The UK’s Economic Crime and Corporate Transparency Act (ECCT Act) is being hailed as a game-changing development in prosecuting and preventing corporate fraud. For companies, it also means a significant challenge in terms of new reporting and disclosure requirements.
Enacted in October 2023, the new law expands corporate criminal liability provided by the Economic Crime Transparency and Enforcement Act 2022 (ECTEA). A report by the Justice Committee of the House of Commons described the country’s overall fraud cases, including incidents of cyber, consumer, and corporate fraud, as an “epidemic.”
“Another 25% growth in these crimes is anticipated in the coming years if there is not a considerable shift in the way they are investigated, prosecuted, and prevented,” according to the report.
Law enforcement officials lauded the ECCT Act for bringing much-needed reforms. “This act is long-awaited and welcome. For too long criminals and corrupt elites have abused UK company structures to launder their illicit wealth,” said Graeme Biggar, director general of the National Crime Agency.
Nick Ephgrave, director of the Serious Fraud Office (SFO), said the Act is the biggest boost in over a decade to his agency’s ability to prosecute serious economic crimes. “This new law will help prevent crime, as big businesses can no longer turn a blind eye to fraud,” he said. Ephgrave and Biggar were among officials who stated after the Act received royal assent on Oct. 26, 2023.
ECCT Act Brings Key Changes
The new law will facilitate the prosecution of economic crime offenses, strengthen measures for preventing such crimes, and improve corporate transparency. In particular, the introduction of a new “failure to prevent” (FTP) fraud offense means corporations will be held accountable if they profit from fraud committed by their employees. This new offense significantly increases the scope of corporate criminal liability.
The ECCT Act expands the SFO’s pre-investigative powers under Section 2A of the Criminal Justice Act. The SFO will now be able to compel corporates to provide information at the pre-investigation stage in all cases instead of just suspected cases of international bribery and corruption.
Another game-changing feature of the ECCT Act pertains to the identification principle in economic crime. The new law introduces a statutory “senior manager” responsibility. Before the Act, businesses could only be held criminally liable for fraud when individual directors are shown to be the “directing mind and will” of the company. The directors must have fully delegated to employees the responsibility and authority to perform the action that led to the offense. As a result, it was harder to prosecute large companies, which typically have several layers of management that separate directors from employees.
By contrast, the ECCT Act defines a “senior manager” as an individual who has a significant role in making decisions about corporate activities regardless of the person’s job title. The senior manager’s responsibility applies to a wide spectrum of possible offenses, from theft and false accounting to bribery, money laundering, and terrorist financing.
The ECCT Act aims to improve the business environment by improving the reliability of data maintained by Companies House, which is responsible for incorporating all companies in the U.K. It empowers the agency to reject inconsistent documents that cast doubt on a company’s compliance, require more information and documentation as needed, and remove materials from the register for noncompliance.
Stronger Law Enforcement
The government aims to reduce overall fraud cases on 2019 levels by 10% by December 2024, according to its Fraud Strategy. The plan includes forming a national fraud squad with over 400 new posts and making fraud a police priority.
Sara Chouraqui, joint head of fraud, bribery, and corruption at the SFO, also announced an increase in law enforcement capabilities. “We’re recruiting over 100 to 150 new investigators and prosecutors at the SFO, as well as analysts, accountants, and so forth,” she said at the American Bar Association’s annual London White Collar Crime Institute conference in October 2023.
Chouraqui appeared with her American counterpart, Vanessa Sisti, to talk about collaboration between the U.K. and the United States in prosecuting economic crime at the International Conference on the Foreign Corrupt Practices Act in Washington D.C. Sisti, the fraud prosecutorial liaison of the U.S. Department of Justice to the U.K., oversees complex cross-border cases.
New Compliance Requirements
The ECCT Act imposes new compliance requirements on companies that are going to require risk assessment. Industry members expect the government to publish guidance on the new FTP fraud provision in 2024. However, it’s prudent for companies to start examining their existing FTP measures now.
Indeed, proactive corporates should use the new law as a jumping point for an evaluation of their due diligence and compliance programs. Does your third-party risk management platform provide the necessary structure for conducting due diligence for your entire value chain? Do you have the right tools to identify anti-bribery and anti-corruption risks in your third-party network? Once you identify the risks, you need to be able to remediate them with a proportionate response.
