The Economic Crime (Transparency and Enforcement) Bill (the "Bill") passed its final stage in the House of Commons on 7 March. It will now head to the House of Lords for approval, after which it will receive Royal Assent and become law.

There were a number of amendments made to the original bill which are significant and should be considered carefully. We provide a summary of these below. Persons likely to be impacted should seek immediate advice to ascertain their reporting obligations and the impact of the legislation on their structures.

Background

For a detailed analysis of the provisions of the Bill relating to the public disclosure of those holding UK real estate through an overseas entity, please see our client alert dated 2 March 2022.

For a detailed analysis of the sanctions imposed by the UK on Russian individuals and how this impacts trustees, banks and other advisors, please see our client alert dated 4 March 2022. In summary, the objectives of the Bill are to (i) create a publicly available register identifying the ultimate beneficial owner(s) (i.e. natural persons) of overseas entities that hold UK real estate; (ii) reform the use of unexplained wealth orders ("UWOs"); (iii) amend penalties imposed as a result of breaches of financial sanctions under the Policing and Crime Act 2017; and (iv) amend the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA") (enabling legislation pursuant to which sanctions regulations are created). Therefore, the Bill provides an opportune forum for urgent changes to be made to existing legislative regimes without requiring separate legislation to be enacted for this purpose.

In total 95 amendments to the Bill were tabled by Members of Parliament, of which 28 were approved during the debate. The approved amendments focus on bolstering the effectiveness of the property ownership register and amending SAMLA to intensify sanctions enforcement. In addition, administrative (reporting) obligations were introduced for the Secretary of State, as outlined below, in order to monitor the effectiveness of the UWO regime. In this alert we outline the key amendments approved to the extent that they relate to England and Wales.

What amendments have been made Amendments relating to disclosure of beneficial ownership of UK real estate The key amendments to parts of the Bill relating to the public disclosure of UK real estate being held through an overseas entity are as follows:

 

• To amend clause 8 of the Bill to raise the maximum daily default fine for non-compliance with the requirement to provide an updated statement to the Registrar of Companies (the "Registrar") in respect of an overseas entity's beneficial ownership within 14 days of the end of each 12 month period following its registration. The Bill was initially drafted to provide for a "daily default fine not exceeding the greater of £500 and one-tenth of level 4 on the standard scale" (currently £250), however, this has been amended to an amount "not exceeding the greater of £2,500 and one half of level 4 on the standard scale" (currently £1,250). The legislation provides that failure to comply could result in an offence being committed by the entity and "every officer of the entity who is in default" and will continue until the overseas entity has delivered the statements and information required by the Registrar. An offence is also committed by every officer who was not involved in the initial failure to comply but who was subsequently in default in relation to a continued contravention. The legislation appears to provide for a (un-capped) cumulative fine for non-compliance, however, the precise application of such penalties should become clearer in the near future. We recommend obtaining detailed advice in relation to the various penalties which may accrue pursuant to the amended Bill.

• Similar to the amendment above, clause 26 of the Bill was amended to raise the maximum daily default fine for non-compliance with the requirement to deliver relevant documents to the Registrar where the Registrar has identified inconsistencies in the register. In relation to this clause, the Bill has also been amended to increase the daily default fine from an amount "not exceeding the greater of £500 and one-tenth of level 4 on the standard scale" to an amount "not exceeding the greater of £2,500 and one half of level 4 on the standard scale". In respect of this clause, an offence could be committed by the overseas entity and "every officer of the entity who is in default" and will be committed if the relevant documents are not delivered to the Registrar within 14 days after the date on which the Registrar issues notice to the entity that it requires such documents.

• To amend clause 16 of the Bill to require the Secretary of State to issue (initial) regulations prior to any applications being made for registration in the register of overseas entities. It is intended that these regulations should provide further details regarding the information that must be verified to the Registrar upon registration, the person by whom the information must be verified and the statement, evidence or other information which must be delivered to the Registrar. There is currently no timeline provided as to when these regulations would be issued, however, we will be monitoring this on an ongoing basis.

• To amend Schedule 3 of the Bill to reduce the transitional period within which overseas entities are required to register from 18 months to six months. As a result, within six months of the enactment of the Bill, an overseas entity owning UK real estate will be required to register with the Registrar (provided it is not exempt). Failure to comply with this requirement will result in an offence being committed by the entity and every officer of the entity who does not comply. Failure to comply could result in imprisonment of up to two years and/or a fine in addition to a restriction being placed on the Land Registry prohibiting certain dealings with the land by the unregistered overseas entity.

Amendments relating to the sanctions regime The key amendments applying to SAMLA are as set out below. It should be noted that these are very detailed and so appropriate advice should be obtained.

• Streamlining the process of making sanctions regulations by amending the application of SAMLA to minimise the requirements with which ministers must comply when introducing new sanctions regulations. The Bill provides that a minister may make sanctions regulations where they consider that it is appropriate for the purposes of compliance with a UN obligation, any other international obligation or for various other discretionary purposes (specified in section 1(2) of SAMLA), including where this is in the interests of national security. Where a minister proposes to issue sanctions regulations for purposes under section 1(2), section 2 previously required that the minister demonstrate that there are good reasons to pursue that purpose and that the imposition of sanctions is a reasonable course of action for that purpose. However, the Bill removes section 2, therefore, minimising the requirements to be complied with when issuing new sanctions regulations. It is intended that this amendment to the Bill will "simplify the procedural requirements that can delay the implementation of sanctions".

• Introducing a procedure for urgent designation of a person by name (and by description, for example in respect of an organisation) such that they become subject to relevant sanctions regulations. Currently, a minister may only designate a person where they have reason to believe that they are an "involved person". An involved person is a person who is or has been involved in an activity specified in the relevant sanctions regulations or a person owned or controlled (directly or indirectly) by, acting on behalf of or a member off or associated with such a person. However, pursuant to the amendments, this requirement will not need to be satisfied under the new "urgent procedure".

Under the urgent procedure, only the following will be required to be satisfied:

Amendment relating to UWOs

To introduce a new clause 31 to the Bill which in turn introduces in to the Proceeds of Crime Act 2002 a requirement for the Secretary of State to prepare reports for each 12 month period setting out how many UWOs have been made and applied for in England and Wales.

• Similar sanctions (whenever made) apply to a person under the law of the United States of America, the European Union, Australia, Canada or any other country specified by an appropriate minister; and

• It is in the public interest to designate a person under the urgent procedure.

Conclusion

The scope and interpretation of these amendments will become clearer in the coming weeks as guidance is released and ministers exercise their powers to issue further regulations (in particular in relation to the new register of beneficial ownership). Therefore, the precise impact of the Bill will need to be reviewed on an ongoing basis.

It is critical for trustees, banks and other providers who have any structures connected to Russia (whether via settlors, beneficiaries, protectors or trust assets) to consider urgently if any of the sanctions regimes may impact them. Failure to comply could result in significant criminal and/ or financial penalties being imposed. Similarly, persons likely to be impacted by the new register of beneficial ownership of overseas entities holding UK real estate should urgently consider their reporting obligations ahead of incoming deadlines.