Disclosing interests: Crib sheet on the law and guidance
Companies Act, 2006, Competition Act, Fraud Act, 2006, International Standards of Accounting. Interlocked directorates.
This is a summary of key legislation relating to duties of a director. There will be omissions. Please draw any legislation that may be relevant, that is not included here, to my attention. Similarly, please point out any errors.
Summary of legal obligations relating to directors' disclosure of interests.
The legal obligations of a director to avoid conflicts of interest, through transparency, which requires disclosure of business interests to fellow directors, accountants, auditors, and publicly for their assessment for conflict, have been collated below. The use of italics refer to quotations. This is work in progress. If a reference has not been linked, and you find the link, please add it in the comments below. If you find a piece of legislation that should be referenced here, again please add it.
Financial Conduct Authority on Disclosure of Interests for listed companies
The Financial Conduct Authority Handbook sets out guidance on disclosure of directors interests in the Annual financial report, in section LR 9.8.6 (LR 9.8 Annual financial report - FCA Handbook):
“LR 9.8.6. In the case of a listed company incorporated in the United Kingdom, the following additional items must be included in its annual financial report:
(1) a statement setting out all the interests (in respect of which transactions are notifiable to the company under article 19 of the Market Abuse Regulation) of each person who is a director of the listed company as at the end of the period under review including:
(a) all changes in the interests of each director that have occurred between the end of the period under review and a date not more than one month prior to the date of the notice of the annual general meeting; or
(b) if there have been no changes in the period described in paragraph (a), a statement that there have been no changes in the interests of each director.
Interests of each director includes the interests of connected persons of which the listed company is, or ought upon reasonable enquiry to become, aware.” (LR 9.8 Annual financial report - FCA Handbook)
It is crucial to note that the Financial Conduct Authority Handbook, section LR9.8.6, mandates the inclusion of a statement in the annual financial report outlining all interests of each director, including changes in these interests. This includes interests of connected persons that the listed company is, or ought upon reasonable inquiry to become, aware of.
Companies Act and unique identities
The Companies Act 2006 has recently been amended by the Economic Crime and Corporate Transparency Act 2023. Section 1082 Allocation of unique identifiers, states:
1082 Allocation of unique identifiers
(1)The Secretary of State may [F1by regulations] make provision for the use, in connection with the register [F2or dealings with the registrar], of reference numbers (“unique identifiers”) to identify each person who—
(a)is a director of a company,
(b)is secretary (or a joint secretary) of a company,
[F3(ba)is an authorised corporate service provider;
(bb)is an individual whose identity is verified,] or
(c)in the case of an overseas company whose particulars are registered under section 1046, holds any such position as may be specified for the purposes of this section by regulations under that section.
(2)The regulations may—
(a)provide that a unique identifier may be in such form, consisting of one or more sequences of letters or numbers, as the registrar may from time to time determine;
(b)make provision for the allocation of unique identifiers by the registrar;
(c)require there to be included, in any specified description of documents delivered to the registrar, as well as [F4a statement of the person's name] [F4any statement by or referring to the person]—
(i)a statement of the person's unique identifier, or
(ii)a statement that the person has not been allocated a unique identifier;
[F5(d)enable the registrar to take steps where a person appears to have more than one unique identifier to discontinue the use of all but one of them.]
[F5(d)confer power on the registrar—
(i)to give a person a new unique identifier;
(ii)to discontinue the use of a unique identifier for a person who is allocated a new identifier or who has more than one.]
(3)The regulations may contain provision for the application of the scheme in relation to persons appointed, and documents registered, before the commencement of this Act.
(4)The regulations may make different provision for different descriptions of person and different descriptions of document.
(5)Regulations under this section are subject to affirmative resolution procedure.
Textual Amendments
F1Words in s. 1082(1) inserted (26.10.2023 for specified purposes) by Economic Crime and Corporate Transparency Act 2023 (c. 56), ss. 68(2)(a)(i), 219(1)(2)(b)
F2Words in s. 1082(1) inserted (26.10.2023 for specified purposes) by Economic Crime and Corporate Transparency Act 2023 (c. 56), ss. 68(2)(a)(ii), 219(1)(2)(b)
F3S. 1082(1)(ba)(bb) inserted (26.10.2023 for specified purposes) by Economic Crime and Corporate Transparency Act 2023 (c. 56), ss. 68(2)(a)(iii), 219(1)(2)(b)
F4Words in s. 1082(2)(c) substituted (26.10.2023 for specified purposes) by Economic Crime and Corporate Transparency Act 2023 (c. 56), ss. 68(2)(b), 219(1)(2)(b)
F5S. 1082(2)(d) substituted (26.10.2023 for specified purposes) by Economic Crime and Corporate Transparency Act 2023 (c. 56), ss. 68(2)(c), 219(1)(2)(b)
The amendments to Section 1082 of the Companies Act 2006, as stipulated in the Economic Crime and Corporate Transparency Act of 2023, introduce pivotal alterations concerning the unique identifiers attributed to individuals occupying specific roles within companies.
Legitimacy of Holding Multiple Identifiers:
These amendments underscore the imperative for an individual to possess a solitary unique identifier. This is conspicuously evident in the provision empowering the registrar to cease the utilisation of multiple identifiers for a person.
Reinforcement of Regulatory Framework:
The amendments serve to fortify the regulatory framework governing unique identifiers, explicitly asserting that an individual must not be associated with more than one unique identifier.
Request for Register of Interests:
My complaints regarding the concurrent use of multiple identities is akin to maintaining numerous unique identifiers. The amendments to Section 1082 elucidate that possessing multiple identifiers is incongruent with established regulatory norms.
