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20 Apr 2025

What is the Failure to Prevent Fraud Offence—and Why Does it Matter?

Article by: Amirah Ajaz and Stefin Fenil

Fraud accounts for more than 40% of all crime in England & Wales.[1] With that in mind, 1^st September 2025 harkens a new chapter for corporate and economic criminal liability with the Failure to Prevent (“FTP”) fraud offence coming into force.

The offence was established by the Economic Crime and Corporate Transparency Act (“ECCTA”) in 2023. The Act strengthened the powers of law enforcement agencies, making it easier to prosecute corporates for certain financial crimes. The government’s message is clear: fighting fraud is a top priority, and businesses must take responsibility for preventing it within their individual operations, enhancing corporate accountability.

How Did the Failure to Prevent Offence Evolve?

The Failure to Prevent offence is not by any means a novel surprise, it was first introduced in 2014 via the UK Bribery Act 2010, followed by the UK Criminal Finances Act 2017.

Who Does the New Offence Apply To?

The scope of the offence extends to all large, incorporated bodies and partnerships where there is a UK nexus. The Failure to Prevent offence at hand holds large corporate entities to be criminally liable where “associated persons” commit a specified fraud offence intending to benefit the entity or its clients. In this context, “associated persons” are employees, agents, subsidiaries, or others performing services for or on a company’s behalf.

What Types of Fraud Are Covered?

Before the ECCTA, limited “failure to prevent” liability existed with companies unable to be held accountable in such regard. ECCTA introduced comprehensive list of frauds and accounting offences which companies now have a duty to take reasonable steps to prevent, namely:

• Fraud by false representation (section 2 Fraud Act 2006)
• Fraud by failing to disclose information (section 3 Fraud Act 2006)
• Fraud by abuse of position (section 4 Fraud Act 2006)
• Obtaining services dishonestly (section 11 Fraud Act 2006)
• Participation in a fraudulent business (section 9, Fraud Act 2006)
• False statements by company directors (Section 19, Theft Act 1968)
• False accounting (section 17 Theft Act 1968)
• Fraudulent trading (section 993 Companies Act 2006)
• Cheating the public revenue (common law)

ECCTA has clearly established a corporate liability increasing the risk of prosecution for corporate entities surrounding financial crime, whether that is for the fraud of individuals within the organisation, or failure to take reasonable steps to prevent fraud from occurring in the first place.

What Are ‘Reasonable Steps’—And Why Is That a Problem?

A fundamental concern with the FTP fraud offence surrounds the lack of clarity as to what constitutes “reasonable steps” to prevent fraud. While the ECCTA outlines a broad duty to take preventive measures, businesses may struggle to apprehend the exact level of diligence required to meet the legal threshold. The ambiguity could lead to inconsistent enforcement and difficulty for businesses in assessing their compliance efforts.

Where Does This Leave Corporate Accountability?

Organisations now must put in place measures in order to ensure that their anti-fraud strategies control the risks recognised by the new offence effectively. To avoid criminal liability, organisations must demonstrate reasonable fraud prevention procedures being in place. The government guidance sets out six principles that should inform fraud prevention frameworks:

1. Top level commitment
2. Risk assessment
3. Proportionate risk-based prevention procedures
4. Due diligence
5. Communication (including training)
6. Continuing monitoring and review.

By understanding the scope of the new offence and the specific fraud offences covered, organisations ensure they are in compliance with the new era of corporate responsibility established by the law, safeguarding their financial interests and preventing legal liability.

Should you require further advice, please do not hesitate to contact us.

[1] https://committees.parliament.uk/publications/30328/documents/175363/default/