Unsuccessful prevention of deceitful activities
New Failure to Prevent Fraud Offence Set to Transform UK Corporate Landscape
The UK government has introduced a groundbreaking new offence aimed at tackling fraud, set to take effect on 1 September 2025 under the Economic Crime and Corporate Transparency Act 2023 (ECCTA). This new offence, known as the Failure to Prevent Fraud (FTPF), is poised to have a significant impact on corporate culture and risk management in the UK.
Under the FTPF, large organizations can face criminal liability if fraud is committed by employees, agents, subsidiaries, or other associates, and the organization fails to prevent it. This extends the corporate criminal liability beyond those who directly order or know about the fraudulent activities[1][3][4].
To avoid criminal liability, organizations must demonstrate that they had reasonable fraud prevention procedures in place. This requires comprehensive fraud risk assessments across all business areas, coupled with controls to manage risks from associates and service providers[1][2][4]. The offence covers a broad range of fraud-related acts, such as false accounting and abuse of position, and applies not only to UK companies but also to non-UK subsidiaries connected to UK parent companies[1][3].
The FTPF emphasizes proactive prevention of fraud rather than reactive responses, necessitating companies to embed fraud risk management in their corporate culture and compliance strategies[2][3]. Organizations are obliged to identify and oversee risks posed by all individuals or entities acting on their behalf to prevent shrouding of fraudulent activities through these relationships[1].
The potential impact on corporate culture and risk management includes heightened accountability and governance, enhanced risk management frameworks, cross-jurisdictional coordination, a shift from reactive to preventive mindset, and integration with existing offences like the Bribery Act 2010 and the Criminal Finances Act 2017[3].
To help organizations understand and comply with the new offence, guidance is provided for approaching risk assessments related to the FTPF. Assistance is available for organizations to determine how the FTPF pertains to them. Training resources are also available to ensure organizations can understand and adhere to the new offence[1].
The impact of the FTPF is expected to be similar to the UK Bribery Act, with the new offence potentially driving a major shift in corporate culture to help reduce fraud[1][5]. The UK government expects the FTPF to encourage more companies to implement or improve prevention procedures.
In summary, the FTPF marks a critical change in UK corporate criminal law by imposing direct liability for failure to prevent fraud, compelling firms to embed a robust, proactive, and organization-wide culture of fraud risk management and compliance to mitigate legal and reputational risks[1][2][3][4][5].
- In light of the new Failure to Prevent Fraud (FTPF) offence, UK businesses must establish robust fraud prevention procedures to minimize legal and reputational risks within their organization.
- To ensure compliance with the FTPF, financial departments have a crucial role in conducting comprehensive fraud risk assessments across all business areas, implementing adequate controls, and embedding a proactive fraud risk management culture.
