A new offence of failure to prevent fraud will be created by an amendment to the Economic Crime and Corporate Transparency Bill tabled by the government today. Under the measure, an organisation where a fraud has been committed must be able to demonstrate that it had ‘reasonable measures in place to deter the offending’ or be liable to an unlimited fine.
The measure also creates a ‘proactive information request power’ for the Solicitors Regulation Authority in relation to economic crime.
The Home Office said the proposed legislation will protect the public from a wide range of harms including false accounting and hiding important information from consumers or investors. ‘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,’ security minister Tom Tugendhat MP said.
The move follows 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.’
She said that 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. There will be no requirement to prove that company bosses ordered or knew about a fraud committed by an employee.
The Economic Crime and Corporate Transparency Bill is currently at committee stage in the House of Lords. The government said it will publish guidance on ‘reasonable prevention measures’ in due course. The offence will not be enforced until the guidance is published.
Small and medium sized enterprises will be exempt from the new offence but remain accountable under the existing legal framework, the government announcement said. The new legislation will apply across the United Kingdom.
Specialist lawyers cautiously welcomed the announcement. Kathleen Harris, managing partner at international firm Arnold & Porter said: ‘Given the offence is targeted towards larger organisations, it will be helpful to see clear and practical guidance on what will constitute “reasonable fraud preventative procedures”. It is hoped that the guidance will prevent companies becoming embroiled in long litigation and uncertainty.’
