Economic Crime And Corporate Transparency Act 2023

Legal background

Companies House reform

94. The Companies Act 2006 is the key piece of primary legislation containing the powers of the Registrar, in Part 35. The ECCT Act takes the approach of amending the 2006 Act by changing existing provisions in Part 35 and elsewhere and inserting in new provisions. In some cases, new powers to make secondary legislation are inserted.
95. The changes to the 2006 Act that are made by the ECCT Act have the effect, in relation to some generally stated provisions, of applying beyond companies and empowering the Registrar to take action in respect of other entities which are obliged to register with Companies House. In other cases, the ECCT Act’s provisions relate only to companies (because, for example, they are amending company-specific provisions). In those cases, secondary legislation-making powers will be exercised as part of the ECCT Act’s implementation to apply the new regime to non-company entities such as limited liability partnerships, with the necessary modifications to suit the different circumstances.

Limited Partnerships

96. Limited partnerships are governed by the Limited Partnerships Act 1907 and the Partnership Act 1890. The ECCT Act amends the 1907 Act to create the new regulatory regime for this species of partnership which, unlike general partnerships, has to register with Companies House.
97. Many of the ECCT Act’s reforms to the 1907 Act establish provisions which broadly mirror provisions that apply to companies, for example the obligation on the limited partnership to maintain a registered office at an "appropriate address", and to provide "confirmation statements".
98. The ECCT Act also includes a power for the Secretary of State to make regulations which apply company law to limited partnerships with suitable modifications, which mirrors the power contained in section 15 of the Limited Liability Act 2000. This provides a mechanism for future legislation to ensure that the regulatory regime for limited partnerships can keep up with developments in company law reforms.

Register of Overseas Entities

99. The Register of Overseas Entities was established by Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE Act) and requires overseas entities owning land in the United Kingdom to register information about themselves and their beneficial owners.
100. Part 1 of the ECTE Act was largely commenced on 1 August 2022. It contains provision for a six-month transitional period in which all overseas entities who hold land acquired on or after 1 January 1999 in England and Wales, or 8 December 2014 in Scotland were required to register with Companies House.
101. The ECCT Act’s amendments to the ECTE Act address issues identified post-implementation (such as the contents of the register and the meaning of "registered overseas entity"), and alignments with similar provisions in Companies legislation (such as relating to false statement offences). These amendments also increase the information requirements and will make the Register more effective and robust.

Cryptoassets

102. The UK’s asset recovery legislation (contained in POCA) has not kept pace with the rapid development and evolution of cryptoassets and associated technology. Cryptoassets are a form of property that can typically be used to store or transfer value by secure means. The Government intends to introduce new powers to make it easier for law enforcement agencies to seize, detain and recover cryptoassets in more circumstances than at present.
103. Broadly this involves reforming criminal ‘confiscation’ powers in Parts 2, 3, and 4 of POCA to enable law enforcement agencies to recover cryptoassets (intangible items) in a broadly similar way provided for tangible property, so that those assets can be confiscated at a later date. This principally involves expanding the search, seize and detention powers to make it explicitly clear that officers have the authority to recreate cryptoasset wallets (which are devices for storing cryptoassets: ‘recreating’ them is a way to gain access to those cryptoassets) and transfer assets into a law enforcement-controlled wallet. The reforms are reflective of existing powers being introduced well before the advent of cryptoasset technology and principally to cater for tangible assets such as cash.
104. Further amendments will be introduced to Part 5 of POCA, which contains regimes for civil forfeiture of property (cash, certain listed assets and fund in accounts). Cryptoassets are not in scope of existing powers. The creation of a cryptoasset specific civil forfeiture power will mitigate the risk posed by those that cannot be prosecuted but use their funds to further criminality. These powers will be replicated in counter-terrorism legislation to ensure that law enforcement have the necessary tools and powers to effectively seize or freeze, detain, and forfeit cryptoassets which may be used specifically for terrorist purposes.

