Companies seeking to avoid potential liability under the new ‘failure to prevent fraud’ offence must act now, economic crime specialists have warned as the government publishes its first guidance on the subject. The offence, created by the Economic Crime and Corporate Transparency Act, comes into force next September.
Andrew Reeves, partner at international firm Norton Rose Fulbright, said the measure is ‘a game-changing offence, which will have a similar impact to the UK Bribery Act. It will drive significant changes in compliance and culture, and lead to deferred prosecution agreements, as well as prosecutions.’
Quinton Newcomb, head of commercial crime at international firm Fieldfisher, said: ‘Companies can no longer afford to be passive; they must acknowledge these sweeping changes or risk facing the full force of increased criminal enforcement.
‘Businesses have less than a year to conduct thorough fraud risk assessments and upgrade their compliance procedures. This is a substantial task that will likely require multiple layers of internal approvals and considerable resources,’ he said. ‘Some companies have already started preparing for this, but others have been waiting for this final guidance before making concrete changes. Now, with this guidance available, it’s crucial that they move swiftly.’
According to government guidance published today large organisations – usually incorporated bodies or partnerships with a turnover of more than £36 million – may be held criminally liable where an employee, agent, subsidiary, or other ‘associated person’, commits a fraud intending to benefit the organisation. Examples may include dishonest sales practices, the hiding of important information from consumers or investors, or dishonest practices in financial markets.
Responsibility for the prevention and detection of fraud rests with those charged with the governance of the organisation, the guidance states. In the event of prosecution, an organisation would have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time that the fraud was committed.
Nick Ephgrave QPM, director of the Serious Fraud Office, said: ‘The publication of this guidance means that time is running short for corporations to get their house in order or face criminal investigation.’
