Sanctions and Anti-Money Laundering Bill [HL] — House of Lords, 2017-12-06
Topic: Law and Crime
Sharon Bowles (Liberal Democrats, Centre to centre-left): My Lords, this amendment introduces a new corporate criminal offence of failure to prevent money laundering. The UK already has two failure to prevent corporate criminal offences. The first is in Section 7 of the Bribery Act and the second was introduced recently in the Criminal Finances Act for tax evasion. The wording of the proposed offence is modelled on those existing offences, especially the more recent one that uses the form of facilitation Proposed new subsection (2) contains a definition of what the money laundering facilitation offence would be. Proposed new subsection (3) introduces the defence of adequate procedures being in place. The other proposed new subsections follow the format already established in earlier, similar offence types specifying fines, and also cover behaviour outside the United Kingdom The money laundering regulations 2017 already establish provisions about procedures for businesses most likely to be used for money laundering. Under those regulations, there are substantial regulatory fines for a company that fails to comply. However, regulatory fines, even large ones, are often taken as a cost of doing business, and they do not have the same impact on a company as a criminal conviction, which is taken much more seriously by both the company and the directors. As a consequence, it makes them sit up and take notice about the controls that are in place and the quality of their internal audit procedures In tandem with the possibility of entering into a deferred prosecution agreement, a "failure to prevent" can be a very powerful tool, both as a deterrent and a means of prosecution. Why do we need it? It is a well-known fact that, in the UK, it is almost impossible to find a large company guilty of a criminal offence because our criminal law applies a doctrine of intent derived from law relevant to an individual. Corporate intent requires the finding of a senior responsible individual or "directing mind"—and that is next to impossible in large companies where directors are not regarded as able to know everything and, indeed, the concept of collective responsibility of boards effectively prevents it. It can pay not to even look too hard. For small companies, a director is far more easily assumed to know everything. With little likelihood of being prosecuted in a large company, there is also little incentive for it to enter into a deferred prosecution arrangement—and that is reflected in prosecution statistics. Various other factors taken into account all favour large companies against small companies. Our law is unbalanced The Crown Prosecution Service’s legal guidance itself says under its "further evidential considerations" in paragraph 21: "The smaller the corporation, the more likely it will be that guilty knowledge can be attributed to the controlling officer and therefore to the company itself" As long ago as 2010, the Law Commission, at paragraph 5.84 of its consultation paper 195 called the identification doctrine, "an inappropriate and ineffective method of establishing criminal liability of corporations" The Attorney-General was not able to prosecute firms for LIBOR and the observation was made by the Telegraph’s chief business correspondent in 2016 with regard to LIBOR and Forex that, "we outsource corporate accountability for criminality in the City to US prosecutors". The same story is repeated for money laundering. The US achieved deferred prosecution agreements against HSBC and a fine of £1.2 billion. In the UK, only regulatory investigations have been opened, and commentators have blamed the identification regime. Jonathan Fisher QC told the press that it would be "difficult and clumsy" for the FCA to criminally prosecute HSBC as the FCA, "would have to show that a director or some other controlling mind in the parent company in London knew all about the alleged misconduct" So there are rewards for ignorance. Indeed, if any noble Lords watched the appearance of the HSBC chair, CEO and chair of audit before the various Commons Select Committees that they made appearances at, they would have seen that the issue of internal audit was one of the issues that was probed—without success. Sitting and saying nothing is by far the safest option The UK introduced a failure-to-prevent offence for bribery in Section 7 of the Bribery Act. The effect of that was reinforced by the introduction of deferred prosecution agreements in 2014. It is useful to consider the effect of the "before and after" of those provisions by looking at BAE, which represents the situation before, and Rolls-Royce, which represents the situation after. Before Section 7 of the Bribery Act, we had the longest-running bribery investigation ever: BAE settled with the SFO. I quote from the blog of David Corker, another lawyer specialising in financial crime litigation, who said that, "BAE’s obduracy resulted in a humiliating settlement for the SFO and a profound defeat for the interests of justice … BAE was able to dictate the terms of the SFO’s surrender: a plea of guilt to an obscure books and records offence buried away in the Companies Act, the payment of a trifling gratuity to faraway governments at BAE’s discretion"— that is, BAE chose whether to pay it or not— "and an everlasting immunity for all its employees who had conducted and overseen the bribery" No wonder it was called "humiliating" In the "after" scenario in 2017, after Section 7, Rolls-Royce admitted its systemic corruption, paid a fine of £500 million and, instead of seeking immunity for its employees, committed itself to helping the SFO. The need for, and effect of, such a corporate criminal offence are therefore clear. Without such an offence, it will continue to be extremely difficult to prosecute large companies for money laundering offences and the UK will continue to outsource its justice to the United States. Again, I pray in aid the EU situation—but it is unlikely to impress in Brussels, which is progressively turning the handle on these issues and is well able to have them in a list of regulatory requirements that need to be in place to gain any equivalence, or any deal, on financial services I turn to Amendment 69C, which requires that if the correct anti-money laundering procedures are not in place—meaning that there had been a corporate conviction of a failure to prevent money laundering—the Secretary of State should ask the court to investigate whether the directors were fit and proper. An automatic finding that they were unfit is not intended; the intention is to mirror what happens under competition law where, following a breach of competition law, the director’s role is looked at. It is already possible for the Secretary of State to refer to the court under their own volition, but I am seeking that there should be some kind of routine follow-up to see whether the directors were, in effect, wantonly negligent or disregarding of their duties, in particular with regard to how they handled internal audit I am sure that the noble and learned Lord, Lord Davidson, and the noble Lord, Lord Collins—who submitted Amendment 69F, calling for a public consultation on corporate liability—will note the overlap with the issues of their concern. I will be interested to hear what is said. Personally, from the general evidence available—including from the Law Commission as long ago as 2010—I am not sure whether consultation is needed on the need to reform corporate liability in general. It is a matter of getting on with it and doing it. There are other areas in which the whole identification doctrine rears its head. Hopefully they will be looked at in due course—but right now, I believe that in the field of economic crime, where we have the precedents for failure-to-prevent offences, the mechanism is known and has been effective and we should proceed to avail ourselves of it. I beg to move.