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UK drops proposals to criminalise businesses that fail to prevent economic crime


The UK has dropped plans to introduce a new corporate criminal offence of failure to prevent economic crime after finding "little evidence of corporate economic wrongdoing going unpunished" under the current regime.

The Ministry of Justice (MoJ) had been examining the case for a new criminal offence following the publication of the UK Anti-Corruption Plan at the end of 2014. However, junior justice minister Andrew Selous confirmed this week that ministers had "decided not to carry out further work" on the proposal at this stage, in response to a written question from Conservative MP Byron Davies.

Legal experts at Pinsent Masons, the law firm behind Out-Law.com, described the announcement as a "missed opportunity" and dismissed the idea that  the existing laws were as effective as they could be.

"This announcement has come as a surprising u-turn by the government, given its manifesto promise to make it a crime for companies to fail to put in place measures to stop economic crime, and in particular to ensure there were large enough penalties not just to punish but also to deter," said Laura Dunseath of Pinsent Masons. "One wonders what has happened in the past five months since the manifesto was released to make the government decide that neither the punitive nor deterrent effects of the proposed offence were of any benefit."

"The announcement will be particularly disappointing to the director of the Serious Fraud Office, especially as in a speech earlier this month he went further and queried whether the UK should embrace a general principle of vicarious liability similar to that of the USA," she said.

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", except in the case of corporate manslaughter offences, to which a separate legal regime applies. An exception to this general principle was established by the Bribery Act, which created a new offence of "failure to prevent" bribery by people working for or on behalf of a business.

The idea that this offence should be extended to cover other economic crimes, such as fraud or money laundering offences, has been championed by SFO director David Green and Jeremy Wright, the UK attorney general. Although no company has been prosecuted for the new offence to date, the law states that a company will be found responsible for bribery carried out by its employees or agents unless it can show that it had "adequate procedures" designed to prevent bribery in place.

Fraud and asset recovery expert Alan Sheeley of Pinsent Masons said that businesses should be implementing "measures and safeguards to reduce the impact of any wrongdoing arising from fraud and economic crime on their operations" regardless of the government's decision.

"The focus should always be on prevention," he said. "However, careful consideration should also be given to detection and reaction policies. Businesses must be astute not only to risks to their business, but also the plan of action when wrongdoing is uncovered."

Sheeley said that it was "staggering" that the MoJ's work on the subject had led it to the conclusion that there was "little evidence of corporate economic wrongdoing going unpunished"; something that he said "appears to fly in the face of all reports regarding economic crime and the impact of fraud in the UK".

"Just last month, KPMG's twice-yearly Fraud Barometer report found that the total cost of fraudulent activity increased by 22% in the first half of this year, while the government's own National Fraud Authority had reported a £52 billion loss to the UK economy from fraud," he said. "As the attorney general identified in September 2014, in the modern economy, economic crime is more pervasive than ever before. The ease of international travel and speed of online banking transactions both domestically and internationally allows fraudsters an advantage which demands updated laws to combat it."

"The new criminal offence of failure to prevent bribery might not have resulted in any dedicated prosecutions as yet, but its impact on the attitudes and policies of businesses of all sizes has been staggering. I would have expected the potential legislation of failing to prevent economic crime to have the same impact if and when implemented. Frankly, this seems like a wasted opportunity by the UK government to target economic crime and, at the same time, reinforce the role of the UK as a leader in tackling economic crime in global financial markets and businesses," he said.

The UK government had also proposed creating a new offence of corporate failure to prevent tax evasion or the facilitation of tax evasion, as part of a tax policy paper published before the general election in May. However, when a formal consultation on the proposal ultimately emerged, the “failure to prevent tax evasion” aspect of the offence had been dropped and it was proposed that the new offence would relate solely to a corporate failure to prevent the ‘facilitation’ of tax evasion. The government's consultation on this new offence closes on 8 October.

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