Be prepared for the new failure to prevent fraud offence
By Camilla Prowse and Polly Miles
The UK Government’s Economic Crime and Corporate Transparency Bill includes provisions for unlimited fines on organisations found not to have taken reasonable steps to prevent fraud. Make sure your organisation is fully compliant with the new legislation.
As the UK Government works to crack down on fraud, organisations and their leaders are coming under increased scrutiny. And under new laws, those that fall short will face significant sanctions. Organisations convicted under a new failure to prevent fraud offence will be liable for financial penalties, as well as a real risk of reputational damage.
The provisions for this offence are included in the Government’s new Economic Crime and Corporate Transparency Bill, expected to come into force in the coming months as it receives Royal Assent. The legislation is broad, but its focus on fraud in particular reflects the Government’s concern about the prevalence of this type of criminal activity.
PwC’s own analysis underlines the scale of the threat. Our 2022 UK Fraud Survey revealed that:
- 46% of organisations have experienced some form of fraud or another economic crime within the last 24 months;
- 52% of companies with more than $10bn in annual revenues have experienced fraud in the last 24 months; and
- 42% of companies with annual revenues between $1bn and $10bn have fallen victim to cybercrime.
How the new legislation works
Against this backdrop, ministers hope the Economic Crime and Corporate Transparency Bill will have an impact. The primary aim of the failure to prevent fraud offence is to place additional responsibility and accountability on organisations in this area. Where fraud offences occur, either in part or wholly, because an organisation fails to embed reasonable prevention procedures, it can now be prosecuted.
The scope of the legislation is wide in this regard. Fraud offences may include: false representation; failing to disclose information; abuse of position; obtaining services dishonestly; participation in a fraudulent business; false statements by directors; false accounting; fraudulent trading; and cheating the public revenue.
In each case, if the fraud reflects a failure of the organisation to make reasonable precautions against it, prosecution may follow.
Who will the offence apply to?
The new offence applies widely, with any organisation that meets two of three specific criteria in scope. These criteria are that an organisation has more than 250 employees; an annual turnover that is above £36m and/or has more than £18 million in total assets.
The offence will also apply to organisations and employees that are based overseas if an employee commits fraud under UK law or targets UK victims.
While the legislation targets organisations rather than individuals, the costs for the former are potentially punitive. A failure to comply with the requirements set out under the offence could result in an unlimited fine.
How to ensure compliance
The good news is that your organisation will avoid prosecution if it has reasonable procedures in place to prevent fraud, even if a fraud subsequently occurs. In that context, it is important that organisations now review their policies and procedures, cross-checking them against the new legislation in order to ensure compliance.
Where further work is required to comply, or where a need is identified to educate employees on their responsibilities, this should be a priority.
Moreover, compliance is not a one-off exercise. It will also be important to review key performance indicators regularly and to respond to any changes in your organisation’s risk profile. This should ensure that compliance, and your broader fraud prevention processes and policies, remain reasonable and proportionate.
How PwC can help
Our Regulatory and Commercial Disputes Team are well placed to provide advice and assistance with regard to the reasonable prevention procedures organisations can and should put in place as well as mitigating and responding to corporate fraud. The Team can assist with:
- Carrying out deep dive reviews into fraud policies and procedures to ensure sufficient prevention procedures, effective controls and well-designed processes are in place;
- Conduct a risk assessment to determine bribery, fraud and corruption risk tolerances and then revise or develop policies and procedures to mitigate the risk;
- Carrying out due diligence on agents, clients, suppliers and targets, including advising on appropriate contractual provisions;
- Developing and delivering bespoke fraud prevention training either through face-to-face, online or e-Learn modules; and
- Providing crisis response assistance should the worst happen and there is an allegation of failing to prevent fraud, providing independent support through the investigation and remediation process.
More broadly, the Team helps organisations understand their specific obligations under global legislation including the UK’s Bribery Act and Criminal Finances Act, while advising on wider financial crime compliance, including corporate fraud.
We can help with compliance health checks, training, due diligence, contractual considerations and internal investigations. We can stress test pre-existing policies and procedures, and provide practical guidance for improvement. With the option to provide our advice under legal privilege, we can help maintain confidentiality in either compliance reviews or for investigations into suspected wrongdoing and any subsequent remediation, and, where necessary, self reporting.
Contact us
Solicitor & Senior Manager, Regulatory & Commercial Disputes, PwC United Kingdom
Tel: +44 (0)7753 463529
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