Economic Crime and Corporate Transparency Act
The legislation aims to deliver reforms on tackling economic crime and improving transparency over corporate entities.
It follows the Economic Crime (Transparency and Enforcement) Act, which was passed in 2022. The first act:
- allowed the government to move faster when imposing sanctions
- created a register of overseas entities (ROE) to target foreign criminals using UK property to launder money
- reformed the UK’s unexplained wealth order (UWO) regime
The provisions
The act introduces:
- a new regulatory objective into the Legal Services Act 2007 on tackling economic crime
- reforms to Companies House to prevent the creation of, and shutting down, fraudulent companies
- reforms to prevent the abuse of limited partnerships
- additional powers to seize and recover suspected criminal cryptoassets
- a new 'failure to prevent fraud' offence
- measures to address strategic lawsuits against public participation (SLAPPs)
Read the UK government's factsheets on the changes
Failure to prevent economic crime
The act includes a provision to make businesses liable if they fail to prevent staff or a connected third party from committing an economic crime.
The government will publish a list of offences the duty will apply to. The list will include false accounting.
The other offences will be linked to the core Fraud Act 2006 offences:
- fraud by false representation
- fraud by failing to disclose information
- fraud by abuse of position
Money laundering will not be an offence.
Corporates will be liable if an employee or associate commits one of the listed frauds and that fraud has a benefit for the company.
There will be a defence if the organisation has reasonable procedures in place to prevent fraud.
"Reasonable" could be judged on a case-by-case basis.
The duty will apply to all sectors, but only to large organisations (as defined by the Companies Act 2006).
"Large organisations" must meet at least two of the following criteria:
- turnover of more than £36 million
- balance sheet total of more than £18 million
- more than 250 employees
The home secretary is obliged to publish statutory guidance.
The duty will not come into effect until this guidance is published.
Companies House Reform
The following changes to UK company law come into force on 4 March 2024:
Registered office changes
Companies must have an ‘appropriate address’ as their registered office and email. This means companies will not be able to use a PO box as their registered office address.
Registrar powers
The registrar will have greater powers to query and challenge information on the register that appears to be incorrect or inconsistent.
The registrar will also be able to remove information more quickly if the information is inaccurate, incomplete, false or fraudulent.
There will be “stronger checks” on company names that may give a false or misleading impression.
New verification responsibilities for authorised corporate service providers (ACSPs) and trust and company service providers (TCSPs) will include new obligations for enhanced due diligence.
Statement of lawful purpose
Anyone setting up a company will be required to confirm that they are forming the company for a lawful purpose.
A company will also need to confirm its intended future activities are lawful on their annual confirmation statement.
Enforcement and sanctions
Companies House will have powers to:
- fine a company
- add an annotation on a company’s record
- prosecute a company
If a company uses an address that is not appropriate, Companies House can give 28 days’ notice to the company to change it.
If not changed within the notice period, the process to strike off the company can be started.
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).
Section 182: Exiting a relationship
Under section 182, a new exemption was enacted from 26 October 2023 under section 327, section 328 and section 329 (the money laundering offences) which affects paying away funds under £1,000 when exiting a relationship with a customer, where there is a suspicion of money laundering or criminal property.
For reporters caught by POCA but not by the Money Laundering Regulations 2017, there is no change.
When submitting a request for a defence, include:
“We believe section [xxx] of POCA does not apply to this DAML as the activity falls outside the regulated sector.”
You may wish to obtain legal advice as to your responsibilities under this change to POCA 2002. The Home Office will be issuing guidance.
Section 183: Mixed-property transactions
Under section 183, there is a new exemption for mixed-property transactions under section 327, section 328 and section 329 which enables reporters to ring-fence funds they believe are criminal property and transact with funds outside of the ring-fenced funds. Reporters may wish to obtain legal advice as to their responsibilities under this change to POCA 2002.
Section 183 is not currently enacted and awaits a statutory instrument to be passed. The Home Office is drafting the relevant measure.
For reporters caught by POCA but not by the Money Laundering Regulations 2017, there is no change.
When submitting a request for a defence, include:
“We believe section [xxx] of POCA does not apply to this DAML as the activity falls outside the regulated sector.”
Our view
We welcome the government's focus on fighting economic crime and the recognition of the role solicitors play in this area.
We appreciate the ambition behind adding a regulatory objective for legal services regulators to uphold the economic crime agenda.
We were successful in pushing for a clarification of the scope of the new objective, which risked being so wide it would divert focus away from the areas of real risk.
At report stage, the minister agreed with many of our points and made clear:
- the regulatory objective will need to be implemented in a targeted and proportionate way, and
- regulatory activity should be transparent, accountable, proportionate and consistent as well as targeted only on cases where action is required
Under the legislation, the Solicitors Regulation Authority (SRA) can now issue unlimited fines for economic crime offences.
"It is important for any solicitor who has committed serious misconduct to be dealt with swiftly," said Law Society president Nick Emmerson.
"However, we strongly urged the government to carefully consider the proportionality of any further increases to the SRA's fining powers, given that its fining powers increased from £2,000 to £25,000 as recently as July 2022.
"There is no evidence that the current fining powers are insufficient.
"Unlimited fines can already be imposed via the independent and ultimate arbiter, the Solicitors Disciplinary Tribunal (SDT), which was established to deal with the most serious cases of misconduct.
"The independent and transparent SDT process has the confidence of both the profession and the public."
We are pleased the legislation gives Companies House the powers to be more active in preventing the creation of, and shutting down, fraudulent companies.
These powers should help to give people more confidence that companies have put correct information onto the register.
We look forward to working with Companies House to make sure that the powers are implemented in a way that is effective in minimising fraud, but at the same time does not put onerous burdens onto legitimate businesses.
"We worked hard behind-the-scenes to ensure that the reporting requirements for the register of overseas entities (ROE) were not unreasonable and burdensome on our members," Nick said.
"Following close engagement with the government and peers, the update period remains 12 months after the entities' initial entry onto the register.
"We understand why the government is implementing measures on SLAPPs.
"However, as only cases related to economic crime are covered, this means that some claimants may still use SLAPPs to stifle scrutiny.
"There are weaknesses in the current provisions that will need to be addressed in further legislation."
What we did
As the professional body for solicitors, we amplify the powerful collective voice of more than 200,000 solicitors with your diverse experiences and backgrounds, advocating on the issues you've told us matter most.
We worked hard as the legislation made its way through parliament to lobby for important changes on behalf of our members.
Next steps
We’re here to help you keep ahead of your regulatory obligations and minimise risk with a package of expert guidance, advice and resources.