The Economic Crime and Corporate Transparency Bill 2022-23 (Bill 154) is a government bill introduced in the House of Commons on 22 September 2022. Its three stated objectives (PDF) are:
- To prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy
- To strengthen the UK’s broader response to economic crime
- To support enterprise by enabling Companies House to deliver a better service for over four million UK companies, and improving the reliability of its data to inform business transactions and lending decisions across the economy.
Second reading was on 13 October 2022 and the Bill completed its Commons Committee stage, in nineteen sittings, on 29 November 2022. Remaining Commons stages are scheduled for 24 and 25 January 2023.
Most of the Bill’s measures would extend across the UK. Legislative consent motions are being sought from each of the devolved administrations.
What the Bill aims to do
The Bill follows the Economic Crime (Transparency and Enforcement) Act 2022, which was fast-tracked through Parliament in March 2022 in response to Russia’s invasion of Ukraine.
During the passage of this earlier Bill the Government committed to introducing a second economic crime bill early in the 2022-23 session of Parliament. The Bill then featured in the May 2022 Queen’s Speech.
The Bill’s measures
The Bill has six Parts.
Part 1: Companies House Reform
Companies House is the UK’s company registrar. The UK is one of the quickest and cheapest places in the world to set up a company. UK companies can usually be set up within 24 hours using an online form, for a £12 fee.
But Companies House is not a regulator, so lacks powers to query documents submitted to it, and to investigate companies it suspects are being used for fraud or money laundering. The Government accepts that aspects of the UK’s easy-to-use company regime have made it particularly attractive to criminals (PDF).
Proposed reforms to Companies House in Part 1 (as introduced)
In May 2019, the Department for Business, Energy & Industrial (BEIS) strategy published a consultation on company reform. It was followed by three further consultations published in December 2020.
Part 1 of the Bill (as introduced, clauses 1 to 98, and now clauses 1 to 107) would seek to deliver the “biggest upgrade to Companies House” since the UK first introduced a register of companies in 1844. Some of the key changes (as introduced) are:
- requiring companies to have their registered office at a place where it can acknowledge and receive documents
- requiring all directors, People with Significant Control (beneficial owners), and those delivering documents to have their identities verified
- abolishing the requirement for companies to maintain their own registers of directors, directors’ residential addresses, secretaries and People with Significant Control, providing instead that this information is only held centrally
- requiring all companies to file a profit and loss account, showing their turnover and profit. Currently, most companies are exempt from this requirement by virtue of being classified as “small”
- giving the registrar greater powers to share information and reject documents with inaccuracies; and
- giving the registrar power to remove information about dissolved companies from public inspection after twenty years.
BEIS estimates the total cost of the changes to be £289m, with an annual direct cost on businesses of £18.9m. But it assesses the current value of information on the companies register to be between £1 and £3 billion, so that a 5% improvement in the quality and usefulness of this information could more than cover the costs of the measures to businesses.
Alongside the Bill, an “all-encompassing transformation” of Companies House is taking place, including having fewer paper-based administrative roles in favour of analytical work, and greater digitisation and modernisation of its systems.
Commentary on proposed reforms
The measures in Part 1 have been broadly welcomed by stakeholders, including the Law Society and the UK Anti-Corruption Coalition of 17 anti-corruption groups.
Anti-corruption group Transparency International (TI) said the reforms were “much-needed” but left gaps such as by failing to prohibit UK companies from being controlled by “opaque offshore companies”.
TI, the Centre for Financial Crime and Security at the Royal United Services Institute and Spotlight on Corruption all argue – whether through the Bill or otherwise –the Government should commit to increase the cost of setting up a company to well above its current level of £12.
Commons committee stage
The Government added nine new clauses to Part 1 at Commons committee stage. These new clauses seek to allow for: (1) Part 1 to apply to overseas companies; (2) rectification of the register relating to invalid service and principal office addresses; (3) the Secretary of State to require businesses to identify discrepancies between its own information and that on the public register; and (4) the registrar to omit from public inspection company names for companies that have been directed to change their name.
Many largely technical and consequential Government amendments were also made. The only Government amendments divided upon were amendments to clause 32 (passed along party lines by 10 votes to 7). These amendments provided that a sanctioned person would only be disqualified from being a director if those sanctions related to asset-freezing.
No non-Government amendments or new clauses were made or added to Part 1 during Committee stage.
