Responding to illicit and emerging finance

The Committee underlines the imperative of implementing beneficial ownership rules and robust reform of Companies House, including new powers for the company registrar to verify information to ensure accuracy as well as discretionary powers to remove corporate entities from the register for wrongdoing and ensure robust identity verification requirements. It is important that beneficial ownership registers are as transparent as possible.

We recommend that the FCDO ensures there must be timely and effective implementation of the Companies House register of overseas entities that own UK property.

Recent changes to the Economic Crime (Transparency and Enforcement) Act 2022 seek to make it easier to apply for UWOs, but a law is only as effective as its enforcement.

The Government’s unwillingness to bring forward legislation to stem the flow of dirty money is likely to have contributed to the belief in Russia that the UK is a safe haven for corrupt wealth. It is shameful that it has taken a war to galvanize the Government into action. The measures in the Economic Crime (Transparency and Enforcement) Act 2022, while welcome, do not go far or fast enough and do little to address the fundamental mismatch between the resources of law enforcement agencies and their targets. Although Ministers have spoken eloquently in the House about the need to clamp down on kleptocrats, rhetoric has not been matched by constructive action. Meanwhile, corrupt money has continued to flow into the UK.

The Government cannot afford to rely on rhetoric if it is to deliver on its commitment to tackle illicit finance. Without the necessary means and resources, enforcement agencies are toothless. If the UK is to protect its reputation as a global financial centre, it is essential that legitimate businesses can have trust in the integrity of our institutions. The threat illicit finance poses to our national security demands a response that is seen to be serious. To that end, we repeat the call for a substantial increase in funding and expert resourcing for the National Crime Agency, Serious Fraud Office and other responsible agencies.

The Government should publish its long-awaited review of the Tier 1 Investor visa scheme without delay. It should also explain: whether it intends to review Investor visas issued since 2015; what action it will take in relation to those who were granted a visa without due diligence, particularly those who now hold permanent residency or British citizenship; and what action it has taken against those it has deemed to be a national security risk.

Greater public access to information about beneficial ownership would improve private sector compliance with sanctions, pre-empt sanctions evasion and improve transparency about designated individuals. If the Government and Overseas Territories had achieved this by December 2020, as originally expected, these public The cost of complacency: illicit finance and the war in kraine 25 registers would have been in place before sanctions on Russia were imposed in response to the invasion of Ukraine. We recognise and appreciate the progress made by many Overseas Territories and Crown Dependency jurisdictions. We recommend that the FCDO ensures that public registers of beneficial ownership in the Overseas Territories and Crown Dependencies are faithfully implemented by early 2023 with full and free access to company data, not limited to single entries. In its response to this report, we ask the Government to explain what is causing the delay and what steps it is taking to speed the process. In the meantime, we recommend that the Government leverages its access to information through the Exchange of Notes procedure to proactively request information about non-transparent companies and assets, which it could then make available to banks and partner countries to support sanctions against Russia or publish publicly, where appropriate to do so.

We welcome the consultation on SLAPPs, to which we have submitted a memorandum. We will return in our further report to ways in which the FCDO can work in concert with other departments to curb professional enablers who wittingly or otherwise help kleptocrats to establish a financial foothold in the UK and to stifle investigation of their affairs.

Journalists, however, are not the only truth-tellers who need protection. They often rely on whistle-blowers inside companies and organisations. These whistle-blowers need protection. The FCDO should therefore push for a Whistleblowing Bill to offer protection to those who speak out against, or uncover, economic crimes and other wrongdoing.

The vectors of illicit finance are often companies. Therefore, the FCDO should work across Government to encourage reform of outdated and ineffective corporate criminal liability laws which mean that it is difficult to hold large companies to account for economic crimes. We will return to this point in our final report. (Paragraph 23) K Sanctions regime: Russia and kraine

We are concerned the Government’s recent rhetoric about action on “dirty” Russian money implies that the current raft of sanctions is a part solution to the UK’s problem of kleptocratic wealth. We welcome the issuance of sanctions, which have frozen the assets of a growing number of oligarchs for supporting, or receiving benefit from, the Russian Government. But this should not become a form of “criminal justice light” where assets are held indefinitely without subsequent prosecution, nor should it become a form of expropriation without due process. We recommend that the relevant law enforcement agencies now take advantage of the time these asset freezes provide to consider if there is a criminal case for asset seizure.

The primary reason for early ineffective action on sanctions was inadequate preparation and foresight by the leadership of the FCDO and consequent understaffing within the sanctions unit. The skillset of staff within the sanctions unit and the coordination between departments to understand the commercial environment are critical. We welcome the Government’s expansion of the sanctions unit. But policy effectiveness requires practical backing, sufficient resources and 26 The cost of complacency: illicit finance and the war in kraine the right capabilities, including the capacity to gather necessary intelligence to support designations. The Government should provide the sanctions unit with the necessary additional resources for the duration of the crisis. We recommend that the Government develops a professional sanctions cadre, to develop sanctions design and targeting as a recognised professional specialism. The UK is a global financial centre with access to this information; we should make better use of it.

The Government has an obligation to help guide institutions through the sudden gear change in policy, not least because it has introduced strict liability for breaches. We endorse the Treasury Committee’s call for clear guidance for the private sector. (Paragraph 32) A strategy for illicit finance

Given the impressive coordination with the EU and US on sanctioning individuals and entities in relation to the war in Ukraine, we urge the Government to build on this initiative and to develop a comprehensive transatlantic partnership to curb kleptocracy. This transatlantic partnership has the potential to adjust the global financial order in a way that bears down on corruption and bolsters democratic values.

The FCDO has vast experience, through the merger with DFID, of running illicit finance programmes internationally and gathering critical intelligence to assess security risks. The FCDO should be present at the table in international fora on illicit finance, such as the Financial Action Task Force. Appointing a Minister for Economic Security with cross-Whitehall responsibility for the multiple strands of work on countering corruption would go some way to demonstrating the Government’s commitment to ending kleptocracy in the UK. It would provide meaningful accountability to Parliament for delivery of a comprehensive strategy. The Government should study lessons from US legislation such as the ENABLERS Bill currently before Congress, and the Countering America’s Adversaries Through Sanctions Act (CAATSA) for protections which could be aligned with UK legislation. (Paragraph 38) Conclusion

We will continue to monitor the Government’s progress on the next Economic Crime Plan, the Economic Crime Bill 2 and Companies House reform. We will look at how effectively the UK continues to maintain pressure on Russia through sanctions and, more critically, how the Government enforces its sanctions so that they have the intended impact of crippling the Russian war machine and deterring those who would aid Putin’s regime.

It is deeply regrettable that it has needed a war for the Government to make progress on long-promised plans to tackle the flows of illicit finance through London and beyond. While sanctions remain in place, freezing the corrupt wealth of President Putin’s supporters, now is the time to take action: to strengthen legislation against enablers; to adequately resource the National Crime Agency and other bodies The cost of complacency: illicit finance and the war in kraine 27 responsible for bringing criminal cases to trial; and to coordinate strategically with our allies and others, particularly the US, so that those with dirty money no longer have a place to hide it. (Paragraph 40) 28 The cost of complacency: illicit finance and the war in kraine