UK: government proposes new offence of failure to prevent fraud

Update: the Bill received Royal Assent on 26 October 2023. 

The UK government has introduced a new failure to prevent fraud offence into the Economic Crime and Corporate Transparency Bill during its progress through the House of Lords. Once enacted, this will require HR in larger companies to review and update staff training and policies in order to be able to establish the proposed "reasonable fraud prevention procedures" defence; employment and worker contracts and whistleblowing procedures may also need updating.  The government will be under a statutory duty to publish guidance on reasonable procedures before the offence comes into force, likely to be later this year or early 2024.

Our Corporate Crime team has published an initial briefing and more detailed analysis of the key elements of the new offence (as currently drafted), areas of ongoing debate, and some practical illustrations of the implications of the new offence.

Under the Bill, a corporate offence (an "FTP Offence") is committed where:

• an "associated person" of a "relevant body" commits a "relevant fraud offence" (and an employee is rebuttably presumed to be an associated person);
• intending to benefit (directly or indirectly) the relevant body or any person to whom, or to whose subsidiary, the associate provides services on behalf of the relevant body; and
• the relevant body did not have in place reasonable fraud prevention procedures.

A relevant body can be a company or a partnership. However, the FTP Offence currently applies to large organisations only, defined (using the standard Companies Act 2006 definition) as organisations meeting two out of three of the following criteria: (1) more than 250 employees (2) more than £36 million turnover and (3) more than £18 million in total assets.

No FTP Offence is committed where the fraudster intended to benefit the client/customer of the relevant body, and the relevant body was itself a victim of the fraud offence (or was intended to be).

If convicted, an organisation may be liable to an unlimited fine.

The government's Factsheet states that: "If an employee commits fraud under UK law, or targeting UK victims, their employer could be prosecuted, even if the organisation (and employee) are based overseas".

For further details see our HSF Corporate Crime briefings linked above. Recommended preparatory steps include considering who the owners and stakeholders for any FTP Offence implementation project will be, the approach to group wide as opposed to UK compliance, when the project will be commenced and how it will be resourced.