Failure to Prevent Fraud Offence | A Comprehensive Guide for UK Organisations!

Fraud continues to be one of the most prevalent crimes in the UK, accounting for nearly 40% of reported crimes in England and Wales.

In response to this pressing issue, the UK government has introduced the Failure to Prevent Fraud (FTPF) offence, a transformative measure aimed at enhancing corporate accountability.

Part of the Economic Crime and Corporate Transparency Act 2023 (ECCTA), this new offence will come into effect on 1 September 2025 and will apply to large organisations that fail to prevent fraud by their associates.

This blog unpacks the key aspects of this offence, its implications for businesses, and the steps organisations can take to prepare.

What Is the Failure to Prevent Fraud Offence?

The FTPF offence holds large organisations criminally liable if an associated person commits fraud intending to benefit the organisation or its clients.

This liability extends regardless of whether senior management was aware of the fraudulent activity. Key highlights include:

• Scope of Fraud: Includes offences such as false representation, failure to disclose information, false accounting, and cheating the public revenue.
• Associated Persons: Covers employees, agents, subsidiaries, or others providing services on behalf of the organisation.
• Territorial Application: Applies to fraud committed in the UK or targeting UK victims, even if the organisation is based overseas.

Unlike previous regulations, organisations cannot claim victim status due to indirect harm, such as reputational damage caused by fraudulent acts.

Which Organisations Are Affected by This Offence?

The FTPF offence currently applies to large organisations, defined as those meeting at least two of the following criteria in the preceding financial year:

• More than 250 employees.
• Turnover exceeding £36 million.
• Total assets over £18 million.

While the focus is on large entities, smaller organisations associated with them, such as suppliers or agents, may also feel the ripple effects, as they will be expected to implement anti-fraud measures to maintain business relationships.

What Are the Core Requirements for Organisations?

Organisations must demonstrate “reasonable procedures” to prevent fraud or prove that it was unreasonable to expect such measures under specific circumstances.

The government has outlined six guiding principles for establishing these procedures:

1. Top-Level Commitment: Senior management must champion a zero-tolerance approach to fraud, fostering an ethical culture.
2. Risk Assessment: Conduct dynamic evaluations to understand and mitigate fraud risks across employees, agents, and operations.
3. Proportionate Procedures: Tailor anti-fraud measures based on the organisation’s size, complexity, and risk exposure.
4. Due Diligence: Perform thorough checks on associated persons and third-party relationships.
5. Communication and Training: Ensure widespread awareness through regular training and accessible anti-fraud policies.
6. Monitoring and Review: Continuously evaluate and update procedures to address emerging risks and lessons from past incidents.

How Does This Compare to Existing Legislation?

The FTPF offence is modelled after the Bribery Act 2010 and Failure to Prevent Tax Evasion Offence, but its scope is broader and stricter:

• Strict Liability: Organisations are automatically liable if an associated person commits a fraud, regardless of senior management’s involvement.
• Fraud-Specific Focus: Unlike bribery laws, FTPF directly addresses fraud across diverse sectors, including financial services, environmental compliance, and ESG reporting.

Additionally, the economic crime levy provides increased funding for investigations, signalling the government’s intent to rigorously enforce this offence.

How Should Organisations Prepare?

With the offence set to take effect in September 2025, organisations have a critical window to assess and strengthen their anti-fraud frameworks.

Here’s a step-by-step guide:

1. Conduct Comprehensive Risk Assessments
   • Evaluate fraud risks across operations, including those posed by employees, agents, and supply chain partners.
   • Focus on high-risk roles and transactions, incorporating the “fraud triangle” elements: opportunity, motive, and rationalisation.
2. Enhance Policies and Procedures
   • Develop an anti-fraud strategy tailored to the organisation’s risk profile.
   • Ensure alignment between anti-fraud measures and existing compliance programs, such as those for bribery and money laundering.
3. Strengthen Governance and Accountability
   • Appoint a dedicated fraud prevention officer or team.
   • Integrate fraud prevention into board discussions to reinforce a tone from the top.
4. Invest in Training and Awareness
   • Provide role-specific training to employees and associated persons.
   • Regularly communicate policies to ensure awareness of reporting mechanisms and consequences of fraud.
5. Implement Robust Monitoring Systems
   • Use data analytics to detect anomalies and potential fraud indicators.
   • Establish a whistleblowing framework with clear reporting channels and protections.
6. Prepare for Potential Investigations
   • Maintain detailed records of risk assessments, policies, and training activities.
   • Review investigation protocols to ensure swift and transparent responses to suspected fraud.

What Are the Legal and Financial Consequences of Non-Compliance?

Non-compliance with the Failure to Prevent Fraud (FTPF) offence carries severe legal and financial consequences, including unlimited fines and significant reputational harm.

Prosecutions will be overseen by the Serious Fraud Office (SFO) or Crown Prosecution Service (CPS) in England and Wales. For international organisations, the offence’s extraterritorial scope poses additional challenges.

Any fraud targeting UK victims or involving UK-based employees can result in liability, even if the organisation operates outside the UK.

This underscores the critical need for robust fraud prevention measures and compliance frameworks to mitigate risks and align with the law’s stringent requirements.

Why Is This Offence a Game-Changer for UK Organisations?

The FTPF offence represents a paradigm shift in corporate accountability, with far-reaching implications for compliance culture:

• Broader Accountability: Expands liability beyond senior management to associated persons acting on behalf of the organisation.
• Focus on Prevention: Encourages proactive measures to identify and mitigate fraud risks.
• Integration with ESG: Aligns fraud prevention with environmental, social, and governance (ESG) priorities, particularly around accurate reporting.
• Enhanced Regulatory Scrutiny: Increases the likelihood of investigations and prosecutions, driving organisations to maintain comprehensive compliance frameworks.

This offence marks a new era in fraud prevention, urging organisations to prioritise integrity and proactive governance to safeguard against liability.

Conclusion

The Failure to Prevent Fraud offence is set to transform how UK organisations approach fraud prevention, placing a greater emphasis on accountability and proactive measures.

With the offence coming into force on 1 September 2025, businesses must act swiftly to align their compliance frameworks with the government’s guidelines.

By fostering an anti-fraud culture, investing in robust procedures, and staying vigilant, organisations can not only avoid penalties but also build trust with stakeholders in an increasingly transparent corporate landscape.