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The Economic Crime and Corporate Transparency Act 2023 (ECCTA) became law on 26 October 2023 and ushers in new measures to tackle economic crime and improve corporate transparency.
It follows on from the Economic Crime (Transparency and Enforcement) Act 2022.
You need to know about this new law in order to make sure your organisation's policies are robust and up to date.
Most of the new powers introduced by the Act will be brought in by secondary legislation, the date of which is currently not set in time.
Companies House will receive new powers to verify the identities of company directors, remove fraudulent organisations from the company register and share information with criminal investigation agencies.
New powers are also given to law enforcement agencies to seize, freeze and recover cryptoassets, with the courts being allowed to dismiss lawsuits which seek to stop freedom of speech.
Prosecutors will be better able to hold large corporations accountable for malpractice.
Once the new powers given to Companies House take effect, it will seek to improve the quality of information on the company register. The agency has been criticised in the past for being too lenient on some company registrations.
Invalid registered office addresses, such as those used fraudulently to set up companies, will be removed.
Verification checks will assess the identities of people setting up and managing companies, stopping criminals using false names or registering companies with fictional characters. This will help prevent fraudulent appointments and avoid people involved in money laundering hiding behind false names.
Changes to public beneficial ownership registers will also close loopholes that allow criminals to use opaque companies to move and hide money.
The new law additionally provides judges with new powers to deal with strategic lawsuits against public protection, known as "SLAPPS", involving economic crime.
These are court cases used by the certain individuals to intimidate opponents, such as Russian oligarchs seeking to prevent public interest journalism.
Major reforms to corporate criminal liability will also provide prosecutors with new powers to hold companies criminally liable for malpractice.
The creation of a criminal offence, called ‘failure to prevent fraud’ (see more below), will hold a large organisation criminally liable if it benefits from a fraud that is committed by a member of staff.
An update to a legal principle known as the ‘identification doctrine’ will also ensure businesses can be held criminally liable for the actions of their senior managers who commit an economic crime.
Both changes remove the ability for a large company to hide behind complex management structures to evade scrutiny.
As mentioned above, the new law will create a Failure to Prevent Fraud offence which will hold large organisations to account where they gain from fraud committed by their employees or agents, and reasonable fraud prevention procedures were not in place. It does not need to be shown that an organisation's management ordered or knew about the fraud.
Large organisations are defined under Companies Act 2006 as those meeting two out of three of the following:
There is a defence where such organisations can show that they have have reasonable procedures in place to prevent fraud, and the government will publish guidance on this before the new offence takes effect.
Organisations will therefore need to revise or update their anti-fraud policies and procedures as a counter to the new offence.
The new act also makes filing documents at Companies House easier for small companies. The option to file abridged accounts or "filleted accounts" will be removed and in future small companies will have to file both their profit-and-loss account and directors’ report.
Micro entities will also have to file their profit and loss account, although they can still choose not to file a directors’ report.
The Registrar of Companies can make all or part of the profit-and-loss accounts of small and micro-entities unavailable for public information on the grounds of commercial sensitivity.
The National Crime Agency (NCA) will additionally gain greater powers to compel businesses to hand over information which is suspected of being used for money laundering or terrorist financing.
New powers will additionally allow law enforcement to target illicit cryptoassets. The NCA’s National Assessment Centre estimates that over £1 billion of illicit cash was transferred overseas using cryptoassets in 2021.
The Act has introduced provisions for police and the NCA to seize cryptoassets more easily and convert them into money before a forfeiture hearing has taken place. In exceptional circumstances, there will also be a power to destroy seized cryptocurrency.
On 30 October 2023, the Treasury said it would seek to regulate the crytpoassets market
You need to make sure your organisation's policies are up to date. If you would like to discuss how this new Act could impact your business, please contact a member of our Audit and Assurance Team.