Failure To Prevent Fraud in Commodities: The Deadline Looms

On 1 September 2025, a new corporate offence of failure to prevent fraud will come into effect in the UK. Given that the commodities sector is particularly susceptible to fraud, it will need to be well-prepared for this new offence and organisations should now be finalising any necessary changes to their procedures.

We have written about the offence previously; in this article, we summarise what it is, answer some key questions about how it operates and offer guidance on how those in the commodities sector can prepare.

What is the failure to prevent fraud offence (the FTPF offence)?

As set out in the Economic Crime and Corporate Transparency Act 2023 (ECCTA), the FTPF offence places criminal liability on ‘large organisations’ if an ‘associated person’ commits a fraud offence with the intention to obtain a benefit.¹

The FTPF offence is a strict liability offence that applies to corporates only. It will apply in circumstances where the underlying fraud offence is committed by an associated person. The list of underlying fraud offences is extensive² and includes accounting related fraud offences as well as aiding, abetting, counselling or procuring the commission of the listed offence.

What if my organisation does not benefit from the fraud?

The organisation need not receive any actual benefit in order for this offence to apply, since the fraud offence can be made out before any gain is received. The benefit may also be financial or non-financial. Intending to disadvantage a competitor, for example, would fall within the scope of the offence.

Will it apply if my organisation is not based in the UK?

Like its predecessor, the failure to prevent bribery offence³, the FTPF offence will apply extraterritorially⁴ – although there must be a UK nexus. This means that even if the organisation itself is not UK based, the FTPF offence will apply if it has a UK based employee who commits the offence, or the fraud targeted victims based in the UK, for example.

What is a ‘large organisation’?

The FTPF offence can be committed by ‘large organisations.’ An organisation will fall into this category if it satisfies two of the following criteria:

• Turnover exceeding £36 million
• Total assets exceeding £18 million
• More than 250 employees.

This can catch parent companies (even if the parent company itself does not meet the above criteria) if the criteria are applied to the aggregate of all the companies within the group.⁵ In reality, this means that many companies will fall within the remit of the FTPF offence.

Who is an ‘associated person’?

An ‘associated person’ includes employees, agents and subsidiaries of the organisation, but the definition extends to anyone who otherwise performs services for or on behalf of the organisation (such as contractors or consultants). It also includes employees and agents of subsidiaries. The assessment of who is an ‘associated person’ will be conducted by reference to the circumstances surrounding the case but in practice, anyone who can enter into a contract on the organisation’s behalf will be caught by the definition.

Is there a defence to the FTPF offence?

It is a strict liability offence but there is a defence available if an organisation can show that it had ‘reasonable procedures’ in place at the time the offence took place.

It will therefore be incumbent on commodity traders and banks to consider carefully how they are implementing their reasonable fraud prevention measures (or where they are smaller, whether it is reasonable not to have any prevention procedures in place). The reasonableness of the procedures should take into account the level of control, proximity and supervision the organisation is able to exercise over a particular person acting on its behalf.

What guidance is available?

In November 2024, the Government released its Guidance for organisations in respect of the FTPF offence. This states that the fraud prevention framework put in place by organisations should consider the following six principles:

1. Top level commitment
2. Risk assessment
3. Proportionate risk-based prevention procedures
4. Due diligence
5. Communication (including trading)
6. Monitoring and review.

While the guidance (and the defence of having in place reasonable procedures) is modelled on the guidance that accompanied the failure to prevent bribery offence and therefore is not new, it does contain some unique elements and includes a specific section dedicated to whistleblowers.

Focus on whistleblowing

The SFO’s Director Nick Ephgrave QPM has made no secret of his hope to be able to incentivise whistleblowers by offering them rewards for actionable information; therefore, it is crucial that companies have whistleblowing policies and procedures which are adequate, clear and functional and that reports are properly considered and appropriate action taken to avoid disgruntled or disillusioned employees making reports to the authorities.

Implications for the commodities sector

It is no surprise that the commodities sector is susceptible to fraud risk. This can be attributed to a number of factors, including the paper-based nature of the documentation which is still commonly used in trading; and the requirement for physical storage of often high-value goods, which can be hard to monitor, particularly in remote or difficult jurisdictions.

These factors give rise to circumstances which are ripe for various kinds of commodities fraud, such as fake documentation, multiple financings, fraudulent misrepresentation of the goods, or theft. These types of frauds can affect commodities trading houses, warehouse operators and the banks which provide financing for such transactions.

Given that the risks are so well-known, it will be more important than ever to have reasonable procedures in place. These should include:

• Identifying risks in the supply chain, with independent third-party audits of supply chain due diligence.
• Conducting thorough and regular due diligence on third parties.
• Conducting regular risk assessments on counterparties.
• Conducting site visits.
• Mitigating against known risks, such as by incorporating contractual provisions for protection, checking that insurance cover is in place, strengthening operational controls and ensuring a thorough documentation trail is in place.

In addition, because of the high-risk nature of the sector, we recommend that organisations ensure that their reasonable procedures are demonstrably well-designed, properly implemented (that is, adequately resourced and communicated to all staff, with training) and effective (that is, tested and updated periodically).

HFW has advised a number of clients on their procedures in advance of the 1 September deadline.

Footnote

1. Section 199, ECCTA
2. Schedule 13, ECCTA
3. Bribery Act 2010
4. S199(10), ECCTA
5. Section 202, ECCTA