The Government is introducing a new ‘failure to prevent fraud’ offence to encourage businesses to do more to deter fraudulent activities, ultimately safeguarding themselves, consumers, and other businesses.
The new legislation, expected to be enforced by the end of 2024, will simplify the prosecution of large organisations when an employee commits fraud for the company’s benefit.
Targeting larger organisations
The Economic Crime and Corporate Transparency Bill will introduce the new legislation, focusing on a broad range of large businesses across all sectors, including not-for-profit organisations like charities and incorporated public bodies.
A large organisation is defined (using the standard Companies Act 2006 definition) as organisations meeting two out of the following three criteria:
A business could face legal action under the new legislation if, for instance, employees were selling products to customers under false pretences or falsifying accounts to mislead investors.
Companies could receive an unlimited fine if found to lack reasonable fraud prevention procedures in place. These significant penalties aim to encourage businesses to tackle fraudulent activities within their organisations.
While small and medium-sized enterprises (SMEs) are exempt from the new offence due to the above thresholds, they will still be held responsible under the current legal framework.
These thresholds can be amended in the future through secondary legislation if needed. SMEs, often the victims of fraud committed by larger organisations, may benefit from the increased protection that the new legislation offers.
If your business falls below the specified thresholds, it is essential to keep an eye on the existing legal framework, but your organisation should not be significantly impacted.
For businesses within this scope, it is crucial to ensure that appropriate fraud prevention measures are in place.
If you have queries about fraud prevention or this upcoming change in legislation, please contact us today.