In late March, the UK government made a series of announcements focussed on improvements to its ability to tackle economic crime, including crime that exploits crypto assets. Key improvements included the announcement of the government’s second Economic Crime Plan, a Levy to pay for the reforms in the Plan, and a forthcoming Fraud Strategy. Below, our Policy team breaks down what these mean for cutting crime in the crypto asset sector.
Economic Crime Plan II
The second Economic Crime Plan was announced at the end of March, and sets out how the government will respond to economic crime between 2023-2026. It centers around three main outcomes: reducing money laundering and recovering more criminal assets, combating kleptocracy and driving down sanctions evasion and finally, cutting fraud.
Within each of these outcomes, the government sets out detailed plans for how policymakers, regulators, law enforcement and the private sector can contribute to each of these objectives.
For the first time, the Plan includes a dedicated section on combating the ‘criminal abuse of crypto assets’ which can be found under the ‘reduce money laundering and recover more criminal assets’ goal. This section acknowledges that despite most crypto assets transactions being legitimate, they can provide ‘attractive technological enabler for criminal activity’.
To combat this criminal activity, the Plan sets out an ambitious list of actions to robustly regulate cryptoasset activities to protect consumers and firms.
The continued need for collaboration with the cryptoasset sector to mitigate financial crime and fraud risks is recognised throughout the Plan, as well as the need to boost the law enforcement resources for more impactful changes. This includes the establishing of an expert-led multi-agency cell, pooling knowledge and abilities to tackle criminality.
The Plan outlines that the UK will also continue to work collaboratively with other jurisdictions, including through the work of FATF, to ensure robust international responses to the regulation and supervision of cryptoasset firms.
Below are the key activities that the government will work on over the next three years:
- Creating a multi-agency cell and virtual asset strategy in the National Economic Crime Centre
- Establish training for frontline officers and training for partner agencies to improve their overall understanding of crypto assets
- Build up expertise to deliver robust and detailed advice to support the courts
- Implementation of the Travel Rule and passing the Economic Crime and Corporate Transparency Bill
- Continue to improve the FCA’s communication on crypto registration and what good and bad looks like
- Increased law enforcement and regulatory actions
- Establish a Public Private cell to straighten the response to emerging illicit finance issues
- Use FCA data analytics to develop innovate ways to identify risks
- Map and improve the security and storage of seized crypto assets
- Formalize and strengthen Public Sector access to track and trace software
Economic Crime Levy
Alongside the Economic Crime Plan, the government also gave an update on the Economic Crime Levy. The Levy, which was first announced in 2020, recognises the current limits of public resources to combat economic crime effectively. It mandates that AML regulated businesses whose revenue is above £10.2 million a year, including crypto asset exchange providers and custodian wallet providers, will be charged a levy, determined by a firm’s revenue, beginning in July 2023 with the goal to increase the resources available to authorities to combat economic crime.
The levy aims to raise £300 million over three years, and will be spent as outlined below :
- £100 million for state-of-the-art technology to analyze & share real-time data on threats.
- Hiring 475 new investigators & training 6,500 existing ones to combat financial crime.
- £60 million for specialist intelligence teams to tackle complex global money
- laundering networks.
- Funding for 75 officers & 22 new financial investigators to analyze Suspicious Activity Reports.
- £20 million for Companies House & the Insolvency Service to create new intelligence teams.
- £1.2 million for a dedicated team to reform the AML supervisory regime
As outlined in our recent post, the UK has a problem with fraud and increasingly crypto fraud. In 2022 alone, the UK suffered 4.5 million incidences of fraud, committed in person, over the phone and online. Digital assets are becoming a larger part of the UK’s fraud landscape, with 8 out 10 frauds now having a digital element.
In the latest figures released alongside the Economic Crime Plan II, it is reported that in 2022 the UK saw an 157% increase in reports of fraud when compared with the previous year. To respond to this problem, the government will release its first ‘Fraud Strategy’ in the coming months which will also be complemented by the wider Economic Crime Plan.
Anything else worth noting from these recent developments?
Yes! In addition to the above reforms, the UK government is also preparing for the ascension of the second Economic Crime and Corporate Transparency Bill. When passed, this bill will expand the powers available to UK authorities to seize, store, potentially sell and even destroy criminal crypto assets.
Overall, the UK’s toolbox for combating the criminal exploitation of crypto assets has just had an upgrade, and although it may take a few years to see the impact, these reforms should go a long way in improving the integrity of the UK’s crypto asset market.
This announcement will be seen as a significant statement of intent, and one that will be very welcomed by law enforcement agencies in the UK, who have been working diligently in this fast-evolving sector. The announcement of strategic cross-agency collaboration will build on the existing sound foundations in this space, with recent successful efforts including the recent joint enforcement by policing and the FCA.
This levy provides a needed funding boost for the whole sector to continue developing robust programs to combat economic crime.
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