Economic Crime and Corporate Transparency Act 2023 explained

The Economic Crime and Corporate Transparency Act 2023 (ECCT) received Royal Assent on 26 October 2023 and is the second piece of legislation being brought into force with the aim of preventing the abuse of corporate structures in the United Kingdom and tackling economic crime. The ECCT was preceded by the Economic Crime (Transparency and Enforcement) Act 2022, which created the register of overseas entities maintained by Companies House and requires any overseas entities that own property in the UK to apply for registration and provide information about its ownership.

The ECCT brings with it various changes to the role of the Registrar of Companies, Companies House and to how companies will be required to be more transparent about its ownership structure.

The ECCT has three main objectives, being:

• prevent organised criminals, fraudsters and terrorists from using companies or other corporate entities to abuse the open economy in the UK;
• strengthen the UK’s response to economic crime by giving law enforcement new powers to seize cryptoassets and enabling businesses in the financial sector to share information to prevent and detect economic crime; and
• support enterprises by enabling Companies House to improve the reliability of the information it holds, which will in turn inform business transactions and lending decisions.

New objectives and powers of the Registrar of Companies

The ECCT inserts a new section 1081A into the Companies Act 2006, which sets out the following four objectives which the Registrar is to promote:

• to ensure that any person who is required to deliver documents to the Registrar does so, and that the requirements in respect of proper delivery are complied with;
• to ensure that information on the register is accurate and that the register holds everything it ought to;
• to minimise the risk of information on the register creating a false or misleading impression to members of the public; and
• to minimise the extent to which companies and others carry out illegal activities or facilitate the carrying out of illegal activities.

To be able to fulfil these new objectives the Registrar has been granted new powers. These powers are intended to change the role of Companies House into one of an active gatekeeper over the incorporation of companies and holder of reliable information.

Firstly, the Registrar can require people forming or running a company to supply additional information in relation to the material they file with Companies House. The Registrar can also query information already on the register identified as being potentially fraudulent, suspicious or could otherwise impact the integrity of the register.

The Registrar has the power to share data with any persons for purposes connected with the Registrar’s functions or with any other public authority for the purposes connected with their functions. This is to help tackle and prevent incidents of economic crime.

The ECCT also introduces the power to change a company’s registered office address without an application where the Registrar is satisfied that the company does not have permission to use the address. It will also be able to impose stricter sanctions on companies failing to provide an appropriate registered office address. From 4 March 2024, a new rule will be implemented meaning that companies need to have an appropriate address as their registered office. This is defined as being an address where any documents sent to it are expected to come to the attention of someone acting on behalf of the company and can be recorded by an acknowledgement of delivery. This new rule means that companies can no longer use a PO Box as their registered office.

Identity verification

Various individuals will now be required to verify their identity with Companies House. All new and existing company directors, persons with significant control (PSCs), individuals who are authorised corporate service providers (ACSPs) and those delivering documents to the Registrar must have their identity verified. The intention behind this is to make anonymous filings harder, make it harder for people to hide their company control and ensure that information on the register is accurate and reliable.

Companies House will be putting in place a service to verify a person’s identity using ID documents such as a passport or driving licence. This service will have a range of support and services to help people complete the verification process. Identity verification can also be carried out by ACSPs, who already have a duty to carry out due diligence checks on all their clients.

ACSPs are individuals or organisations that carry out activities which are supervised for AML purposes, for example:

• company formation agents;
• solicitors; and
• accountants

Any directors, including shadow directors, who have not yet verified their identification are now prohibited from acting unless they fall within an exemption contained in regulations which are yet to be published. Companies will have an obligation to ensure that individuals do not act as directors until their identity has been verified.

Relevant legal entities (RLEs) are required to inform Companies House of their ‘relevant officer’ and confirm that their identity has been verified. The relevant officer must also confirm that they are a relevant officer of the RLE in question. Once this has been carried out, the relevant officer will be known as a registered relevant officer.

Only individuals can be a relevant officer of a company. This is defined in section 790LO(6) of the Companies Act 2006 as:

• in relation to a company, a director;
• in relation to a legal entity, the affairs of which are managed by its members, one of those members; or
• in relation to any other legal entity, an officer of the entity whose functions correspond with that of a director of a company.

Changes to confirmation statements and annual accounts

All companies will now be required to provide a registered email address. This will be used by Companies House to communicate with the company and will not be available to the public. Existing companies will need to give their registered email address when they file their next confirmation statement with a statement date from 5 March 2024 onwards.

All companies will also need to confirm that their intended future activities will be lawful. This will need to be confirmed on the company’s confirmation statement each year and it will not be possible to file a confirmation statement without this statement.

The way companies file their annual accounts will also be changing. Companies House will soon be transitioning towards filing annual accounts by software only, which is said to allow for more secure and efficient filings for companies. This change will be phased in over the next two to three years. It is also hoped that this will improve the quality of the information held on the register. To comply with these changes, companies will be required to find software before web-based and paper filing options are no longer available.

Filing options for small and micro-entity companies are also being changed. These companies will only need to file their profit and loss accounts, the details of what needs to be included in these will be set out in secondary legislation. Small companies which do not qualify as micro-entities will need to file a directors’ report as well as their accounts.

Companies looking to claim an audit exemption will be required to give an additional statement from their directors on the balance sheet. The directors will need to specify which exemption is being claimed and confirm that the company qualifies for this exemption.

New restrictions on who can file documents on behalf of companies are also being brought in. Individuals delivering documents to Companies House on their own behalf must be verified (unless exempt). A person cannot deliver documents on their own behalf if they are disqualified under the directors’ disqualification legislation.

Individuals who have been verified and fall under the following categories can file documents on behalf of firms:

• employee of the firm;
• officer or employee of a corporate officer of the firm;
• ACSPs; and
• Officer or employee of an ACSP.

For individuals, verified individuals, ACSPs or officers/employees of an ACSP can file on their behalf. Anyone who makes an unauthorised filing will commit a general false filing statement offence under sections 1112 or 1112A of the Companies Act 2006.

New offences

The current general false statement offence mentioned above is being amended by removing the need for someone to have ‘knowingly or recklessly’ delivered, or cause to be delivered a document or statement which is false, deceptive or misleading. The emphasis is being changed so that this offence occurs when someone delivers a false filing ‘without reasonable excuse’.

Where the offence has been committed by a firm, every officer of the firm in default also commits the offence. The penalty for the offence is imprisonment of up to two years, a fine or both.

An organisation will now be found guilty if a person associated with it commits a fraud offence intending to benefit the organisation itself or any person who receives services on behalf of the organisation from the associated person under the new failure to prevent fraud offence.

To be charged with this offence, it is not necessary to prove that the directors of the company had any awareness of the fraud. This is to discourage companies from turning a blind eye to fraud that may benefit the company.

To fall within the scope of the new offence, organisations will need to meet two or more of the following requirements in the year that the fraud was committed:

• a turnover exceeding £36 million;
• a balance sheet total exceeding £18 million; and/or
• has more than 250 employees.

This new offence will apply to partnerships, charities and other not-for-profit organisations and incorporated public bodies.

The organisation will have a defence if it can show that it had in place reasonable prevention procedures when the fraud was committed. If it had no procedures in place, it would have to show that the risk of fraud was so low that it would be unreasonable to put any prevention procedures in place. If convicted, organisations can receive an unlimited fine.

The Government hope that this new offence will encourage more organisations to put in place, or improve, their fraud prevention policies.

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