Leaders at the Serious Fraud Office (SFO) and the Crown Prosecution Service (CPS) have repeated their calls for so-called ‘failure to prevent offences’ to be extended to include other offences, specifically, fraud.
The calls were made by Lisa Osofsky, director of the SFO, and Max Hill KC, director of public prosecutions at the CPS, during the 39th Cambridge International Symposium on Economic Crime.
What is a failure to prevent offence?
A failure to prevent offence is an offence which allows a corporation itself to be held liable for failing to prevent an economic crime by a person associated with that corporation. The most well-known example is the one included in the Bribery Act 2010 (the Act)
Under section 7 of the Act, a “relevant commercial organisation” will automatically be guilty of an offence if a person associated with it bribes another person with the intention (a) to obtain or retain business for the commercial organisation, or (b) to obtain or retain an advantage in the conduct of business for the commercial organisation. It is, however, a defence if the commercial organisation can demonstrate that it had “adequate” procedures designed to prevent persons associated with it from making such bribes.
“Adequate procedures” is not defined in the Bribery Act, however, guidance issued by the Ministry of Justice in 2011 sets out what a corporation can do to demonstrate this. The guidance includes measures such as having a proportionate anti-bribery policy and supporting procedures, risk assessments, due diligence and ongoing monitoring.
Why would failure to prevent offences be useful in the context of fraud?
Under the current ‘identification’ system in England and Wales, only the acts of senior persons representing the company’s “controlling mind and will” can be attributed to the company itself. In practice, this means that small and medium-sized companies, whose management and decision-making structure is more clear-cut, are at greater risk of prosecution and conviction, whereas larger companies, are often more easily able to avoid criminal liability.
In his speech, Max Hill KC said, “The existence of a failure to prevent fraud offence would be a welcome addition to the tools available for prosecutors to ensure that all those involved in wrongdoing are brought to justice.” Such an offence, he said, would be more effective in identifying and prosecuting the “true criminality in any given case”.
However, the long-awaited Law Commission report on Corporate Criminal Liability, which was published in June 2022, did not make recommendations for an extension of failure to prevent offences to fraud. As such, much will depend on the will of Parliament as to whether any steps will be taken to widen the scope of failure to prevent offences to include fraud or other corporate criminal offences.
It also remains to be seen, even if these offences are included, as to how effective they will be given the dearth of advice which is publicly available to businesses; perhaps the winners out of such an extension will be professional services firms and advisers who can advise on steps that businesses should take to avoid fraud being committed within their organisations.
“The UK has led the way and set a gold standard on corporate criminal liability with the Bribery Act,” said Hill QC, the director of public prosecutions at the Crown Prosecution Service for England and Wales.