The Government response to the House of Lords Fraud Committee report

The Government's response to the recent Fighting Fraud: Breaking the Chain report (the report) was published yesterday. The report was published by the House of Lords Fraud Act 2006 and Digital Fraud Select Committee in November 2022.

The report studied in detail the various stages that commonly occur in the lead up to a fraud. The Committee made a number of positive recommendations in the report as to how many of those contributing factors can be tackled. The Government has addressed each of those recommendations in its response.

Offence of failure to prevent fraud

One of the key recommendations in the report was the proposal that there be a new offence of failing to prevent fraud. The intention is that company directors be held liable for a company's failure to take adequate steps to prevent involvement in fraudulent behaviour (much like how companies approach their obligations under the Bribery Act 2010). This has the potential to affect all company directors whose services are utilised by or in the course of fraud and across all industries. Baroness Nicky Morgan, speaking at the South West Fraud Forum on 10 March 2023, said that the offence would be about "driving cultural change".

Much has been said on this topic recently as the Economic Crime and Corporate Transparency Bill (ECCTB) progresses through the Houses of Parliament both inside the House in scheduled debates and by others outside of politics. For more on the ECCTB, read our previous articles discussing the prevalence of economic crime in the UK and the role of directors

Notwithstanding widespread support for an offence of failure to prevent fraud, there has been some uncertainty though as to whether the ECCTB will include provision for the offence or whether it would feature in separate legislation in the future.

The Government's response to that proposal has been to confirm that it supports the introduction of such an offence, and it is committed to addressing the need for this in the ECCTB.

It is anticipated that the Government's proposed wording setting out the details of the offence will be published soon and in time for the Committee stage of the Parliamentary process (date to be confirmed).

Other strategies for combatting fraud

The Government also responded as follows in response to other proposals made by the report:

  • The Government is considering the possibility of delaying some bank payments (in high-risk fraud scenarios) in order to facilitate suitable fraud checks.
  • The ECCTB should bring in a number of new powers to combat fraud including new powers to assist with the seizure and recovery of crypto-assets which are the proceeds of crime or are involved in illicit activity and a reformed expanded role for Companies House.
  • The Government agrees with the need for more effective join up across the wider digital regulatory landscape.
  • Increasing spending alone on preventing fraud is not enough and private sector partners will need to play a significant part in combatting the crime.
  • Whilst existing legislation enables civil recovery, the Government proposes a scoping exercise on the barriers to civil recovery before possibly undertaking a more detailed report of the position.
  • The Government does not appear to support the telecommunications and tech sectors being compelled to reimburse the victims of fraud (in contrast to the financial sector) and intends to work with the telecommunications and tech sectors to ensure protections are in place to prevent fraud in the first place.
        • The Government may consider a widespread "duty to report" instances of fraud if current voluntary guidelines suffer from a lack of engagement.

        In the short term…

        In the short term, the ECCTB remains one of the (if not the most) important vehicles for strengthening the UK's response to fraud but it is clear that there is growing demand for a more cohesive anti-fraud strategy.

        However, the offence of failure to prevent fraud, if adopted, could be a major part of that. 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 limited to the cost of doing business.