Navigating Risk Horizons

The rise of criminal liability in the corporate sphere

"A warning road sign.

A key theme that has developed throughout 2023 and will continue in 2024 is the increase in criminal liability within the corporate sphere.

The Economic Crime and Corporate Transparency Act 2023, which received Royal Asset in October 2023, introduced a new strict liability corporate offence of failure to prevent fraud where a company does not have reasonable fraud prevention procedures in place. 

The act specifies that an organisation will be automatically liable if any 'associate' (an employee, agent, subsidiary, or other parties) commits a relevant fraud offence intending to benefit (whether directly or indirectly) (a) the organisation, or (b) any person to whom (or to whose subsidiary) the associate provides services on behalf of the organisation. This is the case even if the organisation did not know the fraud was occurring. While it is unclear when this new offence will be implemented, we anticipate it coming into force in the first half of 2024. More information about the act and the impact for businesses can be found here. You can also read more about the failure to prevent fraud offence in 'AI and Fraud: A fraudster's delight?'.

The Building Safety Act 2022 extended existing criminal offences beyond those found in the Building Act 1984. It also introduced new duties on owners and managers of residential and mixed-use buildings above 11 metres or five storeys. These increased potential penalties include imprisonment for a term not exceeding two years and/or a fine. The act also extended criminal liability to directors, officers and managers for offences committed by a body corporate. The Building Safety Regulator has stated that it will start enforcing building safety in these buildings in spring 2024. Visit our Building Safety Act hub for more information.

In an effort to tackle modern slavery in supply chains, the Modern Slavery Bill, announced in the Queen's Speech 2022, looks to strengthen reporting requirements with criminal liability. In government briefing notes, the bill was said to strengthen the protection and support for victims of human trafficking and modern slavery, as well as increase the accountability of companies and other organisations to drive out modern slavery from their supply chains. 

While the bill has not yet been through Parliament, we expect movement towards its enactment in 2024. Businesses to which the act may apply should take proactive steps in preparation for when it comes into force. While it may be difficult to predict exactly what will be required under the new act, at this stage we recommend performing a review of current supply chains to ensure you know where your business stands. Organisations should also consider their due diligence policies and procedures for suppliers and make sure this is sufficiently thorough. 

The growth in criminal liability for corporates and individuals brings home the magnitude of the potential outcomes of regulatory breaches. Organisations will doubtless require time to ready themselves for increased regulatory enforcement in 2024. Businesses should take steps now to re-assess risks within their businesses, ensuring that appropriate risk-based detection, prevention, escalation polices, and other relevant procedures are fit for purpose. 


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