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Economic Crime And Corporate Transparency Act 2023

Contents

Policy background

Economic Crime and Corporate Transparency

  1. Following the Corporate Transparency and Register Reform White Paper (opens in new window) published in February 2022, and building on the recently enacted Economic Crime (Transparency and Enforcement) Act, the Economic Crime and Corporate Transparency Act tackles economic crime, including fraud, money-laundering and terrorist financing, by delivering greater protections for consumers and businesses, boosting the UK’s defences, and allowing legitimate businesses to thrive.
  2. This Act is intended to protect the UK’s national security, by making it harder for kleptocrats, criminals and terrorists to engage in money laundering, corruption, terrorism-financing, illegal arms movements and ransomware payments.
  3. Additionally, it supports enterprise by enabling Companies House to deliver a better service for over four million UK companies, maintaining the UK’s swift and low-cost routes for company creation and improving the provision of data to inform business transactions and lending decisions across the economy.

Companies House Reform

  1. Companies House performs two vital roles which underpin the UK’s strong, transparent and open business environment. It facilitates the creation of companies and a range of other legal entities, which are vital building blocks of the modern economy. And it provides – free of charge and online – information about those entities, for the benefit of investors, providers of finance and other creditors, government agencies and the general public. Formally, powers are vested in the Registrar of Companies for England and Wales (and the Registrars for Scotland and for Northern Ireland: in legislation, references to "the Registrar" are taken to mean all three), who are supported in their work by the staff of Companies House, an executive agency of the Department for Business and Trade.
  2. In 2022-23, Companies House incorporated 800,000 companies and had a total of 4.6 million active companies registered. Companies House incorporation fees are among the lowest in the world and 99% of incorporation applications are processed within 24 hours. The total value of incorporation to owners of limited liability companies with 0 to 9 employees is estimated at £9.6 billion.
  3. Companies House has a strong track record for customer service and is well regarded worldwide. The legal framework in which it operates needs updating to meet the demands of a thriving and increasingly digitally-based 21st century economy. In addition to this, recent years have seen growing instances of misuse of companies, concerns over the accuracy of the registers that the Registrar maintains relating to companies and other registrable entities, and challenges to the safeguarding of personal data on the register.
  4. As set out in the Corporate Transparency and Register Reform White Paper, the Government would like to see Companies House have an expanded role so changes its statutory role from being a largely passive recipient of information to a much more active gatekeeper over company creation and custodian of more reliable data.
  5. The measures in Part 1 of the Act delivers these policy objectives, including by:
    1. Expanding the role and powers of the Registrar:
      1. This includes new objectives oriented to maintaining the integrity of the registers held at Companies House. These objectives are designed to guide the Registrar’s use of her powers with the ultimate goal of allowing the UK business environment to flourish. The Registrar is now equipped with enhanced powers to query suspicious appointments or filings and, in some cases, request further evidence or reject the filing, in pursuit of these objectives. These include measures to tackle the fraudulent use of company names and addresses. The Registrar is now better able to use fees to fund investigation and enforcement activity.
    2. Introducing identity verification measures:
      1. All new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar must have a verified identity with Companies House, or have registered and verified their identity via an anti-money laundering supervised authorised corporate service provider (ACSP). This will make anonymous filings harder and discourage those wishing to hide their company control through nominees or opaque corporate structures. It will make the data provided by Companies House considerably more reliable for business and general users.
      2. Building on the above, the Act allows for the creation of a completely new type of sanctions measure under the Sanctions and Anti-Money Laundering Act 2018 called "director disqualification sanctions". An individual subject to this new sanctions measure will commit an offence if they act as a director of a company or directly or indirectly take part in or be concerned in the promotion, formation or management of a company. The Act also voids the appointment of directors who are disqualified, including as an undischarged bankrupt, or a person subject to the new director disqualification sanctions measure.
      3. The Act also contains important new controls over who can set up companies and make filings on their behalf, ensuring such actors are verified and appropriately supervised under the Money Laundering Regulations.
      4. The Act also improves the provision of information about company ownership.
    3. Enhancing data sharing:
      1. The Act provides the Registrar with more extensive legal gateways for data sharing with law enforcement, other government bodies and the private sector. This means more efficient sharing of suspicious activity with law enforcement and establishment of feedback loops with other government bodies, supervisory bodies, and the private sector. This will lead to quicker identification of discrepancies between information on the registers and information held by other bodies that can then be questioned through the Registrar’s enhanced powers to query information.
    4. Preventing abuse of personal information on the register:
      1. Individuals whose personal information has been displayed on the public register will be able to apply to have some more of that information "protected", so that it is not made available on the public register.
      2. Individuals who can provide evidence that having their personal information on the public register puts them at serious risk of violence or intimidation will be able to apply to have it protected.
      3. Companies who can provide evidence that having an address on the public register puts them at serious risk of violence or intimidation will be able to apply to have it protected.
    5. Improving the financial information on the register:
      1. The Act streamlines the range of accounts filing options for small companies into two regimes for small companies and micro-entities, simplifying filing options for business.
      2. At the same time, the Act levels the playing field by requiring all businesses to file a profit and loss account as part of their annual accounts and removing the option for filing abridged accounts.
      3. These reforms are intended to lead to better financial management practices within small and micro-entity companies, promote the transition to digital reporting, support better business and credit decisions, improve the value of the Companies House register to its users, and help wider efforts to combat economic crime.
  6. Companies House will undergo a full transformation, with the ambition of being the most innovative, open and trusted corporate registry in the world. The Government plans to enhance the contribution Companies House makes to the UK economy, and at the same time boost its capacity to combat economic crime.

