The Economic Crime and Corporate Transparency Act 2023

The Economic Crime and Corporate Transparency Act 2023, also known as the Economic Crimes Act, became law on August 26th, 2023. The introduction of this act saw a huge overhaul of the UK government’s framework and tackled a growing problem in the UK: financial crime. 

The changes outlined in this act have considerably impacted corporations throughout the UK and significantly changed the current regulatory climate.  

At Brown Turner Ross, we understand the value of staying up to date with legislative changes. Here is an explanation of the Economic Crime and Corporate Transparency Act 2023 and what it means for the UK. 

What is The Economic Crime and Transparency Act 2023?

The Economic Crime and Corporate Transparency Act 2023 is legislation intended to combat economic crimes and improve corporate transparency overall. 

The main goal of the legislation is to tackle financial misconduct and stop money laundering, which has become prevalent in the UK. 

Given the current economic circumstances in the UK, we saw a rise in opportunists using nefarious means to gain economic gain. With the growing popularity of cryptocurrency, it became apparent that older legislation was now out of date and crypto lacked regulation. 

Why The Act Was Necessary

The introduction of the act was necessary for finally tackling economic crime throughout the UK. The implementation of the legislation aims to protect the economy from systemic financial risks and ensure that corporations are held responsible for any misconduct. 

Because of the current financial insecurity in the UK, it was important to ensure that businesses were held accountable and operated with integrity to protect the economy. 

Section 196

In the past, it was difficult to hold companies accountable for the actions and discrepancies of their employees, even the most senior members of their team. 

Previous laws were dependent on the ‘identification principle’, which made it incredibly difficult to pursue legal charges against a company based on the actions of senior management. 

Identifying the company’s ‘directing mind and will’ was a requirement before any legal action could be pursued. This consisted of identifying an employee who embodies the company’s intentions and is responsible for making high-level decisions or has a hand in the company’s operations. For example, if a CEO were to commit fraud within their role, the company could be held liable for this. 

This aspect of the legislation made it difficult to pursue any legal routes, as the criteria were too narrow. Most companies did not depend on one individual for their decisions, so it was nearly impossible to identify one liable individual who represented the company as a whole. 

The introduction of Section 196 of the Economic Crime and Corporate Transparency Act 2023 broadened this scope and held companies liable for the actions of senior managers acting within their authority, making it easier to prosecute larger corporations. 

The Key Results of The Act

The introduction of the act has had a huge impact on the way that businesses in the UK operate. Some of the most immediate results of the act include: 

Strengthening the powers of law enforcement

One of the biggest impacts of the Economic Crime and Corporate Transparency Bill was the power it gave law enforcement to seize and recover criminal assets. This power extended to crypto-assets connected to criminal activities. 

The Act also streamlines information sharing between law enforcement and regulatory agencies, which allows enforcement actions to speed up their cases and access the data they need to obtain a conviction.

New requirements for corporate transparency

Due to the act’s introduction, companies are now required to provide more information about their beneficial owners. This was instated to tackle anonymous shell companies being used to hide illegal activity. 

International Impact

The Economic Crime and Corporate Transparency Act 2023 also has international reach, which means that it applies to crimes committed outside the UK as long as the offence is illegal in the country where it occurred. 

Companies conducting illegal activities often try to evade liability by relocating, which is no longer possible. 

Introduction of New Key Offences

With the introduction of a new act came new key offences. These provide the necessary power to hold corporations accountable and break through loopholes that have been abused for decades.

Changes to the Identification Principle 

Large corporations have used the identification principle to avoid accountability for some time. Amendments now mean that companies can be held liable for any criminal acts carried out by senior managers without having to prove that the senior member represented the company’s directing mind and will. 

The Introduction of Failure to Prevent Fraud

Thanks to the introduction of this new law, large companies can now be held liable if an employee commits fraud for the company’s benefit. To avoid legal action, companies now have to prove that they had reasonable prevention measures in place, which should serve as a deterrent for corporate scheming. 

The Impact on Businesses

The act’s introduction has had a huge impact on businesses throughout the UK and has completely reshaped their operations regarding compliance and liability for economic crime.

Businesses throughout the UK are now required to operate with more transparency, especially with large businesses. Businesses will also be required to tighten internal controls and comply with new legislation to avoid legal penalties. 

The Impact on Companies House

Companies House is the UK’s registry for registered businesses and is responsible for maintaining all information concerning these businesses. 

One of the biggest ways that the act will impact Companies House is through the requirement of mandatory identity verification for directors and anyone filing information for a company. This ensures that everyone with connections to the companies is traceable, deterring any opportunistic criminals. 

Thanks to the Economic Crime and Corporate Transparency Act 2023, Companies House now has more authority to ensure the accuracy of corporate data, making businesses less vulnerable to financial crime. 

Criticisms of The Act

No act is without criticism, and though the Economic Crime and Corporate Transparency Act 2023 has received a generally positive response, there are still those who hold criticism towards it.

The following reasons are why the act receives criticism. 

Regulatory Burden on Businesses

The main criticism of the act is the regulatory burden on businesses. Several aspects of the new act are expected to increase administrative work and costs for businesses, which could cause smaller businesses to struggle if they cannot implement the necessary protocols to comply with the new regulations. 

Ambiguity

The act states that businesses are required to demonstrate ‘reasonable’ fraud prevention measures to avoid liability if a staff member commits a crime that benefits the company. However, many people have stated that the term ‘reasonable’ adds too much ambiguity to the act and may lead to uncertainty for future prosecutions. 

Disproportionate Focus on Big Businesses

While the new act does hold companies accountable for not preventing fraud, new offences are only held against larger businesses, and new criteria are based on employee numbers and company turnover. 

The main criticism this has is the idea that smaller businesses may be able to avoid accountability if they demonstrate similar fraudulent activities. 

The Positive Impact of The Act

Though the act is not without criticism, there is no denying its potential to positively impact the UK. Not only will we experience enhanced corporate transparency, but we will also reduce the ability of criminals to hide behind anonymous companies.

At Brown Turner Ross, we anticipate the potential impact of the Economic Crime and Corporate Transparency Act 2023 and are eager to see how these reforms will change the frequency of economic crime in the UK. 

If you have any questions about how the act will impact your business or would like to know more about what it entails, contact our team today.