After passing through parliament, the Economic Crime and Corporate Transparency Act has now become law.
The Act aims to enhance measures against economic crime and increase transparency of corporate entities. It follows the Economic Crime (Transparency and Enforcement) Act 2022, which enabled the government to impose sanctions more rapidly, established a register of overseas entities (ROE) to target foreign criminals laundering money through UK property, and reformed the UK’s unexplained wealth order (UWO) regime.
1. Provisions under the new Act
As the most significant reform in UK company law in recent years, the new act introduces several key measures:
a. A new regulatory objective in the Legal Services Act 2007 focused on combating economic crime.
b. Reforms to Companies House to prevent the creation and dissolution of fraudulent companies.
c. Measures to prevent the misuse of limited partnerships.
d. Expanded powers to seize and recover suspected criminal cryptoassets.
e. A new “failure to prevent fraud” offence.
f. Actions to address strategic lawsuits against public participation (SLAPPs).
1. Failure to Prevent Economic Crime
The act includes a provision holding businesses liable if they fail to prevent employees or associated third parties from committing economic crimes. The government will publish a list of applicable offences, including false accounting. These offences will relate to core Fraud Act 2006 offences:
a. Fraud by false representation
b. Fraud by failing to disclose information
c. Fraud by abuse of position
Money laundering will not be included as an offence. Corporates will be held liable if an employee or associate commits a listed fraud benefiting the company. However, a defence will be available if the organisation had reasonable procedures in place to prevent fraud, assessed on a case-by-case basis.
This duty will apply to all sectors but only to large organisations, defined by the Companies Act 2006 as meeting at least two of the following criteria:
a. Turnover of more than £36 million
b. Balance sheet total of more than £18 million
c. More than 250 employees
The Home Secretary is required to publish statutory guidance before this duty comes into effect.
2. Companies House Reforms
The following changes to UK company law will come into force on 4 March 2024:
a. Registered Office Changes
Companies must have an appropriate address as their registered office and email, prohibiting the use of PO boxes.
b. Registrar Powers
The registrar will have increased powers to query and challenge information on the register that appears incorrect or inconsistent. Additionally, the registrar will be able to remove information more swiftly if it is inaccurate, incomplete, false, or fraudulent. Stronger checks will be implemented on company names to prevent misleading impressions.
c. Verification Responsibilities
New verification duties for authorised corporate service providers (ACSPs) and trust and company service providers (TCSPs) will include enhanced due diligence obligations.
d. Statement of Lawful Purpose
New companies will need to confirm they are being formed for a lawful purpose. Companies must also confirm the lawfulness of their intended future activities in their annual confirmation statement.
e. Enforcement and Sanctions
Companies House will have the authority to fine, annotate records, or prosecute companies. If a company uses an inappropriate address, it will have 28 days to change it. Failure to comply may lead to the company’s dissolution process being initiated.
3. Exemption for Reporters in the Regulated Sector
Sections 182 and 183 of the act affect Part 7 of the Proceeds of Crime Act 2002 (POCA).
a. Section 182: Exiting a Relationship
Effective from October 26, 2023, a new exemption under sections 327, 328, and 329 (money laundering offenses) allows paying away funds under £1,000 when exiting a customer relationship, where there is suspicion of money laundering or criminal property. For reporters under POCA but not under the Money Laundering Regulations 2017, there is no change.
Legal advice is recommended regarding responsibilities under this change. The Home Office will issue guidance.
b. Section 183: Mixed-Property Transactions
A new exemption for mixed-property transactions under sections 327, 328, and 329 allows reporters to ring-fence suspected criminal funds and transact with other funds. Legal advice is recommended for responsibilities under this change. Section 183 is not yet enacted and awaits a statutory instrument. The Home Office is preparing the relevant measure.
For reporters under POCA but not under the Money Laundering Regulations 2017, there is no change.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services - a Marketing Agency for the Professional Services Sector.
