UK government figures show that fraud is the most common offence in the UK amounting to 41% of all crime in the year ending September 2022.
To address the rise in economic crime, the Economic Crime and Corporate Transparency Bill ("the Bill") is making its way through UK Parliament.
This update explains the key legal changes proposed by the Bill as well as the anticipated impact on organisations.
Key update one – new failure to prevent fraud offence
As noted in our latest update, the Bill proposes to create a new offence of failure to prevent fraud. As explained in this factsheet, under the new offence, an organisation will be criminally liable where a fraud offence is committed by an employee or agent, for the organisation’s benefit, and the organisation did not have reasonable fraud prevention procedures in place.
The proposed offence is similar in nature to the failure to prevent bribery offence in section 7 of the Bribery Act 2010 and the failure to prevent the facilitation of tax evasion offences in sections 46 and 47 of the Criminal Finances Act 2017. The proposed offence continues the trend of seeking to hold organisations to account for a failure to prevent economic crime occurring (in this case fraud), even if the organisation, or its senior management, did not know about the conduct.
As the Bill currently stands, the new offence would apply to all organisations regardless of sector or size.
If the scope remains as currently drafted in the Bill, we can expect three significant impacts:
- All organisations will require to review and update their existing compliance frameworks. That exercise will involve assessing the risk of fraud, preparing or updating fraud prevention policies and procedures, delivering training and monitoring conduct both internally and across supply chains.
- Organisations in supply chains will likely feel a trickle-down effect in that they will be held to higher compliance standards by those at the top of the supply chain.
- The UK authorities, be it the SFO, Met Police or Police Scotland's Economic Crime Unit, will have a new mandate to pursue investigations into suspected offences and to take enforcement action. It remains to be seen whether the existing self-reporting regime (Scotland) and deferred prosecution agreement regime (England & Wales) are extended to include the proposed offence.
Key update two – extended corporate liability
The Bill proposes to make it easier to hold organisations to account for the conduct of senior management.
As matters stand, the law is based on the 1971 House of Lords case of Tesco Supermarkets Ltd v. Nattrass. That case established that the "identification doctrine" requires that an offence must be committed by the “directing mind and will” of an organisation to trigger criminal liability for an organisation. It can be difficult to identify whether an individual is a "directing mind and will" particularly in large organisations with multiple layers of management.
The Bill would update the "identification doctrine" so that the test for liability for the organisation is whether an individual who is a "senior manager" has committed the offence (similar to the approach taken in the Corporate Manslaughter and Corporate Homicide Act 2007). The focus will be on the roles and responsibilities of the senior manager within the organisation, and the level of managerial influence they might exert rather than their job title. In this context, it is worth noting that "senior manager" extends to roles beyond director level.
In essence, the Bill would mean that organisations can be criminally liable where an individual commits a specified economic crime and that individual plays a significant role in the making of decisions about a substantial part of the activities of the organisation.
Next steps
The political message is clear: "We will ensure that those responsible for economic crime, whether individuals or companies, can be brought to justice" (Security Minister Tom Tugendhat)
As at 29 August 2023, the Bill has passed the House of Lords stage and is now at the final stages which include consideration of amendments.
Given the significant impact the Bill will have if enacted, organisations would be well advised to monitor the passage of the Bill and to take steps to update their existing compliance frameworks.
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