Navigating the Economic Crime & Transparency Bill

This is the fourth instalment in our 10-part series on unmasking insider fraud and implementing effective risk mitigation strategies.

The UK government's Economic Crime and Corporate Transparency Bill represents a significant step towards strengthening the country's defences against economic crime. For HR professionals and compliance officers, understanding this legislation is crucial. In this post, we'll break down the bill's key points and implications, offering guidance on how businesses can comply.

Background of the Bill

The Economic Crime and Corporate Transparency Bill aims to enhance corporate transparency and empower law enforcement agencies to tackle economic crime effectively. It builds upon previous legislation, such as the Economic Crime (Transparency and Enforcement) Act 2022, to address gaps and introduce new measures against illicit activities.

Key Points of the Bill

1. Strengthening Company Registration Processes

   The bill proposes reforms to the way companies are registered and verified at Companies House:

   • Identity Verification: Mandatory identity verification for all new and existing company directors, People with Significant Control (PSCs), and those filing information on behalf of a company.

   • Enhanced Powers for Companies House: The Registrar gains additional powers to query and reject information that appears erroneous, false, or suspicious.

2. Transparency Over Ownership and Control

   Improving transparency around who owns and controls companies to prevent them from being used for illicit purposes:

   • Updating PSC Regime: Tightening rules around the disclosure of individuals who have significant control over a company.

   • Register of Overseas Entities: Expanding requirements for foreign entities owning UK property to disclose their beneficial owners.

3. Tackling the Abuse of Limited Partnerships

   The bill introduces measures to prevent limited partnerships from being used for money laundering and other criminal activities:

   • Registration Requirements: New obligations for limited partnerships to maintain a connection to the UK.

   • Compliance and Enforcement: Enhanced powers to deregister partnerships that fail to comply with legal requirements.

4. Enhancing Powers to Seize and Recover Assets

   Law enforcement agencies are granted stronger powers to tackle criminal finances:

   • Seizure of Cryptoassets: Allowing the seizure and recovery of cryptoassets used in or intended for criminal activities.

   • Unexplained Wealth Orders (UWOs): Simplifying the process for obtaining UWOs to investigate suspicious wealth.

5. Strengthening Anti-Money Laundering (AML) Regulations

   The bill seeks to tighten AML regulations to prevent the flow of illicit funds:

   • Information Sharing: Facilitating greater sharing of information between regulated entities and law enforcement.

   • Sanctions Enforcement: Enhancing the ability to enforce sanctions against individuals and entities involved in economic crime.

Implications for Businesses

The bill introduces several obligations that businesses must adhere to, impacting how they operate and report information:

1. Mandatory Identity Verification

   Companies must ensure that all directors and PSCs undergo identity verification. This places responsibility on businesses to:

   • Verify the identities of key individuals accurately.
   • Maintain up-to-date records of verified individuals.
   • Ensure compliance with data protection regulations during the verification process.

2. Enhanced Due Diligence

   Businesses are expected to perform thorough due diligence to prevent their entities from being used for illicit activities:

   • Implement robust Know Your Customer (KYC) processes.
   • Regularly update and monitor records for changes in ownership or control.
   • Report suspicious activities to the relevant authorities.

3. Compliance with AML Regulations

   Companies must align with strengthened AML regulations:

   • Provide training to employees on AML policies and procedures.
   • Establish internal controls to detect and prevent money laundering activities.
   • Cooperate with law enforcement and regulatory bodies when required.

4. Transparency Obligations

   Businesses are required to increase transparency regarding their structures and operations:

   • Disclose accurate information to Companies House and keep it updated.
   • Ensure that any overseas entities associated with the business comply with disclosure requirements.

Guidance on How Businesses Can Comply

1. Review and Update Internal Policies

   Businesses should assess their current policies to ensure alignment with the new requirements:

   • Update Compliance Programs: Incorporate changes into existing compliance and risk management frameworks.

   • Document Procedures: Clearly outline steps for identity verification and reporting obligations.

2. Implement Robust Identity Verification Processes

   Adopt reliable methods for verifying the identities of directors, PSCs, and other key individuals:

   • Utilise Trusted Services: Engage with accredited identity verification providers like Verifile.

   • Maintain Records: Keep detailed records of verification processes and outcomes.

3. Enhance Due Diligence Measures

   Strengthen KYC and due diligence practices:

   • Risk Assessment: Conduct thorough risk assessments of clients, suppliers, and partners.

   • Continuous Monitoring: Implement ongoing monitoring of relationships and transactions.

4. Train Employees

   Ensure staff are aware of the new regulations and their responsibilities:

   • Provide Training: Offer regular training sessions on compliance obligations and fraud prevention.

   • Promote a Compliance Culture: Encourage a company-wide commitment to ethical practices.

5. Engage Legal and Compliance Experts

   Consult with professionals to navigate complex regulatory requirements:

   • Legal Advice: Obtain guidance on specific obligations and how they apply to your business.

   • Compliance Support: Work with compliance consultants to implement effective controls.

Potential Challenges and How to Overcome Them

Implementing the requirements of the bill may present challenges:

Data Protection Concerns

Balancing identity verification with data privacy obligations can be complex.

• Solution: Ensure compliance with the UK GDPR by implementing secure data handling practices.

Resource Constraints

Small and medium-sized enterprises (SMEs) may face resource limitations.

• Solution: Prioritise key areas of compliance and consider outsourcing to specialist providers.

Keeping Up with Regulatory Changes

The regulatory landscape is continually evolving.

• Solution: Stay informed through industry associations, legal updates, and by subscribing to regulatory newsletters.

Conclusion

The Economic Crime and Corporate Transparency Bill introduces significant changes that will impact how businesses operate in the UK. By understanding the key points and proactively implementing compliance measures, organisations can not only avoid legal repercussions but also contribute to the broader effort of combating economic crime.

HR professionals and compliance officers play a crucial role in this transition. By fostering a culture of transparency and due diligence, they can help their organisations navigate these changes effectively.

In our next post, we'll explore how leveraging CIFAS can aid in fraud prevention and enhance your organisation's defences against insider threats.

Stay tuned for Part 5: "Leveraging CIFAS for Fraud Prevention" coming soon.