Home Office Launches New Initiative to Combat Fraud

The newly introduced failure to prevent fraud offence will simplify the prosecution of large organizations when an employee commits fraud for the benefit of the organization.

When an employee engages in fraudulent activity, the organization must prove that it had adequate measures to prevent such acts or face the risk of incurring an unlimited fine.

The proposed laws motivate businesses to enhance their deterrents against fraud, ultimately aiming to reduce crime and safeguard consumers, investors, other businesses, and taxpayers from fraudulent activities.

Businesses that neglect to prevent fraud will face enforcement actions as outlined by new plans from the Home Office.

The strengthened legislation, to be enacted through the Economic Crime and Corporate Transparency Bill, will empower prosecutors to hold large corporations accountable if an employee commits fraud in the organization’s interest without reasonable prevention procedures in place.

The Home Office introduced an amendment to establish the failure to prevent fraud offence earlier today, backed by the Serious Fraud Office and the Crown Prosecution Service.

Security Minister Tom Tugendhat stated:

We are committed to taking action against unscrupulous companies that aim to defraud their customers.

Our new failure to prevent fraud offence will shield consumers from dishonest and deceptive sales methods, ensuring fair competition for the majority of responsible businesses.

This government is dedicated to combating economic crime, evident in our recently launched Economic Crime Plan 2, which outlines how we will equip law enforcement with advanced resources to tackle significant offences.

The new legislation will safeguard the public from various harms, including deceitful sales practices, false accounting, and concealing essential information from consumers or investors.

It may also hold companies accountable for dishonest practices within financial markets.

The new authorities are a continuation of the recommendations provided by the Law Commission’s 2022 review of corporate criminal liability.

Lisa Osofsky, Director of the Serious Fraud Office, remarked:

This new offence would significantly improve law enforcement’s capability—aligning fraud legislation with that of bribery.

As the leading economic crime prosecutors in the UK, this will aid us in dismantling fraudulent operations, compensating victims, and ultimately preserving the integrity of our economy.

Prosecutors will independently evaluate whether pursuing a prosecution is in the public interest prior to filing any charges.

A business may face legal consequences if, for example, its employees sold products to customers under false pretenses.

A company could also be held accountable if its staff falsified financial records to mislead investors.

In both scenarios, a business could incur an unlimited fine if it’s found lacking reasonable fraud prevention measures. This enforcement not only serves to secure justice for victims but also encourages companies to foster an environment where fraudulent activities struggle to prosper.

There will be no necessity to prove that company executives had ordered or were aware of the fraud committed by an employee.

A business will not be liable if it can demonstrate that it had reasonable measures in place to deter the offence. The government will issue guidance on reasonable prevention strategies in due course, and enforcement of the offence will not commence until this guidance is published.

Andrew Penhale, Chief Crown Prosecutor for the CPS, stated:

The prevalence of fraud in the UK—comprising 41% of all criminal activity—is so significant that additional measures to prevent it and protect individuals from becoming victims are welcomed.

The new corporate offence of failing to prevent fraud represents another vital step toward promoting better corporate behavior and will complement existing prosecutorial measures.

Larger corporate entities that fail to establish reasonable measures to prevent employee fraud may be held criminally liable for such failures.

A key advantage of the new legislation will be a push towards enhanced corporate behaviors aimed at preventing fraud. A similar effect has been noted under the current failure to prevent bribery and facilitation of tax evasion offences.

Small and medium-sized enterprises will be exempt from the new offence but will still be accountable under the existing legal framework.

The new legislation will be applicable throughout the United Kingdom.