On 11 April 2023 a new offence of ‘failing to prevent fraud’ was tabled by the Government as an amendment to the Economic Crime and Corporate Transparency Bill which is progressing through the House of Lords.
What does this mean for business?
The UK Government recently announced the introduction of a new failure to prevent fraud offence to hold organisations accountable for economic crimes. The move is part of the UK’s ongoing effort to clamp down on fraud and corruption, and to restore trust and confidence in the country’s financial system. The new legislation builds on the Bribery Act 2010, which introduced a “failure to prevent bribery” offence, and it’s expected to impact a wide range of industries, including finance, tech, and professional services.
This new initiative is aimed at enhancing the UK’s reputation for transparency, accountability, and integrity, and creating a level playing field for all market participants. The government believes that by making businesses criminally liable for failure to prevent fraud, it will create powerful incentives for companies to establish more effective anti-fraud measures and prevent illicit activities from taking place.
The new offence will be introduced later this year, and it will cover any organisation that conducts business in the UK. Organisations will be found guilty of this offence if one of their employees or agents commits a fraud offence while acting within the scope of their employment or agency. That being said, the company would have a defence argument available if it took steps to prevent the fraud.
The offence will not only hold companies accountable for fraud committed by their employees; it will also apply to fraud involving third parties, such as suppliers, agents, and joint venture partners. This means that companies will need to conduct due diligence on these parties and take appropriate measures to prevent them from engaging in fraudulent activities.
The introduction of this new offence is a timely reminder that businesses operating in the UK must take a proactive approach to fraud prevention and detection. The government’s pursuit of stricter anti-fraud measures is a response to the growing recognition of the significant social and economic costs of fraud and corruption. In addition to the immediate financial impact, fraud can erode trust and confidence in the business community, damage reputations, and undermine the integrity of the financial system.
To succeed in this new regulatory environment, businesses must be diligent in their efforts to prevent fraud from occurring within their organisations and supply chains. This will require investment in tools and systems that can detect and prevent fraud, as well as ongoing training and awareness-raising among employees and contractors.
Moreover, the new legislation is expected to affect a wide range of industries, including finance, tech, and professional services. These industries will face increased regulatory scrutiny, and there is likely to be greater pressure to demonstrate strong internal controls, robust risk management frameworks, and effective due diligence processes. Companies that fail to invest in these areas may find themselves at risk of prosecution and the associated legal and reputational damage.
While the new legislation may create challenges for businesses, it also presents an opportunity for companies to adopt a more proactive approach to fraud prevention. By investing in compliance and due diligence companies can better protect themselves from fraud risk and demonstrate their commitment to ethical, transparent business practices. Supply chain compliance is where Pendragon Consultancy under their Pendragon Comply brand supports businesses by helping them to identify the risk areas and set up policies that will ensure you are doing everything to mitigate your risk
In conclusion, the introduction of a new failure to prevent fraud offence is a significant development in the fight against economic crime. The move is aimed at holding businesses accountable for fraudulent activity committed by their employees and agents and creating powerful incentives for organisations to establish more effective anti-fraud measures. To succeed in this new regulatory environment, companies must take a proactive approach to fraud prevention, investing in processes and systems that can help detect and prevent fraud, as well as training and awareness-raising among employees and contractors. While the new law may create challenges, it also presents an opportunity for companies to adopt a more ethical and transparent approach to business, which can enhance their reputation and strengthen stakeholder trust, value and confidence.