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Economic Crime: a call to arms?

Posted on 5 December 2022

The word ‘crisis’ seems to be on the tip of every tongue at the moment: 'cost of living’, ‘mortgage rates’, and ‘energy bills’ all frequently come before the word in the current political discourse. Consumers rightly view these problems by reference to the effects on their wallets. But perhaps surprisingly, one huge cost to the public, one additional area where the word ‘crisis’ is appropriate but perhaps under-used, appears to get less attention – economic crime. The National Crime Agency currently estimates that money laundering costs the UK more than £100 billion annually. To set that number in context that is two and a half times the current fiscal hole in the Chancellor’s budget (£40 billion) and more than one and a half times the cost of the Government’s energy bill support package (£60 billion).

There does, however, seem to be some political momentum for change in this area. Earlier this year, the Economic Crime (Transparency and Enforcement) Act was passed at pace after years of unwieldy proposals. The Act created a register of overseas entities (ROE) to help crack down on foreign criminals using UK property to launder money; tightened the UK’s unexplained wealth order (UWO) regime; and allowed the Government to move faster when imposing UK sanctions.

Then, as part of its ongoing campaign to crack down on economic crime, and, as with the earlier Act, likely catalysed by Russia's invasion of Ukraine, the Government is now advancing a further Economic Crime and Corporate Transparency Bill, which at the time of writing has now had both its first and second readings in the House of Commons. This is a weighty piece of legislation and the language surrounding its introduction reveals the climbing prominence of economic crime on the Government's agenda.

The Bill proposes to deliver a suite of wide-ranging reforms to tackle economic crime and improve transparency over corporate entities. It includes what the government calls 'historic' reforms of Companies House, significantly expanding its power to be a more effective gatekeeper of company creation and information. This includes powers to check, remove, or decline information submitted to (or already existing on) the Register.

Further, the Bill proposes: reforms to prevent the abuse of limited partnerships; additional powers to seize and recover suspected criminal crypto-assets; reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime; new intelligence gathering powers for law enforcement; and removal of unnecessary burdens on business.

Where do civil practitioners fit in?

Although there is a lot to be commended in this latest Bill, it perhaps inadvertently highlights the unmet expectations of the previous Act. Questions remain as to whether these legislative provisions will have the desired impact on financial crime and the UK's long-standing, often tumultuous relationship, with laundered money.

On their own it is possible (likely, even) that they will fall short. But the government is not working in a vacuum. There is much to be said for addressing this age-old problem in a new way: taking advantage of this renewed vigour of the state and enlisting the support of civil practitioners who are adept at using civil tools and remedies to trace, freeze and recover assets. A multi-faceted problem requires a multi-faceted solution, and both civil and criminal litigation are able to work hand-in-hand in this area to tackle the challenges root and branch.

Civil practitioners with the relevant specialist expertise can now play an increasingly effective role in tackling financial crime and recovering stolen assets. This is especially apparent in cross-border economic crime where injunctive remedies and tracing processes utilised in the English courts can stretch across jurisdictional boundaries in ways which simply may not be available to state actors for political or diplomatic reasons. The tools available in civil law for investigating, gathering evidence and freezing assets are particularly powerful.

Specialists in civil law fraud are able to use the coercive powers of the High Court for obtaining at speed bespoke search orders, freezing orders, disclosure orders, travel restraint orders, and cross examination orders. Speed is essential in successful asset recovery and those that are able to act quickly often see the best results. It goes without saying that economic crime and laundering of stolen assets is very rarely a solo occupation; it almost always relies on a network of enablers at the heart of leading financial eco-systems. These might include banks and bankers, lawyers, accountants and real estate agents, as well as corporate vehicles where they are used to conceal or otherwise launder the proceeds of crime.

A paper by Professor Jason Sharman titled "Time for Change? The Practicalities of Public-Private Collaboration Against Financial Crime" reports that one of the most notable failings of the current criminal system in countering cross-border financial crime is that these enablers are so rarely held accountable for their facilitative role. With the partial exception of banks in the United States, even when there is strong evidence that such intermediaries have been reckless, wilfully blind or complicit, the authorities have rarely moved against them.

Although there is something to be said for the prosecution of prominent wrongdoers, punishment is only one piece of the public policy jigsaw, and recovery of the stolen money is equally paramount. Failures in this respect in the current environment resonate deeply. As Professor Sharman notes, tools from the civil toolbox might be the perfect complement to criminal enforcement in this area, allowing a more promising and far-reaching strategy to attack the infrastructures and intermediaries that enable the principal perpetrators of such crimes, and to recover assets permeated through such systems by way of civil claims for damages.

In every crisis lies an opportunity; a chance to do better. If the loss to the public purse in the UK from economic crime can reasonably be called a crisis, perhaps the opportunity here is for greater collaboration between the public and private sectors.

This article was first published in ThoughtLeaders4 FIRE Magazine.

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