Nov 08 2024
White Collar Crime
A key takeaway is that an organisation can now be prosecuted even if senior managers or directors did not know about or direct the fraudulent act. The offence is set out in sections 199-206 and Schedule 13 of ECCTA.
1 September 2025
The offence applies only to large organisations[1] that meet at least two of the following criteria:
The offence applies to organisations regardless of the form or means of their incorporation. The offence also applies to bodies and partnerships, whether formed in the UK or abroad, but with a UK nexus.
Please note that even if your organisation is not classified as “large”, it would, nevertheless, be good practice to implement this guidance.
The offence covers a range of specific fraud offences, including:
It also includes aiding, abetting or procuring these crimes.
Associated Persons: These include employees, agents, subsidiaries and others providing services for or on behalf of the organisation. The fraud must be committed by an associated person in the course of their duties (e.g., a sales agent acting on behalf of the company).
The fraud does not need to directly benefit an organisation for the offence to apply; it suffices if the organisation was intended to be the beneficiary. For example, an employee mis-selling a product to earn commission would benefit both themselves and the company, making the company liable.
Intent to benefit the relevant body is to be judged according to the position of the associated person at the time they commit the fraud offence.
Organisations will have a defence if they can prove they had reasonable procedures to prevent fraud[2] in place at the time the fraud was committed. This can include training, monitoring, audits and reporting systems designed to prevent fraud within the organisation.
It is up to the organisation to demonstrate that it has implemented reasonable procedures to prevent fraud or that it was unreasonable to expect the organisation to have such procedures in place. The court will decide based on the specific facts of the case and on a balance of probabilities.
Strict adherence to the guidance is not required, but a reasonable approach to fraud prevention must be shown.
The offence applies if the fraud has a UK nexus, meaning the fraud must involve an act that occurs in the UK or result in a gain or loss in the UK. This includes fraud committed in the UK by an associated person or employee of an overseas organisation.
Penalties may include a fine.[3]
It is important to note that organisations must assess and implement reasonable measures to prevent fraud, and failure to do so could result in your company getting fine.
A framework should be introduced by relevant organisations and should be informed by the following six principles:
These six principles mirror those found in the UK government’s guidance on preventing bribery (under the Bribery Act 2010) and are intended to be outcome-focused and should be proportionate to the level of risk.
At Gherson Solicitors LLP we assist and advise organisations on implementing policies, controls and procedures that comply with all relevant legislation. We have advised both FCA-regulated firms and non-FCA-regulated firms on implementing adequate anti-money laundering, anti-bribery and corruption and sanctions policies, controls and procedures.
If you need further advice on how to comply with and understand what the new offence of failure to prevent fraud means for your organisation, please do not hesitate to contact Thomas Cattee or Sara Thomas Arano at Gherson Solicitors LLP.
The article was published on 08/11/2024
The information in this blog is for general information purposes only and does not purport to be comprehensive or to provide legal advice. Whilst every effort is made to ensure the information and law is current as of the date of publication it should be stressed that, due to the passage of time, this does not necessarily reflect the present legal position. Gherson accepts no responsibility for loss which may arise from accessing or reliance on information contained in this blog. For formal advice on the current law please do not hesitate to contact Gherson. Legal advice is only provided pursuant to a written agreement, identified as such, and signed by the client and by or on behalf of Gherson.
©Gherson 2024
[1] Section 201 of ECCTA
[2] Section199(4) and (5) ECCTA
[3] Section 199(12) ECCTA
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