The United Kingdom Considers Extending Corporate Criminal Liability to Failing to Prevent Money Laundering and Fraud

11 July 2016

Introduction

The U.K. Ministry of Justice (“MoJ”) is considering extending the existing offences of “failing to prevent” bribery and tax evasion to other economic crimes such as money laundering and fraud. The proposals were announced by David Cameron at the recent Anti-Corruption Summit hosted by the United Kingdom on May 12, 2016 and confirmed that same day by the MoJ.

There is limited information on the legislation under which the new proposals will be implemented, but corporations could be held criminally liable for failing to prevent money laundering and fraud. This should prompt corporations affected to consider whether their existing compliance programs adequately meet the challenges posed by the proposed requirements.

Background

The announcement follows continued calls from enforcement agencies seeking to strengthen their ability to prosecute companies for failing to prevent economic crimes such as money laundering and fraud. In 2014, the director of the Serious Fraud Office, the U.K. body responsible for prosecuting the most serious and complex cases of corruption and fraud, proposed an extension to section 7 of the U.K. Bribery Act 2010 (the “Bribery Act”) to include the failure to prevent other “economic crime.”

The U.K. government has considered this extension to corporate criminal liability for some time, and these proposals gained renewed momentum after high-profile incidents such as the release of the Panama Papers placed increased scrutiny on the issue of corporate accountability and transparency.

The proposals to extend corporate criminal liability for failure to prevent money laundering and fraud are intended to address the existing challenge of prosecuting corporations for these offences in the United Kingdom. Corporate liability in the United Kingdom normally arises only when the prosecutor can show that the offence is committed by a person who is the “directing mind or will” of the organization – a requirement that has proved difficult to satisfy in light of the complex decision-making structure of large corporations. Conversely, the “failing to prevent” model currently used in the Bribery Act makes failure to prevent the alleged wrongdoing (bribery, money laundering, or fraud) a strict liability offence for which corporations can be held accountable without the burden of showing that the offence was first committed by a “directing mind or will” of the company.

Application to U.S. and Other Overseas Corporations

It remains to be seen whether the implementing legislation will have extraterritorial application in the same way as the Bribery Act or the U.S. Foreign Corrupt Practices Act. If the proposals follow the existing model under the Bribery Act then a non-U.K. corporation that “carries on a business” or “part of a business” in the United Kingdom would likely fall within the scope of the new requirements. This extraterritorial approach may be applied to the new proposals as part of the United Kingdom’s wider aim to tackle international money laundering and fraud by bringing corporations that operate in its jurisdiction under its stringent laws on corporate liability.

Consequence for Compliance Programs

Provided that the new proposals to extend corporate criminal liability closely follow the existing model under the Bribery Act, a compliance-focused defense would likely be available to corporations. Section 7 of the Bribery Act allows a corporation to show that it has “adequate procedures” in place to prevent bribery as a defense against the otherwise strict liability charge of failing to prevent bribery. If the proposals to extend corporate criminal liability come to fruition, corporations affected may need to update their compliance policies and procedures to meet the new requirements relating to money laundering and fraud.

Current status: Consultation Period

On the same day that Mr. Cameron announced the new proposals at the Anti-Corruption Summit, May 12, 2016, the MoJ confirmed that the government would “consult on plans to extend the scope of the criminal offence… to other economic crimes” with a view to publishing the consultation this summer.

However, the timeline of the consultation and its outcome is likely to be extended following the United Kingdom’s vote to leave the European Union on June 24, 2016 as the government’s post-referendum agenda takes precedence in the coming months.