News focus: Financial crime - good intentions, poor resources

There are legal policy areas on which the Gazette regularly reports where the ecosystem of good law making has broken down. They meet a definition set by legal charity Justice of law where poor lawmaking results from a suboptimal consultation process, and a lack of government reflection when faced with knockbacks in the courts. The growing use of so-called ‘Henry VIII powers’ by ministers is a more general concern.

A better approach to policy-making was on show at the Law Society’s anti-money laundering and financial crime conference this week, where civil servants and the Solicitors Regulation Authority outlined ways that the economic crime regime is being refined based on consultation, feedback and a review of evidence.

Russia’s invasion of Ukraine in February 2022 ‘turbo-charged’ the sanctions regime. Pre-existing proposals on ‘beneficial ownership’ were rapidly put into law. A small enforcement section of the Treasury, the Office of Financial Sanctions Implementation (OFSI), saw an exponential increase in its workload and areas it was expected to superintend.

Such rapid change means some of the economic crime regime is blunt, and in places unfair or unclear.

Civil servants from the Home Office and Department for Business and Trade (DBT) set out the ‘evolution’ solicitors will see in the regime.

DBT senior policy adviser Jacqui Griffiths said a number of provisions affecting the register of beneficial interests were set to change. Not least, there will be ‘significant changes’ in 2024 to requirements on the verification checks solicitors must perform on clients and funds.   

The Home Office is sponsor for the Economic Crime and Corporate Transparency Bill. Holly-Anne Brennan, the department’s head of proceeds of crime reform, said the legislation was set to better reflect complexities that solicitors must negotiate.

It will be possible, she said, to draw a distinction between ‘assets suspected’, which could be ‘permanently prohibited… ringfenced’ from use by clients, and income that was not suspected, which could be used, not least, to meet bills for legal advice.

On crypto-assets, for which she said the ‘risk of dissipation is quite high’ in fraud and asset tracing cases, the magistrates’ courts would acquire new powers. Elsewhere, reflecting the complexity of identifying and tracing crypto-assets, Brennan promised ‘technical tweaks’, such as allowing cases to run for longer.

'We’ll look at sanctions guidance and ask if it is fit for purpose'

Colette Best, Solicitors Regulation Authority

Professional regulators also have a role in upholding the economic crime regime. Here, solicitors can expect some changes.

Colette Best, director of anti-money laundering at the SRA, said: ‘We’ll look at sanctions guidance and ask if it is fit for purpose.’

Best drew attention to the Treasury consultation Reform of the Anti-Money Laundering and Counter-Terrorism Financing Supervisory Regime.

The consultation, which closes tomorrow, asks how supervision of ‘regulated populations’ like solicitors has changed since the imposition of Russia sanctions, and if new supervisory powers are needed.

Dentons partner Roger Matthews put the case for the OFSI to review its approach to enforcement and proportionality in addressing sanctions breaches.

Matthews criticised the OFSI decision to ‘name and shame’ Wise Payments Ltd in August. A deficiency in Wise’s systems allowed a customer to withdraw £250 from a business account using a debit card while a potential sanctions match was investigated. Wise had investigated and self-reported, and there was no money penalty imposed.

OFSI classed the breach as ‘moderate severity’. ‘If that is moderate severity, what on earth is minor severity?’ Matthews asked. He said the OFSI needed to acquire the sort of ‘risk-based’ approach to enforcement that the SRA adopted. ‘I hope OFSI will mature,’ he said. ‘The team at OFSI is a good team.’

While the conference in general gave the impression that public policy formulation is functioning as it should in the challenging area of economic crime, one thread that ran through it was the problem of resource and knowledge.

‘There is a dearth of expertise in the private sector and in OFSI,’ Matthews said, an assessment confirmed by other speakers.

Talking about the use of fast-developing technology in financial crime, deputy chief Crown prosecutor Debbie Price, from the CPS proceeds of crime division, said: ‘We’ll never have the resources to get ahead of it.’  

Still, with civil servants praising the utility and ability of professional bodies such as the Law Society to shape public policy on economic crime, the conference showed evidence of government and governance working as they should.