After the Law Commission's recent paper on extending corporate criminal liability, it's a good time to remind yourself of the financial crimes committed by staff that could leave you facing prosecution.
Corporate criminal liability
When it comes to criminal offences like fraud, it can be difficult to attribute criminal liability to corporations (i.e. business entities such as companies or partnerships).
That's because a corporation can only be held liable for criminal conduct by one or more individuals if those people represent its directing mind and will.
This usually only applies to a limited number of directors and senior managers, and can be very hard to prove.
Failure to prevent offences
However, 'failure to prevent' (FTP) offences are an exception that make it easier to hold corporations to account.
With FTP offences, a corporation itself can be held liable for failing to prevent an economic crime by a person associated with the corporation.
Currently, the only corporate criminal FTP offences are:
- failure to prevent bribery (under Section 7 of the Bribery Act 2010); and
- failure to prevent the facilitation of tax evasion (under Sections 44 and 45 of the Criminal Finances Act 2017).
Recently, 3 companies who benefitted from a bribery scheme by a manager at another company were convicted for failing to prevent bribery.
The case demonstrates that FTP offences are a successful approach to holding corporations to account for economic crimes.
Defending FTP offences
However, corporations have a defence against FTP offences if they can show that:
- the offence was committed by another person; and
- they had taken all adequate (in the case of failure to prevent bribery) or reasonable (in the case of failure to prevent facilitation of tax evasion) precautions to prevent the person from committing the offence.
In theory, this gives corporations wide scope to defend themselves if they're able to show that they've taken appropriate measures to prevent economic crime and these measures haven't been followed.
However, in practice, this defence is difficult to implement. Only one corporation has tried to defend against an FTP offence and it wasn't successful.
Therefore, it's difficult to determine what adequate or reasonable procedures actually are, or how they may be assessed.
Extending FTP offences to other economic corporate crimes
The Law Commission recently published a paper on corporate criminal liability.
In good news for corporations, the paper didn't introduce a broad FTP offence for all economic crime as some had hoped.
Instead, it proposed extending FTP offences to other economic crimes, such as failure to prevent fraud by an employee or an agent for a corporation's benefit.
The Commission also set out some general principles for future FTP offences, including that:
- a corporation is only liable if an employee or an agent commits an economic crime with the intention of benefitting the corporation directly or indirectly; and
- as with existing FTP offences, a corporation has a defence if they can prove that it had reasonable prevention procedures in place.
In addition, it listed 3 other possible future FTP offences for human rights abuses, ill-treatment or neglect and computer misuse.
What this means for you
It's important to be aware of the consequences of falling foul of FTP offences.
If your business is found guilty of failing to prevent bribery or facilitating tax evasion, you could face very large fines.
The Commission has also proposed making it more common for smaller businesses convicted of FTP offences to have to publicise their wrongdoing. This may cause reputational and financial harm to your business.
While in theory you could have a defence when prosecuted for an FTP offence, in reality it's very difficult to rely on successfully.
Despite this, it's important to make sure you have reasonable procedures in place to prevent the facilitation of tax evasion and bribery, such as a robust anti-bribery policy.
You can use the Ethics, conduct, anti-bribery and anti-corruption policy in our Employee Handbook for this.