Legal Grounds:
These amendments provide a firm legal foundation for my contention that individuals, particularly those in directorial and secretarial positions, should refrain from assuming multiple unique identifiers.
Cautionary Note:
It is crucial to note that the current state of legislation, as embodied in Section 1082, may necessitate complementary measures to ensure the ongoing integrity of financial statements and the effective tracing of changes. Presently, there is no provision within the legislation for these essential components, which poses a potential risk to the thoroughness of financial reporting and change tracking. This requires urgent attention to safeguard against potential loopholes in regulatory oversight.
Companies Act, 2006.
The Companies Act 2006 confers considerable powers to directors and with these there are associated duties, for which a director can be held accountable. These include:
Particulars of directors to be registered: individuals including name and any former name and date of birth, Section 163.
Notifying the registrar within 14 days of any change in its register of directors or of directors' residential addresses, Section 167.
A person who ceases to be a director continues to be subject to the duty to avoid conflicts of interest, Section 170 (2).
Duty to exercise reasonable care, skill and diligence, Section 174.
Duty to avoid direct or indirect conflicts of interest, Section 175.
Duty to declare interest in proposed transaction or arrangement, Section 177.
Declaration of interest in existing transaction or arrangement, Section 182.
Offence of failure to declare interest, Section 183.
Disclosure to auditors that there is no relevant audit information of which the company's auditor is unaware. A person guilty of this offence is liable to imprisonment, Section 418.
Signature of auditor's report, Section 503.
Names to be stated in published copies of auditor's report, Section 505.
Circumstances in which names may be omitted, Section 506.
163. Particulars of directors to be registered: individuals.
(1) (a)name and any former name; (b) a service address; (c) the country or state (or part of the United Kingdom) in which he is usually resident; (d) nationality; (e) business occupation (if any); (f) date of birth.
(2) For the purposes of this section “name” means a person's Christian name (or other forename) and surname, except that in the case of (a) a peer, or (b) an individual usually known by a title.
(3) For the purposes of this section a “former name” means a name by which the individual was formerly known for business purposes. Where a person is or was formerly known by more than one such name, each of them must be stated.
(4) It is not necessary for the register to contain particulars of a former name in the following cases—
(a) in the case of a peer or an individual normally known by a British title, where the name is one by which the person was known previous to the adoption of or succession to the title;
(b) in the case of any person, where the former name—
(i) was changed or disused before the person attained the age of 16 years, or
(ii) has been changed or disused for 20 years or more.
167. Duty to notify registrar of changes
(1) A company must, within the period of 14 days from—
(a) a person becoming or ceasing to be a director, or (b) the occurrence of any change in the particulars contained in its register of directors or its register of directors' residential addresses, give notice to the registrar of the change and of the date on which it occurred.
(4) If default is made in complying with this section, an offence is committed by—
(a) the company, and (b)every officer of the company who is in default.
(5) A person guilty of an offence under this section is liable on summary conviction to a fine not exceeding level 5 on the standard scale and, for continued contravention, a daily default fine.
170. Scope and nature of general duties
(1)The general duties specified in sections 171 to 177 are owed by a director of a company to the company.
(2)A person who ceases to be a director continues to be subject—
(a)to the duty in section 175 (duty to avoid conflicts of interest) as regards the exploitation of any property, information or opportunity of which he became aware at a time when he was a director, and
(b)to the duty in section 176 (duty not to accept benefits from third parties) as regards things done or omitted by him before he ceased to be a director. To that extent those duties apply to a former director as to a director, subject to any necessary adaptations.
(3)The general duties are based on certain common law rules and equitable principles as they apply in relation to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director.
174. Duty to exercise reasonable care, skill and diligence
175. Duty to avoid conflicts of interest
177. Duty to declare interest in proposed transaction or arrangement
182. Declaration of interest in existing transaction or arrangement
183. Offence of failure to declare interest
(1)A director who fails to comply with the requirements of section 182 (declaration of interest in existing transaction or arrangement) commits an offence.
(2)A person guilty of an offence under this section is liable—
(a)on conviction on indictment, to a fine;
(b)on summary conviction, to a fine not exceeding the statutory maximum.
466. Companies qualifying as medium-sized: parent companies. (4) The qualifying conditions are met by a group in a year in which it satisfies two or more of the following requirements—
1. Aggregate turnover ; Not more than £22.8 million net (or £27.36 million gross)
2. Aggregate balance sheet total; Not more than £11.4 million net (or £13.68 million gross)
3. Aggregate number of employees; Not more than 250
382 Companies qualifying as small: general
(1)A company qualifies as small in relation to its first financial year if the qualifying conditions are met in that year.
[F1(1A)Subject to subsection (2), a company qualifies as small in relation to a subsequent financial year if the qualifying conditions are met in that year.]
[F2(2)In relation to a subsequent financial year, where on its balance sheet date a company meets or ceases to meet the qualifying conditions, that affects its qualification as a small company only if it occurs in two consecutive financial years.]
(3)The qualifying conditions are met by a company in a year in which it satisfies two or more of the following requirements—
1. Turnover[F3Not more than £10.2 million]2. Balance sheet total[F4Not more than £5.1 million]3. Number of employeesNot more than 50
(4)For a period that is a company's financial year but not in fact a year the maximum figures for turnover must be proportionately adjusted.
(5)The balance sheet total means the aggregate of the amounts shown as assets in the company's balance sheet.
(6)The number of employees means the average number of persons employed by the company in the year, determined as follows—
(a)find for each month in the financial year the number of persons employed under contracts of service by the company in that month (whether throughout the month or not),
(b)add together the monthly totals, and
(c)divide by the number of months in the financial year.
