parliamentary bodies, the House of Commons and the House of Lords, and was given royal assent on 15 March 2022.1 Royal assent is the formal process through which the Queen agrees to turn a bill into law. The speed at which this bill passed was unprecedented.

When does the Economic Crime Bill take effect?

The act came into force on 15 March 2022 following its royal assent.

What do FinCrime professionals need to know about the Economic Crime Act? 

Here are the top 3 things financial crime professionals need to know to comply with the Economic Crime Act and protect their organization:

Number 1: Any overseas entity that has purchased UK real estate in the past 22 years or will buy real estate in the future needs to register the UBOs of their properties

Gone are the days of trustees, nominee companies, and strawman owners purchasing high-end property without providing beneficial ownership information. With the implementation of the Economic Crime Act, all foreign entities owning real estate that was purchased after 1 January 1999 in England and Wales or 8 December 2014 in Scotland must now report the ultimate beneficial owner(s) of each property to Companies House. Companies House will establish a publicly-available overseas real estate ownership register, and entities must report their UBOs within the six months after the register is created or face a daily fine of up to £2500 until resolving the matter. They must also update this information annually. Owners are restricted from selling, transferring, or leasing their properties until they provide this information. They could be subject to criminal prosecution and imprisonment if found providing false or misleading information.

What this means for FIs: This new UBO information will serve as a vital data resource for Financial Crime monitoring, detection, and investigation.

FIs should consider taking the following actions to enhance their clients’ experiences while continuing to improve risk decision quality:

  • Put in place KYC processes to ensure new registration information is captured and used to update entity profiles and inform risk scores.
  • Employ entity resolution and network analysis to resolve any existing entity/UBO information with the new register and identify any connections between corporate customers and UBOs who have filed their interest in property ownership. This technology can also help identify discrepancies between current and publicly available records.
  • Reassess the risk of entities identified as owning UK property, factoring in the risk of any connected addresses and relationships specified on the new register.
  • Monitor for suspicious activity that could indicate illegitimate wealth has been used to purchase property or dubious relationships are present, reporting any suspicion to the UK FIU.

Number 2: Organizations are now liable for sanctions breaches for transactions to which they are a party, even where they had no knowledge or reasonable cause to suspect that a transaction violates sanctions.

The Economic Crime Act introduced ‘strict civil liability,’ which permits authorities to issue a monetary penalty to individuals or organizations for breaching sanctions without requiring the individual to know or suspect they breached sanctions. Previously, the Office of Financial Sanctions Implementation (OFSI) had to prove that an organization knew or had reasonable cause to suspect that a transaction was linked to a sanctioned entity/individual to impose a fine. The new bill also allows the treasury to legally publish names of entities that have breached sanctions even if they are not fined and expands sanctions-related information-sharing powers.

What this means for FIs: These new clauses make it easier for OFSI to fineentities involved in sanctions breaches, leading to increased potential monetary and reputational damage for financial institutions.

FIs should shift to an entity-centric approach to financial crime risk management and utilize the latest screening technology to maximize effectiveness and reduce the risk of breaching sanctions. Taking this approach, financial institutions will have a rich, centralized understanding of their entities and each entity’s relationship network. This focused entity-centric view, combined with the latest screening technology, ensures entities are correctly screened against relevant risks for accurate results.

Financial institutions can take several steps to progress toward achieving comprehensive, accurate screening using the entity-centric approach:

  • Enhance and enrich entity profiles with relevant risk information, using data intelligence from internal and external sources.
  • Rationalize, deduplicate, and consolidate views of each entity using entity resolution.
  • Analyze entity networks to discover who is related to who, identify hidden connections, ascertain who owns and controls corporate entities and uncover corporate structures. With network analytics, you’ll know which entities to screen against which risks.
  • Leverage machine learning and advanced analytics, including predictive analytics, to increase accuracy when screening, alerting on and investigating hits.
  • Connect your risk and compliance solutions so you can use screening hit dispositions to inform KYC/CDD solutions, update entity risk scores and profiles and always ensure optimized customer and payment screening with real-time record enrichment.

Number 3: Law Enforcement can now issue Unexplained Wealth Orders (UWOs) without fully understanding a property’s complete beneficial ownership structure

The ability to obtain a UWO in the UK was first introduced in the Criminal Finances Act 2017. To get a UWO issued, as initially introduced, law enforcement officers had to convince the court they have reasonable cause to believe said person holds the property. The burden of proof was then on the respondent to prove the source of their wealth. If they could not, they could have their assets seized by the authorities. Individuals looking to hide their identity would often impede law enforcement’s power to issue a UWO and freeze or seize any properties purchased using illicit funds by listing a property manager or strawman on the real estate registration instead of using their own information.

The Economic Crime Act of 2022 expands the scope of UWOs, allowing law enforcement to target controllers and other “responsible officers” of UK property and require them to prove the property was purchased with legitimate money. This law prevents individuals from hiding behind another individual or a corporate structure to safeguard their illegal assets. The new Economic Crime Act also allows enforcement authorities to temporarily freeze assets, preventing owners from selling a property after receiving a UWO. Additionally, the act expands the protection of law enforcement to protect them against legal challenges resulting from issuing a UWO, provided they follow due process.

What this means for FIs: The UWO changes are a catalyst for law enforcement and indicate that UWOs will increase over the coming few years. This means that compliance will be even more critical as law enforcement continues to investigate illicit wealth.

What FIs Should Keep in Mind: FIs should continue to ensure that action is taken to keep risk profiles up to date and account for and mitigate any changing risks, including continuously reporting any suspicious activity to the FIU. Maintaining these fundamental processes will minimize any potential reputational damage or legal action resulting from unknowingly facilitating the purchase of high-value assets with illicit wealth.

Conclusion

The Economic Crime (Transparency and Enforcement) Act significantly impacts transparency into UK property ownership and makes it easier for authorities to enforce sanctions and financial crime laws. Officials in the UK government have already committed to introducing a second Economic Crime Bill in the next year, further expanding UK legislation to help tackle financial crime. With increased transparency and enforcement comes an increased onus on financial institutions to fully understand who they are doing business with and the associated risks and ensure complete sanctions compliance. Check out this infographic to learn more about an Entity-Centric approach to AML-KYC and how it can help address a lot of the challenges presented by the new bill.

Sources

1 Economic Crime (Transparency and Enforcement) Act 2022 – Parliamentary Bills – UK Parliament

2 Economic Crime (Transparency and Enforcement) Act 2022 – House of Commons Library (parliament.uk)

 

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