New bill on the block(chain): The Economic Crime and Corporate Transparency Bill

United Kingdom

On 22 September 2022, the UK Government introduced the Economic Crime and Corporate Transparency Bill. The bill, the second economic crime bill of this year, is the most recent effort by the UK Government to tackle economic crime in the UK. This Law-Now focuses on the proposed reforms affecting cryptoassets, although the bill is broader in scope. If enacted, the bill is intended to make it quicker and easier for UK law enforcement agencies, such as the National Crime Agency, to seize, freeze and recover cryptoassets.

The Proposals

The bill provides additional powers for UK law enforcement  to seize, freeze and recover cryptoassets which are found or suspected to be the proceeds of crime or associated with illicit activity such as money laundering, fraud and ransomware attacks. The bill proposes to do this by amending the confiscation and civil recovery powers already provided under the Proceeds of Crime Act 2002 (POCA).

POCA is the main legislative framework for the civil recovery and confiscation of criminal assets in the UK and also sets out the law with respect to money laundering offences in the UK. POCA’s aim is to deny criminals the use of their assets, recover the proceeds of crime and disrupt and deter criminality. Broadly speaking, there are two distinct categories of asset recovery powers within POCA: the criminal regime (Parts 2, 3 and 4 of POCA) and the civil regime (Part 5). The proposed reforms in the bill would affect both the criminal and civil regimes. The key proposals are as follows:

Criminal regime

The implementation of a Schedule 6 to POCA, which would:

  1. Remove (in certain circumstances) the requirement for a person to have been arrested before seizure powers can be used. This would apply to the seizure of any realisable property, not just cryptoassets or cryptoasset-related items (a new class of seizable property).
  2. Add express provisions for law enforcement agencies to recover cryptoassets and cryptoasset-related items. Specifically, it would enable UK law enforcement agencies to search for, seize or transfer, and detain any free property which they suspect is a cryptoasset or cryptoasset-related item.
  3. Provide for easy access and decryption. The bill would give powers to law enforcement to require any information which is stored in any electronic form to be produced in a form in which it can be taken away, and which is (or can be readily produced) in a visible and legible form.
  4. Enable the courts to better enforce unpaid confiscation orders against a defendant’s cryptoassets. It would provide the magistrates’ court with the power to authorise the sale of any cryptoassets, including the power to order a UK-connected crypto service provider to realise or pay over cryptoassets in order to satisfy a confiscation order (with fines imposable for non-compliance).
  5. Provide for the realisation and destruction of cryptoassets in certain circumstances.

Civil regime

The implementation of a Schedule 7 to POCA, which would:

  1. Enable law enforcement agencies (the definition of which would be broadened) to recover cryptoassets and cryptoasset-related items. Specifically, it would enable UK law enforcement agencies to search, seize or transfer, and detain any item of property which they suspect is a cryptoasset or a cryptoasset-related item. Such applications would be able to be made without notice. These powers would be used in circumstances where cryptoassets (or cryptoasset-related items) are not in the custody of a third-party. Such assets would be recoverable where the magistrates’ court is satisfied—on the balance of probabilities—that they are either (i) recoverable property or (ii) intended for unlawful conduct. In the case of a terrorist investigation, property would be recoverable when that property has been earmarked as terrorist property. Property seized under these new powers would be allowed to be detained for an initial period of 48hrs, up to a maximum of three years.
  2. Create a cryptowallet freezing order. This provision seeks to replicate the provisions already in place for an account freezing order. This type of order would enable law enforcement agencies to freeze, and therefore prohibit the use of, a cryptowallet administered by a UK-connected cryptoasset service provider. An application for a cryptowallet freezing order may be combined with an application for an account freezing order.
  3. Enable law enforcement to apply for forfeiture of cryptoassets, or those which have been frozen in a wallet. The cryptoassets would be forfeitable where the court is satisfied—again, on the balance of probabilities—that they are either (i) recoverable property or (ii) intended for unlawful conduct.
  4. Enable detained cryptoassets, or those which have been frozen in a wallet, to be converted to cash pending the outcome of a final forfeiture hearing. The objective behind this provision is to safeguard against significant fluctuations in market value.
  5. Replicate provision for detained or frozen cryptoassets and related items to be released to victims at any stage of proceedings.
  6. Provide for the destruction of cryptoassets in certain circumstances.
  7. Set out how associated and joint property (i.e. property of Decentralised Autonomous Organisations) is to be dealt with when forfeiture is applied for. In such circumstances, the court would be able to order that a person who holds associated property, or who is an excepted to be the joint owner of such property, may retain the property but must pay the law enforcement agency a sum equivalent to the value of the recoverable share. The bill would apply whether or not there is an agreement amongst the parties on the jointly owned property; where there is no agreement, the court would also be able to order that an excepted joint owner’s interest be extinguished or severed.
  8. Aim to ensure, via amendments to Part 8 of POCA, that the forfeiture powers are accompanied by supplementary investigative powers similar to those that already exist to support the forfeiture of cash, listed assets and funds in certain accounts.

Criminal & civil regime

With a view to futureproofing both the criminal and civil regimes, the bill would also introduce a series of delegated powers to ensure that defined terms such as “cryptoasset”, “cryptowallet” or “cryptoasset service providers” can be amended by affirmative order as required.

The bill also covers information-sharing between private sector entities to establish suspicion, as well as the powers of the Serious Fraud Office and Solicitors Regulation Authority.

Comment

The intention of these additional powers in the bill is clear: it is to enable law enforcement to try to keep up with the rapid pace of change within economic markets, and in particular, with the ever-growing use of cryptoassets. 

There is some force in an argument to say that the levers to seize, retain and recover cryptoassets already exist within the existing framework of POCA, and through the use of remedies under the Civil Procedure Rules. The bill is an attempt to expand on these powers and cater to the developing practicality of digital assets.   However, like most law enforcement measures, the strength of these powers is likely to be tested, particularly where the cryptoassets are held beyond the reach of UK law enforcement.  Nevertheless, the proposals in the bill are likely to be seen as a step forward, enhancing the value proposition of cryptoassets. 

What are the next steps?

The bill is due to have its second reading in October 2022 and is poised to be enacted in early 2023. The exact timeframe for, and likelihood of, the bill passing into legislation is currently unknown. What we do know is that it is a clear attempt by the UK Government to enhance its blockchain jurisprudence.