Should I Apply the 6 Guiding Principles to Prevent Economic Crime Before Enactment?

Dated: 22 March 2018 Author: Allan Maund, Director of Counter Fraud

Does it make economic and reputational sense for businesses?

The proposed new legislation of failing to prevent economic crime is according to some commentators back in focus and could potentially be enacted this year.

The Criminal Finance Act, with the same 6 guiding principles as the Bribery Act 2010 was enacted in September 2017.  The Criminal Finance Act, has increased importance to those classed as ‘high risk’ by HMRC, with the focus on the corporate failure to prevent the facilitation of tax evasion in the UK and overseas.  There are other elements within the Criminal Finance Act which will gain prominence in the coming months, in part due to the ‘fall-out’ from Salisbury and of increased media reporting. An element of the Criminal Finances Act (there are numerous others financial crime related sections in the Act) is Unexplained Wealth Orders and the criteria for these to be applied.

The 6 Guiding Principles

I’ve commented previously that subject to enactment, the failure to prevent an economic crime offence will more than likely replicate the 6 guiding principles as seen in the Bribery and Criminal Finance Acts. As a reminder the 6 guiding principles are:

(1)             Proportionate Procedures

(2)             Top Level Commitment

(3)             Risk Assessment

(4)             Due Diligence

(5)             Communication (including training)

(6)             Monitoring and Review

How do risk assessments and workshops help?

I have supported numerous businesses with conducting risk assessments or risk workshops as a proportionate evaluation for them to effectively identify, mitigate or remove their bribery, or tax evasion, risk and exposure. An effective risk assessment and the outputs from that exercise should inform a risk-based approach to addressing the remaining 5 guiding principles.

For some of the risk workshops or risk assessments, these were as a response to legislation and for the business to ensure a ‘statutory defence’ to either corporate offence of ‘failing to prevent’. The minority of these workshops and assessments were for businesses that wanted to know what their risks were, regardless of legislation.

Can you afford to lose money?

The money lost by businesses in the UK varies considerably but is staggering. This loss has increased year on year. As a result of businesses recognising fraud and that it ultimately effects their bottom line and reputation, it’s now more common to see fraud on the Risk Register. Unfortunately, it’s also not uncommon for fraud to be a one-line on a Risk Register and not adequately reviewed. As a reminder, if you only evaluate your fraud risk by reviewing it during the risk register periodic cycle, what value does it add having fraud on the register in the first place? Hopefully those businesses which have been subject to fraud have reviewed their fraud entry on the Risk Register.

Knowing what fraud looks like is key

A Board (or equivalent) has a duty, as do all employees from juniors to senior management, to protect the business from fraud (preventing financial crime). But what is fraud and how does it differ from fraud in the accounts section, the HR department in the recruitment process or payroll? Do staff know what fraud looks like?

The Board and Senior Management need to be honest about their understanding of fraud (financial crime), and how it potentially impacts on elements of their business. Fraud risk can in some circumstances be generic, but nuances do exist. More generally, fraud risk is not generic, and the approach taken by businesses and how they address this risk must reflect this. There is no plug and play fraud awareness software which will educate all those which need to be educated.

The 6 guiding principles are not the holy grail for businesses to adopt to counter its threat to fraud, bribery or tax evasion exposure.

But the adoption of the principles, pre-legislation is a step in the right direction. If a business is initially only going to take one element of the 6 guiding principles when considering the implications of financial crime, then risk assessment must be at the forefront?

Why would most business not want to know what their fraud risk is, and perversely, should it take legislation to make a business act in what is their own interest?

Need further assistance?

For further information please contact us on 0800 298 3899 or email: Email Allan Maund.

comments powered by Disqus