The introduction of the failure to prevent fraud offence is a major milestone for the UK. If this offence had been in place at the time of the financial crisis, for example, it would have allowed for effective prosecutions of the banks for their wrongdoing. It could have also been used in the aftermath of the LIBOR and EURIBOR scandals. The offence will allow prosecutors to hold big companies to account when they defraud the public purse, and when they make false or misleading statements about their profits or trading, and even their green credentials.
The carve out for SMEs is however desperately short-sighted and entirely unnecessary. The Law Commission did not accept arguments for thresholds to apply to failure to prevent offences in its June 2022 options paper and the House of Lords rejected exemptions for SMEs when it scrutinised the 2010 Bribery Act.
By including this exemption, the government has deprived the corporate sector as a whole of the full benefit of this offence. SMEs are known to be at a high risk of fraud, and encouraging them to have appropriate anti-fraud procedures would not only help prevent fraud, but also better protect them from becoming victims of fraud.
We urge the House of Lords to scrutinise robustly whether the government has got the balance right on this, or is fundamentally missing a trick to ensure all companies play their role in preventing the epidemic of fraud that the UK is facing.
It is essential that the government now gets on with introducing reforms to the ‘controlling mind’ test that it promised last month in the new Economic Crime Plan. This more fundamental reform is needed to ensure that large multinational companies can be held responsible for active authorisation of criminal wrongdoing as well as for failing to prevent it.
We also urge the government to revisit the need for a ‘failure to prevent money laundering’ offence, particularly for the unregulated sector. This would ensure that those businesses that aren’t currently regulated for money laundering such as universities, PR firms, private schools and large parts of legal practice are required to have in place proper procedures to prevent money laundering.
Ultimately this reform will need proactive enforcement for it to be meaningful. Without a real uplift in resourcing for organisations like the Serious Fraud Office, City of London Police, National Crime Agency and Crown Prosecution Service, the risk is that this offence languishes on the legislative books rather than being meaningfully implemented.
UPDATE 12/04: The text of the proposed amendment has now been published (see p19 here). We welcome the inclusion in the amendment of a power for the Secretary of State to introduce a failure to prevent money laundering offence – which goes further than the Law Commission. It would be a missed opportunity for the government not to bring that offence forward in a further amendment to this Bill however. The amendment also makes clear that smaller subsidiaries of large firms will be covered by the offence and we have edited the text above to reflect that.