The next round of the consideration of the new failure to prevent fraud offence (the FTPF Offence), proposed as part of the Economic Crime and Corporate Transparency Bill (the Bill), saw the House of Lords push back again on restricting application of the offence to large organisations only.
The proposal, which the House of Lords have agreed – and so is now up for debate in the House of Commons next Wednesday 25 October – is that the FTPF Offence should apply to businesses which are ‘not small’.
The FTPF Offence will shift the focus from organisations as victims of fraud (inward fraud) to make it easier for organisations to be prosecuted for fraud committed by employees or third parties that the organisation benefits from (outward fraud). For more information and previous commentary on the FTPF Offence, please see our articles here and here.
Application of the FTPF Offence
The application of the FTPF Offence has been a major source of contention between the House of Lords and the House of Commons in recent months.
The House of Commons has maintained the position that the offence should apply only to ‘large organisations’, on the basis that the costs of complying with the new offence may be too much of a burden on SMEs. The House of Lords have been consistent in continuing to attempt to widen the scope of the Bill.
Previously, the House of Lords had proposed that only ‘micro-entities’ should be exempt, but have now conceded to expand this such that ‘small organisations’ are exempt. The Lords have proposed that ‘small’ organisations be defined as businesses which have: (a) a turnover of £10.2 million or less; (b) 50 employees or less; and (c) a balance sheet of no more than £5.1 million.
If this is agreed by the House of Commons next week, any business larger than this will fall within the scope of the FTPF Offence. In practice, this would effectively mean that a large number of organisations will be required to put in place, or reinforce, anti-fraud procedures.
The proposed amendments can be viewed here, and have been scheduled for consideration in the House of Commons on 25 October. There is still no clear indication as to when the FTPF Offence might come into force, although the Bill is expected to receive Royal Assent by the end of the year with the FTPF Offence coming into force during the course of 2024.
Ahead of this, the government still needs to publish guidance for companies on what constitutes ‘reasonable procedures’, although companies should be thinking now about conducting tailored, fraud specific, risk assessments, and based on the output of the risk assessment, making any necessary enhancements to their policies and procedures.