Businesses will benefit from a new corporate criminal offence of ‘failure to prevent fraud’, designed to drive an anti-fraud culture and improve business confidence.
Introduced as part of the Economic Crime and Corporate Transparency Act (ECCT) 2023, the offence, which comes into effect today (Monday 1 September), will hold large organisations to account if they profit from fraud. It forms part of wider measures introduced by the government to tackle fraud and protect the UK economy, as part of the Plan for Change.
The offence of ‘failure to prevent fraud’ follows major steps forward on fraud prevention including
- pushing forward with a ban on SIM farms – technical devices which facilitate fraud on an industrial scale
- a bilateral agreement with the insurance sector
- adopting the first ever UN resolution on fraud
Under the new law, which was passed with cross-Parliament support, large organisations can 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
- hiding important information from consumers or investors
- dishonest practices in financial markets
In the event of prosecution, an organisation will now have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time the fraud was committed.
The offence is intended to encourage organisations to build an anti-fraud culture, in the same way that failure to prevent bribery legislation has helped reshape corporate culture since its introduction in 2010.
Throughout the implementation period, businesses have been supported with guidance advising on the new offence, ensuring they take action to prevent fraud.
With recent ONS figures finding that fraud increased last year by 31%, the government has placed key focus on tackling this issue. Plans are developing at speed ahead of the publication of a new, expanded fraud strategy, which places tackling fraud against business at its heart.
Fraud Minister Lord Hanson said
Fraud is a shameful crime, and we are determined to bring those responsible to justice wherever it takes place.
Today marks a pivotal moment for businesses, and this new offence strengthens our anti-fraud culture to protect businesses, build corporate trust, and support long-term economic growth, a cornerstone of this government’s Plan for Change.
I look forward to continuing our work with partners, as we publish our new, expanded fraud strategy, which places fraud against business at its heart.
The Solicitor General Lucy Rigby KC MP, said
Fraud undermines our British values of fairness and playing by the rules. It hurts individuals and businesses, and harms business confidence.
This new legislation sends a clear message that large organisations must take responsibility for preventing fraud, and those that fail to do so will be prosecuted with the full force of the law.
This government is committed to protecting our economy and we’re determined that those who don’t play by the rules will be brought to book.
Nick Ephgrave QPM, Director of the Serious Fraud Office (SFO), said
This is a significant new tool for prosecutors to tackle serious and complex fraud which damages UK business and undermines our economy.
The SFO is ready to act if corporates fail to comply with their new responsibilities.
Hannah von Dadelszen, Chief Crown Prosecutor leading on fraud and economic crime for the CPS, said
The new law represents a major step forward in holding to account those who commit corporate crime.
Large organisations must act to put robust fraud prevention systems in place or leave themselves open to legal action.
The CPS will not hesitate to prosecute where companies fail in their responsibility to prevent fraud and where the Code for Crown Prosecutors test is met.
