Section 199 of the Economic Crime and Corporate Transparency Act 2023 (ECCTA) came into force on 25 October 2023. This included significant changes to the criminal charges organisations can face for failing to prevent fraud. The requirements apply to any organisation meeting the following criteria (based on the financial year preceding any offence): - More than 250 employees.
- More than GBP 36 million turnover.
- Assets of more than GBP 18 million.
The failure to prevent offences means that an organisation can be criminally liable where it has failed to prevent misconduct carried out by associated persons. Associated persons can include agents, brokers, professional advisors, as well as employees of the organisation (including those based within any subsidiaries). There is also the potential for organisations outside of the UK to be brought into scope, depending on whether activity conducted on their behalf (by an “associated person”) commits an offence under UK law. While the guidance is yet to be released, it is expected to come out in Q2/3 and is likely to follow a similar approach to guidance on similar offences, namely those related to the Bribery Act 2010 and tax evasion (per the 2017 Criminal Finances Act). The offence itself is expected to come into force by the end of Q2 2024. Impact on Firms and Reasonable ProceduresOne of the key impacts relates to the defence from prosecution based on an organisation having in place “reasonable prevention procedures” which cover 6 broad principles, namely: - proportionate procedures
- top-level commitment
- risk assessment
- due diligence
- communications (including training)
- monitoring and review
While there are several categories of offences, examples of the types of activities that could give rise to criminal prosecution include: misleading financial reporting, misleading investors in an IPO, mis-selling of financial products, and greenwashing (misleading statements regarding the environmental impact of a product). |