The Minister for Security, Tom Tugendhat, has explained that the Bill is "closely focused on economic crime and corporate transparency for the purpose of passing a series of measures that are essential to ensure that we keep our country safe and our economic jurisdictions clean." One of the most notable developments of the Bill during its time in the House of Lords has been the proposed amendment to create a new 'failure to prevent' offence, for fraud, false accounting and money laundering. Tugendhat has explained that this amendment is aimed at intermediaries who do not have reasonable or adequate measures in place to prevent fraud, false accounting and money laundering from taking place.
Failure to Prevent
Similar 'failure to prevent' offences are already found in the Bribery Act 2010 ("Bribery Act") and the Criminal Finances Act 2017 ("CFA"). These offences have allowed for easier prosecution in relation to these economic crimes, as it only needs to be proved that an organisation lacked "reasonable" or "adequate" controls to prevent wrongdoing. This is in contrast to the current position in relation to fraud, whereby it needs to be proved that a person who represents the company's 'directing mind' intended to commit the offence. The introduction of the Bribery Act and the CFA also led to many corporate entities reviewing and updating their existing policies and procedures – which we suspect the same will be the case should the new Bill be introduced.
The new offence is likely to follow the structure of that found under the Bribery Act and the CFA, with the current draft of the offence suggesting that a defence to the offences of fraud, false accounting and money laundering is only available where a company can prove it had in place such procedures which were reasonable to prevent such offences from occurring.
The growing support for the creation of the offence is in part due to the difficulty faced by prosecutors in holding corporate entities to account in relation to economic crimes. The expansion of the 'failure to prevent' offences has seen growing support in recent years from the likes of the Serious Fraud Office and Crown Prosecution Services, as well as the Law Commission. In 2022, the Law Commission published its 'Options Paper,' which detailed proposals on the reformation of corporate criminal liability in England and Wales and advocated for the creation of a failure to prevent offence for fraud specifically.
Who's in Scope?
It has been reported that the amendment is intended to target professional services businesses, such as law firms and accountants. The draft clause currently presented in the amendment paper details that the offence will be applicable to 'relevant commercial organisations.'
The definition of a relevant commercial organisation differs between the offence as it relates to fraud, false accounting and money laundering, with the latter having a much narrower definition.
- For example, a relevant commercial organisation under the offence of fraud or false accounting is defined generally to cover bodies and partnerships who are formed in the UK and carry on a business anywhere, as well as bodies and partnerships (wherever formed) who carry on a business in the UK.
- Whereas, for money laundering, a list of types of organisations, such as financial institutions and independent legal professionals, are provided which fall under the definition of a 'relevant commercial organisation.'
As the amendment and the Bill are both still in draft form, the formulation of the offence is still subject to change. Regardless of the final wording of the offence, Tugendhat has explained that it will be vital that any reform does not duplicate that which already exists and avoids placing unnecessary burden on legitimate businesses.
The current amendment introduces direct criminal liability for senior managers or corporate officers who take a decision, or fail to take a decision, which knowingly results in an offence of fraud, false accounting or money laundering being committed. If found guilty, the individual may face imprisonment or a fine, or both. No specifics have been provided regarding the amount of any potential fines, however, it is suspected for many of these offences the fine would be unlimited, mirroring the current position on penalties under the UKBA and CFA (which also include a disbarment on contract tenders for certain government contracts).
Timings and Next Steps
No definitive timeline has been given as to when the Bill might become law, with the Bill currently undertaking its second reading in the House of Lords. Given its potentially significant impact on all commercial organisations in the UK, it is worth monitoring and considering whether any current anti-fraud, accounting and money laundering policies and procedures may need to be revisited.