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The Fraud Act 2006

Every business must be aware of their obligations and responsibilities in ensuring that there are policies and procedures in place to deal with fraudulent activity. Business law of this type is covered by the Fraud Act 2006.

Basically, in any context, fraud means an act of dishonesty which has the intention of gaining something or causing a loss.

Under the Fraud Act there are three kinds of fraud which can be committed by businesses.

Types of fraud

Fraud by false representation

This covers dishonest statements, both written and oral, made with intent to deceive. The Act prevents businesses from publishing misleading, false or deceptive material with intent, and forbids them from being reckless with the truth.

Fraud by failing to disclose information

Within the context of business law, there are certain bits of information that directors have a legal duty to disclose, such as:

  • Details of share dealings
  • Contracts or proposed contracts, to be shared with fellow directors of the company
  • Information for investors, such as assets and liabilities, financial position, profits and losses etc
  • Knowledge that should be expected to be shared in a fiduciary capacity with the company

Fraud by abuse of position

This part of the Act prevents individuals within companies from dishonestly taking advantage of their power over others to benefit themselves or a third party.

This covers their fiduciary duty to act in the company’s and its shareholders’ best interests, to not solely benefit from a large transaction to the detriment of the rest of the company, to not use insider information when dealing in securities and to not abuse and manipulate the market.


To make sure they are compliant with the Fraud Act 2006, the majority of businesses should have in place a Fraud Prevention Policy.

As a minimum, boards and directors should familiarise themselves with the Act, be aware of their duties as a director as prescribed by common law, business law and the Companies Act 2006, and make sure that processes are in place to ensure that information and statements made by and on behalf of the company are accurate.