In May of 2023, the UK government announced a new, short-term fraud strategy that aims to reduce fraud by 10% by December 2024, compared with 2019 levels. The plan represents a significant change in how the government intends to approach fraud, including a shift in how police resources are allocated with the creation of a National Fraud Squad. This will mean training more than 400 new investigators who will specialise in tackling fraud at an international level, targeting fraudsters who are operating in the UK no matter where they are in the world. The strategy will also focus on types of fraud that most heavily impact vulnerable people in society – particularly, scam emails, text messages and phone calls.
The strategy will introduce a number of legal requirements designed to crack down on fraudsters that could also affect legitimate businesses, particularly in the technology sector. The introduction of the Economic Crime and Corporate Transparency Act 2023 and the creation of a “failure to prevent fraud” offence (which gives companies the responsibility to prevent fraudulent activity) also introduced further changes.
With this new level of government scrutiny, any organisation that wants to maintain legal compliance needs to understand how the new legislation will work, what the new rules specify, and what to do if they face legal consequences for breaches of the Fraud Strategy. Here, the criminal defence and business crime experts at JMW Solicitors outline the most important changes companies need to be aware of, and offer an overview of the steps they can take to protect themselves.
What has changed with the fraud strategy?
There are several key changes that have been introduced in the new Fraud Strategy that may affect legitimate businesses. For example, the government has begun a consultation on a ban on cold-calling customers to sell financial products and services of all types. While these will affect some legitimate businesses, it is easy for organisations in the relevant industries to comply with these laws. What may be more difficult to adapt to are the unexpected consequences the new strategy could have.
By creating new powers and adding more than 400 investigators to a national fraud squad, the government hopes to make a significant impact in the fight against fraud. However, there is also a risk of legitimate business operations facing far more scrutiny. The ease with which investigators can secure Account Freezing Orders (AFOs) – and cut off individuals and businesses from their funds – has seen their numbers skyrocket in recent years.
Investigating authorities do not need to charge you with a crime to secure an AFO, meaning that with new investigators digging deeper into suspected fraud, the number of AFOs issued could also sharply increase. Without access to your funds, it can become impossible to pay your legal fees, which in turn leaves people affected without any way to respond. This is an area to which we will pay close attention as the strategy unfolds over the next few months.
For businesses, following best practices in the prevention and detection of fraud remains key – this has always been important and nothing has changed in the new strategy to indicate that this no longer needs to be a priority. There are a number of types of fraud that are a particular risk for businesses, including:
- Payroll fraud
- False accounting
- Insider dealing
- Market abuse
- Fraud by false representation
- Conspiracy to defraud / commit fraud
It is important to carefully monitor your employees and processes to make sure there are no fraudulent activities of the types described above taking place within your organisation. This is good practice simply to avoid fines and other legal penalties, as these activities will soon also be a criminal offence of ‘failure to prevent fraud.’
What actions do businesses need to take?
If an employee of a company participates in fraudulent activities that benefit the company, the organisation itself may be held responsible for failing to prevent this action from taking place. This was enshrined into law with the Economic Crime and Corporate Transparency Act, and means that businesses must take proactive steps to prevent fraud from taking place – or potentially face criminal penalties.
One action an organisation may want to consider is changing how they carry out their risk assessments. This may involve applying careful scrutiny to payroll management and accounting procedures that are at high risk of fraudulent manipulation. This is a much more serious risk if there is not a clear hierarchy and division of responsibilities in your organisation’s finance and accounting roles. Through the risk assessment, you will be able to better identify gaps in your oversight, and take steps to address them.
To maintain compliance with the law and avoid facing an offence of failure to prevent fraud, businesses must have robust anti-fraud policies and procedures in place. Business leaders should take oversight of the implementation of these procedures, and the finance and accounting processes within their businesses. This will put them in a stronger position to identify, anticipate and address this one example of fraudulent activity and assist with the other types listed above.
by Sam Healey, Partner in Business Crime and Regulation, JMW Solicitors