New offence will make it easier to prosecute a large organisation
if an employee commits fraud for the organisation’s benefit.
The new failure to prevent fraud offence will make it easier to
prosecute a large organisation if an employee commits fraud for
the organisation’s benefit.
If fraud is committed by an employee of an organisation, the
organisation must be able to demonstrate it had reasonable
measures in place to deter the offending or risk receiving an
unlimited fine.
The proposed legislation encourages businesses to do more to
deter offending which will help cut crime and protect consumers,
investors, other businesses and the taxpayer from fraudulent
practices.
Businesses which fail to deter fraud will face enforcement action
under new Home Office plans.
The tighter legislation, to be introduced through the Economic
Crime and Corporate Transparency Bill, will allow prosecutors to
hold big companies to account if an employee commits fraud for
the organisation’s benefit, and they did not have reasonable
prevention procedures in place.
The Home Office tabled an amendment to introduce the failure to
prevent fraud offence earlier today, and it is supported by the
Serious Fraud Office and the Crown Prosecution Service.
Security Minister said:
We are determined to crack down on unscrupulous companies that
seek to defraud their customers.
Our 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.
This government is committed to fighting economic crime, as
demonstrated by our recently launched Economic Crime Plan 2 which
set out how we will give law enforcement more state of the art
resources to tackle high level offending.
The new legislation will protect the public from a wide range of
harms including dishonest sales practices, false accounting and
hiding important information from consumers or investors.
It could also hold companies to account for dishonest practices
in financial markets.
The new powers follow on from recommendations made by the Law
Commission’s 2022 review of corporate criminal liability.
Lisa Osofsky, Director of the Serious Fraud Office, said:
This new offence would be a game-changer for law enforcement –
bringing the law on fraud in line with bribery.
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.
Prosecutors will independently consider whether a prosecution is
in the public interest before any charges are brought.
A business could face legal action if, for example, employees
were selling products to a customer under false pretences.
It could also be held accountable if employees falsified accounts
to mislead investors.
Under both examples, a business could receive an unlimited fine
if it is found to not have reasonable fraud prevention procedures
in place. This enforcement not only ensures justice is secured
for victims, it also encourages companies to create an
environment where it is difficult for fraudulent tactics to
thrive.
There will be no requirement to prove that company bosses ordered
or knew about a fraud committed by an employee.
A business will not be liable if it can prove reasonable measures
were in place to deter the offence. The government will publish
guidance on reasonable prevention measures in due course. The
offence will not be enforced until the guidance is published.
Andrew Penhale, Chief Crown Prosecutor for the CPS, said:
The scale of fraud in the UK – now comprising 41% of all criminal
activity – is so significant that extra measures to help prevent
it and protect people from falling victim to this crime is
welcome.
The new corporate offence of failing to prevent fraud is another
important measure to drive better corporate behaviours and will
complement existing measures for prosecutors.
Larger corporate enterprises, which fail to put in place
reasonable measures to prevent fraud being committed by their
employees, may be held criminally liable for that failure.
A primary benefit of the new legislation will be a drive towards
better corporate behaviours which seek to prevent fraud. A
similar outcome has been observed under the existing failure to
prevent bribery and failure to prevent facilitation of tax
evasion offences.
Small and medium sized enterprises will be exempt from the new
offence but remain accountable under the existing legal
framework.
The new legislation will apply across the United Kingdom.
