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By GDFM 27 October 2023

A Roadmap to Compliance: Understanding the impact of the Economic Crime and Corporate Transparency Bill

Background

In a significant development, the Economic Crime and Corporate Transparency Bill received Royal Assent on October 26, 2023. This marks a pivotal moment for financial institutions, navigating a transformed regulatory landscape in the UK. The UK government is introducing the Economic Crime and Corporate Transparency Bill as a response to several pressing issues within its financial and business sectors. The government’s key motivations for legislating are to combat illicit finance, improve transparency, and enhance national security. This impact assessment will provide an overview of the bill’s objectives, the mechanisms it employs, and the expected outcomes. Please note that this should be read in conjunction with the factsheet issued by the Government on the Economic Crime and Corporate Transparency Bill. 

Objectives

The Economic Crime and Corporate Transparency Bill aims to address the following key issues:

  1. Combat Illicit Finance: The UK is vulnerable to illicit financial activities, including fraud, money laundering, and corruption, which undermine legitimate business operations and contribute to serious and organized crime. The bill seeks to strengthen the government’s ability to crack down on such activities, particularly those involving foreign actors.
  2. Enhance Transparency: The bill aims to improve transparency and accuracy in corporate records by reforming Companies House. This is expected to support business decisions and law enforcement investigations, as well as bolster national security.
  3. Seize and Recover Cryptoassets: With the rise of cryptocurrencies, the bill provides law enforcement with additional powers to seize and recover cryptoassets associated with criminal activities like money laundering and fraud.
  4. Strengthen Anti-Money Laundering Powers: The bill seeks to enhance anti-money laundering powers, enabling better information sharing to prevent, investigate, and detect economic crimes while reducing the reporting burden on businesses.

Mechanisms

The Economic Crime and Corporate Transparency Bill employs several mechanisms to achieve its objectives:

Companies House Reform:

  • Introduction of identity verification for registered company directors and People with Significant Control to enhance data accuracy and support investigations.
  • Broadened powers for the Registrar of Companies House to actively oversee company creation and maintain reliable data.
  • Improved financial information on the register to reflect technological advancements and enable better business decisions.
  • Proactive sharing of information with law enforcement to combat anomalous filings or suspicious behavior.
  • Enhanced personal information protection to prevent fraud and harm.

Limited Partnership Reform:

  • Tightened registration requirements and transparency enhancements.
  • Requirement for limited partnerships to maintain a connection to the UK.
  • Deregistration powers for limited partnerships that are dissolved or no longer conducting business.

Cryptoassets:

  • Amendments to criminal confiscation and civil recovery powers to enable effective tackling of criminal use of cryptoassets.

Anti-Money Laundering Powers:

  • Easier information sharing by businesses to combat economic crime.
  • Proactive intelligence gathering by law enforcement.
  • Expanded types of cases for businesses to handle clients’ property without submitting a Defense Against Money Laundering report.

Strengthening During Passage

The government made technical amendments during the bill’s passage through parliament to enhance its effectiveness. Additionally, key new measures were introduced, including:

  • Failure to Prevent Fraud Offence: A new offence to hold organizations accountable if they benefit from fraud committed by their employees without having reasonable fraud prevention procedures in place.
  • Identification Doctrine: Reforms in corporate criminal liability laws to hold corporations accountable for economic crimes.
  • Strategic Lawsuits Against Public Participation (SLAPPs): Measures to protect defendants in cases involving economic crimes, including an early dismissal mechanism and cost protection for defendants.

Expected Outcomes

The Economic Crime and Corporate Transparency Bill is expected to have several significant impacts:

  1. Enhanced Anti-Financial Crime Measures: The bill will strengthen the government’s ability to combat financial crimes, including money laundering and fraud, leading to a reduction in the abuse of the financial system by criminals.
  2. Improved Transparency: Reforms to Companies House will provide more accurate and reliable data, improving the business environment and enhancing national security by making it harder for criminals to hide their activities.
  3. Efficient Cryptoasset Seizures: The additional powers granted to law enforcement will enable quicker and more effective seizure and recovery of cryptoassets associated with criminal activities.
  4. Streamlined Anti-Money Laundering: The strengthened anti-money laundering measures will reduce the reporting burden on businesses and enable better information sharing to detect and prevent economic crimes.
  5. Accountability and Deterrence: The introduction of the failure to prevent fraud offence and corporate criminal liability reforms will enhance corporate accountability and deter economic crimes within organizations.

 

In summary, the Economic Crime and Corporate Transparency Bill is a legislative effort aimed at strengthening the UK’s ability to combat financial crime, enhance transparency in corporate records, and improve national security. It is expected to lead to a more secure and accountable business environment while deterring illicit financial activities and reinforcing the UK’s reputation as a destination for legitimate business.