Legal
New offence: failure to prevent fraud
As previously reported in BIFAlink (October 2025), the Economic Crime and Corporate Transparency Act 2023 (ECCTA) created a new corporate criminal offence of failure to prevent fraud. Daniel Irving, from Birketts LLP, takes a look at the offence and how it affects BIFA Members
T he new corporate criminal offence of failure to prevent fraud is one of a number of measures introduced under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) that are designed to encourage organisations to implement or improve fraud prevention procedures, helping to elevate fraud prevention in corporate culture and encourage responsible business. Overview of the offence Under the provision, which came into force on 1 September 2025, a large organisation will be guilty of the offence of failing to prevent fraud where: 1 A specified fraud offence is committed by an employee, agent or subsidiary or other associated person with the intention of benefiting the organisation; and 2 The organisation did not have reasonable fraud prevention procedures in place. The new offence is a strict liability offence meaning it is not necessary to demonstrate that the organisation’s senior managers or directors ordered or knew about the fraud, just that the fraud took place and the organisation did not have reasonable fraud prevention procedures in place to prevent it. This will increase the likelihood of successful corporate convictions. The benefit intended may be financial or non-financial and it does not matter whether the benefit is in fact realised, only that the fraud was committed with the intention of benefiting the
organisation, even in circumstances where the organisation is not the primary intended beneficiary. If an organisation is convicted, it is punishable by an unlimited fine. Who does the offence apply to? A relevant body is broadly defined and includes incorporated bodies and partnerships, while a large organisation is defined as one that meets two of the following three criteria: • Has more than 250 employees, • A turnover of more than £36 million, • Total assets of more than £18 million. Although these criteria relate to large organisations, their application is much broader as they can also be applied on a group basis (including to all subsidiaries), in addition to each separate entity within a group. This means that where an employee of a subsidiary (which itself is not a large organisation) commits a fraud that is intended to benefit the subsidiary, then the subsidiary may be prosecuted. If a fraud is committed by the employee or the subsidiary and is intended to benefit the parent organisation, then the parent organisation may be prosecuted. It should be noted that the offence does not only apply to UK based organisations and UK business activities. The extra territorial scope of the offence means that it can apply to overseas organisations if the fraud offence is committed in the UK or targets victims in the UK (the UK nexus).
“ The bene fi t intended may be fi nancial or non- fi nancial and it does not matter whether the bene fi t is in fact realised, only that the fraud was committed with the intention of bene fi ting the organisation ... If an organisation is convicted, it is punishable by an unlimited fi ne
Who counts as an ‘associated person’? A person is associated with a relevant body if the person is an employee, agent or subsidiary of the relevant body or performs or provides services for, or on behalf of, the relevant body. The courts will take all relevant circumstances into account in determining whether a person meets the associated person criteria. Providing services for, or on behalf of, the relevant body does not include providing services to the relevant body (such as suppliers of professional services), and providing services to the relevant body does not include providing goods as a supplier. Customs agents It is therefore particularly important to identify which individuals or entities may be considered
26 | April 2026
www.bifa.org
Made with FlippingBook Annual report maker