Author: Azizur Rahman
18 December 2014
5 min read
Official talk of a new offence of failing to prevent fraud, money laundering and other business crimes may emphasise the need for compliance. But Aziz Rahman wonders if it may not prove too difficult to implement.
In our own way, each of us does what we can to prevent failure. Whether it is in our personal or professional lives, we all prefer to succeed. Our reasons may vary – we may be seeking rewards, acceptance, respect or self-satisfaction – but none of us likes to fail. “Failure is not an option’’ is how the saying goes. It is an inaccurate statement as failure is always an option. Our attempts to prevent or avoid it are spurred on by the reasons I mentioned above. But now a new reason may be on the horizon – the need to stay on the right side of the law.
As we write this, the UK government is weighing up whether companies should face criminal charges if they fail to prevent business crimes such as money laundering and fraud. Nothing official has yet been announced but the idea has been floated through appropriate channels.
Attorney General Jeremy Wright chose his first major speech in the post last month to flag up the idea. He told a conference in Cambridge that the government was “considering proposals for the creation of an offence of a corporate failure to prevent economic crime’’. No more details are forthcoming as yet but it sounds as if the offence, should it come into force, would follow similar lines to the failure to prevent bribery under Section 7 of the Bribery Act. Like that section of the Bribery Act, the onus is on companies and individuals to take responsibility for those acting on their behalf. But any such new offence of corporate failure could have a much greater effect on the legal landscape than Section 7 has had.
Some may argue that it would be a response to the public desire to see more prosecutions after a string of major economic scandals that have (at least, until now) resulted in few prosecutions. That may be the case. But regardless of the motivation behind this new proposal it does appear to have prominent supporters. The major political parties have not voiced any objections, the Serious Fraud Office’s Director David Green first talked of the possibility of such an offence a year ago and there is little doubt that it would make it easier for the SFO and its counterparts to bring charges against companies. The scene is, therefore, set for such legislation.
In his speech, the Attorney General talked of the need to have “correct laws and structures in place to tackle fraud and corruption, and to improve detection of money laundering’’ and noted that the Bribery Act was now starting to bear fruit in terms of prosecutions. Whether any new offence of corporate failure would match or surpass the Bribery Act remains to be seen. But that is not the only uncertainty surrounding an offence which has been carefully promoted without having been officially made public.
It almost goes without saying that such an offence would make the issue of compliance even more important to companies. It would appear that strong compliance procedures would be the only realistic way to prevent any possibility of prosecution for corporate failure. If the issue in such prosecutions is to be whether a company was reckless enough to allow – or at least, provide the opportunity for – an employee to commit a fraud on the company or customers, then compliance has to play a huge role.
Compliance will not only help reduce a company’s vulnerability to such a prosecution, it will also play a major role in any defence should a corporate failure charge be brought. But compliance can only be of value in such circumstances if it is genuine, thorough and part of a company’s ongoing attempt to make sure it is serious about functioning within the law. It cannot be merely a company paying lip service to the idea of following the letter and spirit of legislation. Turning a blind eye to wrongdoing, hoping it is not going on or simply being unaware of it has seen many companies facing a wide variety of charges in the past – now such an approach is about to become an offence in its own right. Only properly thought out, carefully introduced and rigorously maintained, reviewed and revised compliance procedures are likely to be adequate protection against the proposed new offence.
At present, we wait to see the details of any such offence and the opportunities the legislation will offer for defence solicitors. Certainly, compliance will play loom large in any defence but much will depend on the precise scope of the legislation. Where will the line be drawn as regards what the legislation classes as recklessness or negligence when it comes to corporate failure? At the moment, we do not know- and so we cannot make any exact assumptions about how wide a net this offence will cast over business. We need to see the precise details to understand what the government will view as an innocent mistake or an understandable oversight or what it will consider constitutes reckless or negligent business activity that turns a blind eye to, is wilfully ignorant of or even condones economic crime.
Although we do not know the details, however, the “broad brush’’ of the proposed law is very wide indeed. It will affect a lot of people and will prompt many of the questions that some in business were asking when the Bribery Act was first mooted: How am I supposed to comply with this? What is my current risk of prosecution under this new law? What changes do I need to make to my operation? Such responses could be termed knee-jerk compliance, as the Act prompted thoughts and actions among many who realised they could be at risk of prosecution. It is likely that this new offence will have the same effect; certainly when we know a few more details about it.
In many ways, having the Attorney General signalling the government’s intention was the clearest possible way that the state could provoke thought among the business world about their future obligations to quell economic crime.
The irony may well prove to be that those who are thinking about it now – or are at least aware of it – are not the ones who will pay the price when corporate failure finds its way onto the statute books. At the moment, there will be companies who are run in such a compliant fashion that any such new offence will have no impact on their dealings. Then there are those companies who may not be so driven to be compliant but who may, on hearing of the government’s proposals, be motivated to make sure they do not fall foul of this publicised, new offence. And so it will be those companies who are unaware of the legal developments and the obligations placed upon them who are most likely to find themselves answering to the charge that they failed to prevent economic crime.
When this offence becomes a reality, the government and its agencies will be using it to make sure that such companies are brought to book. These are the companies who the authorities may already have their suspicions about: the companies who may have been associated in some way with those practising fraud or money laundering and yet could not be proved to be directly involved, the companies who have flown close to the sun legally speaking but who were never shown to have committed an offence, the companies who have existed on the margins of current business law.
And if those companies do not now act to ensure they are legally compliant then they could be among the first prosecuted for what could prove to be very costly failures.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.