Pointing the Finger: Applying Corporate Liability for Individual Acts
Welcome to the September 2024 edition of our newsletter! In this issue, we’ll examine the increasing trend of applying liability for corporate crimes committed by individuals within their employ, and steps your company can take in an era of increasing compliance pressures.
On Our Best Behavior: Tips for Corporate Compliance With “Failure to Prevent” Fraud Rules
As U.S. regulators have strengthened a “carrot and stick” approach to corporate fraud enforcement — enhancing whistleblower programs while also giving greater credit for cooperation with corporate fraud probes – the United Kingdom is considering measures which are much more stick-focused. As part of implementing its 2023 Economic Crime and Corporate Transparency Act, a “failure to prevent fraud” offense was codified which will hold a company liable if an individual commits fraud for its benefit. The reach of the statute is broad in scope, and applies to multinational companies if they target victims within the United Kingdom or otherwise violate its laws.
The statute applies only to companies defined as “large” in scope – more than 250 employees, among other criteria. Defenses offered in a statement by the UK government include proving that the company itself was a victim of the fraud, and not a beneficiary of it; and also that it had sufficient prevention policies in place prior to a crime being committed.
These measures, and others like them undertaken by regulators across the globe, heighten the need for vigilance and diligence when it comes to understanding an employee’s conduct. Are there external factors beyond their work which could lead them to commit fraud, even if that fraud benefits the employer in some way? What did the company do as part of its employee supervision process to understand the risks of fraud and abuse? Both internal and external records, including financial profiles of subject individuals, will be essential in helping a company defend itself should its employees fall under scrutiny which could balloon into criminal prosecution and “unlimited” fines.