Note:
This guidance is advisory only. The guidance is not a substitute for reading the legislation or obtaining professional legal advice where appropriate or necessary.
Statutory guidance in relation to fraud prevention procedures is published by the Home Office at Economic Crime and Corporate Transparency Act 2023: Guidance to organisations on the offence of failure to prevent fraud (accessible version) - GOV.UK. All organisations should review the Home Office Guidance when establishing and reviewing their fraud prevention procedures.
See Section 1.4 of the Home Office Guidance for any conflict between alternative sources of guidance.
The Economic Crime and Corporate Transparency Act 2023 (ECCTA) aims to strengthen corporate governance and tackle economic crime in the UK.
It contains, among other things, a new corporate offence of failure to prevent fraud and the transformation of Companies House from a largely passive recipient of information to a much more active gatekeeper. The ECCTA has three key objectives:
- Prevent organised criminals, fraudsters, kleptocrats and terrorists from using companies and other corporate entities to abuse the UK’s open economy. This Act reforms the powers of the Registrar of Companies and the legal framework for limited partnerships in order to safeguard businesses, consumers and the UK’s national security.
- Strengthen the UK’s broader response to economic crime, in particular by giving law enforcement new powers to seize cryptoassets and enabling businesses in the financial sector to share information more effectively to prevent and detect economic crime.
- 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 ECCTA received royal assent on 26 October 2023 and is effectively the second part of a legislative package to prevent the abuse of UK corporate structures and tackle economic crime. It follows on from the Economic Crime (Transparency and Enforcement) Act 2022, which received royal assent on 15 March 2022.
The passing of the ECCTA follows consultations in 2019 and 2020, a white paper containing the government’s final plans for reform published in February 2022 and the laying of the draft bill in September 2022.
Identification Doctrine and ‘Senior Managers’
Summary of reform
The ECCTA reformed the law of corporate criminal attribution for a wide range of economic crimes.
Under section 196 of the ECCTA, criminal liability may be attributed to a body corporate or partnership for the economic crime offences listed in schedule 12 of the Act, where the offence is committed by a ‘senior manager’ acting within the actual, or apparent scope of their authority, regardless of the size of the organisation.
What is the identification doctrine?
The identification doctrine is the legal test for deciding whether the actions and mind of a natural person can be regarded as those of a legal person.
Historically, it was required that an offence was committed by the ‘directing mind and will’ of a corporation to trigger attribution to the corporate itself.
The reform under ECCTA places the identification doctrine on a statutory footing for economic crimes, providing certainty that senior managers are in scope of attribution to a corporation.
A test has been introduced that replicates the definition of ‘senior manager’ in the Corporate Manslaughter and Corporate Homicide Act 2007 (CM&CHA 2007). This looks at what the senior manager’s roles and responsibilities are within the organisation - the level of managerial influence they exert - rather than their job title. It covers instances where the senior manager is a person who plays a significant role in the making of decisions about the whole or a substantial part of the activities of the body corporate.
Definition of ‘Senior Manager’
Under section 196 of ECCTA, ‘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, the organisation is also guilty of this offence’.
A ‘senior manager’, in relation to a body corporate or partnership, refers to:
- an individual who plays a significant role in the making of decisions about how the whole or a substantial part of the activities of the body corporate or partnership are to be managed or organised
- or the actual managing or organising of the whole or a substantial part of those activities.
We recommend that NHS organisations familiarise themselves with these changes. It is not possible for us to specify which NHS job titles or grades fall within the definition of senior manager as this is entirely dependent on the level of managerial influence exerted by that person in their position. Who will be a ‘senior manager’ will be highly organisation specific and it is the responsibility of the organisation to determine which of its managers are considered to be ‘senior’ and fall within this definition for the purposes of this offence.
Please refer to the Government fact-sheet on the ECCTA for further information.
Why have changes to the identification doctrine been made?
By including a wider range of individuals, the reform aims to make it more straightforward for prosecutors to hold companies criminally liable for economic crimes committed by those in significant managerial positions. This addresses the difficulty of proving that a crime was committed by the specific ‘directing mind and will’, especially in large, complex organisations where decision making is often decentralised.
What is the difference between the identification doctrine and the failure to prevent fraud offence?
It is important to note that the measures introduced under ECCTA are separate to the offence of failure to prevent fraud.
The identification doctrine holds companies liable for the underlying crime committed by a senior manager, whereas the failure to prevent fraud offence focuses on the organisation’s failure to prevent the fraud from being committed by an ‘associated’ person (see section on Associates of a large organisation).
The identification doctrine, alongside the failure to prevent fraud offence, will ensure that all those who have played a part in economic crime, including both individuals and corporates, can be brought to justice.
What is the penalty for the corporation?
The company will be criminally convicted and receive a fine, in addition to any sentences imposed for individuals also found guilty of the same offence.
How might changes to the identification doctrine impact NHS organisations?
It is important that NHS organisations are aware of this change and the possible impact within their organisation. NHS organisations should familiarise themselves with the ECCTA legislation, in particular the definition of ‘senior manager’, and with the Home Office guidance in this area.
NHS organisations should also consider whether their current risk assessments cover ‘senior managers’ (see section on Next Steps: How to Comply).