Failure to prevent fraud, a new offense under a 2023 UK economic crime law, casts a wide net that’s expected to fall well outside the nation’s borders, extending to companies in the US and elsewhere. Simon Airey and Andrew Butel of McDermott, Will & Schulte explore what types of organizations are covered and why corporate reporting structures that don’t enable direct access between compliance and the board could spell trouble.
Passed as part of the UK Economic Crime & Corporate Transparency Act (ECCTA), failure to prevent fraud (FTP fraud), a new strict liability corporate offense, came into force in the UK at the beginning of September.
US companies with relevant links to the UK can now be prosecuted if they fail to prevent their “associated persons” — a classification that includes employees, subsidiaries, agents and anyone else who performs services for or on behalf of the company — from committing a wide range of economic crimes. This is a fact-sensitive test to be determined by reference to all relevant circumstances.
The only defense is for a company to prove that it had implemented reasonable procedures to prevent its associated persons committing fraud. The UK government has published 44 pages of detailed guidance as to what might constitute reasonable procedures.
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