On 2 February 2022, the Cross-Party House of Commons Treasury Committee (the “Committee”) published its report on Economic Crime (the “Report”). The Report notes that the UK Government has not introduced the necessary legislative reforms to address economic crime and makes a number of proposals, including:
- the establishment of a new department of government and / or a new single law enforcement agency with responsibility for addressing economic crime;
- changes to the Online Safety Bill that would require online publishers and platforms to proactively remove content promoting fraudulent schemes; and
- the introduction of a mandatory requirement that banks reimburse victims of Authorised Push Payment (APP) fraud.
The Report
The Report followed an inquiry by the Committee on the same subject, which opened on 23 October 2020 and received evidence from a range of sources, including law enforcement bodies, government ministers, NGOs and charities, and private sector stakeholders. The Report reviews the UK Government’s performance on economic crime issues since the publication of its three-year Economic Crime Plan in 2019 and makes a number of recommendations for tackling economic crime. The Committee organises its recommendations under five priorities.
1. Make economic crime a priority for law enforcement
The Report identifies (and lists in an Annex) 27 different “organisations involved in combating economic crime” in the UK and concludes that this number is “bewildering”. The Report suggests that the Government does not view economic crime as the top priority for these agencies and suggests that consideration should be given to creating a new government department and/or law enforcement agency with clear responsibility for fighting economic crime. The Report suggests this proposal is considered when the Government formulates a renewed Economic Crime Plan.
The Report also highlights the need to provide greater funding for the UK’s efforts to combat economic crime. The Report welcomes and stresses the importance of, the proposed Economic Crime Levy, which has not yet passed into law. This levy would be paid by entities subject to the UK Money Laundering Regulations and is projected to raise £100 million per year from 2022-23. However, the Report notes that the “financial resources being brought to bear” on the fight against economic crime “are fragmented and modest when compared to the losses attributed to fraudulent activity” and argues that further funding, in addition to the sums generated by the Economic Crime Levy, will be needed.
2. Amend the draft Online Safety Bill
The Report supports amendments to the draft Online Safety Bill that would:
- add fraud offences to the “relevant offences”, making online material relating to such offences illegal; and,
- specifically designate content promoting or facilitating fraudulent schemes as “priority illegal content”, so that online platforms would be required to proactively remove such content, rather than only having to reactively removing it following a complaint.
In relation to the role of online platforms in economic crime, the Report also suggests that consideration should be given to:
- whether “online platforms and social media companies” should be required to conduct Know Your Customer checks on businesses that advertise through their services; and/or
- whether “online companies” should be required to pay compensation to victims of fraudulent schemes conducted through their platforms.
3. Change the law on Authorised Push Payment scams
The Report is critical of the slowness of the action taken to deal with the growth of APP scam fraud in recent years and the delays in the introduction of a mandatory reimbursement scheme, recommended by the Treasury Committee in 2019. The Report recommends that the Government legislate to provide the Payment Systems Regulator (PSR), a subsidiary of the Financial Conduct Authority (FCA) responsible for regulating the payment systems industry in the UK, with the power to make such reimbursement a mandatory requirement. The Report also suggests that the Treasury should be prepared to introduce legislation that would enable improved data-sharing between banks for the purposes of combatting APP fraud, and that the PSR should “ensure banks act quickly in putting in place the necessary changes”.
4. Introduce regulation for the cryptoasset industry
The Report notes the risks that cryptoassets pose to consumers and welcomes the actions taken by the Advertising Standards Agency to address “misleading advertisements for cryptoassets”. The Report recommends that consideration be given to the introduction of measures “specifically to protect consumers from fraud and scams relating to cryptoassets”. The Report also highlights the slowness of cryptoasset providers registering with the FCA for AML purposes, despite requirements for them to do so and highlights the lack of any sanction for failure to do so.
In relation to AML issues, the Report focuses exclusively upon “cryptoassets” and does not address potential money laundering issues relating to “virtual assets” that fall outside the definition of cryptoassets, which have been the focus of recent Financial Action Task Force Recommendations. This may have resulted from the Report’s focus on consumer safety rather than a deliberate policy exclusion and it will be interesting to observe the evolution of any future measures to see whether they apply to virtual assets.
5. Reform Companies House
Finally, the Report is clear that “[r]eform of Companies House is essential if UK companies are no longer to be used to launder money and conduct economic crime”. The Report suggests that reforms to Companies House should be introduced as quickly as possible and recommends the introduction of “significantly” increased fees for incorporation of companies, in order to deter the creation of multiple companies by individuals for fraudulent purposes.
The Report also notes the slow pace of progress regarding legislative reform of corporate criminal liability and the Registration of Overseas Entities Bill, in relation to which the Report states: “Improving transparency of ownership of UK property is an important step that needs to be taken in order to improve defences against misuse of UK assets and companies by criminals and kleptocrats.”
Key Takeaways
Recurring themes throughout the Report are disappointment and frustration with the slow pace of progress in relation to various long-discussed reforms regarding economic crime. However, it is unclear whether this Report will do much to accelerate the progress of measures delayed either by the legislative process or by political or other reasons. Similarly, it is unclear whether the Government has the appetite to create a new government department or law enforcement body to deal with economic crime given the number of agencies already operating in this space and the UK’s post-Covid economic constraints.
However, the Report may have greater impact in areas where it makes practical proposals that require more modest legislative changes to existing proposals or regulatory frameworks. For example, the Report’s suggestions regarding mandatory compensation in relation to APP fraud or for reforms to Companies House could be taken forward without the need for the creation of new government departments or major legislative work. Similarly, amendments to the existing draft Online Safety Bill could be proposed at the next stage of parliamentary review. Such changes, while less headline-grabbing than the creation of a new department or law enforcement body, would nonetheless have significant consequences for many businesses, including: social media companies and other online platforms and financial institutions. Those operating in such sectors should follow this Report closely for further developments.
Next Steps
Procedurally, the next formal steps in relation to the Report will be the Government’s response to its recommendations, which must be provided within two months. The Report recommends that the Government set out the measures it intends to bring forward to address economic crime and to set out when an Economic Crime Bill containing such measures will be brought before Parliament.
The future Economic Crime Bill has been subject to widespread media and political attention in recent days due in large part to the resignation of Lord Agnew, the Government’s former joint Treasury and Cabinet Officer Minister for Efficiency and Transformation. Lord Agnew’s resignation was triggered by what he perceived to be the Government’s failure to address matters relating to fraud, including its decision to drop plans to introduce an Economic Crime Bill from its parliamentary agenda.
However, following Lord Agnew’s resignation, the Prime Minister confirmed that the Economic Crime Bill will be voted on in the next parliamentary session (between May 2022 and May 2023). It will be interesting to see the extent to which the proposals set out in the Report are reflected in the Economic Crime Bill when it is introduced to Parliament at that time.
Covington’s teams of economic crime and public policy experts are following this issue closely and would welcome the opportunity to discuss this Bill and the UK Government’s other initiatives in this sector with companies that may be affected by these changes.
If you have any questions concerning the material discussed in this client alert, please contact the members of our White Collar Defense and Investigations practice.