“Failure to Prevent Fraud”: New in the United Kingdom, not so new in Germany

The new legal framework regarding “Failure to Prevent Fraud” in the United Kingdom is currently attracting a great deal of attention. It stems from the Economic Crime and Corporate Transparency Act 2023 and came into effect on September 1, 2025. The “Failure to Prevent Fraud Offense” establishes criminal liability for medium-sized and large companies if employees commit “fraud” as defined by that statute and the company has not established adequate preventive measures.

However, such liability is not new under German white-collar criminal law, and it applies not only to medium-sized and large companies. 

Fraud (Section 263 German Criminal Code) as a central provision of German white-collar criminal law

Fraud (Section 263 German Criminal Code) is one of the central criminal offenses under German white-collar criminal law. According to this provision, a person is liable to prosecution if, with the intent to secure an unlawful financial advantage for themselves or a third party, they cause damage to another person’s assets by inducing or maintaining a misconception through the representation of false facts or the distortion or suppression of true facts.

The offense of fraud under Section 263 German Criminal Penal Code covers not only classic “scams” but also complex corporate scenarios such as the misleading of investors, customers, or business partners. Prominent white-collar criminal cases in recent years in which allegations of fraud were raised include the so-called “Diesel” and “Wirecard” scandals.

Criminal Liability of Management for Fraud by Omission

Members of a company’s management may be held criminally liable for fraud by omission if they fail to prevent fraudulent conduct by employees. The basis for this is typically the employer liability doctrine (“Geschäftsherrnhaftung”) developed by the criminal courts, which establishes a duty to prevent business-related criminal offenses committed by employees.

Likewise, a duty to prevent such criminal offenses may also arise from the management’s own prior unlawful conduct, known as interference doctrine (“Ingerenz”).

Breach of the duty of supervision (Section 130 Act on Regulatory Offences)

In addition, members of the management face penalties under Section 130 Act on Regulatory Offences for breach of the duty of supervision. If an employee has committed a criminal offense that could have been prevented or significantly impeded by proper supervision, the respective members of management face a fine of up to one million euros. This applies not only if the members of management intentionally failed to take the necessary supervisory measures, but also in cases of mere negligence.

Corporate Fine (Section 30 Act on Regulatory Offences)

There are also significant risks for the company itself if employees have committed a criminal offense that could have been prevented or significantly impeded by proper supervision.

Although German law does not recognize criminal liability for legal entities, Section 30 Act on Regulatory Offences – in conjunction with Section 130 Act on Regulatory Offences or fraud by omission – allows a corporate fine of up to ten million euros. This amount may be increased to the extent necessary to recoup the economic benefit the company has gained.

Confiscation of Proceeds of Crime (Section 73b German Criminal Code)

Of even greater significance is the confiscation of proceeds of crime under Section 73b German Criminal Code, which is in principle mandatory. It applies to the company if it has gained something through a criminal offense and the perpetrator acted on behalf of the company. The company must then surrender everything it has gained as a result of the fraudulent acts; in principle, without deduction of costs and expenses. Confiscation is a particularly potent weapon in the hands of law enforcement authorities as it can be ordered even if the underlying criminal offenses are already time-barred.

Practical Guidance: Compliance Obligations in German Companies

Companies operating in the German market and members of their management face significant criminal and administrative penalty risks if adequate supervisory measures have not been established. This applies not only to fraud but to all business-related criminal offenses and to companies of all sizes, not just medium-sized and large ones. This is well established. However, given the attention currently being paid to the UK’s “Failure to Prevent Fraud” regulation, it is worth highlighting this point once again.