TTF Blog: 16 June 2021

Would criminalising companies who fail to prevent economic crime  make U.K. based investors safer from scams? SFO chief Lisa Osofsky last week told the Government’s Law Commission that ‘we need to level up’ and narrow a disparity ‘between the tools we have to tackle bribery and the tools we have to tackle other crimes like fraud’.

It has been repeatedly observed that corporations in the UK are hard to investigate: “Despite promoting and profiting from a culture that too often facilitates criminal conduct, large multinationals are still being shielded from liability for crimes like fraud”, Osofsky said. She pointed particularly to crimes ‘undertaken by middle managers or those lower down the food chain’. Such offences may be several steps removed from top management, but they could still result from employees trying to meet targets.

Across the Atlantic

A regime of fines for corporate violations exists in the United States, for which you can find comprehensive data here. In the U.S., a company profiting from economic crime can be prosecuted, even if the misconduct is committed by low or mid-level employees. A criminal act that benefits the company is one it can potentially be punished for.

The UK’s legal landscape is different: in most cases of economic crime we can punish individuals, but we cannot punish companies. Some experts would like to introduce a U.S. type regime of ‘corporate liability’ for the UK, but they believe MPs will not vote for it:

“It won’t happen politically [and] it’s not practical politics to think that it will,” commented Lord Edward Garnier QC last week. He argued that the UK should instead introduce a law that companies must act to ‘prevent’ economic crime, and may be prosecuted if they fail to put preventative measures in place. Options for reforming corporate liability, including ‘failure to prevent’ will be presented by the Law Commission to Johnson’s Government at the end of this year.

The Bribery Act

In 2010, David Cameron and Nick Clegg’s coalition government introduced a ‘failure to prevent’ offence for Bribery, and the SFO claims that this proved useful to them. That they have secured Deferred Prosecution Agreements that include Bribery Act offences is a “marker of its impact”, according to Osofsky. You can read more about how the SFO has made use of the Bribery Act in this FOI response. 

Susannah Cogman, a legal expert on financial crime, fears that  a ‘failure to prevent’ offence for wider economic crimes would be counter-productive. In her experience ‘personal risk’ of Board members being prosecuted if they step wrong, is what really changes corporate culture. Company-wide compliance regimes do not – necessarily – change behaviour in the same way. The risk of a boss being personally pursued if their company profits by crime, is more effective she argues.

To that end, Cogman promotes “better protection for whistleblowers, a better incentive for corporate self reporting [e.g.] some sort of immunity regime,  … and fundamentally better resourcing for law enforcement.” She argued that a ‘failure to prevent’ offence, if introduced, would fail to deter offending that boosts profits, because “I don’t think that companies refrain from criminal activity only, or even mainly because of the risk of corporate prosecution.”

Corporate liability: a whistleblower’s perspective

TTF members would like to see robust action against economic crime. But what effect will legal reforms have on the ground? Companies have, in the past, tacitly encouraged crime by staff to meet targets, despite running an adequate compliance regime on paper. One whistleblower set out their experience to TTF Blog: “As long as they have the tick box policies in place, they [the company] are protected from prosecution. It is a farce.”

In this case their financial services employer had an appearance of complying with the law. Nevertheless ‘the staff members I worked with were coerced and degraded into complying’  with behaviour that broke the rules– allegedly breaking the law to boost profits. In such circumstances “we need the board held accountable, with criminal convictions.”