New UK failure to prevent offence to target law firms and accountants
Government preparing new Economic Crime and Corporate Transparency Bill
The UK government is preparing new provisions that would introduce a criminal corporate offence targeting commercial organisations for ‘failure to prevent’ fraud, money laundering and false accounting.
The amendments to the Economic Crime and Corporate Transparency Bill, which is currently making its way through parliament, aim to align with similar ‘failure to prevent’ offences for bribery and tax evasion. UK government security minister Tom Tugendhat confirmed in parliament in January that the government intends to include a corporate ‘failure to prevent’ offence in the Economic Crime and Corporate Transparency Bill that is currently being debated by the House of Commons.
The Bill defines “relevant commercial organisations” under the proposed money laundering provision as credit institutions; financial institutions; auditors, insolvency practitioners, external accountants and tax advisers; independent legal professionals; trust or company service providers; estate agents and letting agents; high value dealers; casinos; art market participants; crypto-asset exchange providers; custodian wallet providers. However, there are no details on how the new offences would be formulated or whether the offences of failing to prevent fraud, false accounting and money laundering will be enacted separately.
The proposed legislation includes several new provisions to increase the Solicitors Regulation Authority’s powers to combat economic crime, including allowing the regulator to proactively request information in order to monitor firm compliance, and lifting the cap on the regulator’s power to issue fines for disciplinary matters relating to economic crime.
The UK government tasked the Law Commission in 2020 with assessing how the law on corporate criminal liability could be reformed, following concerns that the current law falls short on adequately holding companies to account for their involvement in economic crime. A consultation was published as part of the Law Commission’s inquiry, which suggested options for reform including a ‘failure to prevent’ offence. The Law Commission published its final report on 10 June 2022, setting out the options open to the government for reforming how companies are convicted of criminal offences, which includes an option to extend the current ‘failure to prevent’ offences so that they capture other economic crimes by corporations. This suggestion to the government would cover a situation in which a company has failed to put measures in place to prevent their own employees or agents committing fraud for the benefit of the company.
Debate on the Bill also included discussion on whether other provisions should be included, such as new laws to prevent misuse of the UK’s libel laws.
The Bill passed its third reading and will now progress to the House of Lords.