The spectre of a failure to prevent economic crime offences for corporates once again received attention during a debate in parliament on 13 January 2021 as part of the consideration of the Financial Services Bill.
Amendments tabled by a cross party group of Members included New Clause 4 – to introduce an offence for a relevant body authorised or registered by the Financial Conduct Authority (FCA) to facilitate, or fail to prevent, specific economic crimes being committed by a person acting the in the capacity of the relevant body; and New Clause 30 – to introduce an offence in cases where financial services companies facilitate or fail to take all reasonable steps to prevent a relevant financial crime offence. For both proposed clauses the relevant offences were Fraud Act 2006 offences, false accounting, certain Proceeds of Crime Act (money laundering) offences, tax evasion, Financial Services Act 2012 offences (Misleading statements, Misleading impressions, Misleading statements in relation to benchmarks) and insider dealing. By no means was this an expansive or radical list, therefore, as it omitted many of the offences for which a deferred prosecution agreement is possible.
Although the amendments were not taken forward, the debate rehearsed many of the arguments and submissions that will inevitably be presented to the Law Commission, which has been tasked to investigate the laws around corporate criminal liability and provide options for reform. See our previous article.
John Glen, the Economic Secretary to the Treasury and City Minister speaking on behalf of the Government, noted that significant action had already been taken to improve corporate governance and culture in the financial services industry with the introduction of the Senior Managers and Certification Regime (SM&CR), which makes it easier to hold senior managers accountable, and that anti-money laundering (AML) requirements on financial services firms have been strengthened. He also stated that the findings from the 2017 call for evidence on whether the corporate liability law of economic crime needed to be reformed were inconclusive, which has led to the Law Commission being tasked to conduct an expert review on this issue and to report at the end of 2021. This review will ensure a comprehensive understanding of the current issues and the potential options if reform is deemed necessary. Essentially there needs to be “strong evidence” before any broader new “failure to prevent” offence is introduced and any new offence will need to be “designed rigorously” to sit alongside associated criminal and regulatory regimes.
A particular area of concern was that the consequence of the proposed new offences would be a “discrepancy in treatment between FCA-regulated businesses and other businesses under criminal law” whereas the call for evidence had not identified this sector as one that required specific targeting.
Whatever the strengths of Mr Glen’s arguments, there were cross-party supporters for the proposed new offences, with many of the arguments familiar to those who have been observers of this debate for some time. However, the amendment and ensuing debate revealed the frustration that many feel at the length of time it is taking for the Government to make any kind of decision on this important issue. Although the amendment did not go to a vote, the Government can be in no doubt about the importance of this issue to backbenchers of all parties, who will no doubt try to pressure it to act quickly and decisively on any recommendations of the Law Commission.
Those supporting the amendments noted that a comparison of fines between the US and UK, which was suggested to be “£9 billion of fines in the US in a 10 year period and only £260 million in the UK” was proof alone of the need for legislation.
The disparity between action against smaller concerns and big business was also a common theme, with comments including that when wrongdoing happens within a company, “it is in the interest of directors and senior managers to plead ignorance” so that it will be “someone further down the line” who carries the can and the “culture and the circumstances that allow the economic crime to happen go unexamined". The Libor scandal was said to illustrate this point where there were no corporate prosecutions in the UK but that “these were some of the highest-paid people in the world, and each one testified that they learned what was happening in their own company only when they read about it in the newspapers”. It was noted that this defence of ignorance has been removed in other areas such as tax evasion or bribery. It was noted that the amendment not only allowed for corporate prosecutions but for individuals registered with the FCA to be prosecuted.
Perhaps the most impassioned arguments came from Dame Margaret Hodge, Chair of the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax and author of the amendment. She blamed the Government’s various acts or omissions for having turned a Britain that “prided itself on offering honesty and integrity in financial services” to one that today “is the jurisdiction of choice for too many villains and kleptocrats”. She quoted NCA estimates of £100 billion being laundered through Britain annually and the recent FinCEN leaks identified “nearly £70 billion flowed from Russia into the UK’s overseas territories”. This, she argued, called for criminal as well as regulatory powers.
She identified the difference between the enforcement agencies’ ability to pursue smaller businesses rather than the “powerful institutions and their leaders”. She compared the difference in fines imposed in the US and UK, even on British headquartered entities, and questioned whether we were outsourcing “enforcement to the Americans”.
In her view, the Government’s assessment that the responses to the call for evidence was not conclusive is not correct and that “three-quarters of respondents urged the Government to toughen up the regime with criminal sanctions, and most of those were private companies and law firms.” She questioned why the Government was so reluctant to act, noting the Conservative Party’s promised action in this field in its 2015 manifesto. She feared that to “kick the proposal into the long grass would anger the public, damage the long-term integrity and reputation of our financial services sector, and fail to build a better Britain”.
During the ensuing debate others had some interesting comments of their own to make.
- That in December, before the end of the transition period, the UK decided not to opt in to the EU’s sixth anti-money laundering directive, “which included the requirement that member states take criminal sanctions for failure to prevent money laundering”, whereas this was an area that Britain should be leading on and not diverging from the EU.
- That reforms to introduce open registers of beneficial ownership, were “reforms to Companies House (that) led the world”, but Companies House itself has become a “library, rather than an investigator”. Nonetheless, with more resources it would be “an extremely valuable tool in the fight against economic crime”.
- That it was incumbent on shareholders and corporate leaders to take responsibility for corporates’ actions.
Perhaps Sir Robert Neill, Conservative MP for Bromley and Chislehurst best summarised the position of the majority debating the amendments when he stated that he had sympathy for the proposed amendments “but I do not want to pre-empt the work of the Law Commission. That said, the Government do have to act more swiftly and with more urgency in relation to reform of corporate criminal liability. It has been kicking around for a long time. The Justice Committee has heard compelling evidence on the need for reform…The balance of evidence is clearly in favour of reform. Both the current and former directors of the Serious Fraud Office have highlighted the deficiency in criminal liability in this field, as have at least two former Attorneys General. I hope that as soon as the Law Commission reports, we will move swiftly to enact this reform, because we lag behind other jurisdictions in this regard.”
If the Government has been attempting to kick this issue into the long grass, that grass has just got a lot shorter.
For further information on the issues raised in this blog post, please contact a member of our Corporate Crime team.
About the authors
Louise Hodges is a specialist in corporate crime, financial crime, FCA investigations, and serious and complex fraud. She is widely recognised as a leader in this field and leads Kingsley Napley LLP's cross practice financial services team and internal investigations team.
Louise has particular experience in advising corporates on issues of corporate crime, bribery and corruption and fraud offences including advice in relation to internal investigations. These cases tend to be multi-jurisdictional, complex and of high value and frequently involve support from KN's employment and dispute resolution teams. She advised Tesco in connection with their Deferred Prosecution Agreement.
Alun Milford is a Partner in the Criminal Litigation team and specialises in serious or complex financial crime, proceeds of crime litigation and corporate investigations. He has particular knowledge and experience of issues surrounding corporate crime and deferred prosecution agreements.
He joined Kingsley Napley from the public sector where, over a twenty-six year career as a Government lawyer and public prosecutor, he worked in a wide variety of roles including General Counsel at the Serious Fraud Office, the Crown Prosecution Services’ Head of Organised Crime, its Head of Proceeds of Crime and Revenue and Customs Prosecutions Office’s Head of Asset Forfeiture Division.
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