The potential effects of the Economic Crime and Corporate Transparency Bill

Caroline Clark, director of RMCSC and a fellow of the Insolvency Practitioners Association and R3, discusses the Economic Crime and Corporate Transparency Bill and the potential effects of it on insolvency practitioners.

Person looking through a magnifying glass at documents

Introduction

For many years there has been growing concern about the huge amount of national and global economic crime that’s restricting the income and assets subject to taxation by HMRC. Identifying and preventing economic crime and money laundering offences is a massive challenge and this has led to much legislation, both in the UK and elsewhere in the world.

One such piece of legislation on the horizon is the Economic Crime and Corporate Transparency Bill (ECCT), which is currently at the committee stage in the House of Lords.

What is the Economic Crime and Corporate Transparency Bill?

The ECCT is not yet law, but it proposes changes to Companies House procedures that should assist in identifying and preventing economic crime. It also includes many other changes, such as amendments to the Proceeds of Crime Act 2002 (POCA 2002).

At the time of writing ECCT is at the committee stage in the House of Lords. Further amendments may therefore be made to ECCT before it becomes law, and this article gives outlines of the proposed changes under ECCT at the time of writing.

Related legislation

It is useful to consider aspects of previous economic crime and anti-money laundering legislation and some of the fundamental changes it has made to professionals such as insolvency practitioners, solicitors and accountants.

The POCA 2002 gave the legal definition of money laundering and money laundering offences and created Suspicious Activity Reports (SARs) as the defence for insolvency practitioners inadvertently becoming involved in a money laundering offence, for example. However, substantial fines have been imposed on professionals in breach of anti-money laundering legislation and in worst-case scenarios some professionals guilty of a crime could be imprisoned.

As a result of POCA 2002, ‘know your client’ identification procedures were introduced for all new cases, all firms appointed a Money Laundering Reporting Officer and anti-money laundering was introduced into the world of professional compliance.

There has been more substantial anti money laundering legislation since 2002 that has increased the requirements on professional people such as insolvency practitioners, solicitors and accountants to carry out investigations on their everyday transactions to identify suspicions of economic crime or money laundering:

The Economic Crime (Transparency and Enforcement) Act 2022 was expedited in 2022 as a result of the war in Ukraine and introduced the register of overseas entities that makes it easier to identify property owners.
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) introduced the regulation of compliance with economic crime and anti-money laundering legislation. Customer due diligence must now be carried out from the first contact with a new client and a new appointment should not be accepted unless the customer due diligence has been successfully completed. This fundamental change to how professional people such as insolvency practitioners now work is because of economic crime and anti-money laundering legislation.

Summary of the Economic Crime and Corporate Transparency Bill

Companies House

ECCT aims to bring in major changes to the role of the Registrar of Companies and the operation of Companies House. The Registrar of Companies will have specific objectives including:

to ensure all documents are properly delivered to Companies House
to ensure that documents delivered to Companies House are complete and accurate
to minimise the risk of documents giving a false or misleading impression
to minimise the extent to which companies and others carry out unlawful activities

Company formation

ECCT proposes changes to the procedure for company formation including:

identity verification of persons with significant control
a statement as to the lawful purpose of the company
increased restrictions on the use of business names

Directors are also to be prohibited from acting unless their identity has been verified and this would seem to bring legislation for setting up and running a company in line with that for setting up other business relationships and transactions.

Limited partnerships

ECCT also proposes major changes for limited partnerships. More information about partners and limited partnerships is to be made available and, not surprisingly for legislation based on increasing tax income for HMRC, HMRC will be given the authority to ask for a copy of the limited partnership’s accounts, within a specified time. A partner who does not comply with this request would commit an offence.

Money laundering and terrorist financing

Part 5 of ECCT is specifically in respect of money laundering and terrorist financing. ECCT proposes amendments to Ss327, 328 and 329 of POCA 2002, sections which give the main definitions of money laundering offences. Under Ss327, 328 and 329 of POCA 2002 a person commits a money laundering offence if inter alia he conceals, disguises, acquires or uses criminal property, or if he becomes concerned in an arrangement that facilitates the acquisition of criminal property by another person.

ECCT proposes that amendments should be made to the effect that a money laundering offence is not committed if all the following criteria are met:

the person is in the regulated sector
the act is in the course of that business on behalf of a client or for the purposes of the termination of the person’s relationship with the client
the total value of the criminal property concerned is less than £1,000

There are also exemptions if there are mixed funds and it is not possible to identify the part of the funds that are the relevant criminal property.

These proposed amendments in ECCT have been seen as a way of reducing unnecessary reporting of suspected money laundering offences using SARs by effectively making them only necessary, in many situations, if the criminal property is worth more than £1,000.

Conclusion

This article gives a brief outline of some of the changes proposed by the Economic Crime and Corporate Transparency Bill which, at the time of writing, is going through the House of Lords.

It is too early to make any changes to checklists or case management systems as a result of ECCT but it is clear that the changes proposed by ECCT could have a positive effect on the anti-money laundering systems of professional people such as insolvency practitioners, solicitors and accountants.

Other changes proposed by ECCT to the filing of documents at Companies House, setting up companies and to legislation regarding limited partnerships, for example, are also aimed at preventing economic crime and money laundering.

About the author

Caroline Clark is director of RMCSC, a fellow of the Insolvency Practitioners Association and R3, and has an MBA. She established RMCSC in 2013, providing consultancy advice for insolvency practitioners about compliance with insolvency and anti-money laundering legislation.