By Craig Weston and Lily Pidge
As part of the Budget 2020, the UK Government have announced plans to introduce an economic crime levy in a bid to tackle financial crime within the UK.
The economic crime tax will be imposed on all firms who are subject to Money Laundering Regulations currently in force (MLR 2017 at the time of writing). A list of the types of firm which the Regulations apply to include credit institutions, estate agents, accountants, tax advisers, law firms, insolvency practitioners and many other professionals who work in the financial services space.
The introduction of the levy forms part of the government’s wider plan on tackling economic crime, which was published by the National Crime Agency (NCA) in July 2019.
The Chancellor, Rishi Sunak, confirmed that the Treasury will begin formally consulting on the levy in the coming spring with a view to publishing a formal Consultation Paper shortly after. The Paper should provide further details including, which firms will be subject to the levy and how much they will be expected to contribute. The Paper will also confirm when the levy will be effective, although it is expected to come into force at some point between 2022 and 2023.
The levy is estimated to raise £100m which will be supplemented with public funding. It is anticipated that this combined fund will then be used to hire private investigators and develop innovative law enforcement technology which will help the NCA identify criminal activities.
The NCA estimates that money laundering costs the UK economy £100bn every year. Therefore, whilst the levy appears unusual in the sense that it is a tax on the private sector to be used for public benefit (i.e. fighting crime), it is said to be justified in that the financial services industry is at the centre of the facilitation of economic crime.
It is hoped that the levy may provide an opportunity for the firms to work with the NCA and ensure that the money raised from the tax is spent developing information sharing techniques between firms and the NCA, as well as improving the pre-existing Suspicious Activity Report regime.
However, opposition to the levy is inevitable. Firms within the financial services sector are already expected to invest huge amounts of money into maintaining internal compliance regimes aimed at fighting economic crime. Therefore, the levy will be seen by some as an additional burden. Questions will be raised as to whether the costs associated with the levy can be passed onto consumers and whether this would be viewed by regulators such as the FCA and SRA as “treating customers” fairly.
Expert Opinion"Given the potential impact it may have across the regulated sector we would encourage any firms who think they may be subject to the levy to engage with the forthcoming government consultation to ensure that any decisions taken to levy firms is done so on a proper evidential basis and a proper and robust impact assessment is undertaken." Craig Weston - Barrister & Senior Associate