The battle against corporate crime intensifies as the UK government seeks to weaponise its incoming legislation. The "failure to prevent fraud" offence will require every large business to have ‘reasonable procedures in place to prevent fraud’ so as to avoid being potentially hit with an unlimited fine – making it the hardest-hitting deterrent since the introduction of the Bribery Act in 2010. The timing is auspicious – fraud is endemic. Currently, 41% of crime involves fraud, and only 2% of police resources are allocated to combat it. The question remains – will the adaptability of those engaging in forms of fraud, such as fraud by false representation, false accounting and fraudulent trading, continue to outpace the government’s attempts to effectively dissuade and punish it?
Given the importance of the legislation, Danielle Giannecchini (Regional Director) & Charles Goddard (Account Executive) solicited key takeaways from those who have dedicated their careers to this specialism:
Quinton Newcomb, Partner and Head of White-Collar Crime at Fieldfisher, underscores the potential for increased prosecutions but also flags that this outcome is contingent on a sufficient allocation of resources to agencies such as the SFO: ‘The volume of prosecutions against companies should logically increase…the key question for enforcement agencies will be around resources and whether they can materially increase the number of investigations into corporate criminality that they can competently conduct.’ In Quinton’s published material on the topic, he points to the significant funds that the government have recently pledged in the latest Economic Crime Plan as evidence of a concerted effort to increase that enforcement capacity over the coming period.
Iskander Fernandez, Partner and Head of White-Collar Crime at Kennedys, stresses that procedures and policies won’t be sufficient alone. Companies will need to foster a culture of compliance to support to combat white-collar crime effectively: "Having adequate and properly drafted procedures and policies to combat wrongdoing is one thing, but they serve no purpose whatsoever unless they are weaved into the culture of the business (with every member of the team aware of and trained on them). Fostering an environment of self-reporting and whistleblowing seems to be the best means of tackling white-collar crime at the moment."
Helen Harvey, a Senior Solicitor at Macfarlanes, questions whether the impact of the new offence will be limited by the fact it will only apply to ‘large’ businesses as defined by Companies House (therefore meeting two of the following criteria: having more than 250 employees, more than £36 million in turnover or more than £18 million in total assets), noting: "Whilst the new offence will no doubt result in large companies reviewing and refreshing their fraud prevention procedures, the exception for small- and medium-sized enterprises means that there is unlikely to be a widespread focus on fraud prevention akin to the focus on anti-bribery procedures, which accompanies the introduction of the Bribery Act."
Joanne Taylor, a Senior Managing Director focusing on financial crime compliance & investigations at K2 Integrity, added that companies who are seeking true protection from fraud should consider going beyond the offences covered by the Bill. She said, "For affected companies, “reasonable procedures” will undoubtedly include a periodic fraud risk assessment, which should identify inherent fraud risks, evaluate current controls and assess residual fraud risk. To truly protect the company against fraud, it would be unwise to limit the fraud risk assessment methodology to the offences covered by the Bill (as drafted). Fraud risk assessments should also address external fraud schemes that could impact the company, such as business email compromise fraud or fraud perpetuated through digital platforms, and internal fraud scenarios where the company is a victim, for example, expenses fraud."
How Companies Should Prepare:
Once the final language of the Bill is passed by Parliament, affected companies will need to be looking out for the government’s statutory guidance. Whilst this is yet to be published, counsel can look to the frameworks established for similar bribery and tax offences to get an indication of how to best prepare:
- Strengthen compliance programmes: Large businesses must prepare for this critical change by ensuring that they have reasonable fraud prevention procedures in place (e.g., by updating compliance programmes [including whistle-blowing policies] to be sufficiently robust, well-defined and weaved into the culture of the business [with every member of the team aware of and trained on them]). Companies can commission ongoing independent compliance reviews or fraud risk assessments over company documents and communications to alleviate any stakeholder’s concerns.
- Implement robust risk identification: Given the wide variety of misconduct that will fall under the new offence, strengthening internal information governance procedures and monitoring company communications will play a significant role in deterring and capturing potential breaches of the new legislation. Greater collaboration among human resources, information technology, general counsel and C-level executives will be needed to ensure that businesses adopt procedures to minimise their exposure and liability.
- Engage legal experts: In the event of a potential offence, it is critical to seek guidance from legal advisors specialising in white-collar crime and corporate compliance at an early stage. Likewise, companies should engage technology experts at the outset to obtain advice on the comprehensive and efficient management of electronically stored information (ESI), ensuring compliance with legal obligations relating to the preservation and disclosure of evidence.
High-profile SFO matters have been beset by controversy in recent years. The overturned conviction and imprisonment of Ziad Akle and Paul Bond in the 2022 Unaoil investigation along with the collapsed prosecution of three former executives at G4S in March 2023 highlight the importance of ensuring a diligent, compliant and expertise-based approach throughout the disclosure process.
At TransPerfect Legal Solutions, we understand the complex challenges faced by organisations navigating the ever-changing landscape of corporate crime. We offer comprehensive eDiscovery and legal technology solutions that can help companies respond to the demands of the new 'failure to prevent fraud’ offence. Our team of experts possesses specialised knowledge and tools to identify, collect, process and analyse vast volumes of data, enabling companies to comply with legal obligations, preserve relevant evidence, and present a strong defence. With our expertise in navigating complex eDiscovery workflows, companies can mitigate risks, minimise costs and gain a strategic advantage in the face of potential criminal charges.