UK Parliament removes money laundering from new 'failure to prevent' offence

Thursday, 07 September 2023
All six amendments made by the House of Lords to the Economic Crime and Corporate Transparency Bill were reversed when the Bill returned to the House of Commons this week, including the Lords' attempt to extend the new 'failure to prevent' offence to cover money laundering as well as fraud.
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According to the minister responsible, Kevin Hollinrake, the amendment is unnecessary because the UK's anti-money laundering (AML) regime is already robust. He noted that HMRC has imposed 240 fines for AML breaches in the last six months of 2022 and the Financial Conduct Authority continues to impose significant fines for AML breaches. Moreover, he said, a 'failure to prevent money laundering' offence would be 'hugely duplicative' of the existing regime. Despite this, the Lords amendment was debated at considerable length and vigour, according to law firm Mishcon de Reya. 'The potential knock-on effect will be that enforcement agencies will be put under pressure to increase activity in this area', it said.

Another significant Lords amendment had broadened the scope of the 'failure to prevent' offence to cover all organisations, not just large ones. Its defeat in the Commons means that the offence will now only apply to organisations who meet at least two criteria of three, namely having more than 250 employees, more than GBP36 million turnover, and more than GBP18 million in total assets. Hollinrake said this was to ensure that significant and unnecessary pressures were not placed on smaller companies. He thinks the costs to businesses would be in the order of GBP4 billion if extended to small- and medium-sized companies.

Other Lords amendments would have made companies liable for an economic crime committed by a senior manager acting within their actual or apparent scope of authority; and given Companies House new powers to strike off companies who supply false, misleading or deceptive information when applying to join or be restored to the register. They would also have required property-owning overseas entities to notify the Register of Overseas Entities within 14 days of any changes rather than once a year; made it a requirement for company shareholders to state whether they are acting as a nominee; required Companies House to publish the names of parties to trusts which own overseas entities in the register, which it already collects; and protected enforcement bodies from costs when undertaking civil-asset recovery against suspects.

All of these would have posed 'significant and disproportionate burdens on business, penalising reasonable companies and businesspeople with limited evidence that the burdens would be outweighed by any meaningful benefits', argued Hollinrake. Moreover, he said, the disclosure provisions for nominee shareholders were unnecessary because the Bill strengthens the Persons with Significant Control framework to require the disclosure of a person of significant control behind a nominee on pain of criminal sanction for non-reporting. Also, he said, the Registrar already discloses trust information to HMRC, law enforcement and other persons with functions of a public nature if and when necessary and appropriate. The government intends to launch a consultation before the end of 2023 on regulations to allow third-parties such as civil society organisations and investigative journalists to access trust data in certain circumstances.

Despite the removal of the Lords amendments, the Bill has expanded from 239 pages when first introduced to nearly 400 now. The government has added several amendments of its own, tackling issues ranging from strategic lawsuits against public participation, improving the new statutory objectives for the registrar of companies, and improving the transparency of authorised corporate service providers and of the Register of Overseas Entities.

The Bill also still includes the centrepiece of the government's corporate liability agenda: a reform to the identification doctrine that will make it easier to prosecute companies for economic crimes committed by middle managers. The measure brings sufficiently senior staff as well as chief executives into the scope of who can be considered the 'directing mind and will' of a business where fraud, money laundering or bribery are suspected. Previously, interpretation of the identification doctrine has usually been limited to board directors, particularly chief executives. The government suspects that complex management structures are sometimes deliberately used to conceal who the company's key decision-makers are and so protect the organisation from scrutiny.

The Bill goes back to the Lords next Monday (11 September). Peers will then decide whether to accept the government's position or bounce the Bill back to the Commons again.

Sources

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