The Lords Committee has debated the Government amendment to create a new “failure to prevent fraud” offence. Lord Sharpe said the offence would drive change and facilitate prosecutions without duplicating existing regulation or placing unnecessary burden on legitimate business. This is the reason it will apply only to large organisations. He said the new offence would cover fraud and false accounting, leaving money laundering responsibilities under their current separate regulatory regime.
In response, various Lords:
- proposed the offence should actually apply to all organisations – on the basis, not least, that SMEs are just as much, if not more, at risk of fraud as larger companies. SMEs are not excluded from the Bribery Act, AML legislation or the National Security and Investment Act, said Lord Fox, so what is the basis for excluding them here? There was minimal support from any of the speakers for the suggestion that SMEs should be excluded;
- expressed concern that the amendment is limited to offences that take place in the UK or have UK victims – again, unlike the existing bribery and tax evasion FTP offences;
- expressed disappointment that the set of offences to be covered falls way short of the many offences that have to do with economic crime and would be appropriate to add in to the offence;
- concern that the proposals to address the identification principle do not go far enough in addressing how modern day companies work;
- concern that many of the frauds that happen would not actually be caught by the offence as currently drafted, as the company often does not benefit from the fraud.
Many Lords noted that both the wider House of Lords and the Commons would be very likely to press for and vote in favour of a wider scope.
Baroness Bowles, winding up, said
- the proposal has actually done very little, will exempt most companies and will probably not touch where action is needed most;
- the identification regime is hard to address, but there are instances where liability can be attributed without needing to find intent or fault;
- that the new offences would amplify the current difference between directors of large companies, who may have a corporate “reasonable steps” defence, while directors of small companies are more likely to be pursued personally;
- so far as possible, there should be consistency across all economic crime;
- overall, she urged the Minister to think again and come back with a better proposal.
Lord Sharpe, responding, said:
- a failure to prevent money laundering offence would duplicate the systems, controls and penalties or the existing regime and extend AML obligations to very low risk companies – he said any necessary AML measures could be implemented through the existing regime;
- similarly, a proposal to include failure to prevent sanctions evasion is not necessary because of the strong sanctions regime;
- on the basis for setting the threshold – he would investigate and report back;
- on the identification doctrine, the Government acknowledges that small businesses are effectively currently disadvantaged, and the Government wants to address this – but imprisoning senior managers on a lower basis of culpability than currently is not the answer
Baroness Bowles also tabled her proposed amendment for regulatory failure to prevent – which she withdrew after debate but said she was in no way reassured and would return to the matter on Report.