The United Kingdom is ushering in a significant change in corporate accountability with the trending news of a new corporate offence of ‘failure to prevent fraud’, which officially comes into force on September 1, 2025. Introduced as part of the Economic Crime and Transparency Act 2023 (ECCTA), this legislation marks a pivotal moment for business leaders, placing a legal obligation on large organisations to actively prevent fraud committed by their employees, agents, or subsidiaries.
The ‘Failure to Prevent Fraud’ Offence Explained
Under the new law, large organisations can be held criminally liable if a person associated with them commits a specified fraud offence with the intention of benefiting the organisation. This means companies can face prosecution and potentially unlimited fines if they cannot prove they had reasonable fraud prevention measures in place. The definition of a “large organisation” typically includes entities that meet at least two of the following criteria: over 250 employees, an annual turnover exceeding £36 million, or a balance sheet total of over £18 million. This offense has a broad scope, applying to UK-based organisations and those overseas that have a connection to the UK, reflecting a determined effort to tackle economic crime across borders.
The Crucial Defence: Reasonable Fraud Prevention Measures
The key to avoiding prosecution lies in demonstrating the existence of robust fraud prevention procedures. The government has published guidance outlining six core principles that organisations should adhere to: top-level commitment, comprehensive risk assessment, proportionate risk-based prevention procedures, due diligence, clear communication (including training), and ongoing monitoring and review. While these principles are not prescriptive, they provide a framework for what constitutes “reasonable” measures. Proving that such procedures were in place at the time of the offense serves as a statutory defence against liability.
Background and Government’s Aims
This new legislation is a direct response to a concerning rise in fraud incidents across the UK. The government aims to foster a stronger anti-fraud culture within corporate environments, akin to the impact seen with previous ‘failure to prevent’ offenses for bribery and tax evasion. Ministers have stressed that the law sends a clear message: large organisations must take responsibility for preventing fraud, and failure to do so will lead to prosecution. The Serious Fraud Office (SFO) and the Crown Prosecution Service (CPS) have signalled their intent to actively enforce these new provisions from their inception, aiming to improve business confidence and protect the broader economy.
Implications for UK Business
The introduction of the ‘failure to prevent fraud’ offence represents a fundamental shift in how corporate criminal liability is viewed in the UK. It moves beyond requiring proof of senior management complicity, placing the onus on organisations to actively manage their fraud risks. Non-compliance can result in severe consequences, including unlimited financial penalties, significant reputational damage, and criminal investigations. Legal experts advise that organisations must urgently review their existing internal controls, policies, and training programmes to ensure they meet the requirements and can establish the necessary defence.
Preparing for Compliance
Businesses within scope are urged to take immediate action. This includes conducting thorough fraud risk assessments to identify vulnerabilities, updating or implementing new policies that clearly prohibit fraudulent activities, and ensuring all staff and associated persons are adequately trained. Documenting these efforts will be crucial for demonstrating due diligence and establishing a defence should an incident occur. The government’s guidance, published in November 2024, offers a roadmap for organisations to enhance their prevention strategies and build a resilient anti-fraud framework.
In conclusion, the new ‘failure to prevent fraud’ offence underscores the UK government’s commitment to tackling economic crime. For large organisations operating within the United Kingdom, proactive compliance and a commitment to embedding strong fraud prevention measures are no longer optional but essential to mitigate significant legal and financial risks.
