In his March 2020 budget announcement, the Chancellor, Rishi Sunak, announced plans to raise £100 million per year via an economic crime levy designed to help fund the UK's efforts to tackle what the Government has called the "..significant and ever changing threat" of economic crime.
The Government's rationale for the levy was that the fight against economic crime could only be furthered by an additional public-private partnership, which would see those who "contribute" to the economic crime risks within the UK economy pay towards helping to combat them.
The Government's consultation, launched at the height of the pandemic in July 2020, identified that money laundering was the nucleus of all economic crime. The consultation proposed that the economic crime levy would be imposed on the anti-money laundering (AML) - regulated sector. With banks, accountancy firms, casinos, law firms, art market participants and many more, having to pay the proposed levy if they met the requisite threshold conditions.
On 21 September the Government published its response to the consultation and the draft legislation for what it has now termed the "Economic Crime (Anti-Money Laundering) Levy".
Key points to note from the consultation response and draft legislation are:
- The levy will be paid by entities subject to the Money Laundering Regulations.
- The levy will be calculated on entity size which is based on UK revenue only.
- The amount of levy an entity will have to pay will depend on which band size they fall into. The band size will be inspired by the Companies Act 2006 categories for small businesses.
- Non-UK resident casinos that are regulated by the Gambling Commission, which provide facilities for remote gambling but have no permanent establishment in the UK will be liable to pay the levy.
- Businesses with a UK threshold revenue of under £10.2 million are exempt from paying the levy.
- The levy will be charged annually in accordance with a fixed fee system.
- The anticipated fixed fee bands will be:
- £150,000 to £250,000 for very large businesses (i.e. with a UK revenue over £1 billon);
- £30,000 to £50,000 for large businesses (i.e. with a UK revenue between £36 million and £1 billon); and
- £5,000 to £15,000 for medium sized businesses (i.e. with a UK revenue between £10.2 million and £36 million).
- The levy will be collected by the three statutory AML supervisors:
- HMRC (who will also take on collection responsibilities for in-scope legal and accountancy firms supervised by the 22 Professional Body Supervisors);
- The FCA; and
- The Gambling Commission.
- These bodies will collect the levy from entities that they already supervise for AML purposes.
- Entities will have to make a return on the levy to their AML supervising collectors by self-declaring or responding to an invoice from the collector.
- Any unpaid levy debt will be owed as a civil debt to the Crown and will incur interest.
Analysis
The Government has clearly heard the responses it received from the 119 respondents to its consultation but it is unclear whether it has actually listened to them.
Prior to the publication of the consultation there had been some disquiet amongst sectors of industry about using revenue as the basis for calculating how much levy an entity should pay. In its response, The Law Society argued that using turnover as the metric to calculate how much of a levy an entity should pay would deter investment in UK legal services. International law firms, for example, may not want to expand into a market that would penalise them for carrying out lawful services on behalf of their clients. Art market participants have argued that gross profit margin is a much fairer calculation base for the levy for their industry because of how their fees on the artwork they deal in are calculated.
Further, some argued that only revenue generated from AML-regulated activity should be accounted for in the levy since the very purpose of the levy is to combat money laundering. However the task of segregating revenue generated from AML-regulated activity from revenue generated from non-AML regulated activity might be difficult and time consuming. In any event, the Government has decided not to make these distinctions.
The Government's decision to use UK revenue as the basis for calculating the levy rate will invariably have a disproportionate impact on certain sections of the AML-regulated industry. It is perhaps telling that there is a feeling in some sectors that the current AML system has been developed for the benefit of financial services businesses which also generate the largest number of Suspicious Activity Reports (SARs).
The Government has not explicitly committed itself to ring-fencing the anticipated £100 million that the levy will generate to fund AML initiatives. The 90,000 entities that make up the AML-regulated sector are already devoting time, money and manpower to fighting money laundering and other forms of economic crime to the benefit of the wider UK business landscape. The money that they will have to contribute towards this levy arguably should not be spent on activities benefitting out of scope entities, if those same entities are not paying towards the levy.
There is also a sense that successive governments have seen imposing additional laws and legal mechanisms as the main way to solve problems. There is not a similar appetite for reflecting on how effective existing legal frameworks are and how those might be strengthened or money better spent.
The picture emerging from the present state of affairs is that it appears that the Economic Crime (Anti-Money Laundering) Levy may be just another tax on the AML-regulated sector as opposed to an initiative that is worth the necessary burden.