Defence Against Money Laundering (DAML)

105. The principal money laundering offences under sections 327, 328 and 329 of POCA can be committed by any person who does any of the acts specified in relation to criminal property. "Criminal property" is defined in section 340 as property which is either known or suspected to be a benefit from criminal conduct. "Criminal conduct" includes any type of UK criminal offence, as well as conduct overseas which would be an offence in the UK if committed here.
106. A person does not commit a money laundering offence under section 327, 328 or 329 if they submit a disclosure under section 338 of POCA and receive consent to carry out the act or wait to carry out the act until after the 7 working days’ notice period has expired without refusal or the moratorium period after refusal has expired (see section 335).
107. The "regulated sector" consists of the types of business listed in Part 1 of Schedule 9 to POCA, which are the same as those set out in regulation 8 of the MLR (where those businesses are called "relevant persons").
108. A separate duty in section 330 of POCA makes it an offence for a person doing business in the regulated sector to fail to report suspicions of money laundering as soon as practicable after receiving the relevant information.
109. A SAR provides information which alerts law enforcement that certain client or customer activity is in some way suspicious and might indicate money laundering or terrorist financing. Businesses in the regulated sector have an obligation to submit a SAR to the UKFIU in such circumstances or risk committing a Failure to Report offence, under the POCA, s330-332. A DAML can be made to the NCA where a reporter has knowledge, or a suspicion, that property they intend to deal with is in some way criminal.
110. If consent or deemed consent is received, a DAML can provide an exemption from the principal money laundering offences in sections 327 to 329 of POCA while providing intelligence to the UKFIU. DAMLs effectively freeze a transaction until a consent decision is made by the UKFIU or seven working days have passed, after which the business can assume they have consent. This means that businesses are regularly waiting for seven working days before being able to assume consent, where no decision is given, before proceeding with an action. In that period, the reporter cannot inform the customer that the delay is because a DAML has been submitted, as telling them would amount to a potential tipping off offence. Reviewing these requests and disseminating to wider LEAs for input are the primary task of the UKFIU’s DAML Team.
111. To improve the effectiveness of the system, exemptions for certain types of transaction from the principal money laundering (ML) offences i will be based on transaction value and for certain sub-categories of transactions. POCA already contains exemptions for dealings by banks and similar firms with suspected criminal property, for transactions under £1,000 in the operation of an account, and the Government would seek to extend this approach. This will reduce the disruption to individuals and customers who currently find their transaction delayed by up to seven days and will reduce the regulatory burdens on those businesses required to submit reports below the threshold. It will also free up UKFIU resource to focus on higher value asset denial opportunities.

Money laundering: offences of failing to disclose

112. Under section 330 and 331 of POCA, it is an offence for a person to fail to disclose that they know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering and the information comes to them in the course of business in the regulated sector.
113. Banks and building societies, who are in the regulated sector, are required by sections 40 and 41 of the Immigration Act 2014 to carry out "status checks" and "immigration checks" on new and existing customers.
114. Section 184 creates a defence against the offence of failure to report for persons in the regulated sector whose knowledge or suspicion, or reasonable grounds to know or suspect, only comes to them as a result of those checks.

Information Orders (IOs)

115. The Criminal Finances Act 2017 (CFA) inserted sections 339ZH-ZK into POCA and sections 22B-E in TACT.
116. Currently the NCA can receive information on a voluntary basis in relation to the NCA’s statutory functions. Section 7(1) and (8) of the Crime and Courts Act 2013 (CCA) provides an information sharing gateway that allows the sending of information to NCA officers relevant to the exercise of NCA functions, including financial intelligence, from regulated businesses and others.
117. The NCA can request information voluntarily that would fall within this gateway. The NCA opt to use section 7 CCA requests rather than IOs due to the duration of time it can take to apply for and process a court order. Section 7 CCA requests are easy for the NCA to submit as they do not require authorisation from the courts and information requested can be broad. Section 7 requests are complied with in the majority of cases.

Enhanced due diligence: designation of high-risk countries

118. The Money Laundering Regulations (MLRs) are a key part of the legislative framework for tackling money laundering and terrorist financing.
119. Regulation 33(1)(b) of the MLRs requires regulated businesses ("relevant persons") to apply enhanced customer due diligence measures and enhanced ongoing monitoring in any business relationships with a person established in a high-risk third country, or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country. A high-risk third country is defined for the purposes of the MLRs as a country specified in Schedule 3ZA.
120. When Schedule 3ZA is updated and a new country is added or removed to the UK’s list of high-risk third countries, the requirement for enhanced customer due diligence and enhanced ongoing monitoring for businesses and customers operating in or transacting with those countries comes into force with the statutory instrument.
121. SAMLA sets out the procedures for updating Schedule 3ZA and the UK’s High-Risk Third Countries list. Section 49(1) notes that statutory instruments are to be laid for enabling or facilitating the detection, prevention or investigation of money laundering or terrorist financing, as well as implementation of Standards published by the FATF from time to time, relating to combating threats to the integrity of the international financial system. Schedule 2 of SAMLA provides further detail to supplement Section 49.
122. The Act will make amendments to SAMLA. A statutory instrument will be laid alongside this Act to make corresponding changes to the MLRs (in particular the removal of Schedule 3ZA, which will no longer be necessary).

