From 1 September 2025, large organisations will face heavy fines for failing to prevent fraud, under the Economic Crime and Corporate Transparency Act 2025. Large companies, charities and other organisations need to act now to make sure they have proper fraud prevention systems in place.
In this article we highlight the conditions for prosecution under the new failure-to-prevent offence of the Economic Crime and Corporate Transparency Act 2025, how this act will impact the management of environmental compliance and ‘green’ claims, and outline the immediate steps for organisations to help avoid prosecution and large fines.
Since December 2024, it has been possible to prosecute a company for economic crimes committed by a senior manager 'acting within the actual or apparent scope of their authority' even if that manager is not regarded as the company’s 'directing mind and will'.
A body corporate or partnership will come within the scope of the new failure-to-prevent offence if - in the financial year before the fraud was committed - it satisfies two or more of these conditions:
The ‘failing to prevent fraud’ offence is triggered if a person who is associated with an organisation, and acting as such, commits a fraud of some sort - the 'base fraud offence' - intending to benefit the organisation or anyone for whom the associate provides services.
The base fraud offences are set described in the Fraud Act 2006, as:
The new ‘failure to prevent fraud’ offence sets out a definition of fraud that also includes:
Any organisation that is found to be engaging in such practices could face prosecution and potentially unlimited fines.
The definition of fraud could include environmental, social and governance (ESG) statements, and advertising claims found to be dishonest or that fail to provide a full and balanced representation, including by manipulating or falsely reporting green claims.
The ‘failure to prevent fraud’ offence will apply whether or not an organisation’s senior management were aware of the offence being committed. If employees in the organisation commit fraud on behalf of an organisation, senior management will not be able to claim it was unaware of the fraud as a mitigation.
The only defence for large organisations will be evidence that they have in place ‘reasonable procedures’ to prevent or detect the fraud from happening in the first place. The government is due to be publishing guidance on what it considers to be ‘reasonable procedures’ in the coming months. It will be important for large organisations to be included under the scope of this legislation, to use the forthcoming guidance to assess their exposure and manage compliance.
Interestingly, the government’s guidance from November 2024 specifically includes an example of a business providing false data to the Environment Agency (EA). The example cited describes a situation, where the head of an environmental compliance team deliberately falsifies discharge data that is submitted to the EA, as a requirement of an environmental permit. As a result, the business discharges more pollution than it's allowed under the environmental permit, with the intention of avoiding any financial penalty that the EA can impose.
The associated person in this case would be the head of the environmental compliance department and the base fraud is fraud by false representation.
The company could be liable for failure to prevent fraud, if a court determines it did not have reasonable procedures in place to prevent the fraud. The new offence is punishable with an unlimited fine.
This is only one example of the circumstances under which organisations are required to submit environmental data. Other examples include submissions under extended producer responsibility and climate change regimes. This is separate to offences under environmental law.
Although it must be established beyond reasonable doubt that the base offence has been committed, it’s not essential for anyone to have been convicted. However, the base offence must have been intended to benefit the organisation or its customers. The failure-to-prevent offence does not apply if the organisation is the victim or intended victim of fraud.
It's a defence for the organisation to prove that, at the time the fraud offence was committed, it had in place such prevention procedures as it was reasonable in all the circumstances to expect the body to have in place. Therefore, it’s not so much a failure to prevent, more a failure to take the sort of anti-fraud measures you would expect any well-run organisation to be taking already.
Organisations should identify the risks where fraud has the potential to occur in a way that benefits the organisation. These apply to any ESG claims, statements, disclosures and data submissions your organisation makes to the EA.
Organisations need to consider:
Paul Collins is an environmental lawyer. He worked for the EA for over a decade until 2024, acting as the lead lawyer. He's uniquely well placed to advise clients in relation to environmental compliance, steps to take in response to enforcement action, and prospects of success when making representations/bringing appeals.
For further information or advice, please contact our business risk and regulation team.
