New legislation threatens them with ‘significant’ financial and reputational losses unless they take steps to protect themselves. From Rachel Adamson, Head of Regulatory Law at Stephensons solicitors.
A consultation is underway to look at introducing corporate liability where companies fail to prevent offences such as fraud, theft, money laundering and offences under the Financial Services and Markets Act 2000, by their employees. While the reach of the proposed legislation is not yet known, measures are likely to target any offence that could be deemed ‘economic crime’. Under existing law, for a prosecution to be successful, it must be demonstrated that senior members of the company or corporation had some involvement – or at least awareness – of the illegal activity.
If the proposals are brought in, this requirement – known as the ‘directing mind’ test – is likely to be removed and businesses will be considered to be strictly liable. It is anticipated that new legislation will require companies, corporations and other relevant bodies to ensure that they have policies and procedures in place to prevent any person or legal body associated with the company, such as employees or contractors committing economic crime. The move heralds a significant expansion in the potential for criminal liability for companies.
The increasing regulatory burdens being placed on businesses, coupled with the threat of a hugely increased chance of being found criminally liable mean that it is even more important for businesses to protect themselves from the outset. It is increasingly likely that specific insurance such as ‘Directors and Officers’ policies will be required to provide vital financial support and cover against legal costs if a company is forced to defend any allegations of this nature. In my view, the fact this consultation has now been launched can only mean that the government is determined to introduce these changes sooner rather than later. The potential for loss – both financial and reputational – is significant and I would anticipate that a company could receive an unlimited fine if they are convicted of this type of offence. Businesses would be well advised to start preparing now and protecting themselves.
www.stephensons.co.uk/site/individuals/serious_fraud/serious_fraud_overview
