Replicating the SFO’s success in prosecuting failure to prevent bribery by applying the model to other offences such as fraud and money laundering may be more difficult than it appears at first.
In one of the more interesting turnarounds of the year, the Government has revived plans to introduce a corporate offence of failure to prevent fraud, just months after indicating it had no plans to proceed with it. At the time, Justice Minister Andrew Selous said the reasons for dropping the offence was that there had been no prosecutions under the Bribery Act, and that “there is little evidence of corporate economic wrongdoing going unpunished.”
A little under nine months later, what has changed? The Government’s own press release cites “two recent prosecutions for the offence of failure of a commercial organisation to prevent bribery on its behalf.” Strictly speaking that should be just one (Sweett Group) as the other corporate bribery case in fact resulted in a DPA – short for Deferred Prosecution Agreement.
The release is instructive in how the government clearly intends to take the ‘failure to prevent’ “model” and apply it to new offences. A corporate offence of failure to prevent tax evasion is already in consultation; it is clear that the Bribery Act model is being closely followed, including the “adequate procedures” defence, with some significant differences: First, there is no requirement that the offence be for the benefit of the company (s7 of the Bribery Act, by contrast, requires that the bribe is to obtain or retain business or an advantage in the conduct of business for the company), second, the facilitation must be dishonest; and third, an extra layer of complexity is added by the creation of a “facilitation offence” and thereafter a “failure to prevent a facilitation offence”.
We have previously dealt with the nature of S7 of the Bribery Act and how it represents a statutory workaround to the “problem” of establishing corporate criminal liability in the UK. Establishing a criminal offence on a breach-of-duty basis is not objectionable per se, when the underlying criminal conduct is clear and within defined limits, such as with the Bribery Act or the Corporate Manslaughter and Corporate Homicide Act 2007.
However with each step that is taken away from criminal offences that describe specific conduct (i.e. conduct in a tightly defined scenario) towards offences of general conduct (many more factual situations, victims, beneficiaries) the circumstances in which a corporate should be held liable for failing to prevent such offences will need to be ever more circumscribed, while the offences themselves become ever more complex.
So, for example, a “tax evasion facilitation offence” under the proposed new law involves either: (i) aiding, abetting, counselling or procuring a “tax evasion offence” (itself defined elsewhere), (ii) actually committing the offence by virtue of being knowingly concerned in the fraudulent evasion of tax by another or (iii) taking steps with a view to the fraudulent evasion of tax by another person but only if the other person actually commits a tax evasion offence facilitated by the steps taken. It is not understood why there needs to be a distinction between being “knowingly concerned” and “taking steps with a view to facilitation” but it demonstrates the difficulty in defining liability in a fair manner in a complex area of the law.
With regard to Fraud and Money Laundering, the two next candidates for the ‘failure to prevent’ treatment, problems of clarity and definition will multiply. The so-called ‘Fraud offence’ under the Fraud Act 2003 is in fact three offences, distinct in character from one another. Fraud by false representation merely requires a false representation, dishonestly made with a view to making a profit or avoiding a loss. It has been described in the past as an inchoate offence, and equivalent to ‘thought crime’ as there is no requirement that the false representation be heard, much less acted upon to a person’s detriment. The other two Fraud offences involve an effective breach of duty: a dishonest failure to disclose information, and dishonest abuse of a position he is expected to safeguard. It remains to be seen what boundaries the Government will set for a corporation to be held liable for failing to prevent a fraud offence, but the complexity of legislating either an offence of failure to prevent fraud, or failure to prevent the facilitation of fraud, is unsettling, particularly if it is assumed that the offences need not be for the benefit of the company that is the target of the “failure to prevent offence”.
It remains to be seen how corporate “failure to prevent” offences will encompass existing Money Laundering offences and reporting obligations, already an area of much complexity, itself slated for reform in the Queen’s speech. Given that the minimum mens rea for money laundering offences is mere suspicion, in some cases actual suspicion and in others mere reasonable grounds for such, it is submitted that a “failure to prevent” offence would be impractical unless there were provision for the court hearing the matter to make a finding that money laundering had occurred, whether or not there was a separate prosecution for it.
In addition, such offences will most likely cut across (and in many cases duplicate) existing obligations set by the Money Laundering Regulations 2007. The Government will need to think carefully whether to make the offence applicable to all, or merely to restrict it to those currently operating in the “regulated sector”. The former will effectively extend the Money Laundering Regulations to all persons, while the latter choice may not result in any appreciable difference in obligations for those currently subject to the Money Laundering Regulations.
We await the Government’s proposals with interest.