New “failure to prevent fraud” offence for large organisations
A new corporate criminal offence of “failure to prevent fraud” is set to take effect from 1 September 2025, following its introduction in the Economic Crime and Corporate Transparency Act.
This law holds large organisations criminally liable if they benefit from fraudulent acts carried out by an employee, agent, subsidiary, or other associated person on their behalf.
A “large organisation” is defined in the legislation as meeting two out of three of the following criteria:
- More than 250 employees
- More than £36 million turnover
- More than £18 million in total assets
These criteria, and the obligations to prevent fraud, apply to the whole organisation, including subsidiaries. This is regardless of where the organisation is headquartered or where its subsidiaries are located.
The aim is to make it harder for businesses and other large organisations to turn a blind eye to fraud within their ranks, encouraging proactive fraud prevention in a similar way to the UK’s “failure to prevent bribery” law introduced in 2010.
The offence means that, if an organisation is prosecuted for fraud committed by someone associated with it, the organisation must show it had reasonable fraud prevention measures in place when the fraud occurred. Examples of fraud could include dishonest sales practices, the hiding of important information from consumers or investors, or dishonest practices in financial markets.
Newly issued guidance, developed with input from agencies including the Serious Fraud Office, Financial Conduct Authority, HMRC, and the Crown Prosecution Service, offers advice for organisations preparing for the change.
Nick Ephgrave of the Serious Fraud Office stressed the urgency for companies to implement robust fraud prevention strategies before the offence becomes enforceable, warning that failure to do so could lead to criminal investigations.
With fraud now accounting for roughly 40% of crime in England and Wales, it is hoped these measures will help protect businesses and the public from the damaging effects of fraud. To review the guidance, see: https://www.gov.uk/government/publications/offence-of-failure-to-prevent-fraud-introduced-by-eccta