Economic Crime and Corporate Transparency Bill

This led to the requirement being placed on companies to implement adequate procedures to prevent bribery.

Under the Economic Crime and Corporate Transparency Bill which is currently passing through the legislative process, the government has moved to introduce a new ‘failure to prevent fraud’ offence. Similarly to the failure to prevent bribery offence, this will place the requirement on companies to ensure that they have reasonable procedures in place to prevent fraud.

However, this will only apply to ‘large’ companies which is currently defined using the Companies Act 2006 definition and is where a company meets two of the following criteria:

• More than 250 employees;
• More than £36 million turnover;
• More than £18 million in assets.

This threshold can be seen as a move to ensure that smaller companies are not burdened further requirements where the risk of fraud is much lower but it should be noted this does not result in an absence of fraud at this level.

In respect of which offences will be covered, the government has indicated that the following fraud offences that will be covered by the failure to prevent offence and has commented that this list may be expanded through further regulations:

• fraud by false representation (section 2 Fraud Act 2006)
• fraud by failing to disclose information (section 3 Fraud Act 2006)
• fraud by abuse of position (section 4 Fraud Act 2006)
• obtaining services dishonestly (section 11 Fraud Act 2006)
• participation in a fraudulent business (section 9, Fraud Act 2006)
• false statements by company directors (Section 19, Theft Act 1968)
• false accounting (section 17 Theft Act 1968)
• fraudulent trading (section 993 Companies Act 2006)
• cheating the public revenue (common law)

However it should be noted that this does not include fraud carried out for personal gain, only that of the company an individual is employed by. The result of this is that the offence as currently proposed may not capture those individuals who utilise their position in large organisations to commit fraud and this may be of some concern. Furthermore, a company will only be required to have reasonable procedures in place which is a departure from other legislation such as the Criminal Finances Act 2017 where ‘adequate procedures’ is a defence. The impact of this is that it allows for broader interpretation but does mean that whilst the procedures in place may be reasonable, they may not actually be adequate to prevent fraud in the first place. Indeed, the government factsheet on the new offence states that “there may also be circumstances where it is reasonable to have no fraud prevention procedures in place (for example, organisations where the risk is extremely low)”. It should also be noted that it is proposed that there is no individual criminal liability for failure to prevent.

As the Bill is currently being finalised, it may be subject to further amendments and statutory guidance is scheduled to follow. Until the statutory guidance is published it is to be seen how enforcement will be approached.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at 16 May 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.