On 27 June the Economic Crime and Corporate Transparency Bill completed its reporting stage in the House of Lords. An amended version of the Bill has now been published and it contains some significant changes that businesses should be aware of.
Extension of the new failure to prevent offence
In our previous briefing about the Bill, we discussed the Government's decision to introduce a new failure to prevent offence that would, once in force, hold organisations accountable for fraud that has been committed by their employees or agents for the organisation's benefit.
The new failure to prevent offence has been updated in two important ways. Firstly, as well as failure to prevent fraud, organisations will now also be held accountable for failing to prevent one of the principal money laundering offences namely:
- concealing criminal property
- arrangements facilitating the acquisition of criminal
- property
- acquisition, use and possession of criminal property
The compliance-based defence of having "reasonable procedures" in place to prevent money laundering or, in some circumstances, that it was not reasonable to have had such prevention procedures, will still be available for organisations in respect of these proposed amendments.
The second important update is that the reference to large organisations has also been removed, meaning that the new offence will apply to organisations regardless of size or sector.
Establishing an easier route to corporate criminal liability
The House of Lords also approved an amendment to the Bill that would reform the identification doctrine. As the law presently stands, liability for a criminal offence can only be attributed to corporates if it can be established that the offence was committed by a “directing mind and will” of the corporate who was acting within the capacity of their role.
Prosecutors and enforcement agencies have long argued that the law in relation to corporate criminal liability is not reflective of the modern diffuse way in which many large companies work. Others have also argued that the law is weighted against smaller companies whose directing minds can be more readily identified.
The amendment would hold a company or partnership liable for an economic crime committed by a senior manager acting within their actual or apparent scope of authority. This new provision, which we have seen in other areas of financial regulation, aims to make it easier for enforcement agencies to hold large corporates responsible through the actions of their middle management.
Proposed new powers for the Registrar of Companies House
The House of Lords has also introduced an amendment to the Bill which seeks to amend the Companies Act 2006 and give the Registrar of Companies House the power to strike off companies from its register where it has reasonable cause to believe that any information supplied in a company's registration application or any application for restoration is false, misleading, or deceptive. Before doing so however, the Registrar will have to give notice in the official public record Gazette.
How will this affect your business?
The changes to the Bill are potentially significant for companies if they remain in their final form, not only because it will introduce a level of compliance which smaller companies were not anticipating but also because it puts the company at greater risk of committing an offence at the hands of its senior management rather than their directing mind and will. The latter represents a fundamental shift in a long-held doctrine concerning corporate offending.
The Bill is currently at its third reading stage in the House of Lords and there is a chance that these changes will not survive the House of Commons' consideration of the amendments. We will continue to keep you updated with the developments in connection with the Bill as it proceeds through Parliament.