Growing calls to extend ‘failure to prevent’ offences to fraud

Lisa Osofsky, director of the SFO, and Max Hill QC, director of public prosecutions for England and Wales, made the calls in speeches delivered at the 39^th Cambridge International Symposium on Economic Crime on Monday. Currently, ‘failure to prevent’ offences exist in the UK in respect of bribery and tax evasion.

In his speech, Hill said that while the Bribery Act is the “gold standard on corporate criminal liability”, there are challenges in enforcing corporate criminal liability in relation to wider economic crime such as fraud. He said he would “support expansion of the existing ‘failure to prevent’ model to wider economic crime, specifically fraud – including Section 4 of the Fraud Act, that is fraud by abuse of position”, as a result.

“This approach would be more effective in identifying and prosecuting the true criminality in any given case,” said Hill. “Our prosecution experience tells us that cases are not always clear cut – what may be corruption may also be fraud and vice versa. Our prosecutors will always look to ensure that a charge reflects the true criminality. An extension of the ‘failure to prevent’ model to fraud would therefore be a welcome addition to the tools available for prosecutors to ensure that all those involved in wrongdoing are brought to justice.”

In her speech, Osofsky said she echoed Hill’s “call for expansion of the ‘failure to prevent’ construct to include fraud”, the SFO confirmed to Out-Law.

Under the UK Bribery Act 2010, if a prosecutor can prove that someone associated with a “commercial organisation”, like a company, has bribed someone to obtain or retain business or another advantage for the commercial organisation, the organisation will automatically be criminally liable unless it can prove an adequate procedures defence.

What constitutes “adequate procedures” is not defined in the Act, though guidance has been issued by the Ministry of Justice on what a business needs to do to demonstrate that it had “adequate procedures” in place to prevent bribery. It includes measures such as proportionate procedures, board-level commitments, risk assessments, due diligence, training and ongoing monitoring.

Under the Criminal Finances Act 2017, it is a criminal offence if a business fails to prevent its employees or any person associated with it from facilitating tax evasion.

White collar crime expert Fiona Cameron of Pinsent Masons said: “The SFO, under the leadership of both Osofsky and her predecessor David Green, has persistently called for expansion of the failure to prevent offences, citing difficulties with the current identification doctrine as hampering attempts to hold those guilty of misfeasance to account particularly in larger, more complex and multinational businesses – essentially the cases forming the focus of the SFO.”

Options for new ‘failure to prevent’ offences were recently evaluated by the Law Commission in England and Wales as part of a wider exercise exploring possible reforms on corporate criminal liability. It published a paper in June setting out a series of options. It said that introducing a broad offence of ‘failure to prevent economic crime’ would “overlap with existing offences relating to bribery and facilitation of tax evasion” and added that it is “also concerned that in order to enable organisations to put reasonable prevention procedures in place, the list of offences should not be too broad”. As a result, it said that, “at least initially”, the introduction of new ‘failure to prevent’ offences should be “limited to failure to prevent fraud by an associated person such as an employee or agent”.

Cameron said the recommendation “disappointed some who would have preferred a more expansive offence of failure to prevent economic crime”, though the Law Commission has not ruled out further expansion in future and has set out some detailed recommendations for that. 

“Previous attempts to introduce legislation in this area have failed, so much will depend on the appetite of the new UK government to take this on and introduce further legislation in this area, particularly at a time when other matters may be seen as a priority,” Cameron said.