The UK government is considering a new law that would significantly extend companies’ potential criminal liability for crimes committed by their employees or agents.  If adopted, the change would make companies criminally liable for failing to prevent economic crimes committed on their behalf.

Failure to prevent bribery is already criminalised by Section 7 of the Bribery Act of 2010.  The proposal would extend that liability to crimes such as fraud and money laundering.  The UK government announced its plan to consult on the proposal as part of the anti­corruption conference hosted by David Cameron on 12 May 2016. The announcement represents a change of stance by the UK Government, which had dropped the same proposal in autumn 2015.

Background

The failure to prevent bribery was a new offence introduced by the UK Bribery Act 2010, which came into force on 1 July 2011.  Known as the “Section 7 Offence”, it applies to every corporate entity that carries out a business, or part of a business, in the UK – regardless of where the entity is registered or incorporated.  It does not apply to individuals.

A corporate entity violates Section 7 Offence when a person associated with the entity commits bribery on behalf of the corporate entity with the intention of obtaining or retaining business or gaining an advantage in the conduct of business.  It is a strict liability offence, meaning that if the prosecutor can establish that the bribery occurred, the corporate entity has automatically committed the Section 7 Offence.  The only defence available to a company is showing that it had in place “adequate procedures” designed to prevent bribery.  As yet, there is no case law on what “adequate procedures” means in practice, though the Ministry of Justice published guidance in March 2011 to assist corporate entities in designing and implementing compliance programmes.

Section 7 has substantially increased prosecutors’ power to hold corporate entities criminally liable for bribery. The UK Serious Fraud Office has recently secured the conviction of Sweett Group for the Section 7 Offence, and also entered into its first Deferred Prosecution Agreement with ICBC Standard Bank in relation to bribes paid on the bank’s behalf.  (See Serious Fraud Office v Standard Bank plc Case No: U20150854.)

Possible extension of “failure to prevent” offence

The UK Government will now undertake a consultation process (by issuing a consultation paper setting out the proposed changes to the law and asking interested parties to provide advice and comment) as to whether a “failure to prevent” offence should extend to other areas of economic crime, such as fraud or money laundering.

The Ministry of Justice previously proposed extending the Section 7 Offence in 2014, when the extension had wide­spread political support.

However, following the general election in May 2015, the plan was dropped.  Recent revelations about the use of off­shore tax havens may have spurred the government to reconsider expanding corporate liability for economic crimes.

Practical effect

If the consultation process results in a new wide­ranging offence, it will significantly increase prosecutors’ power to bring charges against corporate entities.  Except for the bribery liability afforded by Section 7, current English criminal law makes it notoriously difficult to hold a company liable for economic crime.  Before convicting a company, the government must first convict an individual who can be said to be the company’s “directing mind and will” and who has committed the relevant criminal offence on the company’s behalf.  A company’s directing mind and will usually considered to be its directors, or possibly its senior executives.  When only junior employees are responsible for criminal activity, prosecutors cannot charge the employer.

If the government broadens the Section 7 offence to the other economic crimes, then companies operating a business, or part of a business, in the UK will face liability risks similar to those in the US, where a corporation may be liable for criminal acts committed by its agents in the scope of their employment with the intent to benefit the company.   (See, e.g., United States v. Singh, 518 F.3d 236, 249­50 (4th Cir. 2008).)

In contrast to US law, an extension of the Section 7 Offence would not create corporate liability for the substantive offence itself.  Instead it would create a separate offence of failing to prevent the crime.  The difference will be of little comfort to shareholders who may face unlimited fines, possible confiscation and costs orders, potential disbarment from procurement processes and the attendant adverse publicity.

As the consultation process advances, corporate entities that carry out business in the UK should consider how the statute would affect their businesses, with a particular eye towards the only defence available, namely whether their compliance processes and procedures cover the prevention of all aspects of economic crime, and not just bribery.  If the proposed new law is passed, these processes and procedures will be vitally important to protecting the entity against criminal liability for acts carried out on its behalf, even those that are unknown and unauthorised.