UK passes Economic Crime & Corporate Transparency Act

The UK’s Economic Crime and Corporate Transparency Act (ECCTA), which amongst other things introduces identity verification for all new and existing registered company directors, people with significant control and those who file on behalf of companies, received Royal Assent on 26 October and was passed into law.

It follows the fast-tracked Economic Crime (Transparency and Enforcement) Act, which was passed into law in March 2022 to enable the government to move faster when imposing sanctions. This first Act also created a register of overseas entities (ROE) to target foreign criminals using UK property to launder money and reformed the UK’s unexplained wealth order (UWO) regime.

The new ECCTA introduces:

• 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 crypto-assets.
• A new ‘failure to prevent fraud’ offence.
• Measures to address Strategic Lawsuits Against Public Participation (SLAPPs).

As a result of the ECCTA, Companies House will no longer act as a largely passive administrator of corporate information. It has new powers to query and reject filings, require additional information to be provided, remove information from the register and share data with regulators and public authorities. Reforms to the Companies House regime, include:

• New identity verification requirements will be introduced for all (existing and newly appointed) directors and persons with significant control (PSCs) and for all those delivering documents to the Registrar.
• Directors will be prohibited from acting as a director unless their identity has been verified. An offence will be committed by the director and company if this restriction is breached.
• A new requirement is introduced to ensure that a registered office is an ‘appropriate address’ and all companies will be required to have a registered email address.
• The circumstances where the use of a company name can be prohibited are expanded to include any names that could be used to facilitate crimes.
• Companies will no longer be required to maintain local registers of directors or PSCs.
• The definition of ‘registered overseas entity’ will be amended such that if an overseas entity fails to respond to any requests for information from the Registrar it will be unable to make a relevant disposition of UK real estate assets.

The ECCTA makes significant changes to the reporting requirements under the Register of Overseas Entities (ROE), first introduced in August 2022, particularly for entities connected with trust structures as follows:

• Individuals for whom overseas entities hold UK land interests as nominee will qualify as beneficial owners. Any title numbers of qualifying estates held by the overseas entity must also now be provided under the ROE.
• All corporate trustees will qualify as registrable beneficial owners (RBOs), regardless of whether it is “subject to its own disclosure requirements” (SODR) or holds its interest via an entity that is SODR. The information will need to be provided for both the trustee and the trust for which it holds an interest.
• No exemption for interests held via corporate trustees. Corporate trustees will no longer qualify as SODR and will therefore be reportable as RBOs alongside the corporate trustee.
• Requirement to report changes to beneficiaries where a trustee has ceased to be an RBO during the relevant period. This will require the entity to provide details of any person who became or ceased to be a beneficiary during the trustee’s tenure.
• The Act now requires entities to provide details of any changes in beneficial ownership, including information regarding trusts, that occurred between 28 February 2022 and 31 January 2023.
• Companies House will be permitted to disclose information about a trust to members of the public through an application process.

The ECCTA also introduces significant changes to limited partnerships, including Scottish limited partnerships, aimed at tackling the misuse of limited partnerships through greater transparency. These include tightening registration requirements, requiring limited partnerships to maintain a connection to the UK, increasing transparency requirements and enabling the registrar to deregister limited partnerships that are dissolved or no longer carrying on business or when a court orders that it is in the public interest to do so. Many of the new requirements for companies will also apply to LPs.

The ECCTA introduces a new criminal offence of ‘Failure to Prevent Fraud’, which will make companies and partnerships liable for failing to stop employees, agents or others acting on their behalf, from committing fraud for the benefit of the organisation or its customers. This offence will only apply to large companies, defined as having at least two of the following: annual sales of more than £36 million, balance sheet assets of more than £18 million or more than 250 employees.

The ‘identification doctrine’ in relation to corporate criminal liability for economic crimes is amended to make it easier for corporate liability to be attributed to a company in respect of economic crimes committed by its ‘senior managers’ without having to establish corporate criminal liability through the ‘directing mind and will’ of a corporation.

The ECCTA also covers some issues that are not specifically corporate-related, including:

• Providing additional powers to law enforcement agencies seize and recover crypto-assets which are the proceeds of crime or associated with illicit activity such as money laundering, fraud and ransomware attacks, more quickly and easily.
• Strengthening anti-money laundering powers by enabling better information sharing about suspected money laundering, fraud and other economic crimes.
• Providing defendants with greater protection when faced with SLAPPs that feature economic crimes, including an early dismissal mechanism and a new cost protection regime for defendants, as well as defining a SLAPP in legislation for the first time.

Many of the corporate law provisions will not come into force until the relevant statutory instruments are laid giving the commencement date. Companies House has also indicated that some of the changes will take time to bring into force due to the need for new systems. However, certain changes including the new criminal offence and the changes to corporate criminal liability will come into force in early 2024.

“We have known for some time that UK companies have been misused by criminals to commit fraud, money laundering, and other forms of economic crime,” said Companies House Chief Executive Louise Smyth.

“We will now play a much greater role in preventing further abuse of the register. We will be taking unprecedented steps to crack down on fraudulent activities, help victims quicker and clean up the register by removing information we know to be incorrect.”

“The ECCTA not only enhances Companies House as a source of accurate record on UK companies but also its compliance function,” said Stuart Stobie, managing director of Sovereign Corporate & Trustee Services Ltd (SCATS). ““A key part of this will be the verification of directors of all UK companies, which will be undertaken by authorised agents.

“SCATS is already an Assured Agent of Companies House and will apply to become an Authorised Corporate Service Provider (ACSP) as soon as the legislation permits. Only ACSPs will be permitted to deliver documents to the Registrar on behalf of clients. The verification process and other new functions of Companies House prescribed by this Act have yet to be implemented, so any clients with a UK company will need to watch this space.”

If you have any questions about the new Companies House regime or require any further information, please contact Stuart Stobie by phone on +44 (0)1244 901350 or by email below.