Tackling the new Failure to Prevent Fraud Offence: What the Sport Industry Needs to Know

In addition to these changes, the ECCTA also contains a new ‘failure to prevent fraud’ offence which comes into effect on 1 September 2025. This offence has wide-ranging implications for businesses and organisations, including those operating in the sport industry, and this article aims to help better understand the details of this law, how it applies and how sports organisations can prepare to mitigate risks and ensure compliance.

What is the failure to prevent fraud offence and who should be worried?

Firstly, it’s important to understand that the offence only applies to “large organisations” which are defined in section 201 of the ECCTA^[1] as organisations satisfying two or more of the following conditions:

1. More than 250 employees;
2. More than £36 million turnover; and
3. More than £18 million in total assets.

Under the offence, an organisation will be liable if a specified fraud offence is committed by an employee, agent or other “associated person” for the benefit of the organisation and the organisation did not have reasonable prevention procedures in place. A key feature of the offence is that the burden of proof is on the organisation to demonstrate it had adequate measures in place, and whether or not senior management were aware, will have no bearing.

The aim is to make it easier to hold organisations to account for fraud, much like the corporate offence of ‘failure to prevent bribery’ under section 7(1) of the UK Bribery Act 2010^[2].The significance of this offence for sporting institutions was clear to see in 2023, when sports-gaming company Entain announced it had entered into an agreement with the CPS for a payment of £615 million due to a failure to “have adequate procedures in place to prevent bribery”^[3]. If this is a sign of what is to come then now is the time to start preparing.  

As such, and to give organisations the best chance to prepare ahead of 1 September 2025, the UK Government has published guidance^[4] which outlines various procedures that organisations can put in place.

What does the UK Government guidance say?

As with the failure to prevent bribery and the facilitation of tax evasion offences, organisations will have a defence if they can demonstrate they had ‘reasonable procedures’ in place to prevent fraud offences, and the Government's guidance outlines six principles to assist in establishing effective prevention measures:

1. ‍Top level commitment: senior management must lead by example by actively promoting an anti-fraud culture and encouraging staff to report ethical concerns without hesitation.‍
2. Risk assessment: assess the extent of exposure to fraud risks of, for example, employees, agents and other associated persons and keeping this under regular review.‍
3. Proportionate risk-based prevention procedures: procedures will need to be proportionate to the nature, scale and complexities of the organisation's activities, ensuring resources are allocated effectively.‍
4. Due diligence: conduct thorough checks that extend to all associated persons who perform or will perform services on behalf of the organisation.‍
5. Communication: ensure policies and procedures are clearly communicated, embedded, and understood throughout the organisation, as well as provide regular training.‍
6. Monitoring and review: adapt and improve, where necessary, fraud detection and prevention procedures in response to changes in the risks and learn from investigations.

Why should sports organisations be worried?

While the offence applies to all sectors, the sports world is particularly vulnerable as it is a global and highly profitable industry and has long been a target for fraudulent activities due to the scale and complexity of transactions that take place. Some of the key fraud risks in sport include:

1. ‍Financial misconduct: clubs, players, coaches, agents or even governing bodies are at risk of financial misconduct, whether it is to do with false reporting or accounting, inflating or suppressing the value of a deal, misallocating funds or not disclosing certain transactions.‍
2. Fraudulent trading: for example, an organisation continuing to operate and trade in circumstances where it knew it was insolvent. ‍
3. Money laundering: for example, accepting payments for transactions, e.g. sponsorship deals, where they knew or suspected those funds could have been raised from criminal activities.

We are also seeing an increase in foreign ownership of sports clubs in the UK, and if these owners commit any of the above mentioned offences overseas, the new law could allow these organisations to be prosecuted even if no relevant conduct took place in the UK.

If prosecutions are brought, as well as the obvious risk of large fines being imposed, organisations could face severe reputational damage. A sports organisation’s reputation will have direct implications on the success of the business, and being involved in a fraud scandal could lead to sponsors leaving, fans disassociating, loss of revenue, and it could also tarnish an organisation's credibility for years.

Conclusion

Despite the number of well-documented prosecutions of leading individuals in the world of sport, we have not seen the same level of scrutiny when it comes to organisations, and the failure to prevent fraud offence has the potential to change this position.

The Government’s guidance on the offence is a critical reminder for those in the business of sport to seriously assess how well-equipped their anti-fraud procedures are, taking into consideration the six principles outlined above. This will in turn help mitigate their legal and financial risks, preserve their reputation and help them continue to operate in an increasingly regulated environment.