Economic Crime and Corporate Transparency Act 2023 – New laws to fight fraud, counter corruption and enhance business

Date: Feb 16, 2024

The Economic Crime and Corporate Transparency Act (the “Act”) received Royal Assent on 26 October 2023. It has introduced a variety of reforms to tackle economic crime and increase corporate transparency.

The Economic Crime and Corporate Transparency Act (the “Act”) received Royal Assent on 26 October 2023. It has introduced a variety of reforms to tackle economic crime and increase corporate transparency.

The objectives of the Act are to:

  • strengthen the powers of law enforcement agencies in tackling economic crimes by reforming corporate criminal liability laws;
  • introduce a new failure to prevent fraud offence;
  • improve transparency over UK companies by giving Companies House greater powers; and
  • protect the UK’s open economy.

Corporate Criminal Liability

Attributing criminal liability to corporates has always been a challenge for prosecutors. The Act replaces the old “directing mind and will” test with a new “senior manager” test. In practice, the previous law was often limited to the managing director or majority owner.

Under the Act, companies will commit fraud if any “senior manager” commits those crimes in the course of their work. “Senior managers” are defined as individuals who play a significant role in either managing a corporate’s activities or making decisions about how these are to be managed. This test significantly expands the group of individuals through which liability can be attributed to a company, making it easier for prosecutors to pursue corporates.

Law enforcement agencies have welcomed the reform as it will remove a corporate’s ability to hide wrongdoing behind complex management structures to evade liability.

Failure to Prevent Fraud

The National Crime Agency states that fraud accounts for more than 40% of all crime and the government have stated that the new failure to prevent fraud offence is part of their strategy to combat the issue.

Under this offence, large organisations will be criminally liable if an employee or third party acting on its behalf commits external fraud. Large organisations are companies that meet two of the following three criteria:

  • Turnover – more than £36million
  • Balance sheet total – more than £18million
  • Employees – more than 250

A company will have a complete defence if it can show it had “reasonable procedures” in place to prevent an associate from committing such an offence, or that is was reasonable not to have them in place at the time of the offence. Whilst the need to put these procedures in place is primarily a concern for large organisations, smaller organisations should also consider implementing them as good practice. The offence may be widened to include smaller organisations in the future.  

The government is obliged to publish guidance on what constitutes “reasonable procedures” and it is likely that it will be similar to guidance issued for bribery and tax failure to prevent offences. As a result, companies can start assessing their fraud risk and controls to see if they are compliant and if not, put reasonable procedures in place.

Companies House

The Act grants Companies House greater powers to disrupt economic crime and prevent abuse of the register. The measures include:

  • introducing identity verification for all new and existing directors and people with significant control;
  • investigative and enforcement powers for the Registrar; and
  • increased ability to share relevant information with partners.

The objectives are to enhance the protection of personal information to protect individuals from fraud, improve information to make the register more reliable and accurate and to support economic growth.

Timing of the Act

These reforms will come into effect in different stages. Certain changes have already been implemented, such as the test for corporate criminal liability. Others require secondary legislation to set out additional detail and some require Companies House to implement operating systems. The timeline for implementing these changes is unclear.

What to do now?

The changes will have far reaching impact on the current administrative practices of UK companies and will inevitably affect timelines for a range of transactions due to lengthier processing times at Companies House. We will be keeping a close eye on developments, including any guidance issued by the government and implementation timelines.

Given the broader scope for employees to bring criminal liability onto their employers, it is imperative for businesses of all sizes to consider their compliance procedures and take advice on how to mitigate the risk of being liable for criminal offences.

Editorial prepared by Daragh Fox, Solicitor, Corporate.

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Daragh Fox, Solicitor, Corporate
Having qualified in October 2023, Daragh has contributed significantly to a range of corporate and commercial matters under the guidance of our partners.

He has helped facilitate seamless commercial transactions, with a focus on the sale and acquisitions of companies, equity investments, company reorganisations, drafting and reviewing commercial agreements and company incorporations.

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