Failure to prevent fraud offence: What do professional sports teams need to know?
In an amendment to the Economic Crime and Corporate Transparency Bill (the Bill), the UK Government is set to introduce a new failure to prevent fraud offence. Like the UK Bribery Act 2010 (the UKBA) more than a decade earlier, this new offence is likely to bring about significant changes to corporate criminal liability in the fraud space and will significantly affect the compliance and regulatory landscape for large sports organisations.
The proposed offence shifts the focus from organisations as the victim of fraud (inward fraud) to make it easier for organisations to be prosecuted for fraud committed by their employees or agents for the organisation’s benefit (outward fraud).
The offences proposed in the Bill will carry strict liability meaning liability will be automatic unless organisations can evidence that they had “reasonable” procedures in place to prevent fraud from arising. This places an additional burden on organisations to carry out a risk assessment and ensure compliance, prior to the introduction of the offence.
| What is the offence? | Who is affected? |
| The proposed offence will impose liability on certain corporate bodies or partnerships if they fail to prevent any of the listed fraud offences, and where such fraud is committed (i) by an employee, agent or person who otherwise performs services on behalf of the corporate body or partnership, and (ii) with the intention to benefit that corporate body or partnership. Liability will also be established where an employee of a subsidiary of a “large organisation” commits a fraud offence intending to benefit either the subsidiary or the large organisation. |
“Large” corporate bodies and partnerships are those that satisfy any two or more of the following criteria: (i) more than 250 employees; (ii) more than £36 million turnover; and (iii) more than £18 million in total assets. |
| What underlying frauds must be prevented? | |
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| Where will the offence apply? | Is there a defence? |
| While the exact jurisdictional scope of the proposed offence remains unclear, the offence would extend beyond companies incorporated or formed in the UK and, instead, creates liability for any overseas large organisation and subsidiaries of large organisations. |
Yes, similar to other failure to prevent offences, an organisation may avoid liability by demonstrating it had put in place “reasonable” procedures to prevent the fraud being committed. |
What is the impact of the proposed offence on the professional sports industry?
A prime target
Professional sports have long been subject of corruption allegations. According to Europol’s 2021 Serious Organised Crime Threat Assessment, theglobal annual criminal proceeds from betting-related match fixing alone are estimated at approximately EUR 120 million. More recently, Manchester City FC was charged with breaches of Premier League “financial fair play” rules, which require “accurate financial information that gives a true and fair view of the club’s financial position”. This announcement followed a two-year ban issued by UEFA’s Club Financial Control Body to Manchester City FC in 2020 for “serious breaches” of club licensing and financial fair play regulations.
Whilst this decision was overturned by the Court of Arbitration for Sport, the case emphasised the volume of investment and capital available in professional sport and, therefore, the level of risk exposure in the event of corrupt activity.
A global industry
The proposed multi-jurisdictional nature of the offence will be new for many international sporting organisations because its current wording is set to exceed the scope of the UKBA. The government’s factsheet on the new offence notes that “if an employee commits fraud under UK law, or targets UK victims, the employer could be prosecuted, even if the organisation (and the employee) are based overseas.” The inherently global nature of professional sports – international brand deals, player signings, sponsorships and logistics – means this offence has the potential to be felt far beyond the UK’s borders.
More Deferred Prosecution Agreements?
Introduced in 2014, Deferred Prosecution Agreements (DPAs) are an agreement between a prosecutor (such as the Serious Fraud Office or Crown Prosecution Service) and an organisation that could be prosecuted. These public agreements allow a prosecution to be suspended for a defined period; provided that an organisation meets certain conditions, the prosecution is then terminated, effectively settling the case without any formal requirement to admit criminal liability and in theory enabling a more lenient sentence.
We envisage an increase in the number of organisations entering into DPAs in relation to failure to prevent fraud. Once the offence is in force, organisations which identify conduct covered by the new offence will have to consider carefully the risks and benefits of a DPA, particularly given the risk of parallel civil claims. For further information and guidance on DPAs, read our article here.
What can sports organisations do to prepare?
In anticipation of the introduction of the offence, organisations should consider whether their existing fraud risk assessments and policies cover outward fraud in sufficient detail. The wide-ranging scope of the proposed offence means that a broad range of complex offences will be covered.
As noted above, a company will be able to avoid liability if it can show that it had in place “reasonable” procedures to prevent fraud. While the government is yet to provide concrete guidance on what “reasonable” procedures would include, organisations can be proactive by:
- updating anti-fraud policies and procedures that mitigate outward fraud committed for the benefit of the organisation;
- offering training, including tailored training for those in higher risk positions;
- undertaking due diligence both in respect of transactions for clients and contracts (e.g., for suppliers), particularly on third party agents given the offence will apply to the acts of agents acting on the organisation’s behalf;
- ensuring contractual provisions cover outward fraud;
- putting in place effective audit and monitoring processes in relation to fraud; and
- ensuring regular internal review of systems and controls.
Further information
For a more detailed summary of the new offence, read our recent article, in which we discuss the new offence and its application in a wider corporate context.
To register for further information, webinars and workshops on this topic, please complete the form below.
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Pamela Reddy is a white-collar crime and investigations lawyer based in London. She has worked on a number of sport-related matters, including investigating allegations of abuse on behalf of a well-known football club, advising high-profile sports clubs on regulatory frameworks, including on policies and procedures and remediation plans, representing well-known sports clubs before regulatory bodies, and representing prominent individuals in sports in relation to various criminal offences.
Naomi Miles is a white collar and investigations lawyer based in London. She focuses on complex multi-jurisdictional investigations, risk mitigation, and compliance. Her practice covers all aspects of business crime including anti-bribery, anti-money laundering, fraud, market manipulation and market abuse, suspicious activity reporting, whistleblowing, and anti-modern slavery. Naomi has significant experience in advising clients under investigation by regulators and government enforcement agencies, including the SFO, FCA, DOJ and SEC.
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The authors would like to thank Jake Burke, Norton Rose Fulbright solicitor apprentice, for his assistance with this blog post and series.