The UK government is considering making it an offence for a commercial entity to fail to prevent economic crimes. If implemented, the proposal will have serious implications for Australian companies carrying on a business or part of a business in the UK.
Under similar groundbreaking provisions in the UK Bribery Act 2010, a company can be prosecuted for failing to prevent acts of bribery perpetrated by an employee, or by any other person deemed to be associated with the company (such as agents, or third parties with apparent authority).
The penalty for breach of this provision is a fine - an unlimited sum. The only available defence is that the entity had ‘adequate procedures’ in place to prevent persons associated with the company from engaging in the conduct.
What constitutes adequate procedures in any given case depends on a variety of matters, such as the nature of the risks, the types of risk assessment and due diligence undertaken, the proportionality of policies and measures in place and the response to issues identified.
Despite criticism that this measure was overly burdensome and unfair on companies, UK Attorney General Jeremy Wright has now signalled that the measure may be widened so that companies could also be prosecuted for failing to prevent economic crimes, such as fraud and money-laundering.
At the recent Cambridge symposium on economic crime, Attorney General Wright stated that “the government is considering proposals for the creation of an offence of a corporate failure to prevent economic crime, modelled on the section 7 Bribery Act offence.”
The idea was apparently first raised last year by David White, the director of the UK Serious Fraud office. The plan appears to have cross-party support, with Labour shadow attorney-general Emily Thornberry endorsing the proposal, stating “we have to make companies vicariously liable for the acts of their employees.”
Implications for companies worldwide
The proposal, if implemented, will have far-reaching consequences for Australian and other companies worldwide because:
- The scope of the proposed jurisdiction of the new offences will be modelled on Section 7 of the UK Bribery Act 2010 – that is, they will apply to any company carrying on a business or part of a business in the UK. No ‘close connection’ to the UK is required for these provisions to operate, and their application is potentially extremely broad.
- The definition of “economic crime” will be broad. Attorney General Wright has stated that “economic crime encompasses a wide range of unlawful activities, much of which is targeted directly at individuals.” Examples specifically mentioned by the Attorney General in his speech include general fraud, money laundering, the defrauding of bank accounts and the cloning of credit cards.
- Companies will be liable where such economic crimes are perpetrated by anyone “associated with the company”— including employees, contractors, joint venture partners, other business partners, agents or other third parties.
- The potential penalties are significant-- available fines are likely to be unlimited, as is the case under the Bribery Act for the comparable offence. A point of reference may be found in the UK Sentencing Council’s new guidelines, which recommend that companies found guilty of bribery be fined as much as 400 per cent of any profits accrued from the relevant acts of bribery.
Importance of adequate procedures and processes to prevent bribery and economic crime
It is extremely important that companies have in place adequate (proportionate) policies and procedures to prevent bribery and other forms of economic crime. In this way, companies can best defend themselves in the unfortunate event that they fail to prevent an act of bribery or other economic crime by the company or associated entity. It will be much more likely that any prosecutions associated with such crimes focus on individual ‘rogue actors’ rather than the company.
So, you may ask, what will constitute adequate procedures? There is no one-size-fits-all answer to that question, and no precision in guidelines issued by the UK Ministry of Justice which address the definition of adequate procedures for preventing bribery.
However, the guidelines do suggest they may include:
- Involving the organisation’s top-level management in developing anti-bribery policies and procedures;
- Having appropriate risk assessment procedures;
- Conducting appropriate due diligence with respect to existing or prospective “associated persons”;
- Having strong financial and commercial controls such as adequate bookkeeping, auditing and approval of expenditure; and
- Undertaking appropriate training in relation to an organisation’s policies and prevention procedures.
Any new offence is likely to have similar associated guidelines.
A look to the future
Given the level of cross-party support, it appears likely that this proposal will be implemented. Australian companies with business operations in the UK (however minimal) should already have procedures in place designed to prevent acts of bribery. These companies should now assess whether they have adequate measures for prevention of other economic crimes. Such a step would, of course, constitute sound risk management in any event.