A new ‘failure to prevent fraud’ offence is being introduced by the Government to encourage businesses to do more to deter offending, which will ultimately protect themselves, consumers, and other businesses.
The new legislation, which is likely to come into force by the end of 2024, will make it easier to prosecute a large organisation if an employee commits fraud for the organisation’s benefit.
Larger organisations in the firing line
The new legislation, being introduced in the Economic Crime and Corporate Transparency Bill, will target a wide range of large businesses across all sectors, including not-for-profit organisations such as charities and incorporated public bodies.
A large organisation is defined (using the standard Companies Act 2006 definition) as organisations meeting two out of three following criteria:
- More than 250 employees
- More than £36 million turnover
- More than £18 million in total assets
A business could face legal action under the new legislation if, for example, employees are selling products under false pretences, or if accounts were falsified to mislead investors.
Businesses could receive an unlimited fine if they are found to not have reasonable fraud prevention procedures in place.
These severe penalties are being implemented to encourage businesses to clamp down on fraudulent activities within their organisation.
SMEs still bound by fraud legislation
The above thresholds mean that small and medium-based enterprises (SMEs) will be exempt from the new offence, but they will remain accountable under the existing legal framework. However, the above thresholds could be amended in the future through secondary legislation if necessary.
Small and medium enterprises are often the businesses that fall foul of fraud committed by larger organisations, so they may benefit from the protection that the new legislation may bring.
What you need to do
If your business falls below the thresholds mentioned above, it is important to keep an eye on the existing legal framework.
If your business is within the scope of the new legislation, then it is of vital importance to ensure you have the necessary fraud prevention measures in place.
Need help with fraud prevention or advice on the new legislation? Contact us today.