Failure to Prevent Fraud Offence: What It Means for Businesses
On 1 September 2025, a new corporate criminal offence came into force. The Failure to Prevent Fraud offence, introduced under the Economic Crime and Corporate Transparency Act 2023 (ECCTA 23) aims to hold organisations accountable when they benefit from fraud committed by individuals associated with them.
What Is the Failure to Prevent Fraud Offence?
The Failure to Prevent Fraud offence can be charged when a company or partnership fails to prevent a person associated with it, such as an employee, agent, subsidiary, or those providing services on its behalf, from committing fraud for the benefit of the organisation or a third party connected to it.
The important distinction between this new offence and the existing offences of fraud, is that intent to benefit the organisation must be present (rather than intent to make a gain for oneself of expose another to a loss). If the fraud is committed purely for personal gain, the company is arguably not liable for this offence.
Who Is Affected?
Currently, the offence only applies to ‘large organisations’. An organisation will be ‘large’ if it meets two or more of the following criteria:
- More than 250 employees
- More than £36 million in turnover
- More than £18 million in total assets
Businesses not captured by these criteria are out of scope of the ECCTA 23. They may, however, still face reputational and regulatory consequences if fraud occurs.
Examples of Applicable Fraud Offences
The offence covers a range of ‘base fraud’ offences including:
- Fraud by false representation
- Fraud by failing to disclose information
- Fraud by abuse of position
- False accounting
- Participation in fraudulent trading
- Offences under the Fraud Act 2006, Theft Act 1968, and Companies Act 2006
This list of offences can always be amended and so may change over time.
Is there a defence?
Yes. A company can avoid criminal liability if it can prove it had ‘reasonable procedures’ in place to prevent fraud.
The government has published official guidance outlining what constitute ‘reasonable procedures’ (see Chapter 3 of the Guidance). These include:
- Risk assessments
- Fraud awareness training
- Whistleblowing systems
- Regular audits and compliance reviews
- Clear anti-fraud policies and reporting channels
Notably, if no procedures could reasonably be expected in the circumstances, that too may be a defence.
Why It Matters?
Prosecutors no longer need to prove that senior management was directly involved or had knowledge in the commission of any of the ‘base fraud’ offences. This removes a major hurdle in corporate fraud prosecutions.
Companies are encouraged to promote ethical behaviour and transparency from top to bottom. Even if a defence is successful, the mere fact that your organisation has been accused of failure to prevent fraud can damage investor trust and brand integrity.
Preparing for Compliance: Next Steps for Businesses
To manage risks and avoid criminal liability, companies should:
- Conduct a fraud risk assessment
- Update internal controls and policies
- Train staff regularly on fraud awareness
- Implement a clear reporting structure
- Monitor and review procedures regularly
Even if your business is currently exempt due to size, adopting best practices now helps future-proof your operations and builds stakeholder confidence.
Conclusion
Businesses must now be proactive in detecting, preventing, and responding to fraud. For large organisations, inaction is no longer an option.
If you would like advice or assistance with any issue raised in this article, or if your organisation has been accused of this offence, please contact our Crime and Regulatory Department on 020 7632 4300 or emailing [email protected].
