Crackdown on Corporate Crime
The Economic Crime and Corporate Transparency Bill is currently being debated in the House of Commons and if passed it will see a range of measures designed to prevent the abuse of current UK corporate structures and to help tackle economic crime.
The Bill follows the Economic Crime (Transparency and Enforcement) Act 2022 which came into law earlier this year which saw a new Companies House register of overseas entities that own real estate in the UK. These entities must now register with information including details of beneficial owners.
The key features of the Economic Crime and Corporate Transparency Bill in its current drafting are:
Companies House reforms
Companies House will evolve, becoming more active in the creation of new companies and ensuring data provided is accurate and up to date. The powers granted to the Registrar of Companies and their role as gatekeeper and custodian will be expanded further, including through an enhanced ability to reject documents for inconsistencies, to remove material already on the register should they find it to be inaccurate or misleading, and to request identity verification for directors and others acting on behalf of a company.
In addition, the new powers will extend the Registrar’s involvement in preventing or detecting crime including sharing information with other bodies and the Police and holding a new power to, within reason, conduct analysis of the information held for the purpose of crime prevention. There will also be new powers to impose financial penalties for breaching provisions with the Companies Act 2006.
Identification of individuals
Currently individuals who are named on files at Companies House do not need to have their identification verified which means the system has been open to abuse. In the new legislation, the move towards identity verification is a significant step and all existing and new company directors as well as persons of significant control and those who deliver documents to Companies House will all need to be verified.
Under the new proposals an individual will not be allowed to act as a company director until their identity has been verified and it will be an offence not to verify their identity if they are already a director and continue to act. Companies also need to ensure a relevant individual’s identity has been verified otherwise they will also be committing an offence.
There will be additional requirements for directors and anyone who is subject to UK Sanctions and Money Laundering Act 2018 will not be allowed to act as a director of a company or be involved in the promotion, formation, or management of a company without permission from the court.
If a director is disqualified under UK directors’ disqualification legislation, they will automatically cease to hold the position and there will be no protection from liability if they continue to act.
Directors can also be disqualified for repeated non-compliance with companies filing obligations or directors’ and Persons of Significant Control identity requirements.
New Company Registrations
There will be a new requirement when registering a company to state that it is being formed for lawful purposes and it needs to include a statement that none of the company’s subscribers, officers or persons with significant control are disqualified as directors or if they are they have the permission of a court to act in that capacity.
There are new measures to stop the use of names (both by new or existing companies) which are:
• Intended to facilitate offences or dishonesty or deception
• Where there is a suggestions of a non-existent link with a foreign government or overseas institution or;
• Is made up of or includes computer code.
The use of a person’s name will also be under scrutiny and individuals could challenge a company registration if the name is sufficiently similar to their name and could mislead people anywhere in the world.
There will be powers to change a company’s name where it has failed to change it after being told to do so, and to prevent an officer, member, or former member of a company from re-using that name in connection with another firm.
Appropriate Registered Office Address
There will be a new requirement for the registered address of a company to be at an appropriate address so that documents addressed to the company can be delivered by hand or post and will be received by someone acting on the behalf of the company and that delivery can be recorded with an acknowledgement of delivery.
The company will also need to maintain an appropriate email address which will also come to the attention of a person acting on behalf of the company with the expectation that documents can be emailed to them.
Private companies will have to provide the full name of their members on the Companies House register instead of just keeping a register of members themselves. Individuals will be able to apply to have information about themselves hidden from public view, but there will be limitations to this.
For smaller companies there will be changes, to make filing obligations clearer and to require them to file a profit and loss account and directors’ report instead of abridged accounts or audit exemption claims.
The rules for Limited Partnerships will also change, adding increased reporting requirements for specific information regarding the partners or proposed partners, registered office and identity information for individuals, general nature of the business and email address for contact.
General partners will be subject to more restrictions as well, and they will now have a duty to take any steps necessary to remove a general partner who is disqualified and there will be a requirement for Limited Partnerships to maintain a connection to the UK through having a registered address within the part of the UK where the Limited Partnership will be registered.
Further changes which will impact Limited Partnerships include the removal of the option to authenticate an application by signature, requirements around changes in partners and more.
Limited Liability Partnerships are not covered by the new Bill but there is expected to be some further legislation also next year, which will bring them more in line with the stated aims of transparency and better management of the Registrar..
Although a register of overseas entities already came into effect on 1 August 2022, this Bill proposes further clarification to that regime, as well as potentially addressing the issue of crypto assets by increasing enforcement powers of relevant bodies, expanding the determination process for the level of fees to be paid to the Registrar and strengthening anti-money laundering powers.