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Tom McNeill Discusses The Economic Crime Challenges With LexisNexis – White Collar Crime, Anti-Corruption & Fraud


BCL partner 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, please visit
LexisNexis website.

Please note that you will need a subscription with
LexisNexis to access the full article.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.



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