The UK’s new Economic Crime and Corporate Transparency Bill (ECCT) is in its second reading and is set to become law in 2023.
Among its many reforms, the Bill creates new provisions in the Proceeds of Crime Act 2002 (POCA) to enable the sharing of information between certain businesses for the purposes of preventing, detecting, and investigating economic crime.
Businesses concerned about criminal activity are currently unable to share information easily between themselves, greatly hampering the detection of criminal networks. As criminals tend to use many accounts, even if one company does detect wrongdoing, perpetrators can simply rely on other providers or open new accounts elsewhere.
The Bill aims to tackle this by enabling far more effective and targeted direct and indirect information sharing.
More effective monitoring is on the horizon
The information sharing measures apply mainly to anti-money-laundering (AML) and counter-terrorist financing (CTF) regulated businesses, such as banks, payment providers, and brokers.
However, UK-based crypto-asset providers might also be required to share information with law enforcers. This would enable authorities to track activities across crypto accounts, which currently are not monitored effectively.
Overall, the response has been positive.
Rodrigo Zepeda, CEO of Storm-7 Consulting stated, “Previously, there was no way to share information between these firms. Under the ECCT, all UK banks would be able to share AML information directly. This could make their AML frameworks tremendously more efficient; and enable them to cross-check and verify information, including automatic checks before a suspicious activity report (SAR).”
The ECCT also provides for indirect sharing, which could be revolutionary for both firms and enforcers. If the technology can be developed to support this, all regulated firms could post information for other regulated firms to access, which would include banks, payment providers, brokers, law firms, accountants, cryptoasset exchanges, and wallet providers.
It presents an unprecedented opportunity for software providers to create third-party information sharing technologies and services. Businesses could then benefit significantly from this collective information. For example, it could ease AML reporting by providing firms with a wider view of SAR reporting. It could also support more preliminary internal investigations to address or eliminate red flags.
Such technology could also greatly help the National Crime Agency by providing it with an aggregated view of transactions.
How information sharing could take the fight to decentralised crime
Money launderers and terrorist financers are prolific users of decentralised payment networks, which can be accessed by anyone, anywhere in the world.
Criminals often open large numbers of digital wallets, crypto exchange accounts, and online payment accounts – then set up automatic payments and transfers across these vehicles.
They might use as many as 500 automated and unmonitored transactions to cover their tracks. So far, creating software that can track such activity has been extremely difficult and expensive. But if crypto providers were required to share information with enforcement agencies, no doubt the necessary software would be developed, so that the authorities could potentially track activities across all accounts.
The Bill also presents many challenges
It will be a significant challenge for teams in authorised businesses to become versed in all the Bill’s complex provisions. This particularly applies to the new types of firms not yet used to rigorous compliance frameworks – such as neo banks, crypto exchanges, and wallet providers.
The problem is that the new laws will require firms to train all relevant employees. But all too often training isn’t taken seriously or is given a low priority which can result in huge mistakes in AML and CTF compliance frameworks.
The US regulator recently fined large Wall Street firms $1.1 billion for record-keeping failures and failing to adhere to compliance rules. The ECCT could create similar risks for UK firms if they do not implement robust compliance processes and the associated training.
For example, unless there is a legal privilege, the bill would allow enforcement officers to demand electronic information. As a result, providers would need to school all legal and compliance staff to recognise exactly what is legally privileged.
‘This is highly legalistic, especially in crypto-assets,” says Zepeda. “Not all compliance officers in such firms will be familiar with, or experienced in it. They will probably not train their employees in these areas. In such a complex environment, it may also be difficult to identify which rules impact them.”
The ECCT has several stages yet to complete, so firms have time to get to grips with its implications. But they need to start assessing the likely impact and plan for changes to their compliance frameworks now. Crypto providers will likely face a steep learning curve in implementing compliance – including around formal law enforcement cooperation and legal privilege procedures.
Law enforcers may use their new ECCT powers extensively in future, especially given the huge role cryptoassets play in money laundering. New investigations, information requests and orders may well become commonplace. As a result, agencies will expect timely cooperation, and compliance staff must be ready and able to respond.
Technological solutions are set to play a huge role
The current AML/CFT framework is extremely large, complex, and unwieldly; and compliance costs have been rising significantly. The challenges in ECCT will add to this – further highlighting the importance of technologies in tackling the new compliance burden.
Authorised firms will likely need new technology frameworks to manage and monitor ECCT cooperation activities. They will also have to update current compliance technologies to reflect the new provisions, including in relation to enhanced due diligence and disclosures.
Criminals have had it far too easy since the evolution of the crypto world. Though the challenge is significant, this Bill is a chance to finally turn the tables and make life much harder for them.
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