A new corporate offence of failure to prevent fraud comes closer by the day and, in the words of the Serious Fraud Office "would be a game changer" – with businesses potentially exposed to unlimited fines should they not have reasonable fraud prevention procedures in place.
Further proposed offences which target relevant officers' and senior managers' decision-making in relation to fraud prevention may also bring about the cultural shift that has long been called for.
We have been following developments closely and, for background, our previous articles can be seen at the below links.
The Economic Crime and Corporate Transparency Bill (the "Bill")
The Bill has now reached the Committee Stage in the House of Lords and will sit at various dates over the course of this month (April 2023) to discuss numerous proposed changes.
The focus for many are the amendments which propose to introduce a corporate offence of failure to prevent fraud.
In regard to the proposed failure to prevent offence, to date, there have been two competing approaches, namely: the "failure to prevent facilitation of fraud" proposed by Baroness Morgan (the "Fraud Act Committee Amendment") and the "failure to prevent fraud (including false accounting), money laundering or sanctions evasion" proposed by Lord Garnier (the "Garnier Amendment"):
- The Fraud Act Committee amendment would create a corporate offence where a person uses the corporate's services to commit, or attempt to commit, fraud. Such an offence would be committed irrespective of whether the corporate body benefitted, or would have benefited, from that fraud.
- The Garnier Amendment is a more restrictive version of the offence, which provides for a corporate offence only where a person associated with the corporate body commits a fraud intending to confer a business advantage on the corporate body, or on a person to whom the corporate body provides services.
For both, the corporate would have a defence should they be able to show they had reasonable measures in place.
The Home Office's press release accompanying its recently tabled amendments (here), indicate that the Government is preferring a much narrower approach (similar to the Garnier Amendment) and, further, suggests SMEs will be excluded from the scope of the offence.
However, it will only be once the final wording of the Bill is settled (and supporting Guidance published) that its application can be fully assessed (and potentially insured against). That said, it should not stop Boards (and those tasked with Risk and Compliance) immediately assessing their organisations' current preparedness in response to fraud threats in a similar fashion to their existing Bribery Act obligations.
It should be noted that various further offences are proposed by Lord Garnier, including:
- Failure to prevent an economic criminal offence
- Failure to prevent criminal financial offences in the UK
- Corporate attribution for (or amendment to identification doctrine relating to) economic crime offences
- Regulatory failure to prevent economic crime and failure to prevent facilitation of economic crime
- Failure to prevent fraud, false accounting or money laundering: individual liability
The last of these would potentially make senior managers and officers personally liable for a criminal offence where fraud was committed in circumstances where their decisions failed to properly take account of such risks.