On 24 January Lord Theodore Agnew, the minister in the Treasury and Cabinet Office with responsibility for counter-fraud and cross-government efficiency, unexpectedly resigned citing for cause the government’s ‘lamentable’ oversight of the Covid loans schemes and ministers ‘foolishly’ shelving plans to introduce a new economic crime bill in the next parliamentary session. This prompted MPs to debate the urgent need to reform the allegedly weak and outdated legislation that, according to them, has turned the City of London into a haven for illicit financial flows from across the world. The ongoing crisis in Ukraine has now induced the UK Government to consider the MPs concerns, and to discuss the economic crime bill on 1 March. Amongst the key issues highlighted was the overhauling of the UK’s corporate criminal liability legislation.
The Director of the Serious Fraud Office (SFO) has previously advocated changing the law relating to corporate criminal liability. In particular highlighting two aspects that, if backed by a Law Commission review which is currently under way and due in spring 2022, will widen the scope of a company’s criminal liability vis-à-vis economic crime offences committed by its employees. In addition, the Treasury Committee re-emphasised in its 26 January report that failure to reform these two areas means that ‘corporate criminals will continue to […] escape prosecution’.
The first is to reform or expand the ‘controlling mind’ test. Under current legislation corporates can only be liable for most criminal offences if those who represent the ‘directing mind and will’ committed the wrongdoing. As the SFO commented in June 2021, this test makes it difficult to prosecute companies where mid-level employees commit misconduct. For example, the SFO prosecution of Barclays bank in 2018 failed when the High Court interpreted the requirement as meaning members of the bank’s board had to have committed the alleged misconduct to warrant charges.
The second is to create a new criminal offence for ‘failing to prevent economic crime’, similar to the existing offences of failure to prevent bribery and failure to prevent the facilitation of tax evasion. This would allow, for example, banks to be held to account for granting fraudulent bounce-back loans. Practically, companies will need to implement, and demonstrate to have implemented, adequate measures to prevent the occurrence of economic crimes. When the UK Bribery Act introduced this requirement, this placed a significant burden on compliance programs.
The Council of Europe in January also urged the UK to reform anti-money laundering legislation to comply with the 2005 Warsaw Convention, which requires signatories to have in place sufficient legislation to hold companies liable for money laundering. The Council noted current UK legislation makes it difficult to prosecute corporates where there is lack of oversight from senior management. Both changes described above would address these concerns.
Against this backdrop, but in the absence of concrete reforms to corporate liability legislation it can be difficult to know which direction to take. We believe that taking steps now to strengthen existing compliance structures will help future-proof organisations and lessen the potential burden to compliance teams. In order to detect and prevent the occurrence of economic crimes, we advise following best corporate practice, and guidelines where a ‘failure to prevent’ offence already exists, for example the Ministry of Justice’s Guidance on the Bribery Act 2010. It must be noted that a robust and effective compliance structure not only may prevent an offence from occurring, or mitigate its seriousness, but also reduce a sentence imposed by the courts.
Practical steps organisations may take include:
- Promote a strong culture of ethics and compliance through all corporate levels;
- Ensure a strong ‘speak up’ culture complemented by a whistleblowing policy and channels;
- Perform, and regularly update, an economic crime risk review and related mitigation plan;
- Screen contractors and potential new employees, and provide them with regular training;
- Impose segregation of duties and ‘four-eyes’ reviews;
- Monitor transactions for unusual behaviour, ensuring that monitoring rules are regularly reviewed to ensure they address new and emerging risks, and implement a policy to follow up red flags, including potential referral to external specialists and relevant authorities; and
- Implement an effective and independent internal audit function.