Failure to Prevent Fraud: Peers seek to widen the scope

The government tabled a new failure to prevent (FTP) fraud offence as part of the Economic Crime and Corporate Transparency Bill (ECCT Bill) on 11 April 2023. See our earlier post for more detail.

Peers in the House of Lords have now been considering the ECCT Bill and have voted in favour of two significant amendments to the FTP fraud offence, proposed by Lord Garnier, KC, former solicitor general. If retained, these amendments would substantially widen the scope of the proposed offence.

The amendments to the FTP fraud offence are to:

• remove the exemption for companies that are not “large organisations”; and
• expand the offence to include failure to prevent money laundering.

Small and medium organisations carve-out

We noted in our previous post that the rationale behind the carve out for small and medium enterprises was unclear, excluding, as it would, a large percentage of corporates and partnerships. It is also not reflective of the current FTP offences in the Bribery Act 2010 and the Criminal Finances Act 2017. The government fact sheet published in April stated that they wanted to avoid placing “unnecessary burdens on legitimate businesses”.

Lord Garnier KC equated the carve-out of small and medium sized enterprises from the FTP fraud offence to “saying that every burglar over six feet, six inches is liable to be prosecuted…but every burglar under that height gets off scot free.”

Money laundering

The rationale for previously excluding money laundering was that relevant organisations are already required by law to have anti-money laundering procedures.

This "modest" legislative amendment (per Lord Garnier KC) would mean that organisations not currently subject to the requirements of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 would need to ensure that they have in place reasonable prevention procedures to prevent money laundering. This would represent a significant additional requirement for businesses currently outside the ambit of the UK’s money laundering regime.

In this context, Lord Garnier KC’s description of the amendment may be somewhat downplaying its significance.

Outcome 

The ECCT Bill will go to the House of Commons and is expected to be voted on later this year. It remains to be seen whether the government will retain these amendments, which represent a significant change to the legislation.