A Legal Guide: Economic Crime and Corporate Transparency Act

The new Economic Crime and Corporate Transparency Act (ECCTA) reached Royal Assent on Thursday 26 October. The act provides new robust laws to fight fraud, counter corruption, and reinforce legitimate business. Parts of the Act deal with wider aspects of economic crime: enforcement over crypto assets, money laundering and failure to prevent fraud. The Act has been created to disrupt the growth of economic crime and the manage the role of crypto assets in the UK.

The ECCTA introduces new powers allowing UK authorities to proactively target organised criminals and others seeking to abuse the UK’s open economy.

The key implementations of the ECCTA are:

• The induction of a new corporate offence for companies failing to prevent fraud.
• New powers to Company’s House to clean up the company’s register.
• Strengthening of anti-money laundering powers, giving firms confidence to share information on economic crime.
• The introduction of new proactive intelligence gathering powers for law enforcement.

Reforms to Companies House

The new Act is introducing the biggest change to Companies House in their 180-year history. Under the new Act they have received new powers to verify the identities of company directors, remove fraudulent organisations from the company register and share information with the criminal investigation agencies. This includes the following:

• A new requirement to provide a contact Companies House with an email contact.
• Companies to provide an “appropriate registered office address.” For example, an document addressed and delivered to the company that would be expected to come to the attention of someone acting on behalf of the company and where delivery can be recorded by obtaining acknowledgement of delivery.
• Prohibition of new directors acting where their appointment has not been notified to Companies House within a 14-day window since their appointment to the role.
• Updates to the rule son the company registers. This includes the removal of the requirement for companies to keep their own registers of directors, directors’ residential addresses, secretaries, and people with significant control.
• Further protections against the misuse of company and business names.
• New company incorporation requirements state the company must provide a statement by subscribers that the company is formed for a lawful purpose.
• New statement in the annual confirmation statement that the company’s future activities will be lawful.
• Requiring established companies to submit a one-time snapshot of their membership details.
• Simplifying the filing process for small and micro-entity businesses.
• Strengthening safeguards for personal information shared with Companies House to shield individuals from fraud and other potential risks.

Immediate Steps to Be Taken By Companies House

The agency will be taking immediate steps to improve the quality of information on the company register. Companies House will be removing invalid registered office addresses. This includes those used fraudulently to set up a company.

Additionally, verification checks will assess the identities of people setting up and managing companies. Verification checks aim to stop criminals hiding behind false names or registering companies with fictional characters. Companies House hopes this will prevent fraudulent appointments and avoid people involved in money laundering hiding behind false names.

Furthermore, changes will be made to public beneficial ownership registers. This aims to close loopholes allowing corrupt actors to use opaque companies to move and hide money.

The changes aim to give businesses better clarity on who they are working with while allowing civil society organisations to expose corrupt actors.

Comments from Business Minister Kevin Hollinrake

Business Minister Kevin Hollinrake states: “We’re providing Companies House with the tools to take a much harder line on criminals who take advantage of the UK’s open economy, ensuring the reputation of our businesses is not tarnished by the UK playing host to the world’s scammers.“

“These reforms will remove the smoke and mirrors around companies hiding behind false identities, provide further protection to the public from companies fraudulently using their addresses, and deliver better data to support business and lending decisions across the economy, enhancing the UK’s reputation as a great and safe place to do business.”

Giving Judges New Powers to Deal with Strategic Lawsuits Against Public Protection (SLAPPS)

The act also grants judges new powers to deal with strategic lawsuits against public protection, known as SLAPPS, involving economic crime.

These are court cases used by the powerful individuals to intimidate opponents.

Failure to Prevent Fraud

The recent changes include the creation of the new ‘failure to prevent fraud’ offence. This holds organisations criminally liable if the fraud committed by a member of staff also benefits the organisation. The new offence is a major reform to corporate liability. It provides prosecutors with new powers to hold companies criminally liable for practice.

Additionally, an update to a legal principle known as the ‘identification doctrine’ ensures businesses are held criminally liable for the actions of their senior managers who commit an economic crime.

