Effectiveness of the UK’s Economic Crime Bill in Combating Financial Crime

  • Richard Marley
  • May 12, 2022
  • 6 minutes read
  • 6525

The Russian invasion of Ukraine has resulted in a surge in financial crimes in the UK as Russian oligarchs look for safe havens to launder their illegally-obtained funds. The lack of stringent measures to tackle money laundering made the UK a perfect place for those with close ties to Vladimir Putin to stash their dirty money.

The UK’s new Economic Crime Bill has been formulated at a fast pace and is aimed at creating a transparent system of foreign ownership of property. The bill was initially assumed to improve the sanctions regime in the UK, which has been long overdue. 

The UK’s Financial Crime Situation

A long list of Russian oligarchs like Roman Abramovich, Alexey Miller, and Gennady Timchenko have used London as a safe haven for their large amounts of wealth. The UK’s financial system enabled these oligarchs to purchase multi-million pounds worth of properties throughout central London. A study by Transparency International shows that Russian billionaires own over £1.5 billion worth of real estate in the UK.

As the UK government realised that more needs to be done to fill in the loopholes, it started making efforts to introduce the Economic Crime Bill. However, the question remains as to whether the Economic Crime Bill will put an end to money laundering in the country. Looking back at the previous efforts made to clamp down on financial crime, it is clear that the progress was not satisfactory. 

For instance, in 2016, former Prime Minister David Cameron stated at an anti-corruption summit that the government would pass a bill to reveal offshore companies and assets of corrupt politicians. However, this bill was never introduced. In 2018, the Sanctions and Anti-Money Laundering Act was passed to allow the UK to issue its own sanctions after Brexit. The Act was formulated to identify, investigate, and prevent financial crimes like money laundering and terrorist financing. It would thereby implement the international AML standards set by the Financial Action Task Force (FATF).

The next year, the Treasury Committee found that the UK still lacked the necessary measures to effectively tackle financial crimes. It was not until Russia’s invasion of Ukraine that the UK government finally began taking serious steps toward the Economic Crime Bill.

The Reality of the Economic Crime Bill

The Russian invasion of Ukraine created an urgency in the UK as it did in other safe havens throughout the world. As the UK’s regulatory regime was rather lenient in addressing sanctioned entities, it raised even more concerns about dirty money being laundered in the country. As a result, the Economic Crime Act was finally passed in March, which showed that the UK government is really rushing to make efforts against money laundering.

effectiveness of the uk Infographic

The Economic Crime Bill makes necessary amendments to sanctions regulations and eliminates the loopholes that previously put the country in a tough spot. It also updates the rules for wealth orders to ensure transparency in financial operations. The most important aspect of the bill is the transparency it brings for offshore companies that own UK property. These features of the bill demonstrate clearly why the House of Commons rushed the bill to be introduced as quickly as possible. 

Another major concern that needed to be addressed by the implementation of the Economic Crime Bill is the establishment of companies within the UK by foreign entities like Russian oligarchs. The bill will also make necessary amendments along with other efforts to enhance transparency in the corporate sector, simultaneously changing the position of the Companies House, the UK’s register of businesses.

Why the Implementation of the Bill is Critical

The fast-paced adoption of crypto and the lack of regulations add to the concerts of money laundering. In 2021, cybercriminals laundered $8.6 billion worth of crypto, which was a 30% rise from 2020. Reports also suggest that Russian oligarchs have invested their dirty money in crypto assets to steer clear of global sanctions. With the Economic Crime Bill, the government needs to address three crucial points. 

First, it needs to increase the funding for law enforcement agencies. Then, it needs to establish a monitoring mechanism for those who supervise anti-money laundering (AML) compliance programs in financial firms. If there are corrupt entities within the organizations that are operating for the purpose of tracking dirty money, it won’t do any good. Lastly, the UK government needs to allow prosecutions of large firms and banks for corruption. It is surprising that this is still not a possibility in the UK in 2022.

The Government recently published a Whitepaper on Corporate Transparency and registered reforms that will change the role of the Companies House. The House that simply received information will now be responsible for the safekeeping and reliability of sensitive data. Although the government’s efforts to introduce the bill were hindered by numerous setbacks and criticism, the anti-fraud minister Lord Agnew resigned after the bill was passed. He claimed that the government’s stance towards combating fraud did not align with the bright future of the passed bill.

Key Takeaways

To sum it up, it is clear that the UK’s provisions regarding the new Economic Crime Bill are a serious test in case of sanctions evasion. It is up to each business and financial institution to protect itself from regulatory action as a result of being involved in money laundering. Financial institutions should incorporate robust solutions that allow them to detect and report suspicious transactions and activities to the relevant authorities. 

The real concern for any business or financial institution is the variety of risks it faces from a wide array of clients from different backgrounds. Moreover, new and evolving methods of fraud and money laundering are only adding to the difficulties. In the absence of sophisticated fraud detection mechanisms, financial institutions are always close to getting their reputation stained by money laundering schemes. 

Shufti Pro is a UK-based IDV provider that offers a robust AI-powered AML screening solution for real estate businesses enabling them to remain compliant with industry-specific regulations. Businesses can effortlessly identify suspicious and high-risk customers by cross-checking them against 1700+ watchlists to stay compliant with global due diligence standards. 

Find out how businesses can comply with global regulations with KYC/AML solutions!