Last week saw the implementation of the U.K.’s long-awaited “Register of Overseas Entities,” a cornerstone of the government’s Economic Crime Act. But what is “economic crime” and why has the U.K. been moved to legislate against it?
In February, as countries around the world began sanctioning Russia and its oligarchs, the U.K. government moved to bolster its ability to track illicit funds and prevent money laundering.
As one of the world’s biggest financial centers, it’s no surprise that London attracts a variety of criminals looking to hide their transactions among the mass of legitimate ones. As a result, over the years the country has put various legal mechanisms in place in an attempt to stem the flow of dark money.
Yet despite these efforts, successive governments have failed to patch several widely acknowledged weak points in the U.K.’s anti-money laundering (AML) armor.
That being said, two acts have been tabled in Parliament this year that seek to address perceived loopholes in the country’s fight against money laundering, fraud and financial corruption. The acts bring together a number of changes to the existing legal framework under the banner of fighting economic crime.
Read more: FIs Need Collaboration and Technology to Win AML War
The first of those acts, the Economic Crime (Transparency and Enforcement) Act, has now been passed into law. The second upcoming piece of legislation, the Economic Crime and Corporate Transparency Bill, dubbed the Economic Crime Bill 2.0, was included in the Queens’ speech in May but wasn’t passed through parliament in time for the summer recess.
The Economic Crime (Transparency and Enforcement) Act
The first economic crime bill focuses mainly on property ownership, recognizing that at the highest levels, layers of secrecy and foreign-owned companies allow individuals to bypass sanctions against them by hiding the true ownership of property in the U.K.
The new bill sets out rules for the registration of any “overseas entity” that owns or attempts to buy property in the U.K. Any overseas entity that owns property in the U.K., now has to register the identity of the beneficial owners of that overseas entity at Companies House and keep that register updated. Failure to do so is a criminal offense.
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The effect of the new register, which came into force last week, is to limit the ability of people to own property through secretive offshore shell companies, a practice that has been widely associated with money laundering and tax evasion.
While the Economic Crime Act has been lauded as a long-overdue intervention in the battle against money laundering, it has little to say about other ways that illegitimate funds are moved through the U.K.’s economy. To tackle those, the government has proposed a second economic crime bill.
Round Two: Reform at Companies House and Data Sharing
Companies House is the body responsible for overseeing the registration of businesses in the U.K.
As things stand, registering a business in the U.K. requires very little authentication compared to opening a bank account, leaving the system open to exploitation.
In the Queen’s speech in May, the government listed the main elements of the second economic crime bill, including proposed reforms to Companies House.
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Following the new law, Companies House will become “a more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the Company Register.”
Alongside reforms to the process of registering companies, one potentially game-changing effect of the new bill was breezed over in the Queen’s Speech, which gave few clues as to the details of any changes to the law.
As the speech stated, the legislation will “enable businesses in the financial sector to share information more effectively to prevent and detect economic crime.”
While financial institutions will have to wait until the act is passed by Parliament before they find out exactly what kind of data-sharing mandates it includes, the ramifications for AML could potentially be huge.
Once details emerge, financial institutions will need to put the necessary data-sharing measures in place, and in all likelihood, AML-tech providers will step up to provide the infrastructure needed to do so.
More on this: 5 EU Startups Making Waves in the AML Technology Space
Already, innovative solutions available on the market promise to help banks, regulators and law enforcement agencies better share information about suspicious transactions and actors. But the field is still in its infancy and legislation is needed to support the implementation of schemes like Salv’s AML Bridge, an encrypted data-sharing platform that has been piloted in Estonia, as PYMNTS reported.
Read more: Estonia’s Small but Thriving Startup Ecosystem Offers Big Tech No Special Treatment
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