Failure to prevent fraud: Implications for the property sector

The Economic Crime and Corporate Transparency Act 2023 has introduced a landmark corporate offence: Failure to Prevent Fraud. This provision, now in force, represents one of the most significant changes to UK corporate criminal liability since the Bribery Act 2010.

Its purpose is clear: to hold organisations accountable where fraud is committed by employees or associated persons for the organisation’s benefit, and where the organisation did not have reasonable fraud prevention procedures in place.

For businesses operating in Scotland – particularly those in the property sector – this change demands urgent attention. While many organisations have existing compliance frameworks, the scope of this new offence is broader and may bring additional scrutiny to sharp commercial practices.

What does the new offence mean?

Under Section 199 of ECCTA, a “relevant body” (which must be a large organisation) commits the offence if:

• An associated person (employee, agent, subsidiary, or other acting on behalf of the organisation) commits a specified fraud offence.
• The fraud is intended to benefit the organisation (whether directly or indirectly).
• The organisation did not have reasonable fraud prevention procedures in place at the time.

This is a strict liability offence. There is no need to prove knowledge or complicity by senior management. The only defence is to demonstrate that the organisation had reasonable procedures designed to prevent fraud.

Who is in Scope?

The offence applies to large organisations, defined as meeting at least two of the following criteria:

• More than 250 employees.
• Turnover exceeding £36 million.
• Balance sheet total over £18 million.

While SMEs are not directly in scope, there are separate requirements under ‘senior manager accountability’ that need to be considered, and the principles of fraud prevention are considered best practice for all businesses.

Why does this matter for the property sector?

The property industry is no stranger to complex financial arrangements, particularly around the use of business rates relief available to charities. These practices, while often legitimate, can cross into criminal territory if misused or misunderstood.

Scenario: Charitable Tenancy Incentives

Consider this common situation:

• A landlord owns a vacant commercial property and is liable for business rates.
• Local authorities offer charitable exemptions, meaning a charity tenant pays nil rates.
• To attract charities, landlords may offer incentives, such as contributing to the charity’s costs, because the landlord would otherwise bear the rates liability.

On the surface, this seems commercially rational. However, risk arises when the arrangement extends beyond the genuine practical aims of the landlord or tenant. The following examples would likely be considered fraudulent in nature:

• If a landlord and charity enter a lease solely to secure the rates incentive, without any real operational need for the property.
• If multiple leases are taken on by a charity without genuine need, purely to generate incentives.

Under ECCTA, if such conduct benefits the landlord or tenant and is facilitated by an associated person (e.g., an employee or agent), either or both organisations could face prosecution for failure to prevent fraud.

What feels like a clever tax mitigation scheme can quickly become a criminal act. The Serious Fraud Office has made clear that enforcement will be proactive, and property businesses are firmly on the radar.

Key risks for property businesses

• Marketing strategies that promote incentives without robust compliance checks.
• Agents or intermediaries acting on your behalf who are incentivised on arranging deals.
• Aggressive commercial strategies and targets that may promote risk taking behaviour.
• Failure to train staff on what constitutes fraud under the new regime.

What should you do now?

The Home Office guidance sets out six principles for “reasonable procedures”:

1. Top-level commitment – Senior leadership must set the tone, making fraud prevention a strategic priority.
2. Risk assessment – Identify where fraud risks arise in your operations
3. Proportionate procedures – Implement policies and controls tailored to your risk profile.
4. Due diligence – Ensure you have robust and documented records to demonstrate decision making and outcomes.
5. Communication and training – Ensure staff and agents understand what constitutes fraud and the implications of ECCTA.
6. Monitoring and review – Ensure you apply regular and proportionate checks of procedures. This may involve instructing specific risk audits.

The consequences of inaction

Failure to act exposes your organisation to:

• Unlimited fines.
• Reputational damage – particularly acute in the property sector where trust is paramount.
• Regulatory scrutiny and potential civil claims.

Fraud accounts for over 40% of all crime in the UK, and enforcement agencies have signalled their intent to pursue corporate offenders aggressively.

How we can help

If you are a property business in Scotland, ask yourself:

• Do we have documented fraud prevention procedures?
• Have we assessed risks in our leasing practices, particularly around incentives and exemptions?
• Are our agents and intermediaries trained and monitored?
• Can we demonstrate compliance if challenged?

If the answer to any of these is “no” or “not sure,” now is the time to act.  Anderson Strathern offer support to businesses who are grappling with new and existing regulatory requirements.  Our focus is on ensuring that we help our clients comply while minimising disruption to service delivery and commercial objectives. Contact us now for guidance on this issue.