Greater scrutiny of information lies at the heart of the new legislation, which is designed to plug potential loopholes that may have been exploited for the purposes of economic crime. It strengthens the powers of law enforcement agencies, makes it easier to prosecute corporates for certain financial crimes, and introduces a new offence of ‘failure to prevent fraud’ for larger organisations.
Changes include new requirements to provide additional shareholder information, and restrictions on the use of corporate directors. Limited partnerships will need to file through authorised agents, and they’ll need to file more information than currently.
Called the Economic Crime and Corporate Transparency Act 2023, the Act amends the Companies Act 2006 and succeeds the previously fast-tracked Economic Crime (Transparency and Enforcement) Act 2022 which was drawn up in response to Russia’s invasion of Ukraine and saw the introduction of the Register of Overseas Entities.
It means that from March 2024, UK-registered companies will face:
- stronger checks on company names
- new rules for registered office addresses and a requirement to provide a registered email address
- a requirement to confirm activities are lawful on incorporation and each year after
Companies House will have greater powers to challenge information that is provided and will be using data matching to identify and remove inaccurate information from the register. It will also share data with other government departments and law enforcement agencies, who themselves will have greater powers to seize, freeze and recover crypto assets.
While the Act places additional reporting requirements on companies, the new digital processes will do away with some old paper-based requirements. Companies will no longer be required to maintain internal registers of directors and their addresses, secretaries and people with significant control (PSCs). This information will be filed directly with Companies House and maintained on a central public record.
The Act includes enhanced powers to verify identities of company directors and measures are expected to be introduced later in 2024. Anyone setting up, running, owning or controlling a company in the UK will need to verify their identity and this will apply to new and existing company directors, to PSC’s, and relevant officers of a registerable relevant legal entity.
It will be a criminal offence for an individual to act as a director while their identity is unverified, and the company will be committing a criminal offence by allowing an unverified director to act.
Said corporate expert Simon Wilson of Ward Gethin Archer Solicitors: “The changes affect companies across the board, and directors will need to keep an eye out to be sure they are complying from March 2024 onwards. We don’t have a definitive timetable yet, so it will require a waiting watch.
“The direction of travel continues towards greater transparency, so that law enforcement agencies can more easily identify and act on suspicions over sources of wealth and funding, and to tackle potential tax evasion or fraud.”
According to the Government, fraud accounts for more than 40% of all crime in England and Wales and the new Act introduces two major changes.
It has previously been hard to hold a corporate organisation criminally liable where an individual could not be identified as having the ‘directing mind and will’ at the time of the offence. Now, a ‘senior manager’ test will expand the range of individuals to which liability can be attributed, making it easier for prosecutors to pursue corporates for a ‘relevant offence’. These include money laundering offences, fraud, false accounting, tax evasion, bribery, and breaches of sanctions regulations.
Also introduced by the Act is criminal liability attributed to an organisation for a failure to protect against fraud, whether by an employee, agent, subsidiary undertaking, or a person performing services on behalf of the company. This offence of failure to prevent fraud will be limited to so-called larger organisations, which meet two out of three defining criteria, being more than 250 employees; over £36 million turnover; or assets exceeding £18 million.
Guidance on the necessary procedures for ‘failure to prevent’ is expected soon, and larger organisations will need to review risk assessments and their detection and prevention measures once this has been published.
Simon added: “This guidance is likely to reflect earlier ‘failure to prevent’ offences that were set out in the UK Bribery Act 2010 and the UK Criminal Finances Act 2017, which were designed to tackle bribery and facilitation of tax evasion offences.
“So, the good news is that it is unlikely to involve designing compliance procedures from scratch, but fraud can be notoriously difficult to pin down, so it may yet present a stiff compliance challenge.”
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