The Memo: Failure to prevent fraud offence: Large organisations at risk of unlimited fines

In an effort to combat fraud and increase corporate transparency, the Economic Crime and Corporate Transparency Act (ECCTA) 2023 has introduced a multitude of measures to increase the scope of corporate liability. The Act came into force early last month, and also introduced a new failure to prevent fraud offence. To put it into perspective, since last year there has been a 31% increase in fraud according to the Office for National Statistics, the highest since 2016 (when records began).  

Back in 2023, it made a step and overhauled the role of the Companies House by allowing it to verify the identities of company directors and beneficial owners, as well as the power to reject or query suspicious findings. The senior managers regime was implemented back in 2023, and can find individuals guilty of fraud, bribery and sanctions offences, and can subject organisations to unlimited fines.  

Expanding beyond the offences brought under the UK Bribery Act 2010,the failure to prevent fraud offence holds large organisations accountable for not preventing fraud by associated employees, agents or third-party service providers. In turn, any organisations found to be liable could face unlimited fines. This will apply to any large organisations that tick at least two of three boxes: more than 250 employees, a £36 million turnover or £18 million in total assets.  

Following civil standards, large organisations must therefore be able to prove (on the balance of probabilities) that they had reasonable procedures in place or that it was unreasonable to have such procedures in place to prevent fraud. This will link to the six principles of guidance issued by the Home Office: proportionality; risk assessment; management commitment; due diligence; communication and training; and monitoring and review.