Recent figures from the Office for National Statistics show that fraud increased by 31% last year. Therefore, the UK government has a key focus on tackling fraud and is planning an updated fraud strategy.
Against this background, under the Economic Crime and Corporate Transparency Act 2023, the offence of failure to prevent fraud is in effect as of 1 September 2025. Large organisations can be held criminally liable where an employee, agent, subsidiary, or other "associated person" commits a fraud intending to benefit the organisation.
Examples of fraud may include:
- dishonest sales practices;
- hiding important information from consumers or investors; or
- dishonest practices in financial markets.
The Act defines an associated person widely to cover an in-scope organisation's employees, agents, subsidiaries and anyone else that carries out services for or on the organisation's behalf. As a result, it covers many third-party service providers and in-scope organisations need to consider how to avoid liability arising out of their commercial transactions.
Significantly, the offence of failure to prevent fraud applies only to large organizations (unlike the offences of failure to prevent bribery and tax evasion). A "large organisation" is defined as meeting two or three out of the following criteria:
- more than 250 employees;
- more than £36 million turnover; and/or
- more than £18 million in total assets.
If prosecuted, an organisation will now have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time the fraud was committed. Last year, the government published guidance on how to avoid falling foul of the new offence with examples of reasonable measures and case studies.
The new offence follows other "failure to prevent" legislation covering bribery and tax evasion. It also comes at a time when enforcement activity is increasing in this area - recently, charges were brought against an accountancy firm for failure to prevent tax evasion under the Criminal Finances Act 2017.
Hopefully you have already done your risk assessments and put measures in place, but it's always worth reviewing them and making sure that they are fit for purpose.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
