In our previous update we explained that the House of Commons had rejected an amendment proposed by the House of Lords to extend the reach of the proposed new failure to prevent fraud offence to all organisations regardless of size.
In the intervening period, the House of Lords proposed an adjusted amendment exempting only micro-entities and small organisations from the offence. The effect would be that medium, as well as large, organisations would be within scope for the offence. This adjusted amendment was debated yesterday, 25 October 2023.
During the debate it was noted that: "It is already an offence to perpetrate fraud. The objective of the new offence is to ensure that there is accountability where fraud occurs in large organisations, so there is simply no need to apply any such offence to smaller organisations, and it is more straightforward to use existing powers against smaller, less complex companies."
Ultimately, the House of Commons maintained its position that only large organisations should be within scope for the offence under explanation that the operation and effectiveness of the legislation will be kept under review: "It is important that Ministers keep on top of that to make sure that the legislation does what is expected of it".
As matters stand the new failure to prevent fraud offence will, once the legislation is enacted and comes into force, apply only to large organisations i.e. those organisations where two or more of the following conditions are satisfied: (1) turnover of more than £36 million (2) balance sheet total of more than £18 million or (3) more than 250 employees.
Importantly, it was flagged during the debate by the UK Government that "we have future-proofed this legislation by including a delegated power to allow the Government to raise, lower or remove the threshold altogether." This position means that the reach of the offence can be altered, for instance extended.
As we've said previously, large organisations should take steps now to review and update their existing compliance frameworks to take account of the new offence.
In addition, organisations in supply chains of large organisations will likely feel a trickle-down effect in that, even if they're not directly within the scope of the offence, they will be held to higher compliance standards by those at the top of the supply chain.
As was noted by Lord Coaker: "The Bill is an important step forward, but the enforcement of it is everything."
If you have any questions on how the offence might impact on your organisation, please don't hesitate to get in touch with us.
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