Failure to Prevent Fraud Offence – Will it have the teeth it was born with?

According to Gov.UK, fraud is the most common offence committed in the UK, amounting to 41% of all crime reported in the year ending September 2022 (Factsheet: failure to prevent fraud offence - GOV.UK ( There is little doubt that instances of fraud have increased during and subsequent to the pandemic, and consequently, there has been a long-standing call for more to be done to address and prevent fraud.

These calls led to an assurance from Security Minister Tom Tugendhat MP earlier in 2023, that the Government would introduce a failure to prevent offence to the Economic Crime and Transparency Bill as it worked its way through the House of Lords. This was introduced by way of amendments to the Bill which were proposed on 11 April 2023.

Simultaneously, the Government issued a press release which confirmed that the new legislation is intended to protect the public from a number of ways in which they may be de-frauded, such as dishonest sales practices, hiding important information from consumers or investors, or dishonest practices in financial markets. The press release also quoted the Director of the Serious Fraud Office as saying the new offence would be a “game changer” for law enforcement, enabling them to “crack down on fraudulent enterprises, compensate their victims and ultimately protect the integrity of our economy”. This all sounds very admirable, but does the Fraud Act 2006 not give law enforcement the power to do exactly that already?

Initial thoughts around this offence however, did appear to go one step further than the current provisions of the Fraud Act 2006, as the offence was believed to:

  • be being made applicable to all corporate entities,
  • hold senior management culpable (under SMC&R type arrangements),
  • would include false accounting and money laundering.

However, as currently drafted, the Bill:

  • Whilst applicable to all sectors, is only applicable to large corporate bodies and partnerships, including large not-for-profit organisations such as charities and incorporated public bodies (small and medium sized firms will be out of scope),
  • Will not incorporate money laundering, just the failure to prevent fraud and false accounting,
  • Does not include any senior management criminal liability.

So, what is a large corporation? - the Bill defers to the standard Companies Act 2006 definition, i.e. organisations that meet 2 out of 3 of the following criteria: more than 250 employees, more than £36 million turnover and more than £18 million in total assets.

How will an offence be committed? – An entity within scope will commit an offence if an associate of that entity commits a fraud offence intending to benefit a) the entity or b) any person to whom, or to whose subsidiary, the associate provides services on behalf of. Any offence only applies to a corporate, not an individual.

What offences will be in scope?

The following offences are the most likely to impact corporations:

  • fraud by false representation (section 2 Fraud Act 2006)
  • fraud by failing to disclose information (section 3 Fraud Act 2006)
  • fraud by abuse of position (section 4 Fraud Act 2006)
  • obtaining services dishonestly (section 11 Fraud Act 2006)
  • participation in a fraudulent business (section 9, Fraud Act 2006)
  • false statements by company directors (Section 19, Theft Act 1968)
  • false accounting (section 17 Theft Act 1968)
  • fraudulent trading (section 993 Companies Act 2006)
  • cheating the public revenue (common law)

 Is there a defence? – An entity will have a defence if it can show that, at the time of the offence being committed, the entity had in place “reasonable” fraud prevention procedures, or that it was not reasonable to expect such procedures to be in place. The Secretary of State will be required to issue guidance on what procedures a firm can put in place to withstand an allegation of failing to prevent fraud.

Who is an associate? – a person is to be classified as an associate if they are an employee, agent or subsidiary or they otherwise perform services on behalf of the entity. Firms should be familiar with this type of reference, as it applies in a similar vein to that under the Bribery Act and Criminal Finances Act.

What is the penalty? – Successfully prosecuted breaches will, under the proposed Bill, attract an unlimited fine. In similarity with other failure to prevent regimes such as the Bribery Act 2010, the failure to prevent fraud offences can be subject to a deferred prosecution agreement.

Next steps? – The Bill is next due to be discussed in the House of Lords on 18th April 2023, but that won’t be an end to it. Once agreed, the Bill will return to the House of Commons for consideration of the amendments made in the House of Lords, before it can proceed to Royal Assent. During this period, there could of course be further changes tabled. Even once the final version is agreed, there is likely to be a further delay before it comes into force, whilst the drafting and publication of the guidance is made.

So, has this offence got the teeth it was born with? – when we look back at the concept as we believe it was “born”, all entities, senior management responsibility and failure to prevent fraud and money laundering, the Bill had the makings of a very weighty piece of legislation. However, as we can now see, the Bill’s baby teeth have given way to what seems to be a much weaker version of adult teeth. The scope of the offences (as it stands) is more narrow, there is no individual culpability and only large corporations are impacted. It begs the question too, if the aim of the Bill (once it comes into force) is to reduce the mighty 41% of reported fraud, how much of that 41% occurs within these large corporations? So, what actual impact will the offence have anyway?