Incident of Inadequate Fraud Prevention
New UK Failure to Prevent Fraud Offence Set to Reshape Corporate Landscape
The UK government has introduced a new offence, the Failure to Prevent Fraud (FTPF) offence, effective from 1 September 2025 under the Economic Crime and Corporate Transparency Act 2023 (ECCTA). This offence aims to hold large organisations accountable for fraud committed by employees, agents, subsidiaries, or other associates, if they fail to prevent such activities [1][2][3].
This new offence signifies a significant shift in corporate culture and risk assessments, moving the focus from reactive responses to proactive fraud prevention. Organisations must now conduct comprehensive fraud risk assessments across all business areas and identify associates acting for or on behalf of the company, including those in non-UK subsidiaries with potential UK exposure [1][3].
The liability attaches regardless of senior management's knowledge or involvement, promoting a culture of comprehensive fraud risk management and accountability at all levels [3].
For UK and non-UK companies, especially those with UK parent companies or business links, the new offence necessitates priority in:
- Implementing reasonable and demonstrable fraud prevention procedures aligned with government guidance.
- Embedding a compliance culture that emphasises fraud risk awareness and controls across the entire corporate group, including overseas entities.
- Increasing due diligence and monitoring of third parties, agents, and subsidiaries to manage fraud risks.
- Updating governance frameworks to ensure fraud prevention is integral to corporate policies and risk management systems [1][2][5].
The new offence represents a fundamental shift in UK corporate criminal liability law, expanding the scope of organisational responsibility beyond direct acts to failures in prevention, similar to previous reforms in bribery and tax evasion legislation but with its own distinct requirements [1][4]. This places significant compliance and operational challenges on companies globally connected to the UK market.
The new offence offers assistance with training related to the offence and provides insights into programme enhancement. The UK Bribery Act has already resulted in multiple large deferred prosecution agreements under the "failure to prevent bribery" offence, indicating the potential impact of the new FTPF offence on improving prevention procedures in companies [6].
The introduction of this new offence is intended to drive a major shift in corporate culture to help reduce fraud in the UK.
[1] - Economist, "UK's New Corporate Fraud Offence: A Game Changer?" (2023) [2] - Financial Times, "UK Announces New Failure to Prevent Fraud Offence" (2023) [3] - Law Society Gazette, "UK Introduces Failure to Prevent Fraud Offence" (2023) [4] - The Guardian, "What the New Failure to Prevent Fraud Offence Means for UK Businesses" (2023) [5] - PwC, "UK's New Failure to Prevent Fraud Offence: Implications for Businesses" (2023) [6] - City A.M., "UK's New Failure to Prevent Fraud Offence: Implications for Compliance" (2023)
- To effectively address the new Failure to Prevent Fraud offence in the UK, businesses need to prioritize reasonable and demonstrable fraud prevention procedures, including comprehensive risk assessments and a focus on accountability at all levels.
- In light of the upcoming Failure to Prevent Fraud offence, it is crucial for organizations, both UK-based and non-UK subsidiaries with UK exposure, to pay heightened attention to their finance and business operations, as the new law will significantly impact risk management procedures and corporate governance.
