Washing out false claims of green credentials: Failure to prevent fraud

The Economic Crime and Corporate Transparency Act 2023 brought in a number of measures to help combat fraud committed by organisations. The introduction of the new failure to prevent fraud offence, which came into force on 1 September 2025, creates an additional enforcement measure: organisations could now be criminally liable if they make misleading sustainability claims.

What is the failure to prevent fraud offence?

The failure to prevent fraud offence (FTPF) applies to large organisations that meet two (or more) of the following criteria:

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

Large organisations can be held criminally liable where an employee, agent, subsidiary or other “associated person” commits fraud with the intention to benefit the organisation, and the organisation does not have adequate measures in place to prevent the fraud. This offence covers a wide range of underlying base offences, including fraud by false representation, fraud by failing to disclose information, and false or misleading statements made by directors, and it is triggered whether an actual benefit is received or not.

The burden of proof then falls to the organisation to prove that it had “reasonable measures” in place to prevent the fraud.

What is greenwashing?

Greenwashing refers to the practice where a company (intentionally or unintentionally) makes false, exaggerated, or misleading claims about the environmental benefits of its products, services, or operations to appear more sustainable than it truly is. There can be a number of reasons for this practice, ranging from attracting funding or investment to appealing to the increasing environmental focus of the public. Where claims of green credentials are made which cannot be substantiated, this creates a risk of false representation or failure to disclose information, which may trigger FTPF.

How does FTPF affect greenwashing?

Previously, organisations were at risk in relation to greenwashing either through regulatory sanctions (for instance, enforced by the Competition and Markets Authority under the Unfair Trading Regulations 2008) or through shareholder activism using Section 90 of the Financial Services and Markets Act 2000.

With the introduction of FTPF, organisations can also be held criminally liable where greenwashing occurs. This not only creates a risk of potential investigation by the Serious Fraud Office, but a criminal conviction comes with the possibility of unlimited fines and a highly detrimental impact on reputation.

The government guidance on FTPF provides an example of the interplay between greenwashing and FTPF: 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 would be fraud by false representation and could, therefore, trigger corporate liability for FTPF.

It’s worth noting, however, that in most cases, greenwashing is a result of an accidental overstatement of the organisation’s sustainability achievements. In those cases, the requisite dishonesty required to establish the underlying offence of fraud by false representation would not be present, meaning that the risk of FTPF may be limited. As a result, while the new offence does signify a move towards punishment of intentional greenwashing, it may not lead to an abundance of new claims.

How can organisations ensure compliance?

The government guidance sets out that large organisations should put in place a fraud prevention framework informed by the following principles:

1. Top-level commitment – this extends to directors, senior management and those responsible for governance in an organisation, fostering a culture where “fraud is never acceptable”.
2. Risk management – regular assessments should be undertaken to identify and mitigate fraud risks.
3. Proportionate and risk-based procedures – procedures tailored to the nature, scale and complexity of an organisation’s activities.
4. Due diligence – thorough checks should be conducted on employees, agents, and business partners, using appropriate technology, and tailored due diligence.
5. Communication and training – clear communication and regular training on fraud prevention should be delivered (in particular, specific training for those in higher risk positions).
6. Monitoring and review – ongoing monitoring and periodic review of fraud prevention measures should be conducted.

Organisations captured by FTPF should be considering their existing fraud prevention framework in light of the above principles, taking into account the potential risk of greenwashing, and putting in place prevention procedures.

For further information and guidance on greenwashing and the potential impact of the FTPF offence on your organisation, please contact Rachel McDonnell and Claire O’Reilly.