Economic crime: What to expect from new legislation

The Economic Crime and Corporate Transparency Bill, which had its third reading in the Commons on 24-25 January and first reading in the Lords at the beginning of February, provides additional tools to fight economic crime in the UK. Among other things, the bill seeks to enhance the powers of certain regulators and will require greater transparency and reporting from corporates.

Additionally, the bill may become the vehicle through which new economic crime offences are introduced that could become the most significant legislative developments in UK white-collar enforcement since the introduction of the Bribery Act.

How will the bill affect lawyers?

Certain aspects of the bill are focused directly on the legal profession, relating to powers of the Solicitors Regulation Authority and Law Society. Further, if the new economic crime offences are introduced, they could also have a major effect on lawyers, as well as corporates operating in the UK more broadly.

SRA and Law Society powers

The bill contains provisions that seek to enhance the powers of both the SRA and the Law Society.  

First, the bill proposes to remove the cap on the SRA’s fining powers in relation to facilitating economic crimes. This would allow the regulator to impose unlimited fines on solicitors who are found to have either breached a conduct rule ‘relating to’ the prevention or detection of economic crime or have been found to have committed an ‘act or omission which had the effect of inhibiting the prevention or detection of economic crime’.

Second, the bill proposes to amend the Legal Services Act 2007 to empower the Law Society to compel lawyers and law firms to produce documents and information which it deems would be ‘expedient to have for the purposes of, or in connection with, the performance of its regulatory functions for purposes relating to the prevention or detection of economic crime’.  

These potentially enhanced SRA and Law Society powers could have a significant impact on the steps lawyers need to take (and are already taking) to ensure they have robust measures in place to detect and address risks relating to a wide range of economic crimes.

‘Failure to prevent’ economic crime

Prior to the third reading in the Commons, Robert Buckland MP introduced a series of amendments to the bill. These amendments added new offences for failure by a corporation to prevent fraud, money laundering and false accounting. They also included a related clause introducing individual criminal liability for corporate officers whose decision (or failure to make a decision) results in the corporate committing an offence. He also proposed amendments that would reform the ‘identification doctrine’ so a corporate would commit an offence if that offence was committed with the consent, connivance or negligence of a senior manager.  

The ‘failure to prevent’ offences were designed to operate in a similar way to the corporate offence in section 7 of the Bribery Act. A ‘relevant commercial organisation’ would commit an offence where it fails to prevent an associated person committing fraud, money laundering or false accounting on its behalf. In a similar way to the Bribery Act offence, this new proposed offence would come with a defence where the organisation had ‘procedures that were reasonable in all the circumstances’.

Following ministerial assurances that the issues covered by these amendments would be addressed in the Lords, the amendments were withdrawn. However, there remains a strong likelihood that some or all of the offences proposed will appear again as the bill progresses towards royal assent.

Much of the initial parliamentary discussion around these issues has focused on ‘enablers’ of fraud and money laundering, that is to say professional services providers, including lawyers. It is therefore likely that much of the upcoming debate will revolve around the way these offences might affect lawyers.

Comment

Should they be introduced, the ‘failure to prevent’ offences could represent the most significant legislative changes in the fight against economic crime in over a decade. With the proposed amendments withdrawn, we await further clarity, but there seems now to be real parliamentary interest in legislating in the area of corporate criminal liability. It is a subject that has been under discussion for many years, but little progress has been made.  

Much of the debate around the operation of these new offences may focus on the role played by professional services firms. This will add an extra level of scrutiny for lawyers, which is already likely to be sharpened by the bill’s proposed increases in the powers of the sector’s regulators.

However, the introduction of ‘failure to prevent’ offences and changes to the principles by which corporate criminal liability is established could also have an impact on all companies operating in the UK. Sectors such as technology, finance and telecoms (all subjects of recent reports by the Lords committee on digital fraud) may feel particular impact. There will be real challenges in crafting the legislation to ensure that there is clarity for businesses, regulators and prosecutors. It will be important that in areas that are already heavily regulated, such as money laundering, the new laws do not create confusion and inconsistency.

Although there is much still to be clarified about these new economic offences, there is now real legislative movement. Therefore, as was the case before the Bribery Act came into force, we expect to see prudent companies begin the process of reviewing their internal frameworks to assess whether they are sufficiently robust to ensure compliance with these proposed new expectations.

Sam Tate is a partner and Tom Jenkins a senior associate at RPC