Failure to prevent fraud: Why HR must act now under the Economic Crime and Corporate Transparency Act

On 1 September 2025, a new corporate offence comes into force in the UK: failure to prevent fraud. 

The penalty? Unlimited fines. 

This new offence, introduced under the Economic Crime and Corporate Transparency Act (ECCTA), could reshape corporate accountability in the UK. It’s no longer just a boardroom issue, or something for the finance and legal teams to handle. It cuts straight into HR territory, because fraud often begins, or is enabled, with the people organisations hire, appoint, and trust. 

For HR leaders, this is both a warning and a call to action: prevention now sits squarely within your remit. 

As gatekeepers, HR decides who enters the organisation, who gets promoted, and who holds sensitive responsibilities. You also influence culture, whether transparency and accountability are embedded, or left to chance. 

This means HR must operate differently: 

• Hiring decisions become compliance decisions. Every senior hire should be weighed not only for skills, but for potential fraud risk. 

• Screening moves from admin to strategy. It's about protecting the organisation’s reputation and bottom line. 

• Partnerships with compliance tighten. HR, legal, and finance must work in lockstep, with shared visibility over fraud risk. 

What the ECCTA is trying to solve 

The UK has long struggled with economic crime: shell companies hiding illicit activity, fake directors slipping through Companies House, and fraud draining billions from businesses and the public sector alike. 

The ECCTA, introduced in 2023, represents the government’s biggest reform package in decades. Its goals are straightforward: 

• Make corporate structures more transparent 

• Hold organisations accountable for misconduct 

• Prevent criminals from abusing the UK’s financial system 

To achieve this, the Act strengthens Companies House, mandates identity verification for directors, expands corporate liability, and, most strikingly, introduces the “failure to prevent fraud” offence. 

Why HR can’t ignore “failure to prevent fraud” 

Under the new law, if an employee, agent, or senior manager commits fraud for the benefit of the organisation, the company itself can be prosecuted. The only defence? Proving that you took “reasonable steps” to prevent it. 

That phrase is key: reasonable steps. 

For HR leaders, this shifts responsibility from simply hiring talent to actively safeguarding the business. The people you allow through the door, and how you monitor them afterwards, could determine whether your organisation is exposed to unlimited financial risk. 

What counts as “reasonable steps”? 

The government is due to publish detailed guidance, but the direction of travel is already clear. Regulators will expect organisations to show: 

1. Robust hiring practices – checking who people are before they’re appointed. 
2. Screening for fraud risk – particularly in financial, compliance, and senior management roles. 
3. Ongoing vigilance – monitoring behaviour and carrying out re-checks, especially for staff with access to funds or sensitive information. 
4. Training and culture – embedding fraud awareness so staff know how to spot red flags. 
5. Documented processes – policies and audit trails proving that controls are real, not theoretical. 

And this isn’t about perfection. It’s about being able to demonstrate to a regulator, after the fact, that your organisation took reasonable, practical steps to minimise risk. 

Background checks: the frontline defence 

So where do background checks come in? 

Quite simply, they’re one of the clearest, most defensible measures HR can take. Screening candidates before they’re hired, and periodically afterwards, helps show regulators that you’ve taken fraud prevention seriously. 

Consider the following: 

• Identity verification 
  

  The Act itself is forcing Companies House to introduce mandatory ID verification for directors and Persons with Significant Control. HR can mirror that standard internally by ensuring every employee’s identity is confirmed beyond doubt. No gaps, no assumptions. 

• Criminal record checks 
  

  Fraud and financial crime offences often leave a trace; a  criminal record check can surface risks before trust is placed. 

• Employment and education history verification 
  

  Fraudsters frequently start by lying on CVs. Inflated roles, fake qualifications, or hidden dismissals are red flags that background checks can catch early. 

• Credit and financial checks 
  

  While not suitable for all roles, these can be critical where staff have financial responsibilities. They provide insight into vulnerabilities or patterns that could increase fraud risk. 

• Ongoing re-checks 
  

  Fraud prevention doesn’t stop at day one. Annual rechecks, triggered screenings, or continuous monitoring can show regulators that fraud risk is being actively managed over time. 

Each of these checks is a concrete, auditable action HR can point to as part of its “reasonable steps” defence. 

The risks of ignoring it 

If an employee or agent commits fraud, and your organisation hasn’t got a defensible framework in place, the consequences are severe: 

• Unlimited fines – which could cripple even well-capitalised businesses. 

• Reputational damage – trust once lost is hard to regain, particularly with regulators and investors. 

• Personal accountability – while the Act targets organisations, HR leaders could also face scrutiny over governance failures. 

In other words, this isn’t optional. 

The opportunity for HR 

It’s easy to frame the ECCTA as a burden. But for HR, it’s also an opportunity to demonstrate strategic value. By taking ownership of fraud prevention measures, particularly around hiring and background checks, HR can position itself as a critical partner in governance. 

This could look like: 

• Introducing enhanced pre-employment screening for high-risk roles. 

• Creating a re-check policy for existing staff, aligned to risk and seniority. 

• Building a fraud awareness module into onboarding and training programmes. 

• Working with compliance to ensure audit trails are available for every hire. 

Preparing now: practical steps 

With the offence due to come into force in September 2025, now is a crucial time for HR teams to be laying the foundations. Here’s a simple starting framework: 

1. Audit current practices. Where are the gaps in your hiring and screening processes? 
2. Map high-risk roles. Identify where fraud risk is most acute, senior management, finance, procurement, client-facing sales. 
3. Review your screening policy. Does it cover the right checks, at the right depth, for each role? 
4. Plan for re-checks. Build in processes for monitoring and re-screening staff over time. 
5. Collaborate with compliance and legal. Fraud prevention can’t sit in silos,  it needs joined-up governance. 

Unlimited stakes, reasonable steps 

The failure to prevent fraud offence is a significant game changer. Unlimited fines mean the cost of inaction is simply too high. For the HR function, the path forward is clear: embed background checks and screening into the heart of your people strategy. 

They are one of the clearest ways to demonstrate to regulators that your organisation took reasonable, proactive steps to prevent fraud. 

In short: 

• The law is raising the stakes. 

• Fraud prevention is now a legal duty. 

• HR is on the frontline. 

When the penalties are unlimited, knowing your people is priceless.