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Navigating the New Landscape of the Economic Crime Act(ECA)
The corporate fraud landscape in the UK has undergone its most significant transformation in decades. Success for 21st-century businesses depends on understanding the shift from the "Directing Mind and Will" test to the more expansive "Senior Manager" test.
1. The "Senior Manager" Test:
A Massive Extension of Liability The ECA has completely changed how criminal liability for fraud is attributed to companies.
Wider Scope of Individuals: Liability is no longer restricted to the CEO or senior partners. It now extends to any Senior Manager who makes or implements decisions about a substantial part of the business
Project-Level Responsibility: Under the new law, a project-level director's awareness of false invoicing or dishonest statements can now attribute criminal liability directly to the company
Ease of Prosecution: The Serious Fraud Office (SFO) has indicated that these changes make it far easierto investigate and prosecute companies for fraudulent acts
2. The New Secondary Offense: "Failure to Prevent Fraud" Beginning in September 2025, companies will face anew criminal offense if they fail to prevent fraud perpetrated by their employees, subsidiaries, or third-party service providers.
Broad Application: While the "Failure to Prevent" offense technically applies to large organizations (turnover of £36m+ or 250+ employees), its impact will likely cascade down supply chains through contractual obligations
Direct Liability for All: The direct liability for the actions of senior managers applies to all companies, regardless of size or shape
3. The Six Pillars of Compliance: Building a"Reasonable Procedures" Defense
To protect against these new liabilities, companies must implement arobust compliance program.
At Dransfield Partners, we guide clients through the Six Pillars of Compliance, starting with a thorough Fraud Risk Assessment.
Immediate Action Required: Companies should aim to complete their risk assessments by the end of Q1 2025 to allow sufficient time to develop policies, procedures, and training programs
Consequences of Non-Compliance: Failure to act can lead to severe penalties, including unlimited fines calculated as a multiple of the financial benefitaccrued through the fraud
