Wine as an investment – the wine merchant’s risk
The House of Lords Bribery Act committee inquiry heard evidence recently from Serious Fraud Office (“SFO”) Director Lisa Osofsky and Director of Public Prosecutions Max Hill QC. This was preceded earlier in the morning with an evidence session with Sir Brian Leveson, President of the Queen’s Bench Division, where the issue of Deferred Prosecution Agreements was the focus.
Lisa Osofsky, the incoming Director of the SFO expressed the view that the SFO has had huge successes in bribery cases by virtue of the introduction of section 7 of the Bribery Act 2010, not only in terms of prosecuting, but also in terms of incentivising companies to “do the right thing”. She cited the recent OECD report that recognised the UK as inhospitable to bribery and corruption but confirmed that one of the challenges was “when we can’t get corporates in the dock”.
She concluded it would make sense to treat all economic crime the same way and extend the failure to prevent legislation to other offences - such as fraud and money laundering.
It has been argued by many, including the previous Director of the SFO, that the identification principle, which is currently the basis for corporate liability in the UK, is inadequate in the current context of increasingly complex and often global corporate structures and is a hindrance to securing corporate convictions. What follows is a quick re-cap of the differences between the UK identification principle and the US vicarious liability model, as well as the new option presented by “failure to prevent” legislation.
In the UK for most criminal offences which require mens rea, corporations can be prosecuted on the basis of the identification principle, through which the criminal responsibilities of senior employees who constitute the “directing mind and will” of the body corporate can be attributed to the corporate itself. Where the employee engaged in the criminal behaviour does not hold such a position, the company is not criminally liable for the employee’s criminal actions even if these benefitted the corporation.
In the US, corporate liability is based on the principle of vicarious liability whereby the body corporate is liable for the acts (or omissions) of any employee provided these actions take place in the course of that employee’s employment and are, at least partly, to the benefit of the corporate.
The UK Government introduced, in 2010, the first “failure to prevent” offence in section 7 of the Bribery Act 2010. This makes a company guilty of an offence if an “associated person” bribes another intending to obtain or retain business (or an advantage in the conduct of business) for the company. It is a defence if the company can prove it had adequate procedures designed to prevent associated persons undertaking such conduct. 2017 saw the introduction of the UK’s second “failure to prevent” offence, in the context of failure to prevent tax evasion under s45 and 46 of the Criminal Finances Act 2017, although in this legislation the defence is to have “reasonable procedures”.
In January 2017, the Government launched a call for evidence to examine the case for reform of the law on corporate liability for economic crime showing their willingness to revisit the current state of the law. Although the responses and recommendations are yet to be published.
The SFO advocates “the extension of economic criminal offences for corporations by a s.7 type “failure to prevent” offence”, so as to “assist in the development of good ethical corporate culture, support growth and encourage clean and stable markets, increase investor confidence, assist in more rapid prosecutions and dovetail well with deferred prosecution agreements”.
On 28 August 2018 Lisa Osofsky began her 5 year term as Director of the SFO and set out her aim to make the sure the UK is a “high risk place for the world’s most sophisticated criminals to operate and ….a safe place for law abiding companies and individuals to do business”.
Taking it a step further than the call for extension of the failure to prevent model, she explained to the House of Lords that her preferred option would be the introduction of vicarious liability as a basis for corporate liability. Though, as a fallback position, she stated she would be “very happy” to get section 7 type measures extended to other economic offences.
The Anti-Corruption Strategy 2017-20 stated that the Government will “consider the findings” of the call for evidence to extend corporate criminal liability beyond bribery and tax evasion and consult “if appropriate” on how new offences might be introduced.
It may be that by the time the findings are published, the debate may have already moved significantly on.
This blog was co-authored with Virginia Tournon in the Criminal Litigation Team.
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