The Economic Crime and Corporate Transparency Bill (‘Bill’) will introduce long-awaited reforms to Companies House (‘CH’), alongside other measures which aim to strengthen the UK’s corporate governance framework.
The Bill was published by the UK Government on 22 September 2022 and gives effect to long-awaited reforms to CH, which the UK Government consulted on in 2019 and 2021. Among other measures, the Bill introduces identity verification for those registering a company in the UK. The investigation and enforcement powers of CH will also be upgraded, enabling the organisation to cross check data with public and private partners, as well as reporting suspicious activity to security agencies and law enforcement. The Bill’s second reading took place on 13 October 2022.
The Bill aims to deliver:
- reforms to CH
- reforms to prevent the abuse of limited partnerships
- additional powers to seize and recover suspected criminal crypto assets
- reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime
- new intelligence gathering powers for law enforcement and removal of nugatory burdens on business
Companies House
According to the policy paper fact sheet accompanying the Bill (‘Fact Sheet’) (links below), the reforms will introduce identity verification for all new and existing registered company directors, People with Significant Control (‘PSCs’), and those delivering documents to the Registrar.
“Directors: duties relating to ID verification and notification”
An individual must not act as a director of a company unless their identity is verified. A company must ensure that an individual does not act as a director unless their identity is verified or they fall within any exemption from verification. Failure to verify an identity is an offence(by an individual and/or a company) punishable by a fine but does not in any way affect the validity of an individual’s acts as a director.
“Identity verification”
An identity is verified if a verification statement in respect of the individual has been delivered to the Registrar or the individual’s identity has been verified using a process provided for in regulations under the new s.1110B to the Companies Act 2006 (CA06) . A verification statement is a statement by an authorised corporate service provider (‘ACSP’) (a new role created by the Bill) confirming that it has verified an individual’s identity.
How will identity verification work?
The Fact Sheet explains that there will be two types of identity verification: direct verification via to the Registrar at CH, and an indirect route through an ACSP.
- CH
“If a person is verifying their identity directly with Companies House, identity verification will link a person with a primary identity document, such as a passport or driving licence. The person undergoing verification will take a photograph or scan of their face and the identifying document. The two will be compared, using likeness matching technology, and the identity verified. If successful, the person will be notified in a matter of minutes. Primary identity documents may also be checked against government databases as part of the identity checking process. Alternative methods will be available for individuals without photographic ID and digitally assisted / non-digital identity verification will be available for users who cannot use the digital identity verification system.”
- ACSP
“People might decide to use an ACSP to file with the Registrar, form a new registerable entity, or verify their identity. These are often intermediaries such as accountants, legal advisers, and company formation agents. They must be registered with a supervisory body for anti-money laundering (AML) purposes and already have an existing obligation to carry out customer due diligence checks on all of their clients; identity verification will build on these existing checks. These third parties must register with the Registrar and demonstrate that they are supervised for AML purposes. They will be known as ACSPs.”
Other
The Registrar is currently required by law to accept information if it is “properly delivered” and has limited powers to correct or query information where there is a suspicion that something submitted is erroneous or fraudulent.
The government is introducing a new power to enable the Registrar to reject and query new filings, as well as to query information already on the register, where information is identified as potentially fraudulent, suspicious, or might otherwise impact on the integrity of the register or wider business environment. The new power allows the registrar to compel a person to provide information so the registrar can make a determination about the queried filing.
There will be a transition period for existing directors and their equivalents, and for PSCs to verify their identity in. This transition period will provide existing directors and PSCs time to comply with the new requirements, whilst ensuring the integrity of data already on the register.
For new directors, identity verification must take place before an application for the formation of a company is delivered to the Registrar. If PSCs are not verified within a short time after the incorporation of a company, they will commit a criminal offence. Post-incorporation, a director must verify their identity as soon as possible and must do so before their appointment is notified to the Registrar by a company. Individual PSCs will have a 14-day period after registering with the Registrar in which to verify their identity.
