Introduced in the wake of Russia’s full-scale invasion of Ukraine, which highlighted the UK’s role as a hub for illicit Russian money, the Economic Crime and Corporate Transparency Act (ECCTA) has finally become law. From our perspective, the key changes, and areas the government could have gone further, are:
Making it easier to hold big companies to account for economic crime
Perhaps the most significant and transformative change is the historic reform of the “identification doctrine” – the underlying rule for how companies are prosecuted in the UK – for cases involving economic crime.
It will now be far easier for UK law enforcement to bring prosecutions when large companies have engaged in wrongdoing such as fraud and money laundering. Prosecutors will no longer have to prove that a director both had the intention to commit the crime and the authority from the board to do so – an impossibly high bar that put many large companies beyond the reach of the law.
We strongly welcome this major change for which we have long advocated. The ECCTA also introduced a new “Failure to Prevent” (FTP) Fraud criminal offence which means large companies can be prosecuted for failing to prevent fraud, unless they have reasonable procedures in place that could have prevented it.
Could government have gone further?
- Along with legal experts and prominent parliamentarians (including former Law Officers Sir Robert Buckland, Sir Jeremy Wright, and Lord Edward Garnier), Spotlight on Corruption strongly argued in favour of applying the new FTP fraud offence to all companies, not just large ones. The new offence will not cover over 99% of companies and 50% of commercial activity according to the government.
- As top white collar crime lawyer Barry Vitou has argued, this exemption means small and medium sized businesses are now robbed of a defence that they had reasonable procedures in place to prevent fraud (which for small companies could mean they did not need to have any at all). Government committed to keeping the threshold “under review” and says it will make changes “if there is evidence to suggest that they are required”.
- The same group of parliamentarians also supported introducing a new FTP money laundering offence (as did Spotlight on Corruption). Although the new law allows the government to introduce such an offence via secondary legislation, it is clear that there is little political will currently to take this step, which would involve standing up to intense lobbying against any such offence from the finance sector.
- The upcoming preparation for a new evaluation by FATF in 2025/26 is an opportunity for the government to review whether the current money laundering laws are really sufficient to tackle high end money laundering in the UK.
Companies house reform
Another major change in the ECCTA was to the UK’s corporate register: Companies House. Our allies at Transparency International and Open Ownership have long called for an overhaul of the body after UK companies played a key role in several huge money laundering schemes. Companies House will now be empowered to verify the information it receives and receive more investigative and enforcement powers.
Could government have gone further?
- While Transparency International has stated the reforms are “a major step forward in the fight against corruption”, they also point out ongoing loopholes. These include that bad actors can still hide their ownership of UK companies, including companies which own property, through the use of opaque trusts.
- A cross-party group of parliamentarians tried to close these loopholes through amendments to the Bill but met with government resistance, though it did agree to hold a consultation on widening access to trust information.
- Ensuring robust implementation of the new Companies House powers is critical now, but the government must keep under review whether Companies House is properly resourced to play its new role, and how the remaining loopholes impact the integrity of the UK’s corporate register.
Empowering legal sector regulators to stop economic crime
The ECCTA also made significant changes to how the legal sector is regulated for economic crime. The Solicitors Regulation Authority (SRA) now has unlimited fining powers for economic crime related wrongdoing, while legal sector regulators have a new regulatory objective to promote the prevention and detection of economic crime. The SRA now also has powers to demand information from regulated firms for the purposes of detecting and preventing economic crime.
Could government have gone further?
- These changes are very welcome and urgently needed – our 2022 report found major flaws in the regulation of the legal sector for money laundering, including a big enforcement gap that we hope these new powers can help close.
- It seems this problem is getting worse, so the need for the SRA to use these new powers is clearly urgent. More than one in four law firms (27%) were not compliant with money laundering rules this year (up from 16% of firms in 2021/22) while the value of SRA fines for AML failures went down 79% this year compared to 2021/22, from almost £287k in 2021/22 to just £61,600 in 2022/23. The number of fines went down as well, from 29 to 23.
