Criminal Finances Bill

Written evidence submitted by the BOND Anti-Corruption Group and the Business Integrity Network (CFB 02)

Briefing on proposed amendments to Part 3: Corporate offences of failure to prevent facilitation of tax evasion, Criminal Finances Bill, Committee stage


This briefing is supported by the following organisations who form part of the BOND Anti-Corruption Group and the Business Integrity Network and who are all working to ensure that UK companies can be held legally accountable for economic and broader crimes, including those committed abroad:

Amnesty International, CAFOD, Corruption Watch, Global Witness, ONE, Rights and Accountability in Development (RAID), Tax Justice Network, The Corner House, Traidcraft, Transparency International UK.

Our view is that amendment NC6 (Failure to Prevent Financial Crime), tabled by Dr Rupa Huq MP would significantly strengthen the Bill and has our full support.


The 2015 Conservative Party Manifesto promised to make "it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure the penalties are large enough to punish and deter."

At the UK Anti-Corruption Summit on 12th May 2016, the Government announced that the Ministry of Justice would consult on an extension of "the criminal offence of a corporate ‘failing to prevent’ beyond bribery and tax evasion to other economic crimes " and acknowledged that law enforcement struggles to prosecute " corporations for money laundering, false accounting, and fraud under existing common laws. "

As yet, no consultation has been announced and it appears that the consultation is likely to be downgraded to a ‘call for evidence’ , bringing further delay . This amendment would enable the G overnment to fulfil both its full manifesto promise and the commitment from the UK Summit before the Parliamentary calendar becomes booked up with Brexit - related legislative work .

Purpose of amendment:

1.Levelling the playing field and ending impunity

The Prime Minister, the Right Hon Theresa May MP, has promised to deliver "an economy where everyone plays by the same rules." The current corporate liability regime in the UK where large companies cannot be prosecuted for their role in economic and other crime is a key impediment to achieving that vision.

Current UK corporate liability laws rely on a ‘directing mind’ test that requires prosecutors to prove that senior board level executives intended for misconduct to occur. This test:

· Results in effective impunity for large, global and decentralised companies where directors are not intimately involved in decisions taken by lower level employees;

· Unfairly penalises SMEs where directors are more involved and who can therefore be more easily prosecuted;

· Undermines corporate governance by creating perverse incentives to keep boards in the dark about decisions that might lead to misconduct.

Several major recent scandals have resulted in no prosecutions against companies due to the current corporate liability regime:

· LIBOR/EURIBOR: individuals prosecuted under conspiracy to defraud laws have argued that their actions were condoned and encouraged by their employers, however the Serious Fraud Office (SFO) has not charged any of the employers concerned (Barclays, UBS, and Deutsche Bank). Not a single UK financial institution faced criminal charges as a result of the 2008 financial crisis. A failure to prevent offence for fraud and conspiracy to defraud would have enabled such prosecutions;

· Olympus: in November 2015, the SFO was forced to drop its case against Olympus after the Court of Appeal found that it was not illegal under current corporate liability laws for companies to mislead their auditors; [1]

· News Group Newspapers: in December 2015, the CPS stated that because of corporate liability laws it could not mount a successful prosecution against the companies in the phone hacking scandal. [2] While this amendment would not specifically address this case, it highlights the need for broader corporate liability reform to be urgently addressed.

1. Tackling the facilitators of corruption

While Unexplained Wealth Orders will help law enforcement more easily seize the wealth of kleptocrats and corrupt officials, unless an amendment is made to the Bill the banks who facilitate this corruption by failing, in some cases negligently, to conduct due diligence on their clients will go unpunished. The UK Anti-Corruption Summit committed countries to pursuing and punishing those who facilitate corruption. Failure to include measures in the Bill to strengthen action against those who facilitate corrupt money could lead to charges of hypocrisy against the UK and undermine our reputation as an anti-corruption champion within the international community.

Not a single Bank has yet been criminally prosecuted for handling the proceeds of corruption. In March 2012, Coutts was fined £8.75 million by the FCA for serious systemic failings that resulted in an ‘unacceptable risk’ that Coutts had handled the proceeds of crime. In April 2016, it emerged that Swiss authorities were investigating whether money from the Malaysia 1MDB scandal had ended up in Coutts’ bank accounts. [3] This suggests that regulatory action alone is an insufficient deterrent in relation to laundering corrupt proceeds. An extension of a failure to prevent offence to money laundering would significantly help enhance the scope for criminal sanctions.

2. Addressing the cost to the UK economy

The cost of fraud and money laundering to the UK greatly exceeds the cost of tax evasion. In 2016, HMRC estimated that the UK’s tax gap stood at £36 billion, of which tax evasion accounted for £5.2 billion. [4] In May 2016, the Annual Fraud Indicator put the cost of fraud to the UK economy at £193 billion. [5] The cost to the public sector is £37.5 billion with procurement fraud costing £10.5 billion a year. The National Crime Agency estimates that billions of pounds of suspected proceeds of crime are laundered through the UK every year. [6]

3. Rationalisation of how economic crime is dealt with:

The Crime and Courts Act 2013 specifies that certain economic crimes, which include fraud, money laundering and false accounting as well as bribery and tax evasion, can be dealt with by way of a Deferred Prosecution Agreement. The absence of an extension of a failure to prevent offence to the other economic crime offences listed in the Crime and Courts Act results in real disparity in how different economic crimes – which all cause significant damage to the taxpayer – can be dealt with by prosecutors.

4. Improving corporate governance

Companies are already subject to criminal law for all of the additional offences listed in the amendment, although currently on the basis of the ‘directing mind’ test. In addition,

companies are already required under FCA regulations to have effective systems and controls in place to prevent themselves being used to further financial crime including money laundering and fraud. [7] The imposition of criminal sanctions would not therefore impose an additional regulatory burden on business – a key argument used by business against any extension of the failure to prevent model to economic crime. Instead such sanctions would properly penalise the irresponsible actors who refuse to meet existing regulatory standards.

The FCA’s Financial Crime guide published in April 2015 could easily be used as the basis for guidance on appropriate procedures to prevent economic crime, ensuring no duplication of regulation. Additionally, the current failure to prevent facilitation of tax evasion offence has already significantly shifted the standard for an ‘adequate procedures’ defence to allow companies to claim in their defence that it was not reasonable for them to have such procedures in place. This shift is likely to address many of the concerns business would have about extending the failure to prevent model to other economic crime.

November 2016


Prepared 15th November 2016