How does the Economic Crime and Corporate Transparency Act 2023 apply to private equity?

The Economic Crime and Corporate Transparency Act 2023, typically abbreviated to ECCTA, applies to large organisations, defined as incorporated bodies or partnerships that meet at least two of the following criteria: more than 250 employees, turnover exceeding £36 million, or assets over £18 million. The analysis is on a groupwide basis, meaning that subsidiaries are included in the employee, turnover and asset count if they fall within the definition set out in section 1159 of the Companies Act 2006.

In this article we highlight the key provisions of the ECCTA, the consequences for non-compliance and when private equity funds might be liable to prosecution. We also outline the key takeaways for private equity fund managers and directors.

When might the Economic Crime and Corporate Transparency Act 2023 apply to private equity funds?

Private equity funds and their general partners and portfolio companies may be caught if, when grouped together, they meet the relevant thresholds. The grouping rules are broad: a portfolio company is likely to be treated as a subsidiary of a private equity fund if the fund holds a majority of voting rights, has the right to appoint or remove a majority of directors, or otherwise controls the company through agreements with other shareholders. Small portfolio companies which might otherwise be outside the net given their small scale will be liable to prosecution if they are viewed as a subsidiary of the large organisation parent fund. 

Key provisions of the Economic Crime and Corporate Transparency Act 2023 when considering its application to private equity funds

The ECCTA focuses on the actions of 'associated persons'. In the private equity context, this could encompass a broad range of individuals and entities, from portfolio company staff to external service providers.

One of the key provisions of ECCTA is the new offence which came into force on 1 September 2025 of failure to prevent fraud. 'Fraud' is the deliberate use of deception or dishonesty to deprive, disadvantage, or cause loss (usually financial) to another person or party.

If the private equity fund is considered an 'associated person', a fraudulent act committed at the portfolio company level could result in criminal liability not only for the portfolio company itself but also for the private equity fund and, potentially, the general partners. The offence does not extend to individual liability for those who may have failed to prevent the fraud as the liability is corporate.

An important point to note is that ECCTA applies a strict liability regime, meaning that the parent company does not need to have knowledge of the base fraud offence or an intention to benefit from it. Once the prosecution has established beyond reasonable doubt that a base fraud has been committed by an associated person, the burden shifts to the defence to prove, on the balance of probabilities, that the organisation had 'reasonable procedures' in place to prevent such fraud.

Consequences of non-compliance

Redress for breach includes civil and criminal sanctions, including penalties and uncapped fines, with certain exceptions, and public disclosure of breaches. For example, there could be public disclosure in respect of serious economic crime, which could have lasting consequences for a private equity sponsor’s reputation and standing in the market given the regulation and public scrutiny to which fund managers are subject. 

The risk of these sanctions could reinforce the necessity for good governance and good ethical conduct across a private equity firm’s investment portfolio. Compliance with the likes of ECCTA will be a key factor in raising new funds in the market, and will potentially impact on the value of would-be portfolio companies by increasing the burden on the eventual acquirer to implement remedial measures, thereby negatively impacting the target's valuation and sales process.

Defences to claims for non-compliance and steps to be taken to minimise risk of non-compliance 

The principal defence available under ECCTA is the existence of 'reasonable fraud prevention procedures'. It's therefore important to ensure that due diligence performed as part of the investment process is sufficiently robust to identify fraud risks in the target group including a review of internal controls, fraud prevention measures and policies, historic fraud, and regulatory or accounting irregularities and assessing whether the company's compliance frameworks are adequate. It also means, putting in place continuous monitoring of portfolio investments for compliance with all prevention policies and procedures so that any risks can be addressed soonest. 

It's key that fund managers and the like should as soon as possible carefully review and map out their various group and portfolio structures to see if they are caught by the ECCTA and implement the necessary fraud prevention procedures to mitigate the risk of liability, but also enhance their reputation in the market. It's no longer just a 'nice to have', it's a default expectation, according to the Serious Fraud Office director.

Please read our previous articles for further information:

• Identity verification and the Economic Crime and Corporate Transparency Act 2023: how can organisations remain compliant?
• Key regulatory and compliance updates for UK businesses this autumn
• Companies House reform under the Economic Crime and Corporate Transparency Act 2023 - guidance for businesses

The ECCTA  also requires the verification of identities for directors and certain other individuals associated with UK companies and LLPs, which will apply to individuals within private equity structures, and it also introduces significant changes to UK limited partnership law, including tighter registration requirements and increased transparency. 

If you would like any further information on the above please contact Jocelyn Ormond, Rory Suggett or Andy Young in the Ashfords corporate team.