The NGO Corruption Watch has accused the UK of outsourcing its corporate financial crime enforcement to the US, thereby missing a key opportunity to provide real deterrence for financial wrongdoing domestically. It has called on the UK government urgently to commission an independent review of the adequacy of its regulatory regime and the coordination of its criminal and regulatory regimes, and also to look again at reform of the law on corporate criminal liability in the UK.
In reaching its conclusion, Corruption Watch looked at the number of cases and size of criminal, civil and regulatory penalties in London and New York between January 2008 and December 2018 relating to four specific economic crimes committed by banks. These are: the manipulation of Libor; the manipulation of the Forex market; involvement in money laundering; and the involvement in alleged mortgage fraud that precipitated the financial crisis. It found that during this period there were no successful prosecutions of a bank in the UK with just under £2.5bn of non-criminal fines being imposed. Conversely, the US had brought nearly 20 criminal enforcement actions against banks, levying almost £22bn in financial penalties, £10bn of which was from banks headquartered in the UK.
Corruption Watch is not alone in its call for reform of corporate criminal liability in the UK. David Green, the former Director of the SFO, first proposed a change in the law in 2012, although enthusiasm for change has waxed and waned since. In January 2017, the Government announced a call for evidence on the case for the reform of the law on corporate criminal liability for economic crime. While that consultation closed almost two years ago, the government is still to publish its response although in its Year 1 update to the UK's Anti-Corruption Strategy it stated that it would do so this year. The new SFO Director, Lisa Osofsky, has also made plain her support for amendments to the existing law on corporate criminal liability in the UK. She told the Justice Select Committee recently that the SFO was hamstrung by the current identification principle, whereby prosecutors must demonstrate the guilt of a "directing mind and will" of the company in order to secure a corporate conviction. Osofsky has expressed her frustration that this has given rise to a situation where she can prosecute SMEs more easily than she can larger corporations. Her preference is for the US concept of vicarious liability, where a company is liable for the acts of an employee when committed in the course of their employment and to the benefit of the company. However, she would also consider it a step in the right direction to introduce a wider corporate offence of failure to prevent economic crime akin to the similar existing offences relating to bribery and tax evasion.
It is increasingly likely that the Law Commission will once again be asked to grapple with the identification principle. It seems absurd that the US is more easily able to prosecute banks headquartered here for economic crime that primarily concerns the UK. Vicarious liability for the economic crime of employees is a big step though, but the idea of a catch all "failure to prevent" offence for a range of different economic crimes does not sit well. The disparity between penalties levied in the UK and US will also need to be addressed if the UK is to become as weighty as the US. With growing pressure on UK enforcement to step up and claim its share of financial penalties - and increasingly strident arguments from NGOs that it is very much in the public interest to do so - Lisa Osofsky is likely to get her wish.
Mishcon de Reya has a team of expert corporate crime lawyers who have acted for number of the companies investigated by the SFO in recent years, obtaining outcomes including deferred prosecution agreements, civil recovery settlements and decisions of no further action.