Economic Crime – Report Summary

This is a House of Commons Committee report, with recommendations to government. The Government has two months to respond.

Author: Treasury Committee

Related inquiry: Economic crime

Date Published: 2 February 2022

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Economic crime is a major and rapidly growing problem in the UK. This Report follows up on the two reports covering different aspects of Economic Crime published in 2019 by our predecessor Committee. It looks at the effectiveness of measures taken to address economic crime since 2019 and at the Government’s Economic Crime Plan.

Since 2019, it appears that economic crime has not reduced but has instead continued on an upward trend. The Minister for Security and Borders at the Home Office told us that he was “not happy” with the progress that the Government had made in tackling economic crime. Nor are we. But we accept that a plan to co-ordinate this work, such as the existing Economic Crime Plan, is a sensible approach. The Economic Crime Plan is for the period 2019 to 2022, and this year there is an opportunity for the Government to review how well the Plan has operated, its strengths, and its failings. It should be adapted as necessary and renewed for a further three years. We expect that the Government will use the opportunity to push harder and act faster to reduce fraud and economic crime across a range of policy areas. The Government should consider whether policy responsibility should be centralised in a single Government department.

Economic crime seems not to be a priority for law enforcement. The number of agencies responsible for fighting economic crime and fraud is bewildering. Each of the enforcement agencies has other crime-fighting or regulatory objectives, and the Government needs to consider whether there should be a single law enforcement agency with clear responsibilities and objectives to fight economic crime. The Government must ensure that law enforcement agencies are appropriately resourced to tackle the scale of the problem.

We recommend that, in its response to this Report, the Government sets out the legislation which is being worked upon across Government and that is relevant to addressing economic crime, and provides an assessment of the measures that might be required to be brought in through an Economic Crime Bill, the timescales for this, and why it has chosen not to bring forward such a bill at this time.

We reiterate our strong belief that the Government should include measures to address fraud via online advertising in the Online Safety Bill, in the interests of preventing further harm to customers being offered fraudulent financial products. The Government should ensure that financial services advertising regulations apply also to online companies, and that the FCA has the necessary powers to effectively enforce the regulations. Online companies should not profit both from paid-for advertising for financial products and for warnings issued on their platforms by the FCA about those advertisements. We encourage all online companies to work constructively with Government agencies and the wider public sector to fight online scams and fraud. The Government should also ensure that regulators and law enforcement agencies have the powers they need to ensure that online companies provide them with information and comply with regulatory requirements.

The work of the Payment Systems Regulator (PSR) to improve the Contingent Reimbursement Model (CRM) Code is welcome. We recommend that the Government urgently legislates to give the Payment Systems Regulator (PSR) powers to make reimbursement mandatory. Improving data-sharing between banks is one of the measures which the PSR is implementing as part of its reform of the CRM Code. The Treasury should be ready to bring forward any legislation which is needed to enable this, and the PSR should ensure that banks act quickly in putting in place the necessary changes.

The Suspicious Activity Reports (SARs) reform programme is likely to improve anti-money laundering systems and the ability of law enforcement agencies to handle large numbers of SARs quickly and effectively. It is, however, disappointing that the programme is not yet complete and that no timetable or target date for its completion has been published. A timeline showing when the milestones are expected to be met, and an annual progress report on the programme, should be provided to this Committee. The SARs reform programme can only deliver change if the Government ensures that the law enforcement agencies have the ongoing capacity and funding to tackle the criminal activity indicated by SARs.

Whilst the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) has made good progress, it is disappointing that nearly four years after it was set up, it is still encountering poor performance from a large proportion of the professional bodies that it supervises. The forthcoming Government review of the regulatory and supervisory regime for anti-money laundering and counter-terrorist financing, expected to conclude by June 2022, needs to address the concerns we have heard in this inquiry about the limited forward steps in compliance that OPBAS has so far secured. We recommend that the review should not shy away from considering radical reforms, including a move away from the self-regulatory model and the creation of a new supervisory body, potentially independent of the FCA.

HMRC’s self-assessment of its performance in supervising anti-money laundering (AML) is not truly independent, and we recommend that HMRC finds a way to give independent assurance about its AML performance. The Treasury’s review of the regulatory and supervisory regime for anti-money laundering should also consider HMRC’s role as a supervisor.

The new assertive approach by the FCA is welcome. The prosecution of NatWest is a major success. The level of the fine should be a deterrent to others. The question is whether this was an isolated case or whether more prosecutions of banks and financial institutions for money laundering will follow. While that would show effective enforcement, it would also signal that money laundering controls are not working as they should be within the institutions prosecuted.

We will continue to monitor the de-risking of customers by banks. We recommend that the FCA report annually on numbers of de-risking decisions and on progress to ensure that banks are not unfairly freezing bank accounts and de-risking customers.

We note the increasing risks around cryptoassets and economic crime. We welcome the announcement by the Treasury that the Government will legislate to bring advertising of cryptoassets advertising into line with that of other financial services and products, and that the FCA is strengthening financial promotion rules, including those for cryptoassets. The work being done by the Advertising Standards Authority to protect consumers from misleading advertisements for cryptoassets is also welcome. The Government should ensure that there is proper consumer protection regulation across the whole cryptoasset industry. Not all cryptoasset firms have been registered for anti-money laundering (AML) purposes. It is unacceptable that, having introduced AML regulations for cryptoasset firms in 2020, there are so many firms which have not yet been registered.

We are disappointed that the Government has not yet implemented reform of corporate criminal liability. The decision taken in 2020 to ask the Law Commission to review the law on corporate criminal liability is a sensible step, given the complexity of the law in this area, but it is likely to be years before any change in the law results.

Reform of Companies House is essential if UK companies are no longer to be used to launder money and conduct economic crime. We welcome the work being done by the Department for Business, Energy and Industrial Strategy and by Companies House to modernise the legal framework and operations of Companies House. However, the pace of change is slow. The problems with UK company structures were identified by the Government in 2014.

Waiting until the operational transformation of Companies House is complete risks further delay beyond 2025 if, as with many public sector change and IT projects, unexpected difficulties slow project delivery. Given the urgency of the problem, the Government should seek ways to implement as many reforms as possible sooner, before embedding a full transformation.

The low costs of company formation, and of other Companies House fees (such as filing fees), present little barrier to those who wish to set up large numbers of companies for dubious purposes. The Government should significantly increase the costs of company and Limited Liability Partnership incorporation (including Scottish Limited Partnerships) and should review other Companies House fees to bring them closer to international standards. A fee of £100 for company formation would not deter genuine entrepreneurs, and would raise significant additional funding for Companies House and for the fight against economic crime.

We are disappointed that the Registration of Overseas Entities Bill is still awaiting introduction, more than five years after it was promised, and after scrutiny by a Joint Committee. We urge the Government to include a Registration of Overseas Entities Bill in the Queen’s Speech for the next Parliamentary session.