The UK Government passed the Economic Crime and Corporate Transparency Act 2003 (the Act) on 26 October 2023. The Act introduces significant changes to reduce, if not eradicate, economic criminal activity in the UK. The Government is hopeful to improve transparency in the corporate world which should help the country’s economy by building trust and confidence in new and existing companies.
The significant changes are broken down into 5 main parts which are highlighted in detail below: (i) Companies House Reform; (ii) Limited Partnership Reform; (iii) Cryptoasset Seizing Powers; (iv) Strengthening AML Powers; (v) the new Failure to Prevent Fraud Offence.
(i) Companies House Reform
• Identity verification for directors, corporate directors, Persons with Significant Control (PSCs) / Relevant Legal Entities (RLEs).
There will be two ways of verifying ID including direct verification via Companies House and verification by an Authorised Corporate Service Provider (including lawyers). Companies will be obliged to undergo a verification process before a director can act for them. Existing directors must also be verified. There will be a transitional period allowing existing directors to comply with the new requirements. Non verification is a criminal offence.
• Expansion of the Registrar’s powers
Prior to the new Act, Companies House Registrars were required by law to accept information if it was “properly delivered” and had limited powers to correct or query information where there were suspicions. However, under the new Act, Companies House now has the power to reject or query new filings as well as to query information already on the register. If and when, information is identified as potentially fraudulent or suspicious, the Registrar can compel a person to provide information, so they are able to make a determination about the queried filing.
The Registrar will exercise their power with discretion, using a risk-based approach. The querying may be pre- or post-registration and if an entity fails to respond to the query or provide sufficient evidence as required, the Registrar will be able to take action, including imposing sanctions.
Additionally, the Act provides Companies House with more effective investigation and enforcement powers and introduces better cross-checking of data with public and private sector bodies. They will be able to proactively share information with law enforcement bodies where they have evidence of anomalous filings or suspicious behavior. The aim is to protect personal information and individuals from economic fraud.
The Registrar further has the power to remove information from the register which impacts upon the integrity of the register and to reject documents if they are inconsistent with other information available or raise compliance concerns. Most notably, the Registrar will have the power to change the company’s registered office address without an application if the Registrar is satisfied that the company is not authorised to use the address.
• Prohibition of corporate directors
Corporate directors will no longer be permitted, only natural persons.
• Register of Overseas Entities
The beneficial owners of properties held by overseas entities must be disclosed now, as well as the beneficial owners of the overseas entities themselves.
(ii) Limited Partnership Reform
The Act addresses the misuse of LLPs. The reforms aim to increase transparency and tighten registration requirements through the requirement for further information to be filed and maintenance of a connection to the UK.
With the growth of cryptoassets, the Act enables law enforcement bodies to easily seize or recover such assets which are potentially the proceeds of crime or associated with money laundering. The aim is to curb criminal economic activities.
(iv) Strengthening AML powers
In today’s economy, money laundering is becoming more and more of a concern. The Act enables businesses to work together and easily share information to investigate, detect and prevent money laundering and other financial crime. The Act also enables proactive intelligence gathering by law enforcement.
(v) New failure to prevent fraud offence
Under the Act it is now an offence not to prevent a fraud due to the absence of reasonable fraud prevention procedures. Companies will be held liable if they profit from specified fraud offences committed by their employees or agents for the organisation’s benefit and the organization did not have reasonable fraud prevention processes in place. Companies can face unlimited fines for breaches.
The precise timings for the changes will be announced in due course but it is expected that we will see the reforms start to come into practice in early 2024.
In conclusion, the Act is aligned with the government’s commitment to maintain transparency in the corporate world, with a clean economy, free from the influence of nefarious acts. It is an encouraging step in combatting increased economic and corporate criminal activity in the UK.
If you would like further advice on ensuring compliance with the new Act, please get in touch.
Balpreet Dhaliwal firstname.lastname@example.org