“Disclosure of information”
According to the Fact Sheet, the reforms include:
- broadening the Registrar’s powers to become a more active gatekeeper, including new powers to check, remove or decline information;
- improving the financial information on the CH register (Register);
- providing CH with more effective investigation and enforcement powers and allowing for the disclosure of information (see below);
- enhancing the protection of personal information to protect individuals; and
- clamping down on misuse of corporate entities.
The Registrar will be able to disclose information to –
- any person for purposes connected with the exercise of any of the registrar’s functions; and
- a public authority for purposes connected with the exercise of any of that public authority’s functions.
“The Registrar will be able to proactively disclose information to the types of bodies listed below:
- public Authorities – this includes any government body, local authorities (including trading standards), and any person or body discharging functions of a public nature, including regulatory functions
- law enforcement bodies – this includes agencies such as police forces, the Insolvency Service, National Crime Agency, the Serious Fraud Office
- supervisory bodies – as listed within the Money Laundering regulations main supervisory bodies]; and
- insolvency practitioners – as defined within the meaning of section 4 of the Insolvency Act (2000)“
Limited partnerships
The Bill aims to tackle the misuse of firms registered as a limited partnership (LP) under the Limited Partnership Act 1907, including Scottish LPs.
The Bill will –
- tighten registration requirements
- require LPs to maintain a connection to the UK
- increase transparency requirements, for example requiring fuller information about partners
- enable the Registrar of Companies to deregister LPs which are dissolved, which are no longer carrying on business or where a court determines that it is in the public interest to do so.”
Key considerations
An LP will be required to register and maintain both a formal registered office where documents can be delivered to or served upon it and an email address for use by the Registrar.
An LP will be required to deliver an annual confirmation statement to the Registrar. Scottish LPs have been required to do this since June 2017. All LPs will be required to submit fuller information about their partners and confirm the accuracy of the information on the Register.
The new legislation will apply to all LPs, both new and existing. There will be a transitional period of six months from the commencement of the new legislation. LPs that do not comply with the new requirements will be deregistered. All of the information must be submitted by an ACSP.
An LP will no longer be dissolved following the bankruptcy of a partner. Although, the LP will dissolve automatically if it ceases to have at least one general partner or a limited partner.
Register of Overseas entities
The Economic Crime (Transparency and Enforcement) Act 2022 (‘the EC(TE) Act’) introduced a beneficial ownership register of foreign entities (such as companies) that own UK property, known as the Register of Overseas Entities. This register became operational on 1 August 2022 and is administered by Companies House. Overseas entities have until 31 January 2023 to register their beneficial owners.
Part 3 of the Bill (clauses 135 to 140) would amend the EC(TE) Act to (i) maintain consistency with changes to the Companies Act 2006 made by Part 1 of the Bill; and (ii) make minor and technical changes.
Currently it is a criminal offence to fail to comply with (or give false statements in response to) requests from an overseas entity to give information about its beneficial owners; the false statement offence can only be committed by someone who knowingly or recklessly gives false information.
The reforms make it an offence for failure to comply and does not require that the false statement be made knowingly or recklessly. Instead it is an “aggravated offence” for false statements to be given knowingly.
The reform also expands these offences to include that they can be committed by both a legal entity (such as a company) and any responsible officer.
Cryptoassets
The Fact Sheets explain that the Bill will provide “additional powers for UK law enforcement to seize, freeze and recover cryptoassets which are found or suspected to be the proceeds of crime or associated with illicit activity such as money laundering, fraud and ransomware attacks.”
The Bill proposes to do this by amending the confiscation and civil recovery powers already provided under the Proceeds of Crime Act 2002 (POCA).
Money Laundering
According to the Fact Sheets, the Bill “will strengthen anti-money laundering (AML) powers, enabling better information sharing on suspected money laundering, fraud and other economic crimes.
