Companies will soon be liable for fraudulent conduct by a wide range of third parties — regardless as to whether they are aware of the misconduct. These new rules apply broadly and capture many foreign corporates, even if they have only tangential links to the UK. Leaders need to manage this risk through reasonable fraud prevention procedures, and time is running out to get those in place, says Mark Hunting, a partner in Bracewell’s London office.
A new criminal offense in the UK imposes liability on corporates that fail to prevent certain fraud offenses (i.e. a predicate offense) being committed by their agents, employees and other third parties acting on the company’s behalf such as, contractors, service providers and even subsidiaries and affiliates.
The “failure to prevent fraud” offense, set out in the Economic Crime and Corporate Transparency Act 2023, comes into force Sept. 1. Like other corporate financial crime offenses in the UK, it is a strict liability offense, leaving corporates criminally responsible regardless as to their knowledge or endorsement of the underlying criminal offense. The only defense is to have “reasonable fraud prevention procedures.”
Corporates have long considered their fraud risks and taken steps to manage them. However, what differs with this new…
