The Ministry of Justice has outlined plans to consult on expanding the criminal corporate offence of ‘failing to prevent’ beyond its current scope of bribery and more recently tax evasion, to include other economic activities amounting to criminal conduct.

Justice Minister, Dominic Raab said:

‘The government is finding new ways to tackle economic crime and we are taking a rigorous and robust approach to corporations that fail to prevent bribery or allow the tax evasion on their behalf.

We now want to carefully consider whether the evidence justifies any further extension of this model to other areas of economic crime so that large corporations are properly held to account.”

The consultation to be published this summer is seeking opinion on whether changes in the law could assist authorities in bringing those committing corporate offences to justice. At present, the police and other law enforcement agencies find it difficult to prosecute companies for accounting offences, money laundering and fraud under the current legal framework. The failure to prevent model will be introduced to compliment and work alongside the existing regulatory and legal framework. But how might the law work? This post looks at both the Bribery Act and the proposed tax evasion laws to assess how the laws might work, and what businesses can be doing to prepare for such changes.

Failure to Prevent Bribery

The prime example of the ‘failure to prevent’ corporate offence is in relation to bribery.

The Bribery Act 2010 creates a strict liability offence for failure to prevent bribery. An organisation will be held liable for the actions of any person carrying out services for the business, regardless of in what capacity they are carrying out these services. The broad drafting of the law means that it will catch contractors, agents and even subsidiary companies. In addition, where the organisational failures to prevent bribery arise out of the consent or actions of senior officers of the company, they may also be liable for an offence under the Act. Where an organisation is charged with an offence under the Bribery Act, the only defence to the charge is that the organisation had put in place adequate procedures to prevent it. Where an organisation has implements procedures to prevent bribery, it may be able to escape liability for bribery offences.

This aspect of the legislation has had a significant impact on commercial organisations as they now must ensure they have properly developed and implemented policies and procedures to prevent bribery. Organisations have also had to review the way in which the approach hospitality, gifts and donations so as not to be caught by the bribery legislation. Businesses and organisations may have to look at a number of their other policies and procedures if the scope of ‘failure to prevent’ is broadened, including looking at methods for preventing money laundering, fraud and accounting.

The Bribery Act has extra-territorial reach in that it catches actions of employees of overseas subsidiaries, agents or contractors of a UK company and the corruption itself does not need to take place on UK soil. Overseas companies may also be caught if they have a significant connection with the UK.

Failure to Prevent Tax Evasion

The statement comes just after the Prime Minister has announced that he will introduce a criminal offence applying to corporations who fail to prevent their staff from facilitating tax evasion.

The new criminal offence of “corporate failure to prevent tax evasion or the facilitation of tax evasion” is targeted at businesses. Although the obvious targets are banks, fiduciaries and professional services firms, it looks as if it will apply to all businesses. Going forward businesses will have to pay greater attention to the activities of their employees, contractors, suppliers and customers in relation to tax.

If, as seems likely, the tax offence applies in a similar way, companies and other businesses will also need to have robust procedures in place to prevent their employees, service providers, agents, and associates from engaging in or facilitating tax evasion. Depending on the scope of the offence this could be wide ranging. All business will have to determine how this might apply to them and implement bespoke policies and procedures.

Moreover, the penalties for individuals who seek to evade tax are to become tougher, and a strict liability offence is to be introduced. The Chief Secretary stated, “if you help someone to evade tax of £1m, you can expect to pay a penalty of £1m or more”.

Broadening Failure to Prevent

The proposals to broaden the failure to prevent doctrine to a number of different financial crimes could have important implications for all businesses. Businesses will need to look more closely at relationships with suppliers, contractors and employees as well as implementing new systems for the way goods and services are paid for in the course of business. This will also mean business will need to look at training staff and ensuring all employees fully understand their obligations under the law. It is anticipated that in a similar way to the Bribery Act, the only defence to failure to prevent will be to prove that adequate measures have been taken to prevent the offence taking place.

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