As the government introduces the offence of failure to prevent false accounting or fraud in the Economic Crime Bill, we would like to draw your attention to a significant shift in corporate responsibility and accountability.
This development creates a specific criminal offence to hold company executives, including chief executives, chief financial officers and members of partnerships, accountable for failing to prevent false accounting, fraud, or money laundering.
Whom does the Bill cover?
As outlined in the draft rules, the Economic Crime and Corporate Transparency Bill stipulates that a relevant individual would be guilty of an offence if a person associated with the company commits fraud, false accounting, or an act of money laundering, or aids and abets such activities.
Furthermore, a corporate body commits an offence of fraud, money laundering, false accounting, bribery, and tax evasion, where the offence is committed with the consent, connivance, or negligence of a senior manager.
The definition of a ‘senior manager’ has been broadened in the Bill to include chief executives and chief financial officers, and any individual playing a significant role in decision-making about how the entity’s relevant activities are managed or organised.
What does this mean for businesses and their leaders?
The legislation imposes an increased collective responsibility on senior managers. They are required to take all reasonable steps to prevent relevant offences from being committed within their organisation.
Failure to do so could result in them being convicted for involvement in an activity to confer a business advantage on the company or an individual, or a failure to prevent the activity.
Given these developments, it is crucial for all businesses, large and small, to review their internal controls and procedures.
They need to ensure that their financial reporting, accounting practices, and business transactions are transparent, accurate, and in compliance with the new legislation.
It is also essential to provide adequate training for all employees, especially those in managerial positions, to understand the implications of the new Bill and their increased responsibilities under it.
Failure to comply with the new rules may not only result in severe penalties for the company but also personal liability for senior managers.