(7)This section is subject to section 383 (companies qualifying as small: parent companies).
Textual Amendments
F1S. 382(1A) inserted (with effect in accordance with reg. 2(2) of the amending S.I.) by The Small Companies (Micro-Entities' Accounts) Regulations 2013 (S.I. 2013/3008), regs. 2(1), 4(2)(a) (with reg. 3)
F2S. 382(2) substituted (with effect in accordance with reg. 2(2) of the amending S.I.) by The Small Companies (Micro-Entities' Accounts) Regulations 2013 (S.I. 2013/3008), regs. 2(1), 4(2)(b) (with reg. 3)
F3Words in s. 382(3) substituted (with effect in accordance with reg. 2(2)-(5) of the amending S.I.) by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (S.I. 2015/980), regs. 2(1), 4(3)(a) (with reg. 3)
F4Words in s. 382(3) substituted (with effect in accordance with reg. 2(2)-(5) of the amending S.I.) by The Companies, Partnerships and Groups (Accounts and Reports) Regulations 2015 (S.I. 2015/980), regs. 2(1), 4(3)(b) (with reg. 3)
503. Signature of auditor's report
(1)The auditor's report must state the name of the auditor and be signed and dated.
(2)Where the auditor is an individual, the report must be signed by him.
(3)Where the auditor is a firm, the report must be signed by the senior statutory auditor in his own name, for and on behalf of the auditor.
505. Names to be stated in published copies of auditor's report
(1)Every copy of the auditor's report that is published by or on behalf of the company must—
(a)state the name of the auditor and (where the auditor is a firm) the name of the person who signed it as senior statutory auditor, or
(b)if the conditions in section 506 (circumstances in which names may be omitted) are met, state that a resolution has been passed and notified to the Secretary of State in accordance with that section.
506. Circumstances in which names may be omitted
(1)[F1An auditor’s] name and, where the auditor is a firm, the name of the person who signed the report as senior statutory auditor, may be omitted from—
(a)published copies of the report, and
(b)the copy of the report delivered to the registrar under Chapter 10 of Part 15 (filing of accounts and reports),if the following conditions are met.
(2)The conditions are that the company—
(a)considering on reasonable grounds that statement of the name would create or be likely to create a serious risk that the auditor or senior statutory auditor, or any other person, would be subject to violence or intimidation, has resolved that the name should not be stated, and
(b)has given notice of the resolution to the Secretary of State, stating—
(i)the name and registered number of the company,
(ii)the financial year of the company to which the report relates, and
(iii)the name of the auditor and (where the auditor is a firm) the name of the person who signed the report as senior statutory auditor.
Part 10 A company's directors
Chapter 1 Appointment and removal of directors
Requirement to have directors
154.Companies required to have directors
155.Companies required to have at least one director who is a natural person
(1)A company must have at least one director who is a natural person.
(2)This requirement is met if the office of director is held by a natural person as a corporation sole or otherwise by virtue of an office.
156.Direction requiring company to make appointment
Appointment
157.Minimum age for appointment as director
158.Power to provide for exceptions from minimum age requirement
159.Existing under-age directors
160.Appointment of directors of public company to be voted on individually
161.Validity of acts of directors
Register of directors, etc
161A.Alternative method of record-keeping
162.Register of directors
163.Particulars of directors to be registered: individuals
164.Particulars of directors to be registered: corporate directors and firms
A company's register of directors must contain the following particulars in the case of a body corporate, or a firm that is a legal person under the law by which it is governed—
(a)corporate or firm name;
(b)registered or principal office;
[F1(c)in the case of a limited company that is a UK-registered company, the registered number;]
(d)in any other case, particulars of—
(i)the legal form of the company or firm and the law by which it is governed, and
(ii)if applicable, the register in which it is entered (including details of the state) and its registration number in that register.
165.Register of directors' residential addresses
166.Particulars of directors to be registered: power to make regulations
167.Duty to notify registrar of changes
Option to keep information on the central register
167A.Right to make an election
167B.Effective date of election
167C.Effect of election on obligations under sections 162 to 167
167D.Duty to notify registrar of changes
167E.Withdrawing the election
167F.Power to extend option to public companies
Removal
168.Resolution to remove director
169.Director's right to protest against removal
The Registrars (Companies House) Rules and Powers
The registrar's powers are not always limited to removing false documents and can allow the registrar to remove certain documents or information derived from them which are factually inaccurate. An example of this might include forms containing an error of fact, such as the wrong date of birth for a person, The Registrars Rules and Powers V3.6 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1111077/GP6_The_Registrars_Rules_and_Powers_V3.6.pdf.
Current practice for the removal of incorrect date of birth and synthetic identities (duplicate identities for an individual), however, conceals accountability. The registrar is obliged to maintain accountability.
In my opinion, the Companies House system requires the addition of a field that enable changes related to the incorrect date of birth changes and duplicate identity deletions, as tracking these changes is fundamental to the directors’ openness, transparency and accountability. Companies House have a duty to maintain accountability, its omission of a process to track these changes is a dereliction of duty by Companies House’s management.
National Audit Office
The National Audit Office provides guidance when considering conflict of interest in the public sector, Report by the Comptroller and Auditor General Cross-government Conflicts of interest HC 907 SESSION 2014-15 27 JANUARY 2015 (https://www.nao.org.uk/wp-content/uploads/2015/01/Conflicts-of-interest.pdf):
Transparency is an important part of holding individuals to account for their actions (2.26). The UK public sector takes a principles-based approach, indirectly addressing conflicts of interest through ethical standards and behaviour, ‘integrity’ and the need to put obligations of public service above personal interests. The Cabinet Office’s Civil Service management code sets out principles and rules...including a requirement for civil servants to disclose business interests (3.3).