Limited Partnerships

  1. Limited partnerships are a form of partnership registered at Companies House and are used for a range of legitimate business purposes, including venture capital, the film industry and oil and gas exploration. Limited partnerships that are registered in Scotland have separate legal personality from their partners, which allows the Scottish limited partnership itself to own property or enter into contracts in its own right. Those registered in England and Wales, and Northern Ireland have no separate legal personality and any contracts entered into are made on behalf of the individual partners.
  2. The Government is aware of reports that some limited partnerships, in particular Scottish limited partnerships, have been misused including for facilitating large-scale international money laundering. In addition, given that the legislation on limited partnerships is over 100 years old, the Government is of the view that it should be modernised to make limited partnerships more transparent and fit for the modern age. The Government has already extended the People with Significant Control legislation to Scottish limited partnerships in 2017 (it is not legally meaningful for this measure to be applied to other forms of UK limited partnership). While the numbers of new registrations of Scottish limited partnerships fell at the same time, reports of misuse continue and the lack of transparency of limited partnerships remains a concern to the Government.
  3. Changes in the Act to the legislation on limited partnerships include:
    1. Tightening registration requirements, by requiring more information about the partners of a limited partnership and requiring that this information is submitted by authorised corporate service providers, which are supervised for anti-money laundering purposes.
    2. Requiring limited partnerships to have a firmer connection to the part of the UK in which they are registered, by having to maintain a registered office there. The registered office must be the usual residential address or registered office address of a general partner or provided by an authorised corporate service provider.
    3. Requiring all limited partnerships to submit statements at least once per year confirming that the information held about them on the register is correct.
    4. Enabling the Registrar to deregister limited partnerships that are dissolved or no longer carrying on business, or where a court determines that it is in the public interest to do so.
    5. Sanctions will be enforced for breaches of the above obligations against the general partners of limited partnerships.
  4. The broader reforms to Companies House in other Parts of the Act will impact limited partnerships in the following ways:
    1. Expansion of the role and powers of the Registrar over limited partnerships.
    2. Introduction of mandatory identity verification of general partners.
    3. Enhanced data sharing of information about limited partnerships.
    4. Prevention of the abuse of personal information of people within limited partnerships.
  5. Other measures will be brought forward by regulations which will align the regulation of limited partnerships in the following way:
    1. Making it an offence for general partners who are bankrupt or disqualified (including by virtue of being subject to asset freeze financial sanctions under the Sanctions and Anti-Money Laundering Act 2018) to continue to manage the firm.
    2. Limited partnerships which do not have a registered office at an appropriate address may have their address changed to the Companies House default address.

Register of Overseas Entities

  1. The Register of Overseas Entities came into effect on 1 August 2022, when most of Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (the ECTE Act) was commenced. The Register of Overseas Entities is held by Companies House. Overseas entities owning land in the UK that are in scope of the requirements must register with Companies House and provide details about their beneficial owners. The purpose of the Register of Overseas Entities is to increase transparency in land ownership in the UK, and to reduce the threat of money laundering via UK property.
  2. Some changes are made to the ECTE Act via this Act in order to (i) ensure that it remains consistent with the Companies Act 2006 in those areas that "mirror" the Companies Act, and which are changed via this Act, (ii) make minor and technical changes which have come to notice since the ECTE Act received Royal Assent, and (iii) introduce new measures to improve the effectiveness of the Register.
  3. The changes include changes to the offences within sections 15 and 32 of the Act, which are both "false filing" offences, to maintain consistency both with each other and with a change made via this Act to the Companies Act 2006 section 1112 general false filing offence.
  4. A further amendment relates to the circumstances in which an overseas entity is no longer considered to be a "registered overseas entity" for the purposes of applications to register transactions with the UK’s three land registries. Currently, an overseas entity is not considered to be a "registered overseas entity" during any time that it is not compliant with the annual updating duty. The effect of this is that the land registries will not accept applications to register transactions undertaken by the overseas entity during this time. The circumstances in which this will be the case are expanded to include any time within which an overseas entity is non-compliant with the duty to respond to an information notice from the Registrar.
  5. Changes are also made to clarify what information forms part of the Register of Overseas Entities, and amend the meaning of a service address to maintain consistency with the Companies Acts.
  6. Further changes to improve the operation of the Register of Overseas Entities, and close potential loopholes include (1) requiring overseas entities to provide more information about associated trusts, including via annual updates; (2) increasing access to information on overseas ownership of property via trusts; and (3) strengthening verification of information in relation to the Register. The Act also introduces new measures to ensure that where the overseas entity’s ownership structure includes nominees, those behind the nominee must be identified.

