Unchecked Fraud Escalation: Lack of Preventive Measures Exposed
The United Kingdom has announced the introduction of a new Failure to Prevent Fraud Offence, effective from 1 September 2025, under the Economic Crime and Corporate Transparency Act (ECCTA) 2023. This landmark legislation will impose direct corporate criminal liability on large organisations if an associated person, such as employees, agents, contractors, or subsidiaries, commits fraud with the intention of benefiting the organisation or its clients.
The offence covers a wide range of fraud offences, including false accounting, fraudulent trading, cheating the public revenue, obtaining services dishonestly, and more. Liability extends to acts of aiding, abetting, counselling, or procuring fraud offences by associated persons. Notably, the offence has extra-territorial reach, applying to non-UK organisations with UK connections.
The offence marks a significant shift in corporate accountability around fraud, moving from reactive liability to proactive prevention. Organisations can be held liable even if they were unaware of the fraud, provided they lacked reasonable procedures in place to prevent it. Absence of such safeguards exposes companies to unlimited fines and prosecution.
Key details of the offence include a complete defence if the organisation can prove it had reasonable fraud prevention procedures in place, or if it was unreasonable to expect such procedures given the circumstances. Enforcement powers are robust, with regulators like the Serious Fraud Office (SFO) and Crown Prosecution Service (CPS) intending to enforce aggressively, with warnings that early offenders will be made examples of.
The new offence is expected to drive a major shift in corporate culture, encouraging organisations to strengthen governance and fraud prevention measures. HR functions play a critical role in fostering a culture of compliance and ensuring that staff and associated persons understand and adhere to anti-fraud policies. Organisations must assess fraud risks across their extended networks, including third parties like agents, contractors, distributors, and international affiliates with UK nexus.
The offence is anticipated to lead to improvements in fraud prevention procedures within companies, motivating them to prioritise ethical leadership and build resilience to fraud. This is expected to improve stakeholder trust and reduce reputational damage. The UK government expects the new offence to encourage more companies to implement or improve prevention procedures.
The new offence offers guidance on approaches to risk assessments and provides insights into programme enhancement. However, it does not specify the extent of its impact on non-UK companies, nor does it outline the exact procedures for prosecution. It also does not offer details on any potential exemptions or exceptions, nor does it provide information on how it will affect individual employees within organisations.
The new offence is designed to make it easier to prosecute UK and non-UK companies for fraudulent activities, following in the footsteps of the UK Bribery Act, which has resulted in multiple large deferred prosecution agreements under the "failure to prevent bribery" offence. The new offence is comparable in impact to the UK Bribery Act in terms of prosecuting companies for fraud.
In summary, the new Failure to Prevent Fraud Offence is a significant step towards combating corporate fraud in the UK. It demands thorough fraud risk assessments, robust internal procedures, and a culture that actively discourages fraudulent conduct by anyone acting on the organisation’s behalf. Non-compliance risks severe legal consequences and significant reputational harm.
The introduction of the Failure to Prevent Fraud Offence under the Economic Crime and Corporate Transparency Act (ECCTA) 2023 in the United Kingdom will impact the finance and business sectors, as organizations may face unlimited fines and prosecution if they lack reasonable procedures to prevent fraud, even if they were unaware of the illegal activities. This new offence is anticipated to motivate companies to prioritize ethical leadership, strengthen their governance, and foster a culture of compliance to reduce fraud risks and improve stakeholder trust.