The reforms will:
- enable businesses in certain situations to share information more easily … combat economic crime
- enable proactive intelligence gathering by law enforcement and strengthening the National Crime Agency’s Financial Intelligence Unit’s (FIU) ability to obtain information … by removing the requirement for a pre-existing Suspicious Activity Report (SAR) to have been submitted before an Information Order (IO) can be made
- focus private sector and law enforcement resources on high value activity, reducing the reporting burden on businesses and enabling greater prioritisation of law enforcement resource by expanding the types of case in which businesses can deal with clients’ property without having to first submit a Defence Against Money Laundering (DAML) SAR”
Intelligence gathering powers for law enforcement
The Bill creates new provisions in POCA to make it easier for relevant businesses (i.e. in the anti-money laundering regulated sector) “…to share customer information with each other for the purposes of preventing, investigating and detecting economic crime, by disapplying civil liability for breaches of confidentiality where information is shared for this purpose.
Economic crime in this context includes money laundering, terrorist financing, bribery, sanctions evasion, tax evasion, market abuse and fraud.
Any disclosure of customer information for purposes other than those specified in the clause would not qualify for the disapplication of confidentiality meaning the business could still be sued by the customer.”
Section 2A of the Criminal Justice Act 1987 (as amended by the Bribery Act 2010), provides the Director of the Serious Fraud Office (‘SFO’) with powers to compel any legal person to disclose information (whether by way of documents or answer questions) at the pre-investigation of any suspected offence, which appears to him on reasonable grounds to involve serious or complex fraud.
Currently, the s.2A powers only apply to suspected cases of international bribery and corruption. The Bill will expand the s.2A powers to all SFO cases, including domestic bribery and corruption cases, and fraud cases.
Miscellaneous
Statutory Declaration of Solvency
The Bill will also amend s.89 of the Insolvency Act 1986 (IA86) to provide that it will be sufficient for a copy of the declaration of solvency (rather than the declaration itself) to be delivered to the Registrar.
Registered offices
A company must ensure that its registered office is at all times at an appropriate address. Failure to do so, may result in a fine.
S.86 of the CA06 will be amended as follows –
“86 Duty to ensure registered office at appropriate address
(1) A company must ensure that its registered office is at all times at an appropriate address.
(2) 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.
(3) If a company fails, without reasonable excuse, to comply with this section an offence is committed by–
(a) the company, and
(b) every officer of the company who is in default.
(4) A person guilty of an offence under this section is liable on summary conviction–
(a) in England and Wales, to a fine;
(b) in Scotland or Northern Ireland, to a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.
(5) Subsection (1) does not apply in relation to a company during any period for which the address of its registered office is a default address nominated by virtue of section 1097A(3)(h).”
Registered email address
A company must ensure that its registered email address is at all times an appropriate email address. Failure to do so, may result in a fine.
A new s.88A of the CA06 will be added –
“88A Duty to maintain a registered email address
(1) A company must ensure that its registered email address is at all times an appropriate email address.
(2) An email address is an “appropriate email address” if, in the ordinary course of events, emails sent to it by the registrar would be expected to come to the attention of a person acting on behalf of the company.
(3) If a company fails, without reasonable excuse, to comply with this section an offence is committed by–
(a) the company, and
(b) every officer of the company who is in default.
(4) A person guilty of an offence under this section is liable on summary conviction–
(a) in England and Wales, to a fine;
(b) in Scotland or Northern Ireland, to a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine not exceeding one-tenth of level 5 on the standard scale.”
Insolvency Practitioner
With regard to an insolvency practitioner potentially being liable for failure to comply with the provisions introduced by the Bill, we think there is a real possibility that an administrator and/or liquidator may be at risk as there is no express carve-out in the Bill to exclude an insolvency practitioner from liability. Furthermore, there is case law that supports an insolvency practitioner as an ‘officer’ when in the capacity of an administrator and/or liquidator. Should members have any concerns, we suggest you seek independent legal advice.
Helpful links for members –
Fact sheet: Economic Crime and Corporate Transparency Bill overarching