UK businesses set to face tougher compliance over fraud
British businesses need to prepare for a “sea change” as the new powers to tackle fraud come into effect next Monday.
The Serious Fraud Office (SFO) director Nick Ephgrave told City PM last year that time was running short for businesses “to get their house in order” ahead of its new powers.
From 1 September, failure to prevent fraud, as outlined in the Economic Crime and Corporate Transparency Act (ECCT), will put more businesses within the scope of being criminally liable if someone within the organisation commits fraud.
The guidance, published last November by the Home Office, was developed with input from the Crown Prosecution Service (CPS), SFO, HM Treasury, HMRC, Ministry of Justice, Cabinet Office, Attorney General’s Office and Financial Conduct Authority (FCA).
The new powers will apply to large businesses, defined as those with more than 250 employees, a turnover exceeding £36m, or total assets exceeding £18m.
Businesses may now be held criminally liable if an employee, agent, subsidiary, or other ‘associated person’ commits fraud that is intended to benefit the organisation.
Andrew Reeves, partner at Norton Rose Fulbright, stated: “The new failure to prevent fraud offence is a real game-changer, both in terms of the risk of corporate prosecutions for fraud and what regulators now expect from anti-fraud compliance programmes.”
Fraud is endemic in the UK; it amounts to around 40 per cent of all crime in England and Wales. Earlier this year, a report by Crowe UK and Peters & Peters revealed that the UK economy loses approximately £219bn annually, with the private sector suffering the brunt, losing around £157.8bn.
Prepare now, warns lawyers
Lawyers are warning businesses that the SFO will be keen to flex its new powers. Katie Stephen, a partner at Norton Rose Fulbright, warned, “Nobody wants to be the test case.”
“The SFO will be keen to bring cases under the new failure to prevent fraud offence as soon as possible; they will want to demonstrate that, for companies, the risk of investigation and prosecution is real and not just theoretical,” Richard Sallybanks, managing partner at BCL Solicitors, explained.
Reeves pointed out: “Many organisations are making extensive changes, as their previous fraud policies were designed to stop them becoming a victim, not a potential beneficiary, of fraud.”
“With unlimited potential penalties, it is essential that companies have robust, proactive anti-fraud controls in place to help mitigate risk,” he added.
With under a week to go, Rhys Novak, partner at Charles Russell Speechlys, said businesses, if not already done, should undertake a risk assessment and “put in place some of the low-hanging fruit like an overarching policy.”
He added that “many people are comparing the guidance to the Bribery Act guidance released years back, but it’s hard to compare, as bribery is easier to define and understand, whereas fraud isn’t.”