A New "Failure To Prevent" Corporate Criminal Offence Into UK Law

• Law Firm: Steptoe & Johnson
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Criminal Law, Financial Services, Corporate and Company Law, White Collar Crime, Anti-Corruption & Fraud, Corporate Crime
• Author: Ms Zoe Osborne
• Published date: 14 February 2023

On 8 February 2023, the U.K. Government confirmed its intention to propose that a new 'failure to prevent' corporate criminal offence be included in the Economic Crime Bill, along similar lines to the 'failure to prevent bribery' offence under section 7 of the Bribery Act 2010 (the 'Bribery Act') and the two 'failure to prevent the facilitation of tax evasion' offences introduced by the Criminal Finances Act 2017 (the 'Criminal Finances Act').

It is anticipated that a new failure to prevent fraud offence would borrow concepts from the Bribery Act and Criminal Finances Act, and make it an offence for a company to fail to prevent fraud by an associated person, with the only defense being that the company had reasonable procedures in place to prevent fraud or that it was reasonable not to have such procedures in place.

The Background and Next Steps

As explained in our Client Alert 'Regulatory Landscape: What to Watch for the UK and the EU in 2023', reform to the UK corporate liability regime has been long debated, with prosecutors arguing that the current law - requiring them to prove that those individuals with the necessary 'directing mind and will' of the company performed the necessary criminal act and had the necessary state of mind (known as the 'identification principle') - makes it exceptionally difficult to prosecute large global organizations for criminal offences. It is argued that it is hard to link companies with a diffuse structure to the offence of a controlling officer. The identification principle has been pointed to as the reason for the acquittals in a number of recent criminal cases, including a high-profile failed prosecution in which the Chief Executive Officer and the Chief Financial Officer were held not to be the 'directing mind and will' of the relevant company.

Whilst a reform of corporate criminal law in the U.K. has been on the backburner for over 15 years, in June 2022 the U.K. Law Commission finally published an options paper on corporate liability. The Law Commission found that the current law poses 'an obstacle to holding large companies criminally responsible for offences committed in their interests by their employees' and incentivizes poor corporate governance, by 'reward[ing] companies whose boards do not pay close attention' and penalizing those that do. The Law Commission set out several options for reform.

During the Second Reading in the House of Lords on 8 February 2023, Lord Sharpe confirmed that the U.K. Government...