Economic Crime and Corporate Transparency Act 2023 comes into force

The United Kingdom has introduced a key new piece of legislation aimed at stemming the flow of dirty money coming into the country through enhancements to government agency capabilities and law enforcement.

The Economic Crime and Corporate Transparency Act 2023 which has received royal assent, was introduced as a bill in September 2022, and provides the UK with “world-leading powers” to allow its authorities to “target organised criminals and others seeking to abuse the UK’s open economy,” the government said in a news release.

The new Act introduces a new corporate criminal offence of failing to prevent fraud. This means that large companies can now be held liable for fraud committed by their associates, even if the company was unaware of the misconduct.

Companies will need to review their compliance procedures to ensure that they are adequate to prevent fraud. This is important because the only defence to the offence will now be being able to prove that the appropriate compliance procedures were in place.

The Act will also reform the role of Companies House and improve transparency over UK companies and other legal entities in order to strengthen the business environment. The Companies House reforms include:

Identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Companies House Registrar.
Broader powers for the Registrar of Companies House to become a more active gatekeeper over company creation and custodian of more reliable data.
Improved financial information on the register.
More effective investigation and enforcement powers for Companies House.
Enhanced protection of personal information provided to Companies House.
Broader reforms to clamp down on misuse of corporate entities.

The Act also reforms the rules governing limited partnerships in order to make it more difficult for criminals to misuse them. The reforms will include:

Tighter registration requirements.
A requirement for limited partnerships to maintain a connection to the UK.
Increased transparency requirements.
New powers for the Registrar to deregister limited partnerships.

The Act provides additional powers to law enforcement to seize and recover cryptoassets that are the proceeds of crime or associated with illicit activity. This will be done by amendments to the Proceeds of Crime Act 2002.

The government is also strengthening anti-money laundering powers by:

Allowing businesses to share information more easily for the purposes of preventing, investigating or detecting economic crime.
Enabling proactive intelligence gathering by law enforcement.
Expanding the types of case in which businesses can deal with clients’ property without having to first submit a Defence Against Money Laundering (DAML) SAR.

As well as the amendments to Companies House requirements, the Act amends the powers of the Solicitors Regulation Authority, the Serious Fraud Office and the National Crime Agency.

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Feedback statement on AI in the UK

Three of the UK’s regulators, the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority have published a feedback statement on an earlier discussion paper which considered how artificial intelligence (AI) might affect their respective objectives for the prudential and conduct supervision of financial firms. In summary, the feedback statement reports the following observations.

A regulatory definition of AI is considered unhelpful, favouring alternative, principles-based, or risk-based approaches that focus on specific AI characteristics and associated risks.
Rapidly changing AI capabilities require regulators to provide ‘live’ regulatory guidance that is regularly updated and includes best practice examples.
Ongoing industry engagement, exemplified by initiatives like the AI Public Private Forum (AIPPF), is crucial and can be a model for public-private collaboration.
The regulatory landscape for AI is seen as complex and fragmented, necessitating greater coordination and alignment among regulators, both domestically and internationally.
Respondents highlighted the fragmented nature of data regulation and the need for regulatory alignment, especially in addressing data risks related to fairness, bias, and the handling of protected characteristics.
Regulation and supervision should prioritise consumer outcomes, emphasising fairness and ethical dimensions.
Concerns were raised about the increased use of third-party models and data, calling for additional regulatory guidance, including reference to DP3/22 on operational resilience concerning critical third parties.
Due to the complexity of AI systems, a coordinated approach across business units and functions, particularly collaboration between data management and model risk management teams, is recommended to mitigate AI risks.
While the principles proposed in CP6/22 on model risk management are seen as generally sufficient for addressing AI model risk, certain areas may require strengthening or clarification to address AI-specific issues.
Existing firm governance structures, including regulatory frameworks such as the Senior Managers and Certification Regime (SM&CR), are believed to be adequate for addressing AI-related risks.

The responses were collated from 54 different firms.

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UKFIU publishes latest newsletter on money mules

The UK’s National Crime Agency has published its latest SARs in Action, a special publication examining the role of money mules in money laundering crimes. The publication includes a list of indicators that may suggest money mule activity. These include:

Unexplained significant cash deposits at branches or Post Offices.
Multiple same-day cash deposits across different branches or regions.
Deposits deliberately kept just below transaction thresholds.
Large-scale purchases of high-value luxury items.
Unusual concentrations of Scottish and Northern Irish banknotes.
Utilization of test payments, also known as ‘coupling,’ to link accounts and validate new payees and IP addresses.
Continued suspicious activity despite contact from a financial institution.
Transactions involving cryptocurrency exchanges.
Transactions with payment service providers or electronic money institutions.
In the case of cryptocurrency wallets, funds may recombine after going through a tumbler service.
Accounts associated with a UK company recently registered with Companies House or purchased through a formation agent.
Company accounts used to commingle funds from various criminal activities alongside legitimate income.
Significant cash deposits or transfers from another account receiving cash deposits, followed by substantial spending on luxury goods.
Use of a secondary personal account to isolate activity from the primary account.
Repeated high-value purchases from the same retailer or within short timeframes, suggesting the acquisition of duplicate luxury items.
Fraud transactions from multiple source accounts sent into one account.
An account holder who can not be reasonably expected to manage their finances because of health reasons.

