Corporates could face prosecution for failing to prevent economic crimes

Failure to prevent economic crime looks set to become a corporate offence under the May administration. Speaking at the Cambridge Symposium on Economic Crime last in September, the attorney general, Jeremy Wright QC confirmed that a consultation on the introduction of the corporate offence of failing to prevent economic crimes such as money laundering, false accounting and fraud would go ahead.

Welcomed by David Green, director of the Serious Fraud Office, an enthusiastic proponent of such a change, the new legislation is designed to address weaknesses in current law which has made it hard to attribute criminal liability to corporates for economic crimes.

Introducing the corporate offence of ‘failing to prevent’ under the UK Bribery Act led to a significant improvement in the anti-corruption systems and controls that organisations had in place. Widening the adequate procedures remit to hold corporates liable for failing to prevent other economic crimes could strengthen systems even further, so helping the government to achieve its aim of raising the bar on responsible corporate behaviour.

Described by law firm Pinsent Mason as the most sweeping change to corporate law in over a century, it is possible that this could have a bigger impact on business than the Bribery Act. It is expected that the new offence will be modelled on Section 7 of the Bribery Act such that a company will only have a defence if it can show that it has adequate procedures in place to prevent the economic crimes covered by the proposed legislation.

The range of crimes could be broad including theft, forgery and destroying documents as well as money laundering and fraud. In addition, it is likely that any new legislation would hold organisations responsible for the actions of third parties or associated persons acting on the company’s behalf.

The burden on compliance teams could be huge, however the direction of travel seems very clear and businesses would be ill advised to watch and wait. Companies wishing to get ahead of the game should begin by identifying the economic crime risks their companies face and highlighting any gaps in existing systems and controls. Work can then begin on improving policies and procedures, systems and controls.

One of the key aspects of the new law is likely to be the need for companies to have independent evidence of their policies and process to prevent economic crime. As with the UK Bribery Act, the Serious Fraud Office is also likely to consider ethical culture and not just paper based procedures. This will require careful thought about the policies and systems that should be in place to protect against a ‘failure to prevent’ conviction. GoodCorporation has a framework on Integrity Compliance which can be used as a starting point for any assessment of adequate procedures to prevent economic crimes.

The ‘failure to prevent’ logic is a great opportunity for boards to take a proactive position and to ensure that good policies and systems are in place to protect the company. If this isn’t already on the board agenda, it should be.

Posted November 2016