Cryptoassets

  1. Cryptoassets serve as a pseudo-anonymous, low-cost, and relatively quick method to move funds globally. There are low barriers to entry, users merely need an internet-connected device to transact with cryptoassets. Given these characteristics, it is little surprise that this technology is being exploited by criminals and law enforcement are already investigating terrorist financing cases where cryptoassets have been used.
  2. The threat of cryptoassets being exploited by criminals is more apparent than ever before. The NCA’s National Strategic Assessment noted a particular acceleration in the criminal use of these assets during the pandemic. Further, cryptoassets are one of only a few accepted payment mechanisms most used by cyber criminals demanding payment following a ransomware attack. These attacks are increasingly common and pose a significant threat to the UK public and businesses.
  3. Cryptoassets have not yet become a chronic problem in the counter-terrorism space. But the use of cryptoassets is clearly an emerging trend, with law enforcement seeing their use in a number of terrorist financing cases. In particular, the use of social media platforms to fundraise and the use of cryptoassets as a method of payment is increasing.
  4. The ability to move property quickly, across borders, without the need for standard banking services, and often to hold it anonymously, can make these assets attractive to those engaged in economic crime and terrorist financing.
  5. It is the Government’s view that it is necessary to strengthen the UK’s asset recovery and counter-terrorist financing legislative frameworks to provide law enforcement agencies with the most effective and efficient powers to help seize and recover cryptoassets, in as many cases as possible. Without intervention, those assets may be used to fund further criminality or for terrorist purposes.
  6. To achieve this, the measures in the Act will:
    1. Improve the criminal confiscation powers in Parts 2, 3 and 4 of POCA in relation to cryptoassets. These reforms will: enable officers to seize cryptoassets during the course of an investigation without first having arrested someone for an offence; enable officers to seize cryptoasset-related items; and enable the courts to better enforce unpaid confiscation orders against a defendant’s cryptoassets.
    2. Bring cryptoassets within the scope of civil forfeiture powers in Part 5 of POCA 2002. These powers would be simple and user friendly for law enforcement agencies.
    3. Ensure that forfeiture powers are accompanied by supplementary investigative powers in Part 8 of POCA, similar to investigatory powers that exist to support the forfeiture of cash, listed assets and funds in certain accounts.
    4. Mirror the civil forfeiture related powers in Part 5 and Part 8 of POCA in counter-terrorism legislation (Schedule 1 to the Anti-Terrorism, Crime and Security Act 2001 and Schedule 6 to the Terrorism Act 2000) to provide sufficient flexibility to be able to suppress the risk that cryptoassets become increasingly used for terrorist purposes.

Defence Against Money Laundering (DAML)

