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Economic Crime and Senior Executives

Author: Niall Hearty  7 March 2024
3 min read

Niall Hearty of Rahman Ravelli assesses a Spotlight on Corruption review of the treatment of senior executives at large British companies who break the law.

A report published by Spotlight on Corruption states that senior executives at major British companies that are involved in economic crime, financial wrongdoing or regulatory breaches almost never face any consequences.

In the wake of its report, “Power Without Responsibility: The state of senior executive accountability for economic crime in the UK today’’, the anti-corruption body is calling for a major review of the law. It argues that changes are needed to address what it sees as a lack of accountability.

The new report states that:

  • The agencies responsible for prosecuting serious economic and financial crime are struggling to bring prosecutions against senior executives in large firms.
    Just 6% of investigations brought under the government’s flagship Senior Managers regime - which was introduced following the financial crisis to hold bank bosses to account - have resulted in any enforcement action being taken. The Competition and Markets Authority (CMA) failed to prosecute any board-level senior executives in large firms following 11 prosecutions, while the Serious Fraud Office has achieved just two convictions following 20 corporate enforcement actions. Only one regulatory action was taken by the Financial Conduct Authority (FCA) against an individual following 17 fines (totalling £777 million) that were imposed on banks for money laundering.
  • Directors from small and medium-sized enterprises (SMEs) are far more likely to face conviction, regulatory fines and bans than executives in large firms. They are often seen as “low-hanging fruit” by regulators.
  • Large firms are likely to face lower corporate fines relative to turnover than SMEs.

The report, written by Spotlight on Corruption’s Executive Director Dr Susan Hawley and Dr Daniel Beizsley, looked at four different forms of accountability for senior executives in relation to economic crime in the UK: prosecution, regulatory action, disqualification, and removal of directors’ benefits.

It found that the UK is becoming dangerously out of step with the US, which has a stronger record of enforcement action against directors. The US is also looking to expand the practice of clawing back bonuses, following evidence of how it has had a positive impact on corporate governance and business growth.

Recommendations

The report contains recommendations for improving the accountability of senior executives in the UK. These include creation of a new criminal offence to help bring senior executives to justice when their company engages in economic crime and creating a task force to ensure that different agencies work in tandem to develop a coherent prosecution strategy.

Dr Susan Hawley said: “After every corporate scandal, from the financial crash to the Post Office, there are rightly calls for senior executives to face accountability – but this rarely happens. This lack of accountability is bad for British business, bad for the UK economy and bad for the British people.”

The UK government recently dropped plans to introduce corporate governance reforms. It is consulting on whether there is a need to reform the Senior Managers regime.

The Economic Crime and Corporate Transparency Act

Some of the concerns voiced in the report have, to some degree, been addressed by the recently-passed Economic Crime and Corporate Transparency Act.

Since the Act came into effect on 26th October 2023, companies have faced enhanced criminal scrutiny and the possibility of unlimited fines in relation to conduct that may otherwise have gone unpunished or remained a civil law matter.

The Act created a new offence of failure to prevent fraud, which now applies to larger companies and their subsidiaries. It also expands the reach of the identification doctrine - that acts of individuals are attributable to a company - thereby making it possible to assign criminal liability to the company for a range of economic offences.

Despite it being argued in Parliament that all companies, regardless of size, should fall within the scope of the new offence, it was legislated that the principal failure to prevent fraud offence only applies to “large organisations”: those that have a turnover of more than £36 million, a balance sheet total of more than £18 million or more than 250 employees. It is worth noting, however, that UK-based subsidiaries of larger overseas companies can fall within the scope of the offence, regardless of size.

Those in larger companies are, therefore not bulletproof because it is just too complicated to pin the wrongdoing on one or two individuals in a big organisation with a complex power structure. This has, arguably, been the case in the past, when smaller companies have been seen as the aforementioned “low-hanging fruit” by enforcement agencies looking for straightforward prosecutions

The new Act ties Individual wrongdoing to a company in a more comprehensive way than had been the case. This can only be seen as a step forward in enhancing corporate transparency and governance.

Niall Hearty C 07998

Niall Hearty

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niall.hearty@rahmanravelli.co.uk
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Niall has a wealth of corporate crime expertise and an ability to coordinate global bribery and corruption cases. His achievements in such investigations have made him a logical choice for corporate clients.

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