The Economic Crime and Corporate Transparency Act 2023: an overview

On 26 October 2023, the Economic Crime and Corporate Act (“ECCTA”) received Royal Assent. It will be implemented through secondary legislation which has yet to be published.

The EECTA introduces a range of measures to tackle economic crime and improve corporate transparency to include: 

• Reforms to Companies House
• Tackling the misuse of limited partnerships
• Strengthening anti-money laundering powers
• Introducing a new failure to prevent offence fraud offence
• Widening the scope of corporate criminal liability by creating a new offence of failure to prevent fraud committed by employees or agents that will apply to “large organisations”
• Expansion of the common law identification doctrine, to allow for criminal liability to be attributed to companies where senior managers commit specified economic crimes
• Greater powers for law enforcement agencies to seize and recover cryptoassets which are the proceeds of crime or associated with illicit activity. 

Companies House reform and corporate transparency

Companies House will become a more active monitor over the creation of companies and the custodian of more reliable data.  It will have new powers to check, remove or decline information submitted to it, and more effective investigation and enforcement powers. 

Some of the changes will also require significant development and upgrades to Companies House systems and procedures. 

In a post published to coincide with ECCTA receiving Royal Assent, the Registrar of Companies has indicated that changes likely to be implemented in early 2024 include:

• the requirement for all companies to register an email address with Companies House
• the new rules on registered office addresses
• the lawful purpose confirmation requirements 
• Companies House's enhanced powers to query and check information, to remove inaccurate information and to share data with other government departments and law enforcement agencies.

The new identity verification regime, for all new and existing registered company directors, people with significant control and those who file on behalf of companies, is not included in this list of early measures.

Companies House has also confirmed that some of their fees will increase from early 2024, although details are yet to be published.

Failure to Prevent Fraud Offence

This offence is based on the model of corporate criminal liability first adopted in the Bribery Act 2010 and later used for the tax evasion offences contained in the Criminal Finances Act 2017.

The offence only applies to “large organisations” i.e., one that meets at least two of the following conditions in the financial year preceding the alleged offence(s):

• Turnover of more than £36m
• Balance sheet of more than £18m
• More than 250 employees.

Small and medium sized businesses are therefore exempt, although the ECCTA includes a power for these requirements to be modified or removed. 

The offence will make companies and partnerships liable for failing to stop employees, agents or others acting on their behalf from committing fraud for the benefit of the organisation or its customers.

It will be a defence for the organisation to show that, at the time of the fraud, it had “reasonable procedures” in place to prevent fraud or that it was not reasonable in the circumstances to expect such procedures to be in place.

Corporate criminal liability for economic crimes of employees

Under this new offence, liability arises where a “senior manager” of a body corporate/partnership commits a specified fraud offence.

A "senior manager" is an individual who plays a significant role in:

• The making of decisions about how the whole or a substantial part of the activities of the body corporate or partnership are to be managed or organised; or
• The actual managing or organising of the whole or a substantial part of those activities.

The offence must be committed by the senior manager "acting within the actual or apparent scope of their authority" and there is no specific defence to this offence so the organisation must focus on the senior manager's activity/authority.  

The offence can be carried out in the UK or elsewhere (provided it is an offence in that other jurisdiction) and there is no need for the offence to benefit the organisation directly or indirectly.

Comment

The introduction of the ECCTA will have a significant impact on organisations and their risk exposure.  Businesses should act now to review and if necessary, overhaul that their prevention and compliance policies and procedures.

How we can help

We will keep you informed of any developments and updates on the ECCTA and its implementation, and we will be happy to assist you with any queries or issues that may arise. 

For further information about our Regulatory and Compliance services, visit our website. If you would like to contact Colette Kelly, email her here.