Economic Crime and Corporate Transparency Act introduces new offence of failure to prevent fraud
Expert legal commentators appear to be divided over the impact of the Economic Crime and Corporate Transparency Act, which received royal assent today. The House of Lords nodded through the measure, after months of parliamentary back-and-forth, hours after the government rejected amendments which their backers said would close gaping loopholes.
Former lord chancellor Sir Robert Buckland MP warned that unscrupulous operators would exploit threshold definitions in the law: ‘We will see shell companies and people of straw,’ he said.
However Tony Lewis, head of fraud, corporate crime & investigations at international firm Fieldfisher, warned that the new regime would place additional compliance obligations and increased risk for businesses operating in the UK. ‘It might make the UK less attractive as a place to do business as a result.’
Lewis said that the Serious Fraud Office and the National Crime Agency now have new routes to attributing corporate liability through the introduction of the new failure to prevent fraud offence – albeit now limited to large companies following the Commons’ rejection of Lords amendments that would extend the offence to SMEs.
Meanwhile, he said, ‘The long requested amendment to the identification doctrine has taken place which should also make it much easier for enforcement agencies to attribute liability to corporates through the actions of its senior managers.’
Lloyd Firth, counsel in international firm WilmerHale’s UK white collar defence and investigations practice, said: ‘After a long and laborious journey through parliament, the new act arrives to no little fanfare and expectation. It is a very significant piece of legislation but it will be several years at least before the true impact of the changes to the UK’s corporate criminal liability framework can be assessed. As with the Bribery Act, companies can expect to see a significant lag time before the first significant enforcement actions are brought under the new act.’
However, critics of the measure say it leaves serious shortfalls. Amendments rejected by the government included attempts to hold senior executives directly liable for economic crimes committed by their organisations, and to introduce a new offence for corporates who fail to put adequate measures in place to prevent money laundering.
Sir Bob Neill MP, chair of the Commons justice committee, said: ‘There is good evidence – and anyone who practises in the field will know – that fraud and other illicit activity are often channelled through smaller companies, and the people in those companies are precisely the people over whom we do need to have a degree of control. Law enforcement is not, with respect, needless bureaucracy; it is fundamental to good business, and I think that that point is regrettably being missed.’
Dame Margaret Hodge MP, chair of the all-party group on anti-corruption, said: ‘This bill arrived in a sorry state and we have improved it. But there are still large gaps. Trusts have not been covered, as they should be, and authorised corporate services providers could end up with a future dud register.’
Jane Larner, counsel, litigation, arbitration and investigations at magic circle firm Linklaters said: ‘The act’s supporters say it will be a game-changer in the fight against economic crime in the UK but its efficacy will come down to enforcement. We expect increased enforcement activity with authorities under considerable pressure to demonstrate effective implementation of the new offences, not only through the prosecution of organisations for failing to prevent fraud but also by making use of the revamped scope of corporate criminal liability to penalise companies for a wide range of economic crimes committed for their benefit.
‘This is a very broad piece of legislation which aims to tackle the use of the UK’s corporate, real estate and business sectors by criminals for nefarious purposes and address the reputation London sometimes has as a place where money laundering and fraud are commonplace. However, the refusal to extend the corporate failure to prevent fraud offence to SMEs may mean the Act’s impact is weakened from the start.’