In May this year, then-prime minister David Cameron announced proposals to introduce a new corporate offence of failing to prevent economic crime. If brought to fruition, these proposals could represent the biggest shake-up in corporate criminal liability to date.
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Assuming this offence was based on the same principles as the Bribery Act 2010’s corporate offence, it would create strict liability for corporates where their employees – and potentially other third parties providing services on the corporate’s behalf – commit economic offences (money laundering, fraud, false accounting and so on) with the intention of benefiting the corporate. The corporate would have a defence if it could show that it had adequate procedures designed to prevent such offences in place.
If introduced, this offence could have wide ramifications for the retail industry. In 2012, three individuals were convicted in connection with a bribery scam in which a Sainsbury’s potato-buyer received substantial bribes from a supplier to secure contracts. Currently, Tesco is being investigated by the Serious Fraud Office for accounting irregularities and, further afield in the US, Wal-Mart came under scrutiny for alleged bribes paid by its Mexican subsidiary. This demonstrates the clear appetite to investigate and prosecute retailers for economic misconduct.
The introduction of a wider “failure to prevent” offence will make it easier for corporate prosecutions to take place in the UK. The prosecutor will not have to prove that the “directing mind and will” of the corporate was involved in, or even aware of, the criminal acts to secure a corporate conviction – a hurdle currently faced by prosecuting authorities. However, following the recent referendum decision to leave the European Union and Cameron’s resignation, there is uncertainty as to whether his successor, Theresa May, will have the same resolve for introducing the offence and if so, when the consultation (which was due to take place this summer) will happen.
One thing that is certain is that retailers should not be complacent about their compliance programmes, particularly in light of the historic issues identified within the retail sector (some of which are referred to above). Some may have already assessed and improved their internal controls following the introduction of the Bribery Act and, more recently, the Modern Slavery Act 2015.
However, if failure to prevent economic crime does become an offence, corporates will need to ensure they have appropriate controls in place to protect against wider economic offences. The requisite consultation may face a delay as a result of Brexit, but it seems unlikely that the proposals will simply disappear. While the costs of implementing effective compliance programmes can be high – Wal-Mart estimates $100m-$120m (£75.9m-£91.9m) in 2017 alone – these costs may pale in comparison to the financial penalties and irreparable reputational damage that could follow a successful prosecution.
Barry Vitou is a partner at Pinsent Masons LLP’s corporate crime, investigations and enforcement team. Written with assistance from associate Amy Smart.