by Dimitris Mourkas, Rini Rashid, and Jennifer Revis
The UK will introduce a new criminal offence of failure to prevent fraud.
The new offence (which is still being shaped as it goes through Parliament), will be included in the Economic Crime and Corporate Transparency Bill and will come into force once that Bill has been approved by Parliament. This could be as early as spring/summer of 2023.
Under the new offence (which is similar to the existing offences of failure to prevent bribery and failure to prevent the facilitation of tax evasion), an organisation will be liable where a specified fraud offence is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place. It does not need to be demonstrated that company management ordered or knew about the fraud.
The proposed offence in its current form (there is much debate on that point) captures the following fraud and false accounting offences:
- fraud by false representation
- fraud by failing to disclose information
- fraud by abuse of position
- obtaining services dishonestly
- participation in a fraudulent business
- false statements by company directors
- false accounting
- fraudulent trading
- cheating the public revenue.
The offence will apply to all Large Organisations (including charities and public bodies) and partnerships operating across all sectors, wherever incorporated or formed. Large Organisations are defined as organisations that meet two of the following three criteria in the financial year that precedes the year of the fraud offence:
- have more than 250 employees
- have more than £36 million turnover
- have more than £18 million in total assets.
If convicted, a company can be liable for an unlimited fine.
Companies will be able to avoid prosecution if:
- they have reasonable procedures in place to prevent fraud; or
- they can demonstrate that it was not reasonable in all the circumstances to expect the body to have any prevention procedures in place (for example, because it is an organisation where the risk is extremely low).
The UK government has announced that it will publish guidance providing organisations with more information about reasonable procedures before the new offence comes into force. It is likely that there will be a period of consultation before this happens.
What should companies do
- Engage with legislative process and any subsequent consultations around guidance from the Government in order to shape the new regime in an appropriate manner.
- Once guidance on reasonable procedures is published, undertake risk assessments to ensure that reasonable prevention procedures are in place to detect and prevent fraud. Companies that already have such procedures should still stress test them against the new guidance.
If you have any questions on the topic, please get in touch with Jennifer Revis, Charles Thomson or Mark Simpson.
