Writing in the Guardian ahead of the anti-corruption summit of world leaders on 12 May, David Cameron announced the government’s intention to create new corporate offences as part of the fight against corruption, stating that “… 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”. As discussed below, this is a potentially extremely significant development, both from the perspective of the criminal exposure of corporate entities and from the perspective of the scale and coverage of the compliance programmes which they must implement.
In a press release on the same day, the Ministry of Justice stated that the government would “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”, claiming that “Police and other law enforcement agencies can struggle to prosecute corporations for money laundering, false accounting, and fraud under existing common laws”, and going on to say that “The consultation, published this summer, will explore whether the ‘failure to prevent’ model should be extended to complement existing legal and regulatory frameworks”.
This move comes on the back of the first conviction and the first Deferred Prosecution Agreement in relation to the offence of failure to prevent bribery under section 7 of the Bribery Act 2010 (“UKBA”), and the announcement in the March 2015 budget of proposals for a new offence of failure to prevent the facilitation of tax evasion – which David Cameron has since said will be introduced in legislation this year.
David Green, the Director of the Serious Fraud Office, has called for some time for a ‘failure to prevent economic crime offence’, in light of the difficulties faced in prosecuting companies under the traditional attribution principles for corporate liability (which in most cases effectively require someone who is the company’s directing mind and will to be guilty of an offence in order for the company to be able to be prosecuted). However, the proposed offence would raise significant principled and practical challenges, and initial enthusiasm for the idea was thought to have waned. Until the fall out from the so-called ‘Panama Papers’ (and the impetus this gave to the anti-corruption summit), it appeared that the government was continuing to explore the tax offence but was not progressing the wider reform of corporate liability through a ‘failure to prevent’ model. It is clear that there has now been a further shift of approach.
The precise details of the proposed offences are not yet known, and will be subject to further consultation. However, to take the example of ‘failure to prevent money laundering’, given that companies in the regulated sector are already subject to regulations requiring them to have extensive procedures in place to deal with money laundering (with the threat of criminal sanction if they fail to comply), there will be concerns as to exactly how an offence of failure to prevent money laundering would operate in the existing regulatory framework.
In particular, section 7 of the UKBA contains a defence of having “adequate procedures” in place to prevent bribery.
Given the potentially broad scope of the new ‘failure to prevent’ offences, it can be assumed that they will also be coupled with some sort of ‘compliance’ defence. However, if such a defence existed in the context of an equivalent money laundering offence, could all companies avail themselves of the defence of adequate procedures if they comply with the pre-existing requirements of the Money Laundering Regulations 2007, and why would the offence add anything to the current ability to prosecute or fine firms for failing to have such procedures?
If the proposed money laundering offence is not limited to firms currently within the money laundering ‘regulated sector’, are all companies to be expected to put ‘know your client’ and other anti-money laundering procedures in place? This would appear to obviate the distinction between the regulated and unregulated sectors, which is fundamental to the anti-money laundering regime in the UK, and indeed flows from international standards (the FATF Recommendations and Third/Fourth EU Money Laundering Directive (Directives 2005/60/EC and 2015/849)).
Furthermore, liability under section 7 of the UKBA requires that a bribe is paid with the intention of obtaining or retaining business or an advantage in the conduct of business for the company in question. Assuming that the wording of section 7 is likely to be transposed across to the new money laundering offence, it is much more difficult to foresee circumstances in which an individual employee of a company might fail to prevent a money laundering offence with the intention that the money laundering would benefit his or her employer.
As noted above, little more is currently known about the details of the proposed offences but, given that the Ministry of Justice has indicated that the consultation is likely to be published this summer, there should be an opportunity for interested parties to air relevant concerns shortly. This is a potentially extremely significant development, both from the perspective of the criminal exposure of corporate entities and from the perspective of the scale and coverage of the compliance programmes which they must implement, and it will be important to engage with the consultation in due course.
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