A corporate criminal offence of ‘failure to prevent fraud’ has come into effect in the UK. It’s a part of the Economic Crime and Corporate Transparency Act (ECCT) 2023, that was passed into law by the previous, Conservative Government.
Home Office minister for counter-fraud Lord Hanson said: “Fraud is a shameful crime, and we are determined to bring those responsible to justice wherever it takes place. Today marks a pivotal moment for businesses, and this new offence strengthens our anti-fraud culture to protect businesses, build corporate trust, and support long-term economic growth, a cornerstone of this government’s Plan for Change.
“I look forward to continuing our work with partners, as we publish our new, expanded fraud strategy, which places fraud against business at its heart.”
Welcomed
Sarah Saxton-Jones, Head of Product at the investigative software firm Altia welcomed this. She said: “Simply reacting to incidents is no longer enough, companies must take a proactive stance or run the risk of severe penalties. Firms who act now and put strong safeguards in place will future-proof their operations. Recognising the signs of someone behaving dishonestly is imperative – this means conducting regular risk assessments, delivering staff training, monitoring third parties, and having auditable prevention procedures in place.
“Technology should be central to these efforts, and in the event that fraud is suspected, financial investigation software can quickly and efficiently provide clear visibility if fraudulent activity is taking place. Organisations that self-report fraud will be demonstrating their commitment to corporate governance and by equipping teams with the right tech to investigate, track and mitigate risks, we can help businesses protect their operations and build trust across all stakeholders.”
Guidance
For guidance on how to meet the new rule, visit https://www.gov.uk/government/publications/offence-of-failure-to-prevent-fraud-introduced-by-eccta. Briefly, you may be criminally liable where an employee, agent, subsidiary, or other “associated person”, commits a fraud intending to benefit the organisation and the organisation did not have reasonable fraud prevention procedures, which may include governance and due diligence, risk assessment, ‘commitment to training and resourcing’, and an open culture, ‘where staff feel empowered to speak up’, whistle-blowing processes, and ‘proportionate risk-based fraud prevention procedures’ that are communicated to the organisation and kept under review. This applies only to large organisations, defined as two out of these three: more than 250 employees, £36m turnover and £18m in total assets.
SFO
Nick Ephgrave, Director of the Serious Fraud Office (SFO), described it as ‘a significant new tool for prosecutors to tackle serious and complex fraud’. He said: “The SFO is ready to act if corporates fail to comply with their new responsibilities.”
Law comments
Richard Sallybanks, Managing Partner at the law firm BCL, commented that the SFO is likely to act quickly under its new powers. He said: “The SFO will be keen to bring cases under the new failure to prevent fraud offence as soon as possible; they will want to demonstrate that, for companies, the risk of investigation and prosecution is real and not just theoretical.”
And at the employment law firm Littler, Dónall Breen said that although it was largely a compliance matter, HR (human resources) and employment teams should be aware of this new offence and work with their compliance colleagues to ensure proper implementation of any new internal measures that impact HR policies and procedures. This may include reviewing hiring processes or considering contracts with staff or consultants to see if there is a need to insert anti-fraud clauses.
The law firm Pinsent Masons is running webinars on the subject, on September 23 and 29.
Insurance view
Adele Sumner, Head of Counter Fraud Strategy and Financial Crime at RSA Insurance, said: “The strategic objective of the legislation is clear, reduce fraud by embedding stronger controls. One of the ways to reduce the risk is to ensure your organisation has reasonable procedures in place to prevent fraud.
“Reviewing and strengthening anti-fraud controls is critical and everyone in the industry should be working together to inform and equip their clients on how best to sidestep this potential landmine.
“Fraud is endemic across all levels of our economy, so it’s not surprising that the legislation aims to cover a wide number of businesses. Indeed, it is expected that up to 11,000 mid-sized organisations with between 250 and 500 employees, may now find themselves in scope of the new regulations.
“The risk for smaller firms is that they are not equipped with strong internal fraud controls and many may not realise they could face criminal liability even if they weren’t aware fraud had occurred.”