Part 2: Limited partnerships
Limited partnerships (LPs) are a specific type of business structure in UK law.
There is an important difference in arrangements for Scottish limited partnerships (SLPs) – they have a separate legal personality. This meant that until 2017 they could be registered without giving details of individuals or companies who owned the business.
Concerns about the partnership model
Earlier concerns about the wider lack of transparency of UK business structures had led to the creation of the Register of Persons with Significant Control in 2016. This was extended to cover SLPs in 2017. The number of LPs registered in Scotland had risen by 30% in 2016, compared with 5% across the rest of the UK. SLPs in particular had also been implicated in major international money laundering scandals.
To update limited partnership law across the UK and improve transparency, the Government consulted on various proposals in 2018, publishing its response the same year.
Proposed reforms to limited partnerships
The proposed reforms would:
- seek more information about partners at the point of registration, and require this to be submitted by authorised corporate service providers, who are supervised for anti-money laundering purposes
- require limited partnerships to maintain a registered office there
- require all limited partnerships to update the registrar of changes and submit annual statements confirming that information held about them is correct
- enable the registrar to deregister limited partnerships that are dissolved or no longer carrying on business
- enforce sanctions for various breaches of the above requirements against partners.
In addition, many of the reporting arrangements would bring requirements for limited partnerships into alignment with those for registered companies. So various changes in other parts of the Bill would also be relevant to limited partnerships across the UK.
Commons committee stage
The committee agreed (without division) four new clauses proposed by the Government. One of these would specify how individuals might be exempted from meeting new requirements for identity verification on the grounds of national security. The other three would make further provisions relating to dissolving and winding up limited partnerships.
The committee also agreed numerous Government amendments – many of them technical or consequential to other changes – without division. The Opposition proposed several amendments and new clauses. They were all withdrawn or not called.
Part 3: 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 would amend the EC(TE) Act to maintain consistency with changes to the Companies Act 2006 made by Part 1 of the Bill; and make minor and technical changes.
Commons Committee stage
No amendments were tabled to Part 3 during committee stage, but 10 new Government clauses were added. The new clauses are largely intended to make the Register of Overseas Entities more accurate and reflect changes being made in Part 1. They were all added without divisions.
Part 4: Cryptoassets
Part 4 would amend the Proceeds of Crime Act 2002 to explicitly apply criminal and civil asset recovery powers to cryptoassets.
Among other things, in relation to criminal recovery Part 4 would:
- remove the requirement in certain circumstances that a person must have been arrested before assets can be seized
- make changes to the search, seizure and detention powers to clarify how they apply to cryptoasset wallets
- provide magistrates courts with powers to deal with cryptoassets
- provide for the destruction of cryptoassets in certain circumstances.
In relation to civil recovery Part 4 would:
- give law enforcement search and seizure powers in relation to cryptoassets
- enable law enforcement to recover cryptoassets from third party holders
- provide for the freezing of crypto wallets
- enable cryptoassets to be converted into cash or destroyed in certain circumstances.
Commons committee stage
The Government tabled technical amendments to the civil recovery provisions intended to ensure consistency in the drafting. They were agreed without division.
The Government also tabled a new clause and schedule which would amend the Anti-Terrorism, Crime and Security Act 2001 and the Terrorism Act 2000 to provide for civil recovery powers equivalent to those contained in the Bill. These were also agreed without division.
Part 5: Miscellaneous
Part 5 makes several discrete changes relating to money laundering, terrorist financing and the regulation of legal services. These include:
- creating new exemptions from money laundering offences to reduce reporting by businesses carrying out transactions on behalf of clients in certain circumstances
- providing law enforcement with new powers to obtain information relating to money laundering and terrorist financing
- enabling certain businesses to share information about economic crime without breaching confidentiality duties
- removing the £25,000 cap on the Solicitors Regulation Authority’s powers to impose penalties for economic crime disciplinary matters
- adding a regulatory objective for legal services regulators to uphold the economic crime agenda
- expanding the Serious Fraud Office’s (SFO) pre-investigation stage powers to all SFO cases.
Commons committee stage
The Government tabled amendments to Part 5 which were agreed without division, including:
- extending the protection for businesses sharing information on customers to all civil liability
- removing the existing statutory limit on financial penalties that can be imposed by the Scottish Solicitors’ Discipline Tribunal in relation to economic crime offences.
Part 6: General
Part 6 contains general clauses (such on the title and territorial extent of the Bill) typically found at the end of Bills.