This new offence has been a long time coming and follows both historic and more recent speculation about the introduction of a broader failure to prevent economic crime offence and a failure to prevent money laundering offence, neither of which will now be introduced.
What is the new offence?
The Government has published a factsheet (the “Factsheet”) which confirms that the new offence will follow the “failure to prevent model” already in place in relation to bribery and the facilitation of tax evasion. Under the new offence, a company will be liable when a specified fraud offence (listed below) is committed by an employee or agent of the company (the “associate”), for the benefit of the company. As with the other failure to prevent offences, there will be no need to prove that a ‘directing mind’ of the company was involved in any misconduct.
Whilst the Factsheet is silent on this, the most recent amendment to the Bill suggests that a company will also be liable where a fraud is committed for the benefit of “any person to whom …. the associate provides services on behalf of the relevant body”. This limb of the offence appears to mirror the approach taken in relation to the failure to prevent the facilitation of tax evasion, attributing liability to a company for the actions of employees who enable fraud for the benefit of others.
As with existing failure to prevent offences, a company will have a defence available to it if it can demonstrate it has reasonable fraud prevention procedures in place.
A company failing to demonstrate reasonable procedures will be liable to receive an unlimited fine.
Security Minister Tom Tugendhat said the “new failure to prevent fraud offence will protect consumers from dishonest and misleading sales practices, and level the playing field for the majority of businesses that behave responsibly”.
Lisa Osofsky, Director of the Serious Fraud Office, said that “as the UK’s top economic crime prosecutors, this would help us crack down on fraudulent enterprises, compensate their victims and ultimately protect the integrity of our economy”.
The Home Office has published a press release, outlining the benefits of the new offence in terms of fraud prevention and the protection of consumers, investors and businesses.
Who will be affected?
The offence will apply to companies in all sectors, however, only large companies are in scope – those which fulfil two out of the three following criteria:
- More than 250 employees
- More than £36 million turnover
- More than £18 million in total assets
What fraud offences are within scope?
The fraud offences that will be covered by this offence include:
- False accounting (under Theft Act 1968)
- False statements by company directors (under Theft Act 1968)
- Fraud (under Fraud Act 2006)
- Participating in fraudulent business carried on by a sole trader (under Fraud Act 2006)
- Cheating the public revenue (under common law)
The offence list may also be updated through secondary legislation in the future.
What will companies be required to do?
It will be a defence for a company to show that it had “reasonable fraud prevention procedures” in place. It follows that there may be circumstances where it is reasonable to have no fraud prevention procedures in place (for example, companies where the risk is extremely low).
A fraud risk assessment will be an essential first step when considering reasonable procedures.
Is there any extra territorial reach?
Yes – it has been confirmed that if an employee commits fraud under UK law, or targets UK victims, a company could be liable, even if it (and the employee) are based overseas.
When will the new offence come into force?
Once the Bill has been approved by Parliament and the Government has published guidance on what it considers to be a “reasonable fraud prevention procedures”.
Next Steps
If you would like to find out more about what this new offence could mean for your company, how best to approach your assessment of risk, or update your existing policies and procedures, please get in contact with our team today.
Authored by Claire Lipworth, Olga Tocewicz, and Elizabeth Horton.