Competition Act 1998.
Available at Competition Act 1998 (legislation.gov.uk)
The prohibition
18Abuse of dominant position.
(1)Subject to section 19, any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.
(2)Conduct may, in particular, constitute such an abuse if it consists in—
(a)directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b)limiting production, markets or technical development to the prejudice of consumers;
(c)applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage [eg. non-disclosure of interests];
(d)making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of the contracts.3
19Excluded cases.
(1)The Chapter II prohibition does not apply in any of the cases in which it is excluded by or as a result of—
(a)Schedule 1 (mergers and concentrations); or
(b)Schedule 3 (general exclusions).
(2)The Secretary of State may at any time by order amend Schedule 1, with respect to the Chapter II prohibition, by—
(a)providing for one or more additional exclusions; or
(b)amending or removing any provision (whether or not it has been added by an order under this subsection).
(3)The Secretary of State may at any time by order amend paragraph 8 of Schedule 3 with respect to the Chapter II prohibition.
(4)Schedule 3 also gives the Secretary of State power to provide that the Chapter II prohibition is not to apply in certain circumstances.4
25Power of CMA (Competitions and Markets Authority) to investigate
(1)In any of the following cases, the CMA may conduct an investigation.
(2)The first case is where there are reasonable grounds for suspecting that there is an agreement which—
(a)may affect trade within the United Kingdom; and
(b)has as its object or effect the prevention, restriction or distortion of competition within the United Kingdom.
(3) Omitted by virtue of EU Exit regulations 2019
(4)The third case is where there are reasonable grounds for suspecting that the Chapter II prohibition has been infringed.
(5) Omitted by virtue of EU Exit regulations 2019
(6)The fifth case is where there are reasonable grounds for suspecting that, at some time in the past, there was an agreement which at that time—
(a)may have affected trade within the United Kingdom; and
(b)had as its object or effect the prevention, restriction or distortion of competition within the United Kingdom.
(7) Omitted by virtue of EU Exit regulations 2019
(8)Subsection (2) does not permit an investigation to be conducted in relation to an agreement if the CMA —
(a)considers that the agreement is exempt from the Chapter I prohibition as a result of a block exemption or a retained exemption; and
(b)does not have reasonable grounds for suspecting that the circumstances may be such that it could exercise its power to cancel the exemption.
(9) Omitted by virtue of EU Exit regulations 2019
(10)Subsection (6) does not permit an investigation to be conducted in relation to any agreement if the CMA considers that, at the time in question, the agreement was exempt from the Chapter I prohibition as a result of a block exemption or a retained exemption.
(11) Omitted by virtue of EU Exit regulations 2019
(12)It is immaterial for the purposes of subsection (6) F12... whether the agreement in question remains in existence.5
FRAUD ACT, 2006
Fraud
(1)A person is guilty of fraud if he is in breach of any of the sections listed in subsection (2) (which provide for different ways of committing the offence).
(2)The sections are—
(a)section 2 (fraud by false representation),
(b)section 3 (fraud by failing to disclose information), and
(c)section 4 (fraud by abuse of position).
(3)A person who is guilty of fraud is liable—
(a)on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);
(b)on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a fine (or to both).
(4)Subsection (3)(a) applies in relation to Northern Ireland as if the reference to 12 months were a reference to 6 months.
2Fraud by false representation
(1)A person is in breach of this section if he—
(a)dishonestly makes a false representation, and
(b)intends, by making the representation—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.
(2)A representation is false if—
(a)it is untrue or misleading, and
(b)the person making it knows that it is, or might be, untrue or misleading.
(3)“Representation” means any representation as to fact or law, including a representation as to the state of mind of—
(a)the person making the representation, or
(b)any other person.
(4)A representation may be express or implied.
(5)For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).
3Fraud by failing to disclose information
A person is in breach of this section if he—
(a)dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and
(b)intends, by failing to disclose the information—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.
4Fraud by abuse of position
(1)A person is in breach of this section if he—
(a)occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person,
(b)dishonestly abuses that position, and
(c)intends, by means of the abuse of that position—
(i)to make a gain for himself or another, or
(ii)to cause loss to another or to expose another to a risk of loss.
(2)A person may be regarded as having abused his position even though his conduct consisted of an omission rather than an act.
5“Gain” and “loss”
(1)The references to gain and loss in sections 2 to 4 are to be read in accordance with this section.
(2)“Gain” and “loss”—
(a)extend only to gain or loss in money or other property;
(b)include any such gain or loss whether temporary or permanent;and “property” means any property whether real or personal (including things in action and other intangible property).
(3)“Gain” includes a gain by keeping what one has, as well as a gain by getting what one does not have.
(4)“Loss” includes a loss by not getting what one might get, as well as a loss by parting with what one has.
6Possession etc. of articles for use in frauds
(1)A person is guilty of an offence if he has in his possession or under his control any article for use in the course of or in connection with any fraud.
(2)A person guilty of an offence under this section is liable—
(a)on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);
(b)on conviction on indictment, to imprisonment for a term not exceeding 5 years or to a fine (or to both).
(3)Subsection (2)(a) applies in relation to Northern Ireland as if the reference to 12 months were a reference to 6 months.
7Making or supplying articles for use in frauds
(1)A person is guilty of an offence if he makes, adapts, supplies or offers to supply any article—
(a)knowing that it is designed or adapted for use in the course of or in connection with fraud, or
(b)intending it to be used to commit, or assist in the commission of, fraud.
