Although not quite hot on the heels of the Bribery Act 2010 and the Criminal Finances Act 2017, the UK is now preparing to introduce, through the Economic Crime and Corporate Transparency Bill (the Bill), a further corporate failing to prevent offence, but this time, tackling the scourge of fraud.
Against the backdrop of figures indicating that fraud accounts for almost half of all crimes in the UK, it was announced on 11 April 2023 that the Bill would introduce a new offence. This would make corporates criminally liable where “associated persons” commit a specified fraud offence with the intention that the conduct is for the benefit of the entity they are associated with, or any person who received services from that entity.
Who is caught out?
The new offence will only apply to large organisations. A large organisation is defined as one that, in the financial year prior to the year of the relevant offence, has (i) more than £36m in turnover, (ii) more than £18 million in total assets and (iii) more than 250 employees.
The ‘associated person’
The Bill places added focus on the category of persons that could be caught out by the new offence. We have already seen this in the Bribery Act and the Criminal Finances Act. For the sake of completeness, an associated person is an individual who performs services for or on behalf of the company.
There is a subtle departure, however, from the Bill’s predecessors in that subsidiaries will now automatically come within the crosshairs of the new offence. Whether this survives the Bill’s passage through Parliament remains to be seen, but what was once a matter of analysis as to a subsidiary’s involvement in its parent company conduct under the Bribery Act, appears to have been removed under the Bill.
The following fraud offences will come squarely within the ambit of the Bill:
- Fraud by false representation.
- Fraud by failing to disclose information.
- Fraud by abuse of position.
- Participation in a fraudulent business.
- False statements by company directors.
- False accounting.
- Fraudulent trading.
- Cheating the public revenue.
Long arm of the law
Similar to the reach of the offences created by the Bribery Act, the new offence will have extra-territorial reach. Consequently, organisations based outside of the UK could be prosecuted if a relevant offence is committed in the UK or when a relevant offence is focussed on those in the UK.
The statutory defence
In similar vein to the defences in the Bribery Act 2010 and the Criminal Finances Act 2017, it will be a defence for the corporate to prove that it had “reasonable prevention procedures” in place at the time the fraud was committed, or that it was reasonable not to have any in place. What those reasonable prevention procedures should look like is unclear (much as it was for the Bribery Act 2010 and Criminal Finances Act 2017), but guidance will be published by the government. The guidance will simply provide indicators on what should be taken into account when entities put in place prevention procedures, rather than provide a go-to template.
The sentence on conviction of the new offence is an unlimited fine but there is also likely to be the confiscation proceedings under the Proceeds of Crime Act 2002 that an entity may have to contend with.
What now? Advice to companies
With the Bill due to be formally enacted later this year, corporates would be wise to consider a review of existing policies and procedures. This is to ensure that they are not only geared to prevent the business from haemorrhaging money as a victim of fraud, but now, importantly, that there are systems in place to ensure that the business is not caught out by the actions of its employees, agents, contractors, third parties; etc when its affairs is being conducted.
On-boarding will continue to play an important cog in the compliance process as will the need to demonstrate top-level commitment from the board. Further, that everyone in the business is trained and aware of the risk they pose to the business by adopted conduct that could result in the prosecution of its employer, and possibly themselves. Guidance to be issued when the offence becomes law will most likely mirror the approach we have seen with the Bribery Act Guidance. However, while it will offer guidance, it is unlikely to provide a template of what reasonable procedures should look like.
One important ancillary aspect of the proposed introduction of the new offence is that the dwindling resources (both financial and personnel) to UK law enforcement bodies will have to be urgently addressed if the recent uptick in the UK’s approach to eradicating sources of financial crime is to have any effect.
Legislating the country out of trouble is simply not the cure. So while praise should be heaped on a further attempt to tackle corporate wrongdoing, whether successful prosecutions follow will depend on the quality of the UK’s law enforcement bodies’ ability to investigate.
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