Unmasking deception: Fraud risks in the life sciences sector and the UK’s new failure to prevent fraud offence

Pharma, biotech, and medtech businesses operate in a dynamic and innovative field that plays a crucial role in advancing healthcare. However, it is also a field vulnerable to various forms of fraud. With the introduction of the Economic Crime and Corporate Transparency Act 2023 (ECCTA), particularly the new strict liability corporate criminal offence of failure to prevent fraud (FTPF), organisations within this sector should be alert to these risks and proactive in addressing them. This article explores some of the key fraud risks in the life sciences sector and provides guidance on mitigating these risks in light of the new legislation.

 

The Failure to Prevent Fraud Offence

Scope and liability

Coming into force on 1 September 2025, the FTPF offence seeks to drive a significant shift in corporate accountability and change the landscape of economic crime by making it easier to prosecute organisations that benefit from fraud.

Large organisations can be held liable if an associated person commits a UK fraud offence intending to benefit the organisation. The offence has extra-territorial reach, capturing UK fraud offences committed by associated persons regardless of their location or the location of the organisation.

Large organisations are those that satisfy two of the following criteria: more than 250 employees; more than GBP36 million turnover; or more than GBP18 million in total assets. These figures are aggregated with group companies where the organisation in question is a parent company. Organisations can face criminal prosecution, unlimited fines, confiscation of financial benefit accrued, reputational damage, and increased scrutiny from regulators.

Whilst the FTPF offence is a strict liability offence, a defence of having in place “reasonable fraud prevention procedures” is available. 

 

Fraud Risks in the Life Sciences Sector

Data manipulation

The sector is susceptible to fraud through data manipulation in clinical trials where results may be falsified to ensure or to expedite market entry. For example, estimates suggest that up to 20% of clinical trial data may be subjected to some form of manipulation, such as fabrication, falsification or selective reporting¹. Clinical trials conducted abroad can be higher risk. They are often overseen by local medical personnel who can operate in an environment that may make them more susceptible to bribery in return for data manipulation and consequent approval of drugs for sale in their jurisdiction. Drug and medical device regulators in overseas jurisdictions have found evidence of large-scale data manipulation and non-compliance with good laboratory practices by public testing laboratories. 

Separately, materials or components crossing borders could be misclassified in order to save customs duties, therefore cheating the public revenue and benefitting the importing or exporting organisation.

Data manipulation need not relate directly to the products supplied by a life sciences company. Equally, false (and dishonest) representations as to the company’s financial data, or data underpinning the company’s green credentials could be made with the intent of boosting the image and therefore overall success of the business. Data as to the volume or value of claims made against the business could be manipulated for presentation to insurers in order to minimise insurance premiums.

Notably, the FTPF offence captures fraud committed by “associates”, being any person performing services for or on behalf of the relevant organisation. Organisations conducting clinical trials abroad, for example, could find themselves liable under ECCTA for fraud committed by testing laboratories intending to benefit the organisation. For example, a UK manufacturer of medical technology devices sends devices to be tested at a laboratory overseas. In order to ensure that the medical device passes the threshold to secure regulatory approval, the results of the tests are manipulated by the testing laboratory. This benefits the UK manufacturer as their devices pass regulatory approval and can therefore be placed on the market. Despite the fraud being committed by a third party overseas testing laboratory, the UK manufacturer could be found liable under ECCTA for failing to prevent the fraud, if there is no applicable defence of the company having in place reasonable fraud prevention procedures.

 

Dishonest Sales Practices

Dishonest sales practices are another area of concern.

Between 2004 and 2020, there were 1057 reports of pharmaceutical companies breaching the Association of the British Pharmaceutical Industry code. Of these, cases involved marketing practices which posed health risks, the violation of key terms of a medicine’s marketing authorisation and the active misleading or disregarding of the Prescription Medicines Code of Practice Authority rulings².

Sales representatives may exaggerate the benefits of drugs, therapies, or medical devices, or selectively report outcomes, impacting purchasing decisions based on false information. They could also simply falsify their own sales data for the purpose of inflating their commissions, at the same time making the organisation appear more successful than it is. Key Opinion Leaders could overstate the efficacy of treatment solutions in order to increase uptake.

Organisations may offer both financial and non-financial incentives to healthcare providers in exchange for product endorsements or to use or promote certain medical devices. If this is done in such a way that false representations or other fraudulent actions result, to the benefit of the organisation, an offence under ECCTA could be made out.

