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Strict liability for companies that fail to prevent financial crime

Within a raft of proposals, commitments and promises announced during the London Anti-Corruption Summit on 12 May 2016, was a proposal to consult on holding companies to account for failing to prevent economic crimes committed by those they control.

The idea has been floated a number of times over the past few years, not least by David Green the Director of the Serious Fraud Office. In an article I wrote at the end of the term of the coalition government, Preventing Financial Crime and Deferred Prosecution Agreements, I predicted that such a law would be enacted during the life of this administration. However, it seemed my crystal ball had clouded over as in late 2015 the government announced that it would not be extending the concept of strict corporate criminal liability beyond the Bribery Act.

So what has changed? The Panama Papers.

The revelations within the Panama Papers have thrown a spotlight on how professional services firms enable and facilitate criminal conduct, on a massive global scale. Even before the Anti-Corruption Summit the government had announced a new criminal offence for companies of facilitating or failing to prevent tax evasion. The public consultation process for this new offence is currently underway. It is likely that this new tax evasion offence will adopt the Bribery Act model and provide a ‘Compliance Defence’ of Adequate Procedures.

There is a growing international trend to hold companies vicariously liable for the misconduct of those associated with the company. Many countries such as Spain, Brazil, Peru and Thailand have introduced a Compliance Defence for criminal offences that benefit a company, and the UK is (now) part of this trend.

I am a strong supporter of the principle of strict corporate criminal liability for two reasons:

  • The law relating to corporate criminal liability is hopelessly outdated
  • Companies can have huge influence and such a law will promote ethical corporate conduct benefiting society as a whole

We await with interest the outcome of the consultations on the tax evasion offence and the wider corporate economic crime offences.