New 'failure to prevent' offences in corruption crackdown

The prime minister, David Cameron, has announced the creation of a new corporate offence that will hold banks and multinationals liable for staff fraud as part of the UK's crackdown on corruption.

Described as being the biggest shake-up of corporate criminal law in a century, the Ministry of Justice is to consult on extending the criminal offence of 'failure to prevent' to other economic crimes such as fraud and money laundering.

Writing in the Guardian ahead of the anti-corruption summit in London, the prime minister explained he was taking the step 'so that firms are properly held to account for criminal activity that takes place within them'.

Further explaining the government's plans, the attorney general, Jeremy Wright QC, said: 'Under existing law, a company only faces criminal liability if prosecutors can prove a sufficiently senior person knew about the criminal conduct. It can be extremely hard to prove this, especially in large companies with complex management structures.

'A new offence could find companies responsible where they haven't adequately prevented economic crime. The failure to prevent offence would help prosecutors hold companies to account for criminal conduct at all levels of a business and show the public that organisations are not above the law.'

Commenting on the announcement, Christopher David, counsel at WilmerHale, said the proposal was a 'potentially a bold and decisive step' in tackling corporate crime.

'The introduction of an offence of failure to prevent bribery under the Bribery Act led to a significant shift in the way that businesses approached anti-bribery and corruption and it would be expected that the introduction of a broader offence of failure to prevent corporate crime, such as fraud, would have a similarly beneficial effect.'

However, David added that, as with the Bribery Act, the effectiveness of any new law will be judged on how it is enforced.

Barry Vitou, a partner and head of global corporate crime at Pinsent Masons, advised that the criminalisation of corporate law continued to snowball.

'These failure to prevent clauses represent the most sweeping changes to corporate law in over hundred years and a substantial burden for businesses,' he said.

'The extension to economic crimes such as fraud and money laundering would represent a massive shake-up - even bigger than the introduction of the Bribery Act five years ago.'

Vitou said the reforms to liability would place multinationals under new pressures: 'Executives will need to show that they had robust policies in place to prevent wrong-doing in the event that an employee is found guilty of misconduct.'

Will Christopher, civil fraud partner at Kingsley Napley, said it was by no means clear how the proposed offence will work and whether a company could find itself both victim and defendant in criminal proceedings.

'I anticipate that follow-on claims will be more likely, for example from investors, or from victims of fraud, and will be more likely to succeed if there has been a corporate criminal conviction. So any new law could end up costing businesses in more ways than one.

'Without doubt the UK authorities are demonstrating an increased appetite to prosecute bribery and fraud,' he added. 'As always, however, the devil will be in the detail and I remain to be convinced that this will mean a rush of successful convictions and swingeing fines for corporates on a criminal level.'

Law firms were said to be well placed to deal with the risks of money laundering, according to a new report from the Solicitors Regulation Authority (SRA).

The report follows visits to more than 250 firms to see what processes were in place to guard against money laundering.

The findings shows that, in general, firms have the right systems to manage such risks and report suspicious activity. It also found a healthy compliance culture embedded in firms.

Paul Philip, the SRA's chief executive, said: 'Law firms are an attractive target for those wishing to launder money. We have done a great deal of work to raise the profile of this risk and promote best practice.

'Our analysis shows that the vast majority of the firms we visited take their responsibilities seriously and compliance is good.'