Failure to prevent economic crime: new offence to increase corporate liability for crime

Written on 21 Oct 2016

Introduction

Increasing the ability to hold corporate entities liable for employee wrong doing is a topic regularly discussed by policy makers and in the press. However, despite various attempts to introduce a specific offence of ‘failing to prevent economic crime’, this has never proceeded past the theoretical stage.

It appears that this may now change. Reflecting the message from Theresa May that she intends to tackle “irresponsible behaviour” in big business, the UK Government has recently announced (on 5 September 2016) that it will “soon consult on plans to extend the scope of the criminal offence of a corporation ‘failing to prevent’ offending beyond bribery to other economic crimes, such as money laundering, false accounting and fraud”. 

The proposal for a consultation on the new crime of ‘failing to prevent economic crime’ was announced by David Cameron in May 2016, but with the dust from the Brexit vote only just beginning to settle, it has taken until now for details to emerge.

Speaking at the Cambridge Symposium on Economic Crime the Attorney General, Jeremy Wright, said “[o]ur current system of limited corporate liability incentivises a company’s board to distance itself from the company’s operations. In this way, it operates in precisely the opposite way to the Bribery Act 2010, one of whose underlying policy rationales was to secure a change in corporate culture by ensuring boards set an appropriate tone from the top”.

The proposed offence

To date, prosecutions to establish corporate liability have proved largely ineffective, as a prosecutor is required to show that the individual wrongdoer was also the “controlling mind and will” of the corporate entity.

Accordingly, although there is little detail available on the proposed offence, we do not expect further legislation to target individual wrongdoing. Instead, the new offence is more likely to follow the form of the offence of failing to prevent bribery in the Bribery Act 2010, whereby the entity itself is held liable if it fails to take adequate steps to prevent the wrongdoing.

Despite this current focus on the corporate entity, the Attorney General’s comments indicate that it is not a question of favouring prosecution against corporates over individuals, but ensuring that the law allows effective action against both. This is an issue of corporate culture, to ensure that the responsibility (and any subsequent liability) to prevent crimes sits at the highest level of the company, rather than allowing this responsibility to sit with employees.

As with the Bribery Act, the new offence is expected to have a significant extra-territorial reach. It is well-known that the Bribery Act covers not only conduct committed in this jurisdiction, but also to bribery carried out overseas. We expect that the new offence of failing to prevent economic crime will similarly have a broad territorial reach and will apply to foreign companies with a connection to the UK.

One lingering question which has not yet been addressed, and will hopefully be fleshed out in the consultation, is the extent of the new offence. As noted above, the Prime Minister has stated that economic crimes such as money laundering, false accounting and fraud will be covered. However, it is unclear whether further crimes will also be included, such as theft, forgery or destroying company documents. The extent of the crimes covered, and the sentences associated with them, will greatly affect the impact that the new offence will have.

Impact on companies

If passed, a law introducing a corporate offence of failing to prevent economic crime would mark a significant change in emphasis for criminal wrongdoing, and would make compliance more important than ever for both companies and individuals. Planning for the new law will ensure that, when it does reach the statute books (as we believe it almost certainly will), business disruption and cost will be kept to a minimum.

Following the introduction of the Bribery Act, most businesses have policies and procedures in place to tackle bribery and corruption. To respond to this new offence, we recommend reviewing at an early stage the processes that your business has in place to prevent economic crime, such as ensuring training is in place to make certain that all staff members are aware of their responsibilities in relation to economic crime (for instance, under the Proceeds of Crime Act 2002), as well as ensuring that adequate whistleblowing policies are in place to allow secure reporting of suspicions of such crime.

Companies may be worried that a new offence will simply be an extra layer of regulation, adding further burdens to already stretched compliance departments. However, planning for the change can also be used as an opportunity to ensure that all business, wherever in the world it is being conducted, is being undertaken appropriately.