Economic Crime and Corporate Transparency Act 2023

mariam-abu-hussein
Mariam Abu HusseinLegal Assessment Specialist @ Lawhive
Updated on 23rd February 2024

Reforms to the Economic Crime and Corporate Transparency Act aim to tackle economic crime and improve transparency over corporate entities. These changes have been in the pipeline for a while. 

This article is aimed at clearing up what these changes mean for corporate entities in the UK, so they can understand how the act will affect their business as well as outlining the impact it will have on companies and limited partnerships.

What is the economic crime and corporate transparency act? 

The Economic Crime and Corporate Transparency Act 2023 brings widely awaited reforms into law. The act received Royal Assent, meaning it became law, on 26th October 2023. It is likely to be seen as a turning point in the UK’s laws on corporate criminal liability.

The reforms as spelled out by the Government are intended to fight corruption, money laundering and fraud. The Government’s press release has hailed the new powers as an opportunity to clamp down and “proactively target organised criminals and others seeking to abuse the UK’s open economy”.

In short, the laws will make it easier to prosecute corporations for illegal activity and introduce a new criminal offence; failure to prevent (FTP) fraud.

It has been welcomed by the Serious Fraud Office with their director Nick Ephgrave saying:

This is the most significant boost to the Serious Fraud Office’s ability to investigate and prosecute serious economic crime in over 10 years. 

This new law will help prevent crime, as big businesses can no longer turn a blind eye to fraud. We welcome the expansion of our search powers, which will help speed up our investigations.

What will the act aim to deliver?

Law enforcement agencies and judicial bodies have been crying out for new powers for a long time. 

It gives law enforcement agencies the ability to tackle corporate malpractice and forces them to clean their acts up as a preventative measure to go with increased powers of prosecution. 

The major reforms mean prosecutors can hold corporations criminally liable for malpractice

The new FTP fraud offence means corporates can no longer bury their head in the sand and avoid consequences when an employee is convicted of fraud that the company benefits from. Instead, under the new law they too will be criminally liable for the actions of their employees. 

Additionally, a legal principle known as the ‘identification doctrine’ will hold businesses to account when senior managers commit an economic crime. 

The 2023 act builds on an initial move last year through the Economic Crime (Transparency and Enforcement) Act 2022, which:

  • Gave the Government the ability to impose sanctions at a quicker pace

  • Created a register of overseas entities which targets criminals from overseas using UK property to launder money – this was rushed through in the wake of Russian oligarchs attempting to launder money following the Russia-Ukraine war

  • Reformed the unexplained wealth order

Upcoming reforms

The reforms to corporate law led by the Economic Crime and Corporate Transparency Act 2023 will see a wave of legislation reform crash over the legal landscape. We’ll cover the changes below.

Companies House

Companies House is a Government agency that oversees the registration and dissolution of companies. It registers company information and makes it transparent by giving free public access to key information about companies, including who runs them, how much they make and where their registered offices are based. 

It will be overhauled by reforms to give it the power to uncover potential money laundering.

The reforms will improve transparency regarding UK businesses and overhaul and make improvements to the companies' register to make it more difficult to abuse the system. Under the changes bad actors looking to move and hide money will find the practice of money laundering much harder to obscure.

The new powers will also mean that businesses will have more confidence in the information listed on the register.

The reforms will also introduce identity verification for all new and existing registered company directors. People with ‘Significant Control’ and those delivering documents to the Registrar will also have to get their identity verified.

This will allow companies to confidently deal with other businesses and allow Companies House to identify fraud.

The institution’s Registrars will also be granted additional powers, changing their role to be more of a custodian of reliable data and a gatekeeper in charge of company creation. These new powers will give them the ability to check and remove new and existing data added to the register.

Financial data will also be improved to ensure the register is more reliable and up-to-date and incorporates developments in the way people manage their finances in a digital environment.