  1. POCA provides the statutory basis for the principal money laundering offences in the UK. These offences are set out in sections 327, 328 and 329 of POCA. In certain circumstances, a person can seek consent from the NCA, or other specified officers, to deal with property in a way which would otherwise constitute one of the principal money laundering offences. Such consents must be sought by making an authorised disclosure as specified in section 338 of POCA. Authorised disclosures are commonly referred to as Defence Against Money Laundering Suspicious Activity Reports, or "DAMLs". If the reporter gets consent under s335, they do not commit a principal money laundering offence in POCA when dealing with that property in a way that is covered by the consent, and after seven working days have passed the reporter can assume that they have consent.
  2. Additionally, sections 327, 328, 329 and 339A of POCA include provisions that currently allow certain businesses only, in certain circumstances, to process transactions where there is knowledge or a suspicion of money laundering, if the transaction is below a threshold amount, without having to submit a DAML to the NCA and without committing a principal money laundering offence. From 5 January 2023, the threshold amount for acts done by deposit-taking bodies, e-money, and payment institutions in operating an account is £1,000 unless a higher amount is specified in accordance with section 339A of POCA. The threshold amount provisions only apply in relation to activity undertaken in operating an account; they do not apply in relation to transactions related to the opening or closing of an account, or when a deposit-taking body first suspects that the property is criminal.
  3. Due to the significant rise in authorised disclosures submitted to the NCA in recent years – increasing from 34,543 in 2018/19 to 62,341 in 2019/20 – customers are sometimes left waiting for seven days until the consent period has passed and consent can be assumed, before being able to process their transactions. This can cause significant disruption to individuals and businesses. Further, businesses are unable to inform their customers of the reason for the delay, as this could amount to a tipping off offence under POCA section 333A or 342. This provision will help reduce some of the disruption faced by customers.
  4. Certain businesses (especially those in the regulated sector, defined in Schedule 9 to POCA) deal with property belonging to clients or customers. Where they suspect money laundering, it is common for those businesses to prevent access to any of that property, even where their suspicion relates only to part of the value of that property. This can result in disproportionate economic hardship to individuals unable to access their property, for example to pay rent or living expenses.
  5. The amendments made by this Act will introduce exemptions from the principal money laundering offences in two circumstances:
    1. where a business in the regulated sector ends a business relationship with a client or customer and for that purpose hands over property worth less than £1,000; and
    2. where a business in the regulated sector is dealing with property for a client or customer and keeps hold of property worth at least as much as the part of that property to which the knowledge or suspicion relates.
  6. Where an exemption applies, a business in the regulated sector is still required to report suspicions of money laundering to the NCA under section 330 of POCA.
  7. The exemptions do not apply to disclosures under the Terrorism Act 2000.
Money laundering: offences of failing to disclose
  1. It is an offence under sections 330 and 331 of POCA for persons in the regulated sector to fail to report suspicions or grounds for suspicion of money laundering.
  2. Section 184 creates a defence against the offence of failure to report where the information only came to them as a result of a "status check" or "immigration check" carried out in compliance with the Immigration Act 2014.

Information Order (IO)

  1. Information Orders (IOs) are a valuable tool for NCA officers to develop intelligence on money laundering and terrorist financing. The power was originally introduced under the name Further Information Orders, as amended to IOs, under section 339ZH to POCA and 22B to TACT by the Criminal Finances Act 2017, as an investigative tool. There are multiple reasons in which an IO can be applied for, for example an order can be made to examine whether a person is engaged in money laundering or terrorist financing. It compels businesses in the Anti-Money Laundering (AML) regulated sector, (for example, banks, accountancy, and legal sectors) who have submitted a statutory disclosure also known as a Suspicious Activity Report (SAR) to provide further specific information about their customer or client. The additional information allows the NCA to build on existing intelligence and assist law enforcement with investigations or determine whether an investigation should commence.
  2. The UK is a member of the Financial Action Task Force (FATF), which is the international body devoted to developing and promoting policies to combat money laundering and terrorist financing. FATF’s 2018 Mutual Evaluation Report (opens in new window) assessed the UK Financial Intelligence Unit (UKFIU) as partially compliant in its ability to seek all the information it requires from regulated businesses to perform proper operational and strategic analysis. This is in part because the current IO power: (a) relies on a preceding SAR; and (b) has not been used since its introduction to demonstrate the UKFIU’s ability to compel information.
  3. The measures in the Actwill assist NCA officers to proactively gather intelligence without reliance on a SAR. The information gathered under these measures is designed to be used for intelligence purposes only. They will align the power more closely with international recommendations in relation to the functions of the UK Financial Intelligence Unit (UKFIU), which re-orientates the power towards assisting the NCA in carrying out its functions to conduct intelligence gathering and conduct analysis, rather than being investigatory-focused, as it is now. The Act will do this by:
    1. removing the requirement of a preceding SAR in order to enable the NCA to proactively gather intelligence.
    2. amending the conditions for the magistrates’ or sheriff courts to make orders to businesses in the AML regulated sector where the information is likely to assist the NCA or an overseas Financial Intelligence Unit (FIU) making an application to carry out its financial intelligence unit functions.
  4. The power will increase the UK’s ability to support foreign partner FIU requests where no SAR has already been submitted by UK reporters. An example of this is the suspicion of terrorist financing where gathering information at speed is crucial.
  5. As the UK is one of the most globalised economies, it is crucial that it plays its part in collaborating with other FIUs, and to prevent illicit funds from entering the UK economy and combating illicit financial flows at an international level.

