Only 29% of UK organisations have delivered training on the failure to prevent fraud, the new corporate criminal offence which came into force this month.
With no requirement to prove intent, the only defence under the law is for organisations to show they had “reasonable procedures” in place, including documented staff training. However, over 40% of organisations surveyed in a poll of 278 compliance professionals said they either have not started training or are unsure whether it has happened.
The failure to prevent fraud offence, which came into force on 1 September, introduced strict liability for large companies that benefit from fraud committed by staff, subsidiaries or agents, even if senior leadership is unaware.
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“This offence wasn’t designed to catch fraudsters. It was designed to catch companies that failed to prevent fraud,” said Nick Henderson-Mayo, head of compliance at VinciWorks, the training and risk management software provider that carried out the research.
“Organisations need to be doing more than simply having policies on paper or vague intentions to train staff. The Serious Fraud Office (SFO) has made it clear that it expects evidence of risk assessments, due diligence, and internal systems that actually work.
“If you’re still relying on spreadsheets or haven’t documented your fraud training, you may already be exposed. Reasonable procedures aren’t about perfection, but they are about proof.”
When asked which aspect of the new failure to prevent fraud law compliance professionals were most concerned about, the most common response was risk assessment (25%), the foundation of any “reasonable procedure” defence. This, said VinciWorks, suggests that many organisations are struggling with the first and most basic step in building a defensible fraud prevention framework.
Parallels have been drawn between the failure to prevent fraud offence, the failure to prevent bribery, which came into force in 2011, and the failure to prevent tax evasion, which came into force in 2017, with some compliance experts suggesting a degree of complacency in many organisations.
VinciWorks found that only 29% of companies conduct annual training on preventing tax evasion, and more than a quarter do not train or do not plan to.
In 2016, Sweett Group pleaded guilty to failing to prevent bribery, the first conviction under section 7 of the Bribery Act 2010. It received a fine of £1.4 million, had £850,000 confiscated and was ordered to pay £95,000 in costs.
In 2017, Rolls-Royce agreed to pay the SFO £497 million, £141 million to the US justice department and £22 million to regulators in Brazil after confessing to “conspiracy to corrupt, false accounting and failure to prevent bribery”.
In 2020, Airbus paid £3bn in penalties after admitting paying bribes to secure contracts in 20 countries. Judges declared the corruption as “grave, pervasive and pernicious”. The plane manufacturer agreed to pay penalties after reaching settlements in France, the US and the UK. Airbus’s settlement with the SFO amounted to £820 million.
“We’ve seen this before,” said Henderson-Mayo. “When failure to prevent bribery was introduced, many thought enforcement would be rare; that was until the Sweett Group and Airbus cases landed. Fraud will be no different.”
The failure to prevent fraud offence applies to large organisations, defined as those meeting at least two of the following thresholds: over 250 employees, more than £36 million in turnover, or over £18 million in assets. A single incident of fraud, whether in procurement, sales, finance, or third-party contracting, can trigger a criminal investigation.
While some firms have begun putting procedures in place, the VinciWorks poll suggested many are still relying on fragmented processes or legacy tools.
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