The Ministry of Justice (MOJ) announced it will introduce new corporate criminal offences for those who fail to report or prevent financial crimes in business. This expansion will be linked to preventing offences such as money laundering and theft under the Financial Services and Markets Act 2000, and will thereby increase a company’s potential for criminal liability. The new offences follow the MOJ's introduction of stronger punishments and corporate criminal liability for those who fail to prevent tax evasion. Although these initiatives and consultations were initially halted in September 2015, they are now being revisited because of the government's enhanced anti-corruption stance.
For many businesses, the concern will be that it no longer requires prosecution to demonstrate that senior members had some awareness of any illegal financial activity. Companies will now have to have robust procedures in place to prevent the involvement of senior members in financial crimes, just as they would for corruption and bribery offences under the Bribery Act 2010. The growing legislation means those taking part in illegal financial activity, or even knowing about it without reporting it, will be held accountable.
What impact does this have on businesses?
Companies will need to be more aware of what is expected of them, and seek legal advice if they suspect a financial crime has been committed or that someone has failed to report a crime. From producing company policies and procedures to defending any allegations of wrongdoing, practical advice from a legal professional will be required.
Corporate responsibility will be shown through detailed risk assessments or investigations, which will come at a financial cost. Monitoring and ensuring that all staff and senior executives comply with the new procedures will take up company time, as will training staff on due diligence.
It is currently very difficult for prosecutors to determine corporate criminal liability for many offences because a company is only considered criminally liable when a person seen as a director or senior manager has committed an offence with the knowledge and intention of doing so (and this has been proven). Trying to obtain the necessary proof for conviction and identifying the person(s) involved is challenging, especially in larger corporations with extensive management structuring and numerous middle managers, with no clear way of identifying their directing roles. As such, smaller companies are at greater risk of being penalised because any alleged corruption is much easier to identify.
What type of offences would this cover?
The expansion of corporate criminal liability would affect offences where failure to prevent and report economic crimes such as money laundering, theft, false accounting and fraud [LINK] had occurred. The UK Government is still consulting on a new type of offence to cover such instances.
The Criminal Finances Act 2017 introduced corporate criminal liability for offences linked to knowledge of tax evasion. Similar to bribery legislation, this forces companies to put appropriate procedures in place to safeguard against this. Many businesses will need to have policies implemented in future to protect them from new legislation linked to knowledge of other economic crimes.
Is this the best way to fight financial business crime?
The UK has faced increased criticism of its track record in fighting, preventing and prosecuting corporate financial crime, and the idea of prosecuting failure to prevent cases is growing in favour. It would enable companies to examine their policies and implement procedures that would make financial crime much harder to commit without being detected, making it easier for the Serious Fraud Office to prosecute organisations.
It is hoped that having failure to prevent offences enshrined in law may also spark a revival in the Deferred Prosecution Agreement (DPA), which has suffered from a limited uptake since it came into law. It has also been argued that expanding the law to cover failure to prevent offences may not act as a strong enough deterrent within organisations. If an organisation pleads guilty or enters into a DPA, one particular individual may not be pointed out as accountable.
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