Enhanced due diligence: designation of high-risk countries

  1. The UK’s High-Risk Third Countries list (the List) is an important part of the government’s anti-money laundering, counter-terrorism financing and proliferation financing (AML/CFT/CPF) regime. The List is defined in Schedule 3ZA of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (S.I. 2017/692), and sets out those countries identified as having strategic deficiencies in their AML/CFT/CPF regimes, thus posing a high risk to the UK. To protect the UK’s financial system, regulations stipulate that certain transactions with and all customers established in high risk jurisdictions must undergo enhanced checks by the UK’s regulated businesses.
  2. The List mirrors and is updated in accordance with those countries identified in public lists by the Financial Action Task Force (FATF), the global standard setter for AML/CFT/CPF, as having strategic deficiencies in their AML/CFT/CPF regimes.
  3. When the List was introduced in March 2021, the government committed to updating the List to mirror the periodic changes made by the FATF to its public lists. These updates to the List are made up to three times a year, following updates by the FATF. As per the Sanctions and Anti-Money Laundering Act 2018 (SAMLA), the List can only be updated through made-affirmative procedures. Since introduction of the List, the Government has laid seven statutory instruments to make these updates. The administrative and parliamentary process for amending the List via secondary legislation however prolongs the time taken for necessary, routine updates, while creating uncertainty and delays in the implementation of requirements for the regulated sector to apply enhanced checks.
  4. This measure will streamline the process of updating the List, by allowing regulations to refer directly to the lists of countries published by the FATF. Any countries included in the FATF lists will therefore automatically trigger obligations to conduct enhanced checks in the UK, unless otherwise specified. This will ensure the List remains up-to-date with latest findings, allowing the UK to respond swiftly to the latest economic crime threats and provide greater clarity to businesses on which jurisdictions are deemed to be high risk at the speed necessary.
  5. The measure includes a transitionary period to allow consequential amendments to regulations to be made within 6 months of royal assent under the made affirmative procedure, to allow these automatic updates to be implemented as soon as possible. Any changes made after that period will be subject to the draft affirmative procedure.

Information sharing

  1. Large amounts of financial data flow through the UK every hour. The overwhelming majority of this data relates to legitimate activity. However, a small proportion involves criminal activity.
  2. The sharing of information between businesses, which would help them better detect, prevent and investigate criminal activity, is constrained by their duties of confidentiality. Particularly in the context of banking, this is known as the Tournier principle (from Tournier v National Provincial and Union Bank of England [1924] 1 KB 461).
  3. This has three main consequences:
    1. First, a bank, for example, querying a particular transaction can only see its own data in relation to that transaction. It is unable to request further information from the other bank involved in the transaction to clarify relevant details. In the absence of confirmatory information, the bank may either end up under-reporting (not submitting a Suspicious Activity Report (SAR) to the UK Financial Intelligence Unit) or over-reporting (submitting a SAR when in fact none was necessary).
    2. Second, a bank conducting an investigation into one of its customers – for instance for the purpose of complying with the MLR 2017 – can only see its own data in relation to that customer. This is despite the fact that economic crimes such as money laundering can take place across multiple bank accounts hosted by separate businesses.
    3. Third, a bank who restricts access to its products, or terminates a relationship with a customer due to economic crime concerns, is unable to share that information with other businesses in the sector. This means that a customer whose account is terminated with a bank for economic crime reasons can easily open up an account with a new provider, without the new provider being aware of the original bank’s concerns.
  4. These provisions will make it easier for businesses covered by the provisions to share customer information with each other for the purposes of preventing, investigating, and detecting economic crime by disapplying civil liabilities owed to the person to whom the disclosed information relates (other than those incurred under the data protection legislation) where information is shared for these purposes. Businesses will therefore be able to take a much more proactive and timelier role in identifying and preventing criminal activity.
  5. The sections will allow direct sharing between relevant businesses Section 188 and indirect sharing through a third-party intermediary Section 189. Indirect sharing will apply in cases where the business has information about a customer that is relevant to preventing, detecting, or investigating economic crime, but does not know whom the information would assist, either now or in the future. This might occur where a business decides to terminate a relationship with a customer due to economic crime concerns and wants to ensure that any future business dealing with the customer is aware of their decision.
  6. The provisions can only be used for the purposes of preventing, detecting, and investigating economic crime. Economic crime in this instance is defined as any of the offences listed in Schedule 11 and includes: money laundering, sanctions evasion, fraud, bribery, terrorist financing, market abuse and tax evasion. Any disclosure of customer information for purposes other than those specified in the section would not qualify for the civil liabilities protections.
  7. The sections involve sharing information about customers in order to help inform other businesses’ risk-based decisions about these customers. They do not provide any additional powers for businesses to restrict services, or to exclude customers. In taking a decision whether to restrict access to a product, or exclude a customer, a business will still have to abide by its existing obligations, including ensuring that a decision is free from unlawful discrimination under the Equalities Act 2010. Unlawful discrimination against a customer on the basis of a protected characteristic will remain a breach of the law. Firms regulated by the Financial Conduct Authority (FCA) already have additional obligations to treat customers fairly under the FCA’s Regulatory Principles.
  8. Due to the thresholds set out in the sections, in particular that a business can only proactively share information about a customer or former customer if it has taken a decision to restrict its own services or exclude them itself (or would have taken the decision to do so in the case of a former customer). It is not anticipated that there will be a significant increase in the number of customers denied a product or excluded services. Rather, individuals who are already denied products or excluded services due to economic crime concerns will likely find it more difficult to access those same services elsewhere.
  9. To ensure that a customer’s data remains accurate and used only for the purposes specified in the Act, businesses must continue to adhere to the stipulations of the Data Protection Act 2018 and the UK GDPR (General Data Protection Regulation). The UK GDPR establishes principles around, amongst other areas, accuracy, purpose and fairness and transparency. Failure to adhere to these principles, for instance deliberately sharing incorrect data, would constitute a breach of the UK GDPR, the penalty for which is £17.5 million or 4 per cent of annual global turnover – whichever is greater. Where a customer believes their data rights have been breached, they can pursue a complaint via the Information Commissioner’s Office (ICO).
  10. Where a customer in the banking sector has found themselves denied or restricted a product from their bank and is unable to resolve the situation with the bank directly, they can pursue their case under the existing complaints procedure established by the Financial Ombudsman Service for individuals who have been denied products or services. In all cases – other than those where, for example, an individual’s account has been used for criminal activity or maintaining the account would breach other legal obligations such as those under the MLR 2017 – an individual will still have a right (as established in the Payment Accounts Regulations 2015) to a Basic Bank Account , ensuring that an individual who had their standard account terminated by a bank will still be able to access basic account services.
  11. The protections and appeals mechanisms outlined above are based upon those currently in place for the National Fraud Database (CIFAS) where customer information is shared between businesses for the purposes of preventing and detecting fraud.

