In brief
- Introduced by the Economic Crime and Corporate Transparency Act 2023 (ECCTA), the new failure to prevent fraud (FTPF) offence came into force on 1 September 2025.
- The legislation encompasses fraud by false representation, fraud by failing to disclose information, and false or misleading statements by directors, all of which can be readily applied to misleading sustainability claims.
- To date, greenwashing has primarily risked regulatory sanctions, however companies could now face criminal prosecution if they fail to prevent misleading or unsubstantiated claims.
- Companies should seek expert advice to assess current practices, and to develop and implement robust procedures for ensuring that sustainability claims are clear, accurate and backed by evidence.
What is the failure to prevent fraud offence?
The FTPF offence, which came into effect on 1 September 2025, represents a significant expansion of corporate criminal liability. Unlike traditional corporate prosecutions of fraud that require proving senior management knowledge or involvement, this offence operates on a "failure to prevent" model of liability.
Large organisations – defined as those meeting two of three criteria: more than 250 employees, more than £36 million turnover, or more than £18 million in total assets – become criminally liable where an employee, agent, subsidiary, or other "associated person" commits fraud intending to benefit the organisation.
The only defence available is to demonstrate that the organisation had reasonable fraud prevention procedures in place.
How does the FTPF offence relate to greenwashing?
The relevance to greenwashing becomes clear when examining the types of fraud covered by the offence. The legislation encompasses fraud by false representation (section 2, Fraud Act 2006), fraud by failing to disclose information (section 3, Fraud Act 2006), and false or misleading statements made by directors (section 19, Theft Act 1968), all of which can be readily applied to misleading sustainability claims.
Official Government guidance provides the specific example of an investment fund provider promoting investment in a "sustainable" timber company, despite knowing that the company's environmental credentials are fabricated and that timber is harvested from protected forests. This conduct is capable of constituting fraud by false representation, such that it could trigger liability under the offence. This scenario directly parallels broader concerns regarding companies' use of exaggerated and/or unsubstantiated claims to attract investment or customers.
Environmental permit violations, involving false data to avoid penalties, are also cited in the guidance as an example of fraud by false representation. This demonstrates the scope of the offence, which extends beyond marketing claims to encompass regulatory reporting and compliance activities.
Why does this significantly raise the stakes?
Previously, misleading environmental claims primarily risked regulatory sanctions from bodies such as the Competition and Markets Authority (CMA) or the Advertising Standards Authority (ASA). However, companies now face the prospect of criminal prosecution. If convicted on indictment, they face unlimited fines, alongside the severe reputational consequences that accompany criminal conviction.
The burden of proof also shifts significantly. Companies must prove they had reasonable prevention procedures in place, using the balance of probabilities standard. This reversal places the onus squarely on organisations to demonstrate proactive measures to prevent the use of misleading or unsubstantiated claims.
What are the strategic implications for business?
These shifts represent more than a compliance challenge; they fundamentally alter the strategic calculus around sustainability-related claims and statements. Companies must now balance commercial considerations against the risk of criminal liability, requiring legal and compliance teams to work closely with sustainability departments, marketing and communications, and investor relations to establish robust verification processes for all statements and claims.
The international dimension cannot be ignored either. As multinational companies operate across jurisdictions with varying environmental disclosure requirements, the UK's criminal liability framework may influence global corporate practices, particularly where their UK operations are significant.
How can businesses build effective prevention systems?
Guidance makes clear that, while existing compliance frameworks may address certain potential frauds, they won't automatically qualify as "reasonable procedures" under the Act. Companies should therefore seek expert advice to assess current practices, and to develop and implement robust procedures for ensuring that sustainability claims are clear, accurate and backed by evidence, before they reach the public domain.
Mechanisms put in place should be informed by six core principles:
- Top level commitment – the board and senior management must lead by example, including ensuring that there is clear governance across the organisation in respect of fraud prevention, and fostering an open culture that empowers staff to speak up if they encounter fraudulent practices.
- Risk assessment – assessment of the nature and extent of exposure to risk must be dynamic, documented and kept under regular review, typically conducted at consistent intervals once every two years.
- Proportionate risk-based prevention procedures – the relevant governance body should draw up a fraud prevention plan, proportionate to the risk identified in the risk assessment. Risk factors to consider include reducing opportunities and motive to make fraudulent claims, as well as measures that might need to be taken in crisis situations.
- Due diligence – organisations should also take a proportionate risk-based approach to mitigating risks that may arise from partner or supplier relationships, or as a result of mergers or acquisitions.
- Communication and training – clear communication and training on fraud prevention must reach all levels of the organisation, covering the nature of the FTPF offence and procedures to address it, including whistleblowing.
- Monitoring and review – companies must establish mechanisms to detect attempted fraud, investigate suspected fraud, and monitor the effectiveness of those measures.
Conclusions and how can we help
By introducing criminal liability for inadequate fraud prevention procedures, the failure to prevent fraud offence legislation transforms greenwashing from a primarily regulatory risk into a potentially criminal matter with unlimited financial penalties.
Companies must urgently assess their current practices and implement comprehensive fraud prevention frameworks specifically designed to address sustainability-related fraud risks. We can advise on the appropriate fraud prevention procedures, drawing on the experience of our market-leading White Collar Crime & Investigations team, while our dedicated ESG and sustainability practice, Mishcon Purpose, offers specialist advice in several areas, including:
Greenwash guard training – delivering customised sessions to educate boards and key leaders on communicating sustainability matters, in adherence with current legal and regulatory frameworks.
Pre-publication clearance – establishing processes for legal clearance of sustainability-related statements and claims in regulatory reporting, market disclosures, advertising, and press responses.
Crisis management – providing guidance on handling a crisis and developing robust crisis plans, drawing on our network of international advisers, crisis communication experts, digital investigators, and experts in business strategy and public affairs.