What is economic crime and can economic crime be quantified?

The Treasury Committee’s inquiry into economic crime has asked for evidence into the scale of money laundering, terrorist financing and sanctions violations in the UK. The challenging nature of such a quest is perhaps best demonstrated by the answer given by Interim SFO Director Mark Thompson to the question “how big is the problem of economic crime, and can you quantify it?” To which he replied “the short answers would be “big” and “no”.

This is backed up by reports such as the National Strategic Assessment of Serious and Organised Crime, published by the NCA in May 2018 which states that: “There is no reliable estimate of the total value of laundered funds that impacts on the UK. Although, the Anti-Corruption Strategy 2017-20 quotes earlier estimates from the NCA that: “up to £90 billion of illicit funds are laundered through the UK each year”. However, regardless of whether or not it is quantifiable and if so to what extent, law enforcement agencies and legislators are in agreement that, citing Mark Thompson, “the fact it is difficult to quantify does not mean you cannot attempt to tackle it.”

So what can we expect to be done about it?

European efforts

With the Fourth Money Laundering Directive over a year into its national implementation via the Money Laundering Regulations 2017; the Fifth Money Laundering Directive adopted and due to be in national law by 10 January 2020; and, the Sixth Money Laundering Directive wending its way through the EU’s legislative process you could say a huge amount is being done to tackle money laundering. (See here for our related blogs).

However, if you drill down to look at the practical application of anti-money laundering legislation there appears to be limited impact. Indeed, in the UK no prosecutions for breach of the Money Laundering Regulations 2017 have been brought against individuals, nor against companies.

Reforming the law to hold corporates to account

This takes us onto the thorny issue of holding corporates to account for economic crime. Former Director of the Serious Fraud Office David Green QC had a long-held ambition to bring about reform of the law on corporate criminal liability. Speeches given to date look jealously at the US model of vicarious liability and consistently refer to the need to do away with the “identification principle”. This means that before a company can be prosecuted, the prosecutor is required to identify the “controlling mind” of the company and prove that that person was complicit in the offence under investigation.

Back in 2016, Green set the scene: “in a world of increasingly complex corporate structures, the identification principle can hobble the prosecutor in those cases where it is right to prosecute the company.”

Mark Thompson reiterated this position to the Committee and in a subsequent letter to the Chair dated 16 July. In this letter he sets out reasons why the identification principle is in effect, not fit for purpose resulting in it “often being impossible to prosecute the company not withstanding that they may be the beneficiaries of the wrongdoing”.

In summary he sets the issues as follows:

  • Corporates go unpunished
  • It’s scope is unclear (particularly when it comes to middle management and completed corporate structures)
  • Unfairness between large and small companies (it being easier to establish the controlling mind of a small entity)
  • It is counter- productive, i.e. it encourages leaders to distance themselves from the operation of the company and lends itself to bad habits, e.g. lack of record keeping and delegating responsibility
  • It undermines the Deferred Prosecution regime (DPAs) as corporate offenders consider the risk is work taking as a prosecution is unlikely to be successful

The SFO’s proposals for reform are two-fold. Firstly, replacing the identification doctrine with a new principle of attribution of corporate liability which would set out the circumstances in which a company would be criminally liable. In summary this would be if a person associated with the company commits an offence intending to obtain/retain business or a business advantage for the company or would otherwise benefit (financially) the company. Secondly, the creation of a new offence of failing to prevent economic crime similar to s7 of the Bribery Act 2010 (which the SFO maintain has been a success) and failure to prevent tax evasion under the Criminal Finances Act 2017. (See our related blogs).

So despite the delay in government action on this point - given the Anti-Corruption Strategy 2017-20 only confirmed that the Government will “consider the findings” of the call for evidence to extend corporate criminal liability beyond bribery and tax evasion and consult “if appropriate” on how new offences might be introduced - it appears that MPs may have the bit between their teeth. Spurred on perhaps by the influential organisation Transparency International (UK) who, in its evidence to the Treasury Committee, also recommended that the identification doctrine should be abandoned and replaced with strict (vicarious and direct) liability ) offences.

Conclusion

So it may be just a matter of time before this new offence is in the statute books.  Not least as the Law Commission has today published a consultation paper on reform of the anti-money laundering regime.  A number of proposals for reform are set out including questions as to whether consideration should be given to a new offence whereby a commercial organisation would be criminally liable for their employees’ or associates’ failure to report suspicions of money laundering or terrorist financing? The paper sets out the very arguments rehearsed above. 

In the interim, money laundering is top of the agenda for enforcement agencies. As Donald Toon (Prosperity Command at the NCA) told the Committee, “money laundering is a facilitator of almost all serious, organised and major crime. Tackling it is absolutely a strategic priority for law enforcement in the UK. This confirmed by the Financial Conduct Authority’s Annual Report for 2017-18 and related Anti-Money Laundering report published this week which confirmed that over the next year is improving the UK’s defences against money launderers will be one of its key priorities: “financial crime cannot have a home here”.

So despite the perceived problems with the law as it stands when it comes to prosecuting corporates, it is still possible and so to ignore money laundering within a company is high risk for those in a managerial position.