The future of compliance: UK government considers “failure to prevent economic crime” offence

houses-of-parliament-dusk

In September 2016, the UK Government announced a consultation on a proposed new offence, “failure to prevent economic/financial crime”. Should the consultation prove to be a success, the planned offence, which will adopt the principles of the existing corporate offence under the UK’s Bribery Act 2010 (the “Act”), is expected to be enacted this year.

The proposed offence follows criticism from the UK’s Crown Prosecution Service of the law on corporate liability in the United Kingdom; prosecutors have found it difficult to prove that a company is criminally liable if it benefits from the criminal activity of an employee conducted during employment. As the law currently stands, the company will only be liable if it can be proved that the individual involved is sufficiently senior (usually close to, or at, board level) so as to be the “controlling mind and will” of the company. Unlike other jurisdictions, the principles of vicarious liability or poor corporate governance, which are matters that are easier to prove, play no part in establishing corporate criminal liability. The present state of the law means it has proved difficult to establish criminal liability against companies with complex or diffuse management structures.

Fixing corporate liability by reference to corporate structures carries with it an obvious incentive for the target company’s board and its individual members to distance themselves from the company’s operations. This is one of the reasons why, when it passed the Act, the UK Parliament created the “failure to prevent bribery” offence in section 7 of the Act. By establishing a form of strict liability on the basis of the actions of persons associated with the company and giving the company an “adequate procedures” defence, the Act incentivises companies – and in particular, those at the top of companies – to take ownership of what is done in the company’s name and to implement suitable policies and procedures.

The Serious Fraud Office (the “SFO”) supports extending the Bribery Act’s model to “failure to prevent economic/financial crime”. The introduction of a strict liability corporate criminal offence of “failure to prevent economic/financial crime” would certainly makes the SFO’s job easier. If such an offence were to mirror the section 7 Bribery Act offence, then a company would automatically incur criminal liability for the acts or omissions of any of its employees, agents or anyone else performing a service on its behalf where such acts or omissions involved any form of economic/financial crime. Economic/financial crime could include accounting fraud, tax fraud, false accounting, financial assistance and, of course, money laundering.

An offence of this nature – presumably with an “adequate procedures” defence similar to that in the Act – would increase the compliance burden on companies carrying on business in the UK considerably.

In addition, if the scope of the proposed law concerning economic crime follows the Act, corporates based outside of the UK but carrying on business in the UK may yet be liable. Indeed, jurisdictions outside the UK may follow suit in enhancing concepts of corporate liability and those doing business with companies subject to the new regime will be expected by those companies to comply with its requirements (so as to protect them from prosecution for the actions of their “associated persons”), as has been seen since the introduction of the Act in 2011.

Quite apart from the fact that having adequate policies and procedures in place to combat economic crime makes good business sense, in the face of the proposed changes, risk management programmes that detect, limit and manage economic crime risk beyond bribery are likely to become necessary in order to be able to do business, both in the UK and internationally.

Kevin Cooper/James Foley

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