Enactment of UK economic crime Bill brings new powers against company abuse

Monday, 30 October 2023
The UK's Economic Crime and Corporate Transparency Act (the Act) has received royal assent, granting its business regulator Companies House powers to verify the identities of company directors, remove fraudulent organisations from the company register and share information with criminal investigation agencies.

Law enforcement agencies will also have extended powers to seize, freeze and recover crypto-assets. Further, a new offence of failing to prevent fraud is being created for large companies.

The Bill had a contentious passage through parliament, with several key amendments being added by the House of Lords (the Lords), most them being later removed by the House of Commons (the Commons). The insertion of the 'failure to prevent' offence was one of the Lords' successes, although the Commons did amend it to restrict the offence to fraud cases and not those involving only money laundering. The legislation updates the 'identification doctrine' so that large businesses can be held criminally liable for the actions of their senior managers who commit an economic crime.

Further changes are also being made to public registers of beneficial ownership of foreign entities, allowing 'civil society organisations' to expose corrupt actors.

However, the reforms are not expected to take effect until 2024 at the earliest.

The powers given to Companies House form the biggest reform to the service in its 180-year history, said Lord High Chancellor Alex Chalk KC. Once they come into force, the agency will take immediate steps to improve the quality of information on the company register, he added. Invalid registered office addresses used fraudulently to set up companies will be removed and verification checks via photographic ID will assess the identities of people setting up and managing companies. These checks will soon be required not only for company directors but also for 'persons with significant control' of a company. Where a corporate entity is registered as a director of a UK company, all the directors of that corporate director will need to be verified.

'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. 'These new powers are without doubt the most significant change for Companies House in our long history...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.'

Companies House will in future accept filings only from individuals who have had their identity verified and then only in respect of filings for themselves or for their employer. Otherwise, filings will only be accepted from authorised corporate service providers. Identity verification will also be required for individual general partners of UK limited partnerships.

The Act abolishes the requirement for a company to keep its own register of directors, register of directors' residential addresses, register of secretaries and register of people with significant control. This information will only need to be held centrally at Companies House. Information about beneficial holders will not need to be recorded on the company's register of shareholders, but the government has committed to a consultation by the end of 2023 on how to improve the transparency of shares held under trust and nominee arrangements.

Sections 182 and 183 of the Act help regulated financial services firms defend themselves against technical money laundering charges when exiting a customer relationship where the account was suspected to contain criminal property.

'These are profound changes to the corporate law landscape in the UK and will affect all of the 3 million plus entities registered at Companies House', commented law firm Osborne Clarke. 'Much will depend on how the Act is implemented by Companies House, which has been planning for the new provisions since the bill was first announced in early 2022. Businesses should keep an eye out for the implementation timetable and Companies House guidance.'

'STEP welcomes the passage of the Bill', says Ben Bell, STEP Government Affairs Manager. 'We remain engaged with the government on finding ways of strengthening and bringing consistency to broader trust transparency measures, as has been identified as a government priority during the debate on this legislation.'


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