ISSUE 53 Expert Witness Journal - Journal - Page 45
fraud, theft, bribery and other offences, which
required dishonest intent, to the actions of the “directing will and mind” of the organisation. In practice,
this was often limited to the managing director or majority owner when they were also involved in the running of the company.
The failure to prevent economic crimes offence
applies to all UK-incorporated bodies or foreign-incorporated bodies that carry on a business or part of
a business in the UK, subject to them meeting two or
more of the following thresholds either individually
or, with respect to parent companies, where the subsidiaries in aggregate meet the statutory thresholds: a
turnover of more than £36m; a balance sheet total of
more than £18m; and/or more than 250 employees.
For example, under the Bribery Act 2010, the
involvement in bribery of an overseas project manager
would previously have given rise to the risk of corporate criminal liability for the secondary offence of failing to prevent bribery (section 7), for which there is a
statutory defence of having in place adequate procedures and to which mandatory debarment does not
apply, but not liability under section 1 of the Bribery
Act 2010 (giving a bribe).
Unlike the Bribery Act 2010 and the Criminal
Finances Act 2017, extra-territoriality is not specifically
provided for. However, the Criminal Justice Act 1993
had already extended UK jurisdiction for fraud and
other economic crimes to where a “relevant event” occurred in the UK, including, for example, causing
gain or a loss to another in the UK. The UK government’s factsheet on the failure to prevent fraud offence gives the following example: “If an employee
commits fraud under UK law, or targeting UK victims,
their employer could be prosecuted, even if the organisation (and the employee) are based overseas.”
From 26 December 2023, the organisation which employed the project manager is at an increased risk of
the primary offence of actual bribery contrary to section 1 of the Bribery Act 2010, for which there is no
adequate procedures defence and to which mandatory debarment is applicable. There is also an increased risk of corporate liability where a senior
manager receives a bribe contrary to section 2 of the
Bribery Act 2010.
The failure to prevent offence does not apply as
broadly as the reform to corporate criminal attribution but it still far reaching in is application because it
applies to the following economic crimes:
While there is not a reasonable procedures defence
available, risk assessing the increased risks of
corporate criminal liability from this reform, with the
aim of enhancing preventative measures, is
recommended.
l Fraud Act 2006: fraud by false representation; fraud
by failing to disclose information; fraud by abuse of
position; participating in a fraudulent business;
obtaining services dishonestly;
l Theft Act 1968 / Theft Act (Northern Ireland) 1969:
misappropriating property – including electricity, gas,
and water; false accounting/misleading underlying
records; false statements by company directors to
deceive members or creditors;
Corporate criminal failure to prevent fraud and
other economic crimes
The new UK corporate criminal offence of failure to
prevent economic crimes, including but not limited to
fraud, will make “large” body corporates and
partnerships criminally liable for the acts of a person
associated with them who commits an economic crime
for the organisation’s benefit or for the benefit of any
person to whom the associated person provides
services on behalf of the organisation - for example, a
customer.
l Companies Act 2006: fraudulent trading, meaning
to carry out business for any fraudulent purpose;
l cheating the public revenue; and
l Scots common law fraud, uttering – presenting a
misleading document, and embezzlement.
Why is this significant?
The UK’s corporate criminal failure to prevent
offence model extends significantly beyond bribery
and the facilitation of tax evasion to a broad range of
economic crimes. Parent company liability is also significantly greater than under the Bribery Act
2010.These reforms have resulted, in part, from lobbying by the UK Serious Fraud Office. It is likely that
corporate criminal enforcement will be an increased
area of focus.
Associated persons include employees, agents,
subsidiaries, or any other person performing services
‘for or on behalf ’ of the organisation. This definition
could extend to suppliers when they provide ancillary
services, agents, distributors, advisers, brokers, contractors, consultants, and joint venture partners.
For corporate criminal liability to apply in this context,
the associated person must have intended to benefit either: the organisation for which they are working or
providing services for and on behalf of; or another
group company, a customer or client of the organisation who the associated person provides services to on
behalf of their employing organisation.
Reasonable procedures defence
It will be a defence to the failure to prevent economic
crimes offence if the organisation can prove that it had
reasonable prevention procedures in place, or that it
was not reasonable in all the circumstances to expect
it to have had any procedures in place. The offence
will come into force when the UK government publishes statutory guidance on the reasonable procedures organisations should consider putting in place.
In addition, a parent company is criminally liable for
failing to prevent an economic crime by an employee
of a subsidiary company where the fraudulent act was
intended to benefit the parent company. However, liability is not triggered where the organisation is the
intended victim of the associated person’s conduct.
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