Failure of the 'Failure to Prevent' Model of Financial Crime: A Bespoke Solution for Corporate Fraud

Authors: Cronin, A. and Copp, S.F.

Start date: 5 April 2016

Concerns over corporate behaviour in areas as disparate as homicide, bribery, economic crime and tax evasion have led to experimentation with new models of corporate criminality to avoid the individualist obstacles posed by the common law. Foremost amongst these is the “failure to prevent” model introduced by the Bribery Act 2010. This has been perceived to have been successful in changing corporate behaviour with the widespread adoption of new practices to evidence that compliance is taken seriously. Consequently, it has been proposed that the model be extended to economic crime and tax evasion. HMRC has warmly endorsed the model in its consultation on offshore evasion. Central government, however, has been more lukewarm with the abandonment of its extension to economic crime, specifically fraud. This paper evaluates: the rationale for the “failure to prevent” model in its historical context; its relative effectiveness in combating bribery; the ongoing failure to adequately deter economic crimes, particularly in the financial sector; whether a “one size fits all” approach is appropriate for the diversity of corporate behaviour it is sought to change, examining, for example, differences between the inherent nature of bribery and fraud; alternative models of corporate fault attribution; and finally broader issues of compliance with the rule of law and human rights expectations. In conclusion, it will argue that while the “failure to prevent” construct of organisational fault is suited to dealing with bribery and tax evasion, it is wholly unsuited to addressing every instance of fraud, which poses unique challenges on account of its dishonesty element. Aside from cases involving a dishonest ‘rogue’ individual, an altogether different approach to corporate culpability is needed. This is provided by the 2- level approach to dishonesty, with its adoption of evidential presumptions, such that the substantive offence of fraud itself can be sustained against corporations.

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