In this issue
Welcome
Failure to Prevent Economic Crime to Become An Offence (This Time)
The SFO's Current Direction and Priorities
Market Abuse Regulation: The Key Changes
Clean Hands: Legal Audits
Corporate Criminal Liability: a changing landscape
Terrorism Financing: Institutions be warned!
R v Harvey - An opportunity to challenge historic confiscation orders?
A New Global Forum for Asset Recovery
New Edition of Blackstone's Guide to POCA 2002 published
Failure to Prevent Economic Crime to Become An Offence (This Time)
 
Ben Newton
Ben Newton

by

Ben Newton

'Corruption is the cancer at the heart of so many of the world’s problems. It destroys jobs, traps the poorest in poverty, weakens security and even undermines the sports we love.'

So said David Cameron in a letter to The Guardian on 11th May 2016, in which he set out a variety of steps he was going to take to fight corruption on a national and global level. ‘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.’

This was followed on 12th May by an equally strong press release:

‘The Ministry of Justice will consult on plans to extend the scope of the criminal offence of a corporate ‘failing to prevent’ beyond bribery and tax evasion to other economic crimes.

Police and other law enforcement agencies can struggle to prosecute corporations for money laundering, false accounting, and fraud under existing common laws.

The consultation will seek views and evidence to assess whether changes in the law could allow the courts to more effectively prosecute corporate economic crime.

Justice Minister Dominic Raab said:

The government is finding new ways to tackle economic crime and we are taking a rigorous and robust approach to corporations that fail to prevent bribery or allow the tax evasion on their behalf.

We now want to carefully consider whether the evidence justifies any further extension of this model to other areas of economic crime, so that large corporations are properly held to account.

The consultation, published this summer, will explore whether the ‘failure to prevent’ model should be extended to complement existing legal and regulatory frameworks.

The consultation follows the recent announcement by the Prime Minister to bring forward a criminal offence for corporations who fail to stop their staff facilitating tax evasion and two recent prosecutions for the offence of failure of a commercial organisation to prevent bribery on its behalf.’


What a great new idea…

Except that this intention was first unveiled by the government in Jeremy Wright’s maiden speech as Attorney-General in September 2014, and was followed in the government’s UK Anti-Corruption Plan in December 2014, where they undertook to ‘examine the case for a new offence of a corporate failure to prevent economic crime and the rules on establishing corporate liability more widely’ by June 2015.

This was seen at the time as, at the very least, a logical accompaniment to the provisions of the Bribery Act, if not an inevitable response to the series of scandals that have rocked the financial sector in recent years. It was widely recognised that the criminal law had struggled to enable liability to be attached to corporate bodies, specifically due to the need to satisfy the “identification principle” and prove to the criminal standard that the persons in the corporate who were guilty of the criminal acts were sufficiently senior within the corporate that they constituted its “directing mind and will”. The complexity of decision-making at financial institutions had made this virtually impossible.

Section 7 of the Bribery Act had seemingly solved this problem with strict liability subject to the defence of adequate procedures, and a sister offence was seen as the possible solution to criminalising failure to prevent economic crime (e.g. fraud, money laundering, market abuse, tax evasion etc) subject to an analogous defence. Businesses would become liable for failure to prevent economic crime where it was shown that it had been committed by individuals associated with the company, for the benefit of the company, and the company had not put in place adequate procedures to prevent it.

The intention was again referred to in the Conservative Party election manifesto, and on 7th September 2015 there was a clear statement of hope and expectation from the director of the Serious Fraud Office, David Green Q.C. (who had spoken publicly in support of the idea, to cross-party support, in 2013), in the context of Deferred Prosecution Agreements. ‘There is, I suggest, one more step necessary to make DPAs mainstream. That involves moving away from the identification principle of corporate criminal liability in English law and embracing something closer to vicarious liability, as in the USA. Until that is done, a corporate might conclude that if the prosecution of a company is so difficult under our law, why should they agree to a DPA? On a broader front, if the public interest, in terms of public confidence, demands more prosecutions of corporates, then such change is surely necessary.’

Then, in an answer to a parliamentary question by Conservative MP Byron Davies on 28th September 2015, the government revealed that ‘Ministers have decided not to carry out further work at this stage as there have been no prosecutions under the model Bribery Act 2010 offence and there is little evidence of corporate economic wrongdoing going unpunished.’

The Financial Times unsurprisingly describes this as ‘one of several emollient moves to the City of London which led opposition politicians and campaigners to ask whether tough reforms in the wake of the financial crises were being watered down’ (12th May 2016). So what has now changed?

The Prime Minister has of course been talking a good game since his own discomfort following the leaking of the Panama Papers, but a less cynical [or more naïve] explanation could be that in the intervening period since the announcement in September 2015 the first two cases under s7 Bribery Act progressed through the courts and finally showed how effective it can be. ICBC Standard Bank cooperated fully with the SFO throughout their investigation and were rewarded with a Deferred Prosecution Agreement, whereas Sweett Group plc won less favour in their approach and pleaded guilty on 19th February 2016, resulting in a £1.4m fine, costs of £95,000, and a confiscation order of £0.85m.

There will now be a consultation over the summer, and the exact ambit of the offences that companies must prevent is still not clear. Given the fanfare accorded to the proposal on this occasion, however, and the acute embarrassment that would surely follow a second climb-down, the proposals must surely now be destined to find their way into legislation in some form.

This will inevitably result in a far more onerous burden on companies than they currently face – that being the point after all. There is a template of sorts in terms of steps that have been taken in relation to s7 Bribery Act, but this is likely to be more far-reaching. Risk assessments will be necessary, together with advice and assistance in producing adequate policies and procedures. There will then be a need for comprehensive training, and monitoring thereafter.

Precisely, of course, why the government may have had cold feet (before the irons were turned to them), but if the Prime Minister is going to be heard calling other countries “fantastically corrupt” - presumably not meant as a compliment - then a burden will be borne to maintain the UK’s reputation… and his.

Ben Newton

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