What does The Economic Crime and Corporate Transparency Act mean for businesses?

Described by the Government as a Bill to make provision about economic crime and corporate transparency; to make further provision about companies, limited partnerships and other kinds of corporate entity; and to make provision about the registration of overseas entities, the ECCT Act became law at the end of October, although aspects are still being rolled out.

From reforms to Companies House procedures, to providing additional powers to seize and recover criminal crypto assets, the ECCT Act is incredibly wide-ranging, so it is important to be aware of key areas.

Additional powers for Companies House

Companies House have been afforded extra powers to ensure that information held for companies on the public registers is accurate. This includes giving them the power to:

• Reject and query documents for inconsistencies;
• Require additional information in relation to a filing;
• Require inconsistencies on the public register are resolved;
• Remove material from the public register;
• Require businesses to report discrepancies;
• Analyse information in order to prevent or detect crime;
• Disclose information to any person or public authority that requests it;
• Change a company’s name, registered office or director’s service address.

It also gives the registrar the power to strike off a company that has been registered under false pretences.

What does my company need to be aware of?

Firstly, all directors, persons of significant control and/or any person filing on behalf of a company such as law and accountancy firms, will be required to confirm their identity in order to submit filings. This will apply to anyone who currently fulfils any of these roles.

Registered office addresses will need to be an appropriate physical address, PO Box addresses will no longer be allowed to be used as a registered office.

Companies will also now need to register and maintain an appropriate email address. If a company fails to maintain an appropriate email address without reasonable excuse, then an offence punishable by a fine is committed by the company and every officer of the company by default.

The Failure to Prevent Fraud Offence

The government has also created a new failure to prevent fraud offence to hold organisations to account if they profit from fraud committed by their employees. Whilst there are some existing powers to fine and prosecute organisations and their employees for fraud, the new offence will strengthen these, closing loopholes that have allowed organisations to avoid prosecution in the past.

Under the new offence, an organisation will be liable where a specified fraud offence is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. It does not need to be demonstrated that company bosses ordered or knew about the fraud.

Under the failure to prevent fraud offence, large organisations (companies or partnerships that satisfy two of the following conditions (i) turnover £36m+, (ii) balance sheet £18m+, (iii) employees 250+) will be automatically liable if an employee or third party acting on its behalf commits external fraud (not fraud against the organisation). Companies will be able to avoid prosecution if they are able to prove that, at the time of any offence, either they had reasonable preventative procedures in place, or (under certain circumstances) it was reasonable not to have them.

It is expected that this offence will come into force mid-2024, although guidance is yet to be issued.

Extension of Corporate Liability

The extension of corporate liability will make it easier for law enforcement for prosecution of economic crimes committed by its senior managers. Specifically, companies could face prosecution for money laundering, bribery, tax evasion, sanctions violations and terrorist financing offences committed by senior managers.

Unlike the failure to prevent fraud offence, this applies to all commercial organisations, irrespective of size, and there is no statutory defence to rely on. Organisations will have to rely on their compliance programmes to prevent such incidents from occurring or using them to mitigate penalties.

This came into force on the 26^th December 2023, so if you have not already reviewed your compliance processes and procedures in this area, you should do so as a matter of urgency.

How can we help?

If you have any concerns relating to the introduction of the Economic Crime and Corporate Transparency Act and need advice, our team of experienced Company & Commercial solicitors can help. Please contact us today.