Tom McNeill discusses the economic crime challenges in his article for LexisNexis

Tom McNeill discusses the economic crime challenges in his article for LexisNexis

BCL senior associate, Tom McNeill assesses the economic crime challenges and priorities for the new Prime Minister in his recent article for LexisNexis.

The new Prime Minister faces a set of challenges unparalleled in generations. And so when the Director of Public Prosecutions (DPP), on the day Liz Truss took office, correctly stated that ‘tackling economic crime must be a sustained priority for the new government’, this challenge must be considered with all the rest, including the economic reality which could be summarised by that famous Liam Byrne note ‘there’s no money left’.

As the DPP noted in his speech, there are all manner of technical issues that need be addressed, not least in relation to disclosure issues in economic crime cases in the light of a succession of high-profile failures by the Serious Fraud Office (SFO) which resulted in cases collapsing and convictions being overturned, which in turn leads to questions of management and resourcing.

The recent Calvert-Smith report and Brian Altman KC reports found significant assurance, accountability, record-keeping, management, and resourcing issues at the SFO. Incredibly, at around the time that these reports were published, the SFO and National Crime Agency (NCA) were reportedly being asked to model 40% headcount cuts.

While the annual cost of fraud is measured in billions, the total value of fraud cases coming to court is a small fraction of that figure (see the Action Fraud fraud crime trends, the Home Office economic and social costs of crime research report, and the KPMG Fraud Barometer 2021). Add bribery, corruption and other financial crimes (the NCA estimated in 2019 that money laundering costs the UK £l00bn a year)—not to mention more general issues including the criminal court backlog and ongoing barristers’ strike (there’s no money)—before considering: how is the government is to deliver on its commitment to tackle economic crime?

On the same occasion that the DPP gave his speech, the Director of the SFO, Lisa Osofsky, gave a speech of her own. Recounting some notable successes, Ms Osofsky pointed to the 21 convictions of individuals in the approximately four years since she took office in 2018; numerous convictions of companies (in 2021, Petrofac was ordered to pay over £77m after admitting seven counts of ‘failing to prevent’ (FTP) bribery); and emphasised the eight deferred prosecution agreements (DPA) agreed by the SFO since 2018, collecting over £1bn for the UK taxpayer.

Ms Osofsky did not mention that, astoundingly, not a single individual has ever been convicted in relation to any of the 12 DPAs that the SFO has agreed with corporates to date. Nor that in the four years prior to her arrival, there were 47 successful convictions of individuals compared to the 21 since. Which leads us to the fundamental issue at the heart of the government’s attempt to tackle economic crime: the trend towards corporate criminal liability.

That trend has gathered pace since 2010 when the first FTP offence was enacted (the section 7 offence under the Bribery Act 2010 (BA 2010); the FTP the facilitation of tax evasion offences were introduced in 2017 by virtue of sections 45 and 46 of the Criminal Finances Act 2017 (CFA 2017)) and 2014, when the UK introduced DPAs. The radical nature of these changes is hard to overstate.

It used to be uncontentious that criminal liability only results from personal fault. With some qualified exceptions in the ‘regulatory’ sphere, we did not punish persons in criminal courts for the misdeeds of others. For corporations to commit ‘mens rea’ offences, that is offences that require proof of the relevant mental element such as knowledge or intention, it typically required a directing mind, usually a director, to commit the offence which is then attributed to the company (known as the ‘identification principle’).

Broadly speaking, FTP offences circumvent this difficulty by making commercial organisations criminally liable if an ‘associated person’ (eg an employee or agent) commits a relevant offence, subject to a defence that requires the organisation to prove that they did all that they reasonably could to prevent the offending. In this way, such offences make organisations criminally liable if someone else commits an offence.

In practice, FTP offences will often be difficult to defend, even for organisations which have conscientiously implemented procedures to prevent wrongdoing—not least because organisations will have the burden of proving that procedures were reasonable in circumstances where the procedures did not prevent the offending.

DPAs avoid criminal convictions but will involve admitting serious wrongdoing, paying a financial penalty comparable to a fine following conviction, and complying with onerous measures to prevent future offending. Commercial risks inherent in defending prosecutions, including risks in relation to disbarment from public procurement, will mean that some organisations choose to pursue a DPA even in circumstances where they have a defence.

What is happening, therefore, is that the burden on law enforcement to investigate and prosecute culpable individuals is being transferred to organisations to take responsibility for those acting on their behalf. And if these commercial organisations cannot find ways to prevent individuals from committing criminal offences (uniquely among organisations throughout history), lining them up to pay significant fines, financial penalties and legal costs to replenish government coffers.

And this trend is set to continue. In June 2022, the Law Commission produced an options paper setting out proposals to further reform corporate criminal liability, including reforming the ‘identification principle’ so that the acts of middle and potentially lower level managers could be attributed to the company and not merely (in practice) Board directors—which is to say, significantly broaden the scope of a wide range of criminal offences with potentially surprising consequences.

Significantly, the Law Commission also proposed introducing a FTP fraud offence. While this offence would adopt the same model as the FTP bribery and facilitation of tax evasion offences, a FTP fraud offence would be far more impactful because it could be committed in a wide range of ways and circumstances, and therefore potentially impact most commercial organisations. Also, unlike bribery for example, it is very easy to imagine relatively common circumstances which could give rise to criminal complaints.

The key strategic question facing the new Prime Minister in relation to economic crime, therefore, is whether to adopt some or all of the Law Commission’s proposals and continue transferring the burden of preventing and paying for economic crime onto the shoulders of corporates, or (and) whether to properly fund and resource law enforcement and the wider criminal justice system so that law enforcement can deliver on that difficult job of investigating and prosecuting those individuals who actually commit crimes.

If the cost burdens on businesses, and jurisprudential concerns in relation to corroding the link between personal fault and criminal liability are not sufficient, the government should also consider the deterrent effect of a system of justice that punishes the organisation ‘responsible’ for those who commit serious economic crimes, while the guilty individuals walk away free.

*This article was first published by LexisNexis on 15 September 2022. You can also read the article on LexisNexis website.

Tom McNeill is a senior associate at BCL Solicitors, specialising in corporate crime, financial crime and regulatory enforcement.

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