'Failure to prevent fraud' prosecution guidance reinforces prospect of UK authorities' early use of new power

The Serious Fraud Office (SFO) and Crown Prosecution Service (CPS) have issued new guidance on corporate prosecutions to coincide with the "failure to prevent fraud" offence coming into force on 1 September.

The new corporate criminal offence created by the Economic Crime and Corporate Transparency Act 2023 makes large organisations criminally liable if they fail to prevent fraud committed by an employee or agent for the organisation's benefit.

Prosecuting corporate wrongdoing

The general principles set out in the guidance, which was published on 18 August, state: "The prosecution of corporate entities, in appropriate cases, is an important part of the enforcement of criminal law and ensures the full range of criminality can be captured. Such prosecutions have a deterrent effect, protect the public, support ethical business practices and lead to increased confidence in the criminal justice system."

There is little doubt that the authorities are intending to use the new offence to bolster their efforts to combat corporate wrongdoing. Hannah von Dadelszen, chief crown prosecutor leading on economic crime for the CPS, commenting on the announcement, said: “Preventing fraud is essential to protecting the public and our economy. The public are entitled to have confidence that companies will be held to account for wrongdoing".

Nick Ephgrave, director of the SFO, added that the updated guidance would "help prepare prosecutors to pursue corporations which are failing to comply with their responsibilities under the law. Now is the time to take action. Corporations must get their house in order or be ready to face investigation.”

What does the guidance contain?

The guidance comprises ten sections:

• Purpose and scope
• General principles and definitions
• Routes to establishing corporate criminal liability
• Evidential considerations and forms of liability
• Casework handling
• Jurisdiction and multi-agency referrals
• Charging corporate entities- additional public interest factors to be considered
• Sentencing and ancillary orders
• Asset recovery

Deferred prosecution agreements (DPA)

Evidence, casework and charging

Potentially, of most interest and significance will be the sections on evidential considerations, casework handling and charging.

On evidential issues, the guidance notes that corporate entities may be held criminally liable for a failure to prevent offence irrespective of whether they intended or were aware of the commission of the specified underlying criminal conduct. Liability will arise where a person associated with the organisation commits a specified criminal offence intending to benefit the organisation or its customers.

It also notes the government's guidance on the new corporate criminal offence of failure to prevent fraud may assist prosecutors in structuring interviews, identifying lines of inquiry, examining areas of weakness or omissions in the prevention procedures, that may inform a prosecutors assessment of the strengths or weakness of any claimed defence during evidential reviews and charging decisions.

The section on casework indicates that prosecutors should consider deploying the new offence in investigations that may have a bribery aspect but where prosecuting that offence would be problematic.

It recommends an early assessment is made as to whether the entity could pay any likely sanction, and early asset restraint is considered to ensure that any penalties can be paid. It further encourages proactive communication and collaboration with foreign agencies in cases with a cross border element and also a consideration of whether a particular case would be more appropriately dealt with by a relevant UK regulator rather than through criminal prosecution.

Public interest considerations

The guidance also addresses the necessary consideration of public interest when deciding if a prosecution should be brought, in addition to the standard factors set out in the Code for Crown Prosecutors, such as seriousness, level of harm and the integrity of markets. It lists a number of additional factors both for and against prosecution. Factors weighing against prosecution include:

• A genuinely proactive approach in response to the wrongdoing including self-reporting and remedial actions.
• The lack of any previous similar conduct leading to enforcement action.
• The existence of a genuinely proactive and effective corporate compliance programme.
• The availability of civil or regulatory remedies which are likely to be more effective and proportionate.
• The offending represents isolated actions by individuals; for example, by a rogue director.
• The offending is not recent in nature and the organisation in its current form is effectively a different body to that which committed the offences.
• A conviction is likely to have disproportionately adverse consequences on the entity.

Osborne Clarke comment

The guidance will be of immediate use to commercial organisations and their professional advisors as they look to perfect the polices and procedures that will need to adopt. The guidance will help ensure that reasonable procedures are in place to prevent fraud so that the statutory defence can be established.

Looking to the longer term, should an organisation uncover conduct that could potentially trigger the new offence, the guidance will need to be carefully reviewed and followed if the authorities are to be persuaded not to commence criminal proceedings. Alternatively, if enforcement action is deemed to be necessary, a DPA is offered as opposed to a full prosecution being pursued.