The Economic Crime and Corporate Transparency Act 2023 (ECCTA) created a new corporate criminal offence of ‘Failure to Prevent Fraud’. Oliver Wannell-Griffiths and Phillippa Ellis take a look at how this new offence affects public bodies.
Under the new offence, which comes into force on 1 September 2025, an organisation will be criminally liable where:
- a specified fraud offence is committed by an employee, agent or other ‘associated person’, for the benefit of the organisation; and
- the organisation did not have reasonable procedures in place to prevent the fraud.
Who does the offence apply to?
The offence applies to any relevant body which is a large organisation.
A relevant body is a broad term which includes both private and public sector entities across the economy that are structured as incorporated bodies or partnerships. This means large not for profit organisations and incorporated public bodies such as charities and local authorities can be included.
A large organisation is defined under the legislation as one which meets two of the following three criteria:
- a turnover of more than £36 million
- a balance sheet total of more than £18 million
- has more than 250 employees
An organisation which is both a relevant body and large, is guilty of an offence if a person associated with it commits a fraud offence intending to benefit the organisation or a party receiving services from it. Importantly, the offence can be committed even if management had no knowledge of the fraud.
How does this impact Public Bodies?
The extent to which the failure to prevent fraud offence applies to public bodies won’t always be immediately clear. The starting point is to check the organisation’s legal structure to determine if it has been established as a corporate body. For example, where it has been incorporated as a company it will clearly meet the definition of a relevant body within ECCTA.
However, the general legal definition of a corporate body is wide. The government’s guidance states that incorporation for the purposes of the offence includes organisations 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
The legislation casts a wide net capturing a range of structures from registered societies to health boards, trusts and in some cases commissions. The clear message here is that public bodies need to consider whether they are a relevant body for the purposes of the incoming offence and if they are in any doubt about it, seek advice now.
How can we help?
Our Business Crime and Investigations team includes criminal lawyers and a forensic accountant with extensive experience of fraud legislation gained through their roles as members of the UK Serious Fraud Office. We also have a team of commercial, public and regulatory lawyers who regularly work with public bodies on complex legal matters.
If you are a public body unsure of how you need to prepare for the new failure to prevent fraud offence, get in touch with us today.
Click below to find out more about how our Business Crime & Investigations Team can assist with ECCTA.