(2)A person guilty of an offence under this section is liable—
(a)on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);
(b)on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a fine (or to both).
(3)Subsection (2)(a) applies in relation to Northern Ireland as if the reference to 12 months were a reference to 6 months.
8“Article”
(1)For the purposes of—
(a)sections 6 and 7, and
(b)the provisions listed in subsection (2), so far as they relate to articles for use in the course of or in connection with fraud,“article” includes any program or data held in electronic form.
(2)The provisions are—
(a)section 1(7)(b) of the Police and Criminal Evidence Act 1984 (c. 60),
(b)section 2(8)(b) of the Armed Forces Act 2001 (c. 19), and
(c)Article 3(7)(b) of the Police and Criminal Evidence (Northern Ireland) Order 1989 (S.I. 1989/1341 (N.I. 12));(meaning of “prohibited articles” for the purposes of stop and search powers).
9Participating in fraudulent business carried on by sole trader etc.
(1)A person is guilty of an offence if he is knowingly a party to the carrying on of a business to which this section applies.
(2)This section applies to a business which is carried on—
(a)by a person who is outside the reach of [F1section 993 of the Companies Act 2006]F1(offence of fraudulent trading) , and
(b)with intent to defraud creditors of any person or for any other fraudulent purpose.
(3)The following are within the reach of [F2that section]F2—
(a)a company [F3(as defined in section 1(1) of the Companies Act 2006)];
(b)a person to whom that section applies (with or without adaptations or modifications) as if the person were a company;
(c)a person exempted from the application of that section.
(4)F4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(5)“Fraudulent purpose” has the same meaning as in [F5that section]F5.
(6)A person guilty of an offence under this section is liable—
(a)on summary conviction, to imprisonment for a term not exceeding 12 months or to a fine not exceeding the statutory maximum (or to both);
(b)on conviction on indictment, to imprisonment for a term not exceeding 10 years or to a fine (or to both).
(7)Subsection (6)(a) applies in relation to Northern Ireland as if the reference to 12 months were a reference to 6 months.
International Standards of Accounting
The Financial Reporting Council publishes the International Standards of Accounting (ISA). They are all accessible from here, Auditing Standards (frc.org.uk).
These require that an auditor checks a director’s other business directorships to ensure that there is no conflict of interest.
The ISA (UK) 550 standards states:
Identification of Previously Unidentified or Undisclosed Related Parties or Significant Related Party Transactions:
(c) Perform appropriate substantive audit procedures relating to such newly identified related parties or significant related party transactions;
(d)Reconsider the risk that other related parties or significant related party transactions may exist that management has not previously identified or disclosed to the auditor, and perform additional audit procedures as necessary; and
(e) If the non-disclosure by management appears intentional (and therefore indicative of a risk of material misstatement due to fraud), evaluate the implications for the audit. (Para 22, The International Standards on Auditing Related Parties ISA 550).
Auditing guidelines on identity Client Due Diligence.
ISA (UK) 250 Section A (frc.org.uk)
Non-compliance – Acts of omission or commission intentional or unintentional, committed by the entity, or by those charged with governance, by management or by other individuals working for or under the direction of the entity, which are contrary to the prevailing laws or regulations. Non-compliance does not include personal misconduct unrelated to the business activities of the entity. Non-compliance by the entity with laws and regulations may result in a material misstatement of the financial statements. Detection of non-compliance, regardless of materiality, may affect other aspects of the audit including, for example, the auditor's consideration of the integrity of management, those charged with governance or employees (A3).
1.1.7 The law which comprises the UK MLTF regime is contained in the following legislation and relevant amending statutory instruments valid as at the date of this guidance:
• The Proceeds of Crime Act 2002 (POCA) as amended. Particular attention is drawn to the Serious Organised Crime and Police Act 2005 (SOCPA);
• The Terrorism Act 2000 (TA 2000) as amended. Particular attention is drawn to the Anti-Terrorism, Crime and Security Act 2001 (ATCSA) and the
Terrorism Act 2006 (TA 2006);
• The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the 2017 Regulations) as amended. Particular attention is drawn to The Money Laundering and Terrorist Financing (Amendment) Regulations 2019);
• Terrorist Asset-Freezing etc. Act 2010; 1
• Anti-terrorism, Crime and Security Act 20drawing on other tools developed for this purpose.01;
• Counter-terrorism Act 2008, Schedule 7; and
• Criminal Finances Act 2017.
What is the purpose of Client Due Diligence (CDD)?
5.1.1 Criminals often seek to mask their true identity by using complex and opaque ownership structures. The purpose of CDD is to know and understand a client’s identity and business activities, so that any MLTF risks can be properly managed. Effective CDD is, therefore, a key part of MLTF defences. By knowing the identity of a client, including who owns and controls it, a business not only fulfils its legal and regulatory requirements, but it equips itself to make informed decisions about the client’s standing and acceptability.
5.1.4 The 2017 Regulations outline the required components of good CDD. These components are:
• Identifying the client (i.e. knowing who the client is);
• Verifying the identity of the client (i.e. demonstrating that they are who they claim to be) by obtaining documents or other information from independent and reliable sources;
• Identifying the BO(s) so that the ownership and control structure can be understood and the identities of any individuals who are the owners or controllers can be known;
• On a risk-sensitive basis, taking reasonable measures to verify the identity of the BO(s); and
• Gathering information on the intended purpose and nature of the business relationship.
5.1.9 The identification phase requires the gathering of information about a client’s identity and the purpose of the intended business relationship. Appropriate identification information for an individual would include full name, date of birth and residential address. This can be collected from a range of sources, including the client. In the case of corporates and other organisations, identification also extends to establishing the identity of anyone who ultimately owns or controls the client. These people are the BOs, and further detail on how to deal with them can be found in 5.1.16 of this guidance. Where an individual is believed to be acting on behalf of another person, that person must also be identified.
