This week is National Fraud Awareness Week and is the perfect opportunity to highlight the Economic Crime and Corporate Transparency Act, which received Royal Assent on 26 October 2023 and now becomes the Economic Crime and Corporate Transparency Act 2023 (ECCTA).
This marks the second set of amendments aimed at addressing economic crime, following the sanctions reforms and the establishment of the Register of Overseas Entities through the Economic Crime (Transparency and Enforcement) Act of 2022.
The 2023 Act seeks to prevent the exploitation of companies by criminals, enhance law enforcement capabilities in combating economic crime, and improve the accuracy of data at Companies House. It grants greater powers to Companies House, aiming to boost transparency regarding UK companies and other legal entities, facilitating improved information sharing regarding suspected money laundering, fraud, and other economic offences.
Indeed, it does, with noteworthy consequences.
A substantial accounting modification within the Act stipulates that both small companies and micro-entities will no longer be allowed to submit condensed accounts. Consequently, all small companies must submit a comprehensive set of accounts, encompassing the balance sheet, profit and loss account, and a Director’s report. This may raise commercial concerns, as full company accounts will be publicly accessible at Companies House, accessible to clients, suppliers, and employees, unlike the current limited visibility restricted to the balance sheet.
All current and future company directors and beneficial owners must authenticate their identity, along with those submitting the company’s information to Companies House. The exact verification process, whether directly through Companies House or an authorised provider, remains unclear.
Companies are obligated to furnish a registered office address for document signatories and an email address for communication with Companies House. Non-compliance will be considered an offence.
Key to the Act is the introduction of a new offence – failure to prevent fraud. This extends liability to large organisations when an associated person commits a specified offence for the benefit of the organisation, unless it can show that it had in place reasonable fraud prevention procedures. The specified offences that organisations will be criminalised for failing to prevent are:
Fraud by false representation, by failing to disclose information, or by abuse of position (sections 2-4 Fraud Act 2006);
This new offence only applies to ‘’large’ organisations (meaning small and medium-sized enterprises are out of scope for this offence) who satisfy any two of the following criteria in the financial year preceding the year of the fraudulent action in question:
Small and medium-sized businesses are not completely off-the-hook however. With effect from 26 December 2023, S.196 of the Act alters the point at which corporate entities become liable for the criminal actions of their employees.
Several major changes contained within the Act will require secondary legislation and therefore, precise timings are not yet known, although it is largely anticipated that this will be in the latter part of 2024 with the exception of S.196 as referenced above, Certain provisions of the Act – including a requirement for companies to have a registered email address will come into effect in January of 2024. All companies should anticipate these major changes and factor this into future plans regarding compliance procedures and operations.
Changes include (amongst others), Companies House information needing to be verified, and both micro and small entities will need to file profit and loss accounts.