A new UK corporate offence of failure to prevent fraud (FPF offence) is set to come into force this September under the Economic Crime and Corporate Transparency Act 2023 (ECCTA).
ECCTA received Royal Assent on 26 October 2023 to “fight fraud, counter corruption and bolster legitimate business” and allow UK authorities to “proactively target organised criminals and others seeking to abuse the UK’s open economy”.
Provisions of the Act have been introduced gradually, with various new requirements being imposed on companies, limited partnerships, and other corporate entities over the past few years as part of the UK government’s push to improve corporate transparency.
The FPF offence is the next phase in the implementation of ECCTA, with the new rules set to take effect from 1 September 2025.
In this blog, our compliance experts answer frequently asked questions about the failure to prevent fraud offence and look at what businesses can do to prepare.
What is the failure to prevent fraud offence?
The FPF offence makes large organisations criminally liable if a fraud offence is committed by an employee, agent, or other associated person for the organisation’s benefit, and the organisation did not have reasonable procedures in place to prevent it.
It is not necessary to show that company bosses ordered or knew about the fraud under the offence.
It may also be deemed that an offence has been committed even if the organisation gains no actual benefit, it could be enough that the fraudster had that intention.
What could be counted as a fraudulent offence under the FPF?
FPF offences could include, for example:
- Fraud by false representation.
- Fraud by failing to disclose information.
- Fraud by abuse of position.
- Obtaining services dishonestly.
- Participation in a fraudulent business.
- False statements by company directors.
- False accounting.
- Fraudulent trading.
- Cheating the public revenue.
When does ECCTA’s failure to prevent fraud offence become law?
The Economic Crime Act’s failure to prevent fraud offence comes into force on 1 September 2025.
Who does the failure to prevent fraud offence apply to?
The FPF applies to an organisation (including corporates and partnerships) that meets two of the following criteria in the financial year preceding the year of the offence:
- Has more than 250 employees.
- Has more than £36 million turnover.
- Has more than £18 million in total assets.
What do businesses need to do to prepare for the introduction of ECCTA’s failure to prevent fraud offence?
Businesses that fall within the scope of the FPF offence should review existing safeguards and take corrective action where necessary. To prepare for the introduction of FPF, businesses should:
- Undertake comprehensive risk assessments. Businesses should assess potential fraud risks relative to their practices and people.
- Implement appropriate prevention procedures. They should then introduce the relevant fraud prevention measures proportionate to the level of risk.
- Due diligence. Companies should carry out the necessary due diligence on associated persons.
- Communication and training. Businesses should ensure staff members are aware of the new offence and their enhanced responsibilities.
- Ongoing monitoring and review. Businesses should regularly monitor and review the effectiveness of fraud prevention measures and act where necessary.
Incorporated companies that don’t comply with new FPF rules face financial penalties of up to 10% of global turnover.
More information about ECCTA’s failure to prevent fraud offence is available on GOV.UK by clicking here.
AML and Compliance Solutions
At the Regulation & Compliance Office (RACO), we help accountants, solicitors, estate agents and other regulated businesses undertake a review of their policies, controls, and procedures to ensure that they are compliant with AML regulations and, therefore, avoid any breaches.
A review of this nature provides valuable insight into a business when performed correctly. Along with an overview of risk, these crucial assessments also highlight issues within the business, so it is essential to undertake a proper review. All of a company’s building blocks must be considered, including its staff, clients, operations, and finances.
By working with RACO, a business can be assured that we will bring the required level of knowledge and expertise needed to perform the review, which adds value to the business and is not simply a box-ticking exercise. Our team can also provide a full range of services that include:
- Consultancy.
- Compliance Policies.
- Training.
- Handbooks.
- Auditing.
Our services focus on businesses’ anti-money laundering and regulatory requirements through the implementation of effective policies, procedures, training, and consultancy. We also provide continued monitoring of staff and ongoing training to ensure that everyone within a business is aware of the latest requirements and complies with their responsibilities.
We offer a full range of services focused on ensuring businesses across all regulated sectors create, maintain and evidence their compliance with the requirements of their regulators and legislation. We work with businesses of all sizes, from the smaller high street or niche businesses to the large multi-office and multinationals.
Get In Touch
We adopt a sensible and pragmatic approach to fees, ensuring we are competitive and always add value. As necessary, we will agree on packaged services to control cost and enable clients to spread payments to alleviate cash flow, yet ensure services are provided when needed.
If you want to discuss our services in more detail, contact us at 0203 985 8550, email us at info@regulationandcomplianceoffice.co.uk or complete an enquiry form.