5.1.11 Since the purpose of client verification is to check the client identity information already gathered, it is important that the information used at this stage is drawn from independent sources and any identity evidence used should be from an authoritative source.
Consultative Committee of Accountancy Bodies
The Consultative Committee of Accountancy Bodies is an umbrella group of chartered professional bodies of British qualified chartered accountants.
Accountants are key gatekeepers for the financial system, facilitating vital transactions that underpin the UK economy. As such, we have a significant role to play in ensuring our services are not used to further a criminal purpose. As professionals, accountants must act with integrity and uphold the law, and must not engage in criminal activity.
This guidance is based on the law and regulations as of 13 July 2021.
It replaces the draft guidance published September 2020.
Please note that while most requirements remain, some requirements of the regulations relating to EU lists no longer apply since the UK has left the EU.
This guidance covers the prevention of money laundering and the countering of terrorist financing. It is intended to be read by anyone who provides audit, accountancy, tax advisory, insolvency, or trust and company services in the UK and has been approved and adopted by the UK accountancy anti-money laundering supervisory bodies.
[Below, needs updating with the new guidance.]
9.5 APPENDIX D: RISK FACTORS – PER REGULATIONS 33(6) AND 37(3) OF THE
2017 REGULATIONS
D.1 High risk factors
Customer risk factors, including whether:
i. The business relationship is conducted in unusual circumstances;
ii. The customer is resident in a geographical area of high risk (see geographical risk factors below);
iii. The customer is a legal person or legal arrangement that is a vehicle for holding personal assets;
iv. The customer is a company that has nominee shareholders or shares in bearer form;
v. The customer is a business that is cash intensive;
vi. The corporate structure of the customer is unusual or excessively complex given the nature of the company’s business;
vii. The customer is the beneficiary of a life insurance policy (note: that the business has provided); and
viii. The customer is a third country national who is applying for residence rights or citizenship of an EEA state in exchange for transfers of capital, purchase of a property, government bonds or investment in corporate entities in that EEA state.
Product, service, transaction or delivery channel risk factors, including whether:
i. The product involves private banking;
ii. The product or transaction is one which might favour anonymity;
iii. The situation involves non-face-to-face business relationships or transactions (without certain safeguards, such as electronic identification processes which meet the safeguards as outlined in 5.4.18);
iv. Payments will be received from unknown or unassociated third parties;
v. New products and new business practices are involved, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products;
vi. The service involves the provision of nominee directors, nominee shareholders or shadow directors, or the formation of companies in a third country; and
vii. There is a transaction related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory and other items related to protected species, and other items of archaeological, historical, cultural and religious significance or of a rare scientific value. (Anti-Money Laundering and Counter-Terrorist Financing Guidance for the Accountancy Sector, CCAB)8.
The International Auditing and Assurance Standards Board (IAASB)
IAASB is an independent standard-setting body that serves the public interest by setting high-quality international standards for auditing, quality control, review, other assurance, and related services, and by facilitating the convergence of international and national standards. In doing so, the IAASB enhances the quality and uniformity of practice throughout the world and strengthens public confidence in the global auditing and assurance profession. About IAASB | IAASB
IAASB Dec 2, 2022
International Standard on Auditing (ISA) 315 (Revised 2019), Identifying and Assessing the Risks of Material Misstatement, replacing ISA 315 (Revised), Identifying and Assessing the Risks of Material Misstatement through Understanding the Entity and Its Environment. The handbook also incorporates in other relevant standards conforming and consequential amendments from ISA 315 (Revised 2019). ISA 315 (Revised 2019) is effective for audits of financial statements for periods beginning on or after December 15, 2021.
Interlocking directorate
Interlocking Directorate definition. West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. Interlocking Directorate legal definition of Interlocking Directorate (thefreedictionary.com)
The relationship that exists between the board of directors of one corporation with that of another due to the fact that a number of members sit on both boards and, therefore, there is a substantial likelihood that neither corporation acts independently of the other.
Because the same persons occupy seats on the boards of companies that are supposed to compete in the marketplace, there is a potential for violations of federal antitrust acts, particularly the Clayton Act (15 U.S.C.A. §§ 12-27 [1914]) which prohibits the existence of inter-locking directorates that substantially reduce commercial competition.
UK: Interlocking Directorates: Looking For Signs Of Collusion, Conflict Of Interest And Overboarding, 11 October 2019, by Rob Alport (London)
Interlocking Directorates: Looking For Signs Of Collusion, Conflict Of Interest And Overboarding - Directors and Officers - UK (mondaq.com)
Conflicts of interest, collusion and the overboarding of directors on publicly listed companies have been known to grab the attention of the biggest media outlets.
As many companies are unfortunately aware, this unwanted attention raises questions, creates risk to a company's reputation and can ultimately affect the value of company shares. However, there is a way that all of this can be avoided right from the start.
Interlocking directorates are nothing new. It occurs when two firms share a common director, and the tie or connections that he/she creates is also referred to as a board interlock.
Although lawful and not illegal, it does raise questions about the independence of decisions made in the boardroom and can be seen by the U.S. Federal Trade Commission (FTC) as an anti-competitive practice prompting an investigation.
As stated by the FTC it is their responsibility to "take(s) action to stop and prevent unfair business practices that are likely to reduce competition and lead to higher prices, reduced quality or levels of service, or less innovation".
