The new failure to prevent fraud offence will make it easier to prosecute a large organisation if an employee commits fraud for the organisation’s benefit.
If fraud is committed by an employee of an organisation, the organisation must be able to demonstrate it had reasonable measures in place to deter the offending or risk receiving an unlimited fine.
The proposed legislation encourages businesses to do more to deter offending which will help cut crime and protect consumers, investors, other businesses and the taxpayer from fraudulent practices.
Businesses which fail to deter fraud will face enforcement action under new Home Office plans.
The tighter legislation, to be introduced through the Economic Crime and Corporate Transparency Bill, will allow prosecutors to hold big companies to account if an employee commits fraud for the organisation’s benefit, and they did not have reasonable prevention procedures in place.
The Home Office tabled an amendment to introduce the failure to prevent fraud offence earlier today, and it is supported by the Serious Fraud Office and the Crown Prosecution Service.
Security Minister Tom Tugendhat said:
We are determined to crack down on unscrupulous companies that seek to defraud their customers.
Our new failure to prevent fraud offence will protect consumers from dishonest and misleading sales practices, and level the playing field for the majority of businesses that behave responsibly.
This government is committed to fighting economic crime, as demonstrated by our recently launched Economic Crime Plan 2 which set out how we will give law enforcement more state of the art resources to tackle high level offending.
The new legislation will protect the public from a wide range of harms including dishonest sales practices, false accounting and hiding important information from consumers or investors.
It could also hold companies to account for dishonest practices in financial markets.
The new powers follow on from recommendations made by the Law Commission’s 2022 review of corporate criminal liability.
Lisa Osofsky, Director of the Serious Fraud Office, said:
This new offence would be a game changer for law enforcement – bringing the law on fraud in line with bribery.
As the UK’s top economic crime prosecutors, this would help us crack down on fraudulent enterprises, compensate their victims and ultimately protect the integrity of our economy.
Prosecutors will independently consider whether a prosecution is in the public interest before any charges are brought.
A business could face legal action if, for example, employees were selling products to a customer under false pretences.
It could also be held accountable if employees falsified accounts to mislead investors.
Under both examples, a business could receive an unlimited fine if it is found to not have reasonable fraud prevention procedures in place. This enforcement not only ensures justice is secured for victims, it also encourages companies to create an environment where it is difficult for fraudulent tactics to thrive.
There will be no requirement to prove that company bosses ordered or knew about a fraud committed by an employee.
A business will not be liable if it can prove reasonable measures were in place to deter the offence. The government will publish guidance on reasonable prevention measures in due course. The offence will not be enforced until the guidance is published.
Andrew Penhale, Chief Crown Prosecutor for the CPS, said:
The scale of fraud in the UK – now comprising 41% of all criminal activity – is so significant that extra measures to help prevent it and protect people from falling victim to this crime is welcome.
The new corporate offence of failing to prevent fraud is another important measure to drive better corporate behaviours and will complement existing measures for prosecutors.
Larger corporate enterprises, which fail to put in place reasonable measures to prevent fraud being committed by their employees, may be held criminally liable for that failure.
A primary benefit of the new legislation will be a drive towards better corporate behaviours which seek to prevent fraud. A similar outcome has been observed under the existing failure to prevent bribery and failure to prevent facilitation of tax evasion offences.
Small and medium sized enterprises will be exempt from the new offence but remain accountable under the existing legal framework.
The new legislation will apply across the United Kingdom.