The Economic Crime & Corporate Transparency Act 2023

The new Economic Crime & Corporate Transparency Act 2023 (‘ECCTA’) (the “Act”) received royal assent on 26th October 2023. It is designed to combat money laundering and the influx of ‘dirty’ money to the UK from criminal sources.

Currently this costs UK businesses more than £100 billion in fraud, and £190 billion to the public sector, which all equates to 14.5% of the UK’s annual GDP¹. It follows a previous Act on the same subject and amends the Proceeds of Crime Act 2002.

Companies House powers

Information held at Companies House and Companies House’ role in tackling economic crime is now more active. Companies House powers to investigate are strengthened. Those Companies applying to be on the Companies register and those already on it will be impacted by this new legislation. Prior to the Act, information at Companies House was taken ‘in good faith’.

Companies House now has greater powers to check, decline and remove information submitted where they consider it is deemed to be appropriate. Companies House’s new investigative powers will include cross checking and sharing data with other public and private sector bodies and proactively sharing information with the police. New identity verification measures will be put in place for all company directors, Persons of Significant Control (“PSC’s”) and anyone submitting information.

The main aim is for improvements in the financial information provided to the registrar to occur (involving the check, remove or decline regime²), and improvements in the systems at Companies House to reflect latest advancements in digital technology, assisting overall with making better business decisions.

There will be data protection improvements for individuals whose details are shared with Companies House to further prevent fraud, plus, a clamp down on the misuse of corporate entities. Another aim is to strengthen anti money laundering powers, enabling businesses to share information more easily for the prevention of fraud/prevention of economic crime. There will be proactive intelligence gathering by the authorities.

Gatekeeper role

Companies House is to become a more active gatekeeper, with more reliable data held on the public register. New verification checks will be introduced to clarify the owners and managers of Companies. Changes are expected to Beneficial registers to clarify ownership. Companies House has confirmed that this is a significant change to its powers. Further checks that information being submitted comes from reliable sources (accountants, company secretaries, auditors, legal advisors and the client) will be undertaken.

Limited Partnerships are also undergoing a reform, with tighter registration requirements and new stringent verification checks applied. Limited Partnerships must now maintain a connection to the UK and also have enhanced transparency requirements. They can now be deregistered or dissolved by Companies House in a quicker timeframe and there are stricter penalties where noncompliance with the legislation occurs, including fines and imprisonment.

Who does the Economic Crime & Corporate Transparency Act 2023 affect?

The Act affects all UK registered businesses and it also affects companies who have registered with Companies House as registrable overseas entities, who will now be required to provide a principle office (a full definition of this is to follow from the government, instead of a registered office).

All registrable overseas entities will need to disclose details of UK land they own. In relation to Trusts, where the registrable settlor or grantor is a legal entity the registrable beneficial owner will now need to be declared. Overseas entities will now also be required to declare where there is trustee ownership within their corporate structure.

Corporate trustees who own registerable overseas entities will be required to disclose that ownership and All overseas entities owned directly or indirectly by a non-UK corporate trustee will now need to investigate the ownership structure of the corporate trustee to see if there are any further RBOs that must be disclosed.

Overseas entities

Overseas entities who hold land on trust for another are required to consider the new beneficial owner condition and requirements of the Act. Reviews are also to be required where a trustees own the Registrable Overseas Entity, ensuring that any changes in beneficiaries is updated during the update period. Where a managing officer is younger than 16, they now need to provide the name and contact details of a person who is at least 16 years old and is willing to be contacted about the managing officer.

‘Failure to prevent fraud’

A new offence of ‘failure to prevent fraud’ (‘FTP’) has been introduced, extending to associated persons; and will add further liabilities to businesses along with further reporting requirements. The Act applies to Large Organisations – to qualify as “large”, an organisation the Company must meet two of the following threshold conditions in the financial year preceding the year of the offence: (i) more than 250 employees; (ii) more than £36 million turnover; and/or (iii) assets of more than £18 million.

Broadly, a large organisation will now be guilty of an offence if an “associate” (i.e. an employee, agent, subsidiary undertaking, or a person who otherwise performs services for or on its behalf) commits a fraud offence intending to benefit (whether directly or indirectly) the organisation or any person to whom, or to whose subsidiary undertaking, the associate provides services on behalf of the organisation. An organisation will not be guilty of an offence, however, if it was itself the victim (or intended victim) of the fraud offence.

Organisations will benefit from a compliance defence to the FTP fraud offence if they can prove that, at the time the fraud offence was committed, they had in place “prevention procedures” (as was reasonable in all the circumstances to expect the organisation to have in place) designed to prevent an associate from committing such an offence, or that it was not reasonable in all the circumstances to expect them to have any prevention procedures in place.

This is similar to the “adequate” and “reasonable” procedures defences in relation to the FTP bribery and FTP failure to prevent the facilitation of tax evasion offences, respectively.

The Government is required to publish guidance on what these “prevention procedures” should look like (which is expected in early 2024) and organisations within the scope of the FTP fraud offence will need to conduct risk assessments and examine their current fraud detection and prevention measures against such guidance once it has been published.

Crypto assets & economic crime

Broader agency powers now include the seizing of crypto assets that are the proceeds of crime, without an arrest having taken place. The creation of law enforcement controlled crypto asset wallets, allowing magistrates to seize crypto assets and allowing further widened powers when dealing with crypto assets³. The Act also removes any civil liability for the sharing of information/breaches of confidentiality where this is done to combat economic crime.

National Crime Agency’s Financial Intelligence Unit powers

There will be a strengthening of the National Crime Agency’s Financial Intelligence Unit powers, removing the need for a suspicious activity report before action and before an Information Order can be made. There is a removal of the requirement for a Defence Against Money Laundering Serious Activity Report (currently part of the anti-money laundering process) to be submitted to businesses before additional information can be provided.

How can Kin CoSec help?

We are here to support our clients during the implementation of these changes, which will occur once the government has clarified its guidance and beyond. Should you need assistance with maintaining your Company records, preparing responses to Companies House and collecting proof of the authenticity of information, we are happy to assist you.

Along with preparing systems to ensure that you are in line with the regulation and ahead where possible we ensure that our client’s companies are maintained in the best of order and communications with Companies House are kept up to date.

If you are considering outsourcing the role of your Company Secretary, at Kin, we have a dedicated team of competent, modern governance professionals who can act as a trusted extension of your in-house team. Please reach out to us on companysecretary@kincosec.com if you would like to find out more.

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