Out-Law News 2 min. read

New corporate offence of 'failure to prevent' economic crime looking likely, expert says


The introduction of a new criminal offence for companies that fail to prevent employees or agents committing economic crime seems increasingly likely following recent announcements by UK financial regulators and ministers, an expert has said.

Laura Dunseath, a corporate crime expert at Pinsent Masons, the law firm behind Out-Law.com, said that "the question of whether" a new offence would be introduced in the UK "appears to no longer be if, but when". The new offence, "modelled" on the existing criminal offence of failure to prevent bribery, would cover fraud, money laundering and other economic crimes and was first proposed by Jeremy Wright in his first speech as attorney general in September 2014.

As part of its business plan for 2015/16, the Financial Conduct Authority (FCA) included the importance of regulated firms' financial crime prevention systems and controls as one of its top seven 'areas of focus' over the coming year. Danny Alexander, financial secretary and Liberal Democrat, also included the creation of a new offence of "if companies fail to put in place measures to stop economic crime happening in their organisations" among his 'alternative' Budget plans at the start of this month.

Currently, companies can generally only be found liable for the acts of employees or agents if the offender was a "directing mind" and the act was the "will of the company"; other than for corporate manslaughter offences, to which a separate legal regime applies. An exception to this general principle was established by the Bribery Act in 2010.

Section 7 of the Act created a new offence of "failure to prevent" bribery by people working for or on behalf of a business. Although no company has yet been prosecuted for this offence, the law states that a company will be found responsible for bribery carried out by employees or agents unless it can show that it had "adequate procedures" designed to prevent bribery in place.

The UK's first 'anti-corruption plan', which was published in December 2014, stated that the Ministry of Justice would examine the case for a new offence, as well as review the rules on establishing corporate criminal liability generally. According to the plan, it is due to report back by June 2015. The UK government also included a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion in a tax policy paper published earlier this month; however, whether it ultimately consults on the creation of this offence will depend on whoever is in power after the general election in May.

Laura Dunseath said that firms should "ask themselves if they also have adequate controls and procedures in place to prevent economic crime by an associated person" as part of their regular reviews of their existing anti-corruption and bribery programmes and controls.

"These could include strict accounting and financial reporting procedures which are well-publicised within the company, particularly within the finance departments; a zero tolerance approach to breaches of those policies and procedures; and periodic audits or assessments to ensure that the company's policies and procedures are being complied with," she said.

"Companies should also consider setting up a clear whistleblowing policy that encourages employees to report legitimate concerns, and establishing an audit committee led by a professionally qualified accountant with recent and relevant experience," she said.

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