By Annie Makoff Anti-money laundering What accountants need to know about the Economic Crime and Corporate Transparency Act 13 Nov 2023 Find out how the ‘biggest shake-up’ in Companies House history will affect you. The Act will deliver: reforms to Companies House reforms to prevent the abuse of limited partnerships additional powers to seize and recover suspected criminal cryptoassets reforms to give businesses more confidence to share information in order to tackle money laundering and other economic crime new intelligence gathering powers for law enforcement and removal of nugatory burdens on business. These provisions will bear down further on kleptocrats, criminals and terrorists who abuse our financial system, strengthening the UK’s reputation as a place where legitimate business can thrive, whilst driving dirty money out of the UK. The reforms to Companies House are wide-reaching and highly significant, and amount to what’s been described as the ‘biggest shake-up’ in the agency’s 180-year history. Companies House will receive more power through enhanced tools and capabilities to help the Registrar verify the identity of company directors and act swiftly on any fraudulent activity. These reforms include: Introduction of verification checks of company directors to prevent the use of false names and company names. Closing loopholes in public beneficial ownership registers which have in the past, enabled unscrupulous individuals to move or hide money behind falsely registered companies. Providing users of Companies House with greater clarity and transparency on businesses and suppliers they happen to be working with. Removing fraudulent or falsely registered office addresses, companies and organisations. Collaborating with law enforcement and criminal investigation agencies. The Act also includes two other reforms which, if not heeded, will have big implications for organisations.Section 196 states: “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, the organisation is also guilty of the offence.” This means that the organisation where the relevant offence (fraudulent trading, bribery, tax evasion, offences under the Financial Services and Markets Act 2000 for example) took place is also guilty by association. This reform is due to come into force by the end of the year. In addition, the Act also includes a ‘failure to prevent fraud’ offence although timescale for introduction of this reform has not yet been confirmed. Once it comes into force, it will affect large companies where an employee or director has committed fraud. The onus is then on the implicated organisation to prove it had fraud prevention procedures in place. We spoke to AAT members to help unpick the implications of this Act and advise on how accountants can ensure they remain compliant and maintain vigilance when it comes to preventing economic crime. Accountants must now apply an extra layer of due diligence Michael Beech FMAAT AATQB, Director, Michael Beech Accountancy Under the Act, law enforcement agencies will have the power to seize crypto-assets, therefore accountants may need to apply more robust due diligence and background checks on potential new clients. Crypto-assets carry a high risk so these checks will be of paramount importance for accountants to ensure their clients are of good character. In the worst-case scenario, if a client has their crypto assets seized, the accountant could be tarnished by association. Another important issue to consider is when accountants provide their office as a registered office for clients. This is a huge risk. If the client is involved in wrongdoing, the accountant and their reputation will be linked and will be a huge setback to any licensed or regulated accountant. Verdict: Accountants will need to ensure their due diligence and background checks are robust to verify good character of clients. Inform smaller clients that filing profit/loss accounts with Companies House is now mandatory Julie Pocock MAAT, Director, Kingfisher Services The Economic Crime and Transparency Act is new legislation to tackle money laundering and fraud, and reform Companies House. The main changes affecting accountants will be around ID verification of company directors and people with significant control of limited companies, and changes to accounts and filing at Companies House. Directors will not be considered legally appointed unless their ID is verified. Verification can be obtained by uploading approved documents to Companies House, or through an ‘Authorised Corporate Service Provider’ such as accountants or company formation agents. Accountants will need to ensure their AML procedures are up-to-date and that ID verification is obtained for all clients, especially where they complete company formations. In a big change to accounts and filing, small companies are no longer able to file abridged accounts, and must file their profit and loss account. This will result in a loss of privacy for clients, so accountants will need to make clients aware of these changes before they happen, so it doesn’t come as a surprise. There is also a new corporate criminal offence of ‘failure to prevent fraud’, but this will only apply to large companies and won’t affect accountants whose client base are small/medium companies. I believe that the Companies House reforms around ID verification are a good idea, and should work to prevent companies being set up under false names and addresses, however, I think that the mandatory filing of profit and loss accounts for all companies is a step too far. The new ‘failure to prevent fraud’ offence will not be far-reaching enough as it does not include small businesses, and therefore will not obtain good results. Verdict: Accountants should inform their smaller clients that filing profit/loss accounts with Companies House is now mandatory to avoid surprises. Accountants must adapt to a much more stringent regulatory environment Vanessa Myatt FMAAT, MD, TCW Accounting Solutions The bill includes substantial reforms to Companies House, impacting small companies and microenterprises. These companies can no longer file abridged accounts but are now required to submit profit/loss accounts. These stricter filing requirements are an increased burden on small businesses and could lead to challenges with compliance. There is also mandatory identification and verification for new and existing registered company directors, people with significant control and all those associated with those entities. Accountants as Authorised Corporate Service Providers may be responsible for completing these checks. In addition, there’s now a wide range of offences which fall under the ‘failure to prevent fraud’ category such as fraud by false representation, fraudulent trading and false accounting. These reforms aim to make it more difficult for economic crime to go undetected and make it easier to prosecute offenders. The introduction of mandatory identification verification and enhanced powers for Companies House for example, are significant steps forward towards greater transparency and accountability. However, I think the true measure of success will be seen in how well these changes deter economic crime. The implications of all this will affect the day-to-day operation of accountants. In particular: Additional training, as accountants will need to familiarise themselves with these new requirements and consider further compliance training for themselves and staff. Educate clients on these changes to ensure compliance. Update policies and procedures to align with new requirements. Verdict: Accountants will need to adapt to a more stringent regulatory environment, focusing more on transparency and prevention of economic crime. Would you like to contribute to future articles like this one? If so, please get in touch with Annie Makoff-Clark at firstname.lastname@example.org. Upcoming topics include the Autumn statement and whether digital-only is the answer to HMRC’s problems. Annie Makoff is a freelance journalist and editor.