Labour politicians were critical of the Conservative government’s fraud strategy. How will they tackle the problem?
It’s official. The general election in the UK is on July 4. As we head into the campaign, there is one thing all parties agree on: There is an epidemic of fraud in the UK.
Fraud accounts for over 40% of all crime in England and Wales and research indicates that there could be another 25% increase in these crimes in the coming years if there is no effort to shift the way they are investigated, prosecuted and prevented. Fraud is linked to organised crime and terrorism and is widely recognised as a national security as well as a criminal justice issue.
During debates in the Commons, senior Labour politician Margaret Hodge pointed out the “eye-watering” estimate that £350bn a year is lost through fraud and money laundering. Shadow attorney general Emily Thornberry criticised the Conservative government’s strategy for dealing with fraud stating that it “does not come anywhere close to what we need.”
Fighting fraud
In recognition of the UK’s abysmal efforts to tackle fraud, the government passed the Economic Crime and Corporate Transparency Act (ECCTA) in October, 2023. The law allowed UK authorities to proactively target organised criminals and others seeking to engage in financial crime. The Act gives Companies House enhanced abilities to verify the identities of company directors, remove fraudulent organisations from the company register and share information with criminal investigation agencies.
Law enforcement agencies have more power to seize, freeze and recover crypto assets and the courts will be able to dismiss “spurious lawsuits” that stifle freedom of speech. Prosecutors will be better able to hold large corporations accountable for malpractice.
The government believed ECCTA levels the playing field for all businesses and maintains the UK’s open economy where businesses can grow and thrive.
Failure to prevent
One of the significant elements of the law is its failure to prevent fraud. This was added to the existing two corporate criminal offences under the ‘failure to prevent’ principle. These are failure to prevent the facilitation of tax evasion, and the failure to prevent bribery which is joined by failure to prevent fraud.
During the Parliamentary debate over the Economic Crime and Corporate Transparency Bill, the government said they were pushing ahead with a game-changing new regulation to expand the ‘failure to prevent’ family of offences to failure to prevent fraud.
Under this new offence, an organisation will be liable where certain fraud offences are committed by an employee or agent if the offence was for the organisation’s benefit and they did not have reasonable fraud prevention procedures in place. There will not be a need to show that the company’s directors were aware about the offence.
However the offence only applies to ‘large’ bodies corporate, subsidiaries and partnerships in all sectors. Within the failure to prevent fraud offence, there could also be a separate offence of failure to prevent false accounting, and potentially a failure to prevent money laundering offence for the regulated sector.
How will a Labour government tackle fraud?
The Labour party did commit to a much broader corporate offence of failure to prevent economic crime, which would encompass a lot more than just fraud, and would be very unlikely to just cover larger businesses. There was also a Labour amendment to introduce individual liability – meaning corporate officers could be held criminally responsible for taking a decision, or failing to take a decision, that resulted in an offence.
In fact, the Law Commission had originally proposed a more stringent offence for failure to prevent fraud in which a company would be liable for failing to prevent a lot more fraud than ended up in the legislation. The debate over the ECCTA in Parliament provided a preview of where some MPs want this act to go. Specifically, the House of Lords had rejected the regulation’s exemption on small and medium businesses and wanted a failure to prevent money laundering offence and a failure to prevent false accounting offence. These elements did not make it into law.
In general, Thornberry shed some light on a Labour government’s approach to fraud in her public response to a Public Accounts Committee’s (PAC) report on Fraud and Corruption against Government. She said, “While the fraud epidemic has spread across our country in recent years, the government has stuck in the same pattern of complacency, indifference and inaction. We saw it when Rishi Sunak wrote off billions in fraudulent Covid payments, and we are seeing it today, with the government still unable to say how much the UK is losing each year to fraud. As the party of law and order, Labour would treat this crime with the seriousness it deserves, and deliver a comprehensive plan to get a grip of fraud at every level it is affecting our country, from government departments and major corporations to small firms and ordinary households. Most of all, we would relentlessly track down and punish the criminals responsible, wherever they are in the world, and do everything possible to protect our communities, our businesses, and our public services against their parasitic trade.”
Shadow chancellor Rachel Reeves provided additional insight with her statement that she will “wage a war against fraud, waste and inefficiency.” Additionally, there is talk of appointing a new Covid Corruption Commissioner, alongside investigators, to track down the missing £7.2bn handed out during the pandemic. Reeves also indicated that the law will be changed to make it easier to convict corporate fraudsters.
A cross party approach?
The ECCTA came under fire from a cross-party group of MPs who want the next government to ensure that the UK is no longer a haven for dirty money by enacting legislation that would tighten up current corporate anti-corruption legislation. The All-Party Parliamentary Group (APPG) on Anti-Corruption and Responsible Tax and the APPG on Fair Business Banking jointly launched the economic crime manifesto in which the group lays out four principles for pragmatic reform to clean the UK’s finance sector: Transparency, regulation, enforcement and accountability.
While the group acknowledged some progress in recent years, specifically the passage of the UK’s two Economic Crime Acts in 2022 and 2023, they say there is still a long way to go to stop the flow of dirty money in the UK.
Hodge, Chair of the APPG on Anti-Corruption & Responsible Tax, said in the manifesto,
“The flawed Economic Crime Act cannot be the end of the road. By putting proper transparency, tough enforcement, genuine accountability and smart regulation at the heart of all we do, we can send the world’s crooks and kleptocrats a message: Britain is once again open for clean business.”
The manifesto declares that this year’s election winner has a “unique chance for global leadership” on tackling economic crime.
Whether the winner does in fact take advantage of that opportunity remains to be seen. However, given Labour’s high profile committments to more action on fraud and economic crime, it seems likely that should Keir Starmer make it into Number 10, corporations could find themselves facing a raft of new offences.
The General Election and Compliance – Special Webinar
Every sector could be impacted and every area of compliance is likely to be reviewed by the next government. From overhauls of financial services regulation, reviews of data protection law, closer alignment with EU regulations and an expansion of health and safety protections, the next parliament will see compliance at the centre of the regulatory agenda.
With everything from whistleblowing reform to overhauls of corporate governance, new employment rights like menopause leave and expanded equal pay rules, alongside crackdowns on tax evasion and expansion of the money laundering regulations, organisations large and small should prepare for the outcome of the general election.
This webinar will cover:
- What the main parties are pledging on key compliance areas
- Potential changes to legislation including the Equality Act, sexual harassment and employment rights
- Expected legislation on AML, bribery, sanctions, fraud and economic crime
- Possible expansion of regulations around GDPR, AI and health and safety
- Preparing your organisation for future regulatory changes and new requirements
