New UK law passed to tackle economic crime and corporate secrecy

 Key provisions in the Act mean that:

• companies will be required to comply with new requirements on how they interact with, and submit information to, Companies House, including new identity verification requirements for directors and persons with significant control (PSCs);
• a large business can be criminally liable for a ‘failure to prevent fraud’ by an associated person unless it has reasonable procedures in place to prevent fraud;
• the conduct of a much wider group of employees can trigger corporate liability for various economic crimes, not just the ‘directing mind and will’ of a company;
• there will be reforms to the Register of Overseas Entities regime introduced by the Economic Crime (Transparency and Enforcement) Act 2022;
• certain businesses, eg banks, are protected from breach of confidence claims and civil liability where they exchange customer information with each other for the purposes of preventing, investigating or detecting economic crime;
• these businesses will also not need to seek a defence against money laundering in two new ‘pay-away’ situations; and
• businesses are likely to receive more information requests from the National Crime Agency and Serious Fraud Office under extended powers to compel information sharing in more types of cases and at an earlier stage of the investigative process.

Reforms to the Companies Act 2006:

The Act introduces new requirements regarding the way in which companies interact with, and submit information to, Companies House. These include new identity verification requirements for directors, PSCs and members of a limited liability partnership, restrictions on who can file documents at Companies House on behalf of companies, changes to company record keeping requirements, restrictions on the use of corporate directors and new powers to check, remove or decline information submitted to, or already on, the companies register. You can read more about these changes, including the steps companies should now be taking, here.

Corporate liability – a new UK ‘failure to prevent fraud’ corporate criminal offence:

A new ‘failure to prevent fraud’ offence for larger businesses means that any business that fails to prevent fraud by an associated person will be committing an offence if the fraud was intended, directly or indirectly, to benefit the business or its clients/customers. The only defence will be that the business had reasonable procedures in place to prevent fraud. The new offence follows a similar model to the existing failure to prevent bribery and facilitation of tax evasion offences. A key focus for businesses will be understanding the precise scope of the offence and the UK Government’s forthcoming guidance concerning ‘reasonable procedures’. Read more about the new criminal offence here.

Reform of the UK identification doctrine - significant expansion of corporate criminal liability for economic crimes:

The Act significantly expands corporate criminal liability through reform of the ‘identification doctrine’. This is the English law rule on how criminal liability is attributed to a company or partnership via the conduct of certain senior individuals. The change significantly broadens the range of employees who can trigger corporate criminal liability, meaning it will be easier for businesses to be prosecuted for certain ‘economic crime’ offences. Read more here.

Reforms to the Register of Overseas Entities regime:

The Act adds a third requirement for an entity to qualify as a “registered overseas entity” under the regime. In addition to being on the register and complying with its duty to update the register annually, an entity must also comply with a new duty to provide information to Companies House following a statutory notice. Other changes made by the Act are aimed at closing perceived loopholes in the beneficial owner disclosure regime, particularly where there are nominee structures or trusts. Overseas entities must also provide more detailed information when applying to go on the register, to update the register or to be removed from it. Certain overseas entities must comply with a new obligation to disclose past changes in beneficial owners, trust beneficiaries and trustee beneficial owners. This obligation even applies to entities that are no longer on the register. Please contact your usual Real Estate or Real Estate Finance contact for further information.

Information sharing between businesses:

The Act encourages certain businesses (including those in the financial sector) to share information with each other for the purposes of preventing, investigating or detecting economic crime. It does this by providing explicit protection from civil liability (although not under data protection legislation) and claims for breach of confidence. More information on these changes can be found here.

No need to seek DAML in two new pay-away situations: The Act introduces two new exceptions to the need for a business in the regulated sector to seek a defence against money laundering (DAML): (1) when transferring funds or property (not more than GBP1000) to exit a client relationship, and (2) when transferring money where there are suspected criminal proceeds mixed with legitimate funds in a customer account. Read more here.

Expanded powers for investigation agencies: The Act gives both the NCA and the SFO enhanced powers to compel the production of information from businesses in more types of cases and at a much earlier stage in the investigatory process. Read more here.

If you would like further information on any of the above, please speak to your usual A&O contact.