Combating corporate crime

The recent announcement that the Ministry of Justice has decided to drop work on creating a corporate offence of ‘failure to prevent economic crime’ has illustrated the difficulties of tackling corporate wrongdoing.

The proposal was to make businesses liable for failure to prevent ‘economic crime’ where it was shown that fraud and financial crime had been committed by people associated with the company (employees, agents and so on) for the benefit of the company – and the company had not put in place adequate procedures to prevent such wrongdoing.

Governments have previously followed the global trend of holding corporates to account in the criminal courts. Section 7 of the Bribery Act 2010 made it an offence for commercial organisations to fail to prevent bribery and marked a significant development in the UK’s law on corporate liability. In 2014, deferred prosecution agreements (DPAs) became available to UK prosecutors to encourage companies to self-report crime.

The same year, guidelines on the sentencing of corporate offenders found guilty of fraud, bribery and money laundering provided the courts with the opportunity to impose much more significant fines than levied in the UK in the past. In a further effort to strengthen the prosecutors’ hand, Serious Fraud Office director David Green, with cross-party support, proposed an extension to section 7 to create a corporate offence of failing to prevent ‘economic crime’.

A year ago, attorney general Jeremy Wright confirmed support for the proposals. The publication in December 2014 of the government’s Anti-Corruption Plan also promoted the proposals.

Prosecutors have pointed to the problems in applying the ‘identification principle’ in the UK to establish corporate liability. A company can only itself be convicted of an offence if the prosecution can show that the wrongdoer was also the controlling mind and will of the company – a significant hurdle in large companies.

The implementation of the corporate offence in the Bribery Act neatly overcame this issue in bribery cases. Importantly, the defence to the corporate offence placed the onus on businesses to develop and implement ‘adequate procedure’ to prevent bribery. Businesses have spent substantial time and resources in complying with the Bribery Act 2010. The response of financial institutions, joint venture partners and pressure groups to developing legislation and international standards has also accelerated cultural change in connection with corrupt activity.

The government’s decision to reject the proposal to extend the scope of corporate liability is surprising. The decision suggests that the UK will continue to be at a disadvantage to the US in having a framework which facilitates effective enforcement action against corporates. Some will question the government’s commitment to implementing the rest of the UK Anti-Corruption Plan.

However, the government has indicated that it remains committed to combating corporate crime. It has, in recent years, reinforced prosecutors’ tools by introducing DPAs and strengthening the sentencing framework. The SFO is engaged in high-profile investigations involving significant businesses. The National Crime Agency has become increasingly active.

Beyond bribery, there is in the UK a range of legislation to restrict and sanction third-party support for criminal activity and places reporting obligations on corporates and individuals, such as the Proceeds of Crime Act. The government is also consulting on introducing an equivalent to the corporate provisions of the Bribery Act into the tax sphere.

It may be that the proposal simply came too soon: the Bribery Act is subject to testing in the courts; we await corporate sanction in the form of the first DPA; and corporates continue to work on policies and procedures which embed cultural change. Given the line of recent corporate scandals, we hope the government will revisit the proposals sooner rather than later.

Neil O’May is a partner at Norton Rose Fulbright. Senior associate Ian Pegram also contributed to the article