News 21st Nov 2023

Glimmers of light: Two economic crime bills later, what’s next in the UK’s fight against dirty money?

Rose Zussman

Senior Advocacy Manager

Rose leads Transparency International UK’s strategic engagement with Westminster, working toward the goal of ending corruption in the UK and the UK’s role in facilitating corruption abroad. Rose is also an active member of the UK Anti-Corruption Coalition (UKACC) where she contributes to the group’s advocacy on political corruption and illicit finance.

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Last month, a step-change in the UK’s defences against money laundering became law. The Economic Crime and Corporate Transparency Act 2023 (ECCTA) is a huge piece of legislation – coming in at 376 pages, it contains over 200 provisions relating to UK companies and partnerships, cryptocurrency, fraud, strategic litigation against public participation (SLAPPs) and more. It is the second of two bills designed to clamp down on dirty money in the UK following Russia’s full-scale invasion of Ukraine last year, when we made it clear that hostile state actors might evade sanctions by hiding their assets in our own backyard.

We have come a long way in our years-long campaign for this legislation. Let’s rewind and remind ourselves where we started.

Why did we need a second Economic Crime Bill?

For a long time, there has been a very low bar for setting up companies here in the UK. It’s cheap (as little as £10 a pop), quick (some firms have boasted of being able to set up a company in six minutes), and until now no one had to verify whether the owners of companies were who they said they were. This enabled criminals to launder the proceeds of corruption and other crimes, using these companies, anonymously – behind false information that no one was checking – which our research and investigations by our partners shows was happening at scale.

Along with our civil society coalition partners, parliamentary allies and private sector colleagues, we argued that this was untenable, that the UK couldn’t continue serving as a hub for international money laundering while so many around the world suffered. Nor was this in the interests of our own national or economic security. 

This argument was crystallised during the passage of the similarly-named Economic Crime (Transparency and Enforcement) Act 2022, when the Government committed to bring this Bill forward. ECCTA is the second part to that Act – what some parliamentarians termed the ‘full fat’ version – the main part of which makes the biggest changes to Companies House in its 180-year history.

There are a number of important changes that will take place as a result of ECCTA. In relation to money laundering through UK companies, the following are key:

  • Companies House – the UK company registrar – will go from being a passive recipient of information to an active gatekeeper of the UK’s corporate register. It will now have a duty to improve the quality of the information in the register, not to just accept it at face value. It is now incumbent upon Companies House to remove fraudulent companies from the register and share relevant information with law enforcement.
  • Critically, it will now be much harder for criminals to hide behind false information about who really owns UK companies. Those named as ’people with significant control’ (PSCs) of UK-registered companies or certain types of partnerships (along with directors and some managing officers), will have to have their identities verified, either by authorised third parties or by Companies House directly. It will also be a criminal offence to provide false or misleading information.
  • The Government has committed to raising the cost of incorporation (it is expected this will be around £50) which will raise the funds needed by Companies House to implement the wholesale reform this Act requires, without being prohibitive to people setting up legitimate businesses.

Making a good Bill better

The Bill was also presented as an opportunity for Parliament to improve legislation for the Register of Overseas Entities (ROE), the UK’s public register of the real owners of offshore companies that own property here. The Economic Crime (Transparency and Enforcement) Act 2022, which produced this register, was emergency legislation rushed through Parliament at speed. This meant that this new Bill also provided an opportunity for Parliament to close some of the loopholes we discovered with the law, which became increasingly clear as the data poured in.

The first of these loopholes was that it was far too easy to sidestep new transparency requirements in the ROE by using nominee arrangements. Which is to say: where offshore companies held property on behalf of clients through nominee arrangements, the identities of these clients would not likely be reportable to Companies House - instead the owners of the corporate nominee would appear on the public register. This could happen on a large scale, with a single nominee company administered by a wealth management firm holding multiple properties via nominee arrangements on behalf of several different clients. We were not the only ones to have noticed this loophole: we found law firms openly describing this as a ‘lacuna’ in the law that would ‘continue to provide privacy as far as the ROE is concerned’.

Working closely with parliamentary allies, we made the case for capturing information about the people behind these nominees to civil servants, ministers, and crossbench peer Lord Vaux of Harrowden, who tabled an amendment to bring about our proposed change. In response, the government tabled its own amendment to close this loophole in the Bill.

The second major loophole is trusts. While the ROE is already bearing fruit by revealing the true owners of UK property (including, for example, former Russian Deputy Prime Minister Igor Shuvalov), the law prevents Companies House from publishing information about the parties to trusts that are registered as owners of overseas entities. This keeps these property owners from public view, and risks undermining the purpose of this legislation.

Throughout ECCTA’s passage we campaigned for the obvious solution to this problem: allow Companies House to publish information about parties to trusts registered as the owners of overseas entities in the ROE. This would not be information about all trusts – only those who own overseas companies that hold UK property assets. This would also not be a breach of privacy or security concerns – as with the UK company register, there could be reasonable security exemptions.

In response, the Government conceded there was indeed a need for more transparency around the use of trusts in the ROE, gave the Secretary of State the power to create a new system for accessing this information, and committed to consulting this year on how to use that power (with a specific commitment from the despatch box to engage Transparency International UK in the process).

It took an eight year campaign to get these two pieces of legislation, and it took over a year of scrutiny and engagement with ECCTA for it to become the law it is today. These successes were never a given, and we thank those who worked so hard for so long to make this happen. In particular, we thank Dame Margaret Hodge MP, Lord Agnew of Oulton, the All-Party Parliamentary Groups for Anti-Corruption & Responsible Tax and Fair Business Banking, the diligent civil servants in the Department for Business and Trade, and our civil society colleagues who supported these efforts and put forward the evidence necessary to shape other important parts of the Bill (see, for example, this excellent write-up from Spotlight on Corruption).

What’s next?

There is a lot of work still to be done to counter the UK’s dirty money problem.

The system for policing the enablers, who inadvertently or otherwise launder the proceeds of corruption, needs serious reform.

The corrupt assets we identify here in the UK, many of which have been stolen from state budgets elsewhere, need to be carefully returned to the people from whom they were stolen.

And all eyes are now on Britain’s offshore financial centres to see how they will deliver on their commitments to introduce public company ownership registers.

But so often when it comes to shiny new legislation, the devil is in the details – or rather, the implementation. We’ll be monitoring what happens next with ECCTA (along with several esteemed members of the House of Lords).

The Government committed to launching its trusts consultation this year and running it for twelve weeks. We will welcome it when it comes, but we need more than consultation, we need action. To that end, we urge the Government to put a system in place that allows access for civil society and journalists to the register of ROE trusts information itself – the full data set, not just individual entries upon request – to enable the kind of network analysis that ensures colleagues like mine can identify suspected criminal activity and share this with UK law enforcement. There is no use allowing this loophole to undermine such a good Bill any longer.

At the end of the day, in the ever-changing landscape of the fight against corruption, it can feel the work is never really done. And, probably, it isn’t. But the UK has made it harder for kleptocrats and other criminals to abuse our economy to their advantage, and if anything, that should give us hope.