REGULATION
Key new law: “Failure to Prevent Fraud” offence
David Wright, Director General, UKLA
A new law has been introduced which is part of the Economic Crime and Corporate Transparency Act 2023.
The law creates a new corporate offence when a “specified fraud offence” is committed by an employee, agent, subsidiary or other “associated person” of a company with the intention of benefiting the organi- sation, and the organisation did not have reasonable prevention procedures in place to prevent the fraud.
The law came into force in the United Kingdom on 1 September 2025. Examples may include dishonest sales practices, the hiding of important information from consumers or investors, or dishonest practices in financial markets.
In the lubricants market this could mean intentionally mislabelling or misdescribing goods with the intention to deceive end users and profit from goods they knew could not perform as intended.
The offence is intended to encourage organisations to build an anti-fraud culture, in the same way that failure to prevent bribery legislation has helped reshape corporate culture since its introduction in 2010.
It applies to large organisations only. The thresholds are meeting at least two of the following three: • More than 250 employees • More than £36 million turnover • More than £18 million in total assets
The law also applies not just to UK organisations but to foreign ones too if there are “UK touchpoints” such as distributors or subsidiaries.
In the event of prosecution, an organisation would have to demonstrate to the court that it had reasonable fraud prevention measures in place at the time that the fraud was committed. Organisations can use the defence that they had reasonable fraud prevention procedures at the time.
54 LUBE MAGAZINE NO.190 DECEMBER 2025
Why this is significant / what changes are introduced It’s modelled on similar failure to prevent offences (such as under the Bribery Act 2010), with the idea being to shift emphasis from needing to show senior management order/knowledge to requiring organisations to have systems in place. It also closes prior loopholes, where organisations avoided liability because it couldn’t be proved that top-management approved of fraud or even knew about it.
While the new law is about organisations failing to prevent fraud, there is older law around conspiracy to defraud, which is a common-law offence in UK law. It continues to exist.
The Fraud Act 2006 made a lot of fraud offences statutory, which closed some loopholes, but the offence of conspiracy to defraud has been retained. There has been discussion (including in Law Commission reports) about possibly abolishing it in the future, but as of now, it remains.
Some Practical Implications / Obligations for Organisations
Because of these changes, large organisations need to make sure they put in place and maintain reasonable fraud prevention procedures. Guidance was published on 6 November 2024 for what this might involve, for example. • Assess their risks: including staff, agents, associated persons and subsidiaries.
• Demonstrate compliance if prosecuted: the law shifts burden to show that they did have reasonable measures in place.
More information can be found on the UK government website.
gov.uk/government/news/new-failure-to- prevent-fraud-guidance-published
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