New failure to PREVENT FRAUD guidance published [6 November 2024]

On November 6^th 2024, the UKGOV issued guidance that will provide organisations with important advice on the new corporate criminal offence of ‘failure to prevent fraud’, helping make sure they are taking action to prevent fraud.

Introduced last year as part of the Economic Crime and Corporate Transparency Act (ECCT), the offence is intended to hold large organisations to account if they profit from fraud:-

• Failure to prevent fraud will come into force on 1 September 2025.

Under the offence, which has cross-Parliament support:-

• Large organisations may be held criminally liable if an employee, agent, subsidiary, or other “associated person” commits fraud intending to benefit the organisation.

Examples may include:-

• Dishonest sales practices,
• The hiding of important information from consumers or investors, or
• Dishonest practices in financial markets. 

In the event of prosecution:-

• An organisation would 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.

The guidance:-

• Has been developed with input from the Crown Prosecution Service (CPS), Serious Fraud Office (SFO), HM Treasury, HMRC, Ministry of Justice, Cabinet Office, Attorney General’s Office and Financial Conduct Authority (FCA).

Key Points from the Guidance:

1. Corporate Liability: Large organisations can be held criminally liable if an employee, agent, subsidiary, or other “associated person” commits fraud intending to benefit the organization¹. This includes dishonest sales practices, hiding important information from consumers or investors, and dishonest practices in financial markets.
2. Reasonable Fraud Prevention Measures: To avoid liability, organizations must demonstrate that they had reasonable fraud prevention measures in place at the time the fraud was committed. This is similar to the defences available under the “failure to prevent bribery” and “failure to prevent tax evasion” offences
3. Principles for Fraud Prevention: The guidance outlines six fundamental principles for implementing reasonable fraud prevention procedures:
• Top-Level Commitment: Senior management must actively promote an anti-fraud culture.
• Risk Assessment: Regular assessments to identify potential fraud risks.
• Proportionate Procedures: Tailored measures based on the level of risk.
• Due Diligence: Thorough checks on associated persons.
• Communication and Training: Ensuring all employees understand the anti-fraud policies.
• Monitoring and Review: Ongoing evaluation and improvement of fraud prevention measures
4. Implementation Timeline: The offence will come into force on September 1, 2025, giving organisations time to implement the necessary measures

This guidance is designed to encourage organisations to build a robust anti-fraud culture, similar to the impact of the “failure to prevent bribery” legislation introduced in 2010. It reflects a significant shift towards greater corporate accountability and transparency in the fight against economic crime.

Sources

• New failure to prevent fraud guidance published - GOV.UK. https://www.gov.uk/government/news/new-failure-to-prevent-fraud-guidance-published.
• UK Government Publishes Guidance on the New ‘Failure to Prevent Fraud .... https://www.skadden.com/insights/publications/2024/11/uk-government-publishes-guidance.
• https://www.gov.uk/government/news/new-failure-to-prevent-fraud-guidance-published
• https://www.gov.uk/government/publications/offence-of-failure-to-prevent-fraud-introduced-by-eccta