Introduction to the UK’s Economic Crime and Corporate Transparency Act (ECCTA)

The Economic Crime and Corporate Transparency Act (ECCTA) represents one of the most important developments in UK criminal law for corporates, their senior management, and their advisers since the Bribery Act was introduced. Once it is fully in force, businesses will face a significantly increased risk of corporate liability in the UK.

Under the general common law identification principle, a corporation can be criminally responsible for the actions of an individual who represents its “directing mind and will”. Prosecutors have found it difficult to prove the criminal involvement of sufficiently senior individuals (board directors or other senior officers who carry out management functions) in the case of large, distributed organisations.

Section 196 of ECCTA sets out that if a senior manager of a body corporate or partnership, acting within the actual or apparent scope of their authority, commits a specified economic crime offence, the organisation is also guilty of the offence.

This currently includes offences under the Theft Act 1968, the Fraud Act 2006, the Bribery Act 2010, the Financial Services and Markets Act 2000, and money-laundering offences under the Proceeds of Crime Act 2000. 

A senior manager is any individual who plays a “significant role” in making decisions about how the whole or a substantial part of the activities of the body corporate are managed or organised, or an individual who actually manages or organises these activities.

It will be up to the courts to further refine these principles, including how to interpret the definition of a senior manager, but it is very likely that this will make it much simpler for prosecutors to hold corporations to account for crimes committed by their senior leaders.

In addition to the above, under section 199 of ECCTA, a “large organisation” will be criminally liable where it fails to prevent a person associated with it from committing a fraud offence intending to benefit (directly or indirectly) the organisation or its clients.

It is a defence for the organisation to have reasonable prevention procedures in place at the time of the offence, or be able to show that it was not reasonable in all the circumstances to expect it to have any such procedures in place. The law will not come into force until a few months after official guidance has been published.

The ECCTA guidance states that a large organisation is one that has two or more of the following:

• Turnover of more than GBP 36 million;
• Balance sheet total of more than GBP 18 million; and/or
• Over 250 employees.

A person is associated with a corporation if they are an employee, agent, subsidiary, or “otherwise performs services for and on behalf of the body”. This is the same principle as found in key bribery and tax evasion laws.

Relevant fraud offences currently include cheating the public revenue and statutory theft and fraud offences. 

Before the new provisions come into force, large organisations will need to put reasonable fraud prevention procedures in place which are proportionate to their size and risk profile, and in line with official guidance.

Louise Hodges is the head of Kingsley Napley’s criminal litigation department. She represents individuals and companies embroiled in criminal and regulatory proceedings in the UK and internationally. She has acted in relation to high-profile Serious Fraud Office (SFO) investigations and Deferred Prosecution Agreement (DPA) negotiations.