Bottom Line Up Front (BLUF): The Economic Crime and Corporate Transparency Act 2023 imposes significant compliance obligations on charities, necessitating immediate action to mitigate legal risks.
Understanding the ECCTA’s Implications for Charities
The Economic Crime and Corporate Transparency Act 2023 (ECCTA) introduces stringent measures aimed at increasing corporate transparency and combating economic crime in the UK. While the Act primarily targets corporate entities, its provisions significantly affect charities, particularly those categorized as corporate charities—such as charitable companies and charitable incorporated organizations (CIOs). Key aspects of the Act include a new corporate offence for failing to prevent fraud and a senior managers’ attribution offence, both of which necessitate a reevaluation of governance and operational strategies within the charity sector.
Key Offences Under the ECCTA
Failure to Prevent Fraud (Section 199)
Under Section 199, large charities—those meeting at least two of three financial thresholds (turnover above £36m, balance sheet total over £18m, or more than 250 employees)—can be held criminally liable for fraud committed by associated individuals, such as employees or agents. To avoid liability, charities must demonstrate they have implemented reasonable fraud prevention measures. This includes conducting thorough risk assessments and fostering an anti-fraud culture, as outlined in the government guidance.
Senior Managers’ Attribution (Section 196)
Section 196 broadens the scope of liability to encompass any charity, irrespective of size, if a senior manager commits fraud or other offences while acting within their authority. Unlike the failure to prevent fraud offence, there is no defence available if reasonable procedures were in place, increasing the urgency for charities to bolster oversight and accountability mechanisms.
Compliance Impact
Charities must take proactive steps to ensure compliance with the ECCTA, which includes:
- Conducting a thorough fraud risk assessment tailored to their specific activities
- Implementing and documenting proportionate fraud prevention procedures
- Establishing a robust anti-fraud culture with top-level commitment
- Enhancing oversight of senior management and operational practices
- Ensuring accurate and verified filings with Companies House
For large charities, the potential for significant fines and reputational damage underscores the importance of compliance. Smaller charities, while less likely to meet the size thresholds, must remain vigilant regarding the conduct of senior personnel, as they could still face legal repercussions under Section 196.
Conclusion
The ECCTA represents a paradigm shift in regulatory expectations for charities, emphasizing the necessity of organizational accountability and proactive governance. As charities navigate these new requirements, establishing effective compliance frameworks will be essential to safeguarding their missions and reputations. According to sector analysts, those who adapt swiftly will be better positioned to mitigate risks associated with economic crime and maintain public trust.