Company directors could be jailed for not taking appropriate measures to prevent fraud at their organisations under proposals expected to be set out this week.

MPs are due to propose an amendment to the economic crime and transparency bill which would include corporate and director-level liability for ‘failure to prevent’ criminal activity.

Two all-party parliamentary groups — on fair business banking and anti-corruption and responsible tax — are supporting the amendment, which they say is necessary to put an end to the UK being a “jurisdiction of choice for dirty money”.

The bill, introduced in the Commons last month, includes reforms such as changes to Companies House, the corporate registry, and greater powers for law enforcement agencies to tackle organised crime.

The measures were intended to build upon the earlier economic crime transparency and enforcement act, brought in following Russia’s invasion of Ukraine to make it quicker to tackle corrupt oligarchs.

However, MPs, economic crime experts and campaigners have warned that the moves do not go far enough.

The parliamentary groups want the law to be reformed so that both companies and senior executives can be held liable for criminal activities “or for failing to drive out dirty money”.

The proposed amendment would require senior executives to ensure they have proper due diligence processes at their organisations to spot and prevent their businesses being used for economic crime including fraud, money laundering, sanctions evasion and false accounting. The amendment would mirror laws already in place that carry criminal liability for failure to prevent bribery and tax evasion.

They believe the threat of prison for bosses is required to ensure the necessary culture change.

In 2020, the National Crime Agency found that money laundering causes at least £100 billion of economic damage to the UK while Spotlight on Corruption estimates that fraud represents a further £190 billion worth of damage.

Last week, Sir Robert Buckland, a barrister and the secretary of state for Wales, told a conference that such amendments could be “quite a dramatic move by parliament” but indicated that the government may be open to them.

A Law Commission report this year proposed making corporate prosecutions easier by removing the need to identify a “directing mind and will” behind wrongdoing.

In their “economic crime manifesto” report, the parliamentary groups said this “identification principle” should be replaced with “vicarious liability” to make it easier to pursue large companies for serious wrongdoing by executives or staff.

Kevin Hollinrake, chairman of the all-party parliamentary group on fair business banking, said: “Not only would such measures provide a warning to bosses who fail, wilfully or otherwise, to take proactive measures against economic crime, but it would also provide our enforcement agencies with the tools they need to hold guilty corporations to account.

“If we overlook this much-needed change, we are rolling out the red carpet for certain executives to carry on turning a blind eye to illicit finance.”

Dame Margaret Hodge, chairwoman of the all-party parliamentary group on anti-corruption and responsible tax, said the bill “tinkers around the edges” and “is a crushing disappointment”. “We will never enjoy sustained economic growth on the back of dirty money and we will never truly reform corporate culture in Britain until there is a real deterrent against bad behaviour — that means prosecutions against those at the top who fail to prevent economic crime and the real threat of going to prison.