The government published in May 2019 its responses to two Committee reports on financial crime. First, the House of Commons Treasury Committee on 8 March 2019, published its report on “Economic Crime – Anti-money laundering supervision and sanctions implementation”. Second, the post-legislative scrutiny of The Bribery Act 2010 by a House of Lords Select Committee, published on 14 March 2019.
This article continues our series of posts on financial crime, focusing here on “failure to prevent” offences, and wider proposals to counteract economic crime.
The “failure to prevent” offence in section 7 of the Bribery Act comes close to reversing the usual burden of proof in criminal cases. It is notoriously difficult for the prosecution to prove that a large company has committed an economic crime such as bribery. Under the Bribery Act, companies are now presumed to have failed to prevent bribery, unless they can prove that they had “adequate” procedures.
This novel mechanism is what has made the Bribery Act so revolutionary. The legislation has been emulated in a number of jurisdictions around the world. The “failure to prevent” offence has been replicated in subsequent UK legislation targeting tax evasion in the Criminal Finances Act 2017. Earlier in 2017, the Ministry of Justice also consulted on extending “failure to prevent” offences to a wider list of economic crimes. The Government has still to respond to this consultation, and was (until its all consuming focus on Brexit) commonly expected to respond later this year. While the public mood for extending corporate liability has never been more favourable, we retain real reservations that the Government will embrace these suggestions.
The economic crimes that could be included in the new legislation are: - the common law offence of conspiracy to defraud; - offences under the Fraud Act 2006; - the offence of false accounting at section 17 of the Theft Act 1968; - money laundering offences at section 327 to 333 of the Proceeds of Crime Act 2002. The remit could also be extended to secondary participation in the predicate offending (aiding and abetting, for example) as well as inchoate conduct (such as statutory conspiracy, attempt and assisting and encouraging).
In parallel to the failure to prevent offence, the Serious Fraud Office proposed in evidence to the Treasury Committee, that changes could be introduced so that a company could be found guilty of an offence if a person associated with it commits that offence intending to obtain or retain business (or a business advantage) for the company, or otherwise benefit the company financially. This would ameliorate the current difficulty that prosecutors have identifying the person in a company who is the “directing mind and will” carrying out a crime, required to obtain a conviction.
If failure to prevent comes close to reversing the burden of proof, these proposals come close to introducing corporate vicarious liability for the acts of employees. Vicarious liability rendering the corporate responsible for the actions of individual employees, has been available to prosecutors in the USA for some time. The Treasury Committee report notes that this may lead to a tendency to prosecute companies in preference to individuals, which would not be the expectation of the public in the UK. Rather, the UK consensus that seems to be emerging calls for simultaneous prosecution of both corporates and individuals.
While noting the success of the “failure to prevent” offences in the Bribery Act, the Ministry of Justice found small and medium business enterprises were often unaware of the section 9 official Guidance available for preventive procedures which, if adopted, are likely to provide a good defence. Furthermore, it believes the Guidance should be clearer that all businesses need to conduct a risk assessment, that all but the smallest are likely to need procedures tailored to their particular needs, and that staff will need to be trained to understand and follow those procedures.
The Select Committee discusses at length the difference in wording between the Bribery Act, which refers to “adequate procedures”, and the Criminal Finances Act, which refers to procedures “reasonable in all the circumstances”. Some companies may be concerned that if a single act of bribery slips through compliance procedures, a jury will find those procedures “inadequate” by definition.
The Select Committee suggests that “adequate” is not intended to mean anything more stringent than “reasonable in all the circumstances”, and that this should be clarified in amendments to the Guidance to the Bribery Act. In its response, the Government simply notes that the distinction has not yet led to reports of problems with interpretation, but undertakes to examine the issue should it arise.
The Committee roundly rejects a suggestion that the Serious Fraud Office should give advice in individual cases as to whether corporate activities, or procedures that companies draft, will comply with the law. And it calls on the Government to delay no more in analysing the evidence it received two years ago and in reaching a conclusion on whether to extend the “failure to prevent” offence to other economic crimes.
In its response to the March 2019 Treasury Committee report, the Government notes the establishment in October 2018 of the National Economic Crime Centre, but does not believe to be practicable any further improvements in estimates of the size and scale of economic crime. The Government promises that its commitment to combatting economic crime will not diminish once the UK has exited the European Union.
However, in its response to the Bribery Act report by the Select Committee, the Government merely notes that a response will be issued “shortly” to the Ministry of Justice Call for Evidence on economic crime. The Government gives no indication as to its intentions on economic crime other than to say that legislation was one among a number of options considered in the Call for Evidence.
Neither response gives any confidence that the Government is actively engaging in these important proposals.
Many companies have only recently come to terms with internal procedures to mitigate Bribery Act offences, introduced nearly a decade ago. Many companies are still struggling to come to terms with extension of “failure to prevent offences” to tax evasion under the Criminal Finances Act 2017. It may be anticipated that many more companies will find a further extension of “failure to prevent” offences to wider economic crimes, to be even more of a challenge.
Such offences would necessitate careful consideration of the practicality of even more wide-ranging corporate procedures that would be required to maintain a successful defence against prosecution. If you want to discuss procedures for the prevention of bribery, tax evasion or other economic crimes, please contact Mukul Chawla QC firstname.lastname@example.org and Daren Kemp email@example.com