Article by Jack Murphy, Partner and Lauren Bowkett, Senior Associate in Business Crime at JMW Solicitors

Businesses operating in the UK can no longer afford to take a passive approach to fraud prevention. With the introduction of the Economic Crime and Corporate Transparency Act 2023 (ECCT) on 1st September 2025, companies now face potential criminal liability if an employee, agent or someone associated with the company commits fraud that is intended to benefit the organisation. The failure to prevent fraud offence means organisations can be prosecuted unless they can demonstrate that they had reasonable procedures in place to stop fraudulent activities from occurring.

One of the most effective ways to reduce this risk is by ensuring those associated with the organisation understand what constitutes fraud. Many fraudulent activities do not begin as deliberate crimes but develop gradually when individuals believe certain actions are part of normal business operations. Without proper training, they may unknowingly engage in behaviour that could result in criminal liability against both themselves as an individual and their employer.

Training staff to recognise and report fraudulent activity is a practical step that can protect businesses from possible criminality, financial loss, regulatory penalties, and reputational damage. This requires a structured and ongoing programme that goes beyond compliance requirements and fosters a workplace culture where ethical business practices are standard.

Understanding the ‘Failure to Prevent Fraud’ Offence

The ECCT makes it clear that organisations cannot rely on ignorance as a defence. If an employee, agent or associated person commits fraud that is intended to benefit the organisation, the organisation may be held responsible alongside the individual unless it can prove that it had reasonable procedures in place to prevent the fraud from taking place.

This law applies to large organisations (including subsidiaries), which are defined as those meeting at least two of the following criteria: an annual turnover exceeding £36 million, a balance sheet total above £18 million, or more than 250 employees. While smaller businesses are not automatically covered by the legislation, they are not immune from fraud-related risks. Any business could still face financial and reputational damage if fraudulent activity occurs within its operations.

Fraudulent activity can take many forms. Some of the most common offences covered by the law include:

• False accounting, where financial records are deliberately manipulated to mislead stakeholders;
• Tax evasion; and
• Fraudulent trading, which involves providing false or misleading information to investors, creditors, or customers.

Any of these activities, if left unchecked, can lead to serious legal consequences for both individuals and the business as a whole.

To comply with the law, businesses must demonstrate that they have taken reasonable steps to prevent fraud from occurring within their organisation. While there is no single definition of what constitutes “reasonable procedures,” one of the most effective ways to show compliance is by providing employees with clear and practical training on fraud prevention.

Why Employee Training Is Essential

A lack of awareness is often one of the biggest contributors to fraudulent activity in the workplace. Those who do not understand what constitutes fraud are far more likely to engage in it, whether through deliberate wrongdoing or because they believe they are simply following normal business practices. Without proper training, employees may not recognise the warning signs of fraudulent behaviour or may feel uncertain about how to report their concerns.

The UK government’s guidance on preventing fraud highlights the importance of education and communication in helping organisations meet their obligations under the law. Delivering proper training is a proactive way for organisations to demonstrate they are taking their legal responsibilities seriously.

Beyond the legal requirements, fraud prevention training benefits organisations in other ways. It reduces financial risk by helping those associated with an organisation to identify and prevent fraudulent activities before this behaviour escalates. It encourages ethical decision-making, and making responsible choices when handling financial transactions or working with clients and suppliers. It also fosters a workplace culture where compliance is seen as a shared responsibility rather than an imposed requirement or the responsibility of senior managers.

How to Develop an Effective Fraud Awareness Programme

Training employees to recognise fraudulent activity should not be a one-off exercise. It needs to be an ongoing initiative that is regularly reviewed and updated to reflect changing risks. The most effective fraud prevention training programmes are tailored to the specific risks a business faces and are designed to be practical and engaging rather than purely theoretical.

The first step in designing an effective training programme is to assess the company’s fraud risk profile. Businesses should review their financial processes, procedures, and internal controls to identify areas where fraud is most likely to occur. Different industries face different risks, and training should reflect the specific challenges employees may encounter in their roles.

Once a business has identified its key risks, training should focus on helping those within the organisation understand what fraud looks like. This includes providing clear definitions of different types of fraud and using real-world examples to illustrate how fraud can occur. Many individuals do not realise that small infractions, such as altering figures on an expense report or misrepresenting financial performance, can escalate into serious offences. Using case studies from other organisations can make the training more relatable and highlight the consequences of fraudulent activity.

Teaching individuals to recognise warning signs is another crucial part of any fraud awareness programme. Fraud often goes undetected because employees are not aware of the red flags that indicate wrongdoing. Training should highlight suspicious behaviours such as unusual financial transactions, excessive secrecy around financial records, and pressure to bypass internal controls. Encouraging those associated with the organisation to be alert to these warning signs can help businesses detect potential fraud before it causes serious damage.

It is also important for businesses to clearly communicate the consequences of fraudulent activity. Employees should understand that fraud is a criminal offence that can lead to legal action against both individuals and the organisation. Training should cover personal criminal liability. When employees understand the personal risks involved, they are more likely to take compliance seriously.

Beyond education, businesses must create an environment where employees feel comfortable reporting suspicious activity. Many employees are reluctant to report potential fraud because they fear retaliation or believe their concerns will not be taken seriously. Providing clear reporting channels, such as an anonymous whistleblowing hotline or a dedicated compliance officer, gives employees a way to report fraud safely. Businesses should also emphasise that reporting fraud is encouraged and that whistleblowers will be protected.

Building a Culture of Fraud Prevention

While training is an essential tool for preventing fraud, it should be part of a broader strategy that embeds fraud prevention into an organisation’s culture. Leadership plays a crucial role in this process. If senior management takes fraud prevention seriously and sets a tone from the top, individuals are more likely to follow suit. 

Regular reviews of internal controls and financial oversight mechanisms can also strengthen fraud prevention efforts. Organisations should assess their policies and procedures to verify that they are robust enough to detect and deter fraudulent activity. Implementing strong financial controls, such as dual authorisation for payments and regular audits, reduces the opportunities for fraud to occur.

Open communication is another key component of an effective fraud prevention strategy. Employees should feel confident that they can raise concerns without fear of reprisal. Encouraging transparency and accountability at all levels of the business creates an environment where fraud is less likely to take hold.

The introduction of the failure to prevent fraud offence under the Economic Crime and Corporate Transparency Act 2023 places a clear responsibility on organisations to take proactive steps in preventing fraudulent activity. Training is one of the most effective ways to meet this obligation and reduce the risk of criminal liability. By educating individuals about fraud, encouraging ethical decision-making, and fostering a workplace culture of transparency and financial crime compliance, organisations can protect themselves from criminal, financial and reputational harm.

Companies that take fraud training seriously will be better equipped to handle risks, maintain trust with stakeholders, and operate with integrity in an increasingly compliance-based environment.

If you are concerned about how best to meet your organisation’s legal obligation to take “reasonable steps” to prevent fraud, or need legal services related to an investigation, JMW’s expert business crime solicitors can support you. Call us on 0345 872 6666 or use our online enquiry form to request a call back and learn more about how we can help.