By Fasken | Jodi Katz | Lucinda Patrick-Patel | Ksawery Paczek

Summary

The Economic Crime and Corporate Transparency Act (the “ECCTA”) brings in a series of reforms designed to tackle economic crime.[1] It aims primarily to increase the transparency of ownership and governance of UK corporate entities and ensure the accuracy of information held on the register.[2]

Going forward, Companies House will be empowered with expanded capabilities. These include verifying the identities of company directors, conducting more thorough scrutiny of entries on the register, collaborating more closely with criminal investigation agencies and imposing fines up to a maximum of £10,000 for breaches of the Companies Act 2006. As a result, it is expected that Companies House will increase their filing fees in due course.[3]

The ECCTA will also make notable changes to the law surrounding corporate criminal liability. This is of particular note for larger entities as the changes make it significantly easier to prosecute companies for economic crimes.

When are Changes Being Implemented?

Even though the ECCTA became law on 26 October 2023, the changes will not be implemented immediately. New requirements are likely to be rolled out during the course of 2024.

Certain provisions with respect to the role of Companies House are expected to take effect in early 2024. Changes to corporate criminal liability will take effect at the end of December 2023 (two months after the date of Royal Assent). Few details are known about the specific timetable, but the UK Government and Companies House are expected to release more information at a later date.

A. Identity Verification

Under the reforms, both new and existing company directors, as well as Persons with Significant Control (PSCs), will have to verify their identity with Companies House. This verification is expected to be facilitated either directly through Companies House or via an Authorised Corporate Service Provider (ACSP).

ACSP’s will be persons who are registered with a supervisory body for anti-money laundering purposes such as auditors, lawyers and company service providers. Direct identity verification is likely to be implemented through a digital service made available by Companies House; further guidance is expected to be published soon.

Newly incorporated companies will need to ensure that each proposed director has had his or her identities verified. A new application for incorporation will not be accepted until a statement confirming this verification has been delivered to Companies House.

Existing companies will be considered to be committing a criminal offence if they do not ensure that their existing directors have had their identities verified. Likewise, an individual who is serving as a director but has not had his or her identity verified will be considered to be committing a criminal offence.

Individual PSCs will also be required to verify their identity.

B. Statutory Registers, Registered Office & Corporate Directors Statutory Registers

Companies will no longer need to maintain their own register of directors, register of directors’ residential addresses, register of secretaries and register of persons with significant control as this information will be held centrally at Companies House. Companies will have an obligation to keep this information up to date.

Register of Members

Companies will still need to maintain their own register of members. This will need to include all ‘required information’ as set out by the ECCTA, including the full name and service address of each member. After the relevant provision of the ECCTA has come into effect, the first confirmation statement that a company files thereafter will need to include a list of all shareholders of the company. Companies listed on the Main Market, AIM and those subject to DTR 5 are excluded from this requirement.

Registered Office & Email

Companies will still be required to have a registered office with the requirement that the registered office is at an ‘appropriate address’. This means that a document delivered to this address would likely come to the attention of a person acting on behalf of the company. It is also necessary that the delivery correspondence can be recorded and receipt acknowledged at that address. In addition, companies will now be required to have a registered email address.

Corporate Directors

The ECCTA will implement the ban on corporate directors that was legislated for in 2015. Going forward, only corporate entities with legal personality will be allowed to be directors of a company, provided that all of the directors of that corporate entity are natural, verified persons. Companies that currently have corporate directors will have a period of 12 months to comply with these requirements.

C. New Offence for Failure to Prevent Fraud

A large organisation (as defined below) will incur criminal liability where a person associated with it (e.g. an employee, agent, subsidiary or other person that performs services on its behalf) commits a fraud offence intending to benefit the organisation and the organisation does not have reasonable fraud prevention procedures in place.

A large organisation is a body that satisfies two or more of the following conditions in the financial year preceding the year of the fraud offence:

Turnover – more than £36 million. Balance sheet total – more than £18 million. Number of employees – more than 250.

The offence is considered to be a strict liability offence: the organisation will not need to have knowledge of the fraud, with the only available defence being  the existence of reasonable prevention procedures.

D. Corporate Criminal Liability

The ECCTA has expanded the scope of corporate criminal liability to include economic crimes committed by ‘senior managers’. This new threshold substantially increases the ‘identification doctrine’ beyond persons who are considered to be  the ‘directing mind and will’ of a company.

Under the ECCTA, a ‘senior manager’ is any individual who plays a significant role in either the managing of a corporate entity’s activities or the making of decisions as to such management.

For now, the relevant provisions of the ECCTA will apply only to certain offences. These include: theft, bribery, money laundering, fraud and certain offences listed under the Terrorism Act 2000, the Proceeds of Crime Act 2002 and the Financial Services Act 2021.

The UK Government has indicated that it will seek to broaden this principle to encompass all criminal offences when the opportunity arises.[4]

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This article first appeared on Lexology. You can find the original version here.