New UK criminal offence intended to encourage companies to implement or improve prevention procedures

The UK Government has announced its intention to create a new crime of “failure to prevent fraud” to hold organisations to account if they profit from fraud committed by their employees.

Under the new offence, larger organisations will be liable where a fraud is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place.

It does not need to be shown that the organisation’s management ordered, or even knew about the fraud.

The failure to prevent fraud offence is likely to come into force by the end of 2024, to be inserted into the Economic Crime and Corporate Transparency Bill, alongside a broader tightening of the laws related to corporate criminal liability.

There will be a defence of having “reasonable procedures in place to prevent fraud” and the Government has said it will publish guidance with more information about reasonable procedures before the new offence comes into force.

The Government also said that if fraud is committed under UK law, or targeting UK victims, the organisation could be prosecuted, even if the organisation and the people committing the fraud are based overseas.

The new offence will apply to all “large” bodies corporate and partnerships, meeting two of the following 3 criteria:

• more than 250 employees;
• more than £36 million turnover; and
• more than £18 million in total assets.

There are a number of specified types of fraud to be caught by the new offence, including:

• fraud by false representation or failing to disclose information;
• obtaining services dishonestly;
• false statements by company directors;
• false accounting; and
• fraudulent trading.

The Government openly states that it wants to drive “a major shift in corporate culture to help reduce fraud”, in particular by discouraging organisations from turning a blind eye to fraud by employees and encouraging companies to implement or improve prevention procedures.

At FORCYD we have seen a noticeable increase in clients asking for us to work with them to develop compliance monitoring systems, using a combination of eDiscovery technology and advanced forms of Artificial Intelligence, and this trend is only likely to continue with new offences coming onto the statute book.

Organisations would best be advised to revisit their anti-fraud policies and procedures and ensure they have effective audit and monitoring processes in place.

About the author:

Robert Gradel leads FORCYD’s Document Review Services in the UK.

Robert has over 10 years’ experience in eDiscovery, assisting legal teams and corporates on complex document and data review projects, including matters related to banking finance, fraud, regulatory activities and commercial litigation.