What does the future hold?
UK prosecutor sees Bribery Act offence as a template for fighting other forms of financial crime.
The Serious Fraud Office (SFO) would like to extend the strict liability "failure to prevent bribery" offence that is currently encapsulated in Section 7 of the Bribery Act. Its thinking is that this will make its job as a prosecutor much easier when it comes to taking criminal enforcement action against companies. At a time when the United States are shifting towards a greater focus on individuals (as set out in the Yates Memo) why is the UK seeking to move in the opposite direction? And more importantly, to what end?
The real question is whether it serves any useful purpose to prosecute companies in circumstances when the 'directing mind' test is not satisfied
Committed fraud in the UK by external perpetrators
Source: PwC Global Economic Crime Survey 2016
Committed fraud in the UK by internal perpetrators
Source: PwC Global Economic Crime Survey 2016
The hurdle of "directing mind"
The traditional position in English law is that a company cannot be held liable (either civilly or criminally) unless the offending act or omission was taken with the knowledge, or at the direction, of someone who is a "directing mind" of the company. It is already difficult enough for the SFO to secure convictions of individuals—after all, it only deals with the most serious and complex cases of fraud and corruption; it doesn't get many easy wins. But even where the SFO has been able to overcome all of the difficulties that are attendant in a complex fraud or corruption investigation, often spanning several jurisdictions, it then has the additional hurdle of passing the "directing mind" test. This perhaps explains why the SFO has secured very few convictions of corporate entities over the years since it was first formed in 1988.
Is the extension of strict liability wise?
One can see why the SFO would like to make its own life easier. The introduction of a strict liability corporate criminal offence of "failing to prevent financial crime" would certainly help it to achieve that. If such an offence were to mirror the Section 7 Bribery Act offence, then a company would automatically incur criminal liability for the act or omissions of any of its employees, agents or anyone else performing a service on its behalf where such acts or omissions involved any form of financial crime. This could be accounting fraud, tax fraud, false accounting, financial assistance and, of course, money laundering. An offence of this nature—presumably with an "adequate procedures" defence similar to that in the Bribery Act—will increase the compliance burden on companies operating in the UK very considerably. At one level, it is quite right to say that companies operating internationally should in any event take reasonable steps to prevent these forms of crime from being committed. That is not the point in issue. The real question is whether it serves any useful purpose to make companies criminally liable in circumstances where the directing mind test (or anything similar to such a test) is not satisfied.
Philosophically speaking, criminal offences are committed by individuals and not by companies. If, when wrongdoing is uncovered, companies are encouraged to come forward, and where appropriate action is taken against the individual wrongdoers, what useful purpose is served by taking criminal enforcement proceedings against the company itself? Such matters inevitably take a long time to come to fruition given that the average timescale of an SFO investigation and prosecution is four to six years. Who suffers when a company is prosecuted? Those that lose out are not the long-gone individual perpetrators of the alleged offence, but (often many years after the offence has been committed), it will be the current employees, shareholders (perhaps your pension fund) and customers who lose out. Of course where a company is found to be "rotten to the core" (as may from time to time be the case), or where it has simply failed to address any wrongdoing that it has uncovered, then the public interest would be well served by prosecuting the company. But in such circumstances, the directing mind test is unlikely to present an insurmountable hurdle to the prosecution.
For the majority of cases though, making it easy to prosecute companies is neither sensible nor should it be this Government's objective. Appropriate encouragement for companies to self-report without fear of being prosecuted will by contrast help satisfy the real public interest.
Read other chapters in this report:
The Bribery Act: The changing face of corporate liability
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