Words by Sally Clark, CMS, Corporate Crime – Of Counsel.
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Even before it came into force, the catchily-titled Economic Crime and Corporate Transparency Act 2023 (“ECCTA) was heralded as adventing the dawn of a new era of corporate criminal responsibility. In the context of fraud and economic crime, it couldn’t have been more timely. Recent Police Scotland figures confirm what we already knew –incidents of fraud are soaring. The number of frauds reported to them rose by 140% over the last decade; from 6,913 in 2024-2015 to 16,624 in 2023-24.
The two key pillars of this new approach to economic crime are, firstly, the introduction of a failure to prevent fraud offence and, secondly, the widening of the traditional test for corporate criminal liability for economic crimes. The combined desired effect of these changes is to make it easier to prosecute large companies which have complex management structures. At the same time, it is another push towards better corporate behaviours; the carrot, or is it the stick, being the risk of prosecution for failure to do so.
The failure to prevent fraud offence is not yet in force, becoming law on 1 September 2025. The change to the corporate criminal liability is already with us, having come into force on 27 October 2023. So, what do these changes mean in practice and how relevant are they to the energy sector?
Failure to prevent fraud
When the new offence comes into force, a “large” company or partnership will be guilty of an offence if it has “failed to prevent” a fraud offence committed by an employee, agent or subsidiary and the intent of the perpetrator is to benefit the company (whether in fact it did benefit the company is irrelevant). Large is defined by meeting any 2 of the following 3 criteria;
- More than 250 employees
- Revenue greater than £36 million
- Balance sheet total of more than £18 million
A defence is afforded to organisations who can show that they had reasonable procedures in place to prevent fraud. Home Office guidance was published in November which offers a steer for companies to stay on the right side of the law. The flavour of the guidance is clear – what matters is substance, rather than form. It is all well and good having comprehensive polices and/or procedures on paper, but what matters is that they are followed in practice, and being able to demonstrate this.
Corporate liability for economic crime
Corporations can also now be held liable for economic crimes if committed by a “senior manager” acting within the scope of their “actual or apparent” authority. The range of crimes for which a corporation could be held liable is broader than for the failure to prevent offence and includes not just for fraud, uttering or embezzlement, but theft, money laundering offences, bribery and sanctions offences.
The corporate liability for such offences isn’t limited to large companies and there is no need to establish the crime was for the benefit of the company. There is no “reasonable procedures” defence either.
The energy sector
If we look at the incidents reported under the Scottish bribery self-report scheme, it offers insight into how exposed the energy sector is to the risk of financial crime. Firstly, the energy sector, including companies providing feeder services to the sector, is seen as being higher risk as regards bribery than others. Secondly, the situations in which such financial impropriety has arisen often involve third parties or agents abroad. Organisations will be liable for acts of employees, agents or subsidiaries if the offence has a UK nexus, meaning the underlying fraud took place in the UK or that the gain or loss occurred in the UK. If a UK parent company benefits from a fraud committed by a subsidiary abroad or a third-party agent acting on their behalf, the parent company could be exposed to risk of prosecution.
Conclusion
Don’t wait till 1 September 2025 to get your fraud-prevention measures in place, the corporate liability offence is already here, and the time to act is now!