As part of a longstanding government programme to combat fraud, the Economic Crime and Corporate Transparency Act 2023 has just been passed, although the implementation timeframe has yet to be confirmed. It is a particularly wide-ranging piece of legislation. Should this be on the radar for pension scheme employers and trustees?
The most eye-catching part of the Act is the introduction of a new “failure to prevent fraud” offence. A large company (one that meets at least two of three criteria relating to turnover, assets, and employees) will be criminally liable for fraud committed by its associates for its benefit, whether the company knew about the fraud or not. “Associates” is a broad term and includes subsidiaries, employees, and those providing services to the company. There is a defence if the company had reasonable procedures in place to prevent fraud. However, what is meant by “reasonable procedures” is currently unclear. Large sponsoring employers will need to prepare for this new offence as they will have done several years ago for the Bribery Act and may want to consider reviewing the fraud policies of their associates. While pension trustees can be associates, it seems unlikely that focusing on them as potentially fraudulent associates would be a proportionate use of resource, not least given the dense matrix of regulation and advice in which schemes operate. On the other hand, if a subsidiary is acting as trustee, it would be a simple matter to subject it to a group-wide anti-fraud policy.
Separately, most corporate trustees set up for a specific scheme should not be concerned about this new offence as they will not count as “large”.
Of more interest to trustees will be the new regime for verifying the identity of directors. Although this may be some way off – Companies House will need to invest in new IT systems – it will affect corporate trustees and schemes which are thinking of replacing individual trustees with a corporate trustee. In essence, trustee directors will be committing a criminal offence if they act as such without having had their identity verified by Companies House or by a service provider registered with Companies House. The aim is for the process to be quick and easy, but might this additional formality – and the risk of criminal liability – dampen enthusiasm amongst potential member-nominated directors? We shall watch this space.