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The UK government is proposing to introduce a mandatory economic crime levy on regulated businesses and has recently published a consultation paper seeking industry views on the levy’s design. In this article, we set out a high-level overview of the levy and the role it is intended to play as part of the public-private partnership drive to tackle economic crime in the UK. We also assess the potential barriers to the successful adoption and implementation of the levy from the perspective of both the public and private sectors.
In July 2020, the government published a consultation paper inviting views on various aspects of the proposed economic crime levy. The consultation represents the latest in a series of steps taken by the UK government to enhance the UK’s protections against economic crime and safeguard its reputation as a safe place to do business.
The levy has its roots in several key developments of the past few years. In December 2018, the Financial Action Task Force reported the results of its assessment of the UK’s anti-money laundering (“AML”) and counter terrorist financing (“CTF”) system. This found that although the UK had a well-developed and robust AML and CTF regime, it needed to strengthen its supervision and increase the resources of its financial intelligence unit (which is housed within the National Crime Agency).
The UK Home Office and Treasury, with input from UK Finance (an industry association for the UK’s banking and financial services sector), subsequently published an Economic Crime Plan for 2019-22 (the “Economic Crime Plan”), articulating the action being taken by the public and private sectors to counter economic crime. One of the strategic objectives of the Economic Crime Plan was to strengthen the capabilities of law enforcement, the justice system and the private sector to detect, deter and disrupt economic crime. This included an action to develop a sustainable, long-term resourcing model for economic crime reform, exploring funding from both the private and public sectors.
As part of the 2020 Budget, published in March, the government announced its intention to introduce a levy, to be paid for by firms which are subject to the Money Laundering Regulations (the “MLRs”) (“regulated firms”), to help fund new government action to tackle money laundering and ensure delivery of the reforms committed to in the Economic Crime Plan.
The levy on regulated firms is intended to raise £100 million a year to complement other resources such as public sector funding and the Asset Recovery Incentivisation Scheme (whereby government, law enforcement agencies and prosecutors receive a proportion of recovered assets). The government has also indicated that it will explore whether suspended funds can be unlocked to pay for economic crime reform.
Broadly speaking, the government’s preferred calculation method as set out in the consultation paper appears to be to base regulated firms’ levy contributions on their revenues from UK business activity, with a possible exemption for small businesses and minimum payment provisions. The paper nevertheless puts forward various alternative options for consideration by businesses, such as calculation by reference to the number of suspicious activity reports (“SARs”) submitted (being a proxy for money laundering risk). It also seeks views on whether the levy should be collected and enforced by a government agency on the one hand, or the specific supervisory bodies for individual business areas on the other. Late payment would generate a penalty charge, recoverable as a civil debt and subject to interest.
The intention is for the first levy payments to be made in the Financial Year 2022-23, subject to various factors, such as incorporating the findings of the consultation, putting the levy on a statutory footing and establishing the operational framework for collection and enforcement.
Proceeds from the levy will pay for enhanced government action to tackle money laundering, including commitments introduced in the Economic Crime Plan, such as:
The consultation paper acknowledges that a levy on AML regulated firms can only partially address the requirement for a sustainable resourcing model in respect of the spectrum of economic crime. It therefore seeks views on the options for funding the fight against fraud, including whether a broader range of private sector actors (beyond just AML regulated firms) should contribute to this.
Regulated firms might question the basis on which they should be required to contribute to the levy. Indeed, the government acknowledges that regulated firms already bear the burden of significant compliance costs associated with requirements prescribed in the MLRs, as well as reporting obligations under the Proceeds of Crime Act 2002 (not to mention tax contributions). In this regard, the government’s justification centres on the premise that firms whose business activities are exposed to money laundering risk should pay towards the costs associated with responding to and mitigating that risk. Furthermore, certain of the developments to be funded by the levy may result in efficiencies not just for government but also for regulated firms themselves, such as the SARs Reform Programme. Nevertheless, with balance sheets under significant pressure as a result of the Covid-19 pandemic, regulated firms will be keen to see that their financial obligations under the levy are reasonable, reflective of actual risk and calculated on an equitable basis.
Conversely, there are question marks as to whether the introduction of the levy in and of itself will be sufficient to ensure that the UK’s fight against economic crime is adequately resourced. The actions set out in the Economic Crime Plan will not come cheap – for example, the costs of the SARs Reform Programme are estimated at around £100-150 million. Public sector funding will therefore continue to play a significant part in putting the UK on a footing to tackle economic crime.
The consultation is open until 13 October 2020. It will be interesting to see how the proposal develops in light of the responses received.