Economic crime and corporate transparency: Significant company law changes and new offences

The Economic Crime and Corporate Transparency Act 2023 which received Royal Assent on 26 October is aimed at preventing the abuse of UK corporate structures and tackling economic crime. The Act is significant as it will make extensive amendments to the Companies Act 2006 (CA 2006), includes significant reforms to Companies House procedures and will create a number of new offences. In summary, the Act includes:

• A new corporate criminal offence for ‘large organisations’ of failing to prevent fraud (with a defence of having adequate procedures in place to prevent fraud). Large organisations are UK bodies corporate and partnerships meeting two out of three of the following criteria: more than 250 employees; more than £36m turnover; and a balance sheet total of more than £18m. Organisations will be liable if an ‘associated person’ (which can be an employee, agent or subsidiary, or anyone who performs services for the corporate) commits one of the designated offences. This is a corporate offence so does not create liability for individuals. An organisation found guilty of the offence can receive an unlimited fine. 
• An effective broadening of the ‘directing mind and will’ or ‘identification’ principle by attributing liability to a body corporate or partnership for economic crime offences where a senior manager, acting within the actual or apparent scope of their authority, commits or attempts to commit one of certain specified offences. This could significantly increase the risk of criminal liability for corporates by permitting the attribution to them of offences committed by senior managers. More information on this, and the failure to prevent fraud offence, can be found in our blog.
• Extensive CA 2006 amendments and Companies House reforms, including:
  • Significant reforms to Companies House procedures, including new identity verification requirements for all new and existing directors, People with Significant Control (PSC) and those delivering documents to the Registrar. 
  • New communication and record-keeping provisions, including a requirement that all companies have a registered email address and that the registered office is an ‘appropriate address’, ie broadly, an address where a document can be delivered by hand or by post, its delivery can be recorded and it can be expected to come to the attention of a person acting on the company’s behalf (PO boxes will no longer be permitted). 
  • New requirements for statements on the lawful purpose and activities of companies to be given on incorporation and in the annual confirmation statement.
  • Amendments to the PSC regime.
  • A new general offence of delivering a false, deceptive or misleading filing without reasonable excuse. 
  • Increased investigation and enforcement powers for the Registrar. For the first time, the Registrar will be able to impose civil financial penalties up to £10,000 on any person (not only the company and officers in default) if it is satisfied that the person has engaged in conduct that amounts to an offence under the CA 2006 (with some exceptions). The Registrar will also be able to require any person (not only the company and its officers) to provide it with information, eg to enable it to determine whether a delivered document complies with CA 2006 requirements.
  • Breach of many of the new or amended CA 2006 requirements will be a criminal offence with the possibility of imprisonment for up to two years and/or a fine.
• Amendments to the register of overseas entities regime.
• Significant changes for partnerships, including many of the same/equivalent increased registration and transparency requirements described above that will apply to companies.

The vast majority of the provisions in the Act are not yet in force – they will enter into force on a day to be appointed through secondary legislation (not yet published). The new provision on the attribution of liability will come into force on 26 December 2023. The failure to prevent fraud offence will come into force after the Government publishes guidance on the reasonable fraud prevention measures defence. This is expected in the next 6-12 months.

Many of the company law reforms will also require significant development and upgrades to Companies House systems and procedures. In a blog last week, the Registrar said that it expects a number of changes to come into force in early 2024, but these will not include identity verification.

For more on these developments, please speak to your usual Freshfields contact.