Large firms liable for fraud happening under their watch under new UK laws

Businesses could be prosecuted if they profit from fraud committed by one of their employees even if managers do not know about it, under new UK laws.

The new “failure to prevent fraud” offence, which came into effect on Monday, holds large firms to account over their internal anti-fraud measures.

It says that businesses can be held criminally liable where an employee, agent, subsidiary or other associates commit fraud intending to benefit the company, and where reasonable fraud prevention procedures were not in place.

It means that they could be held to account even if managers did not order or know about the crime.

The law, which forms part of the Economic Crime and Corporate Transparency Act 2023, applies to organisations with more than 250 staff, £36 million in turnover and £18 million in total assets.

It includes fraudulent acts from dishonest sales practices and trading in the financial markets, to hiding important information from consumers or investors.

The Government, which is due to launch a new fraud strategy, hopes the new laws will prompt businesses to clamp down on scams happening under their watch.

This includes senior managers clearly communicating their anti-fraud stance and measures to staff, and committing to spending on training and resources to tackle fraud.

It could also mean fostering a culture that encourages staff to speak out if they have any concerns about fraudulent practices happening within the company.

Fraud minister Lord Hanson said it was a “pivotal” moment for businesses as the new offence “strengthens our anti-fraud culture”.

Nick Ephgrave, director of the Serious Fraud Office (SFO), said: “This is a significant new tool for prosecutors to tackle serious and complex fraud which damages UK business and undermines our economy.

“The SFO is ready to act if corporates fail to comply with their new responsibilities.”

Hannah von Dadelszen, chief Crown prosecutor for the Crown Prosecution Service (CPS), also said it would “not hesitate to prosecute where companies fail in their responsibility to prevent fraud”.

“Large organisations must act to put robust fraud prevention systems in place or leave themselves open to legal action,” she said.