Board Priorities 2024: Failure to prevent fraud
11 January 2024
The Economic Crime and Corporate Transparency Act 2023 was granted Royal Assent on 26 October 2023. It is likely to become law in the first half of 2024. It includes a new ‘failure to prevent fraud’ corporate criminal offence which means that companies in scope of the law can be held liable for fraud committed by individuals or entities on their behalf. The defence is that the company had in place at the time of the fraud, reasonable procedures to prevent it. Although the offence will be limited to "large" organisations initially, the scope of this legislation can be amended with secondary legislation in future.
Companies in all sectors will therefore need to demonstrate that they have reasonable procedures to prevent and detect fraud and a top level commitment to driving an anti-fraud culture. The reasonable procedures defence is likely to be modelled on the Bribery Act and similar principles for the failure to prevent the facilitation of tax evasion offence. These six principles include proportionate procedures, top-level commitment, risk assessment, due diligence, communication (including training) and monitoring and review.
Boards need to consider how these six principles are embedded into their businesses and that they can demonstrate a clear top level commitment to preventing and detecting fraud.