The government will be able to prosecute businesses, including law firms and accountants, if a new “failure to prevent fraud” clause is added to the Economic Crime and Corporate Transparency bill, which is currently at the Second Reading Stage of the House of Lords.
Practices and firms will be targeted if they do not do enough to prevent:
- Fraud
- False accounting
- Money laundering
All legal finance professionals are already under pressure to ensure their AML training is airtight with the increased focus on understanding the sources of wealth.
Russia (Sanctions) (EU Exit) (Amendment) (No. 17) Regulations 2022 came into force on 16 December 2022.
The Institute of Legal Finance & Management (ILFM) is running anti-money laundering (AML) compliance training sessions throughout the year (for members and non-members). Please click HERE to find out dates. Our training sessions are online, live and interactive (and recorded).
Paul Philip, Solicitors Regulation Authority (“SRA”) Chief Executive, said of this enforcement,
“Strengthening the financial sanctions regime is an important part of the government's response to war in Europe and law firms have a key role to play.”
Failure to Prevent Fraud
The hot topic surrounding the statutory cap on the SRA’s financial penalty powers being lifted is contentious within the legal industry. However, government explained that the SRA’s disciplinary matter relating to economic crime will align it with other regulators. The hope is that this will result in faster enforcement overall.
The Serious Fraud Office’s pre-investigation stage could use its powers under Section 2 of the Criminal Justice Act 1987 if the Bill is agreed.
In the House of Commons readings on this Bill, the Rt Hon Suella Braverman KC MP, said,
“The Bill will add a regulatory objective to the Legal Services Act 2007:
‘promoting the prevention and detection of economic crime.’
Cracking down on economic crime is a major plank of the Government’s beating crime plan."
The Bill will be aimed at those who do not have reasonable measures in place currently to prevent money laundering, fraud, and false accounting.
Andy Slaughter, MP, thereafter asked Suella Braverman these questions about the number of professional bodies involved in such a task, together with the direct question of “failure to prevent offences” being a new offence:
"There are 22 professional bodies overseeing compliance with anti-money laundering rules. Is the Home Secretary going to do anything about the resulting confusion, and the inadequacy of some of those bodies?
May I also ask whether she intends to introduce—as her colleague the Secretary of State for Wales hinted earlier this week—a new offence of failure to prevent offences from being committed? I do not know whether she welcomes her colleague commenting on her brief, but as the Welsh Secretary has raised the question, perhaps she could respond to it."
If you would like to read the full Hansard Edition of the Reading you can access it here. This second reading at the Commons was held on 13 October 2022.
This term “failure to prevent fraud” is currently in the media because of the latest confirmation from the UK government Security Minister, Tom Tugendhat, that the Government does intend to include a corporate "failure to prevent" offence for fraud, false accounting and money laundering into the Economic Crime and Corporate Transparency Bill.
Currently, we do not know what this will actually look like, but it is very likely based on similar revisions to bribery and tax evasion offences in recent years.
Interestingly, there was an attempt to add the same offence to the Financial Services Bill in 2021, but it was thrown out.
We know from regulators that the ability for law firms to demonstrate their ability to mitigate risk of economic crime will be key going forward.
Solicitors Regulation Authority Fining Powers
The Bill proposes to raise the statutory cap on the Solicitors Regulation Authority’s power to issue fines for disciplinary matters relating to breaches of the economic crime regime. A new clause also allows the SRA to ‘proactively request information’ from solicitors for the purpose of monitoring compliance.
When it comes to the SRA’s fining powers, the government made clear that it does not believe its current £25,000 limit is adequate when acting as a warning for economic crime.
If legislation goes through the SRA would need to consult with the Solicitors Discipline Tribunal (SDT) on financial penalties, which will then require the Legal Service Board’s approval.
We shall update this story as the Parliament’s process happens.
Comments