The UK’s New Economic Crime and Corporate Transparency Bill in Focus
This Bill is being introduced to tackle economic crime, money laundering and to prevent the abuse of corporate structures.
The Economic Crime and Corporate Transparency Bill (“the Bill”) represents the second element of a UK government reform package aimed at preventing the abuse of corporate structures and tackling economic crime. The initial step involved the similarly named Economic Crime (Transparency and Enforcement) Act 2022 which was given Royal Assent in March 2022. The second Bill was introduced into the House of Commons in September 2022, and it is expected to receive Royal Assent in spring/summer 2023.
In the UK, the government has moved to clamp down on corporate fraud, improve fraud prevention, protect victims and to hold organisations accountable for fraud offences committed by their employees. The war in Ukraine has amplified calls for action, particularly concerning allegations of economic crime committed by wealthy individuals active in the UK, such as Russian oligarchs.
Powers already exist to fine and prosecute organisations for fraud offences but the new package will strengthen them and close legal loopholes. The initial Economic Crime (Transparency and Enforcement) Act 2022 makes important changes to the UK’s sanctions regime and creates a Register of Overseas Entities.
The subsequent Economic Crime and Corporate Transparency Bill is a significant and wide-ranging piece of legislation at 250 pages. It introduces a host of changes including expanded powers for regulators and law enforcement, as well as new registration and transparency requirements for businesses and limited partnerships.
Key aspects of the Bill
The key aims of the Bill are as follows:
- Deliver reforms to Companies House to expand its role and power
- Introduce reforms to prevent the abuse of limited partnerships
- Roll out identity verification measures for relevant stakeholders
- Bring in additional powers to seize and recover suspected criminal cryptoassets
- Give businesses more confidence to share information to tackle money laundering and other types of economic crime
- Introduce new intelligence gathering powers for law enforcement
- Remove inconsequential burdens on business
Reforms to Companies House
Companies House is the executive agency of the government responsible for maintaining the register of companies, employing company registrars and for incorporating all forms of companies in the UK. It is currently tasked with storing information on corporate entities in the UK and its ability to query or flag that information is very limited. The Bill intends to change this passive role and help Companies House actively flag suspicious activity or inaccurate data among corporations.
This will be achieved through the introduction of identity verification for all new and existing registered company directors, individuals with significant control, limited liability partnership (LLP) members and people delivering documents to the registrar. That will improve the accuracy and transparency of data while facilitating law enforcement investigations.
Companies House will also receive new powers to check, remove or decline information submitted to, or already on, the companies register. Financial information on the register will also be improved so that it is more reliable and accurate while reflecting advancements in digital technology.
The introduction of more effective investigation and enforcement powers along with the facilitation of improved data cross-checking with other public and private bodies will also lead to significant improvements. Companies House previously attracted criticism for being vulnerable to exploitation and misuse. The broadening of its powers will help it become “a more active gatekeeper over company creation and a custodian of more reliable data”.
Identity verification requirements in detail
As already mentioned, new and existing registered company directors, persons with significant control, LLP members and individuals delivering documents to the registrar will be held to new identity verification requirements and they will function as follows:
Directors – Before they begin to act, verification must be provided along with a confirmation that they have not been disqualified. Before the director begins his or her role, the company must ensure that the verification process has concluded. Applications for the formation of a company will also need to state that the identity of all involved directors has been verified.
Persons with significant control (PSC) – A PSC has to verify their identity within 14 days of appointment and all relevant legal entities have to verify the identity of their relevant officer within 28 days of appointment.
LLP members – While the requirements of the Bill apply to all entities registered at Companies House, including LLP members, the Bill does not directly cover them and this is expected to be addressed by secondary legislation.
Individuals delivering documents to the registrar – Individuals delivering documents on behalf of themselves or another person need to verify their identity and the documents themselves must be accompanied by a statement of verification.
All UK companies will need to maintain their own register of members, showing their full names and addresses. This is expected to directly impact the day-to-day running of corporate entities. Further information on the verification process can be found in this government factsheet.
Limited partnerships and cryptoassets
The new Bill will also modernise the law governing limited partnerships and tackle their misuse. It will make registration requirements more stringent, increase transparency and oblige limited partnerships to maintain a connection to the UK. In addition, the new measures will enable the deregistration of dissolved limited partnerships that no longer carry on business, or where a court has ordered that doing so is in the public interest.
Under the Bill, law enforcement will receive more powers to quickly seize and recover cryptoassets that are associated with illicit activity or that constitute the proceeds of a crime such as money laundering, fraud or ransomware attacks. For example, the police will be able to seize cryptoassets during an investigation without the need to arrest an individual for committing an offence.
The Bill will also strengthen anti-money laundering powers and help facilitate better information sharing about suspected offences. In certain situations, businesses will be able to share information more easily for the purpose of preventing, investigating or detecting economic crime. Civil liability will not apply to breaches of confidentiality for businesses supplying information about economic criminal offences.
The National Crime Agency’s Financial Intelligence Unit will have an expanded ability to obtain information from businesses related to money laundering or terrorist financing. This will be achieved through the removal of the requirement for a pre-existing Suspicious Activity Report to have been submitted before an Information Order can be made. The private sector and law enforcement will focus their resources on high value activity while the reporting burden for businesses will be reduced.
Offences and penalties
The new measures apply to all large corporate bodies and partnerships which means that incorporated public bodies and large not-for-profit-organisations such as charities also fall within its scope. While they apply to all sectors, organisations must meet certain thresholds to ensure the burden on businesses remains proportionate.
Entities must fulfil two out of three criteria. They must have more than 250 employees, more than £36 million turnover and more than £18 million in total assets. When it comes to investigations, companies will be able to avoid prosecution if they can prove they have reasonable procedures in place to prevent fraud. If found guilty, however, an organisation can face an unlimited fine.
While individuals in companies can already be prosecuted for committing, encouraging or assisting fraud, individual liability will not be introduced for a failure to prevent these offences. Once the Bill has received Royal Assent, the government will need to publish guidance on reasonable fraud prevention procedures for companies.
According to the British government, fraud is the most common offence in the UK, amounting to 41% of all crime in the year ending September 2022. Transparency International UK found that 929 UK companies involved in 89 cases of corruption and money laundering between 2000 and 2019 resulted in £137 billion in economic damage, though the true figure could be much higher.
The new Bill is intended to drive a cultural change through improved fraud prevention procedures while holding organisations to account for offences through prosecutions. The reaction to the reforms has been positive with Transparency International UK describing the changes to the Companies House as being long-overdue. There has, however, been criticism from some quarters with Spotlight on Corruption raising concerns about the financial capacity of Companies House and enforcement to carry out their expanded functions.
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