UK Government decision on 'failure to prevent economic crime' – a step too far?

Publication October 2015

The recent announcement by UK Justice Minster Andrew Selous that the Ministry of Justice has decided to drop work on creating a corporate offence of 'failure to prevent economic crime' has illustrated the difficulties there are in tackling corporate wrongdoing.

The proposal had been to make businesses liable for failure to prevent “economic crime” where is was shown that fraud and financial crime had been committed by people associated with the company (employees, agents etc) for the benefit of the company and the company had not put in place adequate procedures to prevent such wrongdoing. The proposal had formed part of a sustained campaign from some parts of government and the law enforcement agencies to increase the prospect of the prosecution of corporates. It was intended that the reform would put pressure on businesses to implement changes to policy and procedure to combat crime.

Governments have previously followed the global trend to hold corporates to account in the criminal courts. Section 7 of the Bribery Act 2010 made it an offence for commercial organisations to fail to prevent bribery and marked a significant development in the UK’s law on corporate liability. In 2014, Deferred Prosecution Agreements (DPAs) became available to UK prosecutors with the intention of encouraging companies to self-report crime. The same year, guidelines on the sentencing of corporate offenders found guilty of offences for fraud, bribery and money laundering provided the courts with significant opportunity to impose much more significant fines than levied in the UK in the past. In a further effort to strengthen the prosecutors’ hand in 2014, David Green CB, QC, Director of U.K.'s Serious Fraud Office, with cross-party support, proposed an extension to section 7 to create a corporate offence of failing to prevent “economic crime”. As recently as a year ago, Jeremy Wright QC, Attorney-General, confirmed the proposals, stating that “the evolving nature of economic crime means we need to continue to find and develop new ways to expose and combat it”. The publication in December 2014 of the government’s Anti-Corruption Plan further promoted the proposal, stating that by June 2015 “The Ministry of Justice will examine the case for a new offence of a corporate failure to prevent economic crime and the rules on establishing corporate criminal liability more widely”.

Prosecutors have pointed to the problems in applying the “identification principle” in the UK to establish corporate liability. A company can only itself be convicted of an offence if the prosecution can show that the wrongdoer was also the controlling mind and will of the company – a significant hurdle in large companies- and one not experienced under US law.

The implementation of the corporate offence in the Bribery Act neatly overcame this issue in bribery cases. Importantly, the defence to the corporate offence placed the onus on businesses to develop and implement “adequate procedures” to prevent bribery. Businesses have spent substantial time and resource in complying with the Bribery Act 2010, alongside complying with their obligations under the US and other regimes. The response of financial institutions, joint venture partners and pressure groups to developing legislation and international standards has also accelerated cultural change in connection with corrupt activity.

Comment

The government's decision to reject the proposal to extend the scope of corporate liability is surprising in light of the recent trend to develop the UK regulators' enforcement armoury and recent investigations into the conduct of corporates. Some will question the commitment of the government to implement the rest of the UK Anti-Corruption Plan. The decision suggests that the UK will continue to be at a disadvantage to the US in having a framework which facilitates effective enforcement action against corporates.

However, the government has indicated that it remains committed to combatting corporate crime. It has in recent years reinforced the prosecutors' tools by introducing DPAs and strengthening the sentencing framework. The SFO remains engaged in high-profile investigations involving significant businesses. The National Crime Agency has become increasingly active. Beyond bribery, there remains in the UK a range of legislation 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. The Government is also consulting on introducing an equivalent to the corporate provisions of the Bribery Act into the tax sphere.

It may be that the proposal simply came too soon: the Bribery Act remains subject to testing in the courts; we await corporate sanction in the form of first DPA; and corporates continue to work on policies and procedures which embed cultural change. Given the line of recent corporate scandals, we hope the government will revisit the proposals sooner rather than later.

This article was first published in The Gazette.


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