Information sharing

123. Civil liability for certain institutions sharing information is already disapplied under section 339ZF of POCA, where an institution shares customer information for the purposes of making a disclosure in compliance or intended compliance with section 339ZB, in connection with money laundering. This Act will make provisions along similar lines for businesses who are sharing information for the purposes outlined in the legislation.
124. The Government intends to make it easier for certain businesses to share information with each other. To enable this, civil liability for breaches of confidentiality will be disapplied when a business shares customer information with another for the purposes of preventing, detecting and investigating economic crime.
125. The legislation will disapply any obligation of confidence owed by the institution sharing the information, where the information is shared for the purpose of preventing, detecting, or investigating economic crime. Unlike section 339ZF of POCA 2002, the legislation will apply to businesses who share information amongst themselves without having to involve law enforcement.

SLAPPs

126. Courts apply procedural rules to ensure justice is provided to all parties to litigation. Procedural rules provide parties the opportunity to properly present their case, and for that case to be challenged, so that an impartial court can determine the correct outcome. Justice requires that the operation of those rules ensures cases can be dealt with in a reasonable time and at proportionate cost. Such rules therefore seek to prevent the misuse of litigation by ensuring weak cases or cases that seek to abuse the system, such as through excessive cost or delay, are dismissed speedily, either by allowing them to be struck out or by allowing summary judgment to be given in favour of a party.
127. SLAPPs claims most commonly arise in civil litigation to which the Civil Procedure Rules 1998 (CPR) apply. Those procedural rules are made by the Civil Procedure Rule Committee under the Civil Procedure Act 1997.
128. The Government considers that although SLAPPs can properly be identified as claims that seek to abuse the process, as described in the case of Broxton v McLelland, [1995] EMLR 485, the operation of the CPR does not successfully tackle them. As such, the CPR must be amended to ensure SLAPPs can be appropriately dealt with.
129. As the definition of a SLAPP claim carefully balances fundamental issues of freedom of speech in the prevention of economic crime against access to justice the Government considers that definition and the appropriate test for early dismissal is a matter which Parliament must address. Although the underpinning procedural rules will be implemented via the Civil Procedure Rule Committee alongside new rules for a cost protection regime. These provisions therefore aim to do that.
130. The Act introduces a definition of a SLAPP claim which incorporates matters that the Government considers are specific to such claims, including the requisite connection to economic crime.
131. In addition, the Act requires new civil procedure rules enabling an early dismissal of SLAPP claims based on the tests established in the Act, which is whether the claimant can demonstrate that the case is more likely than not to succeed at trial.
132. The Act also requires new civil procedure rules which imposes costs implications for claimants in those SLAPPs claims which cannot be dismissed at that stage.
133. Further, the Act also contains a power that the Lord Chancellor may exercise by regulations requiring other rules of court to be made by other rule making bodies or persons to introduce the same procedural provisions for other cases.
134. Details on how the early dismissal and cost protection mechanisms will operate will be determined by the Civil Procedure Rule Committee and approved in the normal manner by the Lord Chancellor, Master of the Rolls and Parliament.
135. Whilst legislating to require the making of court rules is a deviation from the norm it is not unprecedented and these are exceptional measures to deal with exceptional behaviours which represent an abuse of our legal system.

