Wake-up call: be ready for new fraud regulations

Companies will soon need to prove that they have taken steps to prevent fraud cases or be held accountable. Jason Cropper reports

 

The problem

 

The UK is set to introduce a new criminal offence for failure to prevent fraud. The new offence, which is currently going through Parliament, will be included in the Economic Crime and Corporate Transparency Bill and is anticipated to come into force in summer 2023.

 

It’s anticipated the new offence will help to protect victims of fraud by improving fraud prevention procedures in organisations and holding them to account if they profit from fraud committed by an employee.

 

The hospitality sector is particularly vulnerable to fraud and it’s important those working in the sector familiarise themselves with the legislation or risk hefty fines.

 

The law

 

The new failure to prevent fraud offence will place the onus on companies to ensure they have reasonable procedures in place to prevent fraud. This will only apply to companies that meet two of the following criteria:

• More than 250 employees.
• More than £36m turnover.
• More than £18m in assets.

 

The risk of fraud is inevitably lower in smaller companies; however, it should be noted that their exclusion from the list does not mean an absence of fraud at this level. The government has indicated that the following fraud offences will be covered under the offence:

• Fraud by false representation.
• Fraud by failing to disclose information.
• Fraud by abuse of position.
• Obtaining services dishonestly.
• Participating in a fraudulent business.
• False statements by company directors.
• False accounting.
• Fraudulent trading.
• Cheating the public revenue.

 

This list may expand through further regulation to be introduced. The list of offences do not include fraud carried out for personal gain, only that of the company of the individual is employed by. There is also no individual liability for failure to prevent fraud.

 

Expert advice

 

We advise companies to conduct risk assessments covering the wide and varied possibilities of outward fraud. We would advise companies to review all their anti-fraud policies and procedures as a matter of urgency.

 

To-do checklist

• Consider this an important risk management and risk mitigation issue and review your internal audit and reporting processes.
• Review the statutory guidance from the government and act accordingly.
• Develop an action plan and consider when you might need legal advice.
• Review internal training and HR policies, and ensure staff understand their own obligations as well as those of the company.
• Identify areas where your business might be vulnerable to the types of fraud listed above
• Always report fraud and get help in dealing with any external enforcement agencies.

 

Beware

• Until the statutory guidance is published the approach taken by enforcement agencies and potentially other parties will be difficult to understand but you need to be prepared.
• Under English law, a company is a separate legal entity and the new law is intended in part to protect the company, its investors and stakeholders from the failures of the directors and management from mitigating the risks of fraud.
• Consider the commercial, reputational and enforcement risks of not complying with the law.

 

Contact

 

Jason Cropper is a regulatory partner at law firm TLT

 

jason.cropper@tlt.com

 

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