Economic crime UK legislative reforms: impact for businesses

Of the proposals for legislative reform trailed in the UK Government’s progress statement on its economic crime plan, here are some highlights for large businesses.

Information sharing 

A consultation is underway to establish a new information sharing gateway to enable businesses to better share information and intelligence to prevent and detect more crime. It looks like this exercise will focus on information sharing between businesses in the same sector and between businesses and public authorities. The scheme is aimed at allowing businesses to better understand and mitigate financial crime risks (eg by preventing criminals who have been refused access to services on suspicion of financial crime from moving between different competitors in the same sector) and improving the quality of intelligence being provided to enforcement authorities. 

There is already some voluntary information sharing allowed between those in the regulated sector, for example under changes made to the Proceeds of Crime Act 2002 (POCA) by the Criminal Finances Act 2017 and also under the auspices of the Joint Money Laundering Intelligence Taskforce (JMLIT).  In May 2020 the UK Government issued its statement on information sharing within corporate groups.

It looks like this new gateway is intended to broaden information sharing particularly within the private sector.  Businesses will need to understand how the new gateway provisions will interact with their data privacy obligations and the disclosure provisions, and tipping-off and ‘prejudicing an investigation’ offences, under POCA.  Businesses will also likely want to see improved flows of information from the public sector to the private sector in order to fine tune their own money laundering systems and controls.

Timing: consultation due to be completed by Autumn 2021.

Review of the Money Laundering Regulations 2017

A consultation will seek views on how the UK’s regulatory and supervisory regimes can tackle money laundering and terrorist financing, while reducing unnecessary burdens on businesses. This will include a comparison of the UK’s existing legislative framework against the Financial Action Task Force’s international standards on money laundering and terrorist financing, and will consider new features in economic crime, such as the brokering of crypto assets and the role of social media in investment frauds.

Businesses within scope of the Money Laundering Regulations (MLRs) should be accustomed by now to the need to keep abreast of changes.  For example, over the past four years they have been amended as a result of the Fifth EU Money Laundering Directive to take into account evolving risks (eg by adding crypto asset exchange providers and custodian wallet providers into scope).  Brexit also necessitated a raft of largely minor changes.  This review is likely to propose further updating, and will likely also keep any changes at an EU level in mind, motivated by equivalency considerations. The Money Laundering Regulations 2017 have never been more front of mind for the regulated sector, with the FCA and HMRC having both imposed hefty penalties on businesses for breaches, and recent news of the first FCA prosecution of a bank. Businesses in scope (or those that may come into scope) of the MLRs will need to be nimble footed to keep up with regulatory expectations.

Timing: review due to start ‘shortly’.

Suspicious Activity Reports (SARs) reform

The reform of the SARs reporting regime has been widely trailed, but the progress statement refers to a new feature: an exemption for ‘ineffective DAML reporting’. There is no further detail on this, but the label perhaps suggests that an 'ineffective' DAML would not be a defence to money laundering.  If this is the case, it would not be surprising given the government’s aim of ensuring the SARs regime provides useful intelligence.  However, businesses would need clarity over when this exemption might apply.

On the confidentiality of SARs, the statement merely states that the Home Office continues to consult with its law enforcement and private sector partners to develop guidance in relation to the confidentiality of SARs in civil litigation. This is an area of interest particularly for those in the regulated sector. In 2018 a bank was ordered to disclose a SAR to a customer in civil litigation.

Timing: legislative proposals due autumn 2021.

Prevention of market listing on national security grounds

The government has announced its intention to bring forward the introduction of a power to block stock market listings on national security grounds. The move is intended to stem the flow of dirty money through the London stock markets, and has been called for by MPs and analysts since the 2017 listing of EN+. The consultation has now concluded and the Treasury are due to set out the details of the proposals imminently. This will be of intense interest to potential listing targets and their advisors, who may find themselves in the cross-hairs of geopolitics.

Timing:  publication of consultation was due early 2021.

Strengthening corporate transparency

The government published its consultation response on Companies House Reform last September. Aimed at tackling abuse of UK corporate structures and improving the accuracy of information held about companies, proposed reforms include introducing digital identity checks on directors, presenters and persons of significant control, and greater powers for the Registrar of Companies to query information and share it with other agencies. The government is also considering taking forward a ban on corporate directors. 

Timing: update due September 2021.

There was nothing in the progress statement on corporate criminal liability nor changes to the market abuse regime. The progress statement merely notes that the FCA’s internal review on the criminal market abuse regime is currently being reviewed by a QC. The Law Commission is currently looking into corporate criminal liability.

Comment

The private sector is forefront in the UK Government’s fight against economic crime. Post-Brexit, and post-Covid, the government is keen to promote Global Britain as a safe and clean place to do business. Economic crime does not fit well into that brand proposition.

The UK Government’s legislative agenda relies on increased collaboration with the private sector in order to fund and strengthen the UK’s response to economic crime. The Treasury is seeking to raise approximately GBP100 million per year from entities regulated for AML purposes to fund anti-money laundering capabilities (an ‘Economic Crime Levy’). At the same time, many of the reforms will inevitably add to the administrative (and therefore cost) burden on the regulated sector.

There is recognition in the statement of progress that the private sector needs to be supported to better understand and manage financial crime risks. The majority of the proposals are set to be finalised by the end of the year, by which time there will inevitably be new challenges for large businesses in respect of economic crime as the UK emerges from lockdown and adjusts to a new way of life.

Adapting to stricter AML requirements, keeping abreast of changes to corporate criminal liability and navigating geopolitics were three of nine key challenges for in house counsel that were identified in the 2021 Allen & Overy Cross-border White Collar Crime and Investigations Review.