The grey areas of the UK Failure to Prevent Fraud offence

Source: C5

As the September implementation of the UK’s new Failure to Prevent Fraud (FTPF) offence under the Economic Crime and Corporate Transparency Act 2023 (ECCTA) draws closer, many companies are adapting their fraud programmes to face critical new questions about corporate liability, enforcement and compliance. With increased focus on sanctions, money laundering and trade/export controls as well as fraud (e.g. accounting, procurement, payments etc.) – the threat of prosecution under ECCTA should not be taken lightly.

A recent C5 webinar on this topic featuring FRA Co-founder Toby Duthie and HFW’s white collar practice lead Barry Vitou addressed some of the questions top of mind for legal and compliance professionals preparing for the FTPF offence. Drawing on decades of experience with the UK Bribery Act and major fraud enforcement globally, Toby and Barry discussed key risks companies should be prioritising and practical advice for enhancing compliance. Toby and Barry will also be speaking at C5’s International Conference on Anti-Corruption in London, on 17-18 June 2025. Find the agenda and registration here.

Here we summarise the key themes addressed in the webinar. For specific detail on the ECCTA and preparing for the FTPF offence, read more here.

Consider ‘senior managers’ outside the boardroom

Under ECCTA, the definition of who is a ‘senior manager’ extends to key decision-makers outside the boardroom, which can include finance and operations. Given the significant role that finance and accounting teams play within companies – and the reliance on these teams to support relationships with debt providers, equity investors, creditors and so on – there are likely to be more senior managers in these departments than one might think. These teams are also relied upon to exercise sound judgements that may later be called into question if circumstances change (e.g. recognition of revenue, booking of liabilities etc.), giving rise to exposure to potential corporate prosecution and associated challenges arising.

Organisations should clarify which roles are considered as senior managers under ECCTA and provide training on the implications of the legislation and corporate liability. Those with finance and accounting responsibilities should in particular be educated on practices which could give rise to accusations of false accounting, such as over aggressive revenue recognition.  

In particular, note that this element of ECCTA is already in force and the relevant offences covered under this section of ECCTA are far wider than in relation to the FTPF offence.

Take a wide view on the question of extraterritorial applicability

The applicability of the FTPF offence to foreign companies with a UK nexus, including financial transactions with UK institutions or losses suffered by UK stakeholders, means it is important for international companies to consider their exposure to the FTPF offence.

However, the speakers suggested not overly relying on a highly technical assessment of a jurisdictional nexus, rather better to, for example, assess company management accounts from the perspective of whether performance in certain markets made sense in the political and economic context and to look for red flags on that basis. From previous experience, such anomalies have triggered serious regulatory investigations, disproving the technical defences the organisation under investigation may have thought were in place.

Similar advice applies to scrutinising which roles could fall under the ECCTA definition of associated person, e.g. subsidiaries, agents, external consultants.

‘Reasonable’ fraud prevention is a process that is never finished. Document every decision accurately and revisit your documentation periodically.

It may not be possible for a large company to perform a comprehensive fraud risk assessment and complete the necessary improvements before the start of September, but it is important to start. Using the risk assessment to target the highest risks first is key. Fraud will continue to evolve, and anti-fraud measures must adapt. Be proportionate, persistent, consistent and document everything.

Management should consider the pressures and opportunities to commit fraud, especially in the context of an uncertain economy that is trending towards more national barriers. The temptation to portray a company’s performance as rosier than it is – whether internally or externally – could lead to damaging outcomes.