From 1 September 2025 there is a new offence under s.199 of the Economic Crime & Corporate Transparency Act 2023 (ECCTA 2023) dealing with the failure to prevent fraud. Under this new offence, a ‘large organisation’ may be liable for fraud committed by its employees, agents or other ‘associated persons’ (e.g. someone who provides services for the organisation), where such offence is for the organisation’s benefit and the organisation does not have reasonable fraud prevention procedures in place.
Organisations can be liable regardless of whether they had knowledge of the fraud and, moreover, parent companies can be liable for their subsidiaries. Whilst the offence does not become law for a few months (the new rules are effective from 1 September 2025), now is the time to consider how to put in place relevant prevention procedures and contractual changes.
From an employment perspective, one practical step to take is to update your employment contracts to include:
- An obligation for employees not to engage or facilitate fraud;
- A duty to report any suspicion of fraud; and
- A requirement to comply with the organisation’s anti-fraud policies and procedures.
These clauses can be rolled out across all roles or tailored for higher-risk positions where there is either motive, or opportunity, to encounter fraud. Examples of such roles could include senior executives, finance staff (e.g. payroll, controllers), sales representatives (especially those who travel), or staff who dealing in procurement.
If employers do not include an express contractual requirement in their contracts, they should document the reasons why in a risk assessment. In such circumstances, similar obligations can be added to an employee handbook to demonstrate that the organisation has reasonable prevention procedures in place.
Finally, employers should ensure that obligations are communicated clearly to all staff and that reporting channels are clearly laid out. Employers should also also consider delivering regular training to staff and senior management.
Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