An example of where interlocks became a concern for the FTC was during 2009. During this year Apple's director Arthur Levinson abruptly resigned his seat on Google board following pressure from regulators. Following the announcement FTC's chairman praised Google and Levinson "for their willingness to resolve our concerns without the need for litigation".
That same year also saw Google's Eric Schmidt resign from Apple's board, three years after accepting a seat.
It's important to mention that prior to these resignations, the FTC had been looking into whether interlocking directorates between Google and Apple raised competitive issues. These competitive issues may have violated U.S. antitrust laws.
The only safe way for companies to avoid situations of interlocking directorates that prompt investigation is by having oversight of every board members' seats on other companies. By gaining this oversight companies can instantly see any risks or red flags, which are likely already on the radar of investors with governance issues coming under greater scrutiny of late.
This is also hugely important when a company makes new appointments to their board, or an existing director takes on additional responsibilities. Without oversight, companies might be opening themselves up to governance risk and wider liability.
CGLytics online solution provides instant information about a company's board composition, director skills and expertise, as well as interlocking directorates for corporations, investors and advisors.
Interlocking directorates are common. It is not new. Most directors will have other board positions across one or more industry, however with highly confidential information that they are privy to, it is vital to identify potential conflicts of interest.
That being said, interlocking directorates can be indicators of the following:
Collusion: Two or more members of the board holding appointments on another board and using this connection to influence the decision-making away from the best interests of either company.
Conflict of interest: Directors with specific industry experience will often sit on boards that could be in competition. This can lead to questions from investors on if these board members are performing their duties in the best interests of the company.
Overboarding: Directors must have the adequate time to devote to their duties of providing oversight for a company. US Proxy Advisory standards state that a director is considered to be overboarded when he/she is a non-executive director and sits on more than five boards, or he/she is an executive director and sits on more than three boards.
Chairmen of the board are expected to spend double the amount of time as a NED and are considered overboarded with one chair and three other NED roles.
By identifying whether a board member is also on the board of a potential competitor (sometimes inevitably in niche markets where experience is necessary), or if two or more members of the board sit on the same board of another company, is vital for the nomination and governance committees to be aware and ensure that they have the correct policies and procedures in place, as regulators, investors and activists are constantly monitoring.
Think Like an Activist
Activist investor campaigns are continuing to show a year-on-year increase with more focus being placed on the composition of the board and the board members existing commitments. Leading investors are voting against the re-appointment of directors who are perceived to be overboarded. In addition, never before has there been as much scrutiny on the skills a director brings to the board.
The CGLytics platform offers oversight of board effectiveness of listed companies worldwide. It helps companies, their boards and stakeholders to promote good governance through monitoring director interlocks and indicate any potential red flags. Boards can identify potential skills gaps and conduct proactive succession planning from a database of more than 125,000 director profiles drawn from 5,500 publicly listed companies across 40 indexes and 24 countries.
BOARDROOM BEST PRACTICES
What Are Interlocking Directorates?
Lakshna Rathod| August 19, 2019 What are interlocking directorates? (diligent.com)
In the US, Section 8 of the Clayton Act forbids Board members from serving two companies that are competitive, if a merger between those corporations would violate antitrust laws. However, this provision is not always adhered to in practice. There is no equivalent Act in UK law, although the UK Corporate Governance Code recommends that executive directors of FTSE 100 firms hold no more than one additional non-executive directorship.
The phenomenon of interlocking directorates could also have undesirable effects on the wider corporate ecosystem. Having directors holding multiple directorships necessarily concentrates corporate power among a smaller group of people. Transparency is another concern around interlocking directorates, as their existence and effects are not always visible to stakeholders.
What Are the Benefits of Interlocking Directorates?
The desirability of interlocking directorates has been much debated. In the US, Section 8 of the Clayton Act forbids Board members from serving two companies that are competitive, if a merger between those corporations would violate antitrust laws. However, this provision is not always adhered to in practice. There is no equivalent Act in UK law, although the UK Corporate Governance Code recommends that executive directors of FTSE 100 firms hold no more than one additional non-executive directorship.
There are sound reasons why a company would not want one of its directors to serve on a competitor’s Board, not least of which is the risk that privileged information may be exposed. However, assuming a director can build a portfolio of non-competitive directorships, there can be distinct advantages to companies whose directors have broad external interests.
A network of interconnected businesses linked through shared directors could act as a pressure bloc in order to push a broader agenda with government and regulatory bodies. This could help shape pro-business or pro-sector policy and achieve objectives that would be difficult for a single entity to push for on its own. There is evidence of this in sectors that are under pressure from health lobbies, such as alcohol and tobacco companies, which advocate together for government restraint on taxation.
Have a plan to comply with the bar on horizontal interlocks
By Debbie Feinstein, Bureau of Competition, January 23, 2017. Federal Trade Commission.
Have a plan to comply with the bar on horizontal interlocks | Federal Trade Commission (ftc.gov)
With some exceptions, Section 8 of the Clayton Act prohibits the same individual from serving as an officer or director of two competing corporations. Like other portions of the forward-looking Clayton Act (including Section 7 with its proscription on mergers that are likely to harm competition), Section 8 was designed to “nip in the bud incipient violations of the antitrust laws by removing the opportunity or temptation to such violations through interlocking directorates.” U.S. v. Sears, Roebuck & Co., 111 F. Supp. 614, 616 (S.D.N.Y. 1953).
