The United Kingdom (UK) boasts one of the globe’s most expansive and dynamic economies, rendering it an alluring destination for international enterprises. Yet, this very openness also exposes the UK to the peril of unscrupulous individuals exploiting the system through illicit activities like money laundering that drive international corruption, at scale.
Fraud–the most common UK offense—amounts to 40 percent of offenses in England and Wales. As reported by the BBC, the UK loses £2,300 every minute to fraud, with one in 15 people in the UK experiencing fraud.
Fraud includes activities such as dishonest sales practices, hiding important information from consumers or investors, or dishonest practices in financial markets. Fraud offenses are defined as false representation, failure to disclose, position abuse, dishonest obtainment of services, false accounting and false company director statements, fraudulent trading, and defrauding the Revenue.
“In an era of rapid change, the future of economic prosperity hinges on the pillars of ethical conduct, unwavering trust and total transparency,” said Julie Murphy, VP of Sales, EMEA, SAI360.
And it’s these cornerstones that drive business practices worth mirroring.
The UK Government Sweeps in to Help
There is a growing call to tackle fraud, corruption, and illicit activities across the UK. On that note, the government has enacted the Economic Crime Transparency and Enforcement 2022 Act (ECTE Act), in response to the rising call to address fraud and corruption in the UK. This was done to lay out foundational measures against money laundering and other illicit activities.
Building on this, the government is looking to introduce the Economic Crime and Corporate Transparency Bill as an offshoot of the ECTE Act. This Bill aims to enhance corporate transparency further, reform Companies House (the UK’s official registrar of companies), and bolster law enforcement powers against economic crimes. As of mid-October 2023, the Bill is in the final stages of approval and is expected to be passed by the end of the year.
This Bill’s impacts will be far-reaching, as it will affect all directors, secretaries and people with significant control of entities registered at Companies House, as well as the entities themselves, including companies, limited partnerships, limited liability partnerships and overseas entities. There will also be an impact on agents of such entities, such as those who provide company secretarial services.
This is significant as in the past economic crimes committed by senior managers in corporations have seldom led to prosecutions. However, should this reform be implemented, it may mean more legal actions being taken against fraudulent and misbehaving companies in the future.
As of the time of this writing, the new legislation only applies to large corporations, defined as those with two of the three following three criteria:
- more than 250 employees,
- more than £36 million turnover, and/or
- more than £18 million in total assets.
Like the Bribery Act, the penalty for conviction could lead to an unlimited fine for the prosecuted organization. In deciding the appropriate level for a particular case, the courts will take account of all relevant circumstances.
To strengthen enforcement, the Bill proposes enhanced powers for both the Serious Fraud Office and the Solicitors’ Regulation Authority.
Efforts to Prevent Fraud are Underway
In the government’s various speeches about the Bill, the emphasis is on strengthening corporate culture and encouraging good practice, with a particular focus on improving fraud prevention procedures within organizations. Adequate procedures to prevent fraud will likely be similar to the “adequate procedures” logic of the UK Bribery Act 2010.
Among others, training and communications will be heavily featured, with relevant employees and third parties required to understand how they are expected to behave. Correct training should help employees and other stakeholders understand and properly implement controls. Developing regular supporting communications to set the right tone will also be necessary.
Below are just a few benefits of this initiative:
1. Increased Protection
This Bill forms part of the government’s three-year economic crime plan and aims to improve fraud prevention and protect victims. It allows for quicker imposition of sanctions, the creation of a Register of Overseas Entities to tackle foreign criminals using UK property for money laundering, and the strengthening of the Unexplained Wealth Order regime—a legal tool that permits authorities to freeze and potentially seize assets if individuals cannot explain the legitimate source of their wealth.
2. Greater Transparency
This bill encompasses various reforms, including changes to enhance transparency over UK companies and legal entities, making the register more reliable and complete. It will also provide Companies House with more effective investigation and enforcement powers and facilitate better cross-checking of data with other bodies.
3. Criminal Deterrence
The bill addresses the misuse of limited partnerships and modernizes the laws governing them. It further grants additional powers to law enforcement agencies to seize and recover crypto assets associated with criminal activities.
4. AML Prevention
The bill will strengthen anti-money laundering (AML) powers, enabling better information sharing on suspected money laundering, fraud and other economic crimes. This includes facilitating information sharing among businesses to combat economic crime, allowing for proactive intelligence gathering by law enforcement, and reducing the reporting burden on businesses in certain cases.
How Can SAI360 Support You?
Here are just four of the many ways SAI360 can help your organization prepare for the ECTE Act.
Financial Irregularity Training: SAI360 offers eLearning specifically designed for Executives and Boards of Directors on Financial Irregularities, guiding board members in asking: “How are we uncovering the fraud that may be affecting us right now, and how willing and prepared are we to address it?”
Money Laundering Training: Equips employees to safeguard against financial crimes. Emphasizes complying with regional money laundering directives, defining the characteristics of money laundering, understanding the importance of why and how to report potential money laundering, recognizing warning signs, and understanding the importance of “know your customer” (KYC) checks.
Anti-Bribery and Anti-Corruption Resources: To further tie in with the issues addressed in this Bill, SAI360 offers a new, comprehensive training suite for anti-bribery and anti-corruption, allowing your employees to master a three-year curriculum. Training materials address key risk areas, including but not limited to Due Diligence and Third-Party Agents, Gifts and Entertainment for Public Officials, Facilitating Payments and Commercial Bribery.
Advisory Services: Corporations must review their current policies and procedures against the criteria set out in the bill to ensure adequate procedures are in place to prevent fraud. SAI360’s advisory services team can provide support with the review, design and implementation of an effective compliance program. By reviewing current policies and practices, SAI360 can identify gaps and prepare actionable insights to support compliance of this new Bill.