ECCTA Incoming...The Fight Against Economic Crime
As we discussed in our previous article, the Economic Crime and Corporate Transparency Act 2023 (“ECCTA”) represents a significant development in the evolving landscape of economic crimes and introduces a suite of reforms aimed at tackling financial wrongdoing, strengthening the power of enforcement agencies and also addressing the challenges posed by emerging technologies such as cryptoassets.
In this article we examine the implications of ECCTA on the Legal Services Act 2007 (“LSA”), the broader fight against economic crime, and the new powers ECCTA introduces to seize and recover criminal cryptoassets.
Impact on the Legal Services Act 2007
The LSA introduced the concept of Alternative Business Structures (“ABS”) and established the Legal Services Board (“LSB”) to oversee regulatory bodies.
ECCTA, while not amending the LSA directly, has the effect of exerting a notable indirect influence on the legal profession’s responsibilities and risk landscape, particularly in relation to anti-money laundering (“AML”) and the handling of client assets.
The enhanced focus on transparency, due diligence, and beneficial ownership which is introduced under ECCTA, compels legal professionals and firms to bolster their AML procedures and internal compliance systems.
Law firms, being gatekeepers for many financial and corporate transactions, are increasingly expected to identify and report suspicious activities, especially those involving complex asset structures or cryptoassets.
Failure to comply with these duties may result in heightened regulatory scrutiny and, potentially, disciplinary action under the LSA regime.
As such, ECCTA amplifies the obligations of legal service providers and reinforces the culture of compliance within the profession.
Tackling Economic Crime
Economic crime costs the UK enormous sums of money annually.
ECCTA is a direct response to persistent weaknesses in the detection and prosecution of such crimes, especially in light of technological advancements that allow criminals to exploit gaps in law and regulation.
ECCTA introduces new offences, streamlines information sharing between agencies, and gives law enforcement agencies greater access to company and property registers.
It also places greater emphasis on transparency regarding the ownership and control of companies, aiming to curtail the abuse of corporate vehicles for illicit purposes.
For the legal sector, this translates into an expanded duty to verify the provenance of funds and the legitimacy of business structures, thereby playing a crucial role in the national effort to combat economic crime.
Seizing and Recovering Cryptoassets
ECCTA recognises cryptoassets as both a new farming field for criminal activity and a critical asset class for law enforcement intervention.
Cryptoassets such as “Bitcoin” and “Ethereum” have historically been utilised in money laundering, ransomware, and other illicit schemes due to their perceived anonymity and ease of cross-border transfer.
ECCTA has introduced significant amendments the Proceeds of Crime Act 2002 (POCA 2002) to address the recovery and regulation of cryptoassets in England and Wales. These came into effect on 26 April 2024 and grant law enforcement agencies additional powers to seize, freeze, and recover cryptoassets suspected to be the proceeds of crime or intended for use in criminal conduct.
The powers ECCTA grants address practical challenges previously faced by agencies such as the need for specialist knowledge, the difficulty of tracing assets across decentralised networks, and the legal vacuum surrounding digital property.
For the legal profession, the implications of ECCTA are twofold.
Firstly, lawyers advising on asset recovery or acting for clients whose assets have been seized will need to possess up-to-date knowledge of the applicable law and technical aspects of cryptoassets.
Secondly, law firms handling such assets will need to develop robust policies to manage and, where appropriate, report cryptoasset transactions, further embedding additional compliance within their operations.
Comment
Colette Kelly, Partner in our Regulatory and Criminal Group comments:
“The introduction of ECCTA marks a decisive shift in the UK’s approach to economic crime, with significant repercussions for the regulation of legal services and the handling of cryptoassets.
“By enhancing transparency, strengthening enforcement powers, and addressing the complexities of the digital economy, ECCTA not only equips regulators and law enforcement with better tools but also places the legal profession at the heart of the national response to financial crime.
“For legal service providers, this translates into greater responsibility, elevated compliance expectations, and a need to adapt to an increasingly sophisticated risk environment.
“As the regulatory landscape continues to evolve, the legal sector must remain vigilant, proactive, and informed to navigate these new challenges effectively.”
