Update for large charities: Home Office announce failure to prevent fraud offence
10 May 2023 | Applicable law: England and Wales | 1 minute read
The Home Office has announced that a new offence of failure to prevent fraud will be introduced under the changes proposed in the Economic Crime and Corporate Transparency Bill (the 'Bill') which will include large charities and not-for-profit organisations in its scope.
The introduction of the new offence will allow prosecutors to hold companies accountable in circumstances where an employee commits fraud (covering fraud and false accounting) for the organisation’s benefit and the organisation did not have reasonable fraud prevention measures in place. If fraud is committed by an employee, and the organisation cannot demonstrate that it had reasonable measures in place to deter the offending, then the organisation risks receiving an unlimited fine. Importantly, it does not need to be proven that those leading the organisation knew about, or ordered, the fraudulent activities.
While the Bill will apply to UK corporate entities, including small and large businesses, limited partnerships, and charities structured as companies and limited partnerships, this new offence of failure to prevent fraud will only apply to large bodies corporate and partnerships. The offence applies across all sectors, and therefore charities and not-for-profit organisations meeting the definition of large bodies corporate (as taken from the Companies Act 2006, and set out below) will be within the scope of the new offence.
Large bodies corporate, as defined in the Companies Act 2006, are organisations meeting two out of three of the following criteria:
- more than 250 employees;
- more than £36 million turnover; and
- more than £18 million in total assets.
The new offence is designed to protect the public from issues such as dishonest sales tactics, false accounting, hiding important information from consumers, and dishonest practices in financial markets. The creation of the new offence follows recommendations made by the Law Commission’s 2022 review of Corporate Criminal Liability. The Bill is currently at the Committee Stage in the House of Lords.
For the full government fact sheet on the new offence, see here.