Protect your organisation now with anti-fraud clauses in employment contracts
Offences relating to an organisation’s failure to prevent certain illegal acts have been around for many years, having first emerged in relation to bribery and corruption and facilitating tax fraud.
Now, a new offence has been introduced. This latest development, effective from 1 September 2025, imposes an obligation on certain organisations to put appropriate processes in place to prevent employees (and certain other persons associated with the organisation) from committing particular offences.
If the organisation does not take adequate steps to prevent such offences, then they can be convicted for ‘failing to prevent’ that offence. One practical and immediate action is to update employment contracts to reflect anti-fraud obligations, helping demonstrate that your organisation has taken reasonable steps to prevent fraud.
What is the ‘failure to prevent fraud’ offence?
The ‘failure to prevent’ offence, relates to fraud and it was introduced by the Economic Crime and Corporate Transparency Act 2023.
Under the new law, a large organisation can now be found criminally liable where:
- A specified fraud offence is committed by an employee, agent, subsidiary or other ‘associated person’ (e.g. someone who provides services for the organisation), for the organisation’s benefit (and in certain circumstances, the offence will also be committed where the specified fraud offence is carried out with the intention of benefitting a client of the organisation rather than the organisation itself); and
- The organisation did not have ‘reasonable’ fraud prevention procedures in place.
Who does the offence apply to?
The offence applies to a wide range of entities, including:
- All incorporated bodies, subsidiaries and partnerships (so this will include limited companies, PLCs and LLPs)
- Partnerships which are not bodies corporate provided the partnership fulfils the test of ‘large organisation’
- Incorporated charities and not-for-profit organisations
- Incorporated public bodies
where at least two of the following criteria are met by the organisation taken as a whole (which includes its subsidiaries, even if they are outside the UK):
- It has over 250 employees
- It has a turnover of over £36m
- It has balance sheets assets of over £18m
The offence will apply where the specified fraud is an offence under UK law, this being the case it doesn’t matter where in the world the organisation in question is incorporated or has its Head Office.
What do organisations need to do?
Firstly, consider whether your organisation is in scope. If it is:
- Consider the new guidance published on 6 November 2024 on the prevention procedures that in scope organisations should put in place to avoid criminal liability. This guidance sets out six guiding principles which are: top level commitment, risk assessment, proportionate procedures, due diligence, communication and monitoring and review.
- Ensure your organisation has implemented the guiding principles including putting proportionate, risk-based prevention procedures in place.
Indeed, even if your organisation is not in scope of the new offence, the guidance explains that the fraud prevention guidance represents good practice for all organisations.
Update your employment contracts
From an employment perspective, a practical step to take is to update your employment contracts to include:
- An obligation for employees not to engage or facilitate fraud
- A duty to report any suspicion of fraud
- A requirement to comply with the organisation’s anti-fraud policies and procedures
These clauses can be rolled out across all roles or tailored for higher-risk positions where there is either motive, or opportunity, to encounter fraud. Examples of such roles could include senior executives, finance staff (e.g. payroll, financial controllers), sales representatives (especially those who travel), or staff in procurement roles.
If employers do not include an express contractual requirement in their contracts, they should document the reasons why in a risk assessment. In such circumstances, similar obligations can be added to an employee handbook to demonstrate that the organisation has reasonable prevention procedures in place.
Raise awareness and provide training
Employers should ensure that obligations are communicated clearly to all staff and that reporting channels are clearly laid out. Employers should also consider delivering regular training to staff and senior management.
The failure to prevent fraud offence represents a major shift in corporate accountability. Organisations must now demonstrate that they’ve taken reasonable steps to prevent fraud, or risk unlimited fines and reputational damage.
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Disclaimer
This information is intended for general informational purposes only and does not constitute legal advice. We recommend seeking professional advice before taking any action on the information provided. If you would like to discuss your specific circumstances, please feel free to contact us on 0800 2800 421.
