A new failure to prevent fraud offence

14 April 2023

The government has published the Factsheet: failure to prevent fraud offence’ and is creating a new failure to prevent fraud offence to hold organisations to account, if they profit from fraud committed by employees.

It has been reported that fraud is the most common offence in this country, amounting to 41% of all crime in the year ending September 2022. The new offence will apply across the UK, to all large organisations and in all sectors. It will improve fraud prevention and protect victims by closing loopholes that have allowed organisations to avoid prosecution in the past. Under the new offence, an organisation will be liable, where a specified fraud offence is committed by an employee or agent, for the organisation’s benefit and where there were no reasonable fraud prevention procedures in place. However, the government expresses an individual where they did not consent or know of the offence happening will not be prosecuted on fairgrounds.

In addition, the government believes this will discourage organisations from ignoring fraud by employees which may benefit them. The offence will encourage more companies to implement or improve prevention procedures, driving a major shift in corporate culture to help reduce fraud.

Once parliament has approved the Economic Crime and Corporate Transparency Bill, only then will the offence come into force. The government will publish guidance providing organisations with more information about reasonable procedures ahead on the bill coming into practice.

The government’s policy paper says:

‘‘Having effective fraud prevention procedures is good for business. These proposals will level the playing field for businesses that already take fraud prevention seriously, by penalising unscrupulous operators. Businesses, including small and medium enterprises (SMEs), are often the victims of fraud by other corporations and will benefit from greater protection.

The offence has been designed to drive change and facilitate prosecutions without duplicating existing legislation or policy or placing unnecessary burden on legitimate business. For example, the offence will only apply to large companies, to avoid disproportionate burdens on SMEs and support economic growth.’’

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