Urgency Builds as New Guidance Releases on UK’s ‘Failure to Prevent Fraud’ Offense

On November 6, 2024, the UK published guidance on the new ‘Failure to Prevent Fraud’ offense provided for by the Economic Crime and Corporate Transparency Act 2023, which will be affected September 1, 2025 onwards. Large organizations will be held liable under this new legislation if they fail to take necessary measures to avoid fraud on the part of any employee or associate.

An organization will be held liable if it fails to prevent fraud on its behalf carried out by any of its employees, agents, or subsidiaries for organizational or client gain. It is interesting to note that prosecutors would not have to prove that the senior managers were aware of or conducted the fraud.

Critical Points of FTPF Offense

• The new offense of ‘Failure to Prevent Fraud’ has been aimed at companies, yet individuals who commit or facilitate fraud may still be prosecuted separately from the company.
• Two of the following criteria will be met by the offense that applies to major organizations: a turnover of over £36 million, a balance sheet total of over £18 million, or more than 250 workers. These limits are based on the organization and group, including subsidiaries, and whether they are in the United Kingdom.
• The ‘Failure to Prevent Fraud’ offense applies to UK and non-UK organizations where fraud occurs in the UK or impacts UK parties. Non-UK firms may be prosecuted if fraud happens in the UK, but UK firms’ overseas fraud is not covered. By demonstrating that they had appropriate fraud protection measures in place at the time, fraud organizations can defend themselves.
• The Guidance gives organizations six flexible and outcome-focused principles to use when designing fraud prevention frameworks. It emphasizes that the procedure needs to be proportionate to the risks the organization is exposed to; this allows for adjustment depending on particular operational needs and circumstances. These include:

1. Top Level Commitment
2. Risk Assessment
3. Proportionate Risk-based Prevention Procedures
4. Due diligence
5. Communication (including training and whistleblowing)
6. Monitoring and review

In Summary: FTPF Offense Aims to Reform the Corporate Culture Where

Prosecutors will no longer have to prove involvement by individuals who represent the “directing mind and will” of the company but instead by a larger population of “senior managers,” most notably the ECCTA’s overhaul of the “identification doctrine,” which is anticipated to increase the likelihood and efficacy of corporate prosecutions compared to the past.

Authorities and regulators in the UK will be paying more attention to company culture. The importance of business culture has been emphasized in the Guidance, and the UK government has made it clear time and time again that it wants the FTPF offense to lead to a significant change in corporate culture in order to reduce fraud.

Suggested Read:

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