Failure to prevent fraud: what employers need to know about the new criminal offence

From 1 September 2025, large organisations will be criminally liable for fraud committed by their employees, agents, subsidiaries or other associated persons where the intention was to benefit the organisation or its clients, unless they can show that they had reasonable fraud prevention procedures in place.  The Home Office has published guidance on what such procedures ought to cover, and our Business Crime team has a detailed rundown here . 

From an employer perspective, there a number of issues to consider: 

• Employment contracts and service agreements:  contracts should specify that any form of fraud will not be tolerated and will be treated as gross misconduct, and that staff are expected to cooperate in any internal investigations and report any wrongdoing of which they become aware. 
• Investigations and disciplinary procedures:  allegations of fraud will need to be investigated thoroughly and promptly.  However where employee fraud is suspected, employers will also need to bear in mind the employee's rights under their contract of employment, the requirements of a fair dismissal (including the ACAS Code of Practice on Discipline and Grievances), potential discrimination angles and other potential employment claims.  These will need to be balanced against the risk to the organisation of failing to take prompt and decisive action, as well as the need to avoid compromising any possible police investigation.
• Whistleblowing procedures:  A key mechanism for bringing fraud allegations to light is the organisation's whistleblowing procedure, and the Home Office's guidance specifically highlights this.   However, in order for this to be effective, staff need to have confidence that concerns raised via whistleblowing will be treated with appropriate confidentiality and investigated fully, and that they won't be subject to reprisals.   Building a “speak up” culture is essential for good governance, whether in relation to fraud or other misconduct. 
• KPIs and bonuses:  Employers should also consider whether their performance management, bonus and incentive structures inadvertently encourage dishonest or fraudulent conduct by staff, and what can be put in place to mitigate these risks?  For example, are bonus targets realistic given market conditions, what proportion of total remuneration is based on hitting financial targets, and does the scheme allow recoupment of payments if dishonesty is discovered at a later date?   Employers will need to assess what changes are needed and whether making such changes could result in breach of contract claims. 

The new “failure to prevent” offence will magnify the risks for employers whose staff are involved in fraudulent activity.   However, mitigating these risks won't simply be a question of firing those responsible, but instead embedding an anti-fraud culture at all levels of the organisation.