New failure to prevent fraud offence is coming in September 2025
Large charities need to get ready.
On 5 January 2025 the Charity Commission issued a regulatory alert asking charities to prepare for the new offence of failure to prevent fraud and to:
- Enhance their approach to preventing fraud, and
- To seek professional legal advice where necessary
The offence comes into effect on 1 September 2025.
What you need to know
To whom does this new offence apply?
The new offence (created by the Economic Crime and Corporate Transparency Act 2023) will apply to all large bodies corporate and partnerships, including
- large charities structured as companies
- CIOs
- royal charter charities, and
- statutory charities
To qualify as large, two of three criteria must be met:
- More than 250 employees
- More than £36 million turnover, and/or
- More than £18 million in total assets
These criteria apply to the whole organisation, including subsidiaries.
The guidance mentions that even if your charity does not meet these thresholds, it will be good practice to make sure your fraud prevention measures are robust. If your charity works with any larger organisations that organisation could be liable for fraud in your charity. The large organisation should be examining your procedures as part of their due diligence.
What is the offence?
The new failure to prevent fraud offence will occur when:
- An employee, agent, subsidiary or other “associated person”
- Commits a fraud
- With an intention to benefit the organisation
- And the organisation does not have adequate procedures in place to prevent the fraud
This offence sits alongside existing law, so the individual may be prosecuted for fraud, and the organisation may be prosecuted for failing to prevent it. There is no individual criminal liability on employees for failing to prevent a fraud.
Let’s break it down
An employee, agent, subsidiary or other “associated person”
The subsidiary of a large organisation, which is not itself a large organisation, can be prosecuted rather than the parent organisation if an employee of the subsidiary commits a fraud intending to benefit the subsidiary.
Small organisations should be aware that they may be ‘associated persons’ while they provide services (not goods) for or on behalf of large organisations. (Note ‘for and on behalf of’ so this wouldn’t include their professional advisers) The large organisation can be prosecuted even where the associated person is not prosecuted at all.
Fraud
The fraud offences are listed in the guidance and include fraud by false representation and fraud by abuse of position.
Company bosses need not have encouraged or even been aware of the fraud.
The corporate offence can only take place where the individual commits the fraud while working in the capacity of a person associated with the large organisation. Fraud taking place in someone’s private life will not count.
Intention to benefit the organisation
There need be no actual benefit to the organisation – intention is enough. The intention to benefit the organisation need not be the primary or sole motivation, so a fraud that benefits the individual and incidentally benefits the organisation will be caught by the offence. The benefit may be financial or non-financial.
In some circumstances the offence will apply where the fraud offence is committed with the intention of benefitting a client of the organisation.
Inadequate fraud prevention measures
Having adequate, reasonable fraud prevention measures in place will be a defence. Whether the measures are adequate will be a matter for the court to determine.
The guidance gives general principles for developing and enhancing fraud procedures. A court will take adherence to these principles into account when determining liability. The guidance makes it clear that alternative fraud prevention procedures may also be judged reasonable by a court. It also emphasises that adherence to the principles may not be enough in situations of high risk.
Penalties
If convicted, the organisation will be fined. The guidance acknowledges the difficulty in fining charities and not for profits which deliver services to the public. “Sentencing guidelines require that when setting a fine, the court must have regard to the impact of that fine on the performance of a public or charitable function.”
Further guidance
The regulatory alert points charities towards the following useful guidance:
- Read the Home Office Guidance
- Read Charity Commission guidance about internal financial controls
- Read new short guide on protecting your charity from fraud
- Seek professional advice
What now?
The offence comes into force on 1 September 2025. Every charity should examine whether they might be at risk of criminal liability, either due to their size or their place in a corporate structure or supply chain.
Now is the time to make sure your charity’s fraud prevention measures are in good shape.
Our team of solicitors are ready to help your charity get ready for this new era of corporate responsibility for fraud. If you have any questions please contact Neil Burton.
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