Do health & safety duties in the workplace pave the way for failure to prevent fraud? In his article for New Law Journal, BCL partner, Tom McNeill sets out the possible routes ahead.

Here is a short extract from Tom’s article*. If you wish to read the full article, please view pages 15-16 of the full publication in a pdf here or visit the New Law Journal website.

‘At some point and in some form, we are likely to have a new failure to prevent (FTP) fraud offence, it having been shoehorned into the Economic Crime and Corporate Transparency Bill, currently in the House of Lords. While FTP fraud has been long debated, there remain significant criticisms, not least that it risks organisations being punished for conduct which was not their own and which they could not have prevented; and that it may do little to prevent fraud and potentially have the opposite effect. This is not to mention the increased bureaucratic and costs burdens on businesses at a time when they can little afford it (the current intention is for the offence not to apply to small and medium-sized enterprises (SMEs) for this reason).

Against this background, there has been an underexplored suggestion by a number of commentators—as well as the House of Lords Committee on the Fraud Act 2006 and Digital Fraud—that the FTP model has a precedent in the Health and Safety at Work etc Act 1974 (HSWA 1974). With the not-insignificant caveat that the general duties in HSWA 1974 were not the model for the original FTP bribery offence, there is nevertheless a lot to learn from health and safety.

Systems failure

Broadly, any new FTP fraud offence will be to the effect that, if established that an ‘associated person’ commits a fraud offence, and certain other conditions are met, then a commercial organisation would commit an offence subject to a defence of reasonable procedures designed to prevent the offending.

This has the effect of turning a dishonesty offence (once fraud is established) into one of systems failure. Like health and safety, the burden is on the organisation to prove the reasonableness of its procedures to avoid the commission of an otherwise strict liability offence.

Ups & downs

In the health and safety context, the obvious benefit of framing an offence in this way is that, when there is a workplace accident (and even in the absence of an accident), organisations with no proper regard for ensuring safety are easily prosecuted. The nature of the duties makes prosecuting the legal equivalent of shooting fish in a barrel; and having this particular weapon has undoubtedly assisted regulators in driving safety improvements.

A major downside is that, following an accident, in many cases it is practically impossible for even the most conscientious organisations to establish that they had taken all reasonably practical measures to ensure safety, and thereby avoid unjust prosecution and punishment. There are also arguments that the over-prosecution of organisations may in fact have the unintended consequence of undermining safety. It is useful to explore both sides in the context of an FTP fraud offence.’

*This article was first published by New Law Journal on 05 May 2023.