Businesses in the UK should consider how a new ‘failure to prevent’ fraud offence should be accounted for in their compliance programmes and contracts, experts at Pinsent Masons have said.
They said an offence of organisational failure to prevent fraud is likely to be included in the Economic Crime and Corporate Transparency Bill, which is in the final stages of being passed in Parliament, despite the fact MPs and peers have yet to agree on the detail.
During the summer, the House of Lords put forward amendments to the government’s proposals, to expand the scope of the offence to all UK-incorporated bodies or formed partnerships or foreign-incorporated bodies or formed partnerships that carry on a business or part of a business in the UK.
The plans put forward by Conservative peer Lord Garnier would have extended the ‘failure to prevent’ fraud offence to include ‘non-micro organisations’ as well as ‘large organisations’.
However, MPs in the Commons recently reiterated their desire to restrict the scope of the proposed new offence to large organisations only. The government has previously expressed concern that a broadening the scope would place a disproportionate cost burden on small businesses.
However, Lord Garnier highlighted the fact that the existing ‘failure to prevent’ offences on the UK statute book – which concern failure to prevent bribery or tax evasion offence – do not contain any SME exemption.
The Bill is now due to go back before the Lords for further consideration. A provisional date of Wednesday 18 October 2023 has been set for this next stage.
“While it is clear that the failure to prevent fraud offence will make its way into the statute book, the application of the offences to small and medium size business is subject to further debate with a final decision looking imminent,” said Pinsent Masons’ Rachel Trease. “No matter what parliament decides, organisations in scope will push fraud prevention obligations down the supply chain through contractual obligations.”
Tom Stocker, a specialist in in corporate criminal defence at the firm, said: “This is a change the Serious Fraud Office has spent 10 years pushing for to make it easier to prosecute companies. The law will not be brought into force until guidance on reasonable preventative procedures is published, but the law could be in force shortly thereafter.”
And Andrew Sackey, specialist in global investigations at Pinsent Masons, added: “The range of diverse conduct captured by the proposed offence of failing to prevent fraud is remarkably broad; encompassing key prohibitions from across the UK’s Fraud, Theft, and Companies Acts – as well as the incredibly wide common law offence of cheating the Revenue.”
“The government’s stated objective remains to drive ‘a culture change towards improved fraud prevention procedures in organisations’. We are already engaging with clients and beginning to scope out how existing risk assessments can be most effectively updated to provide the necessary protections from this new and imminent enforcement risk,” he said.
“The government’s stated objective remains to drive ‘a culture change towards improved fraud prevention procedures in organisations’. We are already engaging with clients and beginning to scope out how existing risk assessments can be most effectively updated to provide the necessary protections from this new and imminent enforcement risk.”
Andrew Sackey, Specialist in Global Investigations, Pinset Masons
