As many of our readers will know from previous updates, on 26 October 2023 the Economic Crime and Corporate Transparency Act 2023 received Royal Assent. The Act introduced a new corporate criminal offence of failure to prevent fraud and the UK Government committed to publishing guidance on fraud prevention procedures before the offence came into force. As the UK General Election looms we continue to await the Government's guidance. What can we expect in the aftermath of Election Day?
As a quick reminder:
- The failure to prevent fraud offence makes "large organisations" criminally responsible for the actions of "associated persons".
- A company or partnership which meets two or more of the following criteria:
- turnover of more than £36 million
- balance sheet total of more than £18 million
- more than 250 employees
will be a "large organisation".
- Subsidiaries of large organisations also fall within the scope of the offence.
- An "associated person" includes employees, subsidiaries and agents.
- A large organisation is guilty of an offence where an associated person commits a fraud with the intention of benefiting the large organisation, or any person to whom, or to whose subsidiary, the associated person provides services on behalf of the large organisation.
- A defence is available to a large organisation where it can show that it had "reasonable" procedures in place to prevent fraud.
In our previous update on the new offence (see here), we advised that the UK Government had made a commitment to publish guidance on what will constitute "reasonable fraud prevention procedures" before the failure to prevent offence enters into force.
The guidance is still to be published. On 2 May 2024 the UK Government confirmed its intention to publish the guidance in early summer of this year – but that confirmation was followed by the surprise announcement of a General Election to be held on 4 July.
For those following the progress of the failure to prevent offence, all eyes now turn to the new administration and the likelihood of the guidance being published before any summer recess. The Government has previously confirmed that the offence will enter into force at the end of a six-month implementation period following the publication of the guidance.
As a result, it appears that the new offence will not come into force before 2025. Organisations should continue to watch this space to see whether the new administration decides to treat publication of the guidance as a priority following the election.
Whilst the exact terms of the guidance are yet to be finalised, we can expect it to contain similar provisions to guidance that exists in respect of other "failure to prevent" offences, such as the failure to prevent bribery offence under the Bribery Act 2010 and the failure to prevent facilitation of tax evasion under the Criminal Finances Act 2017.
Businesses should take advantage of this further opportunity to prepare themselves for the failure to prevent offence coming into force. For most this will involve reviewing and enhancing existing policies, controls and procedures previously introduced to address the risks of bribery and facilitation of tax evasion by associated persons.
We will continue to publish updates on the failure to prevent fraud offence, including in relation to the guidance upon its publication. If you have any questions in the meantime in relation to the offence and its implications for your business, please do not hesitate to contact us.
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