Economic Crime and Corporate Transparency Bill – criminal law aspects

As part of its ongoing legislative strategy to crack down on economic and financial crime, the Government has published its Economic Crime and Corporate Transparency Bill (the Bill).

This is a significant piece of legislation, running to 250 pages, including what the Government calls ‘historic’ reforms of Companies House, enhancements to regulators’ powers and industry information-sharing that will directly impact firms in the financial sector, anti-money laundering practices and enforcement against crypto involved in illicit activities. The Bill follows on from the Economic Crime (Transparency and Enforcement) Act from March of this year, which introduced (among other things) the register of overseas entities, strict liability for breaches of financial sanctions and enhancements to the ‘Unexplained Wealth Order’ regime (see our article here).

Given the importance of this wide-ranging bill, we have published a two-part series of articles covering the key proposals. This article focuses on the criminal law aspects of the Bill. We have published a separate article here dealing with the corporate aspects, including the proposed reforms to Companies House and limited partnerships. All provisions of the Bill are related, however, in that they share the common aim of tackling economic crime.

Enhanced powers for regulators and law enforcement

The Bill proposes a range of substantial new or expanded powers for regulators and law enforcement. These proposals have been generally welcomed by the relevant authorities, but there are serious questions marks as to whether they will have a significant impact on efforts to counter economic crime without additional resources for law enforcement. In July, the Government asked the SFO and NCA to cut their budgets by up to 40%. By way of contrast, the Labour Party has recently said that it would explore new funding models, including to allow the SFO to keep more of the proceeds from successful cases to fund future investigations.

SFO’s pre-investigative powers

The Bill would expand the SFO’s powers to compel witnesses to answer questions and the production of documents before a formal investigation has been opened.

Currently the SFO’s pre-investigation powers, under s.2A of the Criminal Justice Act 1987, apply only to cases of suspected overseas bribery and corruption. When s.2A was introduced in 2008, the aim was to address the particular challenges faced by the SFO in obtaining sufficient evidence in foreign corruption cases to launch a viable investigation. The Bill now envisages extending these powers to all cases of serious or complex fraud, bribery and corruption within the SFO’s remit.

This proposal has, unsurprisingly, been praised by the SFO as a “welcome step … in the challenging fight against fraud, bribery and corruption”. Successive Directors of the SFO have been calling for such a change for the past decade, arguing that it would give the SFO better access to evidence on all cases at the intelligence stage and expedite decisions as to whether to open a formal investigation. It is of note that the Government has granted the SFO this significant additional power at a time of increased supervision by the Attorney General and may be seen as a sign of the Government’s support for the office and recognition of its value.

If the proposal becomes law, however, corporates, financial institutions, technology companies and the like should expect to be on the receiving end of a higher volume of potentially wide-ranging and early-stage requests to provide information.

National Crime Agency

The Bill provides for an easier route for the NCA to obtain information. The NCA is, pursuant to the Criminal Finances Act 2017, able to make use of ‘Information Orders’ on firms, but only once that firm had submitted a suspicious activity report (SAR). The Bill gives the NCA the power to make an Information Order before a SAR has been submitted.

Regulators of the legal profession

The UK Government and prosecuting authorities have highlighted for a number of years that they aim to crack down on “enablers” of economic crime in the legal profession. The Bill seeks to further this aim in two ways.

First, the Solicitors’ Regulation Authority (SRA) would have the power to impose unlimited fines on solicitors and law firms for disciplinary matters relating to economic crime. This would remove the current cap of £25,000 on SRA fines and bring the SRA in line with other regulators (such as the Financial Conduct Authority) which have the power to issue unlimited financial penalties.

Second, the UK legal profession and its regulators will have a new express obligation to promote the prevention and detection of economic crime. The aim is to promote more effective enforcement action by regulators in economic crime cases.

Organisations representing the legal profession have been quick to voice their concerns around these elements of the bill, as might be expected. The Law Society has said that it is “extremely concerned” about allowing the SRA to impose unlimited financial penalties for economic crime disciplinary matters, noting that the SRA’s fining powers have only recently been increased from £2,000 to £5,000. The Bar Council has expressed its opposition to the inclusion of the regulatory objective stating “it is not for the legal profession to prevent or detect crime” and questioning how it will be compatible with the role of legal advisers representing their clients.

Anti-Money Laundering

The Bill also proposes reforms that will enable proactive intelligence gathering by law enforcement and strengthen the NCA Financial Intelligence Unit’s ability to obtain information from businesses relating to money laundering and terrorist financing by removing the requirement for a pre-existing SAR to have been submitted before an Information Order can be made. It aims to focus private sector and law enforcement resources on high value activity, reducing the reporting burden on businesses and enabling greater prioritisation of law enforcement resource by expanding the types of case in which businesses can deal with clients’ property without having to first submit a Defence Against Money Laundering SAR.

This appears to be a relatively limited reform of the SAR regime, which has come under strain as the volume of defensive and other SARs has grown significantly in recent years. More fundamental changes may well be required to ensure that law enforcement is better assisted by the information reported and that the private sector is better able to understand the expectations on it and to learn from risk profiles and experience in the wider market.

Information sharing between regulated businesses

The Bill proposes reforms will that enable regulated firms, in certain situations, to share information more easily for the purposes of preventing, investigating or detecting economic crime. In essence, the Bill proposes that a firm in the regulated sector (Firm A) will be able to share customer information with another firm in the regulated sector (Firm B) where Firm B has requests customer information from Firm A and Firm A has decided to take action with respect to that customer due to economic crime concerns. The Bill provides that sharing such information would not attract any civil liability for breaches of confidentiality, though other restrictions on the ability to share information would continue to apply (i.e. data protection).

Cryptoassets

The Bill will provide additional powers to law enforcement so they are able to seize and recover cryptoassets more quickly and easily where those assets amount to the proceeds of crime or are associated with illicit activity such as money laundering, fraud or ransomware attacks. The Bill will principally amend both criminal confiscation powers in Parts 2, 3 and 4 of the Proceeds of Crime Act 2002 (POCA) and civil recovery powers in Part 5 of POCA to enable enforcement agencies to tackle criminal use of cryptoassets more effectively.

Next Steps

The Bill is next due to be considered by the House of Commons on 13 October 2022. There may be some pressure to move the Bill forward at pace given the Government’s ongoing desire to be seen to be cracking down on economic crime, but it is exceptionally unlikely that it will be moved forward as fast as its predecessor – the Economic Crime (Transparency and Enforcement) Act 2022, which became law in only two weeks following the Russian invasion of Ukraine. Presuming the Bill does in fact progress, we expect it to become law (subject to the parliamentary process) during the course of 2023. The Bill is likely to be amended, and – given the focus on economic crime matters by both the Conservative and Labour parties in 2022 – that amendment process could introduce significant further reforms.

The Bill is also in some ways as significant for what it does not include – reform of corporate criminal liability – as what it does. It will be interesting to see whether any content of the Law Commission’s recent options paper might be picked up in the Parliamentary process. Perhaps more likely, however, new legislation on corporate criminal liability may well be in the pipeline for 2023.