New ‘failure to prevent’ law will hit UK executives

Lawyers, accountants and executives at British firms that don’t do enough and ‘fail to prevent’ money laundering, false accounting or fraud will be targeted by the UK’s new Economic Crime and Corporate Transparency bill.

New provisions to the upcoming bill are based on similar ‘failure to prevent’ offences for tax evasion and bribery, says the UK government’s security minister Tom Tugendhat.

Yes. The new bill would make it easier to prosecute firms and their directors because prosecutors will only need to prove the people involved lacked adequate or reasonable controls to prevent such wrongdoings.

Currently, activities like business fraud and money laundering are more difficult to prosecute because of the need to prove that a ‘directing mind’ in an organisation intended to commit such crimes.

If the Economic Crime and Corporate Transparency bill passes with the ‘failure-to-prevent’ provision, it will significantly impact UK governance standards.

“Under the proposed Bill, to have a defence, a company must prove it had ‘reasonable’ or ‘adequate’ procedures in place to prevent its employees from committing a crime,” says David W Duffy, CEO of the Corporate Governance Institute. 

“Directors and board members must understand their fiduciary duties and their duties under the proposed new bill, and director training will help in this regard.” 

The new law aims to stem the tide of money laundering and other financial crimes.

For directors, this means:

• Their level of personal legal responsibility in financial crime cases will increase.
• They could be liable if authorities say their company facilitated financial crime.
• They could go to jail in such a situation.

This doesn’t just apply to scenarios of ‘actively assisting’ foul play. It could easily apply to a lack of due diligence in preventing foul play.

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