Introduction
As part of its ongoing efforts to combat corporate fraud and protect victims, the UK government is introducing a powerful new legal tool known as the “failure to prevent fraud offence.” To be inserted into the Economic Crime and Corporate Transparency Bill.
This offence aims to hold organisations accountable if their employees commit fraud for the organisation’s benefit, even if company bosses were unaware of or did not order the fraudulent activities. In this blog post, we will delve into the government’s motivations behind creating this offence, its implications for businesses, and how it will help curb fraud while safeguarding victims.
Driving cultural change: improving fraud prevention procedures
Fraud has become a pervasive problem in the UK, constituting 41% of all reported crimes in the year ending September 2022. To address this issue, the government is leveraging the new offence as a means to drive a cultural shift within organisations. By making them liable for the fraudulent actions of their employees, the government intends to encourage companies to adopt robust fraud prevention procedures. This proactive approach will reduce the risk of fraud occurring within organisations, ultimately benefiting businesses, individuals, and the economy as a whole.
Holding organisations liable: a shift in corporate culture
The failure to prevent fraud offence will not only enhance existing powers to fine and prosecute organisations but also close loopholes that have previously allowed companies to avoid prosecution. Under the new offence, companies can be held liable if a specified fraud offence is committed by an employee or agent for the organisation’s benefit, and if the company did not have reasonable fraud prevention procedures in place. Importantly, the offence does not require proof of senior management’s knowledge or involvement in the fraud, emphasising accountability for the organisation as a whole.
Protecting victims: businesses and individuals
The impact of fraud reaches far and wide, affecting individuals, businesses, and the taxpayer alike. Victims of fraud may suffer financial losses due to dishonest sales practices, fraudulent financial market activities, or the concealment of critical information. With the failure to prevent fraud offense, the government seeks to protect victims by enabling prosecutions against organisations that profit from fraudulent actions. This measure will serve as a deterrent, discouraging companies from turning a blind eye to fraudulent practices by their employees.
Scope of the new fraud offense
The offence was initially designed to apply to all “large organizations,” with the threshold being met if an organisation satisfied two or more of the following conditions in the financial year preceding the offence: (i) employed more than 250 individuals, (ii) had a turnover of over GBP 36 million, and/or (iii) possessed assets worth more than GBP 18 million. However, recent amendments have eliminated this requirement, making the offence likely to encompass all organisations, regardless of their size. Either way those who do not fall into scope should be mindful of the repercussions of fraudulent behaviour and put in place measures to detect and prevent fraud.
Though the exact jurisdictional scope remains unclear, the newly amended offence will also extend to organizations and their employees based overseas if an employee or agent commits a fraud offence under UK law or targets UK victims.
Avoiding prosecution: implementing reasonable fraud prevention procedures
To avoid prosecution under the failure to prevent fraud offense, organisations need to have reasonable fraud prevention procedures in place. The government will publish guidance to help organisations understand what constitutes reasonable procedures before the offence comes into force. This is where compliance consultant can help.
The penalty: unlimited fines
If convicted under the new offence, an organisation can receive an unlimited fine. The courts will consider all relevant circumstances when determining the appropriate level of the fine for a particular case, further emphasising the seriousness of the offence.
How can we help?
At LS Consultancy, one of our primary services is to assist companies in enhancing their governance practices. Our specialised services encompass the thorough evaluation of your current ABC policy and fraud policy, aligning them with the latest regulations. With our support, you can rest assured that your organisation’s policies are comprehensive and in accordance with the prevailing guidelines, granting you peace of mind in your compliance efforts. Additionally, we can extend our expertise to reviewing any other existing policies and procedures you may have in place.
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