David Cameron has given a strong indication that a proposed extension of UK corporate criminal liability to cover “failure to prevent economic crime” will be back on the legislative table. Writing in the Guardian on May 11, 2016, on the eve of the International Anti-Corruption Summit in London, the UK Prime Minister stated that “In the UK, in addition to prosecuting companies that fail to prevent bribery and tax evasion, we will consult on extending the criminal offence of “failure to prevent” to other economic crimes such as fraud and money laundering so that firms are properly held to account for criminal activity that takes place within them.”1 The UK government confirmed the proposals in its press release on May 12, 2016.2
While the proposed extension will be subject to consultation and the course of the legislative process, the announcement provides an important reminder of the direction of travel in corporate criminal liability. Corporates based in the UK and internationally should examine now the extent to which their risk management programmes effectively manage economic crime risk far beyond bribery.
Corporate criminal liability in the UK
Historically, corporate criminal liability in the UK has been difficult to prove. The continued application of the “identification principle”, under which corporates can be held liable for the criminal acts of those who are the “directing mind and will” of the company, has generally restricted a corporate’s criminal liability to the acts of the board and senior level management. As a result, prosecutors have been challenged to connect the conduct of employees with those at board level, particularly in large organisations. This contrasts with the position in the US which has a long-established history of holding corporates liable for intent-based crimes committed by their agents and their employees. The introduction of the strict liability offence of failure to prevent bribery under the UK Bribery Act 2010 provided an opportunity for UK prosecutors to side-step the difficulties of the identification principle, while also, critically, placing the onus on corporates based in the UK, and international corporates engaged in business in the UK, to take proactive steps to manage the conduct of their business, including employees and third parties. The UK Anti-Corruption Plan published in December 20143 pledged to examine the “case for a new offence of a corporate failure to prevent economic crime and the rules of establishing corporate criminal liability more widely”. In 2015, in its pre-election manifesto the government made a commitment to strengthen legislation to sanction corporate misconduct. These proposals were championed by the Director of the Serious Fraud Office and the UK’s Attorney-General. It therefore came as something of a surprise when in October 2015 the UK Justice Minister Andrew Selous announced that the government was no longer considering creating a new criminal offence as “there was little evidence of corporate economic wrongdoing going unpunished”.4 The decision to reject the proposal to extend the scope of corporate liability was surprising in light of the trend to develop the UK regulators' enforcement armoury and given the increasing numbers of high-profile investigations into the conduct of corporates.
The October 2015 “u-turn” apart, the UK government has shown continuing commitment to implementing legislation and reinforcing the armoury of government agencies to combat corporate crime.
A critical element of that commitment, central to the corporate offence of failing to prevent bribery, for example, has been to require corporates to be proactive in designing, implementing, monitoring and reviewing their internal procedures which seek to detect, limit, manage and report misconduct. The availability of Deferred Prosecution Agreements in the UK from early 2014 provided further support for this approach, as demonstrated in the Standard Bank case.5 Sentencing guidelines applicable to corporate crime offences have been clarified and bolstered.6 New agencies such as the UK National Crime Agency have become increasingly active in investigations. The UK Serious Fraud Office continues to pursue high-profile investigations and to co-operate with its international counterparts. Beyond bribery, there remains in the UK a range of legislative provisions which restrict and sanction third party support for criminal activity and places reporting obligations on corporates and individuals, such as the Proceeds of Crime Act.
Significantly, the UK government is already examining corporate liability in areas beyond bribery. In December 2015 the UK government published draft legislation for a corporate offence of failure to prevent the criminal facilitation of tax evasion. Importantly in the context of current proposals relating to economic crime, there were some concerns relating to the proposed scope of the tax-related offence.7 In April 2016 Her Majesty’s Revenue and Customs published revised draft legislation and guidance for further consultation on this proposed offence.8 This new tax-related offence will have “a reasonable procedures” defence and businesses should be looking at their risk areas and considering what measures they should put in place.
It is unlikely at this stage that the UK government will revisit the identification principle and offer to its prosecutors a concept of corporate liability akin to that found in the US. However, the extension of UK legislation which requires corporates to engage in risk prevention and to prevent misconduct by those with whom they engage in the context of a range of economic crimes does now seem to be on the cards.
If the scope of the proposed law concerning economic crime follows the Bribery Act, corporates based outside of the UK but carrying on business in the UK may be liable. We might also expect jurisdictions outside of the UK and US to follow suit in enhancing concepts of corporate liability: Australia is currently consulting on its foreign bribery laws and a proposed DPA scheme, for example.
Risk management programmes which detect, limit and manage economic crime risk beyond bribery will bring significant benefits to businesses. Corporates should prepare now rather than waiting for legislation to come into force; by that stage it will be too late.