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Lawyers split over consultation on reform of corporate crime

‘Failure to prevent’ fraud offence could be an easy political win for Theresa May

13 January 2017

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The Ministry of Justice has issued a consultation today on potential reform of corporate liability for economic crime, which has raised some concern that the government is continuing to ‘march criminal law into the business sphere’.

The latest MoJ consultation paper suggests a number of potential options for reform, but favours an extension of the ‘failure to prevent’ model already adopted for bribery and tax evasion, which the ministry says has ‘some clear advantages’.

Elly Proudlock, counsel in WilmerHale’s investigations and criminal litigation practice, said it was encouraging that the government had not ruled out comprehensive reform of the law on corporate criminal liability, beyond the extension of the ‘failure to prevent’ model.

‘Offences committed by employees are not limited to financial crime, yet David Green QC’s proposal would mean holding companies that are more vulnerable to financial crime – such as those in the financial services sector – to a different standard,’ she said.

Based on the corporate offence of failure to prevent bribery, the proposal, advocated by the director of the Serious Fraud Office, makes a company criminally liable for the actions of its employees and agents unless it has a defence that it has taken steps to prevent the fraudulent offending.

‘Rather than proceeding in a piecemeal fashion, the government should bite the bullet and look at the law more broadly,’ said Proudlock. ‘Given the increasingly cross-jurisdictional nature of investigations, there are good reasons for bringing the UK more in line with the US.’

Barry Vitou, head of global corporate crime at Pinsent Masons said the call for evidence looked like a victory for those who have been campaigning to block a reform of fraud laws.

‘There has been, until now, a broad consensus that the law needed changing,’ he explained. ‘As late as December last year, former Attorney General Sir Edward Garnier moved a private amendment to the Criminal Finances Bill inserting a “failure to prevent economic crime offence”.’

The Pinsent Masons partner said today’s publication risked creating the impression that the government favours a softer approach to economic crime.

‘Trailed originally as a consultation for the introduction of a new offence, to complete a trio of offences in addition to the failure to prevent bribery and tax evasion offences, the MoJ has instead published a call for evidence which broadly speaking asks: do corporate crime fraud laws need to be changed at all? A far cry from earlier statements that the law was broken and needs to be fixed.’

However, Tony Lewis, head of fraud and corporate crime at Fieldfisher, expressed concern at what he called ‘the continued march of criminal law into the business sphere’.

‘Should the “failing to prevent” model for other economic crimes in business follow suit, it will be a further example of the continued erosion of the need for there to have been knowledge of an offence to be committed in order to be prosecuted for it,’ he said.

‘What’s more, this will place a significant financial burden on businesses which will need to implement and maintain thorough procedures to prevent any economic crime – but the reality is that they could be held liable for crimes committed by associated persons over whom they have no control.’

Lewis explained that should the proposals extend as far as the powers contained in the Bribery Act, then companies operating in the UK could face prosecution for economic crimes committed anywhere in the world.

Louise Hodges, a partner in the criminal litigation team at Kingsley Napley, said that, despite robust opposition from businesses, ‘in the current political climate a failure to prevent fraud offence could be an easy political win for Theresa May with legislation agreed and on the table very swiftly’.

‘The least invasive proposal specified in today’s consultation is strengthening regulatory regimes,’ she said, ‘but is unlikely to satisfy those campaigning for a cleaner corporate culture.’

John van der Luit-Drummond is deputy editor of Solicitors Journal

john.vanderluit@solicitorsjournal.co.uk | @JvdLD

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Commercial White collar crime International

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MoJ SERIOUS FRAUD OFFICE FAILURE TO PREVENT