Failure to prevent fraud

The ECCTA creates a new offence of failing to prevent fraud, intended to hold large companies and partnerships to account if they profit from fraud. Under this offence, an organisation will be liable where a specified fraud offence is committed by an “associated person”, being an employee, agent or subsidiary or anyone else who performs services for or on behalf of the organisation, where the fraud was committed with the intention of benefiting the organisation or their clients.  

The offence only applies to large organisations which meet two of the following three criteria for the year prior to the offence:

• >250 employees
• >£36m turnover
• >£18m total assets

These criteria apply to the whole organisation, including subsidiaries, regardless of where the organisation is headquartered or where its subsidiaries are located.

Fraud consists of a number of offences listed in a schedule to the ECCTA and includes cheating the public revenue, false accounting, fraudulent trading and fraud as defined in the Fraud Act 2006. Failing to prevent fraud is a strict liability offence: management does not need to have sanctioned or even be aware of the fraud in order to be found liable. The corporate will, however, have a defence if it can demonstrate that it had reasonable prevention procedures in place at the relevant time or that it was unreasonable to expect it to have such procedures (for example, where the risk of fraud was extremely low).

The offence comes into force on 1 September 2025 and is a strict liability offence so a company can be liable even if the company’s management did not know about or sanction the fraud. The penalty is an unlimited fine.

We offer expert guidance to help businesses navigate the complexities of the failure to prevent fraud offence. Our tailored approach includes a comprehensive questionnaire designed to pinpoint potential weaknesses and compliance gaps, ensuring clients can accurately assess their exposure and implement robust preventative measures. We can provide clear legal advice and practical solutions to strengthen policies and procedures and mitigate risks, safeguarding businesses against regulatory and reputational damage.