Directors could end up in jail if they fail to prevent fraud by an employee under plans expected in a government consultation. The Ministry of Justice is considering whether to extend the ‘failure to prevent’ rules from bribery and tax evasion to other economic crimes, including fraud.
Writing in The Guardian, then Prime Minister David Cameron said “In the UK, in addition to prosecuting companies that fail to prevent bribery and tax evasion, we will consult on extending the criminal offence of ‘failure to prevent’ to other economic crimes such as fraud and money laundering so that firms are properly held to account for criminal activity that takes place within them.”
Announcing plans for the consultation, which is expected to kick off in the summer, Justice Minister Dominic Raab said: “The government is finding new ways to tackle economic crime and we are taking a rigorous and robust approach to corporations that fail to prevent bribery or allow tax evasion on their behalf.”
Penalties will be tough if the rules follow the anti-bribery model. Directors could face disqualification or up to ten years in jail and companies could be hit with unlimited fines.
Some lawyers believe the proposals could be hard to enforce. William Christopher, partner in law firm Kinglsey Napley blogged that the offence will be very difficult to define. “In particular, it is difficult to see how it will be defined without the unwelcome possibility that a corporate may find itself both the victim of fraud, and a potential defendant to criminal proceedings.”
James Burgoyne, Director – Claims & Technical, Brunel Professional Risks says that professional firms will have to have robust procedures in place to defend themselves. “Businesses will be in the firing line if their employees or agents are found guilty of fraud. The best defence will be to demonstrate that they have effective and tested procedures in place if they find themselves on the wrong side of a ‘failure to prevent’ accusation.”