Economic Crime and Corporate Transparency Act 2023

After receiving Royal Assent in October 2023 the Economic Crime and Corporate Transparency Act 2023 is moving forward with the recent publishing of the draft guidance required by section 204 of the Act, advising on the procedures that companies can put in place to prevent persons associated with them from committing fraud offences contrary to section 199.

With these milestones reached, now is a good moment to review some of the principle changes brought about by the Act that will impact those advising in White Collar, POCA, and Terrorism-related work.

Article by Colin Aylott KC.

ECCTA 2023 Section 199  – The new Failure to Prevent Fraud Offence   

Much of the publicity generated by the launch of this legislation has concerned the new Section 199 offence. The section provides that:

“A relevant body which is a large organisation is guilty of an offence if, in a financial year of the body, an associate commits a fraud offence intending to benefit (whether directly or indirectly) the relevant body; or any person to whom or to whose subsidiary undertaking, the associate provides services on behalf of the relevant body.”

The offence places a statutory responsibility on companies to prevent employees from committing fraud for the benefit of the organisation. The legislation limits the potential targets to “large organisations” defined as a corporate or partnership which satisfies two or more of the following:

(i) has a turnover of more than £36 million;

(ii) has total assets of more than £18million; or

(iii) has more than 250 employees.

A review of SFO cases over the last decade gives us an idea of the types of companies who would have been liable, had this legislation been on the statute book. 

Given that the offence applies to corporates or partnerships that conduct business in the UK wherever they are incorporated the number of businesses affected by the new offence is significant. The range of “fraud offences” that could give rise to liability is broad, along with Schedule 13 of the Act, identifying a series of “listed offences” including fraud, false accounting, and cheating the public revenue.

The Act also identifies at section 199(4)(a) and (b) the following defences:

(4) It is a defence for the relevant body to prove that, at the time the fraud offence was committed—

(a) the body had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place, or

(b) it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place.

Section 196  – The Identification Principle  –  Attributing criminal liability for Economic Crimes

In tandem with the section 199 offence Parliament has sought through section 196 of the Act to solve one of the principle problems faced by fraud prosecutors in seeking to establish corporate liability for the criminal acts of employees.

Previously, it was necessary for a prosecutor to prove that an individual acting as the “directing mind and will” of the business had the requisite state of mind for the offence. Now pursuant to Section 196(1) of the Act an offence will be committed by the corporate “If a senior manager of a body corporate or partnership (“the organisation”) acting within the actual or apparent scope of their authority commits a relevant offence after this section comes into force”. In section 196(4), a senior manager is defined as follows:

“Senior manager”, in relation to a body corporate or partnership, means an individual who plays a significant role in—

a) the making of decisions about how the whole or a substantial part of the activities of the body corporate or (as the case may be) partnership are to be managed or organised, or

b) the actual managing or organising of the whole or a substantial part of those activities.

The legislation significantly widens the range of employees within a company whose actions could give rise to criminal liability and mirrors the approach to “senior management”  liability used successfully in the Corporate Manslaughter and Corporate Homicide Act 2007, which provides at section 1(3) that “An organisation is guilty of an offence under this section only if the way in which its activities are managed or organised by its senior management is a substantial element in the breach referred to in subsection (1)”.

In consequence those involved in advising companies will now need to advise that the net is cast significantly wider and certainly beyond board level directors including potentially in-house lawyers and those involved in compliance and HR.

Crypto – POCA & Anti-Terrorism

Of particular intertest to all practitioners involved in criminal litigation will be the amendments made by the Act to the Proceeds of Crime Act 2002 to support the recovery of cryptoassets. Given the huge surge in crypto as an asset class and the increased use of crypto to move and launder the profits of crime many commentators have been critical of the Government’s lack of urgency in updating the powers of both the Courts and enforcement agencies to address the increased use of crypto by criminals. Evidence of the use of crypto to raise and move funds to finance terrorism was bound in my view to have been a significant factor compelling the Government to finally act. Like the traditional big-players in the financial markets the government has had to finally recognise that crypto is here to stay.   

The legislation covers both the criminal POCA regime (Parts 2, 3 & 4 of POCA) and the civil (Part 5) regime and is designed to make it easier for law enforcement agencies to both seize crypto and ensure that it can be successfully recovered. For England and Wales the amendments to POCA can be to found at Schedule 8 Part of the Act and it includes:

• Provisions granting Magistrates enforcing confiscation orders the powers to authorise the sale of cryptoassets in line with their existing powers in relation to cash, bank accounts and seized physical assets.
• Provisions [see Schedule 8 part 1 section 67AA] relating to the destruction of cryptoassets where a confiscation order has been made and it is either “not reasonably practicable to realise the cryptoasset” or “there are reasonable grounds to believe that the realisation of the cryptoassets would be contrary to the public interest, having regard in particular to how likely it is that the entry of the cryptoassets into general circulation would facilitate criminal conduct by any person”.
• Powers to order “UK-connected cryptoasset service providers” to realise crypto and pay the proceeds of that realisation to the appropriate officer [See Section 67ZA inserted into POCA].

This part of the Act took a further step forward on 23^rd January 2024  with the publishing of the draft Proceeds of Crime Act 2002 (Search, Recovery of Cryptoassets and Investigations: Codes of Practice) Regulations 2024 that are due to come into force in April 2024. The Regulations provide for the introduction of revised POCA Codes of Conduct to cover the search, seizure and detention of assets now including cryptoassets. 

The improved POCA powers are mirrored in Schedule 10 of the Act that amends the Anti-Terrorism, Crime and Security Act 2001 to provide powers governing the seizure, detention, realisation and potential destruction of both “cryptoasset-related items”  and “cryptoassets that are terrorist cryptoassets”. 

A “terrorist cryptoasset” is defined by section 10Z7A as a cryptoasset “earmarked as terrorist property” and cryptoassets may be seized where there are “reasonable grounds for suspecting that the cryptoassets are terrorist cryptoassets”. A cryptoasset-related item means “an item of property that is, or that contains or gives access to information that is, likely to assist in the seizure under this Part of terrorist cryptoassets”. 

These somewhat belated changes to the Anti-Terrorism legislation will modernise the powers of investigators in terrorism cases to deploy forfeiture powers, limited previously to terrorist cash, listed assets and money in bank accounts and follows a Home Office consultation with both the Independent Reviewer of Terrorism Legislation and Counter-Terrorism Policing. It would appear from the Governments commentary on the changes that there are particular concerns that crypto is becoming the preferred method of payment to fundraise via social media platforms.