The National Crime Agency estimates that money laundering costs the UK more than £100 billion annually. The Economic Crime and Corporate Transparency Bill is the second part of a legislative package introduced by the UK government to tackle economic crime. Its stated key objectives are to (i) prevent organised criminals from using UK companies to abuse the UK’s open economy, (ii) strengthen the UK’s broader response to economic crime, in particular by giving law enforcement new powers to seize cryptoassets and enable businesses in the financial sector to share information to prevent and detect economic crime, and (iii) improve the reliability of the data on Companies House so that this data can inform business transactions and lending decisions. The government intends to invest a further £63 million up to 2024–2025 in Companies House to support its transformation from a register to a regulator.
The Bill sets out proposed reforms to Companies House, the seizure of suspected criminal cryptoassets, the role of limited partnerships, and new intelligence-gathering powers. We summarise the key provisions of the Bill as it stands in this regard below.
Companies House reforms
In 2020–2021, the UK Companies House incorporated over 810,000 companies and had a total of 4.4 million active registered companies. Its increased use has made it vulnerable to misuse and raised concerns regarding the accuracy of the register. The Bill seeks to update the legal framework in which Companies House operates to protect against these issues.
The overarching aim of the Companies House reforms are to change Companies House from a passive recipient of information to an active gatekeeper over company creation and a custodian of more transparent and reliable data concerning UK companies and other legal entities.
The reforms to Companies House include:
(i) new objectives for the Registrar that underscore its role in ensuring accurate information is kept on the register and preventing the use of Companies House for unlawful activities;
(ii) introducing identity verification through an anti-money-laundering (AML) supervised authorised corporate service provider for all new and existing registered company directors, People with Significant Control, and those delivering documents to the Registrar;
(iii) a requirement for companies to maintain their registered office at an “appropriate address.” An address is an “appropriate address” if in the ordinary course of events (a) a document addressed to the company, and delivered there by hand or by post, would be expected to come to the attention of a person acting on behalf of the company, and (b) the delivery of documents there is capable of being recorded by the obtaining of an acknowledgement of delivery. All companies must also maintain an appropriate email address;
(iv) broadening the Registrar’s powers including new powers to check, remove, or decline information submitted to, or already on, the register. For example the Registrar may refuse to accept a document if it appears to the Registrar to be inconsistent with other information held by or available to the Registrar and in light of the inconsistency, the Registrar has reasonable grounds to doubt whether it complies with any requirement as to its contents; and
(v) improving the financial information on the register by requiring the delivery of additional or replacement documents where it appears to the Registrar that the information contained in a document is inconsistent with other information contained in the register.
Companies House will be able to share information gained through these enhanced powers with law enforcement bodies where it has evidence of anomalous filings or suspicious behavior.
Seizure of suspected criminal cryptoassets
Criminals have been increasingly exploiting cryptoassets as a means of pseudo-anonymously, cheaply and quickly moving funds around the world.
The Bill will provide additional powers to law enforcement agencies intended to enable them to more quickly and easily seize and recover cryptoassets that are the proceeds of crime or associated with illicit activity such as money laundering, fraud and ransomware attacks.
The Bill will principally amend both criminal confiscation powers in Parts 2, 3 and 4 of the Proceeds of Crime Act 2002 (POCA) and civil recovery powers in Part 5. Amendments to Parts 2, 3, and 4 of POCA will:
- enable officers to seize cryptoassets during the course of an investigation without first having arrested someone for an offence;
- enable officers to seize crypto-related items; and
- enable the courts to better enforce unpaid confiscation orders against a defendant’s cryptoassets.
Amendments to Part 5 of POCA will bring cryptoassets within the scope of civil forfeiture powers. These amendments will be supported by supplementary investigative powers in Part 8 of POCA, similar to preexisting investigatory powers to support the forfeiture of cash, listed assets, and funds in certain accounts.
The role of limited partnerships
The proposed updates are intended to increase transparency when it comes to the partners of a UK limited partnership (LP) and to require that those LPs maintain a connection to the UK. They include:
- that the information set out in Schedule 4 to the Bill is provided to Companies House regarding each partner in the LP; this information includes the LP partner’s name, date of birth and nationality and usual residential address; the part of the UK in which the individual is usually resident or, if the individual is usually resident in a country outside the UK, that country; and in the case of a general partner, a service address; and
- that LPs maintain an “appropriate” office in the UK. Current legislation (the Limited Partnerships Act 1907) requires an LP to propose a principal place of business in the UK on registration. The legislation is silent on whether the principal place of business can move abroad, and many limited partnerships do so, and without notifying the Registrar, meaning that there is then no address that can be used to communicate with the LP, and the LP does not have any connection to the UK. Under the new provisions, the registered office must be at an appropriate address and must always be in the original jurisdiction of registration.
New intelligence gathering powers, including for the Serious Fraud Office
Information Sharing – The Bill proposes reforms to give businesses more confidence to share information to tackle money laundering and other economic crime. To enable this, civil liability for breaches of confidentiality will be disapplied when a business shares customer information with another for the purposes of preventing, detecting and investigating economic crime. The Bill provides for the addition of new clauses to POCA that will allow:
- direct sharing between two businesses in the AML regulated sector; and
- indirect sharing through a third-party intermediary for businesses in the financial sector, including cryptoasset exchanges and custodian wallet providers.
Legal services – Under the Solicitors Act 1974 and the Administration of Justice Act 1985, the Solicitors Regulation Authority (SRA) has the power to issue penalties in relation to disciplinary matters relating to economic crime offences. The maximum penalty the SRA can issue in this regard was, in July 2022, increased from £2,000 to £25,000. Clause 154 of the Bill seeks to amend these pieces of legislation so that the SRA would then have the power to impose an unlimited fine in the case of a failure to prevent or detect economic crime.
The English Law Society has expressed its concerns regarding this proposed amendment on the basis that there has been little evidence of the effectiveness or otherwise of the most recent increase in the SRA’s fining powers.
The Serious Fraud Office (SFO) – The SFO was established in 1988, with the remit of investigating and prosecuting the most serious economic crimes, including fraud and bribery and corruption. The SFO has a unique set of investigative powers, provided by section 2 of the Criminal Justice Act 1987 (CJA), under which SFO officers can require a person to answer questions, furnish information, or produce documents. As it stands, these powers can be used only following the Director of the SFO’s decision to commence an investigation, except in relation to suspected cases of international bribery and corruption, in which case the SFO can compel entities to provide information during the pre-investigation stage.
The Bill proposes to amend the CJA to expand the SFO’s powers such that it is able to require a person to answer questions, furnish information, or produce documents at a pre-investigation stage of any of its cases, whether they relate to suspected fraud, bribery, or corruption.
The second reading of the Bill took place on 13 October 2022 in the House of Commons, and the Bill entered the Committee stage on 25 October 2022.
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