Transparency Law

Borderless Consulting ethical law goes according the Economic Crime and Corporate Transparency Bill 2022-23 (Bill 154) is a Government Bill introduced in the House of Commons on 22 September 2022. The second reading debate is scheduled for Thursday 13 October.

The Bill and associated documents are available on Parliament’s Bill page. Various Government departments have published Factsheets on individual measures.

Most of the Bill’s measures would extend across the UK. Legislative consent motions are being sought from each of the devolved administrations.

General background

The Bill follows on from an earlier economic crime bill, the Economic Crime (Transparency and Enforcement) Act 2022, which was fast-tracked through Parliament in March 2022 in response to the Russian invasion of Ukraine.

During the passage of this earlier Bill the Government committed to introducing a second economic crime bill early in the 2022-23 session of Parliament. The Bill then featured in the May 2022 Queen’s Speech.

Its three stated objectives are to:

Prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy;
Strengthen the UK’s broader response to economic crime; and
Support enterprise by enabling Companies House to deliver a better service for over four million UK companies, and improving the reliability of its data to inform business transactions and lending decisions across the economy.

The Bill’s measures

Background on Part 1

Part 1: Companies House Reform (clauses 1 to 98)

Companies House is the UK’s company registrar. Its main responsibilities are to: (i) incorporate (set up) and dissolve (close down) limited companies; (ii) examine and store company information; and (iii) make information publicly available.

The Bill has 162 clauses and eight Schedules, divided into five substantive Parts.

The UK is one of the quickest and cheapest places in the world to set up a company. UK companies can usually be set up within 24 hours using an online form, for a £12 fee. Today, Companies House is the registrar for well over four million UK companies, with over half a million set up every year.

But Companies House is a registrar, not a regulator, so lacks powers to query documents submitted to it, and to investigate companies it suspects are being used for fraud or money laundering. The Government accepts that aspects of the UK’s easy-to-use company regime have made it particularly attractive to criminals.

The reforms in Part 1

In May 2019 the Department for Business, Energy & Industrial (BEIS) strategy published a consultation on company reform, which was followed by three further consultations published in December 2020.

Part 1 of the Bill (clauses 1 to 98) would seek to deliver the “biggest upgrade to Companies House” since the UK first introduced a register of companies in 1844. Some of the key changes are:

Requiring companies to have their registered office at a place where it can acknowledge and receive documents (clause 28);
Requiring all directors, People with Significant Control (beneficial owners), and those delivering documents to have their identities verified (clauses 39, 61 and 69);
Abolishing the requirement for companies to maintain their own registers of directors, directors’ residential addresses, secretaries and People with Significant Control, providing instead that such information is only held centrally (clause 50 and Schedule 2);
Requiring all companies to file a profit and loss account, showing their turnover and profit. Currently, most companies are exempt from this requirement by virtue of being classified as “small” (clauses 52 and 53);
Giving the registrar greater powers to share information and reject documents with inaccuracies (clauses 76 and 90); and
Giving the registrar power to remove information about dissolved companies from public inspection after twenty years (clause 79).

Commentary on Part 1

BEIS estimate the total cost of the changes to be £289m, with an annual direct cost on businesses of £18.9m. But they assess the current value of information on the companies register to be between £1 and £3 billion, so that a 5% improvement in the qualify and usefulness of this information could more than cover the costs of the measures to businesses. Alongside the Bill, an “all-encompassing transformation” of Companies House is taking place, including having fewer paper-based administrative roles in favour of analytical work, and greater digitisation and modernisation of its systems.

The measures in Part 1 have been broadly welcomed by stakeholders, including the Law Society and the UK Anti-Corruption Coalition of 17 anti-corruption groups. Anti-corruption group Transparency International (TI) said the reforms were “much-needed” but left gaps such as by failing to prohibit UK companies from being controlled by “opaque offshore companies”. TI, the Centre for Financial Crime and Security at the Royal United Services Institute and Spotlight on Corruption all argue – whether through the Bill or otherwise – that the Government should commit to increase the cost of incorporating (setting up) a company to well above its current level of £12.

