The new guidance on the offence of failing to prevent fraud – will it lead to a sea-change to anti-fraud compliance mechanisms?

The Home Office has published its guidance to organisations on the new offence of failing to prevent fraud. Does this herald a seismic shift in how UK companies approach their anti-fraud policies, plans, procedures and protections?   

On the one hand, there are reasons to suppose that the new offence and guidance will not lead to vast changes to the way UK companies, partnerships and other organisations operate in applying anti-fraud measures:

• The offence (and therefore the guidance) only applies to organisations that are “large”, ie those that meet two or three out of the following criteria: (a) more than 250 employees; (b) more than £36 million turnover; and (c) more than £18m in total assets.
• Such organisations, given their size, should have significant anti-fraud measures already in place.
• The offence and the guidance only cover fraud committed where the organisation (or a subsidiary) is intended to benefit from the fraud. They do not apply where the fraud is against the organisation (or the subsidiary). 
• The six principles included in the guidance mirror those in the guidance published for the Bribery Act 2010. So organisations should be familiar with them.      

However, it seem to the writer that this latest development in the extension of criminal law to hold companies to account for employees’ and agents’ conduct may well lead to significant cultural, operational and managerial changes to the way many UK entities operate:

• The very fact that the offence and guidance applies only where the organisation stands to benefit – and not where the organisation is a victim – is a potential differentiating factor. Many businesses will have mechanisms and procedures aimed at identifying and rooting out the risks of frauds being perpetrated against them; however, those organisation may not have similar processes for identifying the risks of fraud being committed by their employees and agents which stand to benefit their organisations. There is an obvious self-interest in businesses stopping fraud against that business but what about where a fraud actually or arguably benefits an organisation? That requires a more nuanced approach and justification, one perhaps less obvious than where fraud leads to empirical financial damage to an organisation. 
• Organisations will want to demonstrate to their customers, clients and any relevant regulators that they are committed to ethical practices and “playing fair”. Competitors will also take umbrage at any of their fellow market players taking advantage and manipulating the market through fraudulent practices.    
• Although the six principles are familiar, the application of them, to what is undeniably a much wider scope of many different types of criminal offence, will test many organisations. Unlike the guidance published for the Bribery Act, there is much more limited publicly available precedents or good practice to draw from. Organisations looking to implement or update anti-bribery compliance programmes could look to the US example of the Foreign Corrupt Practices Act and the vast know-how that had built up over many years. Here there is no such body of work and the issues are more diffuse. 

Whatever the position, any organisation which falls within scope will need to take action further to the six principles prior to the offence coming into force in nine months.