Introduced last year as part of the Economic Crime and Corporate Transparency Act 2023, the offence is intended to hold larger organisations to account if they profit from fraud. According to the government, fraud is the most common crime type in the UK, amounting to around 40% of all crime in England and Wales. The new measures are part of a wider government ambition to reduce fraud and protect potential victims, including business victims.

The offence of failure to prevent fraud applies only to large organisations.  A “large organisation” is defined in in the legislation as meeting two or three out of the following criteria:

• more than 250 employees;
• more than £36 million turnover; and
• more than £18 million in total assets.

Large organisations may be held criminally liable where an employee, agent, subsidiary, or other “associated person”, commits a fraud intending to benefit the organisation. Examples may include dishonest sales practices, the hiding of important information from consumers or investors, or dishonest practices in financial markets.

If a company were prosecuted, it would have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time that the fraud was committed to have a defence.

The offence is intended to encourage organisations to build an anti-fraud culture and the guidance is similar to the guidelines which already exist for organisations about taking measures to prevent bribery and tax evasion. The guidance rests on six principles:

• top level commitment;
• risk assessment;
• proportionate risk-based prevention procedures;
• due diligence;
• communication (including training); and
• monitoring and review.

As well as an introduction, it covers the following topics:

• Overview of the offence;
• Reasonable fraud prevention procedures, based on the six principles outlined above; and
• Interactions and overlaps between legislative and regulatory regimes.

As the guidance is like that employed for tax evasion and bribery, larger companies should already have many of the measures in place.  For example, they will already be carrying out risk assessments relating to bribery and economic crime. In this case, organisations may find it most effective to extend their existing risk assessments to include the risk of frauds that come within the offence.

If you need advice on how to ensure that you comply, do contact us in plenty of time before the new offence comes into effect on 1 September 2025.

Offence of 'failure to prevent fraud' introduced by ECCTA - GOV.UK