Last week the Attorney General, Jeremy Wright, confirmed that
the Government intends to introduce a new criminal offence for
corporations that 'fail to prevent' economic crimes, such
as false accounting and fraud.
This will be the latest in a series of 'failure to
prevent' offences. The first, relating to bribery, has been law
for a number of years; and a second, relating to tax evasion, is
expected to become law early in 2017.
In his speech, the Attorney General identified two objectives of
these offences: to 'encourage better governance within large
companies' and to make it possible to 'bring corporate
bodies to justice for the criminal acts of those who act on their
The UK Bribery Act became law in 2010. The first conviction of a
company for failing to prevent bribery was in February this year,
over five years later. Optimists may see this as evidence of a
stunning success as regards the first objective. Pessimists may see
it as evidence of the difficulty of achieving the second.
What is it reasonable to expect the board and senior management
to know about what goes on in their company? With every corporate
scandal there are cries for senior heads to roll because 'they
must have known'. But must they?
There is a big difference between systemic misconduct –
for which it may perhaps be a reasonable assumption that the board
or senior management must either have condoned or connived in it,
or been derelict in the duty by not uncovering it – and
In large, complex businesses the opportunities for individuals
to misbehave are almost limitless; the resources available to even
the most diligent directors and managers, on the other hand, are
strictly finite. It is not remotely realistic to expect them to
know everything that happens within the company, no matter how good
their control systems and management information may be. The law
should not presume or pretend they can.
If 'failure to prevent' offences mean that directors or
senior managers are properly punished for the most egregious cases
of widespread misconduct which they knew or should have known
about, and that companies are prompted to pay more attention to
their internal controls and to red flags alerting them to possible
misconduct, that will be a good outcome.
But introducing these new legal responsibilities will not
suddenly mean that directors and senior managers acquire all-seeing
eyes. It would be completely unrealistic to pretend that creating a
criminal offence will somehow stamp out all misconduct within
companies. The promoters of these laws would be doing themselves
and companies a disservice if they fail to prevent the public
believing that they will.
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