Government Proposals to extend Criminal Conduct in the Business Sphere Raise Concerns
The UK Government announced yesterday that the Ministry of Justice will consult on plans to extend the scope of the criminal offence of a corporate 'failing to prevent' beyond bribery and tax evasion to other economic crimes.
Yesterday's announcement marks a significant potential expansion of the ambit of criminalisation of corporates. Historically, companies have been liable for criminal acts only if a person representing the directing mind and will of the company could be shown to have knowledge of criminal conduct. In practice, prosecutions of companies (and particularly large companies) were rare, as it was difficult to prove the requisite knowledge of senior officers or directors.
The introduction of the Bribery Act 2010 was a paradigm shift. It introduced, for the first time, the concept of criminal liability for companies that "failed to prevent" corrupt activity. Knowledge was not required: a company was strictly liable if bribery was committed by associated persons (including staff, agents and others performing services for it anywhere in the world), unless the company could show it had "adequate procedures" in place to prevent such activity.
Since its introduction there have been several successful prosecutions of companies under the Bribery Act. There has also been resolution via the mechanism of a Deferred Prosecution Agreement, a system introduced in 2014 which allows prosecution of a company to be suspended if certain conditions are met (including paying a penalty and compensation). See further details here.
The "failure to prevent" model recently re-appeared in a consultation document for a new offence of failure to prevent tax evasion or the facilitation of tax evasion. The draft legislation in large part mirrors the text of the Bribery Act: in particular, the aspects of proposed strict liability, subject to a defence if reasonable "prevention procedures" are in place, liability for associated persons, and liability in relation to activities overseas.
In light of the above, it seems likely the expansion to other economic crimes announced yesterday will adopt the same model.
We are concerned by the continued march of the criminal law into the business sphere, and in particular:
• the continued erosion of any requirement for "knowledge" for criminal offences to be committed
• the financial burden on businesses of implementing and maintaining "procedures" to prevent economic crime
• the liability of businesses for "associated persons" over whom they may have no practical control, and
• the extra-territorial reach of these offences, which criminalise those carrying on business in the UK in relation to economic crime committed anywhere in the world.
We will be responding to both consultations, and will canvas your views through a questionnaire.
For further information, please contact Tony Lewis (Head of our Fraud & Corporate Crime practice) or Hartley Foster (Head of our Tax Disputes practice).