Explainer: The Economic Crime and Corporate Transparency Act
November 9, 2023
The Economic Crime and Corporate Transparency Act received Royal Assent on 26th October 2023 and introduces “world leading powers” in combating criminal groups and others
Suella Braverman, Home Secretary said: “I am committed to ensuring criminals do not profit from their offending and this landmark act will help law enforcement clampdown on the tactics they use. It will have a big impact on our ability to fight organised crime, including terrorist funding, fraud and money laundering, and that will ultimately help keep us all safe.”
The Chief Executive at Companies House, Louise Smyth said: “These new powers are without doubt the most significant change for Companies House in our long history.
We have known for some time that UK companies have been misused by criminals to commit fraud, money laundering, and other forms of economic crime. We will now play a much greater role in preventing further abuse of the register. We will be taking unprecedented steps to crack down on fraudulent activities, help victims quicker and clean up the register by removing information we know to be incorrect”.
The Act has introduced wide ranging reforms to address economic crime and counter abuses of our financial system. This includes fraud and money laundering in their various forms with the purpose of degrading the ability of serious and organised crime to operate in the UK.
In broad summary, the Act intends to deliver:
- Enhanced powers for the Registrar of Companies, so that Companies House plays a bigger role in ensuring corporate transparency and guarding against economic crime. This will also include strengthened information requirements for companies, incorporating identity verification.
- Implementation of changes to tackle the misuse of limited partnerships, particularly Scottish limited partnerships which have been linked to extensive misuse, while modernising the law governing them.
- Additional powers for law enforcement, enabling easier seizure, recovery and confiscation of crypto assets which are the proceeds of crime, or associated with activity such as money laundering, fraud and ransomware attacks.
- Strengthened powers for anti-money laundering, enabling better information sharing on suspected money laundering, fraud and other economic crimes.
- New intelligence gathering powers for law enforcement and removal of trivial burdens on business.
Through the Act, the government aims to improve the accuracy and integrity of register information and guard against misleading or unlawful activity. The government will provide new powers and tighten up existing powers, in order to help prevent abuse of the system.
1. The changing role – the proposals will affect Companies House and the equivalent Registrars for Scotland and Northern Ireland. It is designed to improve transparency over UK companies and other legal entities in order to strengthen the UK business environment, supporting national security and combat economic crime, while delivering a more reliable companies register to underpin business activity.
The reforms include:
- Introducing identity verification for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar. This will improve the accuracy of Companies House data, to support business decisions and law enforcement investigations. Companies House will be able to proactively share information with law enforcement bodies where they have evidence of irregular filings or suspicious behaviour.
- Extending the Registrar of Companies House’s powers so that the Registrar can become a more active gatekeeper over company creation and custodian of more reliable data, including new powers to check, remove or decline information submitted to, or already on, the companies register. It will introduce better cross-checking of data with other public and private sector bodies and give more effective investigation and enforcement powers.
- Improving the financial information on the register so that the register is more reliable, complete and accurate, reflects the latest advancements in digital technology, and enables better business decisions.
- More comprehensive reforms to clamp down on misuse of corporate entities.
2. Filing options for small companies and micro entities destined to change
In an effort to improve transparency by making more financial information available to the public and the enforcement agencies, part of the Companies House modifications will change the filing requirements.
If your company is classified as Small, your accounts do not need to be audited, and you only need to lodge abridged accounts to Companies House. You can also choose whether or not to send a copy of the director’s report and profit and loss account to accompany your submission.
Small companies are defined as such, by qualifying for two out of the following three criteria for two consecutive years:
- turnover £10.2m or less
- balance sheet – total assets of £5.1m or less
- an average of 50 employees or less.
It will also impact on Micro-Entities, who prepare simpler accounts which meet statutory minimum requirements. They are defined by the Government as such by qualifying for two out of the following three criteria for two consecutive years:
- turnover £632,000 or less
- balance sheet – total assets of £316,000 or less
- an average of 10 employees or less.
3. Some additional new measures to be introduced will include;
- Companies House will be provided with the power to challenge suspicious information and to inform security agencies of potential wrongdoing.
- Overseas agents will no longer be able to create companies in the UK on behalf of foreign criminals.
- All small companies and micro-entities will need to file their profit and loss accounts. The detail and format to be set out in secondary legislation once the stakeholder consultation has concluded.
- The Registrar will have expanded powers to be able to reject and query new filings, as well as questioning information already on the register, where that information is identified as potentially fraudulent or suspicious. This analysis will assist law enforcement agencies highlight and identify suspicious behaviour.
- For small companies which claim audit exemption, there will also be an additional statement required by the directors, which may require the directors to confirm how the company is eligible to claim exemption from audit.
- The quality of information provided to Companies House will be improved so that companies which rely on it to make business decisions, can trust who they are doing business with.
- Filing processes for small businesses will be streamlined and digitised, with the removal of a paper filing option for most companies.
- Directors will be better able to protect personal information published by Companies House which may put them at risk of fraud or other harm.
In formulating these proposals the government conducted extensive consultation to ensure the changes made would enhance the integrity of information lodged at Companies House. The above measures will require system development as the provisions are progressively implemented.
This article is not a definitive guide to what is a complex and evolving area of law, the impact and application of which can vary widely based on the specific facts involved. Given the evolution of this area of legislation, there may be omissions or inaccuracies in the information provided. Accordingly, the information is provided on the understanding that Opus Restructuring and Insolvency are not being engaged to provide professional advice and this information should not be used as a substitute for independent legal advice.
This guidance article was written by Insolvency Specialist, George Dale, Partner at Opus.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.