Tom Stocker: The new front in the fight against corporate crime

Tom Stocker: The new front in the fight against corporate crime

Tom Stocker

Tom Stocker details developments in the law surrounding fraud and related offences.

A new offence of failing to prevent “fraud, false accounting or money laundering” is to be introduced into UK law, security minister Tom Tugendhat has confirmed.

Currently, “failure to prevent” offences exist in the UK in respect of bribery and the facilitation of tax evasion but there has been repeated calls for that list of offences to be expanded.

The Economic Crime and Corporate Transparency Bill is currently progressing through Parliament. Last month, a number of MPs called for the introduction of a new corporate offence of failure to prevent fraud, false accounting or money laundering. Tom Tugendhat responded that the government intends to address the need for a “failure to prevent” offence and will introduce it in the House of Lords. At present, the government’s proposals in this regard are pending but it is likely to be mirrored on an existing offence of corporate failure to prevent bribery.

Under existing law, for corporate liability to flow from a fraud, false accounting or money laundering offence, the prosecution would need to demonstrate the guilt of the company’s “directing mind and will” - i.e., someone sufficiently senior and autonomous to act as the company rather than simply its representative or agent, at least for the activities in question. This makes it extremely difficult to prosecute medium to large companies where decision making is often delegated to those below the executive directors.

The proposal to extend the corporate failure to prevent offences to fraud, false accounting and money laundering is ground changing. The proposals will make is significantly easier for the authorities to prosecute and convict a company on the grounds that they failed to prevent fraud, false accounting or money laundering by any level of employee or even by a third-party service provider or contractor.

Exaggerated tender submissions and misleading sales documents could expose companies to prosecution, particularly if it concerns public sector contracts where there is a heightened public interest in preventing fraudulent bids. Currently, only a limited number of companies need to have in place anti-money laundering procedures. The proposed changes will expose all businesses to the criminal jeopardy for money laundering failures.

The new offence will be subject to a compliance-based defence and, as occurred with the passing of the Bribery Act 2010, there will be a need for businesses to expand their compliance programmes to ensure they are sufficient to prevent fraud, false accounting and money laundering.

In Scotland, in parallel to the Bribery Act 2010 coming into force, the Crown Office and Procurator Fiscal Service (COPFS) introduce a corporate self-reporting policy to encourage companies to disclose, voluntarily and directly to COPFS, instance of failing to prevent bribery in return for the opportunity to resolve criminal offending on a civil basis. It may be that COPFS will extend the self-reporting initiative to address corporate fraud and money laundering, which really would be a highly significant development in the enforcement of corporate wrongdoing.

Tom Stocker is a partner at Pinsent Masons

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