‘Failure to prevent’ fraud, false accounting or money laundering could soon be a punishable offence

‘Failure to prevent’ fraud, false accounting and money laundering could soon be a punishable offence under the Economic Crime and Corporate Transparency Bill.

In January 2023 the Government stated that current law does not do enough to hold organisations and their senior associates to account if they do not have adequate procedures in place to prevent financial crime.

In response, updates have been made to the Economic Crime and Corporate Transparency Bill – which are currently progressing through parliament – to make ‘failure to prevent’ fraud, false accounting or money laundering an offence with a new basis of criminal liability for senior management. The updated Bill also includes provisions to create a new route for companies to be criminally liable, and put an obligation on the Government to produce a report into options for corporate criminal liability for economic crime.

In layman’s terms, if it passes, it will mean that an organisation will need to prove that it has reasonable, adequate procedures in place to prevent an individual associated with it from carrying out a criminal activity.

Martin Cheek, Managing Director at anti-money laundering experts SmartSearch welcomes the Bill, but says it will only have the desired affect if the Government is serious about enforcing it.

“Money laundering is a huge and growing problem in the UK, and the laws put in place to tackle financial crime need to be continually revisited to ensure they are keeping pace.

“Currently, regulated firms have to take a ‘risk-based approach’ to their anti-money laundering procedures but this is open to interpretation, meaning many firms simply do not have adequate AML programmes in place, and are often not held to account if those programmes fail.

“So this Bill could be a game changer – but only if the consequences are severe enough for corporates and their senior management to take it seriously. As the MP Stephen Kinnock said, “these laws, like any others, will be only as useful as the willingness and ability of this or any future Government to enforce them.”

Martin Cheek says that, whether the ‘failure to prevent’ law comes into force or not, firms still have a legal and moral duty to do everything they can to stop financial crime, and putting preventative measures in place is the most efficient and reliable way to do that.

“The crux of the matter is, if we are serious about preventing fraud and money laundering, we need to take a preventative approach whether the law dictates ‘failure to prevent’ is a crime or not.

“Firms that have comprehensive anti-money laundering and anti-fraud solutions in place are in a position to identify suspicious behaviour before it turns into a crime.”

SmartSearch uses the latest in biometrics, AI and anti-fraud technology, to identify and verify customers – individual and corporate - so firms know exactly who they are dealing with. It offers Ultimate Beneficial Owner checks too, meaning firms can identify who is ‘hiding’ behind a shell company or complicated corporate structure - one of the most common money laundering techniques. Once the customers have been successfully identified and verified, it screens them against sanctions and PEPs, runs enhanced due diligence on anything suspicious and continually monitors all customers on an ongoing basis so any risk is immediately identified.

There have been a number of criticisms of these amends to the Economic Crime and Corporate Transparency Bill, with critics suggesting that meeting the new requirements will be problematic for companies, bringing extra compliance responsibilities and costs that could be seen as a ‘duplicate’ of the existing anti-money laundering legislation, but Martin Cheek argues that businesses have been getting away with doing the bare minimum for too long.

“We should be doing everything in our power to stop financial crime before it starts, but currently, a lot of the AML programmes firms have in place are simply ticking boxes; a ‘failure to prevent’ law is absolutely the push regulated firms need to take anti-money laundering seriously. Putting preventative measures in place is not a huge ask - the technology already exists, and those that use it will be well ahead of the law – and their competitors.

“Firms that adopt comprehensive anti-money laundering solutions into their customer onboarding procedures, and make the monitoring side of compliance integral to their day to day business will not only be safe in the knowledge they are meeting current – and future – AML laws, but that their business and its reputation is protected.”

To find out more about how SmartSearch can help your business meet its compliance and AML requirements, now and in the future, visit https://www.smartsearch.com/product/overview

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