Aligned with the offense pertaining to failure of commercial organizations in preventing bribery prescribed under the UK Bribery Act of 2010, the UK Government has formulated plans to bring forth criminal liability upon large corporations in cases of failure to prevent fraud as well. The offense entails a broad scope covering false representation, failing to disclose information, abuse of position, obtaining services dishonestly, participation in a fraudulent business, false statements by company directors, false accounting, fraudulent trading, cheating the public revenue and so forth. An organization will be held liable in the event of failure to prevent fraud under any of the mentioned offenses wherein it is conducted by an employee or agent of the organization for benefit of the party availing services from the enterprise or the organization itself.
Lawmakers foresee this development as a tool to steer culture change by incorporating prevention strategies and holding organizations accountable for fraudulent actions of their employees and agents through the means of prosecution. As per the factsheet on failure to prevent fraud, the offense of failure to prevent fraud will be enforced upon grant of royal assent to the parent legislation, Economic Crime and Corporate Transparency Bill, only after guidance on reasonable fraud prevention procedures is published for the knowledge of organizations. The said guidance is envisioned to be in conformity with the guidance under the Bribery Act 2010. The global reach and extra territorial jurisdiction of fraud prevention legislation would lead to prosecution in the UK if UK organizations operating in foreign markets like India are accused of engaging in fraudulent practices. It is in addition to the jurisdictional scope derived from the UKBA, focusing on Indian organizations functioning in the UK markets.
Even though the firm and the employee are situated abroad, legal action against the employer may still be taken if an employee violates the UK legislation or targets UK-based businesses in their attempt at fraudulent actions.
Surge in the number of British enterprises in India due to comparatively higher growth opportunities by virtue of being a developing country has strengthened the connections between UK and India. It poses a need for cognisance of the abovementioned offense by organizations in India covered by the UK Bribery Act through engagement of customized processes to reduce the danger of fraud and direct moral behavior and decision-making. The nature and scale of a business determines the amount of risk pertaining to occurrence of fraudulent activities associated with it. While several enterprises do not generate the need for preventive measures to mitigate risks of fraud, the ones expecting these threats need to take precautions derived from the UK Bribery Act, while awaiting government guidance for the newly emerging offense of failure to prevent fraud.
Businesses need to consider that the offense of failure to prevent fraud has increased scope and probability of prosecution, thereby generating the need to combat it in advance. This novel development has widened the scope of culpability by opening the floor for prosecution by individuals who’ve been affected by the fraudulent entity, even in the absence of a “directing mind or will.” While tracking evolving foreign legislations and jurisprudence can be a challenging task, it is essential for enterprises falling within the ambit of such developments to ensure a functional mechanism of corporate governance within the organization.
To take cognisance of the upcoming development, Indian companies governed by the UKBA can take certain steps by reference to six key compliance principles, including risk assessment, proportionate procedures, top level commitment, due diligence, communication and training, monitoring and review, as stated in the UK Ministry of Justice guidance. Employees should be equipped with training on anti-fraud compliance regulations as the new offense doesn’t discriminate with respect to presence of wrongful intent.
Educating stakeholders about the organization's practices can help them in understanding how frauds originate, instances when the business imparts risk of fraud and procedures for dealing with other related issues. An expected increase in the number of businesses entering deferred prosecution agreements in furtherance of the new offense shall be neutralized in advance by assessing the risks and advantages of the same. Indian Organizations are advised to identify areas of vulnerability and risk of fraud or false accounting from both internal and external threats in adherence to the intricacies of business. Routine assessments of the effectiveness of policies and processes, overseeing interactions with third parties, audits of high-risk transactions, and evaluations of internal financial control measures are to be given prime importance.
It is important to review, update and control anti-fraud tools to be at parity with the emerging technologies that lead to unforeseen fraud schemes. Undertaking initial as well as regular due diligence on suppliers, agents, and other middlemen can aid in spotting probability of fraud. It is the duty of organizations to ensure accessibility, publicity, and confidentiality of speak up channels that encourage employees to report suspected instances of frauds. A protocol for undertaking internal investigations that includes procedures of document retention and legal privileges can be implemented by stakeholders along with provisions to monitor and review, such that improvements can be made as and when necessary. An organization’s policies should clearly define what amounts to fraud, guide about acceptable practices and foster compliance with the anti-fraud framework by focusing on consequences of violation, implemented via collective actions on the part of legal and compliance teams of an organization.
Disclaimer : No information contained in this website may be reproduced, transmitted, or copied (other than for the purposes of fair dealing, as defined in the Copyright Act, 1957) without the express written permission of Rainmaker Online Training Solutions Pvt. Ltd.