SLAPPs

  1. Strategic Lawsuits Against Public Participation (SLAPPs) are legal actions typically brought by corporations or individuals with the intention of harassing, intimidating and financially or psychologically exhausting opponents via improper use of the legal system. SLAPPs are typically framed as defamation cases, but they can occur across a broad spectrum of issues including data protection, privacy and environmental law. It is estimated that the majority of SLAPPs are related to economic crime.
  2. SLAPPs present a growing problem as claimants explore new ways to suppress legitimate reporting, by abuses of process that are intended to be costly and time-consuming for defendants. Broadly, SLAPPs fundamentally undermine freedom of speech and the rule of law.
  3. The Ministry of Justice launched a Call for Evidence (CfE) in Spring 2022, and committed to take action to deliver on our SLAPPs reforms. In light of that evidence, the provisions in the Act aim to ensure that misconduct and improper use of the legal system to suppress legitimate reporting on matters of public interest related to combating economic crime will be prevented. The Act will therefore strengthen the legal framework to ensure that those reporting on such matters are free from the intimidation and financial burden of that improper litigation and that, as a result, those responsible for wrongdoing can be held accountable.
  4. The Act equips the courts to deal with SLAPPs robustly in England and Wales by defining SLAPP claims in such a way as to be able to identify them at an early stage in the proceedings and providing the courts with new powers to strike them out where they are less likely than not to succeed at trial. The Act also provides protection for defendants against costs where a SLAPP claim is not struck out early. These measures therefore strike a careful balance between protecting freedom of speech and access to justice, and will therefore help to uphold the integrity of the legal system, discourage the use of SLAPPs and restrict their harmful impact.

FTPF

  1. Corporations as well as individuals can commit fraud. The victims of corporate fraud could be individuals, the public sector or other businesses. For example, customers might be tricked into buying a product or paying an inflated price as a result of the company giving them deliberately misleading information. The Failure to Prevent Fraud offence gives law enforcement and prosecutors additional powers to hold corporations accountable for fraud, and encourages corporations to put preventative measures in place, thereby reducing the amount of fraud that happens in the first place. The offence implements an option proposed in the Law Commission’s June 2020 report on Corporate Criminal Liability.
  2. The offence holds an organisation responsible if an ‘associated person’ (for example, a company employee) commits fraud, intending to benefit the organisation, and the organisation did not have reasonable prevention procedures in place. It does not need to be proven that senior management within the organisation knew about or were involved in the fraud; this represents a key difference from existing powers to hold companies accountable for fraud. The Government is required to produce guidance on reasonable prevention measures before the offence comes into force.

