What is the Economic Crime & Corporate Transparency Bill?

Posted by

Ian Hare

on 06 Oct 2023

Understand the aims of the Economic Crime and Corporate Transparency Bill 2022 and the key changes it may make to existing legislation.

Economic Crime and Corporate Transparency Bill

Update: The Economic Crime and Corporate Transparency Bill received Royal Assent on 26 October 2023 and is now officially an Act.

Understanding the ECCT bill

The Economic Crime and Corporate Transparency Bill 2022 has the potential to significantly change how companies treat corporate governance, financial crime prevention, and transparency.

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What are the aims of the ECCT bill?

Following in the footsteps of the Economic Crime (Transparency and Enforcement) Act 2022, the Economic Crime and Corporate Transparency Bill 2022 (or ECCT 2022) has five primary stated objectives:

  1. Increasing the role and power of Companies House
  2. Preventing abuse of limited partnerships
  3. Increasing powers to seize and recover suspected criminal cryptoassets
  4. Enhancing business confidence in sharing information on anti-money laundering measures and other economic crime
  5. Introducing new intelligence-gathering powers for law enforcement

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How will the ECCT bill achieve its objectives?

The bill aims to make it tougher for criminals to use companies to launder money or commit other economic crimes by increasing corporate transparency and making it easier for law enforcement to identify and investigate financial crime. In more detail:

  • Companies House
    As the government agency responsible for maintaining the official register of businesses, Companies House plays a central role in the UK’s corporate governance framework. Greater investigation and enforcement powers will enable the organisation to proactively check, remove or refuse information submitted to, or already on, their register.

    Identity checks will be required for all new and existing registered company directors, other relevant stakeholders, and even people supplying documents. This aims to remove anonymity and improve the register's accuracy and reliability.

    In addition, enhanced data cross-checks with other public and private sector bodies will empower Companies House to share information and evidence of suspicious behaviour with relevant authorities.
  • Limited partnerships
    Limited partnerships have often been criticised for their vulnerability, especially in Scotland. Measures in the Bill aim to tighten the registration requirements for limited partnerships, to ensure all corporate directors are registered in the UK (abolishing the use of overseas corporate directors), and to empower the Registrar to deregister limited partnerships either in the public interest or when they have been dissolved or are no longer trading.
  • Cryptoassets
    The rise of cryptocurrencies as a means of laundering funds and carrying out illegal activities has presented new challenges in the fight against financial crime. By amending the criminal confiscation and civil recovery powers in the Proceeds of Crime Act 2002 (POCA), the Economic Crime and Corporate Transparency Bill 2022 aims to make it easier for law enforcement authorities to seize and recover illicit cryptoassets.
  • Anti-money laundering
    The bill aims to make it easier for businesses to share information on suspected financial crime. It would do this by:

    - Removing the threat of civil liability for breaches of confidentiality when sharing information on economic crime

    - Removing the need to submit a pre-existing Suspicious Activity Report (SAR) before making an Information Order (IO)

    - Expanding the types of client property cases businesses can handle themselves without submitting a Defence Against Money Laundering (DAML) SAR

    It is hoped that the Bill will improve communication between those at the coal face of AML prevention and enable authorities to focus on higher-value criminal activity.

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Why is it important to understand the ECCT Bill?

Financial crime has a significant impact on individuals, businesses, and the economy as a whole.

According to the government, ECCT 2022 will "bear down further on kleptocrats, criminals and terrorists, strengthening the UK's reputation as a place where legitimate business can thrive, whilst driving dirty money out of the UK."

Rhetoric aside, the bill's new requirements and responsibilities are likely to significantly impact businesses of all sizes. Given the potential legal, financial and reputational damage of economic crime, it’s crucial organisations understand what’s required when the bill becomes law.

How does the ECCT differ from existing legislation?

The Bill represents the second part of significant reform building on the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE 2022).

Following Russia’s invasion of Ukraine, the government introduced ECTE to stop dirty money from Russia or other foreign powers entering the UK. The main aims of the ECTE included:

The Economic Crime and Corporate Transparency Bill 2022 builds on this in several ways.

Specifically, it ensures the ROE is more comprehensive and accessible to law enforcement, makes it harder for criminals to use limited partnerships to hide their activities, and smooths the way for businesses to share information about suspected financial crime.

Overall, the intention behind the Economic Crime and Corporate Transparency Bill 2022 is to make the UK a more hostile place for economic criminals and a safer place to do business.

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What are the other proposed changes?

As the bill completes its parliament journey, businesses should stay on top of precisely what's required and how to stay compliant once it becomes law.

In particular, amendments proposed during the second reading debates may expand the number of corporate criminal liability offences. In fact, one of the main reasons that the ECCT 2022 has not been sent for Royal Assent as yet is that the House of Commons and the House of Lords have disagreed on the extent of change to the law on corporate criminal liability.

Corporate liability for a 'failure to prevent'

The current trend in the law removes some of the burden from regulators by challenging large corporate entities to self-regulate. The current ‘failure to prevent’ corporate offences only applies to larger corporate entities covering tax evasion and bribery. There is also an ongoing requirement under section 54 of the Modern Slavery Act 2015 requiring large companies to publish an annual modern slavery statement.

It is almost certain that the ECCT 2022 will build on this by creating a corporate criminal offence for ‘failure to prevent fraud’. If the Lords have it their way, the ECCT may even include some form of offence for a failure to prevent money laundering, and the law could be extended to all corporate entities, not just larger corporations.

Corporate criminal liability is currently treated as a strict liability offence, where intention does not come under consideration, but allowing the corporation to present a defence that it had put reasonable controls in place to ensure the criminal act did not take place.

This has the effect of shifting the burden of enforcement away from the regulator towards companies themselves. It is also important to note that the ECCT is unlikely to signal the last change to corporate criminal liability.

Although it is unlikely that we will see a general ‘failure to prevent financial crime’ offence in the near future, the Law Reform Commission, in a 2022 report, suggested several possible new offences, reporting requirements and methods of penalising corporate actors for compliance failings, including:

  • An offence of failure to prevent human rights abuses.
  • An offence of failure to prevent ill‑treatment or neglect.
  • An offence of failure to prevent computer misuse.
  • Making publicity orders available in all cases where a non-natural person is convicted of an offence.
  • A strong civil punitive regime that may include administratively imposed monetary penalties, with or without a linked civil action
  • A reporting requirement based on section 414CB of the Companies Act 2006 requiring public interest entities to report on anti-fraud procedures
  • A reporting requirement based on section 54 of the Modern Slavery Act 2015 requires large corporations to report on their anti-fraud procedures.

All of this shows how important it is at present, and will be in the future, for companies to have strong controls in place to spot and help prevent financial crime and report any suspicions.

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