Authors

David de Ferrars

Partner

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Emma Allen

Partner

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Lorna Bramich

Senior Associate

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Authors

David de Ferrars

Partner

Read More

Emma Allen

Partner

Read More

Lorna Bramich

Senior Associate

Read More

14 August 2023

Disputes Quick Read – 11 of 88 Insights

Failure to prevent fraud – a new offence?

  • Quick read

In April 2023, the UK government published a factsheet outlining proposals to introduce a new offence of failure to prevent fraud as part of the upcoming Economic Crime and Corporate Transparency Bill. With a number of amendments having been tabled recently, we discuss this new offence and its implications below.

The Economic Crime and Corporate Transparency Bill is the most significant overhaul to corporate criminal liability for half a century and designed to hold corporations liable in their own right for economic crime. It proposes, among other things, an addition to the growing roster of corporate "failure to prevent…" offences (like those relating to bribery and tax evasion), with the proposal of a failure to prevent fraud offence and the recently proposed addition of a failure to prevent money laundering offence. 

Another highly notable proposed reform is the recent amendment to the Bill to widen the identification doctrine - the legal test for deciding whether the actions and mind of a natural person can be regarded as those of a company. The reform would replace the common law legal test of the "directing mind and will" of a corporation and be expanded to include senior managers, designed to reflect modern day company structures. 

The proposed fraud offence will mean that bodies corporate and partnerships may face criminal liability and an unlimited fine for failing to prevent an employee or agent from committing a fraud offence for its benefit. The fraud offences likely to be caught under the new offence include:

  • 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).
  • Participation in a fraudulent business (section 9 Fraud Act 2006).
  • Obtaining services dishonestly (section 11 Fraud Act 2006).
  • False accounting (section 17 Theft Act 1968).
  • False statements by company directors (section 19 Theft Act 1968).
  • Fraudulent trading (section 993 Companies Act 2006).
  • Cheating the public revenue (common law).

The failure to prevent fraud offence will also apply to overseas organisations and employees, provided the employee has committed fraud under UK law or has targeted a victim based in the UK.

To avoid liability, organisations will need to ensure that reasonable procedures are in place to prevent the commission of fraud by employees and agents. While the details of such procedures are to be outlined in future government guidance, it is clear that what is "reasonable" will vary depending on the nature and size of the organisation in question.

These proposed changes reflect the UK government's appetite to increase organisational responsibility for fraud and hold corporate criminals to account.

If the legislation is passed, it is likely to come into effect in late 2024. In the interim, organisations should be advised to review the adequacy of their current anti-fraud procedures and prepare for the inevitable increase in fraud prosecution, corporate criminal liability, and likely greater utilisation of deferred prosecution agreements. 

In this series

Disputes & investigations

Internal investigations - raising the bar

1 May 2024

by Andrew Howell

Disputes & investigations

New SFO Director announces bold plans to tackle fraud

21 March 2024

by Multiple authors

Disputes & investigations

What are the litigation trends for 2024?

1 February 2024

by Katie Chandler, Emma Allen

Disputes & investigations

ClientEarth v FCA: Challenging Regulator Decisions

12 February 2024

by Tim Strong, Nicole Baldev

Disputes & investigations

First of its kind judicial guidance on the use of AI in the courts

14 December 2023

Disputes & investigations

The use of AI in Trial Witness Statements post-PD 57AC

23 October 2023

by Multiple authors

Disputes & investigations

Failure to prevent fraud – a new offence?

14 August 2023

by Multiple authors

Disputes & investigations

Supreme Court rules that APP fraud victims cannot rely on Quincecare Duty

4 August 2023

by Multiple authors

Disputes & investigations

Disputes Quick Read: ClientEarth refused permission to pursue directors of Shell

1 June 2023

by Multiple authors

Disputes & investigations

CJC costs review – what will change?

1 June 2023

by James Bryden, Helen Robinson

Disputes & investigations

Embargoed judgments – dos and don'ts

16 May 2023

by Stephanie High

Cryptoassets, blockchain and distributed ledger technology

Disputes Quick Read: New obligations on cryptobusinesses to report under the UK sanctions regime

9 August 2022

by Nick Maday

Disputes & investigations

Disputes Quick Read: New gateway for serving Norwich Pharmacal Orders and Bankers Trust orders out of the jurisdiction

Welcome news for those pursuing fraud claims in the English Courts

28 July 2022

by Emma Allen, Samantha Brendish

Disputes & investigations

Disputes Quick Read: Care required when drafting SPA claim notices

23 September 2020

by Multiple authors

Disputes & investigations

Disputes Quick Read: Tomlin Orders – ensuring the confidentiality of settlement terms

27 April 2020

by Multiple authors

Disputes & investigations

Disputes Quick Read: Commercial Court's arbitral power shift

21 February 2020

by Andrew Howell

Disputes & investigations

Disputes quick read: pilot error?

13 February 2020

by Andrew Howell

Disputes & investigations

Disputes Quick Read: Privilege waiver warning

2 July 2020

by Tim Strong, Georgina Jones

Disputes & investigations

Disputes Quick Read: Dealing in crypto? Be careful what you call it

7 April 2022

by Multiple authors

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