IDD

  1. The identification doctrine is the legal test in deciding whether the actions and mind of a natural person can be regarded as those of a legal person, in this instance a corporation. The current law requires that the natural person be senior enough to be considered the "directing mind and will" of the corporation itself. If the person(s) identified as the "directing mind and will" of the corporation commits a criminal offence acting in that capacity, that offence, including the guilty mind to commit the offence, is considered to be that of the corporation. The corporation will be prosecuted as if they were the individual identified as the "directing mind."
  2. Prosecuting authorities generally seek to identify someone with the status, for example, of a director, who has committed the criminal offence and there would be reasonable grounds for such individuals to have the necessary authority to constitute the directing mind and will of the organisation. This legal principle has developed over time in case law since Tesco v Nattrass in 1971.
  3. In recent years, concern has been expressed that a principle devised in the 1970s does not adequately deal with misconduct carried out by and on behalf of modern-day corporations. This is because:
    • It is too narrow – only a small number of persons are considered the "directing mind and will" of a corporation.
    • It does not reflect the reality of decision-making in complex corporations – decision-making can be dispersed across multiple directing minds leading different areas of a corporation.
    • It makes it too difficult to convict corporations for offences committed for their benefit – corporates are gaining financially from economic crimes and should be prosecuted accordingly.
    • It is unfair between small and large companies – the "directing mind and will" is easier to identify in small organisation that may have 1-2 directors controlling the business.
    • It does not always bring certainty – the current law has developed through the courts and has not got legislation underpinning it.
    • It does not incentivise good corporate governance and may disincentivise it – a corporate could escape liability under the common law by making their governance artificially difficult to determine a singular "directing mind and will"
  1. The reform places the identification doctrine on a statutory footing (for economic crimes), providing certainty that senior managers are in scope to better capture large ownership structures. The corporation will be prosecuted as if they were the senior manager themselves. Economic Crime is defined according to a schedule of associated offences.

Legal services - the removal of the statutory cap on the Law Society’s (as delegated to the SRA) power to issue financial penalties, for disciplinary matters relating to breaches of the economic crime regime

  1. The current crisis in Ukraine has shone a light on the role legal services regulators play in preventing and detecting economic crime. The legal services sector was assessed in HMT’s National Risk Assessment of money laundering and terrorist financing (2020) as being at high risk of abuse for money laundering purposes. The crisis has highlighted the sector’s exposure to risks spanning different areas of economic crime, such as fraud or breaches of the sanctions regime.
  2. Legal professionals are already bound by high standards with regards to their anti-money laundering obligations. In light of the Ukraine crisis, legal services regulators have updated guidance to support the sector to aid compliance of economic crime, particularly the sanctions regime. As regulators have a duty to enforce compliance of economic crime rules, it is important that they have the right tools, such as the ability to set and amend the levels of financial penalties in relation to economic crime.
  3. The Solicitors Regulation Authority (SRA) is the body that regulates all solicitors and traditional law firms. If a solicitor or law firm is in breach of economic crime rules, the SRA, as delegated from the Law Society, can direct a solicitor to pay a penalty not exceeding £25,000. Any cases warranting a higher penalty would require a referral to the Solicitors Disciplinary Tribunal (SDT), who have unlimited financial penalty limits. The maximum penalty amount that the Law Society can apply is set out in primary legislation and can only be amended by an Order made by the Lord Chancellor. In comparison, other frontline legal services regulators can set their fining levels in their discipline rules, subject to the Legal Services Board’s (LSB) approval, and they are not bound by the same statutory limitations as the SRA.
  4. This measure will align the SRA more closely with other regulators in relation to economic crime-related disciplinary matters by removing the statutory fining cap and allowing the SRA to set its own fining limits in guidance, with the LSB’s oversight.
  5. The appropriate checks on the SRA’s use of its power will stay in place. These include:
    • the requirement for the SRA to consult the SDT before making rules in relation to the exercise of this power;
    • the approval of the LSB in agreeing changes to regulatory arrangement;
    • the obligation for the SRA to follow their public law duties to take a proportionate approach;
    • the continued need to refer cases requiring more serious sanctions (such as strike off) to the SDT; and
    • the appeal route for all SRA fining decisions to the SDT.

Legal services – SSDT’s financial sanctions in respect of economic crime

  1. The purpose of the measure is to ensure that the independent Scottish Solicitors’ Discipline Tribunal for solicitors, the SSDT, has effective enforcement powers that enable it to act appropriately, should any solicitor be found to have undermined the economic crime regime. The intended effects are a more effective deterrent, which will be used in a proportionate way based on the facts and circumstances of each case to ensure economic crime compliance.
  2. The Scottish Government supports this measure as it will ensure the SSDT has effective enforcement powers in relation to breaches of economic crime. The measure will provide the SSDT parity with England and Wales in respect of the financial sanctions available to the Solicitors Disciplinary Tribunal (SDT) for economic crime. The Law Society of Scotland and the SSDT are supportive of the measure.

