The UK Government intends to introduce a new “failure to prevent fraud” offence as an amendment to its Economic Crime and Corporate Transparency Bill (the Bill).
In particular, a large organisation that fails to prevent fraud by an associated person would commit an offence provided the fraud was committed with the intention of benefitting the organisation or those to whom it provides services.
An associated person is defined as an employee, agent or subsidiary of the relevant organisation, an employee of a subsidiary, or a person who otherwise performs services for or on behalf of the organisation.
The new offence, as currently drafted, catches larger companies and partnerships which meet at least two of the three following characteristics:
- more than 250 employees
- more than GPB36 million turnover
- more than GBP18m in total assets.
In addition, the offence will apply to a parent company if the group headed by it (defined as the parent and its subsidiaries) meets, in aggregate, two or more of the characteristics above.
In terms of non-UK businesses, these look to be within scope of the new failure to prevent fraud offence which applies to a ‘relevant body’ defined as a body corporate or a partnership wherever incorporated or formed.
The Impact Assessment states that this includes foreign companies with UK operations. Therefore for overseas companies it will be essential when any fraud is committed to go through a careful legal analysis to establish whether the new failure to prevent fraud offence applies.
Businesses in scope will need to reassess risk and examine existing fraud detection and prevention processes against the new statutory guidance, when published, as well as fully documenting that process.