In a world where fraud continues to threaten the financial landscape and victimise countless individuals and businesses, the government has taken a proactive stance to confront this issue head-on. The recent unveiling of a new initiative aims to deter fraudulent activities carried out by employees that benefit their employing organisations. But what exactly is this initiative, and why is it significant?
The Initiative Explained
The newly proposed ‘failure to prevent fraud’ offence is a testament to the government’s commitment to holding organisations accountable when they benefit from fraudulent acts perpetrated by their employees. The primary goal behind this initiative is to tighten the existing measures, closing loopholes that have previously shielded organisations from prosecution.
Under this offence, an organisation will be held liable if a specified fraud offence is committed by an employee or agent, benefiting the organisation, and the organisation lacks adequate fraud prevention procedures. Importantly, it isn’t necessary to prove that company executives were complicit or had prior knowledge of the fraud.
Impact on Fraud Victims
Fraud constitutes a staggering 41% of all crimes, affects various stakeholders: individuals, businesses, and the government. The initiative seeks to protect these victims by incentivising organisations to bolster their fraud prevention protocols. This shift in corporate culture is envisioned to significantly reduce fraudulent activities and, consequently, safeguard potential victims.
Implications for Businesses
The initiative not only serves justice but also promotes fairness in the business landscape. Companies that already prioritise robust fraud prevention will be at an advantage, while those engaging in fraudulent practices will face penalties. Small and medium-sized enterprises, often victims of corporate fraud, stand to benefit from the increased protection.
Organisations Within Scope
Large corporations, subsidiaries, and partnerships, including not-for-profit organisations and charities, will fall under the purview of this offence. The offence applies to all sectors, however, to ensure burdens on business are proportionate, only large organisations are in scope – defined as organisations meeting two out of three of the following criteria: more than 250 employees, more than £36 million turnover and more than £18 million in total assets.
Avoiding Prosecution and Penalties
To steer clear of prosecution, organisations must establish reasonable fraud prevention procedures. The government will issue guidelines to outline these procedures, ensuring clarity and setting expectations for businesses.
Timing and Scope
The initiative’s enforcement will follow the approval of the Economic Crime and Corporate Transparency Bill. It will encompass a range of fraud and false accounting offences, with provisions to update the list through secondary legislation if necessary. Once the Economic Crime and Corporate Transparency Bill has been approved by Parliament (received Royal Assent), the government will need to publish guidance on reasonable fraud prevention procedures. Only then will the offence come into force with sometime next year being likely.
The initiative applies not only across the UK but also to overseas operations if fraud under UK law affects UK victims, making it a comprehensive measure against fraud.
The government’s ‘failure to prevent fraud’ offence is a significant stride toward accountability, protection of victims, and the promotion of ethical business practices. By holding organisations accountable for the actions of their employees, the initiative aims to create a more robust and secure economic landscape.
For more information, visit Guardian Support and stay updated with developments on this crucial government initiative.
The fight against fraud is an ongoing battle, and this initiative marks a pivotal moment in fortifying defences and standing up for justice and integrity in the corporate world. Stay tuned for further updates and insights regarding this government initiative!
Read the full factsheet here: https://www.gov.uk/government/publications/economic-crime-and-corporate-transparency-bill-2022-factsheets/factsheet-failure-to-prevent-fraud-offence