Economic Crime and Corporate Transparency Act
It follows the Economic Crime (Transparency and Enforcement) Act, which was passed in 2022. The first act:
- allowed the UK government to move faster when imposing sanctions
- created a register of overseas entities (ROE) to target foreign criminals using UK property to launder money
- reformed the UK’s unexplained wealth order (UWO) regime
The provisions
The act introduces:
- a new regulatory objective into the Legal Services Act 2007 on tackling economic crime
- reforms to Companies House to prevent the creation of, and shutting down, fraudulent companies
- reforms to prevent the abuse of limited partnerships
- additional powers to seize and recover suspected criminal cryptoassets
- a new 'failure to prevent fraud' offence
- measures to address strategic lawsuits against public participation (SLAPPs)
Read the UK government's factsheets on the changes
Failure to prevent fraud offence
ECCTA introduces the corporate criminal offence 'failure to prevent fraud'.
The Home Office guidance sets out that under the offence:
“An organisation may be criminally liable where an employee, agent, subsidiary, or other ‘associated person’, commits a fraud intending to benefit the organisation and the organisation did not have reasonable fraud prevention procedures in place.”
The offence applies to:
- all large incorporated bodies, subsidiaries and partnerships
- large not-for-profit organisations (such as incorporated charities)
- incorporated public bodies
“Large organisations” must meet at least two of the following criteria:
- turnover of more than £36 million
- balance sheet total of more than £18 million
- more than 250 employees
The offence applies to the 'base fraud' offences listed in Schedule 13 of ECCTA:
- fraud offences under section 1 of the Fraud Act 2006, including:
- fraud by false representation (section 2 of the Fraud Act 2006)
- fraud by failing to disclose information (section 3 of the Fraud Act 2006)
- fraud by abuse of position (section 4 of the Fraud Act 2006)
- participation in a fraudulent business (section 9 of the Fraud Act 2006)
- obtaining services dishonestly (section 11 of the Fraud Act 2006)
- cheating the public revenue (common law)
- false accounting (section 17 of the Theft Act 1968)
- false statements by company directors (section 19 of the Theft Act 1968)
- fraudulent trading (section 993 of the Companies Act 2006)
Money laundering will not be an offence.
The base fraud offence must be committed by “a person associated with the relevant body” (section 199 ECCTA). This includes:
- an employee
- an agent
- a subsidiary of the relevant body
- a person who provides services for or on behalf of the relevant body while providing those services
Aiding, abetting, counselling or procuring the commission of any of the listed offences would also qualify as a base fraud offence (section 199(6)(b)).
An organisation does not need to “actually receive any benefit for the offence to apply”, as the fraud offence can be complete before any gain is received.
It is enough that the organisation was intended to be the beneficiary.
The benefit may be financial or non-financial.
There will be a defence if the organisation has reasonable procedures in place to prevent fraud.
The Home Office guidance sets out six fraud prevention principles that should inform organisations' fraud prevention framework:
- top-level commitment
- risk assessment
- proportionate risk-based prevention procedures
- due diligence
- communication (including training)
- monitoring and review
The offence comes into effect on 1 September 2025.
Read the Home Office guidance on the 'failure to prevent fraud' offence
This is intended to help organisations navigate the new offence and make sure action is being taken to prevent fraud.
Companies House reform
The following changes to UK company law come into force on 4 March 2024:
Registered office changes
Companies must have an ‘appropriate address’ as their registered office and email. This means companies will not be able to use a PO box as their registered office address.
Registrar powers
The registrar will have greater powers to query and challenge information on the register that appears to be incorrect or inconsistent.
The registrar will also be able to remove information more quickly if the information is inaccurate, incomplete, false or fraudulent.
There will be “stronger checks” on company names that may give a false or misleading impression.
New verification responsibilities for authorised corporate service providers (ACSPs) and trust and company service providers (TCSPs) will include obligations for enhanced due diligence.
Statement of lawful purpose
Anyone setting up a company will be required to confirm that they are forming the company for a lawful purpose.
A company will also need to confirm its intended future activities are lawful on their annual confirmation statement.
