The Economic Crime and Corporate Transparency Act 2023 and what it means for me and my business.

Russia’s invasion of Ukraine on 24 February 2022 prompted huge international condemnation and concerted steps both to punish Russia’s actions and to deter future similar aggressive acts. As a large and open economy, the UK had attracted investment by Russian (and other) elites, and so the UK Government moved quickly to implement the Economic Crime (Transparency and Enforcement) Act 2022 (ECTE 2022) to impose sanctions, establish a Register of Entities regarding UK properties being used to launder money, and strengthen the Unexplained Wealth Order system.

The 2022 Act was followed in 2023 by the Economic Crime and Corporate Transparency Act (ECCTA 2023) which sought to achieve wider reforms in tackling economic crime. Priorities included driving greater transparency into financial transactions and how those dealings were being undertaken. This will reduce opportunities for kleptocrats to hide assets in the UK, for criminals to harvest and export the proceeds of crime; and for criminals and nation states to avoid sanctions.

At the heart of these reforms is a drive to get UK businesses and professional advisers to be clear on who they are actually dealing with, and removing facades intended to conceal the true provenance of actors and their assets.

Enhanced Company Transparency Requirements

ECCTA 2023 requires that all UK companies disclose the identity of their beneficial owners thereby preventing the use of UK shell companies to conceal illicit activities. The Act also introduces stricter rules regarding the accuracy of information held by Companies House. Directors, Persons with Significant Control, and those delivering documents to the Registrar must now undergo verification processes to confirm their identities. This should improve the accuracy of data held by Companies House and reduce the risk of fraudulent filings. The Act requires certain enhancements to financial information on the register to make it more reliable, complete, and accurate.

Strengthening the Powers of Companies House and Law Enforcement Agencies

ECCTA enhances powers of regulatory bodies like Companies House and law enforcement agencies, giving them greater authority to investigate and enforce compliance with regulation. For example, Companies House is now able to cross-check data with other government bodies and proactively share information with law enforcement agencies where there is evidence suggesting suspicious filings or behaviour. In order to become a more active gatekeeper over company creation and a better custodian of data, Companies House also now has the new power to check, remove, or decline information submitted to the company register.

ECCTA provides additional powers to law enforcement agencies, enabling them to rapidly seize and recover crypto assets that are the proceeds of crime or associated with illicit activity. It also enables proactive intelligence gathering by law enforcement agencies and strengthens the NCA’s ability to obtain information from businesses related to money laundering and terrorist financing. This is achieved by removing the requirement for a Suspicious Activity Report to have been submitted before an Information Order can be made.

These changes mean there will be increased pressure on companies and limited partnerships to ensure their information is accurate and up to date. There is also a greater likelihood that inconsistencies or other red flags discovered during due diligence could lead to regulatory or enforcement action.

Impact on Corporate Compliance and Governance

ECCTA places a renewed emphasis on corporate governance and the responsibilities of company directors and officers. Directors are responsible for ensuring their companies comply with the new transparency and reporting requirements, and failure to do so could result in significant penalties including fines and disqualification.

ECCTA creates a new offence of failing to prevent fraud where corporations profit from fraud committed by their employees and do not have reasonable fraud prevention procedures in place. This means companies will need to demonstrate adequate control processes when entering into business relationships.

Broader Implications and Conclusions

ECCTA’s overall impact on the UK business environment will be significant. The enhanced requirements for transparency and reporting will increase the administrative burden and costs for businesses, particularly smaller companies. However, and more positively, ECCTA will deter economic crime by making it more difficult to hide illicit activities behind opaque corporate structures. This will create a cleaner, more transparent business environment in the UK, increasing investor confidence and the country’s attractiveness as a place to do business.

So, if you are a director of a business in the UK what does this mean for you? In a nutshell, you need to:

  • Recognise that you may unwittingly be involved, directly or indirectly, with individuals and companies targeted by ECCTA.
  • Undertake reasonable routine due diligence on business partners to ensure that you are not caught-out by facilitating the illegal activities of others.
  • Be clear on what to do if you are concerned about any business partner activities that might be relevant to ECTE or ECCTA.

Dr Brian Moore and Ellen Davies are, respectively, Managing Director and Lead Open Source Investigator at GSA Global, a specialist security, investigation, vetting and due diligence consultancy. We would be pleased to discuss the topic further.

Dr Brian Moore
Managing Director
[email protected]

Ellen Davies
Lead Open Source Investigator
[email protected]