Out-Law News 3 min. read
06 Feb 2023, 11:05 am
A new offence of failing to prevent “fraud, false accounting or money laundering” is to be introduced into UK law, a senior government minister has confirmed.
Tom Tugendhat, minister of state for security, told MPs last month that the government would make provision for the new, possibly composite offence by tabling amendments to the Economic Crime and Corporate Transparency Bill as the Bill passes through the House of Lords.
Options for new ‘failure to prevent’ offences were recently evaluated by the Law Commission in England and Wales as part of a wider exercise exploring possible reforms on corporate criminal liability. It published a paper in June last year in which it advised against the introduction of a broad offence of ‘failure to prevent economic crime’. However, it did indicate support for the introduction of targeted new ‘failure to prevent’ offences and said initially the focus should be “limited to failure to prevent fraud by an associated person such as an employee or agent”.
Both Lisa Osofsky, director of the SFO, and Max Hill QC, director of public prosecutions for England and Wales, subsequently called for the expansion of existing ‘failure to prevent’ corporate crime offences in the UK statute book to cover wider economic crime, and fraud specifically.
Confirmation of the government’s plans concerning a new offence of failure to prevent fraud came after a robust debate on the Economic Crime (Transparency and Enforcement) Bill in the House of Commons on Wednesday.
Former UK justice secretary Sir Robert Buckland had previously put forward a draft new clause to the Bill that would have addressed the new proposed and very broad ‘failure to prevent’ offences as a bloc. Credit institutions, financial institutions, auditors, insolvency practitioners, accountants, tax advisers, lawyers, estate agents, casinos and cryptoasset exchange providers were among the organisations that were targeted by Buckland’s clause.
Prominent MPs from other parties – including shadow immigration minister Stephen Kinnock, Dame Margaret Hodge, a former chair of the influential Treasury Select Committee, and Alison Thewliss, the SNP’s home affairs spokesperson – also called on the government to add the proposed offence to the Bill. However, Tugendhat resisted calls to adopt the clauses before the Bill completed its third reading in the Commons. He said, though, “that the government intend[s] to address the need for a ‘failure to prevent’ offence in the [‘Lords]”.
Andrew Sackey, an expert in tax fraud investigations, said: “Although the proposed amendments have not been included in the Bill as sent to the House of Lords, the clauses that Sir Robert put forward appeared to encompass the need for the prohibited conduct to confer a business advantage on the company, as per the existing corporate bribery offence, but place the burden of the company proving the statutory defence to the ‘reasonable’ threshold, as per the existing corporate facilitation of tax evasion offence.”
“Significantly, the original amendments also included provision for the establishment of the Economic Crime Committee of Parliament (the ECC) which would have had the power to ‘examine or otherwise oversee any regulatory, enforcement or supervision agencies involved’ in a range of work, including tax evasion and avoidance by corporates – given tax avoidance is not prohibited by the criminal law this was a bold proposal," he said.
“Another significant clause among Sir Robert’s amendments, and one that appears to have flown below the radar but would – if enacted – have a huge impact on the UK’s corporate compliance landscape, was the provision for a corporate to be deemed to have committed a specified criminal offence undertaken with the ‘consent, connivance or neglect of a senior manager’. That language, together with the expansion of the failure to prevent regime, would undoubtedly escalate the criminal implications of corporations not having reasonable compliance risk assessments and controls in place,” Sackey said.
Regulatory expert David Hamilton of Pinsent Masons said: “Under existing law, for corporate liability to flow from a fraud, false accounting or money laundering offence, (as well as principal bribery and tax evasion offences, the prosecution would need to demonstrate the guilt of the company’s ‘directing mind and will’ – i.e., someone sufficiently senior and autonomous to act as the company rather than simply its representative or agent, at least for the activities in question. The proposals would have made it, in principle, easier for the authorities to prosecute and convict a company on the grounds that they failed to prevent fraud, false accounting or money laundering by an associated person."
Hamilton added: “While we wait for clarity as to the government’s intentions, it will be particularly interesting to see how any failure to prevent money laundering offence, which Sir Robert’s amendments restricted to the AML ‘regulated sector’, would interact with existing corporate criminal offences under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).”
“The MLRs’ offences arguably have an even lower evidential threshold than the ‘failure to prevent’ model and yet the authorities with AML supervisory and enforcement responsibilities, including the FCA and HMRC, have historically preferred to exercise civil/regulatory rather than criminal powers to combat money laundering risks in their sectors, with only one conviction under the MLRs to-date. Would a new offence provide authorities with fresh impetus to utilise criminal powers? There certainly appears to be a measure of political will behind the latest developments,” he said.
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