Failure to Prevent Economic Crime – One step closer?

• United Kingdom

• Fraud and financial crime
• Litigation and dispute management

15-01-2021

Following six years of calls from parties interested in combatting economic crime, including the current Director of the Serious Fraud Office and her most recent predecessor, the House of Commons finally debated a proposed corporate offence of failure to prevent economic crime on Wednesday.

Fraud and money laundering continues to remain a serious global issue. UK prosecutors have long argued that under the existing principles of corporate liability it is too difficult to hold a company to account where serious economic crime has taken place within the company, and have advocated that the introduction of a ‘failure to prevent’ offence to address this issue.

The proposed offence was introduced in December 2020 as a late amendment to the Financial Services Bill, and was debated during the Bill’s Third Reading in the House of Commons on 13 January 2021.

The amendment was ultimately not accepted by the House of Commons on the basis that it would pre-empt the outcome of the ongoing review by the Law Commission into reform of corporate criminal liability in the UK, which is due to be published in late 2021.

The proposed offence

The offence as it was proposed would only have applied to firms authorised and registered by the FCA.

The proposed offence would have been committed in circumstances where a regulated firm either facilitates economic crime or fails to take the necessary steps to prevent it being committed by those acting in the entity’s capacity. Economic crime was limited to fraud, false accounting and money laundering.

As with all other ‘failure to prevent’ offences, the offence would have been punishable by an unlimited fine, but a defence of ‘reasonable procedures’ would have been available.

Future outlook

The indications are that in a Post-Brexit Global Britain, the UK government remain keen to keep up with the increasing changes brought by global regulation, particularly in regard to keeping up with the US and EU. The sixth EU anti-money laundering directive requires EU states to introduce a corporate offence of failing to prevent money laundering by 3 June 2021.

The presentation of the failure to prevent economic crime offence to Parliament represents a very significant development. The proposal garnered much cross-party support, indicating a willingness at government level to introduce a new corporate offence in the future, and also gave valuable insight into how any further proposed offences might look.

We await the outcome of the Law Commission’s review, but we take the view that we are a step closer to seeing a failure to prevent economic crime offence being introduced in the UK.

Companies and financial services firms in particular should keep a close watch on further developments as should such an offence eventually be introduced, it will be imperative to conduct a full review and refresh of existing anti-fraud and anti-money laundering systems and controls so as to ensure that they are sufficient in reasonably preventing economic crime.

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