AML: HMRC flexes enforcement muscle to the tune of £7.8 million
Shortly before the recent anti-corruption summit hosted by David Cameron, he announced a consultation on an extension of the corporate offence of failing to prevent bribery to other economic crimes such as fraud and money laundering.
The new proposed offence is to be welcomed if it prompts corporates to implement anti-fraud procedures. These are currently either implemented on a random and ad hoc basis or only after the corporate becomes the victim of a large fraud.
It is usually only after becoming a victim that a company realises just how damaging a fraud loss can be. The converse is also true: it makes good business sense to prevent fraud.
However, the proposed offence is fraught with difficulties. This offence will be very difficult to define, in contrast to the equivalent Bribery Act offence. In particular, it is difficult to see how it will be defined without the unwelcome possibility that a corporate may find itself both the victim of fraud, and a potential defendant to criminal proceedings.
There are a variety of ways in which fraud could occur in a corporate, or by an associated person, and in most, if not all, cases the corporate has a civil cause of action against the individual perpetrating the fraud, and so could be considered a victim.
At present it is difficult to see how the drafting might distinguish between these. To draft the offence too narrowly would be likely to exclude some surprising examples of fraudulent behaviour. A very widely drafted offence would both increase the compliance burden and the prospect of the company being a victim and a potential criminal defendant.
It could also adversely affect the appetite of the corporate to take effective steps to respond to a fraud. Too often, in my experience, companies are reluctant to take proactive steps to recover lost assets unless they are faced with a massive fraud loss. The prospect of criminal exposure is very likely to make pursuing even a very large loss unattractive.
Is it beneficial to criminalise corporate failure to prevent fraud and at the same time further discourage recovery of fraud losses? This is surely not in the public interest, as more fraud will be swept under the carpet. This cannot be the government’s intention in considering the introduction of the new offence and careful thought needs to be given to how it will work in practice.
This article first appeared in 'The Brief' 8/6/2016
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