The failure to prevent model is currently undergoing expansion to include a new offence of failing to prevent fraud by a commercial organisation . This offence will come into effect in September 2025 and , like the offences identified above , will hold corporates liable for outward frauds committed by employees , service providers or agents .
In many ways this offence is much broader than the failure to prevent bribery or tax evasion offences . Fraud is very broadly defined and includes two very broad categories that are worth considering further : ( 1 ) fraud by misrepresentation ; and ( 2 ) cheating the public revenue .
Fraud by misrepresentation is a broad offence covering any situation in which a statement is made dishonestly , which is or might be untrue or misleading for the purpose of getting a gain or causing a loss . This can cover a very wide range of business activities , especially in the procurement and business development space .
It is easy to see circumstances where an employee of a Contractor might dishonestly mislead a supplier ( such as deliberately failing to mention something that is likely to make the procured service more expensive ) or service provider to secure advantageous rates or some other advantage . This is capable , in certain circumstances , of causing the commission of a failure to prevent offence by the project SPV or a sponsor .
Cheating the public revenue is an equally broad offence , which includes any kind of fraudulent activity that deprives the revenue of money it is owed . This is particularly relevant for public-private partnerships where dishonest misstatements about the project might amount to a fraud for which the project SPV or sponsors might be responsible .
THE NEW SENIOR MANAGER REGIME In addition to the failure to prevent offences above , the non-financial services senior manager regime makes corporate entities liable for criminal offences committed by senior managers in an organisation . That is , where a senior manager commits an offence in the course of business , the entity is automatically guilty of the same offence .
This can have serious repercussions . In particular , ( 1 ) parent companies may be responsible under the failure to prevent model for the conduct of senior managers in subsidiaries that are liable under the senior manager regime ; and ( 2 ) where a senior manager is a secondee they might create liability for their employing entity , notwithstanding they are on secondment , if they are acting within the scope of their apparent authority . In both cases , misconduct by one individual in an operations role can move through the structure to reach sponsors via the project SPV itself .
• Practical management of compliance risk – Effectively managing these risks is paramount to avoiding the significant harms that project SPVs , and their sponsors can suffer when individuals engage in misconduct . There are two broad components to that : ( 1 ) effective compliance programmes that prevent , dissuade or limit misconduct , and provide legal defences ; and ( 2 ) practices to limit leakage of compliance risk from Contractors to project SPVs and sponsors , should it occur .
EFFECTIVE COMPLIANCE PROGRAMMES It is essential that any entities within the project finance structure that have operational responsibilities have in place an effective compliance programme , which meets the adequate procedures requirement necessary for a legal defence . Helpful guidance on effective compliance programmes is available from the Ministry of Justice in the UK and the US Department of Justice . 2
Particular focus should be given to managing thirdparty compliance risks and interactions with government officials . Effective due diligence , clear and sensible rules on providing gifts and entertainment , and appropriate segregation of duties are fundamental in this space .
Companies within the project structure will want to obtain appropriate contractual promises that Contractors have effective compliance programmes , as well as requiring that such promises trickle down through subcontractors and others that can create compliance risk for the structure .
Such clauses are valuable insofar as Contractors implement effective programmes . However , they are unlikely to save a project SPV or its sponsors , if misconduct actually takes place , unless the project SPV and sponsors can demonstrate that they had adequate procedures . This does not mean they should step into the shoes of the Contractor , but that they are comfortable that the Contractors ’ programmes are effective , and they have set the right expectations .
LIMITING LEAKAGE It is not possible to fully mitigate compliance risk and , as noted above , significant harm can occur during an investigation , even where no wrongdoing has occurred . For these reasons steps should be taken to limit the potential for compliance risk to impact the entire project finance structure .
First , effective back-to-back compliance provisions provide good evidence to authorities as to where compliance risk should sit . But companies in the project structure should be wary about accepting compliance provisions that expand their liability . For example , over broad rights to control or direct the conduct of another party can create greater systemic risk if a minor breach occurs . In some cases , appropriate reporting and remediation provisions can sensibly limit compliance risk .
Second , sponsors and project SPVs should be clear with Contractors about their expectations , conduct due diligence to fully understand the risk a particular contractor might face , and in higher risk situations , act to make sure they are comfortable with Contractors ’ programmes .
Finally , if there is misconduct or alleged misconduct , it should be properly and quickly investigated and dealt with in order to avoid systemic impacts on the entire structure . In higher risk jurisdictions it may be prudent to be clear as to who must fund and operationalise that investigation and remediation . Generally speaking , Contractors are usually in the best position to do so . •
FOOTNOTES 1 - “ Adequate procedures ” is the term from the Bribery Act 2010 ( bribery ), the Criminal Finances Act 2017 uses “ reasonable procedures ” ( tax evasion ), and the Economic Crime & Corporate Transparency Act 2023 uses “ reasonable fraud prevention procedures ” ( fraud ). Each broadly amounts to the same thing and for the purpose of this article we use “ adequate procedures ”. 2 - United Kingdom , Ministry of Justice , Bribery Act 2010 Guidance , https :// www . gov . uk / government / publications / bribery-act-2010- guidance ; US Department of Justice , Evaluation of Corporate Compliance Programs , https :// www . justice . gov / criminal / criminal-fraud / page / file / 937501 / dl
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