Last week, the Home Office tabled an amendment to the Economic Crime and Corporate Transparency Bill, setting out a failure to prevent fraud offence.

According to the Home Office, this new offence is meant to “make it easier to prosecute a large organisation if an employee commits fraud for the organisation’s benefit” and “allow prosecutors to hold big companies to account if an employee commits fraud for the organisation’s benefit, and they did not have reasonable prevention procedures in place”.

Neil Swift commented on this major development for LexisNexis Corporate Crime (registration required).

Neil explained that the failure to prevent model has been successful so far asit has made businesses focus on compliance. “The government will hope that the new offence (if introduced) will have a similar effect,” Neil said.

He also detailed how the offence would work and which organisations it would apply to, namely “those that satisfy two out of three of the following criteria: a turnover of more than £36 million, a balance sheet total of more than £18 million, or more than 250 employees”.

“Presumably, this is to tackle the difficulty in applying the identification doctrine to large companies with diffuse management structures. However, it is noteworthy that the Secretary of State will be given the power to either modify those criteria or do away with them altogether.

“Despite various proposals having been made through the Bill’s passage, there is no mechanism to hold individuals criminally liable for a corporate failure to prevent.

“The combination of failure to prevent bribery and deferred prosecution agreements has given the impression that the UK is effective at tackling bribery. The government will hope that by introducing this offence, it can achieve the same trick in respect of fraud, while passing the burden of policing misconduct to the private sector,” Neil said.

However, the Serious Fraud Office will need appropriate resources to do its job properly. Without this, more companies will accept liability for a wider range of conduct, but without any individual being held to account.