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Failure to prevent offences: the shift from 'adequate' to 'reasonable' procedures

22 June 2022

The Law Commission's options paper on reforming corporate criminal liability reflects the shift from 'adequate' to 'reasonable' procedures as a defence to 'failure to prevent' offences. 

The Bribery Act 2010 marked a sea-change in the law of corporate criminal liability by enacting the UK's first 'failure to prevent' offence.

Under section 7 of the Bribery Act, a company may be guilty of the offence of failing to prevent bribery if a person associated with it bribes another, intending to obtain or retain an advantage for the corporation. It is a defence for the corporation to show that it had "adequate procedures designed to prevent associated persons from undertaking the conduct in question".

However, companies under investigation for the offence of failing to prevent bribery face the inherent difficulty of how to successfully demonstrate that their procedures were adequate when the occurrence of bribery has rendered the procedures (by definition) inadequate at preventing the conduct intended. The 'adequate procedures' test might therefore be said to have created a seemingly unattainable threshold for a company to meet in order to avail itself of the defence to an offence under section 7.

The second corporate failure to prevent offence was enacted under sections 45 and 46 of the Criminal Finances Act 2017, which created the offences of failing to prevent the facilitation of tax evasion. A corporation may be guilty of an offence if a person associated with it commits a tax evasion facilitation offence when acting in the capacity of a person associated with the corporation.

It is a defence to these offences for the company to prove that it had in place “such prevention procedures as was reasonable in all the circumstances to expect the company to have in place”, or that “it was not reasonable in all the circumstances to expect the corporation to have any prevention measures in place”.

The substitution of the word 'adequate' for that of 'reasonable' in the defence to the failure to prevent the facilitation of tax evasion was significant in confirming the shift away from the test of adequacy within the scope of failure to prevent offences, a view that was first voiced by a House of Lords Select Committee conducting post-legislative scrutiny of the Bribery Act.

The Select Committee concluded that it was unlikely that 'adequate' would be interpreted too strictly, such that a company which had in place procedures which were reasonable in all the circumstances but did not in fact prevent bribery taking place might be unable to rely on the defence, and did not therefore recommend an amendment of the wording of the Bribery Act. 

However, the Committee did recommend that if further 'failure to prevent' offences are created, the defence of procedures which were “reasonable in all the circumstances” is preferable to one of “adequate procedures”, with the test of 'reasonableness' "more clearly giving the intended meaning".

The marked shift away from the adequacy test was also reflected in the recent publication of the Law Commission's options paper on reforming corporate criminal liability, which proposed an offence of failure to prevent fraud and, in doing so, agreed that any future 'failure to prevent' offences should include the defence having put in place such prevention procedures as it was reasonable to expect. For further reading please also refer to our recent commentary article about the Law Commission's corporate criminal liability report.  

In addition, the defence to a failure to prevent the facilitation of tax evasion explicitly contemplates that it may be reasonable in some circumstances not to have had prevention procedures in place at all, which the Law Commission proposes should also be adopted by any future failure to prevent offences, stating that "it might be perfectly reasonable for a business not to have any measures in place to tackle, say, money laundering if they operate in a sector with a negligible risk of such misconduct".

In contrast, there is no corresponding provision in the Bribery Act which acknowledges that it might be reasonable not to have bribery prevention procedures at all, and it therefore seems unlikely that a company could claim that it had 'adequate' procedures if it had no procedures at all, i.e. where a company operates in a sector with a low risk of bribery. 

The absence of such an exemption, coupled with the broad extraterritorial reach of the Bribery Act, ensures that the high burden placed upon companies to put in place and maintain adequate procedures for the prevention of bribery falls upon every organisation regardless of its size or sector.

Whilst the Law Commission's options paper may have concluded that "the meaning of adequate has generally been understood to mean "reasonable in all the circumstances'", there is little empirical evidence, as of yet, to confirm that the Courts will interpret the defence of adequate procedures in this way due to the limited number of contested prosecutions for offences of failing to prevent bribery.

Moreover, the increasing number of Deferred Prosecution Agreements entered into by companies under investigation for failing to prevent bribery suggests that organisations prefer the certainty afforded by reaching a settlement with the Serious Fraud Office to the risk of meeting the seemingly high threshold of proving at trial that adequate bribery prevention procedures were in place. 

Prevention is, of course, always better than cure, and companies are therefore well advised to review the adequacy of their bribery prevention procedures. Experience suggests that whilst companies invariably have appropriate anti-bribery policies in place, the vulnerability often lies in the implementation of those policies through effective procedures and, in particular, their monitoring and review.

 

If you have any questions or would like more information about how we can support you, please contact Euros Jones or Alex Gorst.

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