The publication also includes a number of case studies looking at money mule activity and includes ideas on how to educate young people on the risks of becoming involved. It also reminds readers that the new SAR Portal is now open for all reporting organisations to register and use, following the public launch in September 2023. All remaining organisations still to transition to using the new portal are encouraged to do so as soon as possible. All SARs submitted using the new Portal have an enhanced data structure, improving the utility of SARs.

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SEC charges investment adviser with elderly client fraud

The US Securities and Exchange Commission (SEC) has taken legal action against Julie Anne Darrah, an investment adviser, and her firm, Vivid Financial Management, Inc (VFM), filing charges and securing a consented-to asset freeze. The charges revolve around the alleged misappropriation of more than $2 million from at least nine clients, with a focus on vulnerable elderly female advisory clients.

The SEC’s complaint paints a troubling picture of financial exploitation and deceit. It asserts that Darrah, acting in her capacity as an investment adviser through VFM, targeted clients who had entrusted her with their financial well-being, with one client residing in a memory care facility. The complaint outlines a series of manipulative actions taken by Darrah to gain control over her clients’ assets.

Darrah’s tactics allegedly included assuming trustee roles for her victims’ trusts, utilising standing letters of authorisation to transfer funds from brokerage accounts to bank accounts, becoming the signatory on bank accounts, and obtaining power of attorney over property and accounts. Subsequently, she purportedly channelled her victims’ funds into her personal bank accounts. These ill-gotten gains were then mixed with her own finances, which she used for various personal purposes.

According to the SEC’s complaint, Darrah’s misappropriation of client funds funded real estate investments, covered personal expenses, facilitated the acquisition of luxury vehicles, and even financed loss-making restaurant businesses.

The complaint further details how Darrah sought to conceal her activities by manipulating client account mailing addresses to direct communications to her own address. She allegedly misrepresented her role as a trustee for any clients and had a client initial two backdated promissory notes in response to SEC subpoenas, adding layers of deception to her scheme.

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Hong Kong’s Insurance Authority signs MoU with ICAC to strengthen cooperation to combat corruption

Hong Kong’s Insurance Authority has announced it has signed a memorandum of understanding with the Independent Commission Against Corruption (ICAC).

The ICAC was established under the Independent Commission Against Corruption Ordinance (ICACO) as an independent anti-corruption agency accountable directly to the Chief Executive of Hong Kong. It is the statutory duty of the ICAC to, among other things, investigate corrupt practices and offences under ICACO.

The IA was established under the Insurance Ordinance (IO). It has responsibilities under the IO, to regulate and supervise the insurance industry for the promotion of the general stability of the insurance industry and for the protection of existing and potential policy holders. It is responsible for, among other things, supervising authorised insurers’ and licensed insurance intermediaries’ compliance with the provisions of the IO, and regulating the conduct of insurance intermediaries through a licensing regime.

Hence the new MOU sets out the framework for handling corruption crimes relating to the insurance industry, and strengthens collaboration in areas covering the referral of cases, joint investigations, the exchange of information, and the provision of expert assistance.

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ASIC signs MMoU with International Association of Supervisors

The Australian Securities & Investments Commission (ASIC) has signed the International Association of Insurance Supervisors (IAIS) Multilateral Memorandum of Understanding (MMoU), an international supervisor cooperation and information exchange agreement. The IAIS MMoU serves as a robust global framework that not only fosters compliance but also upholds the principles of confidentiality essential for effective cooperation among insurance supervisors worldwide. To attain signatory status, applicants, including ASIC, must undergo a rigorous assessment of their professional secrecy regimes, which is conducted by an independent team of IAIS members.

The primary objective of this collaborative initiative is to promote financial stability and sound supervision in cross-border insurance operations, all with the ultimate aim of safeguarding the interests and protection of consumers.

The IAIS, a globally recognised standard-setting body, has a mission to ensure effective and consistent supervision in the insurance industry, leading to fair, safe, and stable insurance markets that benefit policyholders and contribute to global financial stability. With a membership encompassing insurance supervisors from over 200 jurisdictions, the IAIS plays a pivotal role in shaping international insurance regulation.

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