Government puts forward amendment to ECCT Bill for new corporate offence of failure to prevent fraud
On 11 April 2023, the Home Office announced that it had tabled an amendment to the Economic Crime and Corporate Transparency Bill (ECCT Bill) to create a new corporate criminal offence for failure to prevent fraud and false accounting offences committed by employees or agents (Home Office News Story). The government is not proposing to introduce personal liability for directors and senior managers for failure to prevent fraud. The proposed new offence has been published in the latest ECCT Bill: Amendment Paper and a new Factsheet: Failure to prevent fraud offence has been added to the government's series of Factsheets on aspects of the ECCT Bill.
During the current passage of the ECCT Bill through Parliament, the government has indicated that the Bill would be revised to include a failure to prevent fraud offence (see FC Feature 31 March 2023). The proposed new offence also follows the Law Commission's 2022 Options Paper: Corporate Criminal Liability on options for reform of the law relating to corporate criminal liability, including an expansion of existing 'failure to prevent' corporate offences relating to bribery and tax evasion to encompass fraud (see FC Feature 10 June 2022).
Failure to prevent fraud
Under the proposed new offence, an in-scope organisation will be strictly liable where an employee or agent commits a specified fraud or false accounting offence under UK law with intent to benefit the organisation, or another person to whom they provide services on the organisation's behalf. It is a defence for the organisation to prove that it had in place reasonable fraud prevention procedures at the relevant time. The government will publish guidance on the nature of reasonable procedures to prevent fraud before the new offence comes into force.
The maximum penalty on conviction will be an unlimited fine.
Offence scope
The offence would apply only to large bodies corporate and partnerships (including not for profit organisations, incorporated public bodies and bodies incorporated outside the UK) that meet at least two of the three following size criteria:
- more than 250 employees;
- annual turnover of more than £36 million; or
- total balance sheet assets of more than £18 million.
Specified fraud and false accounting offences
A new schedule to the ECCT Bill specifies the following fraud and false accounting offences that would be captured by the new offence:
- fraud by false representation (s 2 Fraud Act 2006);
- fraud by failing to disclose information (s 3 Fraud Act 2006);
- fraud by abuse of position (s 4 Fraud Act 2006);
- obtaining services dishonestly (s 11 Fraud Act 2006);
- false statements by company directors (s 19 Theft Act 1968);
- false accounting (s 17 Theft Act 1968);
- fraudulent trading (s 993 Companies Act 2006); and
- cheating the public revenue (common law offence).
Money laundering offences are not included to avoid duplication with the existing anti-money laundering regulatory and supervisory regime.
Next steps
The proposed new offence will be considered by the House of Lords along with other amendments to the ECCT Bill when the Committee stage resumes after the Easter recess on Tuesday 18 April 2023.
