Companies could be prosecuted and face unlimited fines if they fail to prevent fraud that their firm profits from under a corporate offence coming into force on Monday.
Under the new “failure to prevent fraud” law, large companies can be held criminally liable where an “employee, agent, subsidiary or other ‘associated person’” commits a fraud intending to benefit the organisation.
Examples could include dishonest sales practices, hiding important information from consumers or investors, or dishonest practices in financial markets. If a company is prosecuted it will have to prove to the court that it had reasonable anti-fraud measures in place.
The law will apply to large organisations that meet at least two of three criteria: having more than 250 employees, £36m turnover or £18m in total assets.
“Today marks a pivotal moment for businesses, and this new offence strengthens our anti-fraud culture to protect businesses, build corporate trust and support long-term economic growth,” said David Hanson, the fraud minister. “Fraud is a shameful crime and we are determined to bring those responsible to justice wherever it takes place.”
The law firm Irwin Mitchell said it marked a “fundamental shift” in corporate accountability by removing the previous need to prove that senior management were complicit.
It said that failure to comply with the new law, under the Economic Crime and Corporate Transparency Act, could result in unlimited fines, reputational damage and criminal investigation by the Serious Fraud Office or Crown Prosecution Service (CPS).
“The new offence will have a significant impact on organisations and their risk exposure,” said Colette Kelly, a regulatory specialist and partner at Irwin Mitchell. “[However], whether procedures are deemed to be sufficient will be a matter for the court to establish, and until we start to see the outcome of prosecutions this is somewhat of a watching brief.”
Recent figures from the Office for National Statistics showed a 31% increase in fraud last year.
The Home Office said the new offence was intended to encourage organisations to build an anti-fraud culture, in the same way the failure to prevent bribery legislation did when introduced in 2010.
“The new law represents a major step forward in holding to account those who commit corporate crime,” said Hannah von Dadelszen, the CPS’s chief crown prosecutor leading on fraud and economic crime. “Large organisations must act to put robust fraud prevention systems in place or leave themselves open to legal action.”
Irwin Mitchell said businesses should be undertaking a review of fraud risk assessments, update internal controls and ensure that staff and third parties were trained and aware of whistleblowing procedures.
