Further to our recent update, on 6 November 2024 the UK government published its long-awaited guidance on the failure to prevent fraud offence; setting out the key principles businesses must follow to remain compliant with economic crime legislation, and to implement reasonable procedures (including whistleblowing procedures) to ensure the availability of a defence.
We are arranging discussions and training on the new offence and its application with our expert team – please sign up for further information and to attend.
Economic Crime and Corporate Transparency Act
The UK’s Economic Crime and Corporate Transparency Act (the “ECCTA”) received royal assent on 26 October 2023, changing the legal and corporate compliance landscape significantly. The new Act provides law enforcement with fresh investigative powers, as well as a new failure to prevent fraud offence, and an expansion of the scope of corporate criminal liability in the UK.
A direct response to the war in Ukraine and a huge rise in fraud cases in the UK in recent years, the ECCTA brings a whole host of changes for corporates; requiring businesses to form an active part of the front line in preventing fraud; or face more stringent legal consequences.
Failure to prevent fraud offence
The new offence will:
- mean businesses will be held liable for failing to prevent a fraud from taking place, even if they did not intend or deliberately cause that fraud (strict liability) unless the business can prove it had ‘reasonable procedures’ in place to prevent it from happening, or can prove (in very limited cases) that it was reasonable for them to not have procedures in place.
- mean businesses can be bound by the actions of their ‘associated persons’; employees, agents, subsidiaries, or anyone providing services on behalf of the organisation (meaning the company does not need to commit the act itself)
- apply to “all large, incorporated bodies and partnerships” (including companies, limited partnerships, statutory organisations (e.g. NHS trusts and some charities)
- affect small organisations where they provide services for or on behalf of large organisations (where they may be classed as their ‘associated persons’)
- come into force on 1 September 2025 (allowing businesses to review and overhaul their existing compliance procedures now)
- cover all existing fraud offences, for example, fraud by misrepresentation (Fraud Act 2006) or fraud by false accounting (Theft Act 1968)
- also apply to those incorporated overseas but with a UK nexus (e.g. the fraud took place in the UK, or the gain or loss occurred in the UK)
The offence will make it much easier for large organisations to be prosecuted by the CPS and the Serious Fraud Office (the ‘SFO’) for their connection to / involvement with fraud.
Reasonable Procedures and Whistleblowing
An organisation whose associated persons have committed fraud will, from 1 September 2025, only be protected from prosecution if they had ‘reasonable procedures’ in place at the time to prevent the crime from happening.
It will not be enough that they did not play an active role or encourage the offending, or that no one senior knew about it. So what should those reasonable procedures look like?
The new guidance sets out six principles to guide the development of these procedures:
- Top level commitment
- Risk assessment
- Proportionate risk-based prevention procedures
- Due diligence
- Communication (including training)
- Monitoring and review
The guidance then provides non-prescriptive examples as to how companies can demonstrate that their procedures follow these 6 principles.
What is clear is that each organisation will need to have evaluated its existing policies and procedures in line with the new guidance and offence, and ensured that their policies are not generic, but instead tailored to the risk profile of their business, and genuinely committed to and communicated by its top level governance.
Whistleblowing
The guidance emphasises, as part of implementing reasonable procedures to prevent fraud, that businesses should be reviewing their existing, or creating new, whistleblowing procedures to ensure they are fit for purpose in light of the new legislation, and the particular fraud risks their organisation faces.
Transparency International states that “whistleblowing is one of the most effective ways to uncover corruption, fraud, mismanagement and other wrongdoing”, and the guidance quotes this directly, before describing that, as part of the availability of any ‘reasonable procedures’ defence, authorities would expect to see, among other proactive behaviours, evidence that:
- whistleblowing is an actively encouraged step where an employee or associate witnesses suspected fraudulent behaviour, whether it benefits the organisation or not; fostering a ‘speak up’ environment
- a clear ‘tone from the top’ is demonstrated, with a senior manager having designated responsibility for whistleblowing and
- there is clear communication of the organisation’s expectations and treatment of whistleblowers, with tailored training, and robust whistleblower protections.
How can we help?
Our team would be happy to discuss your business’ procedural requirements with you and provide tailored legal advice to prepare you for September 2025.
