New corporate offence targets fraud prevention

New measures aimed at tackling fraud have come into effect as part of the Economic Crime and Corporate Transparency Act (ECCT) 2023. This legislation introduces a corporate criminal offence of ‘failure to prevent fraud’, which holds large organisations accountable if they profit from fraudulent activities. The measures, effective from Monday 1 September, are part of the government’s broader strategy to combat fraud and enhance the integrity of the UK economy under their Plan for Change.

This new offence complements existing efforts to strengthen fraud prevention, including a ban on SIM farms—devices that enable large-scale fraud operations—a bilateral agreement with the insurance sector, and the adoption of the first UN resolution on fraud. Under this law, large organisations can face criminal charges if an employee, agent, subsidiary, or other associated person commits fraud intending to benefit the organisation. Examples of such fraudulent activities might include dishonest sales practices, concealing vital information from consumers or investors, or engaging in deceitful financial market behaviours.

In criminal proceedings related to this offence, organisations will need to prove to the court that they had reasonable fraud prevention measures in place at the time the fraud occurred. By establishing this requirement, the government aims to cultivate an anti-fraud culture similar to the positive shifts seen in corporate behaviour since the introduction of failure to prevent bribery legislation in 2010.

As fraud cases have risen sharply, with recent statistics indicating a 31% increase last year, the government’s intensified focus on the issue is both timely and necessary. Business support during the implementation of these new rules has been provided through guidance designed to ensure that organisations take proactive steps in preventing fraud.

Fraud Minister Lord Hanson highlighted the significance of these measures, stating, "Fraud is a shameful crime, and we are determined to bring those responsible to justice wherever it takes place." He described the introduction of this new offence as a pivotal moment for businesses, reinforcing the anti-fraud culture and contributing to long-term economic growth.

Solicitor General Lucy Rigby KC MP echoed this commitment, emphasising that the new legislation sends a strong message about corporate responsibility in preventing fraud and the consequences of failing to comply. She stated, "This government is committed to protecting our economy and we’re determined that those who don’t play by the rules will be brought to book."

Nick Ephgrave QPM, Director of the Serious Fraud Office (SFO), praised the legislation as an essential tool for preventing serious fraud that threatens UK businesses. Meanwhile, Hannah von Dadelszen, Chief Crown Prosecutor for fraud and economic crime at the CPS, noted, "The new law represents a major step forward in holding to account those who commit corporate crime."

In conclusion, the implementation of the corporate offence of ‘failure to prevent fraud’ signals a robust commitment from the government to combat fraud comprehensively while urging large organisations to adopt significant preventive measures to protect both their interests and the integrity of the broader economy