At our Risk Resilience in the Energy Sector conference on 4 September, we discussed the changes the new “failure to prevent fraud” offence will have on businesses operating in the industry and common themes that could improve risk management and compliance.

The offence will impact organisations across all sectors, so it is more important than ever to consider now and ensure your corporate governance measures are up to date and appropriate for your operations.

Below are the top 10 things you need to know about the offence:

1. The Economic Crime and Corporate Transparency Act introduces the new corporate offence of failing to prevent fraud. This offence, which is expected to come into force Q1/Q2 2025, is wider in scope than the failure to prevent bribery offence but with similar extra territorial reach.
2. The offence applies to large companies or partnerships, who have at least two out of three of the following: over 250 employees, a turnover of above £36m, or total assets above £18m. The offence will apply to a parent company if the group meets two of the three above conditions.
3. No knowledge of fraud will be required under this offence, but rather businesses may be held criminally liable for the acts of associated persons, including employees of their subsidiaries, unless they can demonstrate that they had reasonable procedures in place to prevent fraud or that it would not be reasonable for them to have such processes in place.
4. Whether the person who has committed the offence is an associate of the business will be determined based on the services carried out and the full circumstances of their relationship with the corporation, not just the title or employment status of that individual.
5. Fraud is defined widely and includes offences under the Fraud Act 2006, the Theft Act 1968, the Companies Act 2006, and under common law.  A fraud offence also includes aiding, abetting, counselling, or procuring the commission of one of the above offences.
6. The legislation applies where the victims of the offence are in the UK, or the offence was committed in the UK, even if the corporation is based overseas.
7. Organisations will not be guilty of the offence if they were a victim of the offence, and the intended benefit was to a person or subsidiary undertaking who provides services on their behalf.
8. Guidance is due to be published by the government before the offence comes into force, setting out what the appropriate processes should look like. These are likely to include individualised documented risk assessments, training, monitoring, and the use of digital compliance tools.
9. Corporations may be subject to unlimited fines on indictment, or fines to the statutory maximum on summary conviction. They can be prosecuted in any part of the UK.
10. The offence may be amended by secondary legislation in future to include smaller businesses, further offences of dishonesty, offences of a similar character to those already included, or relevant money laundering offences. This could significantly widen the application of the offence, and corporations will need to keep up to date with changes to ensure their processes remain effective.

If you need support on the potential impact of the new offence for you and your business, please get in touch with one of the team or your usual contact.

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