The Economic Crime and Corporate Transparency Act 2023 (ECCTA) is a significant piece of legislation targeted at tackling economic crime in the UK. The new failure to prevent fraud offence (section 199) and the senior managers attribution offence (section 196) will have a meaningful impact on charities, large and small.
S199: Failure to prevent
S199 introduces a new criminal offence – failure to prevent fraud. It applies to large organisations, including corporate bodies and partnerships.
A charity is considered a “large organisation” if it meets two of the three following thresholds in the previous financial year:
- Turnover exceeded £36m.
- Balance sheet totalled more than £18m.
- More than 250 employees.
A charity will be guilty of an offence if a person “associated with” the charity (an employee/agent/subsidiary) commits a fraud offence intending to benefit the charity or someone receiving services on its behalf. Relevant offences include:
- Cheating the public revenue.
- False accounting/fraud by false representation.
- Money laundering offences under the Proceeds of Crime Act 2002.
A good example of fraud intended to benefit the charity is obtaining a donation by making a false representation (eg giving false assurances as to how the donation will be used).
Importantly, charities have a defence if they had reasonable prevention procedures in place (or if it was reasonable not to have any). The government has issued guidance on what might constitute reasonable procedures, and a court will have reference to this when assessing culpability.
The guidance suggests that charities should (among other things) conduct a comprehensive assessment of their fraud risk, design and implement proportionate prevention procedures (which are appropriate to the organisation and its particular circumstances) and monitor/review/improve fraud prevention measures on an ongoing basis. Importantly, though, charities must have an anti-fraud culture and a top-level commitment towards anti-fraud.
Charities can be guilty of failing to prevent fraud from 1 September 2025 onwards.
S196: Corporate liability for senior managers’ conduct
Unlike the failure to prevent offence, the s196 offence applies to any body corporate or partnership. Charity size is irrelevant.
Under s196, a charity can be criminally liable if a senior manager (which is an intentionally broad definition) commits an offence listed in ECCTA while acting within the scope of their authority, or if they assist in committing an offence. Examples include:
- False accounting or fraud by senior staff.
- Money-laundering offences.
- Breaches of financial regulations or sanctions.
Critically, there is no defence available for having had reasonable fraud prevention measures in place. Further, the offence has been in force since Boxing Day 2023. Charities could therefore find themselves guilty of this offence now.
Key takeaways for charities
Both s199 and s196 carry the risk of significant fines and potentially irreparable reputational damage.
If they have not done so already, large charities should assess their fraud risk and design/implement reasonable fraud prevention measures before 1 September. A policy is a good starting point, but, as mentioned above, charities will need to have an embedded anti-fraud culture. It will not be enough to simply have a policy – it needs to be followed and its measures properly integrated.
All charities should be alert to senior staff conduct. As there is no defence to s196 of having reasonable anti-fraud measures, it is arguably even more important to have an anti-fraud policy and an anti-fraud culture – the risk of fraud must be tackled at source. Otherwise, smaller charities in particular will find themselves guilty of the acts of senior staff who have “gone rogue”.
ECCTA signals increased emphasis on organisational accountability. Charities must take proactive steps now to understand and respond to these changes.
Considered preparation will help protect your charity, its beneficiaries, and its reputation in the face of rising expectations around the prevention of fraud.
