Lords back new ‘failure to prevent’ money laundering offence

On Tuesday last week, peers voted in favour of an amendment to the Economic Crime and Corporate Transparency Bill that has the effect of adding money laundering to the list of proposed new ‘failure to prevent’ offences, which also includes fraud and false accounting.

Andrew Sackey of Pinsent Masons said: “The amendment to include money laundering is potentially very significant. The government had sought to argue that the Money Laundering Regulations adequately covered this. However, Lord Garnier who brought the amendment disagreed, stating firstly that any extension of the criminal law should be by primary not secondary legislation and, secondly, that the regulations do not cover the situations envisaged by his amendment.”

Lord Garnier, a barrister and former Conservative MP, said the obligations financial services advisers and others need to comply with under the Money Laundering Regulations must be “distinguished from the offences under the Proceeds of Crime Act 2002, where the criminal offences of money laundering are set out”. He said a new failure to prevent money laundering offence is designed to deal with “failure to prevent those POCA offences being committed by associates of those companies”. He described this as “a much more serious set of circumstances, which are not dealt with or catered for by the regulations from 2017”.

The scope of the proposed new failure to prevent fraud offence was also amended by the Lords.

Sackey said: “The Home Office’s own impact assessment (20-page / 448KB PDF) makes it very clear that the government considers that the UK’s corporate liability laws for economic crime are not fit for purpose and that this new law ‘is expected to result in more corporate prosecutions [brought by the SFO and the CPS]..’. It is therefore increasingly important that companies test their existing controls to determine whether they consider them to be reasonable measures to prevent the classes of offending the new Act encompasses.”

An earlier version of the Bill provided for the offence to apply to large organisations only, but that restriction has now been removed. It means the offence would apply to all UK-incorporated bodies or formed partnerships or foreign-incorporated bodies or formed partnerships that carry on a business or part of a business in the UK.

The latest Bill changes come after the government recently proposed to reform the English law ‘identification doctrine’, so that companies could be prosecuted more easily for economic crime offences.