The Economic Crime and Corporate Transparency Bill ("the Bill") continues to make its way through the UK Parliament with MPs considering a further suite of amendments to the Bill proposed by the House of Lords in recent weeks.

On 11 September 2023, the House of Lords proposed further amendments to the Bill intended to ensure more businesses were liable for prosecution for failing to prevent fraud.

On 13 September 2023, the House of Commons voted by majority to reject those amendments.

Failure to prevent fraud – the current state of play

As noted in our previous update, the Bill proposes to create a new offence of failure to prevent fraud. As explained in this UK government factsheet, the new offence will make an organisation 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 scope of the offence has been the focus of debate in UK Parliament in recent weeks.

On 5 September 2023, MPs voted to reintroduce an exemption that the failure to prevent fraud offence will not apply to small and medium-sized enterprises ("SMEs"). This was done by providing that the offence will only apply to "large organisations".

As currently drafted, an organisation will be a "large organisation" for the purposes of the Bill if two or more of the following conditions are satisfied:

  1. It has a turnover of more than £36 million;
  2. A balance sheet total of more than £18 million; or
  3. More than 250 employees.

The effect of this step was to exclude SMEs from the scope of the proposed failure to prevent offence.

The House of Lords however considered that the scope of the proposed offence should be broadened to include a new category of "non-micro organisations". This would bring organisations meeting two out of three of the following criteria within the scope of the offence:

  1. A turnover of more than £632,000 and less than £36 million;
  2. A balance sheet total of more than £316,000 and less than £18 million; or
  3. More than 10 and less than 250 employees.

The House of Commons considered this amendment on 13 September 2023 and voted by a majority to reject it "Because it would be disproportionate to apply (the offence) to bodies other than large organisations".

Kevin Hollinrake MP, Minister for Enterprise, Markets and Small Business, explained that "Large companies have the resources and specialist expertise to cope with additional burdens" and "The Government are extremely mindful of the pressures on companies of all sizes, including SMEs, and therefore do not feel it is appropriate to place this new unnecessary burden on over 450,000 businesses".

We will be monitoring the passage of the Bill through Parliament closely over the coming period. If you have any questions on how the Bill might impact on your organisation, please don't hesitate to get in touch with us.

Contributors

Ramsay Hall

Legal Director