As explained in our previous updates, a new corporate criminal offence of failure to prevent fraud was introduced by the Economic Crime and Corporate Transparency Act 2023, which received Royal Assent on 26 October 2023.
By way of a quick reminder on the failure to prevent fraud offence:
- The offence makes "large organisations" criminally liable for the actions of "associated persons"
- "Large organisations" are companies or partnerships which meet two or more of the following criteria:
- Turnover of more than £36 million
- Balance sheet total of more than £18 million
- More than 250 employees
- Subsidiaries of large organisations fall within the scope of the offence
- "Associated persons" includes employees, subsidiaries and agents
- A large organisation will be guilty of the offence where an associated person commits fraud with the intention of benefitting the large organisation or any person to whom, or to whose subsidiary, the associated person provides services on behalf of the large organisation
- Crucially, a defence is available to a large organisation where it can show that it had "reasonable" procedures in place to prevent fraud
The UK Government had previously committed to publishing guidance on fraud prevention procedures ahead of the offence entering into force. That guidance has now been published and can be found here.
The guidance provides an overview of the failure to prevent fraud offence and guidance for organisations on the "reasonable" fraud prevention procedures they require to put in place in order to establish a defence to the new offence. The guidance states that those procedures should be informed by six principles:
- Top level commitment
- Risk assessment
- Proportionate risk-based prevention procedures
- Due diligence
- Communication (including training)
- Monitoring and review
These principles mirror the principles set out in government guidance on the Bribery Act 2010 (which creates an offence of corporate failure to prevent bribery) and the Criminal Finances Act 2017 (which creates an offence of failure to prevent facilitation of tax evasion). Organisations should therefore be familiar with the principles and how to implement them in practice.
It was previously thought that the failure to prevent fraud offence would enter into force 6 months after publication of the associated guidance. However, the UK Government has announced that offence will now come into force on 1 September 2025, giving organisations slightly longer than anticipated to prepare.
Organisations should take advantage of this time to ensure they have appropriate anti-fraud policies, controls and procedures in place, which comply with the terms of the guidance, ahead of the entry into force of the new offence. Given the similarity in guidance on the failure to prevent offences under the 2010 and 2017 Acts, organisations may be able to adapt and enhance existing prevention measures in respect of bribery and facilitation of tax evasion to encompass fraud risks.
We will publish further updates on the failure to prevent fraud offence and the new guidance. In the meantime, if you have any questions in relation to the offence or guidance, or if we can provide support to your business in ensuring compliance, please do get in touch.
