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Failure to prevent economic crime – a new corporate criminal offence?

Posted on 3 May 2019

Failure to prevent economic crime – a new corporate criminal offence?

It is increasingly likely that companies in England and Wales will face a new corporate criminal offence of failure to prevent economic crime, mirroring the existing failure to prevent criminal offences already aimed at bribery and tax evasion. 

The possible offence has been suggested as a means to address the perceived difficulty in prosecuting companies in this jurisdiction. Under the existing law on corporate criminal liability, the identification principle means that prosecutors must identify and prove the guilt of a "directing mind and will" of the company before it can secure a corporate conviction. Lisa Osofsky, the Director of the SFO, has described herself as being hamstrung by the identification principle, expressing her frustration that it means she can prosecute SMEs more easily than larger corporations. Her preference would be the introduction of 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 for the benefit of the company. However, she has said that the introduction of an offence of failure to prevent economic crime would be a step in the right direction.

In January 2017, the government announced a call for evidence on the case for reform of the law on corporate criminal liability for economic crime. It is still to publish its response and has said that it will do so this year. A series of events in March 2019 have increased the pressure on the Government to commence a formal consultation on reform. At the start of March, the NGO Corruption Watch published a report in which it criticised the UK's record on corporate financial crime enforcement as compared to the US and called for a review of corporate criminal liability. This was followed by a group of MPs writing to the Prime Minister calling for a new failure to prevent offence, aimed at economic crime and then the publication of a House of Commons Treasury Committee report on Economic Crime. The report concluded that multi-national corporations appeared to be beyond the scope of existing legislation designed to counter economic crime. Finally, a House of Lords committee - set up to examine the impact of the Bribery Act 2010 - concluded that it was a model piece of legislation and called for an immediate decision on whether its "failure to prevent" offence should be extended to encompass all other economic crime.

Any new offence will require careful consideration. Unlike bribery and tax evasion, companies do not stand to financially benefit from other economic crimes committed by their employees and are often instead the victims of those crimes. It would be perverse for companies to be criminally liable for offences from which they did not benefit and of which they were the victim. Additionally, the introduction of such an offence will increase the compliance burden faced by companies, particularly the SMEs that the SFO Director has already accepted she can prosecute more easily. However, while the scope of any new offence, and available defences, is currently unknown, what is clear is that mounting pressure on the government means it is almost inevitable that we will see the introduction of a catch-all economic crime offence in the near future.

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