U.K. Economic Crime and Corporate Transparency Bill 2022-2023: Call for a New "Failure to Prevent Fraud" Criminal Offence
The U.K.’s Economic Crime and Corporate Transparency Bill 2022-2023 (Bill 154) is a government bill introduced in the House of Commons on 22 September 2022. The second reading was on 13 October 2022 and the Bill completed its commons committee stage on 29 November 2022. The report stage took place on 24 January 2023 followed by the third reading. The Bill follows the Economic Crime (Transparency and Enforcement) Act 2022, which we discussed via a March 2022 advisory, which was fast tracked to Parliament in March 2022 in response to Russia’s invasion of Ukraine.
During the passage of the earlier Bill, the government committed to introducing a second Economic Crime Bill in the 2022/2023 session of Parliament and it is therefore referred to as the Second Economic Crime Bill Many of us have been following with interest the lively Commons debate on the Bill. U.K. Government Security Minster Tom Tugendhat said that the Bill is “closely focused on economic crime and corporate transparency for the purpose of passing a series of measures that are essential to ensure that we keep our country safe and our economic jurisdictions clean.” Whilst the Bill has suggested several significant reforms, and all deserve further in-depth analysis, one key point of consideration is the consensus to create a new “failure to prevent fraud offence” – a further step in the evolution of the failure to prevent offences.
The Evolution of the Failure to Prevent Offences
For the last decade, there has been a leaning towards imposing the failing to prevent offences which have no doubt changed the landscape of corporate criminal liability. The Bribery Act in 2010 created a new kind of criminal offence for corporate entities failing to end bribery. This was arguably the most significant legislative act, creating a direct liability on part of the corporate body subject to any available defences and avoiding the traditional identification principal route.
The next significant failure to prevent approach was seen in the Criminal Finances Act 2017 and the creation of offences of failure to prevent the facilitation of tax evasion. The Bill will introduce the new failure to prevent offence as an amendment to the Economic Crime and Corporate Transparency Bill which will now make its way to the House of Lords. The news was welcomed by many because it has been difficult for prosecutors in the U.K. to hold corporates to account for criminal behaviour, especially in economic crime-related offences. The traditional identification doctrine requires that only the acts of a person who represents a company’s directing mind and will can be attributed to a company. The introduction of a failure to prevent offence is attractive in that it overcomes such difficulties. The basis of a failure to prevent offence is, to have a defence, an organisation needs to prove that it has reasonable, adequate procedures in place to prevent an individual associated with it from carrying out a criminal activity. The suggested new clauses 4 and 5 are likely to be based on a similar “failure to prevent” approach. Last week in the Commons, Sir Robert Buckland said that the “huge value” of the Bribery Act 2010 is a key factor leaning towards the introduction of a further failure to prevent offence and reflects a clear change in the way the country deals with economic crime. He noted with interest that the nine deferred prosecution agreements that the Government brought in the early part of the last decade for failure to prevent bribery accounted for 90% of the £1.7 billion in revenue that the Serious Fraud Office (SFO) has brought in through Deferred Prosecution Agreements.
It shall be interesting to see exactly what test is applied to the proposed new offences. There was temptation to follow a recommendation in the report by the House of Lords’ Fraud Act 2006 and Digital Fraud Committee, to apply the wider test contained within the Criminal Finances Act 2017 relating to failing to prevent tax evasion. However, there is also an awareness of the dangers in going that far, not requiring an intention by the corporate or the individual to confer a benefit on the company or a benefit on a person to whom the suspect — the defendant — is providing services on behalf of the company. Alternative approaches include replicating the Bribery Act, and Sir Buckland emphasised the need to strike the right balance and to not widen the test to an extent “that could in many ways create further unfairness. We have an obligation to ensure that balance is maintained.” The Government has the additional task of considering how the offences shall be formalised. Will it be a single offence, or are there separate offences being proposed for failing to prevent fraud, false accounting and money laundering?
The debate in Parliament and the Government’s plans to introduce the offence will hopefully walk hand-in-hand with proper guidance and effective enforcement to be a “game changer”. Proper guidance should be provided to all relevant parties in understanding the implementation of the new proposed offence, and particularly, in what would be considered reasonable. Furthermore, whilst a new failure to prevent fraud offence will appeal to many, arguably it will only tackle the corporate culture if the Government is willing to invest in effective enforcement plans. Politician Stephen Kinnock summarised, “these laws, like any others, will be only as useful as the willingness and ability of this or any future Government to enforce them.” The lack of resources for U.K. law enforcement agencies brings a sharp reminder to the issues before us. The statistics are not helpful – 168 prosecutions and five convictions were brought against companies by the SFO between 2016 and 2021. Many will agree that the proposed new offence has placed a spotlight on the need to revisit the entire financial framework and the priority with which U.K. authorities are investigating and prosecuting economic crime.
The suggested amendments before Parliament – the creation of a mechanism enabling more of the funds generated by enforcement activity to be reinvested back into the agencies and protecting law enforcement agencies from adverse costs when they bring civil recovery proceedings – sound positive as long as they act reasonably and honestly. Our White-Collar Crime Investigations and Enforcement practice will continue to monitor whether the amendments are adopted as the Bill heads to the House of Lords.