Failure to Prevent Fraud
Section 199 of the Economic Crime and Corporate Transparency Act 2023 creates a new offence of failing to prevent fraud. The offence is expected to come into force in early 2025, giving businesses time to prepare for it.
The new offence of failure to prevent fraud is intended to mirror the existing offences of failure to prevent bribery and failure to prevent the criminal facilitation of tax evasion, which are contained in sections 7, 8, and 9 of the Bribery Act 2010 (BA 2010) and Part 3 of the Criminal Finances Act 2017 (CFA 2017), respectively.
The offence will apply where the fraud is committed by an employee or associate of the organisation with a view to benefiting the organisation.
Does this offence apply to all companies?
The offence will only apply to large organisations as defined by reference to their turnover, balance sheet total and number of employees.
A relevant body is a “large organisation” only if the body satisfied two or more of the following conditions in the financial year of the body (“year P”) that precedes the year of the fraud offence:
Turnover More than £36 million
Balance Sheet Total More than £18 million
Number of Employees More than 250
Are any defences available?
A defence would be available where "reasonable procedures" for the prevention of fraud have been implemented by the organisation (thus mirroring the approach taken in the CFA 2017 for failure to prevent the facilitation of tax evasion), with provision that in some circumstances it may be reasonable for no such procedures to be in place.
The statutory defence in the Bribery Act 2010 (BA 2010) (failure to prevent bribery) is "adequate procedures" but this has been interpreted as meaning no more than "reasonable in all the circumstances" in other words, equivalent to ‘reasonable procedures’.
The government is expected to publish guidance in relation to what procedures might properly be expected to be in place.
The burden of proving that the organisation had put in place reasonable prevention procedures, or that it was reasonable not to have any such procedures, will lie with the organisation.
What is the maximum sentence if the company is convicted?
If convicted, an organisation could receive an unlimited fine, which could run into many millions of pounds for the largest firms.
How can we help?
We ensure we keep up to date with any changes in legislation and case law so that we are always best placed to advise you properly. If you would like to discuss any aspect of your case, please contact us on 0208 309 5010 or email newenquiries@nelson-guest.co.uk.
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