UK to make ‘failure to prevent fraud’ a criminal offence
March 6, 2023In February 2022, it was announced that the UK government would prioritise the introduction of a new criminal offence for failure to prevent fraud into the Economic Crime Bill. The Failure to Prevent Fraud Bill is designed to make prosecuting companies, their owners and directors whose employees commit fraud, easier. The Bill is currently going through its second reading in the House of Lords and is expected to come into effect in 2024, allowing time for guidance on “reasonable'” and “adequate” fraud procedures to be prepared.
What is the Failure to Prevent Fraud Bill?
The Failure to Prevent Fraud Bill is a proposed piece of legislation that aims to strengthen the country’s legal framework for prosecuting economic crime, specifically fraud and money laundering. The Bill proposes introducing a new offence of failing to prevent fraud, making it easier to hold companies liable for economic crimes committed by their employees and other associated persons.
Who is in scope?
According to reports, the proposed Bill targets professional service firms such as law firms and accountants. The current draft clause in the amendment paper states that the offence will apply to “relevant commercial organisations.”
However, the definition of a relevant commercial organisation varies depending on the offence in question. For instance, the definition is broad in the case of fraud or false accounting. It covers bodies and partnerships formed in the UK or carrying out business anywhere in the world, as well as those operating in the UK, regardless of where they were created.
On the other hand, for money laundering, the definition of a relevant commercial organisation includes a specific list of organisations, such as financial institutions and independent legal professionals.
As the amendment and the Bill are still in draft form, the exact wording of the offence may change.
Penalties
Under the proposed Failure to Prevent Fraud Bill in the UK, companies would be liable for failing to prevent fraud committed by their associated persons in the course of their employment. The proposed penalties for this offence include an unlimited fine, which means that the fine could be substantial and proportionate to the seriousness of the offence.
In addition to the fine, the proposed Bill allows for other penalties, such as confiscation orders, serious crime prevention orders, and the disqualification of directors. The Bill also proposes that companies could face additional reputational damage and loss of public trust due to being convicted for failing to prevent fraud.
It is important to note that the Bill has not yet been passed into law, and the exact penalties for failing to prevent fraud may be subject to change as the Bill goes through the legislative process.
Action to be taken now
Outlined below are five important measures that companies should undertake now to prepare for the new offence and to manage fraud risk in general:
- Risk assessments: Companies should conduct fraud risk assessments, considering both inward and outward fraud risks. Existing fraud risk assessments should be adapted as necessary.
- Policies and procedures: Businesses must ensure reasonable and risk-based procedures to prevent fraud. Existing policies and procedures should be reviewed and revised based on the risk assessment results.
- Training: Companies should update their fraud training to include outward and inward fraud, using real-life examples, preferably those encountered by the company or its peers. Consideration should be given to providing tailored training for employees in higher-risk positions.
- Due diligence: Existing third-party and M&A due diligence processes should be improved to include outward fraud risks. Appropriate fraud-related contractual protections should also be established.
- Monitoring and reviewing: As companies establish or supplement their fraud compliance programs, they should ensure that monitoring and review processes, such as transaction testing and sample auditing, cover inward and outward fraud.
Fraud defence solicitors are legal professionals specialising in defending individuals and companies accused of fraud. With the introduction of the Failure to Prevent Fraud Bill, the services of fraud defence solicitors have become increasingly important. Fraud defence solicitors can provide legal advice and representation to companies and individuals facing charges under the new legislation, helping them to create a strong defence and navigate the complex legal process. Fraud defence solicitors can also assist companies in implementing effective fraud prevention measures, such as conducting risk assessments, establishing policies and procedures, and providing staff training. By working closely with clients to understand their unique circumstances, fraud defence solicitors can help to protect their interests and minimise the impact of fraud-related allegations.