Sanctions, Fraud Is Coming To Town: 2022 In Review

• Published date: 27 December 2022
• Subject Matter: Government, Public Sector, Criminal Law, Money Laundering, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: WilmerHale
• Author: Mr Chris Ladusans

In 2022, the UK was forced to reckon with the charge of being soft on economic crime and being the destination of choice for kleptocrats seeking to launder their ill-gotten funds. No longer able to turn a blind eye to these criticisms in the wake of Russia's invasion of Ukraine, the government turned its focus to long-awaited legislative reforms. However, questions remain over whether criminal and regulatory agencies will be given the funding they need to make use of their new powers. A relatively sluggish year for enforcement suggests more investment is needed.

Legislative developments in response to the invasion of Ukraine

In an inauspicious start to the year, counter-fraud minister Lord Agnew publicly resigned in January, describing the government's efforts to counter COVID loan fraud as "nothing less than woeful". Lord Agnew resigned amid speculation that the government had shelved the long-awaited Economic Crime Bill designed to tackle gaps in regulation for combating fraud. However, the Russian invasion of Ukraine at the end of February focused minds and, in March, Parliament revived and quickly passed the Economic Crime (Transparency and Enforcement) Act (the "ECA").

The ECA's headline reforms (summarised in more detail in a previous W.I.R.E blog post²) include measures to improve corporate transparency through a register of overseas entities that own UK property and their beneficial owners, as well as changes to the implementation of economic sanctions and the use of unexplained wealth orders ("UWOs").

In June 2022, the Law Commission published its much-anticipated options paper on corporate criminal liability.³ The Commission proposed a new offence of failure to prevent fraud by an associated person but stopped short of recommending a broader offence of failure to prevent economic crime. The ball is now in the government's court to decide what to do with the proposal, although given the enduring political and economic permacrisis, it is difficult to see where the government will find the bandwidth for further reform in 2023.

Office for Financial Sanctions Implementation

OFSI has been a major beneficiary of the ECA, which gave it the power to impose civil penalties for breaches of economic sanctions on a strict liability basis. Despite its new powers, OFSI's enforcement record this year has been underwhelming. It issued only two monetary penalties in 2022, with a combined value of '86,393.45.

The lack of enforcement action is unsurprising given OFSI's focus on the implementation of the Russia sanctions regime. Between 22 February and 20 October 2022, '18.39 billion worth of Russian assets were reported to have been frozen, a vast increase from the '44.4 million that had been reported as of September 2021.⁴ OFSI has also added 1,271 new designated persons to its consolidated list and issued 33 general licenses in relation to Russia.⁵

Russian sanctions will continue to dominate OFSI's activity for the foreseeable future. Unsurprisingly the agency is looking to upscale, with a plan to double its headcount during the next financial year.⁶ We expect to see an increase in enforcement activity in 2023 as OFSI makes use of its new powers and expanded workforce and responds to political pressure to enforce the new Russia sanctions robustly.

National Crime Agency

In February, the government established a new NCA unit, the Combatting Kleptocracy Cell ("CKC"), to investigate criminal sanctions breaches and money laundering in the UK.⁷ The CKC's primary...