The Economic Crime (Transparency and Enforcement) Act 2022

By Gonzalo Butori, Partner, Giambrone & Partners LLP

The United Kingdom is recognised as an advantageous place to conduct global business and is among the world’s largest open economies. The other side to this is, unfortunately, that it also attracts disreputable organisations that aim to carry out dubious practices. Both the UK Government and commercial enterprises encourage and welcome the regulatory changes to strengthen the UK’s reputation as a market where genuine legitimate business can thrive.

There is a determination to attempt to close down a range of global economic and financial fraud, such as fraudulent ‘shell’ companies, money laundering and phoenix trading (or phoenixing), perpetrated by criminals registering commercial entities at Companies House to create the appearance of legitimacy.

This was initially prompted by Financial Action Task Force (FATF), also known as Groupe d’action financière formed in 1989 to develop international policies to oppose money laundering and latterly terrorism financing. The FATF identified the UK, in its ongoing reporting on anti-money laundering and counterterrorist financing measures, as a country that had an existing framework suitable for monitoring and preventing corporate entities embarking on illegal practices. It was further recognised by the Government that overseas entities operating in the United Kingdom presented an increasing hazard as long ago as 2016, regrettably the Bill introducing the Economic Crime (Transparency and Enforcement) Act was delayed and it was only when hostilities broke out in Eastern Europe that the Bill progressed into law.

One of the first measures taken to control the problematic and questionable actions practiced by some dubious overseas entities and to deter individuals and organisations that seek to launder the proceeds of their criminal activity through an entity in the United Kingdom was the enactment of the Economic Crime (Transparency and Enforcement) Act 2022.

On this Gonzalo Butori, comments, “the arrival of the new Act completely altered the nature and responsibilities of Companies House from simply recording and making information available, to a regulatory organisation with a significant role to ensure the entities entered on the register are legal, accurate and most importantly compliant with all laws governing their financial dealings across the globe”.

The Act ushers in some significant changes in the regulatory landscape for foreign businesses. The major aspects of the new Act are:

• The creation of a register of all overseas entities aiming to own or lease land in the United Kingdom with an obligation to name who are the beneficial owners of the land and who controls the entity.

• The requirement to accurately maintain the information held on the register and inform the Registrar of any changes.

• Amendments to the Unexplained Wealth laws

• Amendments to the legislation on United Kingdom sanctions

The new registry will be created and controlled by Companies House and will be known as the Register of Overseas Entities. Verification takes the form of photo identity which must be consistent with any other identifying documents. Failure to register and be verified at the end of the requisite period is an offence which will attract a penalty, additionally, a company directed by an unverified director will also be committing a further offence and may be penalised.

Companies House will, in future, play a major role in preventing the abuse and will be fundamental to the control of white-collar financial crime. The new act significantly alters the role of Companies House from simply passively storing information on commercial entities, to that of a custodian of reliable data with enhanced powers to oblige companies to provide evidence of the delivery of documents, as well as rejecting documents if deemed to be inconsistent with previously held information. Should inconsistencies be noted it will result in the managing officers facing sanctions in the shape of financial penalties and restrictions when trying to sell or lease their land and also the removal of material from the Companies House register.

There is a facility to pre-register, this will enable Companies House to reject documents, with valid reasons. The entity then has 14 days to respond, with the opportunity to re-submit once a query has been dealt with. Failure to respond or providing an ineffective response could provoke sanctions. The Registrar is tasked with maintaining the integrity of the Register and in some instances, should the removal of information be considered it could involve the Court.

Once an overseas entity discloses ownership of land in the United Kingdom together with a list of the beneficial owners it will then be issued with an overseas entity ID and informed of the obligation to accurately update the registry upon any changes. Only the beneficial owners owning 25% of the shares with the capacity to remove or appoint company directors and significant control of the entity, together with voting rights, need to be registered. There are slight variations to these requirements in Wales, Scotland and Northern Ireland reflecting slightly differing law relating to land but the overarching objectives remains the same.

Among the new powers granted to the Registrar in order to prevent or detect crime is the ability to analyse the existing information held, together with wider powers related to data sharing with various law enforcement and other regulatory bodies. Companies House will be able to meet the costs of the enhanced investigative actions through the fees levied by Companies House. Also, the Registrar will gain the power to inflict financial penalties on those entities that contravene the provisions of the Companies Act 2006.

The Secretary of State will hold the power to alter the thresholds currently required for registration and in limited circumstances, such as a concern involving national security or the belief that an exemption will deter or discover serious criminal activity, will also be able to exempt an individual who satisfies the current criteria for beneficial ownership without reference to Parliament.

The implementation of the new measures demonstrates a determined effort to root out the white collar criminal activities such as money laundering and adds to the existing law. The obligation to maintain the accurate up-to-date records of overseas entities is paramount, failure to maintain such information will incur sanctions.

Gonzalo has acted in a wide range of international and domestic commercial disputes. He has experience dealing with complex, high-value cross-border litigation.

He has particular proficiency with regard to dispute resolution and represents claimants and defendants in all jurisdictions on civil and commercial matters and regularly appears at mediation and arbitration hearings. He has acted as co-advocate in international commercial disputes under ICC rules as well as in other Alternative Dispute Resolution (ADR) proceedings.

Gonzalo is recognised for his pragmatic approach and solution-based strategies as well as his robust capacity when pursuing his clients’ best interests. When heavy disclosure in foreign languages is required, he develops and delivers technical solutions to ease the cost burden for clients.

He has assisted in a number of crossborder transactions involving various EU jurisdictions and achieved successful results. He also specialises in the conflict of laws and jurisdiction.

Gonzalo regularly advises international clients in connection with family and inheritance-related cross-border matters. Throughout his experience, he has dealt with high-value and complex matters both contested and non-contested which have given him valuable exposure and experience.

Gonzalo also leads the Latin America LATAM Desk in London where he assists companies and individuals with interests in the United Kingdom in a wide range of matters from commercial contract disputes to advisory work for businesses wanting to enter new markets. He also assists in the development of the Porto office in Portugal.

In addition to being admitted to practise in England & Wales as a Registered Foreign Lawyer (RFL), Gonzalo is admitted in to practice as an Abogado, a Spanishqualified lawyer in Spain, as well as Avvocato Stabilito in Italy and divides his time between the London, Barcelona and Naples offices.

About the author Gonzalo Butori is a partner with Giambrone & Partners LLP based in the London office.

Giambrone & Partners LLP is a Platinum member of the ABCC.