Enforcement and sanctions
Companies House will have powers to:
- fine a company
- add an annotation on a company’s record
- prosecute a company
If a company uses an address that is not appropriate, Companies House can give 28 days’ notice to the company to change it.
If not changed within the notice period, the process to strike off the company can be started.
Exemption for reporters in the regulated sector
Sections 182 and 183 of the act affect Part 7 of the Proceeds of Crime Act 2002 (POCA).
Section 182: exiting a relationship
Under section 182, an exemption was enacted from 26 October 2023 under section 327, section 328 and section 329 (the money laundering offences) which affects paying away funds under £1,000 when exiting a relationship with a customer, where there is a suspicion of money laundering or criminal property.
For reporters caught by POCA but not by the Money Laundering Regulations 2017, there is no change.
When submitting a request for a defence, include:
“We believe section [xxx] of POCA does not apply to this DAML as the activity falls outside the regulated sector.”
You may wish to obtain legal advice as to your responsibilities under this change to POCA 2002. The Home Office will be issuing guidance.
Section 183: mixed-property transactions
Under section 183, there is an exemption for mixed-property transactions under section 327, section 328 and section 329 which enables reporters to ring-fence funds they believe are criminal property and transact with funds outside of the ring-fenced funds.
Reporters may wish to obtain legal advice on their responsibilities under this change to POCA 2002.
Section 183 is not currently enacted and awaits a statutory instrument to be passed. The Home Office is drafting the relevant measure.
For reporters caught by POCA but not by the Money Laundering Regulations 2017, there is no change.
When submitting a request for a defence, include:
“We believe section [xxx] of POCA does not apply to this DAML as the activity falls outside the regulated sector.”
Our view
We welcome the government's focus on fighting economic crime and the recognition of the role solicitors play in this area.
We appreciate the ambition behind adding a regulatory objective for legal services regulators to uphold the economic crime agenda.
We were successful in pushing for a clarification of the scope of the new objective, which risked being so wide it would divert focus away from the areas of real risk.
At report stage, the minister agreed with many of our points and made clear:
- the regulatory objective will need to be implemented in a targeted and proportionate way, and
- regulatory activity should be transparent, accountable, proportionate and consistent as well as targeted only on cases where action is required
Unlimited fines for economic crime offences
Under the legislation, the Solicitors Regulation Authority (SRA) can now issue unlimited fines for economic crime offences.
It is important for any solicitor who has committed serious misconduct to be dealt with swiftly.
However, we strongly urged the government to carefully consider the proportionality of any further increases to the SRA's fining powers, given that its fining powers increased from £2,000 to £25,000 as recently as July 2022.
There is no evidence that the current fining powers are insufficient.
Unlimited fines can already be imposed via the independent and ultimate arbiter, the Solicitors Disciplinary Tribunal (SDT), which was established to deal with the most serious cases of misconduct.
The independent and transparent SDT process has the confidence of both the profession and the public.
Companies House reform
We are pleased the legislation gives Companies House the powers to be more active in preventing the creation of, and shutting down, fraudulent companies.
These powers should help to give people more confidence that companies have put correct information onto the register.
We look forward to working with Companies House to make sure that the powers are implemented in a way that is effective in minimising fraud, but at the same time does not put onerous burdens onto legitimate businesses.
We worked hard behind the scenes to ensure that the reporting requirements for the register of overseas entities (ROE) were not unreasonable and burdensome on our members.
Following close engagement with the government and peers, the update period remains 12 months after the entities' initial entry onto the register.
We understand why the government is implementing measures on SLAPPs.
However, as only cases related to economic crime are covered, this means that some claimants may still use SLAPPs to stifle scrutiny.
There are weaknesses in the current provisions that will need to be addressed in further legislation.
What we're doing
As the professional body for solicitors, we amplify the powerful collective voice of more than 200,000 solicitors with your diverse experiences and backgrounds, advocating on the issues you've told us matter most.
We worked hard as the legislation made its way through parliament to lobby for important changes on behalf of our members.
We will be working with members to understand the risks around the 'failure to prevent fraud' offence and to support compliance and best practice.
We’re here to help you keep ahead of your regulatory obligations and minimise risk with a package of expert guidance, advice and resources.