Failure to prevent fraud

The offence applies to large organisations, including parent companies and subsidiaries, regardless of location, that meet two or more of the following criteria:

• more than 250 employees
• more than £36 million of turnover
• more than £18 million in total assets

These criteria apply to UK and overseas organisations (including their subsidiaries) irrespective of where they are headquartered or where the subsidiary is located, provided there is a UK nexus. Subsidiaries are defined under the Companies Act 2006. 

Under this new offence, a parent company can be prosecuted for failure to prevent fraud where the fraud offence is committed by its subsidiary and where the beneficiary is the parent organisation, or its clients to whom the subsidiary provides services for or on behalf of the parent organisation.

Further if an employee of a subsidiary of a large organisation (where that subsidiary is not itself a large organisation) commits a fraud that is intended to benefit the subsidiary, the subsidiary may be prosecuted. 

With the offence now active, organisations must ensure they have robust fraud prevention procedures in place. The guidance published by the Home Office provides advice on the procedures that can be put in place for the purposes of establishing an effective defence. The guidance refers to six broad principles, together with more detailed advice, which are intended to inform the approach of an organisation, by reference to their particular circumstances and risk:

• Top level commitment
• Risk assessment
• Proportionate risk-based prevention procedures
• Due diligence
• Communication (including training)
• Monitoring and review

Immediate steps to take:

• Conduct risk assessments to identify potential fraud risks within your organisations.
• Review and develop policies and procedures to manage the risks presented by the new offence.
• Consider targeted training for employees and associated persons
• Develop a record of decisions and actions taken to demonstrate compliance
• Continue to monitor and review effectiveness of fraud prevention measures

If you have any questions about how this applies to your business or need legal support, please do not hesitate to get in touch with our ​​​​​​ White Collar Crime and Investigations team.

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