Failure to prevent fraud offence in the UK - implications for non-UK entities

The United Kingdom Parliament has now passed into law the Economic Crime and Corporate Transparency Act 2023.  Our recent bulletin described certain provisions of the new law. See:

A new corporate offence in the United Kingdom - Failure to Prevent Fraud | David Doble Law

The provisions relating to the newly-created corporate offence of failure to prevent fraud have not yet come into force.  Before they do, the Government is required to publish guidance about procedures that relevant bodies can put in place to prevent persons associated with them from committing fraud offences. 

In the meantime, we describe here how the Act will affect companies that have their main place of business outside the United Kingdom. Will the Act affect non-UK companies that fall within the definition of "large company" regardless of where their income is generated; and where their assets are held; or where their staff are employed? 

The relevant provisions of the Act can be summarised as follows:

• The new offence of failure to prevent fraud will apply to any relevant body which is a large organisation;

• A "relevant body" means a body corporate or a partnership (wherever incorporated or formed)

• A “large organisation” means a body, other than a parent company, that satisfied two or more of the following conditions in the financial year that precedes the year of the fraud offence: 
  Turnover:   More than £36 million
  Balance sheet total:    More than £18 million
  Number of employees:    More than 250.

• A “large organisation” also means a body, that is a parent company, that satisfied two or more of the following conditions in the financial year that precedes the year of the fraud offence:  
  Turnover:   More than £36 million net (or £43.2 million gross)
  Balance sheet total:    More than £18 million net (or £21.6  million gross)
  Number of employees:    More than 250. 

Accordingly, any large organisation, including those situated outside of the United Kingdom, will be liable under this Act where a person who is associated with that organisation (the "associate”) commits any fraud offence covered by the Act (and those offences are detailed in our previous bulletin).  Any such fraud will be caught by the Act where:

1)    the fraud is committed in the United Kingdom; or

2)    the fraud has effect within the United Kingdom.

An “associate” is: 

(a) an employee, agent or subsidiary undertaking of the relevant body, or

(b) a person who otherwise performs services for or on behalf of the body.

The law will apply to the activities of associates, regardless of the location in which those associates operate.

Accordingly, all entities (including those outside the UK) that are relevant bodies and meet the definition of “large organisation” should be preparing to take those steps that will be necessary to avoid falling foul of this new offence.  One of the first such steps might be to appoint relevant officers to organise that preparation.

A further bulletin will follow as soon as the guidance from the Government, referred to above, has been published.

If you have any questions in the meantime please contact us below.