Limited partnerships

New reforms are coming to prevent the misuse of limited partnerships, including in Scotland, and modernise the legislation around them. 

The Economic Crime and Corporate Transparency Act 2023 will:

  • Make registration requirements more thorough

  • Require limited partnerships to have a connection to the UK

  • Enforce higher transparency 

  • Give the Registrar the ability to strike off businesses which are: dissolved, no longer a going concern, when a court judges it’s in the public interest

Cryptoassets

The act means law enforcement will have additional powers to more quickly seize and recover cryptoassets ‘which are the proceeds of crime or associated with illicit activity such as money laundering, fraud and ransomware attacks’.

These new powers are an extension to Parts 2,3 and 4 of the Proceeds of Crime Act 2002 (POCA) and the civil recovery powers in Part 5 of POCA.

It will allow law enforcement agencies to investigate, seize and recover the proceeds of crime from the cryptoassets ecosystem.

We’ve recently written about the worrying rise of crypto scams, so take a look if you want to learn more about how bad actors use the crypto world to scam investors.

Anti-money laundering

The act strengthens the anti-money laundering powers of the judicial system. Especially through better information sharing when investigating suspected money laundering, fraud and a range of other economic crimes.

The reforms allow:

  • Civil liability to be suspended for firms breaching confidentiality to share information on economic crimes. This means money laundering can be investigated and prevented more quickly

  • Crime agencies including the National Crime Agency’s Financial Intelligence Unit (FIU) to investigate more proactively into suspected money laundering and terrorist financing, as the requirement for a pre-existing Suspicious Activity Report (SAR) will no longer have to be completed and submitted before an Information Order (IO) can be made

  • Private sector and law enforcement resources are to be directed to high-value activity by expanding the “types of case in which businesses can deal with clients’ property without having to first submit a Defence Against Money Laundering (DAML) SAR”

Implications for UK businesses

So, you might be thinking ‘How does this impact my business?’. 

Fraud accounts for 40% of all crime in England and Wales, not just economic crime. The Government has stated that the main purpose of the reforms is to tackle fraud and other economic crimes in the corporate sector

The new failure to prevent offence poses serious risks to large corporations. This new offence relates to large organisations only. 

An organisation is considered large when in the financial year before the offence the organisation had:

  • More than 250 employees

  • More than £36 million turnover

These thresholds are adapted from the Companies Act 2006

SMEs are exempted from this offence after a debate bounced between the House of Commons and Lords. The Government ultimately decided that the regulatory red tape would put too great a burden on smaller companies. 

Organisations will have the right to call on a compliance defence when a failure to prevent offence is brought against them. They’ll need to be able to prove that they had reasonable prevention procedures in place when the fraud was committed

Reasonable prevention measures must be designed to prevent employees from committing an offence. If they don’t have these procedures in place, firms can use the defence that it wasn’t reasonable to expect them to have preventions in place at the time related to the specific circumstances of the crime.

This is built on the ‘adequate’ and ‘reasonable’ qualifiers to the failure to prevent bribery and failure to prevent tax evasion offences.

The guidance around prevention procedures is likely to be published by the Government early next year. 

What you need to do:

  • If your organisation is within the scope of the failure to prevent limits, you should carry out a risk assessment

  • Refer to prevention measures once the Government guidance has been published

We’d imagine that the guidance will be similar to the guidance on failure to prevent bribery and failure to prevent facilitation of tax evasion offences as the new guidance is already drawn from these pieces of legislation.

Moreover, your compliance team should be familiar with current FTP offences, therefore they should have a head start when drawing up policies and procedures to address FTP fraud. Of course, FTP fraud laws will be significantly different to other FTP offences, so your compliance team will need to commit the appropriate time and resources to ensure they treat the new legislation with the seriousness it demands.

If in doubt about any of the above which may apply to your corporation or organisation, it is a good idea to speak to a corporate law solicitor to better understand your position and possible risk mitigation strategies.

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