In the reporting year ending in March 2022, fraud accounted for 41 per cent of all crimes committed. Many of those impacted were consumers and third-party suppliers of UK businesses.
In a bid to tackle fraud, the Government has now introduced the Economic Crime and Corporate Transparency Act (2023), creating a new offence, known as “failure to prevent fraud”.
This is aimed at encouraging businesses to identify and prevent fraudulent transactions at the source.
From Luke Morgan, Supervising Director in our Debt Recovery team, this is what you need to understand about your responsibilities to prevent fraud at a company level.
What does this mean for businesses?
Failure to prevent fraud means that businesses and individuals within those firms are now legally required to take reasonable steps to prevent fraud from occurring.
Many businesses will already have these in place. Common practices include requiring ID cards to enter secure buildings or using secure, randomly generated passwords to access sensitive data.
In practice, it may mean that businesses need to reevaluate their approach to fraud prevention and asses their operations for weaknesses.
With new regulations, the Government is seeking to tackle unscrupulous operators who do not seek to prevent fraud and expose their customers to undue risk.
However, the new regulations will impact all businesses and may expose them to scrutiny if fraud affects their customers or suppliers.
Who can be convicted?
In its current form, the Act states that only large companies – defined as having more than 250 employees, £36 million or more in turnover and more than £18 million in total assets – fall into the scope of the offence.
If convicted of the offence, an organisation could receive an unlimited fine, which will decided by the Court. Businesses accused of failing to prevent fraud should seek advice from an experienced corporate law specialist, as conviction could cause a real financial headache, as well as reputational damage.
One important note is that, while individuals can already be prosecuted for committing or assisting fraud, they cannot be prosecuted for failing to prevent fraud under the new law.
Taking steps to prevent fraud
New legislation requires all large businesses – including charities and other organisations – to have reasonable fraud prevention measures in place. These might include:
The legislation accepts that certain sectors and organisations are more susceptible to fraud than others, so “reasonable measures” will differ between businesses.
For example, businesses which hold financial or personal information on their customers or who manage Government contracts may be high-risk targets for financial criminals.
If the risk of fraud to your organisation is very low or non-existent, then it may also be considered reasonable to have no measures in place.
Protecting your business
With businesses now holding an increased legal responsibility to prevent fraud across the organisation, leaders and key decision makers may want to seek advice on how they can protect their business from liability if fraud does occur.
We can help you identify areas of weakness in your fraud prevention strategies and advise on other reasonable measures you can implement to ensure full compliance.
Please contact our team today for further guidance on your responsibilities to prevent fraud and protect your staff, customers and suppliers.
