Reforms to the UK’s laws on corporate criminal liability have been talked about for decades.
Failure to prevent offences – where corporates can be held criminally liable if they fail to prevent certain behaviour – have been discussed in earnest since 2010 with the introduction of the corporate "failure to prevent" bribery offence.
It was the carve-out of all businesses other than large organisations that perplexed commentators.Many have advocated for corporate failure to prevent offences to be rolled out more broadly in the economic crime sphere; in part to address the difficulties in holding corporates to account. In 2017, failure to prevent the facilitation of tax evasion became a criminal offence.
While the Law Commission’s options paper on corporate criminal liability of June 2022 all but ruled out the introduction of a broad failure to prevent economic crime offence, it mooted the introduction of a narrower, failure to prevent fraud offence.
The tabling of the economic crime and corporate transparency bill (the ECCT bill) in September 2022 appeared the perfect legislative vehicle for the introduction of such an offence, but none was included.
There was heavy criticism of the ECCT bill in the House of Commons in October 2022, in particular MPs decrying the absence of measures to make it easier to hold corporates to account.
Following months of speculation on the subject, in April 2023 the government finally tabled legislation to introduce the offence of failure to prevent fraud in the ECCT bill. It was not the drafting that many expected.
The omission of a failure to prevent money laundering offence was perhaps not surprising given the level of regulation that already exists in those sectors deemed at highest risk of money laundering.
It was the carve-out of all businesses other than large organisations that perplexed commentators.
While the government’s fact sheet on the new offence referred to avoiding placing “unnecessary burden on legitimate businesses” it did not explain why it was not deemed an unnecessary burden for large businesses, nor why the application of proportionality, which is also referred to, would not ensure that the burden falls proportionately across businesses dependent on their size.
The final stage of the ECCT bill’s progress through the House of Lords was not the stage at which major amendments were expected to be made.
But the House of Lords has seized its moment, led by former solicitor-general Lord Garnier, and has voted through amendments to the legislation to remove the exemption for companies that are not "large organisations" and expand the offence to include failure to prevent money laundering.
The removal of the large organisation constraint seems a logical amendment, putting the offence on a par with failure to prevent bribery and the facilitation of tax evasion; neither of which have any size-constraint in their application.
Garnier equated the carve-out of small and medium-sized enterprises from the offence to “saying that every burglar over six feet, six inches is liable to be prosecuted… but every burglar under that height gets off scot free”.
The more striking amendment is the expansion of the offence to failing to prevent money laundering.
If, and that is a big question, this amend survives the final stages of review, this would represent a significant expansion and one that was outside the ambit of the Law Commission’s 2022 recommendation.
At present, only businesses within the scope of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the “MLRs”) must have systems and controls in place to combat money laundering.
Although the failure to prevent offence would not result in such a prescribed regime, it would mean all organisations would need to evaluate the money laundering risks their business is subject to and implement reasonable prevention procedures. This would represent a significant departure from the current compliance framework in the UK.
It is also in contrast to the recently enacted failure to prevent money laundering offence in Jersey, which only applies to regulated businesses.
It is the expansion from those within scope of the MLRs, to all businesses, which is of most significance given the almost limitless range of underlying offences and the difficulty there is in policing those risks.
Garnier appears to have been downplaying it somewhat in describing it as a “modest” amendment.
Time – hopefully not too much of it – will tell whether this ‘modest’ amendment is made law.
And if it is, corporates will need to ensure they have in place reasonable procedures to prevent fraud and money laundering.
Helen Harvey is a litigation senior associate at Macfarlanes
