Failure to prevent fraud—Statutory guidance

The UK Government has published guidance on the "Failure to Prevent Fraud" (FTPF) offence, which came into effect in 2023. This offence holds companies liable if they fail to implement reasonable procedures to prevent fraud committed by individuals associated with them, such as employees or agents.

The guidance sets out that companies can avoid liability if they have reasonable procedures in place to prevent fraud or if it was unreasonable to expect such procedures. It lists six key principles for businesses to follow: (i) top-level commitment, (ii) risk assessment, (iii) proportionate, risk-based procedures, (iv) due diligence, (v) communication, and (vi) monitoring and review. These principles are similar to those found in the Bribery Act 2010. However, the guidance provides little practical advice on what constitutes "reasonable" fraud prevention, which makes it challenging for businesses to determine the exact measures to take.

Fraud that could lead to an FTPF offence includes false accounting, fraudulent trading, and obtaining services dishonestly. Victims may include creditors, customers, or employees. This offence applies specifically to "large organizations," which is a key distinction from the bribery and tax evasion offences. Additionally, the fraud offence has a broader jurisdictional reach but requires a connection to the UK.

Regarding enforcement, it’s unclear how the FTPF offence will be applied in practice, and it may take years before any cases reach court. The guidance suggests that the main goal of the offence is to encourage corporate responsibility and self-policing, prompting companies to create robust fraud prevention systems rather than relying on law enforcement.

This insightful analysis is authored by John Binns and Alexander Gorst, providing invaluable expertise on the latest regulatory developments.

This comment was first written for and published by Lexisnexis on 20 November 2024, to read the full article click here. (£)