Policy & Compliance
A criminal offence: what you need to know about failure to prevent fraud
Under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) organisations can face unlimited fi nes whether or not they are aware that an offence has been committed
PAYE and National Insurance; failing to register for VAT; and failing to disclose income, • Aiding or abetting any of the above offences. The base fraud offence is committed by someone associated with the large organisation (an employee, agent, subsidiary company, a partner of a partnership or other ‘associated person’ providing services for the benefit of the organisation or on its behalf). There must be an intention to benefit either the relevant organisation or a person to whom the organisation provides a service, but this benefit need not materialise nor be the primary motivation. There is no liability under this legislation where the large organisation is a victim of fraud. The reasonable prevention procedures defence An organisation will be liable where an offence has been committed by a relevant person, irrespective of whether the organisation was aware that an offence had been committed. The only defence available to an organisation is where it can demonstrate: • That it had reasonable prevention procedures in place; or • That it was not reasonable in all the circumstances to expect the organisation to have any prevention procedures in place. Prevention procedures are those procedures that are in place to prevent an associated person from committing a fraud offence. In November 2024, the Home Office published guidance that sets out what organisations should consider when implementing reasonable fraud prevention procedures. The guidance sets out six principles: 1. Top level commitment: senior
O n 1 September 2025, the Economic Crime and Corporate Transparency Act 2023 (ECCTA) created a new corporate criminal offence: failure to prevent fraud. Under the offence, an organisation is liable when a specified fraud offence is committed: • By an employee, agent, subsidiary or other person performing services for or on its behalf (an ‘associate’), • With the intention of benefiting the organisation itself or benefiting someone else the associate provides services to, on behalf of the organisation, • The organisation did not have relevant fraud prevention procedures in place. The maximum penalty is an unlimited fine. Organisations will be liable whether or not they are aware that an offence has been committed, increasing the likelihood of successful convictions unless robust fraud prevention procedures are in place. The offence is one of many measures under the ECCTA to shift corporate culture to focus on and prioritise fraud prevention and encourage responsible business. Who will the offence apply to? The offence applies to “large organisations” that satisfy any two • More than £36 million turnover, • More than £18 million in total assets. The criteria apply to “the whole organisation” including subsidiaries. If an employee/agent of a subsidiary of a large organisation commits a fraud that of the following criteria: • Over 250 employees,
is intended to benefit the subsidiary, then the subsidiary may be prosecuted even if the subsidiary itself does not qualify as a large organisation. If the fraud committed by the employee/agent is intended to benefit the parent, then the parent may be prosecuted. The offence can apply to organisations that are based overseas if the fraud offence is committed in the UK or targets victims in the UK. What type of fraud is captured by this offence? Large organisations will be liable where a relevant person commits a fraud offence with the intention of benefiting the organisation or its customers. The benefit does not have to be financial. If an agent commits a fraud offence in the course of its agency, the organisation can be liable. The fraud offences include: • False accounting and false statements by directors, • Fraudulent trading – whereby a company dishonestly carries on a business in a manner that puts creditors at risk of not being paid, or entices people who are not creditors to become creditors where the company is likely to become insolvent, • Various fraud offences under the Fraud Act 2006 (for example participating in a fraudulent business or obtaining services dishonestly), • The common law offence of cheating the public revenue including: making a false statement (whether written or not) relating to income tax; delivering (or causing to be delivered) a false document relating to income tax; failing to account for VAT; withholding
“ Large organisations will be liable where a relevant person commits a fraud offence with the intention of bene fi ting the organisation or its customers. The bene fi t does not have to be fi nancial
20 | October 2025
www.bifa.org
Made with FlippingBook Annual report maker