Arresting times: Significant changes to UK corporate criminal liability and corporate transparency

What is happening?

The Economic Crime and Corporate Transparency Bill (the Bill) is set to overhaul the existing corporate criminal liability and corporate transparency regimes.

The Bill is set to increase the tools available to prosecutors to pursue corporates by introducing a new “failure to prevent” fraud offence and amending the existing test for determining corporate criminal liability for economic crime.

The Bill also introduces new reporting and identity verification requirements and will enable Companies House to be a more “active gatekeeper” of economic crime.

Why does it matter?

The Bill represents a significant development in Parliament’s growing focus on economic crime in the UK.

New “failure to prevent” offence

The Bill is set to introduce a new corporate criminal offence of “failure to prevent” fraud. This will operate in a similar way to the failure to prevent bribery offence introduced by the Bribery Act 2010.

Pursuant to the new offence, large commercial organisations and their subsidiaries which conduct business  in the UK could be subject to an unlimited fine if their associated person commits a fraud offence with the intention of benefitting the organisation or (in some circumstances) themselves. The fraud offences that can trigger the failure to prevent offence are broad and will cover issues like greenwashing, misstatements in key financial documents and misleading sales practices by employees and marketing teams. Given the wide range of conduct potentially in scope, retail and consumer companies will need to be prepared for the changes.

After the Bill is passed (likely in late 2023), we expect to see an increase in investigations and prosecutions of corporate fraud. The “failure to prevent” model will make it easier to prosecute organisations in relation to these crimes as, unlike the current position, it does not require a prosecutor to establish the involvement of senior management of the company in the offending.

Importantly, companies will have a defence to the failure to prevent fraud offence if they can demonstrate they had in place reasonable preventative measures. Government guidance will be produced (most likely early in 2024) on what will constitute reasonable preventative procedures. However, companies can begin their planning and gap analysis immediately, particularly to ensure that their policies seek to prevent

the company and its third parties from defrauding others, rather than solely focusing on preventing the company becoming the victim of fraud.

Proposed revision of “identification doctrine”

The Bill also makes broader changes to the test for establishing corporate criminal liability for a range of economic crimes (including theft, fraud, bribery, and tax offences). Under this new statutory framework, the acts of “senior managers” will be attributed to the company.

This will reform the much criticised “identification doctrine” for these economic crimes, replacing the “directing mind and will test”, under which, currently, the actions of only a handful of the most senior people in a company can be attributed to the corporate body.

Corporate transparency reforms

The Bill also includes provisions designed to improve corporate transparency and to give Companies House enhanced powers to tackle economic crime. These include:

• identity verification – all new and existing directors, PSCs and persons submitting information to Companies House will be required to verify their identity. Details of the verification process will be contained in regulations which will follow enactment of the Bill. There will be two types of identity verification: direct verification via Companies House, and an indirect route through an Authorised Corporate Service Provider. 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. Alternatively, people might decide to use a corporate service provider authorised by the registrar to verify their identity. There will be a transition period to provide existing directors and PSCs time to verify their identities.
  
  
• new reporting requirements – a company’s register of members must include full names of all shareholders and the company must provide a list of shareholder names via the next confirmation statement which falls due after the legislation comes into force. Companies must also provide an “appropriate” email address (which will not be made publicly available) to Companies House and ensure that its registered office address is “appropriate”, meaning that documents sent to it by Companies House could reasonably be expected to come to the attention of a person acting on behalf of the company (and be capable of acknowledgment by that person). By default, most information provided to Companies House will be publicly available. However, the government intends to introduce a process whereby any individual listed on the Companies House register will be able to apply to have personal information suppressed from public view. There will be no evidential threshold in the regulations to apply to suppress residential addresses, signatures, days of date of birth or business occupations, but applicants will need to provide evidence that one or more individuals is personally at risk of harm to protect names, other particulars (for example, service addresses and partial dates of birth) or “sensitive” registered office addresses. Applications will be accepted before an individual becomes a director or PSC such that, if successful, the personal information of those at risk would not appear publicly.
  
  

• Companies House powers – Companies House will have more effective investigative and enforcement powers (including the ability to cross check data and share information with external bodies), enabling it to become a more active gatekeeper over company incorporations and a custodian of more reliable data.

What action should you consider?

• Failure to prevent offences – Companies should review their compliance procedures to determine whether they adequately address the risks of fraud offences being committed by third parties (including employees). Prudent companies will commence this work now, to take advantage of the time before the Bill comes into force.
  
  
• Corporate transparency reforms – Companies should check that their existing registered office address is “appropriate”; check that they have full names for all their shareholders and prepare to update their register of members and confirmation statements when required; and ensure that they will be ready to provide details of a company email address (which will be regularly monitored) to Companies House. They should also plan to arrange identity verification of all directors, PSCs and employees who submit information to Companies House once the identity verification regulations are published.

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