This section summarises the failure to prevent fraud offence and when it applies. The offence of failure to prevent fraud comes into effect on Mon 01 September 2025.
Background and aim of the legislation
The Economic Crime and Corporate Transparency Act 2023, section 199 created a new corporate criminal offence of ‘failure to prevent fraud’.
Under the legislation, an organisation will be criminally liable where:
- a fraud offence is committed by an employee, agent or other ‘associated’ person, with the intention of deriving a benefit for the organisation or a related body; and
- the organisation did not have ‘reasonable’ fraud prevention procedures in place
- It does not need to be shown that company managers ordered or knew about the fraud.
The offence applies to:
all large incorporated bodies and partnerships including:
- large not-for-profit organisations such as charities if they are incorporated; and
- incorporated public bodies
In the event of prosecution, an organisation would have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time that the fraud was committed.
The offence sits alongside existing law; for example, the person who committed the fraud may be prosecuted individually for that fraud, while the organisation may be prosecuted for failing to prevent it. The fraud committed must be one of the fraud offences identified in the Act (at Schedule 13).
The offence will make it easier to hold organisations to account for fraud committed by employees, or other associated persons, which may benefit the organisation, or, in certain circumstances, their clients. The offence will also encourage more organisations to implement or improve prevention procedures, driving a major shift in corporate culture to help prevent fraud.
The offence will come into effect on the 1st September 2025.
The Home Office guidance to organisations on the offence of failure to prevent fraud summarises the offence and when it applies. Organisations should refer to this guidance for an overview of the offence together with the Economic Crime and Corporate Transparency Act 2023 legislation.
It is important to note that both the Home Office guidance and this guidance are advisory only and that organisations might need to take legal advice on how the offence affects them.
Date: 3 August