Both changes aim to stop large companies from hiding behind complex management structures to avoid scrutiny. This ensures a level playing field for all businesses, helping remove criminal money from the economy. As a result of the expansion of powers, it’s hoped big businesses will no longer be able to turn a blind eye to fraud and investigations will be much faster.

New Powers to the National Crime Agency to Gain Information

Under the ECCTA, the National Crime Agency (NCA) will gain greater powers to compel businesses to hand over information suspected to be used for money laundering or terrorist financing.

Furthermore, unnecessary reporting by businesses will also be reduced. This allows the private sector and law enforcement to focus their existing resources when tackling high value and priority activity.

New powers have also been implemented allowing law enforcement to target illicit cryptoassets.  NCA’s National Assessment Centre estimates that in 2021 alone, over £1 billion of illicit cash was transferred overseas using cryptoassets.

ECCTA introduced provisions for the police and the NCA to seize cryptoassets more easily. Once seized the cryptoassets can be turned exchanged into money before a forfeiture hearing has taken place. In exceptional circumstances, powers will be granted to destroy seized cryptocurrency.

What’s Happening in the UK Regarding Economic Crime and Cryptoassets

Crypto became recognised as an area of growing concern in the UK at the start of 2022. Due to the unregulated nature of cyrpto, it quickly became a digital platform increasingly abused for fraudulent activity. It was soon released that regulation, and a legislative change was required to tighten and supress those looking to take advantage of cryptoassets. 

ECCTA, adds an extension to the financial promotion’s rules to cryptoassets. The act details who can market crypto. Furthermore, it adds additional rules around how businesses can market crypto to UK citizens. For example, the FCA will punish firms who are found to be issuing potentially harmful crypto promotions through their websites, social media, or apps.

The new financial promotion’s rules show how serious the FCA are about enforcing these new rules to combat economic crime. In less than a month as many as 221 funds have been added to the warning list.

What Does the Act Mean for Crypto?

Regarding crypto asset related rules, the rational provided by the government is that the legislation needs modernising as we tackle what is a real and growing potential threat.

The Act makes amendments to the Proceeds of Crime Act. As a result, criminal, civil, and supplementary investigatory powers will apply to crypto. This will act in the same way they already do to cash and listed assets. This means that UK statue reinforcement agencies will be able to seize or potentially sell or destroy assets as part of investigations at great speed or in more situations than were previously possible. Therefore, crypto firms specifically exchanges, and wallet providers could be liable when their platforms are suspected of moving or storing crypto related criminal activity. This means that law enforcement won’t have to leave assets on the table that suspects could move out of the authorities reach. Instead, they can seize them there and then during an investigation without the needs to arrest an individual for committing an offence first.

By opening the civil action route with a lower burden of proof and by expanding criminal powers we could see an uptake in seizures and confiscations.

When Can We Expect to See Changes?

Most of the act’s provisions will be put into effect through the secondary legislation that has yet to be published. Some of these changes will encompass large developments and enhancements to the systems and procedures employed by Companies House.

The Registrar of Companies has outlined that the following changes are expected to be rolled out in early 2024:

1. Mandatory registration of an email address with Companies House for all companies.

2. New regulations regarding registered office addresses.

3. Confirmation requirements for lawful purposes.

4. Augmented powers for Companies House to scrutinise and verify information, correct inaccuracies, and share data with other government departments and law enforcement agencies.

It’s important to note that the new identity verification system is not included in this initial set of measures.

Furthermore, Companies House has also indicated its intention to increase some of its fees starting in early 2024.

Corporate and Financial Crime Solicitors

In conclusion, the Economic Crime and Corporate Transparency Act marks a significant milestone in the fight against economic crime and the promotion of corporate transparency. This legislation paves the way for enhanced anti-fraud measures, anti-money laundering efforts, and regulatory oversight. Therefore, it is vital to stay informed about the forthcoming changes.

At Cartwright King, we are dedicated to providing exemplary corporate and financial crime services. Our team are here to assist businesses and individuals in navigating these new regulations effectively. Our expertise and commitment to upholding the highest legal standards ensure that you are well-equipped to meet your legal obligations and protect your interests.

Stay tuned for further updates and guidance as the ECCTA unfolds. Please reach out to our team for legal support and any insights you may require during this transition.