20 October 2015

Government drops new corporate offence of failure to prevent economic crime

In a statement that will come as a surprise to many corporates and their lawyers, Andrew Selous MP, the Parliamentary Under-Secretary of State at the Ministry of Justice, quietly announced recently that ministers have decided against carrying out further work in relation to the proposed new offence of corporate failure to prevent economic crime and the rules on establishing corporate criminal liability more widely.

The highly anticipated new offence was expected to be drafted on similar lines to the criminal liability offence for corporates that fail to prevent bribery under section 7 of the UK Bribery Act 2010.  The proposals had received strong support from David Green QC, Director of the UK Serious Fraud Office, who has previously criticised the current corporate liability regime stating that the need for prosecutors to prove (save for the corporate offence at section 7 of the UK Bribery Act), to the criminal standard of proof, that the “directing mind and will of the company” (i.e. an individual at the executive / board level) had knowingly committed the relevant criminal act created a huge evidential difficulty for prosecutors and encouraged executives to isolate themselves against the risks.  The new offence would have criminalised a corporate’s failure to prevent economic crime committed by its employees / agents unless it could show that it had adequate procedures in place to prevent the relevant type of behaviour.

Whilst it was expected that there would be resistance to the proposal, in particular, against the additional time and cost burden imposed on companies working in the UK, it was widely believed that the Ministry of Justice would proceed with its plans.  The regulatory environment has been increasingly moving in this direction (in line with the US model) and, with the number of high profile accusations against large companies over the last year, it is surprising that the Government would opt to not increase its armoury in this way. 

It is however worth noting that Andrew Selous MP justified the Government’s volte face on the basis that “at this stage as there have been no prosecutions under the model Bribery Act offence and there is little evidence of corporate economic wrongdoing going unpunished”.  As such, it may just be that ministers want to see how the current model under section 7 of the UK Bribery Act pans out before applying this approach to a wider regulatory framework.  

Corporates, their lawyers and regulators should all continue to watch this space; particularly once the first prosecutions emerge under section 7 of the UK Bribery Act.

Related Article: The UK Anti-Corruption Plan

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