Corporate accountability and the Thomson Reuters Company Secretary forum 2017

The Thomson Reuters Company Secretary forum was held on the 23 November 2017, the day after the Autumn budget in which the Chancellor announced a potential new corporate criminal offence .

At the same time on 23 November the Lord Chief Justice Lord Burnett of Maldon delivered a speech on the launch of thecityuk’s legal services report 2017 and said:

“In the United Kingdom, no person, no corporation, no minister and no public body is above the law. All are subject to it. How one wishes that were so the world over. And the rule of law flourishes only in societies that have a strong, independent and incorruptible judiciary, as we have.”

The attenuation of interest in corporate accountability is evident throughout the media. Investigations or prosecutions by the Financial Conduct Authority (FCA) and Serious Fraud Office (SFO) are routinely on the front pages of our broad sheets.

There were two measures of direct relevance to business crime practitioners in the Autumn budget (see Legal update, Autumn 2017 Budget: key business crime practitioners announcements) but the second, if backed by a criminal sanction, will become a third failure to prevent offence:

These measures will put responsibility on online marketplaces to ensure that businesses operating through their platforms are accounting for VAT correctly. A call for evidence on the steps that online marketplaces can take to ensure compliance will be published in spring 2018. Perhaps no criminal enforcement will be necessary for this measure as it is effectively covered in the failure to prevent facilitation of tax evasion that came into force on 30 September. For more information see Practice note, Tax offences: failure to prevent facilitation of tax evasion.

Peter Binning of Corker Binning ably chaired a panel discussion on Corporate Crime at Thomson Reuters Company Secretary Forum 2017. The panel of experts comprised:

  • Roger Burlingame , Kobre & Kim
  • Francis Kean, Willis Towers Watson
  • Toby Duthie,Forensic Risk Alliance.

The panel discussed a wide range of issues arising from the increasing focus on corporate crime by regulators and prosecutors. The panel recognised the exponential growth of corporate prosecution and Roger Burlingame noted that this tracks what happened in the US after the implementation of the FCPA.

Peter Binning outlined the growing willingness of prosecutors to pursue large corporations such as Rolls Royce while Roger Burlingame provided a transatlantic perspective, commenting that it remains to be seen whether the SFO will be able to install the kind of obedience by corporates the US Department of Justice (DOJ) has been able to achieve. All the speakers recognised an increased willingness for prosecutors to pursue both the company and the officers as individuals. For more information on the Rolls Royce case see Legal update, Third deferred prosecution agreement approved between SFO and Rolls-Royce (Crown Court)

Toby Duthie noted that there had been some scepticism in the past about the SFO’s ability to tackle  larger companies as their successes had been with small companies with tightly held management. He suggested that following the DPA in Rolls Royce, the size of the settlement and the level of coordination between the SFO, DOJ and the Brazilian prosecutors , the credibility of the SFO has risen.

Francis Kean suggested that the SFO wanted to widen the “failure to prevent” model pioneered in the UK Bribery Act to all fraud thus significantly increasing the compliance burden on companies. David Green  CB QC has been frank about his desire to see the expansion of failure to prevent to extend to all economic crimes which was consulted upon in Q1 of 2017 see HM Government has opened a consultation on corporate liability for economic crime . This position has wide support from  NGOS , see Joint Committee on Human Rights report recommends reconsidering the expansion of failure to prevent offence to include more than economic crimes

From correspondence disclosed from Amber Rudd, this step is being side-lined by more pressing Brexit related matters.

The session was interactive and delegates were asked to vote on the Thomson Reuters conference app, on whether they perceived Corporate liability as a bigger risk to their organisation than Brexit. The vote came in at 53 % no, 47 % yes.

The panel also discussed the changing world of internal investigations and the starkly different rules governing legal professional privilege (LPP) (following the ruling in SFO v ENRC ) on both sides of the Atlantic and the increased cooperation between different national regulators and prosecutors. The decision in ENRC is now subject to appeal, see Legal update, Permission to appeal granted to Eurasian Natural Resource Corporation Ltd (Court of Appeal).

Roger Burlingame recognised that LPP in the US was rock solid but where he was advising a company where there was a UK touchpoint in the investigation, he ensures that US lawyers are up to speed on the impact of the erosion of LPP in the UK. For more information see Practice note, Waiving privilege in an internal investigation.

A key theme throughout the discussion was the importance of separate and effective legal representation for individual directors and officers and the need to ensure that appropriate insurance is in place to provide it. In a further poll 62% of attendees said they would review their Directors and Officers insurance policy “tomorrow”.

Peter Binning raised the important topic of “educating the board” and the need for simple direct information to ensure that decisions are taken at the outset from a position of knowledge. This would include information on Deferred Prosecution Agreements and the relevance of self-reporting after Rolls Royce. Information on data management issues, and obtaining evidence from overseas are all important for a board to understand.

The session ended with a reminder from Peter Binning that every individual and company is innocent until proven guilty and companies need not allow themselves to be bullied into cooperating with prosecutors by the threat of prosecution. In support of this Roger Burlingame recommended in the face of investigation that a company do some careful research and look for an experienced  criminal lawyer who would have the right skill set to advise the company in respect of criminal procedure and evidence.

While it is not surprising that Brexit tops the list of organisational risk for most Company Secretaries, it is stark that 47% of respondents consider corporate liability a greater risk. Corporate liability, turned on its head as a result of section 7 of the Bribery Act 2010, saw its first expansion this year with the failure to prevent facilitation of tax evasion, and in all likelihood will be expanded to cover additional economic crime offences in the future. With an increasingly empowered SFO and HMRC, the former due to appoint a new Director imminently who will no doubt be keen to make their mark, there has never been a more important time for companies to ensure their efforts to prevent economic crime are sufficient.

Morag Rea and Ben Henriques of Corker Binning

Practical Law Morag Rea

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