As enacted in 1914, Section 8’s interlock ban was nearly absolute: any two corporations (other than banks, trust companies and common carriers) worth more than $1 million with competing lines of business could not share a board member (or later, an officer) even if the interlock was not likely to harm competition. (Indeed an interlock may occur even if different individuals serve on the respective Boards; both the FTC and DOJ have brought enforcement actions involving indirect interlocks.) But near the end of the 20th century, advocates for reform argued that the low bar for interlocks was discouraging qualified individuals from serving on boards even when the risk to competition was low. Consequently, in 1990, Congress amended Section 8 to raise the jurisdictional threshold from $1 million to $10 million, and to create safe harbors to permit interlocks involving very small competitive overlaps. However, if the jurisdictional thresholds are met and no safe harbor applies, the ban on interlocks remains absolute: in antitrust terms, Section 8 is a per se statute that does not require proof that the interlock results in harm to competition.
Now Section 8’s higher jurisdictional threshold is adjusted every year based on changes in GNP, and, with the adjustments announced last week, excludes corporations that have capital, surplus and undivided profits aggregating less than $32,914,000. In addition, there are three de minimis exceptions to the interlock ban that permit horizontal interlocks for two companies with few overlapping products:
the competitive sales of either corporation are less than $3,291,400 (also adjusted annually for changes in GNP),
the competitive sales of either corporation are less than 2 percent of that corporation’s total sales, or
the competitive sales of each corporation are less than 4 percent of that corporation’s total sales.
Note that these thresholds and exemptions only apply to horizontal interlocks that would otherwise violate Section 8. Other statutes, such as Section 1 of the Sherman Act, still apply without exception to limit collusive behavior or unreasonable information sharing among competitors, including when such conduct occurs in the context of an exempt interlock. In addition, Section 5 of the FTC Act may also reach interlocks that do not technically meet Section 8’s interlock requirements but violate the policy against horizontal interlocks expressed in Section 8. For example, Section 5 can reach interlocks involving banks, which are exempt from Section 8, and competing non-bank corporations. In re Perpetual Fed. Savings & Loan Ass’n, 90 F.T.C. 608, 657 (1977)).
Lessons from Section 8 enforcement
The Commission has generally relied on self-policing to prevent Section 8 violations, and as a result, litigated Section 8 cases are rare (with none construing the 1990 amendments). In recent Section 8 investigations, once staff raised concerns, an individual agreed to step down from one company in order to eliminate the interlock. For example, FTC staff closed an investigation into interlocks involving Google, Inc. and Apple, Inc. after a common member resigned from Google’s board and Google’s CEO resigned from Apple’s Board.
A resignation that eliminates the interlock may effectively bring each company back into compliance with Section 8 and may lead the Commission to determine that there is no need for any further action where there is little risk of recurrence. (The FTC’s remedy for a Section 8 violation is injunctive relief – an order to cease and desist. Section 8 does not provide for civil penalties or other monetary relief.) Note, also, that Section 8(b) provides a grace period of one year for an interlocking director or officer to resign if there is a change that renders him or her ineligible to serve on both boards.
Book cover
The Palgrave Encyclopedia of Strategic Management pp 1–2Cite as
Palgrave Macmillan
Interlocking Directorates
Brian Boyd
Living reference work entry
First Online: 01 January 2016
Interlocking Directorates | SpringerLink
Definition
Interlocking directorates, or board interlocks, occur when two firms have the same person serving on their respective boards of directors.
An interlocking directorate exists when one person serves concurrently on the board of directors of two firms. This tie is considered to be directional if the director is an officer or other representative of either firm. Indirect interlocks represent the broader pool of board ties held by other directors at the two firms. While interlocks between independent companies are the focus of most research, interlocks have also been studied between the boards of parent and subsidiary organizations (Kriger 1988) and between members of a common business group (Boyd and Hoskisson 2010). Network analysis (Stokman et al. 1985) is often used to analyse patterns of ties among a group of firms.
K: New UK Block Exemption Orders Come Into Force For R&D And Specialisation Agreements
10 January 2023
by Ashley French (Edinburgh)
Shepherd and Wedderburn LLP
New UK Block Exemption Orders Come Into Force For R&D And Specialisation Agreements - Antitrust, EU Competition - UK (mondaq.com)
On 1 January 2023, the Competition Act 1998 (Research and Development Agreements Block Exemption) Order 2022 (R&D BEO) and the Competition Act (Specialisation Agreements Block Exemption) Order 2022 (Specialisation Agreements BEO) came into force in the UK, replacing the retained EU regulations which expired on 31 December 2022.
This article summarises the policy background and key changes.
Policy background
Competition law and its enforcement contribute to ensuring that market failures are prevented or remedied by prohibiting agreements between businesses that prevent, restrict or distort competition. This can include, for example, price-fixing, sharing commercially sensitive information, or obligations to supply a product exclusively to a particular buyer. In this way, competition law protects UK businesses and consumers from illegal and anti-competitive behaviours across the economy.
That said, certain types of agreements, which would ordinarily be captured by this prohibition, are generally considered to be beneficial and not anti-competitive. For example, horizontal cooperation agreements between two or more competitors operating at the same level in the market can lead to substantial economic and sustainability benefits, particularly if companies combine complementary activities, skills or assets.
Research and development (R&D) agreements are a type of horizontal co-operation agreement which can facilitate early breakthroughs in research and product development and support more efficient resource allocation through collaborative R&D. Specialisation agreements also comprise types of horizontal agreement: joint production agreements, unilateral specialisation agreements, and reciprocal specialisation agreements which concern the manufacture of goods or the preparation of services. These types of agreement have the potential to improve production processes and lower costs, which can ultimately lead to lower prices for consumers and greater market efficiency.
Well that's nailed it, there a criminal enterprise "a group of individuals with an indentified hierarchy or comparable structure engaged in significant criminal activity"
Or to put it simply "THE GOVERNMENT"