The Economic Crime and Corporate Transparency Act 2023
20th November, 2023
The Economic Crime and Corporate Transparency Act (the ECCTA) received Royal Assent on 26 October 2023 and introduces new provisions to tackle economic crime and encourage corporate transparency.
The Act creates a new ‘failure to prevent fraud’ offence under which organisations may be held to account if they profit from fraud committed by an “associated person.” An associated person is defined as an employee, agent or subsidiary of the relevant organisation, an employee of a subsidiary, or a person who otherwise performs services for or on behalf of the organisation so the scope of liability is quite wide ranging.
An organisation will be criminally liable where such a person commits a fraud intending to benefit the organisation and the organisation did not have “reasonable procedures” in place to prevent the fraud.
The new offence applies to “large organisations”, defined to include large bodies corporate, subsidiaries and partnerships and also large not-for-profit organisations, such as charities and incorporated public bodies; all of which must satisfy at least two of the following requirements in the financial year preceding the year of the fraud offence:
- Turnover of more than £36 million
- Total assets of more than £18 million
- An average of more than 250 employees
Currently, small and medium size businesses are exempt from the legislation but the Act does allow for the threshold at which companies are excluded to be amended in the future through secondary legislation if necessary.
The failure to prevent fraud offence captures the main statutory offences under the Fraud Act 2006 and the Theft Act 1968 and a full list of those offences, which is most likely to be relevant to corporations, are listed in a schedule to the ECCTA.
Where an organisation is convicted of the new offence it can be ordered to pay an unlimited fine.
Organisations will be able to avoid prosecution if they can establish a “reasonable procedures” defence in that they have procedures in place to prevent fraud, which would include a robust Anti-Bribery and Corruption Policy. The government has confirmed that it will publish guidance providing organisations with more information about what they consider might amount to “reasonable procedures” before the new offence comes into force.
This new offence will make it easier for prosecutions to be brought against companies as prosecutors will no longer have to show that the ‘directing mind and will’ of a company were involved in the fraud which will increase the chance of prosecutions being brought against organisations. There is also an increased risk of private prosecutions being brought by individuals who are victims of fraud. Employees of companies and other organisations can commit fraud in a wide variety of ways, for example, by dishonest sales practices, hiding important information from consumers or investors, or dishonest practices in financial markets so it is important that companies and organisations have suitable procedures in place to prevent against liability under the Act.
The government is yet to confirm an implementation date and we await its guidance on reasonable fraud prevention procedures but we will keep you updated as and when further information becomes available. In the meantime, it might be a sensible step to dust off existing ABAC compliance procedures and consider whether they address this new area of corporate risk.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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