A united front

The expansion of corporate criminal liability: risk or responsibility?

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A UNITED FRONT – The expansion of corporate criminal liability: risk or responsibility?

19/01/2023

There are different ways to view the expansion of corporate criminal liability: is it yet another risk for corporates to bear or simply a further formalisation of a requirement to operate in a responsible and sustainable manner? In our opinion, the new legislation provides yet further motivation to implement procedures to safeguard businesses from being used as a vehicle for criminal activity. The ultimate benefit – a safer market – will be felt by corporates and consumers alike.

The rise of economic crime, particularly fraud, has been a recurring headline, exacerbated by the increase in online fraud during the COVID-19 pandemic. Fuelled by the success of the Bribery Act 2010 (the “Bribery Act”) in driving a change in corporate behaviour to better prevent bribery, proposals have been drawn up to implement similar measures in relation to fraud, money laundering and false accounting.

What’s the background?

The Law Commission’s Options Paper, published in June 2022, outlined various ways in which a new corporate offence might be structured. It is no surprise to many of us that the favoured approach follows the blueprint of section 7 of the Bribery Act (which also underpins the corporate offences in relation to tax evasion in the Criminal Finances Act 2017), with liability for “failing to prevent” being the primary offence.

new legislation provides yet further motivation to implement procedures to safeguard businesses from being used as a vehicle for criminal activity

What does the new offence look like?

On 18 November 2022, the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax tabled an amendment to the Economic Crime and Corporate Transparency Bill (the second such bill of 2022, aimed at ‘plugging the gaps’ in the first which had sped through Parliament in a single day in reaction to events in Ukraine). The amendment: the imposition of criminal liability on a “commercial organisation (“C”)” where it fails to prevent fraud, false accounting or money laundering by an “associated” person[1] but with the availability of two defences:

(a) the criminal conduct in question was intended to cause harm to C itself; or

(b) C had in place at the relevant time “procedures that were reasonable in all the circumstances” and which were designed to prevent the criminal conduct in question.

C’s responsibility for “reasonable” procedures

Although the new defence would seem to be firmly rooted in the Bribery Act’s “adequate procedures” defence, an obvious question is why the difference in language?

Prior commentary by The House of Lords Select Committee on the Bribery Act on future legislation, provides a clue: “…there is no intended or actual difference in meaning between “adequate” procedures and procedures which are “reasonable in all the circumstances”…we believe the latter more clearly gives the intended meaning.[2]

Ultimately, we anticipate further guidance being issued to flesh out the way in which the “reasonable procedures” defence is intended to operate

In practice, we believe there will be little, if any, difference. As ever, it will come down to procedures being judged on a case-by-case basis. Therein lies some concern: how will C predict with any certainty whether its procedures will be judged as having been “reasonable”? This is particularly concerning when viewed in the context of the limited options C will have when seeking to fulfil the extensive cooperation requirements that the Serious Fraud Office currently demands if C were to seek a deferred prosecution agreement.

Ultimately, we anticipate further guidance being issued to flesh out the way in which the “reasonable procedures” defence is intended to operate. However, as we have seen in respect of the Bribery Act,[3] such guidance does not provide all the answers. In practice, it is very much C’s responsibility to be proactive in assessing and asserting what is reasonable, including by stress-testing policies and procedures already in place and being alive to its operational risks at any given time.

the expansion of corporate liability in this way is intended to protect not just the consumer and the wider market, but also C itself

This may sound like a tall order for C but it is important to step back and remember the bigger picture: the expansion of corporate liability in this way is intended to protect not just the consumer and the wider market, but also C itself. Against a backdrop of increased regulation around ethical and sustainable business practices – most notably the growing awareness and scrutiny in respect of ESG concerns – strengthening safeguards in respect of economic crime is surely to be viewed as an inevitable, and positive, step. And, although new legislation would represent further formalisation, it does not change C’s underlying (and self-beneficial) responsibility to understand the risks specific to its own business and to have in place effective policies and procedures to mitigate those risks.

CONCLUSION

It is important to see the expansion of corporate criminal liability as a benefit and to integrate it within your sustainable and ethical business practices. Now is the time to ensure that your policies and procedures are fit for purpose and to be proactive in your response to the current and emerging risks.


[1]         Economic Crime and Corporate Transparency Bill (Amendment Paper) at NC73.

[2]         “The Bribery Act 2019: post legislative scrutiny”, published in March 2019 at paragraph 232.

[3]        Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing, Section 9 of the Bribery Act 2010.

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Samantha Paul

Senior Knowledge Lawyer, London