The New 'Failure to Prevent Fraud' Offence: What It Means for Businesses

The UK is tightening its stance on corporate fraud, with the introduction of the new ‘failure to prevent fraud’ offence under the Economic Crime and Corporate Transparency Act 2023. This new offence places an additional compliance burden on businesses, particularly those operating in regulated sectors such as legal and financial services.

What is the ‘Failure to Prevent Fraud’ Offence?

The offence is designed to hold organisations criminally liable if they fail to prevent fraud committed by employees or other associated persons acting on their behalf. This means that a company can be prosecuted if fraud occurs within its operations and it has not implemented reasonable fraud prevention measures.

Who is Affected?

The offence applies to large organisations that meet two of the following three criteria:

• More than 250 employees

• More than £36 million in turnover

• More than £18 million in total assets

Small businesses are currently exempt, but they should still take note—regulatory expectations around fraud prevention are increasing, and best practices should be followed to avoid reputational damage.

What Can Businesses Do to Comply?

To avoid liability, businesses must demonstrate that they have ‘reasonable procedures’ in place to prevent fraud. The UK government is expected to provide further guidance on what constitutes reasonable procedures, but companies should already be taking steps to:

• Implement robust fraud risk assessments

• Strengthen internal reporting and whistleblowing procedures

• Provide fraud awareness training for employees

• Improve due diligence processes on third-party partners

Implications for the Legal and Compliance Sector

Law firms, COLP’s and risk managers must be proactive in advising clients on the new offence. The SRA has already signalled its intention to hold firms accountable under existing anti-money laundering and fraud prevention regulations. Compliance consultancies, can help play a crucial role in helping businesses navigate these changes.

The Bigger Picture

The introduction of this offence follows a broader trend of increased corporate accountability. With regulators clamping down on financial crime, companies that fail to prioritise fraud prevention risk hefty fines, legal consequences, and severe reputational damage.

Now is the time for businesses to review their fraud prevention strategies. If you need expert guidance, Bigelaw Compliance Consultancy Services can help you implement effective measures to ensure compliance and mitigate risks.

For more insights and expert compliance support, please do not hesitate to get in touch.