UK proposes 'sweeping changes' to corporate liability for economic crimes

Out-Law News | 13 May 2016 | 9:41 am | 1 min. read

The planned introduction of a new corporate criminal offence of failure to prevent fraud, money laundering and other economic crimes would have an "even bigger impact on businesses than the introduction of the Bribery Act", a corporate crime expert has said.

Barry Vitou of Pinsent Masons, the law firm behind Out-Law.com, said that extending companies' criminal liability for the acts of their employees or agents would be "the most sweeping changes to corporate law in over a hundred years - and a substantial burden for businesses".

Companies can generally only be found liable for the acts of their employees or agents if the offender was a "directing mind" and the act was the "will of the company". A new criminal offence of "failure to prevent" bribery by people working for or on behalf of a business was introduced in 2011, under the 2010 Bribery Act; and the UK government intends to introduce a similar offence for companies that fail to prevent the facilitation of tax evasion by their employees or agents before the end of this year.

Writing in the Guardian ahead of a major anti-corruption summit in London, UK prime minister David Cameron said that the government would consult on extending the 'failure to prevent' offence 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".

Although no further details of the planned offence are yet available, the bribery and planned facilitation of tax evasion offences contain a defence for businesses that can show that they had "adequate" or "reasonable" procedures in place to prevent the criminal acts.

"The criminalisation of corporate law continues to snowball," said corporate crime expert Barry Vitou of Pinsent Masons.

"Reforms to liability will place multinationals and other companies under new pressures – executives will need to show that they had robust policies in place to prevent wrongdoing in the event that an employee is found guilty of misconduct. Ensuring oversight at all levels of any organisation will present a challenge – especially where an organisation operates across several jurisdictions," he said.

The announcement by the UK prime minister resurrects an idea that has long been championed by Serious Fraud Office director David Green and Jeremy Wright, the UK attorney general. The government had previously looked into extending the 'failure to prevent' regime to other economic crimes in 2014, but decided not to pursue the changes after saying it had found "no evidence" that companies were getting away with economic crime under the existing rules.

"Recent corporate scandals are likely to be the trigger for this proposal being resurrected," said regulatory expert Stacy Keen of Pinsent Masons.

"Extending this offence to cover money laundering in particular is a significant step, and would lead to a renewed focus on existing compliance systems," she said.