The Government has published its long-awaited response to its January 2017 call for evidence on whether there is a case for the reform of the law on corporate liability for economic crime. After careful consideration of the responses, and a contribution of further evidence from regulators, law enforcement and prosecution agencies, it has, disappointingly, concluded that the evidence submitted was inconclusive and that further work is required. Accordingly, it has asked the Law Commission to review the law and prepare an Options Paper, analysing the effectiveness of the current law and making recommendations for improvement.
The Government acknowledged that measures to strengthen the law on corporate criminal liability have been implemented since the call for evidence and the review will also encompass an assessment of their effectiveness in terms of driving culture change; enforcement and cost to business. These measures include the two offences of failure to prevent tax evasion introduced by the Criminal Finances Act 2017; the Senior Managers and Certification Regime; and the enhanced compliance regime introduced by the Money Laundering Regulations 2017 ("MLR 2017").
Although slow to be commissioned, this is an unsurprising development. The Government has been under increasing pressure to review the law on corporate criminal liability for some years with serious criticism of the identification principle, where a company can only be criminally liable through its "directing mind and will", as an obstacle to the prosecution of large companies for economic crimes. It was with a view to overcoming the challenges of the identification principle that the corporate offence of failing to prevent bribery was introduced by the Bribery Act 2010 and later extended to tax evasion through the Criminal Finances Act. The pressure was augmented by the release this year of the dismissal decision of Jay J, effectively upheld by Davis LJ, that senior executives of Barclays plc and Barclays Bank plc, including the CEO and CFO, did not constitute the "directing mind and will" of the company in the circumstances of a prosecution of those individuals in respect of certain capital raisings in the 2008 financial crisis.
The outcome of the review will not be known for at least a year, with the Law Commission aiming to publish its Options Paper in late 2021. However, it is inevitable that one of the Law Commission's options will be the introduction of a wider offence of failure to prevent economic crime. A spate of activity in March 2019 saw a House of Commons Treasury Committee report on Economic Crime describe the scale of the threat of economic crime in the UK as uncertain but likely to run into tens, and probably hundreds of billions of pounds and urge reform of the existing law. The report followed a letter from a group of MPs to then Prime Minister Theresa May urging the introduction of a failure to prevent economic crime offence at the earliest possible opportunity. The following week, the House of Lords Select Committee on the Bribery Act 2010 described that statute as a "model piece of legislation" and recommended that an immediate decision be made on the extension of the failure to prevent offence to all other economic crime.
While a review of the law on corporate criminal liability is clearly overdue, a "catch-all" offence of failure to prevent economic crime should be considered very carefully and alternative means of reform must also be scrutinised. By contrast with bribery and tax evasion, companies are often the victim of other economic offences, such as fraud, which are committed by their employees. It would be an erroneous outcome for a corporate to be guilty, on a strict liability basis, for failing to prevent a crime from which it did not benefit and was, in fact, victim. In respect of money laundering, there is already a form of failure to prevent offence in place through regulation 86 of MLR 2017 under which it is an offence for companies in the regulated sector to fail to comply with MLR 2017. To date, no criminal proceedings have been commenced under regulation 86.
Finally, the impact of the existing failure to prevent offences, and the money laundering regime, has placed a great strain in terms of compliance cost on companies. The introduction of a catch-all offence has great potential to significantly increase this compliance burden, particularly for SMEs who are not the real target market for this new offence.
Law Society Gazette