New UK Corporate Fraud Law Creates Strict Liability for Large Organisations

A landmark UK law now holds large corporations criminally accountable for fraud committed by their employees, agents, and subsidiaries, even when those acts occur abroad or target British victims from overseas. The Economic Crime and Corporate Transparency Act's "failure to prevent fraud" offense, which took effect on 1 September 2025, represents a significant expansion of corporate criminal liability in Britain's fight against economic crime.

The legislation creates a strict liability offense for organisations with more than £36 million in turnover, balance sheet totals exceeding £18 million, or over 250 employees—meaning companies can be prosecuted regardless of whether senior management had knowledge of the fraudulent activities.

Background and Context

The Economic Crime and Corporate Transparency Act received Royal Assent on 26 October 2023 as part of the UK government's broader effort to combat the use of British business and financial systems for criminal activities. The "failure to prevent fraud" provision, modeled on similar corporate offenses for bribery and tax evasion, addresses what lawmakers identified as a significant gap in holding organisations accountable for internal wrongdoing.

According to parliamentary debates preceding the legislation, the measure responds to growing concerns that complex corporate structures have allowed fraud to flourish with limited recourse against the entities that benefit from such crimes. The law specifically targets large organisations that regulators argue have greater resources and capacity to implement robust compliance systems.

Key Figures and Entities

The legislation's scope extends broadly across corporate hierarchies and international operations. "Relevant bodies" include not only companies meeting the size thresholds but also their subsidiaries, regardless of whether those smaller entities would independently qualify as large organisations.

The definition of "persons associated" with an organisation encompasses employees, agents, consultants, and subsidiaries—even those based outside the UK. According to government guidance, this extraterritorial reach means multinational corporations can face prosecution for fraud committed by overseas representatives when the fraudulent conduct either occurs within the UK or targets British victims.

Financial institutions face particular exposure under the new regime due to their regulatory obligations to the Financial Conduct Authority. These organisations must self-report potential fraud to regulators, potentially creating dual exposure to both regulatory enforcement and criminal prosecution.

Legal and Financial Mechanisms

The offense covers a comprehensive range of fraudulent activities listed in Schedule 13 of the Act, including false accounting, fraudulent trading, making false statements to regulators, obtaining services dishonestly, and cheating the public revenue. The legislation also captures aiding and abetting these offenses, creating a wide net for corporate liability.

As a strict liability offense, prosecution does not require proof that senior management authorised or even knew about the fraudulent conduct. However, organisations can defend against liability by demonstrating they had adequate prevention procedures in place or that they were themselves victims of the fraud—though government guidance clarifies that reputational damage alone does not establish victim status for defense purposes.

The Home Office guidance specifies that effective prevention procedures should include top-level commitment, risk assessments, proportionate controls, due diligence processes, communication and training, and ongoing monitoring and review. Notably, the benefit to the organization need not be the primary motivation for the fraud—incidental benefit suffices for establishing the offense.

International Implications and Policy Response

The legislation represents the UK's attempt to address jurisdictional challenges in combating sophisticated financial crime that often spans multiple countries. By extending liability to overseas subsidiaries and agents when fraud targets UK victims, the law creates potential conflicts with other legal regimes and raises questions about enforcement practicality.

Legal experts anticipate that corporations may test the boundaries of certain provisions through court challenges, particularly regarding the interpretation of "reasonable" prevention procedures and the scope of extraterritorial application. The Serious Fraud Office and Crown Prosecution Service face resource constraints that may limit the number of prosecutions, though even investigations without charges can carry significant costs and reputational damage.

Insurance underwriters have already begun adjusting their approach to directors' and officers' liability policies, with some requiring evidence of robust fraud prevention frameworks before providing coverage. The unlimited fines available under the legislation create substantial financial risk beyond direct criminal penalties.

Sources

This report draws on the Economic Crime and Corporate Transparency Act 2023, official guidance from the UK Home Office, Financial Conduct Authority regulations, and parliamentary records. Additional context comes from legal analysis of corporate criminal liability frameworks and regulatory enforcement patterns in the UK financial sector.