SFO proposes creation of broader 'failure to prevent' laws
The Director of the Serious Fraud Office and the President of the Queen's Bench Division have lobbied Parliament to create an overarching law of 'failure to prevent' applicable to all areas of economic crime in order to achieve greater success in the prosecution of corporate entities.
Lisa Osofsky and Sir Brian Leveson told the House of Lords Select Committee examining the Bribery Act 2010 that an even broader failure to prevent statute would get "more corporates in the dock". Currently in order to convict a business of most criminal offences, prosecutors need to demonstrate that a person or persons who were 'directing mind and will of the organisation' committed the offence (known as the identification principle).
Currently there are two 'failure to prevent' offences in statutes under which corporate bodies can be prosecuted: the failure to prevent bribery in the Bribery Act and the failure to prevent tax evasion in the Criminal Finances Act 2017. Under both statutes it is a defence for a corporate body to show that it had in place reasonable procedures to prevent bribery and tax evasion.
Leveson and Osofsky have proposed widening failure to prevent to other economic crimes, including fraud. Osofsky in fact went further by stating that the most effective prosecution tool would be the creation of vicarious liability for corporate crimes through which a company as a whole could be held responsible for an employee's actions (which already exists for tortious claims in civil law). A broadening of failure to prevent offences or the creation of a law vicarious liability vis-à-vis companies for economic crime would significantly increase UK prosecutors' abilities to bring criminal charges against companies.
A broader vicarious liability or failure to prevent statute for economic crimes would put significant pressure on companies to rigorously ensure that internal procedures are sufficient to constitute a defence. If either model is adopted this will be a further example of the continued erosion of the need for there to have been knowledge of an offence being committed before a company can be held criminally liable.
Vicarious liability would effectively do away with the identification principle. The risk of vicarious liability for companies was recently highlighted by the case of Various Claimants v W M Morrison Supermarkets in which supermarket chain Morrisons was held vicariously liable under civil law for a mass data breach caused by the criminal act of a rogue employee.
The comments to the Select Committee can be seen as part of the recent broader drive to focus economic crime enforcement in the UK onto businesses following the government's updated anti-money laundering strategy.