A revival of the offence of failure to prevent economic crime?

This initiative, announced by David Cameron in an article in the Guardian newspaper on the eve of the international Anti-Corruption Summit hosted by him in London, closely resembles the proposal first aired by David Green in summer 2013, to create an offence of failing to prevent crimes of dishonesty or fraud by a company’s servants or agents subject to a statutory adequate procedures defence.

That proposal, which featured in the government’s 2014 Anti-Corruption Plan, attracted cross-party support and much press and industry comment before being put on hold in September 2015, on the basis that there had been “no prosecutions under the model Bribery Act offence and there [was] little evidence of corporate economic wrongdoing going unpunished.” Whilst there have been no contested prosecutions under section 7 of the Bribery Act, there has been some enforcement action since that announcement was made, in the form of a Deferred Prosecution Agreement (DPA) and a guilty plea (for further information on this, see our article). Given that, and the fact that the proposal has the support of the Prime Minister, it now seems more likely to proceed.

No details of the proposed offence have yet been announced, but in considering its scope a range of issues will need to be addressed. For example:

• Although fraud, money laundering and false accounting have been given as examples, the government has yet to indicate the specific economic crimes this latest proposal will cover. At present, the “failure to prevent” offence applies to one specific type of conduct, bribery. The government is also currently consulting on draft legislation and guidance for a new offence of failure to prevent the criminal facilitation of tax evasion (for further information on this offence, see our article).

• The proposal has the potential to require businesses to expand significantly existing policies and procedures, at considerable cost. Taking one example given, a “failure to prevent money laundering” offence could result in the extension outside of the regulated sector of what is an already heavy compliance burden for those within it. It is unclear what “adequate procedures” in this context would look like, and in particular whether significant changes would be required to existing compliance regimes. In addition, it has not yet been explained how any such proposal would play into the planned reform of the SARs regime (for further information on the proposed reforms, see our article).

• Burdens on businesses will be further increased if they are to be held liable for the conduct of persons who have committed offences intending to secure a benefit for themselves, rather than the company. The failure to prevent bribery offence is engaged only where an associated person pays a bribe with the intention of gaining a business advantage for the organisation. Similarly, under current proposals, the failure to prevent the facilitation of tax evasion offence would be triggered only where the facilitation is by a person acting in their capacity as a service provider to the company. We would expect to see a similar qualification in any new “failure to prevent” offence, to ensure (for example) that it does not lead to criminal liability for organisations that are themselves the victims of criminal conduct.

• The proposed failure to prevent economic crime offence was previously to be considered in tandem with a review of the general rules on establishing corporate criminal liability in the UK. No further mention has been made of any wider review as part of the recent announcements. It would appear that the government is content to continue to develop the law in this area by the creation of exceptions to the general principles, which are applicable to specific offences.

As was the case with the Bribery Act, Simmons & Simmons will be taking an active role in the consultation on these proposals due to take place this summer, and we will welcome your input as part of that. We will keep you informed as further details emerge.