Failure to prevent Fraud: New Corporate Criminal Offence confirmed by Government.
The government has signalled a significant development in U.K. corporate criminal enforcement with the introduction of the new offence of ‘failure to prevent fraud.’
This was introduced by the government into the draft Economic Crime and Corporate Transparency Bill as of 11 April 2023 and is perhaps the most significant new legislation in the area since the Bribery Act 2010.
The proposed new offence
As is currently drafted, a relevant body will be guilty of a crime if it fails to prevent fraud by an employee or agent unless they can prove that it had reasonable procedures in place to prevent fraud.
What is a relevant body?
A relevant body is defined as a large organisation whose threshold will be met if the organisation meets two out of three following criteria:
- more than 250 employees.
- more than £36 million turnover; and
- more than £18 million balance sheet total.
This offence does not apply to individuals within the company but solely to corporate bodies. Entities convicted of the new offence would face an unlimited fine and confiscation of profits.
Under the proposed new offence, an organisation will be strictly liable if:
- a specified fraud offence is committed by an employee, agent or subsidiary; and
- the organisation did not have reasonable fraud prevention procedures in place.
A list of the specified fraud and false accounting offences will be set out in the legislation, and includes, for example, false statements by company directors. This list of specified offences will be subject to amendment under power given to the Secretary of State.
What needs to be done?
Businesses should be aware this legalisation has not yet been enacted so they do have time to prepare. The offence will not come into force without government published guidance on what reasonable fraud prevention measures may look like. Once published it will need to be carefully considered to ensure that all policies and procedures will be sufficient to enable the organisation to establish the reasonable procedures defence should that ever become necessary.
All relevant businesses should take this opportunity to review existing anti-fraud compliance frameworks they have in place and consider whether they may need to update risk assessment now that we have knowledge of this new offence.
This new offence is intended to make it easier to prosecute large organisations that commit fraud. Not only could this lead to serious financial loss and potential civil claims it could also cause very significant reputational damage. It will be essential to ensure that efficient training, policies and monitoring are in place to avoid risks arising.
Further updates will follow as the legislation progresses.
If you would like any further information or advice, please contact Richard Gray from the Corporate team.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.