In brief
- The failure to prevent fraud offence has been in force since 1 September 2025, part of the continuing trend to redefine corporate criminal liability for companies with a UK nexus, including those in the beauty and wellness sector.
- Who's affected? Large organisations which meet two of the following criteria: more than 250 employees, over £36 million turnover, or over £18 million in total assets. Penalties comprise unlimited fines, plus serious reputational damage.
- What's the offence? Failure to prevent fraud committed by employees, agents, or associates acting for the organisation's benefit.
- Key risks for in-scope beauty and wellness companies: Product claims, greenwashing, mis-selling, supply chain fraud, and regulatory compliance fraud.
A new era of corporate accountability
The failure to prevent fraud offence was created by the Economic Crime and Corporate Transparency Act 2023 and this new offence is part of the fundamental shift in how corporate offences are approached in the UK. For the beauty and wellness sector, which thrives on trust, brand reputation, and customer relationships, this presents unique challenges. The very nature of making claims about product efficacy, sustainability credentials, and wellness benefits creates potential fraud risks, demanding careful attention.
The offence means that large organisations will be criminally liable if they fail to prevent employees, agents, or other third parties who are performing services for them from committing fraud for the organisation’s (or its clients') benefit. The only defence for a company is to demonstrate that it had reasonable prevention procedures in place to prevent fraud; otherwise, it could face a criminal conviction resulting in an unlimited fine and significant reputational damage.
Does the offence apply to your organisation?
The offence applies to large organisations, defined as those meeting two or more of the following three criteria: more than 250 employees, over £36 million turnover, or over £18 million in total assets. This can be assessed on a group wide basis; and so, a subsidiary could be caught even if it does not meet the criteria by itself.
Understanding "associated persons": who can land you in trouble?
One of the most critical aspects of this offence is understanding who can trigger your organisation's liability. The legislation uses the concept of "associated persons", i.e., anyone providing services for or on behalf of your organisation who commits a fraud, intending to benefit your organisation. Importantly, "providing services" does not include providing goods. The offence also applies where the fraud is committed with the intention of benefitting a client of the organisation.
For beauty and wellness companies, associated persons include: employees at every level (e.g., sales consultants, aestheticians, marketing executives, senior management); franchisees operating under your brand; distributors and agents acting on your behalf; subsidiaries within your corporate group; and contractors such as contract manufacturers or testing laboratories.
Does your organisation need to receive a benefit to be caught by the offence?
An organisation need not actually receive a benefit for the offence to apply; it is sufficient that the fraud was committed with the intention of benefitting the organisation. The intention need not be the sole or dominant motivation either, e.g., a salesperson engaging in mis-selling to increase their commission also increases company sales, implying an intention to benefit the company. Benefits may be financial or non-financial, such as gaining an unfair business advantage. The offence also applies if the associated person provided services for or on behalf of your organisation to a client of the organisation, who they intended to benefit.
UK nexus
The offence requires a UK nexus: either an act or omission forming part of the underlying fraud took place in the UK, or the gain or loss occurred in the UK.
Fraud risks to look out for
Several fraud scenarios may be particularly relevant to the beauty and wellness sector. Fraud can be committed through, amongst others, false representation, failure to disclose information, abuse of position, obtaining services dishonestly, or false accounting or statements. Examples might include:
Product claims and mis-selling
Sales teams incentivised through commission structures present risks. A salesperson exaggerating anti-ageing benefits to close a sale will potentially commit fraud by false representation depending on what they say. Even if their primary motivation is personal commission, the company also benefits from an additional sale and so the conduct would be caught.
Greenwashing and sustainability fraud
Making false claims about products being organic, natural, cruelty-free, or sustainable can potentially constitute fraud depending on what is claimed. Falsifying certifications or misrepresenting supply chain practices can also trigger liability. With consumers increasingly demanding ethical products, the temptation to overstate environmental credentials is a significant compliance risk. We previously wrote on how this new offence raises the stakes on greenwashing.
Supply chain integrity
Contract manufacturers, ingredient suppliers, and testing laboratories providing services for your organisation might be deemed associated persons. If a contract manufacturer falsifies safety testing results or a laboratory provides false efficacy data, your organisation could be liable, making third-party due diligence critical.
Regulatory compliance fraud
Providing false data to regulatory authorities - whether about product safety, ingredient declarations, or hygiene standards - constitutes fraud. If an employee submits false documentation to avoid penalties or secure approvals without reasonable prevention procedures in place, your organisation faces liability.
Details
Building your defence
The only defence is demonstrating that your organisation has put in place "reasonable procedures" to prevent fraud. There is some Government guidance in this regard which sets out six principles that should inform your fraud prevention framework:
Top-level commitment
Your board and senior management must visibly lead on fraud prevention. Develop a clear anti-fraud policy addressing sector-specific risks and embed fraud prevention in your corporate culture.
Risk assessment
Conduct risk assessments at least every two years, examining opportunity, motive, and rationalisation. Focus on high-risk areas: sales teams making product claims, marketing departments, supply chain relationships, and regulatory compliance processes. Consider the specific fraud risks related to efficacy claims, sustainability marketing, and ingredient sourcing.
Proportionate risk-based prevention procedures
Procedures should be proportionate to your fraud risks. Ensure those in high-risk roles, e.g., sales consultants, marketing executives, product developers, receive regular anti-fraud training. Implement controls over marketing materials, establish approval processes for environmental and ethical claims, and ensure robust financial controls with segregation of duties.
Due diligence
Conduct thorough due diligence on associated persons prior to engagement. Review contracts with franchisees, distributors, and sales agents to ensure anti-fraud provisions are present. Apply enhanced due diligence to third parties making claims on your behalf, including influencers and brand ambassadors.
Communication and training
Train staff on what constitutes fraud and its consequences. Educate sales staff on acceptable product claims and marketing teams on substantiation requirements. Implement accessible whistleblowing procedures that encourage reporting without fear of retaliation.
Monitoring and review
Prevention procedures must evolve with changing risks. Monitor marketing materials, track customer complaints indicating potential mis-selling, review product claims regularly, and update procedures and training as risks evolve.
The consequences of getting this wrong
If convicted, your organisation faces an unlimited fine. For beauty and wellness companies, reputational damage in a sector built on consumer trust could be catastrophic, with potential regulatory consequences as well.
Key takeaways
Whilst it is too early for any convictions for this new offence, the failure to prevent model of liability has been considered a great success since its introduction through the Bribery Act 2010. An allegation or investigation alone serves not only as a legal risk but as a reputational and operational risk that may lead to regulatory scrutiny, investor concern, and loss of business confidence. So, what should you do?
- Act now: The offence has been in force since 1 September 2025. Without a fraud risk assessment and prevention procedures, you are potentially exposed.
- Focus on high-risk areas: Product claims, sustainability marketing, sales practices, and supply chain integrity.
- Due diligence with contract manufacturers, testing laboratories, and other service providers who can trigger liability is essential.
- Conduct training: Staff must understand the boundaries between persuasive promotion and fraudulent misrepresentation.
- Culture matters: Reasonable procedures require visible leadership, regular communication, and genuine commitment to fraud prevention.
- Document everything: Develop a record of decisions and actions taken to demonstrate compliance. Documentation of risk assessments, training, due diligence, and monitoring will be critical evidence.
- Think beyond compliance: Even below-threshold organisations benefit from implementing these principles as they grow and it helps protect against and prevent other fraud-related liabilities.
How Mishcon de Reya can help
If you have any questions about how this applies to your business, please contact our White Collar Crime and Investigations team or visit our Failure to prevent fraud page on our website.