 

Financial Misreporting

Manipulation of financial statements may also occur in the life sciences sector to make an organisation appear to be more profitable than it is. Financial misreporting can include revenue recognition manipulation, prematurely recording revenue from sales before it is earned, or inflating sales figures; expense manipulation, by way of understating expenses to artificially boost profits or moving expenses to different accounting periods; and asset misstatement, by overstating or understating the value of assets to enhance the organisation’s financial position. A study conducted in 2021 found that on average, 7.35% of pharmaceutical companies committed some form of fraudulent financial statements between 2015 to 2019³.

Associated persons may engage in financial misreporting on behalf of an organisation for several reasons including pressure to meet performance targets, to make the business appear to be more profitable than it is so as to attract new investors, or to earn higher commissions on sales.

 

Research Fraud

A further fraud risk in the life sciences sector is research fraud, where false or fraudulent work is submitted to academic journals, perhaps driven by the so-called “publish or perish” culture. This culture pressures researchers to prioritise quantity over quality in their publications, leading to a risk of data fabrication and falsification. For example, a recent analysis found that 34% of neuroscience papers and 24% of medical papers in 2020 might have been falsified or plagiarised⁴. Such fraudulent practices undermine the integrity of scientific research and pose challenges for clinical best practices. The identification of new clinical standard-of-care practices heavily depends on publications in peer-reviewed academic journals, but as the accuracy of these publications comes into disrepute, pinpointing effective practices and treatments becomes challenging.  

Organisations that sponsor clinical trials may find themselves liable under the FTPF offence for research fraud committed by academic researchers as employees or associated persons and where that fraudulent research is intended to benefit the organisation.

 

Bribery and Corruption

Bribery and corruption are pervasive risks in the life sciences sector, particularly in interactions with healthcare professionals and regulatory authorities. Companies may offer bribes to secure regulatory approvals, influence clinical trial outcomes, or gain preferential treatment in procurement processes. Although bribery is not one of the base fraud offences underlying the FTPF offence, it may be a precursor to a false representation being made in exchange for a bribe being paid.

 

Defence

Organisations can defend against the FTPF offence by demonstrating that they had reasonable fraud prevention procedures in place. Guidance issued by the UK’s Home Office outlines six key principles for establishing such procedures:

1. Top-level commitment: Demonstrate a commitment from senior management to preventing fraud and fostering a culture of transparency.
2. Risk assessment: Regularly review potential fraud risks, considering the fraud triangle – opportunity, motive, and rationalisation.
3. Proportionate procedures: Implement a fraud prevention plan tailored to the organisation’s activities and risks.
4. Due diligence: Adopt risk-based due diligence practices for associated persons and third parties.
5. Communication and training: Effectively communicate anti-fraud policies and provide training to employees.
6. Monitoring and review: Continuously monitor and review fraud prevention measures.

 

Risk Mitigation Strategies

Steps can be taken now to prepare for FTPF coming into force on 1 September 2025. Organisations should assess whether their corporate entities are in scope, and if so, how (whether as a large organisation in their own right, or as a subsidiary of a large organisation) and conduct a detailed assessment of their fraud risk framework, determining potential high-risk areas for fraudulent conduct. Although organisations will likely already have frameworks in place to prevent fraud from being committed against the organisation, this is less likely to be geared towards preventing fraud that benefits the organisation from being committed.

Where such a risk assessment identifies gaps in the organisation’s risk mitigation controls, these should be filled. Policies and procedures may need to be updated, or new ones put in place. Due diligence processes may need to be improved and protocols for monitoring and reviewing fraud risks may need to be implemented.

Organisations should also pay particular attention to the education and training of staff. Training should highlight the importance of ethical behaviours, the implications of fraud, coupled with the role each individual employee plays in preventing fraud. Given the complexities of the underlying offences and wide-reaching scope of ECCTA, the use of case studies specific to the relevant life sciences area will be particularly important to ensure that individuals fully understand the ways in which offences and liability may arise.

 

Conclusion

The introduction of the FTPF offence under the ECCTA marks a significant shift in corporate criminal accountability within the life sciences sector. Organisations should proactively address fraud risks by implementing robust prevention measures and fostering a culture of transparency and ethical behaviour. By doing so, they can mitigate the risks of fraud and ensure compliance with the new legal requirements.

If you or your organisation wish to learn more about the FTPF offence under the ECCTA and how to implement effective fraud prevention procedures, please reach out to our contacts below.

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¹Data integrity scandals in biomedical research: Here’s a timeline; Data Integrity: The Make-or-Break Factor in Clinical Research
²Unethical pharmaceutical marketing: a common problem requiring collective responsibility
³Detecting fraudulent financial statements in pharmaceutical companies
⁴Data integrity scandals in biomedical research: Here’s a timeline