Legal services – regulatory objective for regulators to promote adherence to economic crime rules and legislation

  1. The crisis in Ukraine has shone a light on the exposure of professional services sectors to economic crime. The legal services sector was assessed in HMT’s National Risk Assessment of money laundering and terrorist financing 1 (2020) as at high risk of abuse for money laundering purposes. The sector is also exposed to further-reaching risks such as fraud or breaches of sanctions legislation.
  2. Legal professionals are already held to high standards with regards to their anti-money laundering obligations, and it is evident that they should not be facilitating economic crime.
  3. While it is the Government’s view that the vast majority of the legal services sector complies with their economic crime duties, it is important to ensure that regulators have the right tools to effectively promote compliance within their regulated communities.
  4. It can already be inferred from existing objectives, such as the objective to maintain adherence to professional principles and the objective to promote the public interest, that regulators should promote compliance with economic crime rules set out in relevant guidance and legislation.
  5. The duty of legal services regulators to promote adherence to economic crime rules and legislation is not explicitly set out in legislation. As a result, there are differing views on the roles and responsibilities of regulators relating to economic crime. The measures in this part of the Act seek to address this by adding a regulatory objective to section 1 of the Legal Services Act 2007 which focuses on promoting the prevention and detection of economic crime.
  6. The purpose of the measure is to put beyond doubt that it is the duty and within the remit of the frontline regulators to exercise the appropriate regulatory actions that are necessary to promote and maintain compliance with economic crime legislation and guidance.

Legal services – SRA information request powers

  1. Legal professionals are already bound by high standards with regards to their anti-money laundering obligations. In light of the war in Ukraine, legal services regulators have updated their guidance to support the sector to aid compliance with the economic crime regime, particularly in relation to sanctions. It is important that regulators have the right tools, such as the ability to request information from their regulated communities, in relation to economic crime.
  2. The Solicitors Regulation Authority (SRA) regulates all solicitors and law firms in England and Wales. The SRA can proactively request information from two-thirds of its regulated community under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). However, it cannot request information in relation to activities that are exempt from the MLRs unless it has a suspicion of solicitor misconduct.
  3. The risks of economic crime are not restricted to money laundering, with fraud and breaches of the sanctions regime also posing significant risks. The SRA lacks the necessary proactive information request power to supervise economic crime compliance, leaving it vulnerable to challenges being brought by its members. Such challenges require time and resource to deal with, and can prevent the SRA from taking targeted compliance activity in relation to economic crime.
  4. This measure will ensure that the SRA has the necessary proactive information request powers to fulfil its obligations to effectively oversee and promote the prevention and detection of economic crime.

Serious Fraud Office – pre investigation powers

  1. The Serious Fraud Office (SFO) was established in 1988, with the remit of investigating and prosecuting the most serious economic crimes, including fraud and bribery and corruption. The SFO has a unique set of investigative powers, provided by section 2 of the Criminal Justice Act 1987 (CJA) which SFO officers can use to require a person to answer questions, furnish information, or produce documents. These powers can only be used following the Director of the SFO’s decision to commence an investigation; alternative means must be used to gather information in advance of that decision.
  2. In recognition of the difficulty posed for the SFO in gathering information by alternative means in relation to suspected cases of international bribery and corruption, in 2008 SFO officers were granted access to their powers under section 2 at the ‘pre-investigation’ stage. This enables the SFO to gather more effectively the information necessary to allow the Director to decide whether to take on a case (they may also decide to refer the case elsewhere). This legislative change has had a positive impact on the SFO’s cases; in some cases, it has allowed the organisation to more promptly determine whether a crime is likely to have taken place, and usually leads to the earliest stages of an investigation being delivered more quickly.
  3. As fraud is one of the most prevalent crimes in the UK, and poses a significant threat to UK citizens, it is no longer justifiable for the SFO to have access to enhanced powers in relation to only international bribery and corruption. By granting access to enhanced pre-investigation powers in relation to fraud cases, the SFO expects to be able to progress cases of suspected fraud more quickly through the earliest stages of an investigation. This may have consequential benefits such as allowing proceeds of crime to be restrained or frozen at an earlier stage, preserving more funds for victims.

Sanctions enforcement: monetary penalties

  1. Sanctions are an important foreign policy and national security tool. The UK autonomous sanctions framework enables the Government to use targeted sanctions to deter and disrupt malign activity and demonstrate our readiness to defend international norms. The UK has over 35 different geographic and thematic sanctions regimes. Sanctions are one instrument used to complement and reinforce others as part of a wider UK response. Enforcement of UK sanctions is particularly important in the context of the unprecedented number of Russia sanctions the Government has announced in response to Russia’s full-scale invasion of Ukraine in 2022.
  2. The Government uses a range of methods to enforce UK sanctions, one of which is the imposition of civil monetary penalties (CMPs) which are fines that are levied by the Government and do not require a criminal prosecution. To date, the Government has imposed CMPs in respect of breaches of financial sanctions using powers in the Policing and Crime Act 2017.
  3. This section will amend section 17 of, and insert a new section 17A in, the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) to provide expressly that sanctions regulations may make provision for enforcement of sanctions breaches through the imposition of CMPs. This clarification will therefore allow for wider use of CMPs in response to sanctions breaches.
  4. This Act makes amendments to both the Policing and Crime Act 2017 and SAMLA.

1 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/945411/NRA_2020_v1.2_FOR_PUBLICATION.pdf

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