The New Failure to Prevent Fraud Offence – Introduction
The introduction of the ‘failure to prevent fraud’ offence in the Economic Crime and Corporate Transparency Bill 2022-23 marks a significant shift in holding companies accountable for corporate wrongdoing.
Rather than attributing liability to individual directors or senior officers, the new law focuses on the organizational failure of a company to prevent fraud committed by employees or agents acting on its behalf.
The new offence
This new offence follows the footsteps of similar measures, such as the corporate offences in the Bribery Act 2010 and the Criminal Finances Act 2017.
Companies can defend themselves by demonstrating that they had adequate procedures in place to prevent fraud.
The legislation aims to tackle unprosecuted fraud cases and enhance the UK’s fight against corporate crime.
Which companies are in the firing line?
However, it’s important to note that the new offence will only apply to larger companies meeting specific criteria. In order for the new law to apply, a company will need to satisfy at least two of the following:
- over 250 employees,
- a turnover exceeding £36 million, and
- total assets exceeding £18 million.
This limitation is intended to prevent disproportionate burdens on small and medium-sized companies.
It is thought that the new law will affect around 8,000 companies.
Thoughts
While the new offence is a sensible step towards combating economic crime, it won’t serve as a magical solution and is unlikely to lead to a surge in prosecutions.
Similar offences targeting bribery and tax evasion have seen limited prosecutions, often resulting in deferred prosecution agreements.
Establishing corporate guilt for the new offence will remain challenging, especially when assessing the adequacy of preventative measures.
Nonetheless, the true impact of this offence lies in raising awareness within the corporate sector about the importance of fraud prevention.
By enacting this law, Parliament emphasizes the expectation that leading UK companies act as responsible corporate citizens and take legal responsibility for preventing fraud within their organizations.
The New Failure to Prevent Fraud Offence – Conclusion
Large companies can no longer ignore fraud prevention; they must proactively police their affairs and ensure that employees and associated individuals act honestly and avoid fraudulent conduct.
While individuals may still face prosecution for their actions, companies will share legal responsibility for organizational failures that allowed fraud to occur.
Approximately 8,000 companies will be affected by this change, marking a significant shift towards private-sector oversight in the corporate sector.
Alongside existing measures targeting bribery and tax evasion, the introduction of this offence revolutionizes the way corporate criminality is addressed.
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