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No decision yet on failure to prevent economic crime offence

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United Kingdom

On 3 November 2020 the Government published its response to its call for evidence on reforms to the law on corporate liability for economic crime. The call for evidence was designed to examine whether there was a case for reform to ensure that the law is fit for purpose. Under the current law there can be challenges when trying to prove criminality against companies because the identification principle requires finding someone of sufficient seniority within large, global corporations who can be shown to have acted as, or be described as, the directing mind of the company. Proposals put forward for how the law could be reformed to deal with this issue include by introducing a strict liability corporate offence for failing to prevent employees (and others) committing economic crimes (such as fraud, false accounting and money laundering) in a similar way to the "failure to prevent" offences contained in the Bribery Act 2010 and Criminal Finances Act 2017.
 
The call for evidence ran between January and March 2017 (and Fieldfisher, along with many others, submitted a response). However, even in 2017, the prospect of a new corporate offence was not new, having been proposed back in June 2013 in the (then Labour) Government's plan entitled "Tackling Serious Fraud and White Collar Crime" (see here). Therefore it is certainly not an overstatement to say that we have been long awaiting further details regarding whether such an offence will be created and in what form.
 
So what is the Government's proposal after all this time? The short answer is that it has concluded that it needs more information to decide what to do and will be commissioning an expert review of the current law from the Law Commission (which should publish its recommendations in late 2021). Although this has been met with a certain amount of derision in some quarters and accusations that the Government is simply pushing this off into the long grass, our view is that for business, which will feel the impact of any further extension of the criminal law into corporate affairs, it can only be a good thing that the Government is not amending the current law without full consideration and that it is not bowing to pressure from prosecutors (the Director of the SFO Lisa Osofsky stating in October 2020 that a new failure to prevent economic crime offence topped her "wish list").
 
The Government also rightly notes that there have been a number of developments since the call for evidence that may impact the necessity of any reforms, including the introduction of new corporate criminal offences in the Criminal Finances Act 2017; the expansion of the Senior Managers & Certification Regime in the financial services sector; the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 which have each improved the governance of firms to which they apply. The Law Commission will be able to look at the full legal and regulatory position in the round.
 
This measured approach contrasts starkly with the recent consultation on a new economic crime levy, in relation to which the decision to introduce such a levy had already been made before the consultation was launched, and the consultation on the strict liability corporate offence of failure to prevent facilitation of tax evasion, which was a consultation on the draft legislation and guidance, not on the principle of the offence.
 
The response to the Government's call for evidence (and the fact it is taking note of the responses) should provide some comfort for businesses. Although the majority of respondents agreed that the identification principle made it difficult to hold companies to account for economic crimes committed in or on their behalf, evidence that they were not actually being held responsible was lacking. There was also no consensus as to what corporate liability should be introduced if the law was to be reformed. Only a little over half (51.6%) of respondents considered that a failure to prevent offence modelled on that in the Bribery Act should be introduced for economic crime more widely. It is Fieldfisher's view that an offence akin to that in the Bribery Act which, it must be remembered does not require knowledge of the offence by the business or there to be any fault on its part, would place a considerable burden on businesses. Such an offence should not be introduced lightly and not at all if any defects identified in the current law can be remedied within the existing legislative or regulatory framework or in a less draconian way.

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