Failure to Prevent Fraud

136. The new offence of failure to prevent fraud is intended to mirror the existing offences of failure to prevent bribery and failure to prevent the criminal facilitation of tax evasion contained in sections 7, 8, and 9 of the Bribery Act 2010 (BA 2010) and Part 3 of the Criminal Finances Act 2017 (CFA 2017) respectively.
137. The offence will apply where the fraud is committed by an employee or associate of the organisation with a view to benefiting the organisation.
138. The offence will only apply to large organisations (defined by reference to their turnover, balance sheet total and number of employees).
139. A defence would be available where "reasonable procedures" for the prevention of fraud have been implemented by the organisation (thus mirroring the approach taken in the CFA 2017 for failure to prevent the facilitation of tax evasion), with provision that in some circumstances it may be reasonable for no such procedures to be in place. The statutory defence in the Bribery Act 2010 (BA 2010) (failure to prevent bribery) is "adequate procedures" but this has been interpreted as meaning no more than "reasonable in all the circumstances" in other words, equivalent to ‘reasonable procedures’.
140. The offence will only apply where the employee or associated person commits a relevant fraud offence under the law of part of the UK. This usually requires that one of the acts which was part of the fraud took place in the UK, but for some offences, it is enough that the intended gain or loss occurred, or was intended to occur, in the UK.
141. If a UK-based employee commits fraud, the employer could be prosecuted, wherever the organisation is based.
142. If an employee or associated person of a company based overseas commits fraud in the UK, or targeting British victims, the organisation could be prosecuted.
143. British companies will not generally be liable for their overseas employees or subsidiaries in relation to offending that takes place abroad (with no UK nexus).
144. The burden of proving that the organisation had put in place reasonable prevention procedures, or that it was reasonable not to have any such procedures, will lie with the defence (that is, the organisation).
145. If convicted on indictment, an organisation could receive an unlimited fine. As set out in the sentencing guidelines, courts will take account of all the circumstances in deciding the appropriate level for a particular case.
146. If convicted on summary conviction, the organisation will receive a fine. In Scotland and Northern Ireland, this fine may not exceed the statutory maximum.
147. The Government will publish guidance on the procedures organisations can put in place to prevent fraud. As an organisation’s defence depends on demonstrating that it has reasonable procedures, where applicable under the circumstances, it is likely that where an organisation has complied with this guidance this will be enough to demonstrate that it had reasonable procedures in place.

IDD

148. This provision enables conviction of an organisation where a senior manager commits a relevant economic offence while acting in the scope of their actual or apparent authority. It is intended to address difficulties in holding corporations criminally liable under the existing "identification doctrine", which requires that the person concerned can be shown to be the organisation’s "directing mind and will".
149. The test to define senior management replicates the definition of "senior management" in the Corporate Manslaughter and Corporate Homicide Act 2007 (CM&CHA 2007). This test will look at what the senior manager’s roles and responsibilities are within the organisation – the level of managerial influence they might exert – rather than their job title. This will have the advantage of providing greater clarity on the parameters of the legal test and enable prosecutions to progress in more cases where senior level employees, who do exert decision-making power, are found to be involved in the offending.
150. If a corporation is successfully prosecuted under the offence, it will receive a criminal conviction and fine, in addition to any sentences imposed on individuals involved in the offending. The criminal conviction can impact on other parties, including investors, other employees, and even customers.
151. Any decision to pursue a case must be made in accordance with the Code for Crown Prosecutors which requires the prosecutor to consider whether there is enough evidence against the defendant, and whether it is in the public interest to prosecute. The CPS has published legal guidance on how this extends to corporate prosecutions through the identification.
152. The identification doctrine reform will closely mirror the Law Commission’s proposals but applies the reforms to economic crimes only. However, the Government understands that the identification doctrine in law apples more widely than economic crimes so the legislation will be extended to all criminal offences when a Bill arises that enables reform for all crimes. The Government has committed to this in Economic Crime Plan 2 and the Fraud Strategy.

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

153. The Solicitors Act 1974 ("the 1974 Act") and the Administration of Justice Act 1985 ("the 1985 Act") confer a range of powers on the Law Society to regulate solicitors and law firms in England and Wales. For oversight of the regulation of legal services, the LSB was established as the oversight legal regulator by the Legal Services Act 2007, which is independent of Government and of frontline regulators.
154. Section 44D of the 1974 Act and Paragraph 14B of Schedule 2 to the 1985 Act sets out the Law Society’s powers to direct a person to pay a penalty not exceeding £25,000. A financial penalty can be imposed for cases involving a failure to comply with the requirements imposed under the Acts, a failure to comply with rules made by the Law Society, or professional misconduct by a solicitor. The powers in the 1974 Act can be exercised in relation to solicitors and their employees, whereas the power in the 1985 Act can be exercised in relation to law firms and sole solicitors' practices, their employees, and managers. Should the financial penalty be disputed, both Acts have the safeguard of a right to appeal avenue to the SDT.
155. On 20 July 2022, the Lord Chancellor amended secondary legislation to increase the SRA’s maximum financial penalty from £2,000 to £25,000.
156. Schedule 2 of the 1985 Act also contains provisions in paragraph 14B requiring the Law Society to make rules and to consult the SDT before doing so.

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

157. Currently the SSDT may impose a maximum financial penalty of £10,000, as set out in the Solicitors (Scotland) Act 1980, section 53(2)(c). 1
158. This maximum penalty may be amended by statutory instrument, only where such an amendment can be "justified by a change in the value of money". 2 Any such change would be restricted to a value adjusted for inflation. The value of £10,000 was inserted by the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990. As an estimate, the value adjusted for inflation may now be around £20,000. Therefore, to amend the maximum financial penalty of the SSDT, it is considered that primary legislation is required.