- The current government consultation on whether major reform is needed to how lawyers and accountants, the property sector and company formation agents are regulated for money laundering is a major opportunity for the UK to get its act together on tackling dirty money. Those reforms will take months if not years to implement however, so it is essential that regulators make full use of these new powers until a more effective AML supervisory structure is up and running.
More powers for law enforcement bodies
More low-key, but still highly significant, changes in the bill give new powers to the SFO to use pre-investigative Section 2A powers – which allow them to compel individuals and companies to provide information at a pre-investigation phase – in all cases, not just international bribery cases. That means the SFO will be able to use these powers for fraud cases as well as domestic corruption cases.
The National Crime Agency (NCA) meanwhile will have new powers to obtain information from businesses relating to money laundering and terrorist financing without needing a pre-existing Suspicious Activity Report (SAR) to have been submitted before an Information Order can be made. This will enhance the UK’s Financial Intelligence Unit’s (housed in the NCA) analytical functions and align it with international standards.
Could government have gone further?
- Government rejected another measure to enhance the work of enforcement agencies like the SFO and NCA: protecting them from high costs in civil proceedings involving economic crime (as long as they act reasonably).
- Like amendments on removing the FTP fraud SME carve out, versions of this cost protection amendment were passed by the House of Lords three times during the Bill’s course through Parliament, only for the government to reject them every time they came before the Commons, despite strong cross-party support.
- The government did however agree to a compromise: conducting an assessment of whether cost protection is needed in these cases and laying a report before parliament within 12 months.
- For the report to be credible, as wide a range of views as possible need to be sought, and it should be conducted by a person fully independent of government (though this may be doubtful given the Secretary of State is statutorily responsible for making the assessment).
New anti-SLAPP law
Finally, the ECCTA will make it easier for judges to strike out abusive SLAPP (strategic lawsuit against public participation) lawsuits, which have been used to silence journalists, civil society actors and others when they try to expose wrongdoing, including corruption. The new law also provides cost protections for SLAPP defendants if they lose the case.
Could government have gone further?
- The anti-SLAPP coalition welcomed this reform, but were critical that its scope has been limited to cases involving economic crime.
Is the ECCTA enough to make a difference in the fight against corruption?
The reforms introduced by the ECCTA are very welcome and potentially very significant.
With an empowered Companies House and a radical overhaul of the law for holding big companies to account, law enforcement agencies now have some powerful new tools to fight economic crime.
That is not to say that government should rest on its laurels in the legislative space – the Law Commission has recommended a major upgrade in our domestic corruption laws for example, as well as big changes to the criminal confiscation regime.
Government meanwhile has committed to tightening sanctions law by the end of the year to make it easier to prosecute sanctions evasion and potentially seize assets for the benefit of Ukraine. We hope at least some of these measures are included in the King’s Speech on 7 November.
Laws however are only as good as their enforcement – there’s no point having a fancy sports car if it sits unfuelled and driverless in the garage.
And while recent commitments in the latest Economic Crime Plan (ECP) and Fraud Strategy to increase law enforcement resourcing for economic crime are welcome, they pale in comparison to what experts, law enforcement and parliamentarians have been calling for to tackle the scale of threat.
So, ensuring these new powers are effectively enforced requires the government to make UK economic crime law enforcement fit for purpose by:
- Fully delivering on the new workforce strategy promised in the ECP to start transforming key agencies like the SFO and NCA into the elite forces we need. This should include a comprehensive review of salaries, training pathways, recruitment and retention to create an attractive economic crime career path in law enforcement.
- Giving the SFO and NCA more independence to allow them to set salaries to attract – and crucially retain – the very best candidates.
- Committing to more sustainable long-term resourcing, partly through much greater reinvestment of recovered assets and economic crime fines.
