MPs decline to vote
Earlier this month, MPs had the opportunity to vote on the long-awaited failure to prevent economic crime offence, in the guise of an amendment to the Financial Services Bill. They declined to vote, citing a desire to wait for the outcome of the Law Commission's review into corporate criminal liability. The much discussed and well supported reforms have again been kicked into the long grass.
We know that this change to the law has the support of law enforcement agencies. It was a key part of a speech made by SFO Director Lisa Osofsky at the Royal United Services Institute on 8 October 2020. Among the plethora of challenges, both present and future, that she described the SFO as facing, the difficulty in establishing corporate liability for criminal offences was chief among them. The current identification route (with liability being attributed via the "'directing mind and will" test) is hard to prove; corporate entities are now very different beasts compared to the time when this test was formulated. It is difficult to trace corporate liability through large, multinational entities, where true leadership and direction is invisible in complex, multi-jurisdictional governance structures. This creates a challenge when attempting to hold companies to account for economic crimes committed by them or on their behalf.
SFO support for a change in the law
Ms Osofsky made explicit her support for a "failure to prevent" offence being added into legislation in relation to fraud, in line with the section 7 of the Bribery Act 2010 and section 45 of the Criminal Finances Act 2017 (facilitating tax evasion). These Acts make it possible for corporates to be found guilty of an offence not only if they committed the offence themselves, but also if they failed to prevent the commission of the offence by those acting for the corporate or on its behalf. The defence? To be able to demonstrate that, at the time of the offence, the corporate had in place adequate safeguards to prevent the criminal conduct.
A lacklustre response from the Government to the 2017 Call for Evidence
The Ministry of Justice (MoJ) has spoken out with the same view as Ms Osofsky in recent years, and the responses to its 2017 Call for Evidence (CfE) on the issue of Corporate Liability for Economic Crime demonstrated the wide support for change to the existing law.
Despite this, the response to the CfE published by the MoJ in November 2020 was underwhelming, stating that the Government was "unable to draw decisive conclusions regarding whether, and how, [its] approach to corporate liability for economic crimes can be strengthened" and that the findings "do not provide a conclusive evidence base on which to justify reform". So, after more than three and a half years of waiting for evidence to be collated and analysed, the CfE did not move the debate forwards.
Enter the Law Commission
The Government's response was to commission an expert review by the Law Commission. The aim is that the Law Commission will take into account recent developments in this area, including the facilitation of tax evasion offence under the Criminal Finances Act 2017 (although no cases under these provisions have yet been decided), the expansion of the Senior Managers & Certification Regime and the introduction of new Money Laundering Regulations in 2017, among others.
Looking ahead
In discussing the possibility of legislative change, the corporate response to the Bribery Act in 2010 should not be forgotten. Substantial amounts of money were spent in a somewhat hurried attempt to comply with the new regime, for fear of severe consequences. It is difficult to know whether the period of quiet that ensued in regards to charges brought under the Act was due to effective compliance or government reprioritisation. What is certain, however, is that now does not seem an opportune time to throw another tool on the fire of corporate hardship. It also merits consideration as to whether new, extensive offences (as desired by Ms Osofsky) would be the most effective and efficient way forward on corporate criminal liability.
In musing on the potential effects of Covid-19 and Brexit on the world of economic crime, Ms Osofsky highlights investment fraud as an area likely to grow in the near future. She bases this on the premise that investors are more likely to consider high risk schemes that have the potential to be fraudulent when faced with the inevitable "stress of a difficult investment climate". The SFO, Ms Osofsky claims, are looking to the horizon to identify any possible "next-Gen" versions of such schemes.
The path that lies ahead for the Director of the Serious Fraud Office is even more treacherous than the one facing her when she took up her position in August 2018. The crucial decision to be made surrounds the issue of how corporate entities are to be treated in light of the convergence of two generation-defining events: Brexit and the Covid-19 pandemic. Should strictures be loosened, or should corporates be scrutinised more than ever in their response to economic crime?
For good corporate citizens, the answer will seem obvious: they will have observed the rise and rise of the compliance programme, the global uptake of the "failure to prevent" model, and the increase in forms of financial crime which are now in circulation. So, the long term vision is clear. In the short term - a reprieve, and a chance to prepare corporate governance programmes, update compliance controls and ready the ship for the journey ahead.
Authors: Ruby Hamid, Ross Denton, Tim West and Max De Tommaso
