UK plans to hold corporations to account for crimes of staff

Serious Fraud Office wants companies to be liable for failing to prevent financial crimes

PUBLISHED : Tuesday, 11 March, 2014, 3:29am
UPDATED : Tuesday, 11 March, 2014, 4:37am

The head of Britain's Serious Fraud Office has proposed a change to the Bribery Act 2010, seeking broader powers to get tough with corporations that fail to prevent staff from committing financial crimes.

If enacted, the measures could make it easier for the SFO to prosecute corporations, as opposed to individuals, both under the act and more generally. Considering the extraterritorial reach of the act, the proposed change will have implications for corporations that, while not registered in the UK, conduct business in or through the jurisdiction.

The difficulty for the SFO in securing convictions on the basis of corporate liability is well known, and is in stark contrast to the comparative success rate (albeit, largely negotiated) enjoyed by the prosecuting authorities in the United States in enforcing the Foreign Corrupt Practices Act.

The difficulties in bringing successful prosecutions under the Act (as with all cases of corporate liability) arise from the need to demonstrate that the corporation had the requisite criminal intent of bribing another person.

This means that the SFO must show the "controlling mind" of the corporation - namely the board of directors - knew of the bribery being perpetrated by its employees.

In practice, it is often the case that evidence cannot be secured to demonstrate that members of a corporation's board knew bribery was being committed by workers at lower levels within the organisation.

Accordingly, the opportunities for pursuing corporations for breaches of the act are constrained by the "controlling mind" test.

The proposed amendment seeks to overcome this limitation by broadening the scope of Section 7 of the act. Section 7 provides that it is an offence for a company to fail to prevent acts of bribery by its staff.

The offence is one of strict liability, which means the SFO is not required to prove any mental intent on the part of the corporation under scrutiny. It is proposed that the scope of Section 7 be expanded from failing to prevent bribery, to a wider offence of failing to prevent financial crime by its employees.

The effect would be to broaden the range of offences for which a corporation may be liable, without the SFO having to satisfy the onerous "controlling mind" test, which may increase the rate of prosecutions (and types of crime) that can be brought against corporations.

While the offence under Section 7 is one of strict liability, it is subject to the statutory defence of "adequate procedures" (measures a company has in place to prevent staff offending). There has been no indication that the SFO is considering advocating a modification of this defence.

It is understood that the SFO envisages that an increased scope of Section 7 would be used only in exceptional cases, such as where a corporation profited from the criminal conduct of its employees, but it is not clear what other circumstances would be considered "exceptional".

A broader scope Section 7 may have a deterrent effect. Corporations convicted under Section 7 may be blacklisted from bidding for European public contracts, which could prove fatal to the financial viability of many corporations.

Further, with the expansion of Section 7 to include financial crimes, there may well be significant consequences for banks caught up in the Libor-rigging investigations.

At present the proposals have not been presented to Parliament, which will finally decide if the suggested amendments should be enacted.

The proposals remain in the nascent stages, but the sentiment expressed by the amendments indicates a desire on the part of the SFO to ensure that corporations are held accountable for the wrongs committed by those institutions, and to adopt a more aggressive stance when investigating corporations implicated in financial crime.

Richard Tollan is a partner and advises, among other areas, on matters of fraud and anti-corruption compliance. He is a former detective inspector in the Commercial Crime Bureau of the Hong Kong Police, running multi-jurisdictional investigations into serious fraud.Jennifer Colegate is a registered foreign lawyer (qualified in England and Wales) focusing, among other areas, on anti-corruption matters.