60 | Weil, Gotshal & Manges LLP LITIGATION TRENDS 2024 | 61 T O C E M P A N T I I P C A P R O W C C O N T A C T I N T A P P P A T C C L S E C a whole or substantial part of hose activities. A “relevant offense” covers a broad range of offenses, including both money laundering offenses and the ancillary money laundering-related offenses of “failing to disclose” and “tipping off,” fraud, false accounting, tax evasion, bribery, and breaches of sanctions regulations. Failure to prevent fraud ECCTA has also created a new failure to prevent fraud offense, which aims to hold organizations to account if they profit from fraud committed by their employees. It only applies to “large companies,” being those which meet two of the following three criteria: (i) 250 employees; (ii) £36 million turnover; and (iii) £18 million in total assets. Under the new offense, an organization will be liable where a specified fraud offense is committed by a person associated with the organization, such as an employee or agent, for the organization’s benefit. The relevant offenses listed in ECCTA include false accounting, fraudulent trading, false statements by directors, fraud by failing to disclose information and false representation. It will also be an offense to assist, encourage, or procure a listed fraud offense. However, it is a complete defense if the organization has reasonable fraud prevention procedures in place, or, if it was reasonable to have no fraud prevention procedures in place (for example, because the risk for that organization is extremely low). The UK government has stated that it will publish statutory guidance on reasonable procedures and that the offense will not apply until it has done so. The guidance is expected in late 2024 or early 2025. Guilty organizations can receive an unlimited fine for their offense. While individuals may already be prosecuted for committing, encouraging, or assisting fraud, the government has stated that individuals will not be personally liable for failure to prevent fraud. It would not be proportionate to prosecute an individual if they did not know the offense was occurring or consent to it. Key takeaways The government has stated that the purpose of these changes is to encourage companies to improve their fraud prevention procedures, and discourage them from turning a blind eye to offenses that harm consumers but benefit the organization. In that respect, it is similar to the introduction of the Bribery Act in 2010 which created a failure to prevent bribery offense. The Bribery Act made it much more likely that organizations will be prosecuted and fined for offenses, as will ECCTA. However, rather than resulting in many trials, the Bribery Act has led to a significant increase in deferred prosecution agreements, where companies enter into a settlement with the Serious Fraud Office and agree to pay fines and/or implement necessary compliance procedures. We expect the same to occur in respect of ECCTA. In addition, organizations will need to build fraud prevention into their compliance frameworks going forward, so as to ensure that they benefit from the “reasonable fraud prevention procedures” defense to any failure to prevent fraud offense. International Arbitration I N T
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