The landscape of corporate criminal liability in the UK has shifted dramatically. If you’re a business leader, compliance officer, or legal counsel, this change demands your immediate attention.
The Economic Crime and Corporate Transparency Act has introduced a new “failure to prevent fraud” offence. This isn’t just another regulatory hurdle—it’s a fundamental reimagining of how companies can be held accountable for fraud.
Here’s what you need to know:
- The scope is vast. This new offence applies to all ‘large organisations’—those with more than 250 employees, over £36 million in turnover, or assets exceeding £18 million.
- The net is wide. Your company could be liable for fraud committed by employees or agents, even if senior management had no knowledge of it.
- The stakes are high. Prosecution is now easier, and the reputational damage could be severe.
- The defence is clear, but demanding. You need “reasonable procedures” to prevent fraud. But what does that mean in practice?
In the following paragraphs, we’ll delve into the specifics of this new legislation, explore its far-reaching implications, and provide actionable steps to protect your organisation.
Remember, ignorance is no longer a defence. The time to act is now.
The New Reality of Corporate Liability
Gone are the days when fraud was seen as something that happened to companies. Now, your organization could be held responsible for fraud committed on its behalf.
Consider this scenario: A sales representative falsifies figures to meet targets, boosting your company’s profits. Under the new law, your organization could be criminally liable—even if senior management was unaware.
This isn’t just about internal fraud. The law also covers acts by third-party agents acting on your behalf. That partner in a far-flung market? Their actions could now be your responsibility.
The Shift from ‘Directing Mind’ to ‘Senior Managers’
Previously, companies were only liable if the fraud involved a “directing mind and will” of the organization. The new Act replaces this with a broader “senior managers” test.
What does this mean for you?
- More people in your organization can now implicate the company in criminal activity.
- It’s easier for prosecutors to attribute liability to your organization.
- Your compliance net needs to be cast much wider than before.
The Types of Fraud Covered
The Act isn’t limited to a narrow definition of fraud. It encompasses:
• Fraud by false representation
• Fraud by failing to disclose information
• Fraud by abuse of position
• Obtaining services dishonestly
• Participation in a fraudulent business
• False statements by company directors
• False accounting
• Fraudulent trading
• Cheating the public revenue
Your Defense: Reasonable Procedures
The good news? There’s a statutory defense: having “reasonable procedures” in place to prevent fraud.
But what constitutes “reasonable”? While we await official guidance, here are key steps to consider:
- Conduct a comprehensive fraud risk assessment
- Review and enhance your anti-fraud policies
- Implement robust financial controls
- Provide targeted training, especially for high-risk positions
- Strengthen due diligence processes for third parties
- Establish effective monitoring and auditing systems
The Global Reach: Not Just a UK Issue
If you’re thinking this doesn’t apply to your non-UK business, think again. The Act’s jurisdictional scope is broad and somewhat unpredictable.
Consider these scenarios:
• Your US-based company holds a meeting in London
• Your Asian firm has UK investors
• Your European business uses a UK-based third-party service provider
In each case, you could potentially fall under the Act’s jurisdiction. The message is clear: global businesses need a global anti-fraud strategy.
The Cost of Non-Compliance
The financial and reputational costs of falling foul of this law could be catastrophic. Consider:
• Criminal penalties
• Civil lawsuits from fraud victims
• Reputational damage and loss of business
• Increased regulatory scrutiny
• Potential debarment from public contracts
Can your business afford these risks?
The Clock is Ticking.
The new offence is expected to come into force in late 2024 or early 2025, once the Economic Crime and Corporate Transparency Bill has been approved by Parliament (received Royal Assent). The government will need to publish guidance on reasonable fraud prevention procedures. Its not long now, and to make matters more urgent, implementing effective anti-fraud procedures is not an overnight task.
Remember, it’s not just about compliance. It’s about creating a culture where fraud cannot thrive. It’s about protecting your business, your reputation, and your future.
The landscape has changed. The question is: will you change with it?
