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The United Kingdom is home to one of the world’s largest and most open economies. While this makes it an attractive hub for global business, it also exposes the UK to the risk of being taken advantage of, to perpetrate fraud and money laundering, which, in turn, funds serious and organised crime in the UK, and facilitates corruption overseas.
On 22nd March 2022, the UK introduced the Economic Crime (Transparency and Enforcement) Bill, after receiving a royal assent, which further transformed it into the Economic Crime (Transparency and Enforcement) Act 2022. The Act had been in discussion since 2016 when Prime Minister, David Cameron, employed a warning to foreign companies in an anti-corruption summit that they would be required to disclose the beneficial ownership of UK property. Following the events of the Russia’s invasion of Ukraine, the government moved quickly to push the bill through the parliament.
During its introduction, the act had three major components,
Creation of a register of overseas entities (to help crack down on foreign criminal using UK property to launder money)
Amendments to the unexplained wealth order (to better support law enforcement investigations)
Amendments to the existing legislation on UK sanctions (to move faster and harder when imposing sanctions)
The Economic Crime and Corporate Transparency Bill aims to deliver-
Reforms to Companies house
Reforms to prevent the abuse of limited partnerships
Additional powers to seize and recover suspected criminal crypto assets.
Reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime.
New intelligence gathering powers for law enforcement and removal of nugatory burdens on business.
Let us now have a look at how the bill aims to achieve these objectives.
In the UK, the Companies House acts as an executive agency which maintains the register of companies, employs the company registrars and is responsible for incorporating all forms of companies in the United Kingdom. The introduced ECTE Act will reform the role of Companies House by improving transparency over UK companies and other legal entities, with an aim to strengthen the business environment, and combat economic crime. The bill aims to introduce reforms such as-
Introducing identity verification for all new and existing registered company directors. This includes people with significant control, and those delivering documents to the registrar. This function will improve the accuracy of Companies House data in need of making support decisions and conducting investigations.
Broadening the registrar of companies’ house’s powers, so that the registrar can become a much more active gatekeeper over company creation and custodian of more reliable data. This would include provision of new powers to check, remove or eliminate information submitted to, or already on, the companies register.
Reform the current financial information on the register to make it more reliable, complete, and accurate. The bill will also make it more technologically advanced in order to help companies in making better business decisions.
Another reform which the bill aims to bring is providing companies house with more effective investigation and enforcement powers and introducing better cross-checking of data with other public and private sector bodies. This will also allow them to proactively share information with law enforcement bodies where they have evidence of anomalous filings or suspicious behaviour.
Furthermore, the bill aims to bring reforms in limited partnerships. It will tackle the misuse of limited partnerships, including the Scottish Limited Partnerships. A Scottish Limited Partnership is a form of limited partnership registered under Scots Law. Unlike limited partnerships registered in the rest of UK, a Scottish LP has a legal personality of its own, keeping it distinct from that of its partners. This enables a Scottish LP to own assets in its own name, borrow money and grant security over those assets and enter into contract on its own behalf. Among the reforms, the bill will tighten registration requirements, and will also require limited partnerships to maintain a connection to the UK. Along with this, the reforms will enable the registrar to de-register limited partnerships which are dissolved, no longer carrying on business, or where a court orders that it is in the public interest to do so.
Next, the ECTE bill will amend the criminal confiscation powers in Parts 2, 3 and 4 of the Proceeds of Crime Act 2002, and civil recovery powers in Part 5 of POCA to enable enforcement agencies to tackle criminal use of crypto assets more effectively.
Finally, the bill will also strengthen anti-money laundering powers. It will enable certain businesses to share information more easily for the purposes of preventing, investigating, and detecting economic crime by disapplying civil liability for breaches of confidentiality for firms who share information to combat economic crime.
To conclude we can say, that the bill has been introduced to parliament and just on 8th February 2023, it underwent its second reading in the House of Lords. As of now, compliance teams should keep this in mind that the contents of the bill will remain subject to change while undergoing parliamentary debates and committee reviews. Firms can now just work on becoming aware of possible changes to the bill over the coming months and ensure to take note of the changes occurring in the bill.
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