ECCTA - Failure To Prevent Fraud Offence: A Corporate Accountability Milestone

What is the Offence?

Under Section 199 of ECCTA, a large organisation becomes criminally liable if an associated person, such as an employee, agent, subsidiary, or service provider commits a fraud intended to benefit the organisation, regardless of whether the fraud delivers a benefit and can be subject to an unlimited fine.

Organisations can defend themselves by proving they have reasonable fraud prevention procedures in place, or that it was not reasonable in the circumstances for such procedures to exist.

Who Falls Within Scope?

Large organisations, incorporated bodies and partnerships are in scope of the offence.

Section 199 (13) of ECCTA states that the offence applies to organisations incorporated or formed by any means.  This includes those incorporated by:

• the Companies Act 2006
• Royal Charter
• statute (for example NHS Trusts)
• the Limited Liability Partnerships Act 2000
• the Co-operative and Community Benefit Societies Act 2014

Large organisations are defined as those meeting at least two of the following criteria:

• more than 250 employees
• turnover exceeding £36 million
• aggregate assets above £18 million

An individual subsidiary that meets these criteria would be considered as a relevant organisation and could be liable for an offence in its own right.

In addition, organisations outside of the UK that conduct fraud impacting the UK or involve UK victims also fall under the laws’ remit.

The offence applies to fraud offences detailed in Schedule 13 of ECCTA, which include:

• cheating the public revenue
• fraud by failing to disclose information
• fraud by abuse of position
• obtaining services dishonestly
• false accounting
• false statements by company directors
• fraudulent trading

These offences may be expanded with further secondary legislation.

Reasonable Fraud Prevention Procedures

The fraud prevention framework put in place by relevant organisations should be informed by the following six principles:

• top level commitment
• risk assessment
• proportionate risk-based prevention procedures
• due diligence
• communication (including training)
• monitoring and review

Procedures to prevent fraud should be proportionate to the risk.

A Turning Tide for Accountability

The Failure to Prevent Fraud Offence represents a pivotal evolution in UK corporate law, no longer focusing on identifying a “controlling mind” but demanding proactive anti-fraud governance across organisations.

Its extra-territorial breadth, coupled with the statutory defence contingent on robust procedures, aligns with global standards in anti-corruption and compliance.

In Summary

The Failure to Prevent Fraud Offence signals a shift in corporate responsibility, large organisations must now act pre-emptively, embedding fraud prevention into their corporate governance frameworks.

Full guidance from Gov.UK can be found here.