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Have 'failure to prevent' offences had an impact on the criminal liability for corporate entities?
It has long been difficult for prosecutors in the UK to hold corporates to account for criminal behaviour and, in particular, for economic crime-related misconduct. The ‘identification doctrine’ requires that only the acts of the person who represents the company’s ‘directing mind and will’ can be attributed to a company. At the same time, it is recognised that there are certain types of criminal behaviour that can only be carried out within a corporate structure, and which are carried out for the benefit of that corporate entity. Therefore, it is inherently problematic that it is difficult to bring corporate criminal prosecutions.
The introduction of ‘failure to prevent’ offences are an attempt to overcome these difficulties. The basis of a failure to prevent offence is simple – to have any defence, an organisation needs to prove that it had ‘reasonable’ or ‘adequate’ procedures in place to prevent an individual associated with it from carrying out a criminal activity. The first failure to prevent offence was introduced in relation to bribery in 2010; two further failure to prevent offences followed in the Criminal Finances Act 2017 related to the facilitation of tax evasion.
The offences contained with the Criminal Finances Act, often referred to as the corporate criminal offences (CCOs), were introduced as part of the then-government’s commitment that ‘tolerance for those who will not pay their fair share of taxes has come to an end’.5 In the years since the offences came into force, however, there have been no prosecutions, calling into question both the success of the CCO regime and the effectiveness of failure to prevent offences in general.
In light of recent calls for an extension of the failure to prevent regime to broader economic crimes, including fraud and money laundering, this Emerging Insights paper identifies five key lessons that should be learned from the experience of the CCOs to date. It draws on interviews with lawyers, academics and practitioners who were involved in responding to the requirements of the CCOs when they came into force in September 2017 to provide a solid evidence base with regard to some of the practical considerations in implementing any future failure to prevent offences:
- Any new offences should be accompanied by a robust, comprehensive and evidence-based strategic communication plan from the relevant government body/bodies charged with implementing them to ensure that all corporates understand the relevance of the offence and the potential risks within their business.
- Good-quality guidance is essential to the successful implementation of any new regime, particularly in articulating expectations about what would or would not be considered reasonable.
- While failure to prevent offences may be aimed at changing corporate culture more than securing high numbers of convictions, any new offences will still ultimately be judged publicly on their enforcement track record. The lack of enforcement activity in relation to the CCO legislation has rendered it something of a damp squib, as noted by interviewees for this paper, and the need for more resources for the Crown Prosecution Service (CPS) and Serious Fraud Office was a repeated theme in the interviews.
- Failure to prevent offences should act as a complement to existing regulatory frameworks, and regulators and enforcement authorities should work closely together to impose the most appropriate type of sanctions on corporate wrongdoing.
- Failure to prevent offences would be best used in conjunction with other (existing) powers, including, but not limited to, the criminal prosecutions of individuals within a corporate.
Senior Research Fellow
Centre for Financial Crime and Security Studies