Companies and other organisations should be aware that the recent criminal offence of ‘failure to prevent fraud’ is in force.
Those that haven’t yet done so should consider the urgency of determining if your organisation is within scope. If it is, robust measures must be implemented to protect from the risk of fraud – particularly in the highest risk areas.
Corporate fraud is lucrative: according to the ONS, there was a 19% increase in fraud incidents (3.9m) in 2024 across England and Wales. It is also a global problem - a report from the Association of Certified Fraud Examiners has estimated that organisations lose 5% of revenue to fraud every year.
Tighter accountability
The new offence is one of several measures introduced as the UK authorities continue to step up their campaign against corporate crime. Large businesses who profit from fraud against their organisation by employees, agents or subsidiaries will now be held to account.
It means that organisations within scope of the new rules must have in place anti-fraud measures and appropriate training to ensure effective compliance. The alternative is the risk of prosecution for failing to prevent fraud.
Failure to prevent
The new offence was created by s199 Economic Crime and Corporate Transparency Act 2023 (ECCTA). It imposes liability on a relevant body where fraud is committed by an associated person who intended the organisation to profit from the fraud. Importantly, ‘intention’ does not have to be the individual’s ‘sole or dominant motivation’ for an offence to be committed.
Underlying fraud offences within scope include fraud by false representation and false accounting; tax evasion; and false statements made by company directors.
The offence is not limited to companies – an offence can also be committed by charities and other large organisations.
Conviction could lead to unlimited fines and, of course, potentially significant reputational damage. As the security minister Dan Jarvis starkly puts it: “Those without proper fraud prevention procedures in place will face severe consequences.”
Organisations within scope
No business is immune from the risk of corporate crime, but the government recognises the intolerable burden additional compliance could prove for smaller businesses. For that reason, small companies will not (generally) be caught by the new offence (though important 46-page guidance from the Home Office says they may find the general principles helpful).
However, it is crucial to note that even if you run a small company, it could be within scope if part of a larger group or if it acts for larger organisations.
Organisations who fall within scope are considered ‘relevant bodies’. A relevant body is a corporation, subsidiary or partnership that meets at least two of the following criteria:
- More than 250 employees
- A turnover of £36m or more
- Assets of at least £18m
If you find your organisation under investigation and facing charges, there is a defence available if you can show you had reasonable fraud prevention procedures at the time of the fraud (or it was not reasonable to expect such procedures in the circumstances).
It’s a timely reminder to maintain full and contemporaneous documentary evidence of your organisational decisions around corporate crime prevention measures, particularly if specific risks are identified.
Guidance
The Home Office guidance is advisory and describes the general principles for organisations in developing their anti-fraud procedures, with examples of good practice. If there is a conflict between sector-specific guidance and the government’s guidance - the latter will take priority.
What should you do?
Businesses must understand whether they fall within scope of the new rules. If you are in scope, consider what measures should be implemented and timetable regular fraud risk assessments across the organisation. Employees, consultants etc should also be provided with robust anti-fraud training.
For specialist advice on your responsibilities, contact corporate solicitor, Sufyaan Aslim, by emailing sufyaan.aslim@mfgsolicitors.com or calling 01562 820181.