The UK Government introduces the Economic Crime and Corporate Transparency Bill

• United Kingdom

• Financial services disputes and investigations

27-09-2022

Overview

The UK has long benefited from being a global financial centre, and attracting business from all over the world. However, loopholes in and inadequate enforcement of the UK’s laws against economic crime have long exposed the country as a hub for illicit finance. Public attention, and therefore political will, focused on this issue following Russia’s invasion of Ukraine in February 2022. The UK Government moved swiftly to enact the Economic Crime (Transparency and Enforcement) Act 2022 (the“), which came into effect on 15 March 2022.

On 22 September 2022, the Economic Crime and Corporate Transparency Bill (the “Bill”) was introduced to Parliament.  The Bill builds on the Act by expanding the powers given to Companies House and improving transparency over UK companies to better protect the UK economy and improve its reputation as a place of legitimate business.

There are a significant number of proposed amendments set out within the Bill, which involve amendments to several pieces of primary UK legislation. We set out below several aspects that we believe are of most direct relevance to our clients. It remains to be seen how the Bill develops during its passage through Parliament; we will continue to monitor this.

What are the key parts of the Bill?

1. The most important changes introduced by the Bill relate to the Companies House register, providing it with investigation and enforcement powers in order to promote and maintain integrity of the register and to help to tackle abuse of corporate structures. The reforms include, but are not limited to:

• increasing control over the types of company names permitted for existing and new companies, in particular with a view to preventing names which could facilitate crimes, names suggesting connections with foreign governments, and names containing computer codes;
• new powers for the Registrar to check, change, analyse, remove or decline information submitted to, or already on, the register, and to request further information not on the register, to ensure that the Registrar has a more active role in company creation and to ensure the reliability of companies’ information. This includes empowering the Registrar to cross-check data with public and private partners and flag suspicious activities to other competent authorities;
• new identity verification requirements for existing and newly registered company directors, Persons with Significant Control and those delivering documents to the Registrar;
• improving the protection of personal information on Companies House so as to protect individuals from fraud by allowing individuals listed on the register to apply to have their personal information (including residential address, signatures, occupation and name) hidden from public view;
• new requirements relating to limited partnerships (and Scottish limited partnerships) which have historically been used for economic crime purposes; and
• increasing transparency of company ownership by introducing requirements for companies to record full names of shareholders in their registers.

2. The Bill proposes to amend the Company Directors Disqualification Act 1986 by way of an added section 11A which will make it an offence for a person who becomes a designated person (on or after a specified date), pursuant to relevant UK sanctions legislation, to directly or indirectly take part in or be concerned in the promotion, formation or management of a company, without leave of the High Court.

3. The Bill amends the Act by (amongst other things) amending the offences at section 15 (failure to comply with a notice under section 12 or 13, i.e. an information notice in relation to registrable beneficial owners of overseas entities) and section 32 (false statements), specifically by making provisions for basic and aggravated criminal offences.

4. Amendments in relation to Money Laundering and Terrorist Financing include:

• adding exemptions (subject to requirements) to money laundering offences for those in the regulated sector who are:
  • acting to terminate business relationships, albeit a threshold of £1,000 would apply; or
  • unable to identify funds/property that is criminal property when engaged in mixed-property transactions;
• amendments to information order requirements both under the Proceeds of Crime Act 2002 (“POCA”) and the Terrorism Act 2000 (“TA”);
• a proposed new section 339ZL in POCA and a new section 22F in the TA, which require the Secretary of State to create a code of practice in connection with the exercise of certain information orders; and
• allowing certain businesses (including those in the regulated sector) to directly or indirectly disclose information about money laundering more easily and without breaching obligations of confidence in order to prevent and detect economic crime. A number of requirements would need to be met for this to apply. 

5. The Bill enhances the regulatory and investigatory powers given to a number of authorities. Of particular note:

• a removal of limits on the amount of the penalty which the Solicitors Regulatory Authority can impose for economic crime matters; and
• an expansion of the Serious Fraud Office’s pre-investigation powers to all types of investigations (this is currently limited to bribery and corruption).

6. Finally, the Bill also provides additional powers to law enforcement to enable them to seize, freeze and recover suspected criminal cryptoassets, by amending the confiscation powers and civil recovery powers under POCA so that they apply to cryptoassets. The intention of these additional powers is to enable law enforcement to keep up with the rapid pace of change within economic markets.

What are the next steps?

The Bill passed its first reading on 22 September 2022 and is scheduled for a second reading on 13 October 2022. The exact timeframe for the Bill passing into legislation is currently unknown but we suspect Government will not wish for a delay given heavy criticism it faced at the beginning of this year, and historically, for not adequately tackling economic crime. The Bill seeks to build on momentum generated by the Act and all UK businesses, particularly, but not exclusively, those operating in the regulated sector should be taking note and monitoring the position.