Should the UK be added to the JFSC appendix D2? or your BRA/CRA? Or both?

The Council of Europe* has named the UK as one of the countries not holding companies to account over money laundering.

The UK is one of 14 countries [including Russia] accused of failing to comply with international standards for holding companies liable for money laundering.

The Council of Europe said existing UK money laundering legislation makes it difficult to prosecute large companies.

• In its review of the Warsaw Convention, the Council says the UK, France and Russia are among the signatories that are not compliant - or compliant "to a very limited extent" - with the requirement that companies are held liable for criminal offences caused by a director's "lack of supervision or control".

This is due to the need to show the wrongdoing was committed by someone who was the "controlling mind and will" of the company - a requirement known as the identification principle.

But the Council added that the UK government was looking to address the issue with proposed new laws.

It is timely that the Law Commission recently announced that it will publish in Spring its long-awaited proposals to reform the UK's criminal corporate liability laws.

This comes after intensive campaigning by, among others, the Director of the Serious Fraud Office, Lisa Osofsky. Campaigners have called for change to the identification principle and the extending of 'failure to prevent' offences, which may make it easier to prosecute large companies - and satisfy the Council of Europe.

What they say

United Kingdom Article 10(1) 1.

1. UK authorities advised that the legal mechanisms by which companies can be held accountable for wrongdoing are largely governed by common law rules, collectively referred to as the "identification doctrine".
2. This states that where a particular mental state is required, the acts of a senior person representing the company’s “controlling mind and will” can be attributed to the company.
3. The Guidance for Corporate Prosecutions states that ‘in the absence of legislation which expressly creates criminal liability for companies, corporate liability may be established by
• Vicarious liability for the acts of a company’s employees/agents; and (ii) Non-vicarious liability arising from the so-called “identification principle”.
• The identification principle requires identifying and establishing a directing mind and will of the company, and then proving corporate criminal liability through his/her conduct and state of mind. It applies to all types of offences, including ML.
4. This notwithstanding, from the materials provided by the UK, it seems that the positions that are considered as representing a company’s directing mind and will are limited to the Board of Directors and, at most, those occupying the immediate next level of control/representation/decision-making.
5. Thus, while it may be said that all three elements referred to in Article 10(1) are covered in terms of control, decision-making and representation, the UK adopted more restrictive position than the Convention as to who may be considered as exercising a leading role within corporate entities - this is acknowledged in the Crown Prosecution Guidelines as well as the Law Reform Commission’s Discussion Paper.
6. This approach creates certain repercussions with respect to the so-called inchoate offences.
7. Through the application of the identification doctrine, these offences would equally find application in the context covered by the Convention but there would be a restricted application due to the issue highlighted above.

Article 10(2) 2.

1. The authorities advised that the compliance with the supervision liability provision under Article 10(2) is achieved through reliance on corporate civil liability and property recovery proceedings under Part 5 of the Proceeds of Crime Act 2002 (‘Civil recovery of the proceeds etc. of unlawful conduct’). Where there is a lack of supervision by the legal person, the UK has 48 taken the position that this is a civil matter and can be transposed through the civil recovery provisions in Part 5 of POCA. Apart from these explanations, the rapporteurs were also given an opportunity to read some of the Government’s strategic discussions and action plan vis-à-vis corporate liability. These documents appear to be giving a right direction in further legal reform in this area.
2. The key points of this reform suggest replacing the current common law rules with the legislation that would
1. (i) establish corporate criminal liability in economic crime cases arising from complicity of persons from a much broader range of functions within a corporate management structure than the identification doctrine;
2. (ii) a new form of vicarious liability which would make a corporate body guilty, through the actions of its employees, representatives or agents, of the substantive economic crime offence without the need to prove the existence of a directing mind at the corporate centre; and
3. (iii) failure to prevent an offence being committed by a company/corporation in which the prosecution is required to prove not only the occurrence of the predicate offence but also the failure on the part of the management of the company to prevent the offence by, for example, failing to put in place any procedures designed to prevent such offending. The points raised in this document further confirm that, at the moment, common law rules do not sufficiently regulate the matter vis-à-vis the requirements of Article 10 (1 and 2).
3. Whilst some requirements of Art.10(1) are applicable in UK, elements such as involvement of a natural person (as referred to in Art.10(1)) as accessory or instigator and situations where lack of supervision or control by natural person who has a leading position in the legal person has made possible the commission of the criminal offences, are yet to be incorporated in the UK legislation.

Effective implementation

1. In their responses to the Questionnaire, authorities did not provide statistics neither case law.
2. Consequently, it cannot be concluded that there is an effective implementation of Art.10 in the UK.

Conclusion/Recommendation

1. Although the UK introduced the liability of legal persons for ML offences which features some requirements of Art. 10(1), concerns still remain with regard to who may be considered as exercising a leading role within corporate entities.
2. In view of that, legislation needs to be reformed and thus include the missing elements of
• Art.10(1) – transposition of Convention requirements with regard to who has a leading position within a legal person. In addition, liability of legal persons in cases of involvement of natural person (as referred under Art.10(1)) as accessory or instigator needs to be included in the legislation.
• Art.10(2) requirements – a lack of supervision or control by natural person who has a leading position in the legal person has made possible the commission of the criminal offences – these elements should also be included in the legislation.

https://rm.coe.int/c198-cop-2021-6prov-hr-art10-final/1680a53db0

*The Council of Europe

The Council of Europe has urged 14 of its member states to strengthen their anti-money laundering laws to ensure they meet the requirements of its 2005 convention on money laundering, proceeds of crime and financing of terrorism, which is also known as the Warsaw Convention.

The Council is an international organisation founded after the Second World War to uphold human rights, democracy and the rule of law in Europe.

A total of 36 countries are currently signed up to the convention, including all the EU states apart from Ireland and the Czech Republic. The Council's review included a series of recommendations on how countries can improve their legislation to make it easier to hold companies accountable for money laundering.