Economic Crime Corporate transparency act

In a milestone development, the United Kingdom enacted the Economic Crime and Corporate Transparency Act on 26 October 2023. This act will usher in significant reforms in the realm of investigating and prosecuting corporate crime within the UK.

The Act's significance lies in two changes that promise to reshape the corporate crime landscape: the introduction of a stringent 'failure to prevent fraud' offence and a comprehensive overhaul in how economic criminal liability is attributed to corporate entities.

The 'failure to prevent fraud' offence is poised to become a pivotal element of the legal framework. It applies primarily to large organisations¹ and hinges on situations where an individual associated with the entity commits specific fraud offences with the intent to benefit the organisation. One striking aspect of this reform is its broader reach, extending its influence into various aspects of corporate behaviour. Financial and regulatory reporting, non-financial reporting, asset management, taxation, mergers and acquisitions, lending activities, and issues related to bribery and corruption, all fall under the umbrella of potential scrutiny.

Crucially, this new offence doesn't necessitate knowledge or awareness of the underlying fraud by the corporate's management or board of directors. Instead, it's a strict liability offence, rendering companies accountable without regard to their awareness of the wrongdoing. However, similar to the Corporate Criminal Offence rules, we expect organisations will be able to avoid prosecution if they have reasonable procedures in place to prevent fraud.

It's also worth noting that the Act's full impact is still pending as it awaits government guidance and is not yet in force.

The Act doesn't stop at the 'failure to prevent fraud' offence; it also marks a significant transformation in the attribution of corporate criminal liability. The 'identification doctrine' undergoes a fundamental change, allowing actions of 'senior managers' within an organisation to attach liability for various economic crimes, including fraud, bribery, money laundering, sanctions violations, cheating the public revenue, and conspiracy to defraud offences.

Identifying these 'senior managers' entails a complex assessment of their roles and responsibilities within the corporation, introducing an element of uncertainty into the process. Incorporating the 'failure to prevent fraud' offence complements these changes by obliging companies to take proactive measures to prevent offences committed by their agents and employees.

While the Act is not yet in force, with the changes expected to come into force through a series of commencement orders over the next year or so, its significance cannot be understated. It marks a profound shift in the corporate criminal landscape in the UK, amplifying the risk of successful corporate prosecutions for economic wrongdoing. Companies, both within the UK and beyond its borders, would be wise to prepare for the evolving legal environment and reconsider their practices in light of these sweeping reforms.

¹. A large organisation is defined as meeting two or more of the following criteria: Turnover of more than £36m, a balance sheet total of more than £18m and/or more than 250 employees