Corporate crime reform in the UK: little ambition? Too ambitious? Or just unrealistic? | Hogan Lovells

Since its publication, the Paper Options was met with a mixture of outrage, skepticism and cautious optimism. In this article, we take a detailed look at the options offered and look at possible next steps.

Reform options were explored with a view to addressing the challenges facing the criminal justice system under current corporate criminal liability legislation, while seeking to avoid disproportionate burdens on businesses.

The project, which began in November 2020, focused primarily on economic crime, such as fraud, tax evasion, corruption or money laundering, with the Law Commission noting that these types of offenses are particularly likely to be committed in a corporate context.

The Law Commission has identified ten options for reform, which must now be considered by the government:

  • Retain the “Identification Doctrine” as it currently stands, i.e. a company’s culpability will depend entirely on the culpability of its “directing mind and will”[1];

  • Allowing attribution of conduct to a company if a member of its senior management engaged in, consented to, or colluded in the violation, with the addition that chief executives and chief financial officers still be considered part of the senior management of an organization;

  • Establish an offense of failure to prevent fraud by an associated person (eg, employee or agent) who performs services on behalf of the organization. This offense would cover a limited number of basic fraud offenses[2] but would not extend to conspiracies or attempts. As with the current “failure to prevent offences”, there would be a defense that a corporation has put in place reasonable procedures to prevent fraud by its associated persons. Government guidelines on reasonable procedures would also be issued.

  • Introduce an offense of failure to prevent human rights violations. This option is largely intended to address human rights abuses abroad;

  • Introduce an offense of failing to prevent abuse or neglect. In an exception to the Law Commission’s general principle, it would not be necessary to demonstrate that the conduct was intended to benefit the organization;

  • Introduce an offense of failure to prevent computer misuse. Any such offense would have to take into account the complex extraterritoriality provisions of existing computer misuse legislation;

  • Make publicity orders available in all cases where a company has been found guilty of an offence;

  • Introduce a regime of pecuniary sanctions imposed by administrative means;

  • Introduce a civil actions regime in the High Court, based on serious crime prevention orders, but with the power to impose pecuniary penalties as well as punitive and preventive measures; and

  • Introduce reporting obligations requiring public interest entities and large companies to report on anti-fraud procedures.

Opposition MPs and NGOs have criticized the lack of ambition in the attempt to tackle the identification doctrine. There have also been criticisms of the lack of more aggressive options to increase avenues to hold company management criminally liable for white-collar crime.

However, many lawyers and businesses have welcomed the law commission’s decision to reject, at least for now, an option to introduce a catch-all offense of failing to prevent economic crime. It was recognized that corporate crime reform should be incremental and that “reasonable procedures” (as used in the fight against facilitating the defense against tax evasion) rather than “adequate procedures” ( as used in the failure to prevent anti-corruption legislation) will be favorable. for any future defense created. This is useful to many smaller organizations and would allow for the possibility that it may be reasonable in certain circumstances not to have preventive procedures in place at all, in accordance with the Criminal Finance Act. There is no such provision in the Bribery Act.

The two main options relate to “failure to prevent” fraud and human rights offences.

The notion of a specific offense dealing with companies’ failure to prevent human rights abuses in supply chains has been welcomed by human rights groups. Certainly, such a development is consistent with the direction of travel across Europe in terms of corporate accountability for human rights abuses. However, the options paper gives no details on what such an offense would look like and, crucially, it is unclear whether such an offense would ever become a legislative priority under the current government.

The extent of the impact of a standalone failure to prevent a fraud offense remains to be seen. Fraud, or dishonest representations of any kind, are generally linked to corruption and the facilitation of tax evasion; these offenses rarely occur in isolation. This raises the question of whether the compliance burden placed on businesses to assess risk, design and then implement controls to combat fraud is disproportionate to the impact any such legislation is likely to have. . Adequate and reasonable procedures in place within organizations will largely focus on the theme of eradicating dishonesty of any kind.

The options document includes many different options. Whatever happens, it is almost inconceivable that the government can legislate for all of them. In this regard, the options paper has been criticized for being too ambitious because it offers too many options and does not focus on potential legislative priorities.

There is also a serious question as to which law enforcement agency will be responsible for investigating and prosecuting any new breaches by the companies. In this regard, the future of these potential reforms is intrinsically linked to the future of the Serious Fraud Office (“SFO”).

The UK’s top fraud agency is currently undergoing an independent review undertaken by former Director of Public Prosecutions Sir David Calvert-Smith into its operation following its handling of the Unaoil case, focusing particularly on the agency’s contacts with third parties and disclosure. The decision to launch this review was quickly followed by the High Court findings that the SFO acted with “bad faith opportunism” in its interactions with the lawyer representing the Kazakh miner Eurasian Natural Resources Corporation. The government’s intentions with respect to the SFO will have to take into account any proposed new offense and vice versa.

Although the government has pledged to introduce a second Economic Crimes Bill in the next session of Parliament (2022/23), we must be realistic that these proposed reforms may not become law until the next election. . So it may not be a question of whether the options are unambitious or overambitious, the real question is whether the government will have the resources or the inclination to focus on appropriate legislation to deal with the one of these possible reforms.

Nevertheless, changes are coming – both in legislation and in the structure and future of our law enforcement; the question is when and how big will this change be.

References

  1. Tesco versus Nattrass [1972] CA 153.

  2. Fraud by misrepresentation, obtaining services dishonestly, common law offense of cheating on government revenue, false accounting, fraudulent trading, dishonest representation to obtain benefits and fraudulent evasion of excise duties.

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