Look out for the “Crackdown on White-collar Crime”

I was speaking at the same Cambridge Crime Symposium as made the front page of this Monday’s Times newspaper. Sadly, it wasn’t my talk on D&O and commercial crime insurance that attracted as much attention as the speech by attorney general Jeremy Wright QC on the possibility that company directors could be prosecuted for failing to stop their staff from committing fraud.  Under a banner headline proclaiming “Crackdown on White-collar Crime,” The Times reports that a new criminal finance bill “…will extend the law, making employers responsible for preventing money-laundering, false accounting and fraud.”

This is not a new idea. I first blogged about the proposal when it surfaced in 2013. At that stage it seemed to be the joint brainchild of the opposition Labour party and David Green, the head of the Serious Fraud Office. Now the storm clouds on this issue look a little more ominous as David Green seems to have found support in the government of the day.

How did we get here?

In a later blog I explained how U.S. prosecutors are able to secure prosecutions by aggregating both the knowledge and the acts of more than one individual within a company in order to establish collective criminal corporate responsibility, whereas that option is not open to U.K. prosecutors who need to be able to demonstrate the relevant “guilty mind” at board level.

At that stage, just about the only exception to that rule was the Section 7 offence under the Bribery Act under which a company can be charged with failing to prevent bribery unless it can demonstrate “adequate procedures” were taken to prevent it from occurring.

This contrast has not been lost on Mr. Wright QC who told the symposium:

The present system of limited corporate liability incentivizes a board to distance itself from the company’s operations. In this way, it operates in precisely the opposite way to the Bribery Act 2010 one of whose underlying rationales was to secure a change in corporate culture by ensuring boards set an appropriate tone from the top.

Given that this mantra of “tone from the top” is already responsible for the most radical shift in personal accountability in the regulated sector arguably ever in Senior Managers Regime, it is no surprise that the government has also already shown some appetite for extending these same Bribery Act principles. In April 2016 it published a consultation document entitled “Tackling tax evasion: legislation and guidance for a corporate offence of failure to prevent the facilitation of tax evasion.”

There seems to be an overwhelming political and popular appetite for changes to culture in the boardroom.

The concept of “a failure to prevent the facilitation” is not an easy one. Nor of course is the distinction between tax avoidance and tax evasion. You can also see lawyers salivating at the prospect of exploring these new complexities. Although the results of this consultation have not yet been published, it is clear from the document that thinking is at an advanced stage. The clauses for the new bill are already drafted as are the guidance notes to accompany it. We have yet to have formal parliamentary timetable for its introduction but it is likely to become law in this parliament.

Where we go from here?

The all-important questions are:

  1. whether the proposals to extend the Bribery Act principles to (in effect) all areas of corporate fraud have gained sufficient traction in the government to be added into the melting pot for the tax evasion offence and, if so,:
  2. whether this would have the effect of slowing down and complicating the latter or whether we can expect to see both pieces of legislation in the foreseeable future.

Either way, as yet, we have very little case law on the new “failing to prevent” corporate offence. I have blogged here on the only successful prosecution so far under the Bribery Act.

As against that, there seems to be an overwhelming political and popular appetite for changes to culture in the boardroom. Only this week the SFO announced its intent to prosecute three senior directors of a very well-known U.K. food store on charges of fraud by abuse of position and fraud by false accounting. Whether this clamour is well informed and whether this type of new legislation is the best way to deliver this remains very much to be seen.

To my mind there is a significant risk of mismatch between the mission to “crack down on the public’s perception of “white collar crime” as billed in the Times newspaper headline and the proposal to introduce a new law focusing on adequate procedures designed to prevent criminal activity through corporate vehicles. I expect to be returning to this subject not least to consider the insurance implications once the proposals are a little more developed.

About Francis Kean

Francis is an Executive Director in Willis Towers Watson's FINEX Global, where he specializes in insurance for Dir…
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