Note:
This guidance is advisory only. The guidance is not a substitute for reading the legislation or obtaining professional legal advice where appropriate or necessary.
Statutory guidance in relation to fraud prevention procedures is published by the Home Office at Economic Crime and Corporate Transparency Act 2023: Guidance to organisations on the offence of failure to prevent fraud (accessible version) - GOV.UK. All organisations should review the Home Office Guidance when establishing and reviewing their fraud prevention procedures.
See Section 1.4 of the Home Office Guidance for any conflict between alternative sources of guidance.
Failure to prevent bribery
Failure to prevent bribery became an offence under section 7 of the Bribery Act 2010. Under this legislation, an organisation may avoid conviction if it can show that it had procedures and protocols in place to prevent bribery. Further information on failure to prevent bribery can be found in the NHS Counter Fraud Manual, which is available to Local Counter Fraud Specialists (LCFSs) and Directors of Finance (DOFs) on our extranet, NGAGE.
Failure to prevent the criminal facilitation of tax evasion
Failure to prevent the criminal facilitation of tax evasion was introduced under part 3 of the Criminal Finances Act 2017. Under this legislation, it is a criminal offence in the UK if a business fails to prevent its employees or any person associated with it from facilitating tax evasion.
Overlap with the offence of failure to prevent facilitation of tax evasion in the UK and overseas
As set out in section 2.2.1 of the Home Office Guidance, one of the base fraud offences included in the scope of the failure to prevent fraud offence is the common law offence of ‘cheating the public revenue’.
Cheating the public revenue is also one of the base offences caught by the offence of failure to prevent facilitation of tax evasion in the Criminal Finances Act 2017.
The offence of failure to prevent facilitation of tax evasion is designed to prevent a person associated with a relevant body from criminally facilitating the evasion of tax, and this will be the case whether the tax evaded is owed in the UK or in a foreign country. It should be noted that this offence applies to relevant bodies of all sizes.
In this context, the offence of failure to prevent fraud, is about failing to prevent an associated person from committing the offence of cheating the public revenue with the intent to benefit the relevant body or its clients.
Failure to prevent fraud covers a wider scope in terms of who can commit the offence of cheating the public revenue. Therefore, relevant organisations should be aware that the procedures that they have put in place to prevent the criminal facilitation of tax evasion may not be sufficient, on their own, to qualify as reasonable procedures for the offence of failure to prevent fraud.
In cases where an organisation could be liable to be charged for both offences, it would be for prosecutors to determine whether the organisation should be prosecuted for failure to prevent facilitation of tax evasion and/or failure to prevent fraud. The organisation could be prosecuted for both if the evidential test has been met and if it is in the public interest to do so.
Who is an ‘Associated’ person?
A similar definition of ‘associated’ person is used across all three failure to prevent offences: in each case the definition includes any person who performs services for or on behalf of the relevant organisation. This captures officers, directors, employees, and agents, but can extend to other third parties, who may not even be under contract with the relevant organisation (section 199 of ECCTA, section 44 of the Criminal Finances Act 2017 and section 8 of the Bribery Act 2010).
Reasonable prevention procedures
Under the failure to prevent fraud offence, it will be a defence for an organisation to demonstrate that it had reasonable fraud-prevention procedures in place at the time. The Home Office Guidance describes the types of measures that the government expects organisations to implement.
These measures are underpinned by the same six key principles as the equivalent Bribery Act guidance and Criminal Facilitation of Tax Evasion guidance (i.e., top level commitment; risk assessment; proportionate risk-based prevention procedures; due diligence; communication (including training); and monitoring and review). The level of fraud-prevention procedures considered reasonable will depend on an organisation’s risk profile and the scale and complexity of its activities.
Similarities and differences in the ‘failure to prevent’ offences
Base Legislation
Failure to Prevent Bribery
Section 7 Bribery Act 2010
Failure to Prevent the Facilitation of Tax Evasion
Section 45-46 Criminal Finances Act 2017
Failure to Prevent Fraud
Sections 199 and Schedule 13 ECCTA 2023
Scope
Failure to Prevent Bribery
Bodies corporate and partnerships of all sizes
Failure to Prevent the Facilitation of Tax Evasion
Bodies corporate and partnerships of all sizes
Failure to Prevent Fraud
‘Large’ organisations only
Relevant Offences
Failure to Prevent Bribery
Bribing another person (section 1 of Bribery Act) Bribing a foreign official (section 2 of Bribery Act)
Failure to Prevent the Facilitation of Tax Evasion
Cheating the public revenue Offences consisting of the fraudulent evasion of tax (in the UK or another country)
Failure to Prevent Fraud
Wide range of fraud offences specified in ECCTA (schedule 13)
Territoriality
Failure to Prevent Bribery
Applies to conduct by associated persons anywhere in the world provided the organisation is:
- UK incorporated; or
- Carries on business, or part of a business, in the UK
Failure to Prevent the Facilitation of Tax Evasion
Applies to UK tax evasion offences by all organisations.
Applies to foreign tax evasion offences where:
- the organisation is UK incorporated or carries on business, in the UK; or
- any element of the offence takes place in the UK
Failure to Prevent Fraud
Applies where any element of the base fraud offence took place in the UK (including any actual loss or gain)
Defence
Failure to Prevent Bribery
Adequate procedures
Failure to Prevent the Facilitation of Tax Evasion
Reasonable procedures
Failure to Prevent Fraud
Reasonable procedures
Intention/Benefit
Failure to Prevent Bribery
Intention to obtain or retain business (or an advantage in the conduct of business) for the organisation
Failure to Prevent the Facilitation of Tax Evasion
N/A
Failure to Prevent Fraud
Intention to benefit (directly or indirectly);
- the organisation; or
- any person to whom (or to whose subsidiary undertaking) the associated person provides services on behalf of the organisation)