The UK government has recently published further details on the new ‘failure to prevent fraud’ offence in which organisations will now be held to account if they benefit from fraud committed by an employee. The offence is an amendment to its Economic Crime and Corporate Transparency Bill 2022-2023.
Fraud is currently the most common offence in the UK, accounting for 41% of all crimes in the year ending September 2022.
It can be committed in a number of ways including dishonest practices in financial markets or withholding key information from investors or customers.
Under the new offence, existing powers to fine and prosecute both organisations and individuals are to be strengthened, including closing loopholes which have enabled some organisations to avoid prosecution in the past. Organisations will now be liable in cases where a specified fraud offence is committed by an employee or agent, for the organisation’s benefit where the organisation did not have adequate fraud prevention procedures in place. If convicted, they could face potentially unlimited fines.
The offence will only apply to large partnerships and companies (using the standard Companies Act 2006 definition) which meet two of the following criteria:
more than 250 employees
more than £36 million turnover
more than £18 million in total assets
All sectors fall into scope, and the offence will apply across the UK. Additionally, if an employee commits fraud under UK law, or targets UK victims despite being based abroad the employer or organisation can still be prosecuted.
The offence will only come into force once the Economic Crime and Corporate Transparency Bill has been approved by Parliament and the government has issued new guidance on reasonable fraud prevention procedures. It is likely this will happen in 2024.