Tom McNeill and Jonathan Flynn consider plans to extend the scope of “failing to prevent” bribery to other forms of economic crime.
At the London Anti-Corruption Summit in May 2016 the UK Government announced that it was considering extending the scope of “failing to prevent” bribery to other forms of economic crime, such as fraud and money laundering. It was a surprising move, the Ministry of Justice indicating as recently as September 2015 that it was shelving previous plans. That the Government chose to revive them only eight months later was no doubt due to the first successful and high-profile prosecutions under the Bribery Act 2010 in late 2015 (Standard Bank and Sweett Group), and the leak of the “Panama Papers” in April 2016, all of which put corporate criminal wrongdoing back on the legislative agenda.
The question of how to impose criminal liability on corporates is a conundrum with which UK lawmakers have grappled for decades. Until the mid-twentieth century, the generally accepted view was that, unlike individuals, a corporate lacked the “guilty intent” required by most offences and could not therefore be indicted. The solution, developed during the latter half of the last century, was the “identification principle”, stating that when a “directing mind” of a company commits an offence guilt can in turn be attributed to the company. However, “directing minds” are usually senior managers or directors and it would be unusual for them to be directly involved in criminal conduct, particularly in larger companies, with complex organisational structures and multiple layers of management. The recent LIBOR trials in the UK are a prime example; those indicted with conspiracy to defraud have been the traders or brokers, rather than those in senior management or directors.
When the Bribery Act came into force in July 2011, Parliament sought to circumvent the problems associated with the identification principle by making commercial organisations criminally liable under section 7(1) for bribery offences committed by persons who perform services on their behalf, and who intended a business advantage for the organisation. Significantly, the organisation does not need to have been aware of the bribery, nor does it need to have gained any commercial advantage. Whilst section 7(2) provides a defence if an organisation can prove that it had in place “adequate procedures” to prevent bribery offences, this shifts the onus onto organisations not only as a matter of criminal law but practically to ensure that they have robust anti-bribery measures.
Although the prosecutions of Standard Bank and Sweett were a watershed moment for Bribery Act enforcement (and, by extension, for the concept of corporate criminal liability), because the former resulted in the UK’s first Deferred Prosecution Agreement and the latter resulted in a guilty plea, the full scope of the section 7 offence has not yet been tested by the courts. Meanwhile, the Government is already pushing ahead with plans to introduce a new criminal offence of failing to prevent the facilitation of tax evasion. HMRC published revised draft legislation and guidance in April 2016, and the Government has included the offence within the Criminal Finances Bill 2016 which was introduced earlier this month.
It is against this backdrop that the Government is now considering extending the Bribery Act model to other forms of economic crime. The key consideration will be how the offences are defined and how any defence operates. One difficulty will be for any new offence to strike a careful balance between prosecuting corporates who fail to prevent fraud in their organisation, whilst at the same time protecting (possibly the same) corporates’ rights as the victims of fraud.
It remains to be seen whether the Government’s plans to extend “failing to prevent” bribery to other forms of economic crime will be carried forward by a new Prime Minister. The potential impact on UK companies is significant, not only in terms of the fines and reputational damage which flow from a criminal conviction, but also the financial burden of yet further compliance costs. It will be interesting to see whether post Brexit there is continued appetite for reform in this area, or whether the desire to foster continued investment into the UK discourages the imposition of such regulatory burdens. However, for the time being at least, the Attorney General, Jeremy Wright QC, has confirmed the Government’s intention to move forward with proposals in this area. In a speech at the Cambridge International Symposium on Economic Crime in September 2016 he stated: “The government 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”. This consultation will be awaited with interest.