Part 2: Limited partnerships (clauses 99 to 134)

Limited partnerships (LPs) are a specific type of business structure in UK law. They confer limited liability on some partners and so have to be registered with Companies House in line with the Limited Partnerships Act 1907 and the Partnership Act 1890.

There is an important difference in arrangements for Scottish limited partnerships (SLPs) – they have a separate legal personality. This meant that until 2017 they could be registered without giving details of individuals or companies who owned the business. Elsewhere in the UK, registration already involved providing details of all partners.

Earlier concerns about the wider lack of transparency of UK business structures had led to the creation of the Register of Persons with Significant Control in 2016. This was extended to cover SLPs in 2017, requiring those firms to provide more details about their owners. The number of LPs registered in Scotland had risen by 30% in 2016, compared with 5% across the rest of the UK. SLPs in particular had also been implicated in major international money laundering scandals.

In an effort to update limited partnership law across the UK and further improve transparency, the Government consulted on various proposals in 2018, publishing its response the same year.

That response closely aligns with the changes proposed in Part 2 (clauses 99 to 134). In summary, they would:

seek more information about partners at the point of registration, and require this to be submitted by authorised corporate service providers, who are supervised for anti-money laundering purposes (clauses 100 to 102, and 128);
require limited partnerships to maintain a firmer connection to the part of the UK where they were registered by maintaining a registered office there (clauses 103 and 104);
require all limited partnerships to update the Registrar of changes and submit annual statements confirming that information held about them is correct (clauses 107 to 117);
enable the Registrar to deregister limited partnerships that are dissolved or no longer carrying on business (clauses 119 and 120, and 125 to 127); and
enforce sanctions for various breaches of the above requirements against partners (clause 129).

In addition, many of the reporting arrangements would bring requirements for limited partnerships into alignment with those for registered companies. So various changes in other parts of the Bill would also be relevant to limited partnerships across the UK. Clauses 131 to 133 would make provision to facilitate future alignment of such regulations through secondary legislation.

Part 3: Register of Overseas Entities (clauses 135 to 140)

The Economic Crime (Transparency and Enforcement) Act 2022 (the EC(TE) Act) introduced a beneficial ownership register of foreign entities (such as companies) that own UK property, known as the Register of Overseas Entities. This register became operational on 1 August 2022 and is administered by Companies House. Overseas entities have until 31 January 2023 to register their beneficial owners.

Part 3 of the Bill (clauses 135 to 140) would amend the EC(TE) Act to (i) maintain consistency with changes to the Companies Act 2006 made by Part 1 of the Bill; and (ii) make minor and technical changes.

Part 4: Cryptoassets (clauses 141 and 142)

Part 4 would amend the Proceeds of Crime Act 2002 to explicitly apply criminal and civil asset recovery powers to cryptoassets.

Among other things, in relation to criminal recovery Part 4 would:

remove the requirement in certain circumstances that a person must have been arrested before assets can be seized;
make changes to the search, seizure and detention powers to make clear how they apply to cryptoasset wallets;
provide magistrates courts with powers to deal with cryptoassets; and
provide for the destruction of cryptoassets in certain circumstances.

In relation to civil recovery Part 4 would:

give law enforcement search and seizure powers in relation to cryptoassets;
enable law enforcement to recover cryptoassets from third party holders;
provide for the freezing of crypto wallets; and
enable cryptoassets to be converted into cash or destroyed in certain circumstances.

Part 5: Miscellaneous (clauses 143 to 157)

Part 5 makes a number of discrete changes relating to money laundering, terrorist financing and the regulation of legal services. These include:

creating new exemptions from money laundering offences to reduce reporting by businesses carrying out transactions on behalf of clients in certain circumstances;
providing law enforcement with new powers to obtain information relating to money laundering and terrorist financing;
enabling certain businesses to share information about economic crime without breaching confidentiality duties;
removing the £25,000 cap on the Solicitors Regulation Authority’s powers to impose penalties for economic crime disciplinary matters;
adding a regulatory objective for legal services regulators to uphold the economic crime agenda; and
expanding the Serious Fraud Office’s (SFO) pre-investigation stage powers to all SFO cases.