A speed brief: The recently released 2022 Economic Crime Report

• United Kingdom

• Fraud and financial crime

04-02-2022

On Tuesday 2 February 2022, the House of Commons Treasury Committee issued its Economic Crime Report. Describing itself as unhappy with the progress that the Government has made in tackling economic crime, the Committee adopts an assertive tone from the outset. Issued as a follow-up on the two previous reports issued covering different aspects of Economic Crime published by the predecessor Committee, this Report also looks at the effectiveness of measures to address economic crime in the UK since 2019 and at the Government’s Economic Crime Plan. Headline issues raised include the following:

• The Committee expresses concern that economic crime seems not to be a priority for law enforcement. It feels that the number of agencies responsible for fighting economic crime and fraud is bewildering. Each of the enforcement agencies has other crime-fighting or regulatory objectives, and the Government needs to consider whether there should be a single law enforcement agency with clear responsibilities and objectives to fight economic crime
• the report urges the Government to include measures to address fraud via online advertising in the Online Safety Bill, in the interests of preventing further harm to customers being offered fraudulent financial products.
• the Government should also ensure that financial services advertising regulations should apply also to online companies, and that the FCA has the necessary powers to effectively enforce the regulations
• the Committee refers to the ‘disappointing’ fact that the SARs reform programme is not yet complete and that no timetable or target date for its completion has been published. It calls for a timeline showing when the milestones are expected to be met, and an annual progress report on the programme
• whilst the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) has made good progress, the report considers it is disappointing that nearly four years after it was set up, OPBAS is still encountering poor performance from a large proportion of the professional bodies that it supervises. The Government should not shy away from considering radical reforms, including a move away from the self-regulatory model and the creation of a new supervisory body, potentially independent of the FCA
• the FCA should report annually on numbers of de-risking decisions and on progress to ensure that banks are not unfairly freezing bank accounts and de-risking customers
• not all cryptoasset firms have been registered for anti-money laundering (AML) purposes. It is held by the Committee as ‘unacceptable’ that, having introduced AML regulations for cryptoasset firms in 2020, there are so many firms which have not yet been registered
• the Committee considers that reform of Companies House is essential if UK companies are no longer to be used to launder money and conduct economic crime. Waiting until the operational transformation of Companies House is complete risks further delay beyond 2025. Given the urgency of the problem, the Committee urges the Government to seek ways to implement as many reforms as possible sooner, before embedding a full transformation
• in the view of the Committee, the low costs of company formation, and of other Companies House fees (such as filing fees), present little barrier to those who wish to set up large numbers of companies for dubious purposes. It proposes a fee of £100 for company formation would not deter genuine entrepreneurs, and would raise significant additional funding for Companies House and for the fight against economic crime
• frustration is expressed as to fact that the Registration of Overseas Entities Bill is still awaiting introduction, more than five years after it was promised.

The Report covers a number of areas and makes several recommendations, the most eye-catching of which is the suggestion that the Government consider creating a single law enforcement agency with a direct responsibility for economic crime. The notion of a sole economic crime enforcement body is a striking one, but the practicalities of such a reform don’t seem to have been well-thought through, especially given the contrasting areas of focus of the existing agencies in this area (the SFO, FCA, NCA, CPS and HMRC). Leaving to one side the feasibility of such a union, it’s questionable what the real-world value in a “one stop shop” replacement for at least five enforcement agencies might be, and what the advantages of bringing together these specialist entities, with such distinct individual remits.

The concept that the proposed £100 company formation fee might present any sort of barrier to those determined to commit economic crime is perhaps unconvincing – the fact that it would be a good source of funding for Companies House is likely to be a more persuasive argument in favour of implementation.  OPBAS is said to have made ‘good progress’, and yet in the same breath, the Report refers to the need to consider ‘radical reforms’ including the creation of a new supervisory body. It’s hard to understand what benefits might accrue from the creation of yet another supervisor, or what value perceived ‘independence’ of the FCA might bring to the task of addressing poor performance of professional body supervisors.

On the positive side, the Report has cross-party agreement. There’s a call for legislation against fraudulent online adverts and reimbursement to those who fall prey to online scams and push payment fraud which will be welcomed too. However, going on past performance (such as the five-year-old call for evidence on a failure to prevent economic crime offence, the glacial pace of SARs reform) those advocating for movement and change in this vexed area would be ill-advised to hold their breath.    

Link to parliament.com.