Some unanticipated consequences of the new senior managers offence and what law firms should be doing about them

There has been much commentary about how the Economic Crime and Corporate Transparency Act 2023 (ECCTA) should change the landscape for corporate criminal liability in the UK for economic crime offences. However, the focus has mainly been on changes introduced by the new corporate offence of failure to prevent fraud, with less consideration on the impact of the new ‘senior manager’ offence. The unanticipated consequences of the senior managers offence should not be overlooked as they are significant, and include a potential impact for law firms.

What is the new offence?

The ECCTA provides that an organisation will be guilty of an offence if a ‘senior manager’ acting within the actual or apparent scope of their authority commits one of a number of economic crimes listed, which includes various money laundering offences. A ‘senior manager’ is defined as an individual who plays a significant role in the making of decisions about how the whole or a substantial part of the activities of the organisation are to be managed or organised, or the actual managing or organising of the whole or a substantial part of those activities. An organisation includes a partnership.

This new statutory offence extends the longstanding common law identification principle, which requires that for an organisation to be found to have relevant criminal mens rea it is necessary for the prosecution to prove that an individual with the ‘directing mind and will’ of the company also had the required mens rea for this to be attributed to the organisation. This has proven to be a challenging burden for prosecutors to overcome.

The new offence has been in force since 26 December 2023 and applies to conduct that took place after that date.

So, what does this mean for law firms?

Aspects of legal business activity are subject to the Money Laundering Regulations (et. al) 2017 (as amended) (MLRs) and such firms are required to have in place extensive and onerous obligations and measures to combat money laundering and terrorist financing. A breach of the MLRs can be a strict liability corporate criminal offence.

The new ‘senior manager’ offence widens the scope of criminal liability for an organisation to include circumstances where a senior manager commits an offence of money laundering. The money laundering offences include well-known primary money laundering offences, but also extend to specific offences relevant to the regulated sector such as the ‘failure to disclose’ and ‘tipping off’ offences. It is important to be aware of these provisions as they extend potential corporate criminal liability to include offences that were previously targeted at an individual person. The new senior manager offence means that it is no longer necessary to evidence an individual offender as also being the ‘directing mind and will’ of the organisation in order to attribute liability to it; the definition of senior manager is much wider and encompasses more individuals, so dramatically extends the potential for an organisation to be convicted.