What the impending 'failure to prevent fraud' bill means for UK companies

Fraud comes with an annual cost to our economy of billions of pounds. If companies are to be required on pain of prosecution to prevent the commission of fraud, it is clear that this must be limited to fraud committed for the benefit of the company.

All too often companies themselves are preyed upon by fraudulent employees. The amendment, which was withdrawn in the commons, recognised this.

Fraud takes many forms, and in the internet age the fraudster and victim need not be in the same part of the world. Can a UK company really do much to prevent such frauds? 

All the same, it is promising that the government seems ready to provide a statutory solution to the problem of corporate criminal liability – a development that will be welcomed by many. It is now up to corporates to ensure they have the structures in place to prevent falling foul of the law. Just exactly what those structures would look like remains unclear.

The shortage of contested prosecutions means there has been little judicial guidance on what 'adequate procedures' actually means. This leaves the Bribery Act guidance published in 2011 by the Ministry of Justice as the key point of reference. 

The guidance sets out six principles that should be followed when putting together procedures to prevent bribery. These require corporates to assess their bribery risks and to have in place procedures that are proportionate to this risk. These procedures should include due diligence measures – measures by which the corporate can know who is performing services on its behalf.

The ability to assess an organisation’s risk of bribery can be adapted without too much effort to assess the risk of fraud.

A key requirement of the principles is the need to have an appropriate tone from the top. There is a requirement to communicate to staff that bribery is not condoned and that there are procedures that must be followed. Regular training should be provided on these procedures.

Finally, it is not enough to set these procedures in place. The procedures and the context in which they operate must be regularly monitored and reviewed. 

These six principles are recreated in the guidance published by the Ministry of Justice on the procedures required to prevent the facilitation of tax evasion. They would seem to be a good place to start for businesses putting in place procedures to satisfy any new requirement. 

What this means in practice

There may be a collective sigh of dismay at the thought of having to create yet more policies, more controls, and more procedures. After all, businesses will only recently have made the investment to upgrade their compliance programmes.