How to Review Failure-to-Prevent-Fraud Wording Under ECCTA Section 199

Review the fraud-prevention wording before the schedule is signed. Mark whether the customer is in scope of the failure-to-prevent-fraud offence, whether this counterparty performs services for or on behalf of the customer, and which duties the clause has, only partly has, or lacks. A warranty about the supplier's size does not answer the scope test. The law of England and Wales governs the schedule.

Two lines look finished, and they are not. One warrants that the counterparty is not a large organisation, so section 199 of the Economic Crime and Corporate Transparency Act 2023 does not apply to it. The other only says the supplier will comply with all applicable laws.

Schedule 8 is between Cwm Cask Ltd and Haul & Hold Ltd under English law. The 2 October 2026 note shows turnover above £36 million and more than 250 employees. Haul & Hold books carriers for delivery to Cwm Cask's retailers. Clause 8.1 says the supplier shall comply with all applicable laws. Clause 8.2 says the supplier is not large, so section 199 does not apply to it.

Disclaimer: Checkory provides AI support, not legal advice. Consult a qualified lawyer for binding decisions.

Why is a warranty about the supplier's size not the section 199 test?

Test the customer, then what this counterparty does. Section 199 applies when an associated person commits a fraud offence to benefit the organisation, or a recipient of services on its behalf. The supplier's size is not that test. A typical mistake is to treat clause 8.2 as the answer.

A non-parent is large only if it meets two of the three tests in section 201, in the year before the fraud offence: turnover above £36 million, balance sheet total above £18 million, and more than 250 employees. Headcount is a monthly average of contracts of service. In a short year, turnover is scaled. The note shows two thresholds, so check that average.

A parent uses section 202: group turnover above £36 million net or £43.2 million gross, group balance sheet above £18 million net or £21.6 million gross, and more than 250 employees. Clause 8.2 is about Haul & Hold only. It is not the scope answer.

Under section 199(7) and (9) an associated person is an employee, agent, subsidiary, or anyone who performs services for or on behalf of the organisation. Home Office guidance leaves other suppliers out until they do that work, even with no direct contract. For example, Haul & Hold books carriers for Cwm Cask's retailers, and a packaging seller does not.

Why name the base offences instead of a fraud label?

Name the offences the clause is aimed at. The word fraud does not identify the section 199 conduct, and clauses 8.1 and 8.2 name none. A neighbouring covenant does not complete that list.

For England and Wales, Schedule 13 lists cheating the public revenue, Theft Act 1968 sections 17 and 19, Companies Act 2006 section 993, and Fraud Act 2006 sections 1, 9, and 11. Section 199(6)(b) adds aiding, abetting, counselling or procuring. Leave Scottish common-law fraud, uttering, and embezzlement, and the Northern Ireland theft sections, out of this clause.

The 9 October letter treats the other covenants as that list. They are not. Section 199(1) requires a benefit to the organisation, or to a recipient of services on its behalf, not to the supplier's employees. The provisions came into force on 1 September 2025 under SI 2025/349.

Which of the six principles can the clause not carry?

Map the clause onto the six principles, then mark what a contract sentence cannot carry. Home Office guidance lists top-level commitment, risk assessment, proportionate procedures, due diligence, communication including training, and monitoring. The clause is not that whole set.

Gowling WLG, on 9 October 2025, limits the clause to principles 3 and 4. One clause is not enough. Bribery Act adequate-procedures cases turned on a wider set of measures.

Risk assessment, training, and monitoring are outside the clause. Serious Fraud Office guidance of 26 November 2025 wants that assessment documented and judged when the offence happens. Fox Williams leaves subcontractors to the assessment, not an automatic rule. Schedule 8 leaves those three blank, so name who accepts that gap.

How do you mark each duty present, partial, or absent?

Mark six duties, and name an owner on every gap: policy, notice, cooperation, audit of this clause, flow-down, and termination for breach of this clause. Clause 8.1 is only partial, a bare comply-with-laws sentence. Those six are absent.

The public Practical Law short form lists a fraud ban, policies, notice, cooperation, and flow-down. Gowling's minimum adds audit, termination, and a possible warranty of no breach and no investigation. Agree new words with a qualified lawyer. Mark the gap first.

In practice you control Haul & Hold, not every carrier. Ask them to do the same one tier down. If they refuse, log the name, the role, and the other measure. UK Finance says weak bargaining power does not bar the appointment when that other measure is written down. This row is not a general books audit.

Why does this clause not replace the anti-bribery or modern-slavery covenant?

The clause is not the defence, and it does not replace the neighbouring covenants. Section 199(4) and (5) looks at procedures when the fraud offence happens, or at whether it was reasonable to have none. The burden is on the organisation, on the balance of probabilities. Leaving the Home Office text does not itself prove the defence has failed.

The 9 October letter merges covenants that do different jobs. Read the anti-bribery covenant and the modern-slavery covenant on their own. Neither names Schedule 13, and neither fills this log. A fraud carve-out only decides whether dishonesty lifts a damages ceiling.

Why leave the schedule unsigned until every gap has an owner?

Do not sign while any partial or absent row has no owner. The owner is a person and a role, which is how Home Office guidance records a measure you do not adopt. On Schedule 8 every duty row is partial or absent. An Unnamed cell means you stop.

Record scope, the associated-person verdict, each duty as present, partial, or absent, and an owner on every gap. A finished clause is still not the defence, and the neighbouring covenants do not fill these rows. Upload the file for a first-pass that flags clauses before a person reads every page.