As published on step.org/industry-news, Thursday 13 April, 2023.
The UK government has released details of the corporate offence of failure to prevent fraud that is to be added to the Economic Crime and Corporate Transparency Bill currently in the House of Lords.
Under the new offence, an organisation will be liable where it benefits from a specified fraud offence committed by an employee or agent and 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, although individual managers or directors will not be liable to criminal prosecution under the offence.
The government says its aim is to encourage companies to set up fraud-prevention procedures and to stop 'unscrupulous operators' from profiting from misconduct. However, the measure is also designed to avoid unnecessary burden on legitimate businesses. Accordingly, it will apply only to large companies, partnerships and charities. 'Large' is defined as it is in the Companies Act 2006: more than 250 employees, more than GBP36-million turnover and more than GBP18 million in total assets. The Home Office's impact assessment estimates the total initial set-up costs at up to GBP451.8 million, with ongoing annual costs estimated at up to GBP61 million, spread over the 7,600 large organisations that are within the legislation's scope.
Anti-money laundering offences will remain under the existing regulatory regime and will not be part of the new 'failure to prevent' regime. The offence will be limited to fraud and false accounting, typically fraud by false representation, failing to disclose information, abuse of position, obtaining services dishonestly, participation in a fraudulent business, false statements by company directors, false accounting, fraudulent trading and the common law offence of cheating the public revenue. This list will be updated by secondary legislation when necessary.
Organisations will be able to avoid prosecution if they have reasonable procedures in place to prevent fraud. There will be a statutory duty on the government to publish guidance setting out what would be considered reasonable. The new offence will not come into force until this has been published, but when it does, the fines for non-compliance will be unlimited. It will apply throughout the UK, although if an employee based overseas commits fraud under UK law or targets UK victims, their employer could be prosecuted.