Proposed legislation currently being scrutinised in the House of Lords could create criminal liability for corporate entities that fail to prevent fraud, false accounting or money laundering.
The amendments form part of the Economic Crime and Corporate Transparency Bill (the Bill), a Government-sponsored bill which includes as one of its stated objectives the need to prevent organised criminals from using companies and other corporate entities to abuse the UK’s open economy.
A new criminal offence: failure to prevent
The 'failure to prevent' offence was first introduced to the statute books with the Bribery Act 2010, before appearing in the Criminal Finances Act 2017. This legislation created the offence of failing to prevent bribery and failing to prevent the facilitation of tax evasion respectively. The 2010 Act was viewed as a marked change in corporate criminal liability because it shifted the burden onto the corporate entities themselves, who were required to demonstrate the existence of preventative procedures as a defence.
Thus the 'failure to prevent' formulation is less onerous for prosecutors because they do not need to identify any dishonest behaviour from a directing mind. It is believed the amendment to the Bill will follow the structure of the 2010 Act.
The 'failure to prevent' amendment was first moved by former Lord Chancellor Robert Buckland MP. Although withdrawn, Buckland did so following ministerial assurances from Tom Tugendhat, who stated that he shared "[his] learned friend’s passion for change… I can assure him that the government intend to address the need for a 'failure to prevent' offence… and I would welcome further discussion with him about the most effective way in which that can be done".
As drafted, the fraud and false accounting elements of Buckland’s amendment would have covered every business, partnership and tradesperson in the UK. The money laundering element had a narrower scope, applying only to ‘Relevant Commercial Organisations’. However, legal professionals would have noted that law firms were caught in this definition.
Other significant developments in the Bill of interest to legal professionals include the lifting of the Solicitors Regulation Authority (SRA) fine cap, where a solicitor or law firm is found in breach of an economic crime.
The removal of the £25,000 ceiling is hoped to produce a twofold result. Firstly, to alleviate pressure on the Solicitor’s Disciplinary Tribunal (where cases warranting a higher fine are currently referred). Secondly, to act as a further deterrent; Buckland states: “[Prosecutors] should not seek to focus exclusively on the corporate at the expense of bringing individuals to book”.
Indeed, it is worth noting that the current SRA limit, introduced as recently as June 2022, was itself a more than twelve-fold increase from the previous fine limit of £2,000.
The conviction to strengthen the UK’s response to economic crime can be seen in the context of the War in Ukraine. Following the Russian invasion, parliamentary sentiment was fixed on ameliorating what it perceived as the exposure of professional services to financial crime. Lawyers in particular might recollect Conservative MP Bob Seely’s deployment of parliamentary privilege to launch a scathing attack on the profession in March 2022.
At any rate, the Bill’s passage through the Commons and Lords demonstrates cross-party consensus on the desire to introduce the “failure to prevent” for fraud, false accounting and money laundering, with Labour MP Stephen Kinnock commenting that “Extending those “failure to prevent” offences to a wider range of economic crimes is the logical and natural next step”.
Once on the statute books, the Bill will form the second part of a legislative package, alongside the Economic Crime (Transparency and Enforcement) Act, which was itself fast-tracked through in March 2022 in direct response to the Russian invasion of Ukraine.
The Bill is currently at the Committee stage in the House of Lords. This stage involves line-by-line examination of the clauses, and votes on any amendments taking place. At the end of the committee stage, the Bill will move to the Report stage for further scrutiny, before the third reading in the Lords, and finally Royal Assent.
How we can help
Financial crime partner Frances Murray has a wealth of experience in financial crime and is uniquely placed to support clients’ that are the subject of a criminal investigation or Prosecution in respect of money laundering or corruption.