‘Failure to prevent fraud’ offence brought forward by Home Office

The proposed legislation, to be introduced through the Economic Crime and Corporate Transparency Bill, encourages businesses to do more to deter offending, which will help in the bid to cut crime and protect consumers, investors, other businesses and the taxpayer from fraudulent practices.

The Home Office has tabled an amendment to introduce the failure to prevent fraud offence, which is actively supported by the Serious Fraud Office and the Crown Prosecution Service (CPS).

Security Minister Tom Tugendhat observed: “We are determined to crack down on unscrupulous companies that seek to defraud their customers. Our new ‘failure to prevent fraud’ offence will protect consumers from dishonest and misleading sales practices, and also level the playing field for the majority of businesses that behave responsibly.”

Further, Tugendhat noted: “This Government is committed to fighting economic crime, as demonstrated by our recently launched Economic Crime Plan 2, which sets out how we will give law enforcement more state-of-the-art resources to tackle high-level offending.”

Wide range of harms

The new legislation is designed to protect the public from a wide range of harms including dishonest sales practices, false accounting and hiding important information from consumers or investors. It could also hold companies to account for dishonest practices in financial markets.

The new powers follow on from recommendations made by The Law Commission’s 2022 review of corporate criminal liability.

Lisa Osofsky, director of the Serious Fraud Office, commented: “This new offence would be a game-changer for law enforcement, bringing the law on fraud into line with that for bribery. As the UK’s top economic crime prosecutor, this would help us to crack down on fraudulent enterprises, compensate their victims and, ultimately, protect the integrity of the economy.”

Prosecutors will independently consider whether a prosecution is in the public interest before any charges are brought forward.

Legal action

A business could face legal action if, for example, employees were selling products to a customer under false pretences. It could also be held accountable if employees falsified accounts to mislead investors.

Under both examples, a business could receive an unlimited fine if found to not have reasonable fraud prevention procedures in place. This enforcement not only ensures justice is secured for victims, but also encourages companies to create an environment in which it’s difficult for fraudulent tactics to thrive.

There will be no requirement to prove that company bosses ordered or otherwise knew about a fraud committed by an employee.

A business will not be liable if it can prove reasonable measures were in place to deter the offence. On that note, the Government will publish guidance on reasonable prevention measures in due course.

The offence will not be enforced until the guidance is published.

Scale of fraud

Andrew Penhale, chief crown prosecutor for the CPS, said: “The scale of fraud in the UK, which now comprises 41% of all criminal activity, is so significant that any extra measures to help prevent it and protect people from falling victim to this form of criminality is welcome.”

Penhale added: “The new corporate offence of failing to prevent fraud is another important measure to drive better corporate behaviours and will complement existing measures for prosecutors. Larger corporate enterprises failing to put in place reasonable measures to prevent fraud being committed by their employees may be held criminally liable for that failure.”

A primary benefit of the new legislation will be a drive towards better corporate behaviours which seek to prevent fraud. A similar outcome has been observed under the existing failure to prevent bribery and failure to prevent the facilitation of tax evasion offences.

SMEs will be exempt from the new offence, but shall remain accountable under the existing legal framework.

The new legislation would apply right across the United Kingdom.