Failure to prevent fraud offence to take effect next September

The provisions of the Economic Crime and Corporate Transparency Act 2023 relating to the new offence of failure to prevent fraud that will apply to large companies will take effect from 1 September 2025. Off the back of this announcement, the Home Office has published its guidance for affected organisations. The guidance stresses that it is advisory, and both that compliance with it will not of itself necessarily amount to an organisation having in place relevant procedures while departure from it will not mean that it does not. The onus of relying on the defence that the organisation had in place reasonable procedures to prevent it from committing the offence will be on the organisation and the standard of proof is one of the balance of probabilities. It notes that in some limited circumstances it may be deemed reasonable not to introduce measures in respect of a particular risk but says it will rarely be reasonable not even to have carried out a risk assessment.

The guidance also notes that while various sector-specific guidance may be developed, the ECCTA has no mechanism for any statutory guidance to be issued by any industry association or other body, so, in order to be effective, any sectoral guidance must align with the Home Office guidance and the law itself.

The guidance:

• explains who the offence applies to (and how some of the factors that determine what is a “large organisation” should be applied);
• sets out the types of fraud covered by the offence;
• explains who will be an “associated person” of the organisation and what “intending to benefit” means;
• sets out the key considerations for organisations developing their fraud prevention procedures with a view to having “reasonable procedures” in place – based on the now familiar 6 principles of top level commitment, risk assessment, proportionate risk-based prevention procedures, due diligence, communication (including training) and monitoring and review;
• gives some examples of what would constitute the base offences; and
• discusses the overlap with other offences, particularly the offence of failure to prevent facilitation of tax evasion.