Consultation on “failure to prevent” offences
In May 2016, then-British Prime Minister David Cameron announced that the government would be consulting on an extension of “failure to prevent offences” to economic crimes such as fraud and money laundering, no longer confining it to the sphere of bribery and corruption. Such plans were reiterated by Attorney General, Jeremy Wright, earlier this month.
This is not the first time such topic has been mooted. Indeed, the Director of the Serious Fraud Office (“SFO”), David Green QC, made the same legislative proposal as far back as April 2013. Yet, in September 2015 Justice Minister, Andrew Selous, revealed that the Ministry of Justice had decided to cease work on legislating a “failure to prevent” offence for economic crime. So what’s different this time?
The success of s7 of the Bribery Act 2010 (the “Bribery Act”)
The first successful result in relation to “failure to prevent” under the Bribery Act did not come until November 2015 when the SFO entered into its first Deferred Prosecution Agreement (“DPA”) with Standard Bank Plc for bribery related offences. Following this, the tide has turned: in December 2015 Sweet Group PLC pleaded guilty to failing to prevent an associated person commit bribery; January 2016 witnessed the landmark corruption fine levied against Smith and Ouzman in the first contested corporate criminal case on bribery; and most recently in July 2016, the SFO had its second application for a DPA approved. This string of successes for the SFO bears testimony to the effectiveness of the “failure to prevent” provision within the Bribery Act.
Lack of success in pursuing corporates on other white-collar crimes
In comparison to the SFO’s efforts in combating bribery offences, markedly less success has been enjoyed in punishing corporates for other economic wrongdoings. For example, criminal charges have failed to be brought against Tesco for its role in overstating profits, which was identified back in 2014.
The flaws in the current system have not gone unnoticed. Jeremy Wright remarked in the 2016 Cambridge Symposium on Economic Crime that, “it is also worth noting that the weaknesses in our current law result in other jurisdictions holding British companies to account when ours has not, as in the LIBOR case. This has clear implications for the reputation of our [UK’s] justice system. The identification doctrine that currently exists for other economic crime has made it difficult to prosecute”1 .
Increasing demand for transparency and accountability
The Panama Papers drew global attention to the use of non-transparent jurisdictions and sparked widespread condemnation of tax evasion, money laundering and other unlawful activities. Consequently, there is an increasing trend for transparency and accountability.
In July 2015 the Senior Managers Regime was implemented by the FCA, in an effort to embed personal accountability into the financial services sector. Similarly, there has been call for public beneficial ownership registers for all jurisdictions and the UK recently published its “Persons with Significant Control” Register. These new measures, akin to the proposed extension of "failure to prevent" offences, indicate a drive towards a higher standard of accountability and transparency from corporates coupled with a desired ability to punish wrongdoers.
Launch of public consultation on failure to prevent the facilitation of tax evasion
Riding on the leak of the Panama Papers, from April to July 2016 the government ran a public consultation on a new corporate criminal offence of failure to prevent the facilitation of tax evasion. As well as providing further evidence of the government’s renewed intention to expand the genre of “failure to prevent” offences, the draft legislation and guidance on this consultation potentially sheds light on the direction that any such future legislation may take.
There is clear indication that a similar approach to that of failure to prevent bribery may be adopted. There are strong parallels between that of the Bribery Act and that of the draft legislation, for example the definition of “associated person” and a proposed defence of the corporate having demonstrable “reasonable prevention procedures”. Interestingly there are also some new proposed provisions that cannot be found correspondingly in the Bribery Act such as a defence that it was not reasonable to have in place preventative measures. The similarities and differences serve to evidence that the government is committed to both expanding and refining the current "failure to prevent" regime.
Time for change?
It is clear that the existing “controlling mind” doctrine currently used to attribute criminal liability to corporates for most economic crimes poses substantial obstacles for prosecutors. The success of the “failure to prevent” provision under the Bribery Act evidences that implementation of a lower threshold for other white-collar crime through expansion of “failure to prevent” offences would lead to increased accountability and transparency, and a more navigable enforcement environment. In current times, where business operations and structures are becoming ever more globalised and sophisticated, and associated crimes affect more stakeholders and to more devastating effects, such new legislation would be a welcome weapon in the arsenal.