Baroness Morgan gives an update on the proposed failure to prevent fraud offence at the South West Fraud Forum

On 10 March 2023, the Rt. Hon. Baroness Morgan of Cotes (Chair of the House of Lords Fraud Act 2006 and Digital Fraud Committee) gave more detail about the possibility of a new corporate offence of failing to prevent fraud.

Baroness Morgan was speaking at the South West Fraud Forum Annual Conference 2023, hosted by Foot Anstey.

The proposed offence

The recent House of Lords Select Committee report Fighting Fraud: Breaking the Chain recommended that there be a new offence introduced for corporates of failure to prevent fraud. It was recommended that the offence apply across all sectors.

Progress on introducing the offence

The recommendation has been well timed as it coincides with the current passage through Parliament of the Economic Crime and Corporate Transparency Bill (ECCTB). Many in Parliament (in the Commons and the Lords) have added to the recent calls for such an offence to be created and that it be included within the scope of the ECCTB. The Government has conceded that such an offence should be included.

The Government's response to the recommendation (and the other recommendations made by the House of Lords report) was published on 9 March 2023. For more details of the Government's response, please see our previous article.

As it stands, we await the Government's proposed wording of the offence in preparation for its discussion at the Committee stage of the ECCTB's journey through the House of Lords.

Baroness Morgan's updates

On the recommendation of an offence of failure to prevent fraud, Baroness Morgan commented that:

  • With limited consultation on the proposed offence, the Government may prefer to keep any offence "narrow" – applying to telecommunications, ISPs, and online platforms. This is contrary to the preference of some, who consider a wider approach is needed to deliver the culture shift needed to end the view that fraud is a “cost of business”.
  • Whilst institutions might not want a failure to prevent fraud offence, it's all about "driving cultural change" particularly in circumstances where other methods of combatting the effects of fraud (such as the reimbursement of victims) do not solve the underlying problem of squeezing fraud out of the system.
  • The current Minister of State for Security, Tom Tugendhat, has shown a great interest in the offence but we are going to have to wait and see how the offence is drafted.

Impact on business

The offence of failure to prevent fraud, if adopted, could be a major part of the UK's response to the growing problem of fraud.

Business could therefore be faced with such a serious new obligation in the near future and as the application to each sector will be in the detail of the offence, it will be essential for risk and compliance teams (as well as directors themselves) to keep close to developments (and other key developments in the fight against fraud) as the consequences of failure may no longer be contained as a cost of doing business.

We will continue to provide updates on the progress of the potential offence when we become aware of them.

The South West Fraud Forum

Foot Anstey's Steven Richards and James Gliddon co-chair the The South West Fraud Forum (SWFF).

The SWFF has been set up with the aim of increasing the resilience of regional organisations – in both the private and public sector – to the threats posed by fraud.

The SWFF is led by a board of experts, with a wide range of both public and private sector experience, who bring their knowledge to the forum to drive strategy and ensure that the organisation meets the needs of its members.