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

159. The Legal Services Act 2007 establishes the framework for the regulation of legal services in England and Wales. It created the Legal Services Board as a single oversight board, independent of Government and of frontline regulators. The Act also designated frontline ‘approved regulators’ in relation to the various reserved legal activities defined by the Act. 
160. Section 1 of the Legal Services Act 2007 sets out the regulatory objectives which the Legal Services Board, approved regulators and the Office of Legal Complaints have a duty to observe. The Legal Services Board also has powers under Part 4 of the Act to performance manage regulators against the regulatory objectives. 
161. Existing regulatory objectives include, for example, the objective to protect and promote the public interest, to support the constitutional principle of the rule of law and to promote and maintain adherence to the professional principles.

Legal services – SRA information request powers

162. Under section 44B of the Solicitors Act 1974, the SRA, as delegated from the Law Society, has the power to require information or documents, as specified in a notice, to be provided. This power allows the SRA to request information from solicitors and their employees, and recognised bodies, their employees and managers, and persons with an interest in the body only where it is necessary to do so for the purposes of an investigation into (for example) suspected misconduct by a solicitor or a failure to comply with a relevant requirement. The SRA can seek to require a third person, for example a person who the SRA does not regulate or who is not an employee of a recognised body, to provide information or deliver documents under section 44BB.
163. In its role as a licensing authority, the SRA may require a person to provide information or to produce documents to ascertain whether the terms of a licensed body’s licence are being complied with, under section 93 of the Legal Services Act 2007. This power may be exercised against a licensed body, any manager or employee of the licensed body or any non-authorised person who has an interest in the licensed body.
164. The SRA, as delegated from the Law Society, also has the power to request information and documents from individuals or firms it supervises in its role as a "Professional Body Supervisor" under regulation 66 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. This allows the SRA to issue a notice in writing to require a person to whom the regulations apply or applied, to provide information or documents of a specific description or to attend before an officer of the supervisory authority to answer questions in connection with the exercise of supervisory functions. The power also extends to requesting documents from third parties, where the supervisor has the power under the regulations to require a person to produce a document.
165. The MLRs enable the SRA to take a proactive approach to enforcement, enabling spot-checking of firms without the need for an active investigation to be in progress. This enables the SRA to assess both levels of exposure to risk in the regulated population and levels of compliance. However, approximately 3,200 firms are not covered by the MLRs, meaning that the SRA cannot effectively practice proactive checks, and therefore risk-based regulation, across the whole of its regulated community.

Serious Fraud Office – pre investigation powers

166. The Criminal Justice Act 1987 (CJA) created the Serious Fraud Office (SFO) and sets out its powers and the powers of the Director of the SFO. Section 1 establishes the Director’s power to investigate any suspected offence which appears to them to involve serious or complex fraud.
167. Section 2 of the CJA sets out the Director of the SFO’s investigation powers, which are exercisable for the purposes of an investigation under section 1. These include powers to require a person to answer questions, furnish information, or produce documents. Failure to comply with such a requirement without reasonable excuse is a summary-only offence.
168. Section 2A enables the section 2 investigation powers to be exercised at a pre-investigative stage, for the purpose of enabling the Director to determine whether to start an investigation under section 1 in cases of suspected international bribery and corruption.
169. The Government intends to remove the limitation in this section which restricts the use of pre-investigation powers under section 2A to cases of suspected international bribery and corruption. This is to allow the SFO to use these powers in the wide range of high harm cases which fall within its remit.

Sanctions enforcement: monetary penalties

170. As part of the Government’s ongoing work to strengthen UK sanctions enforcement, the section will supplement the existing powers in section 17 of the Sanctions and Anti-Money Laundering Act (SAMLA) by inserting a new section 17A.
171. Section 17A will provide expressly that provision for enforcement made in sanctions regulations under section 1 of SAMLA may include powers for the imposition of civil monetary penalties (CMPs) in relation to the contravention of prohibitions or requirements imposed by sanctions regulations.
172. The section strengthens the basis for CMPs to be imposed by HM Treasury under the Policing and Crime Act 2017 (PCA) for offences that are supplemental to financial sanctions and that regulations made under section 1 SAMLA can include provision conferring power to impose CMPs. The section also provides for the PCA 2017 to be disapplied where HM Treasury has the power under both sanctions regulations and the PCA to impose CMPs in respect of prohibitions or requirements.
173. The section will clarify the basis for wider use of CMPs as part of the Government’s efforts to crack down on contraventions of sanctions.